-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GKn0ZQCAqIJ9p6Gf+r1FKVj2dWxFWfgf1w/vgLQlEGmHiuJR8hZQXcgqixV6/1Q2 gujdcoNg9dwHtbSBnEi3MA== 0000914039-00-000080.txt : 20000314 0000914039-00-000080.hdr.sgml : 20000314 ACCESSION NUMBER: 0000914039-00-000080 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT WATER SERVICE INC / CT CENTRAL INDEX KEY: 0000276209 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 060739839 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08084 FILM NUMBER: 567348 BUSINESS ADDRESS: STREET 1: 93 W MAIN ST CITY: CLINTON STATE: CT ZIP: 06413 BUSINESS PHONE: 8606698630 MAIL ADDRESS: STREET 1: 93 WEST MAIN ST CITY: CLINTON STATE: CT ZIP: 06413 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, 1999 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 (860) 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. [ ] The aggregate market value of the registrant's voting Common Stock, computed on the price of such stock at the close of business on March 1, 2000 is $142,428,000. 4,828,075 NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, MARCH 1, 2000 (EXCLUDING 15,748 COMMON STOCK EQUIVALENT SHARES) DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH DOCUMENT DOCUMENT IS INCORPORATED -------- ---------------------------- Definitive Proxy Statement, dated March 18, Part III 2000, for Annual Meeting of Shareholders to be held on April 28, 2000.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS a. GENERAL DEVELOPMENT OF BUSINESS The Registrant, Connecticut Water Service, Inc. (the Company), is the parent company of three regulated water companies, which generate over 95% of the Company's consolidated net earnings. Our water companies supply water for residential, commercial, industrial and municipal purposes in 39 towns throughout the State of Connecticut. The Company and its subsidiaries represent the second largest investor-owned water system in Connecticut measured by 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 The Connecticut Water Company. The Company is a non-operating company whose income is derived from the earnings of its subsidiary companies. In addition to our core regulated water business, we offer related services on a contract basis to other water utilities, communities, businesses and homeowner associations through our unregulated subsidiary companies and through a joint venture we formed in 1999 with a pump service provider. These services range from one-time contracts for a particular service to long-term assignments for system operation and management. We are also engaged in selling off our limited excess real estate holdings. The Company's six wholly owned subsidiary companies are: The Connecticut Water Company (Connecticut Water) The Gallup Water Service, Incorporated (Gallup) The Crystal Water Company of Danielson (Crystal) Crystal Water Utilities Corporation Chester Realty, Inc. Connecticut Water Utility Services, Inc. Gallup and Crystal Water Utilities (along with its subsidiary Crystal) were acquired in 1999. Both of these acquisitions were treated as "pooling of interests" so all of the Company's financial statements have been restated from what was reported in the past to include the results of the acquired companies for all periods presented. The Company's consolidated financial statements now encompass all six of the Company's subsidiaries. In 1999 we formed a joint venture with Hungerfords, Inc., a pump service provider, which has been in business in Connecticut for over 75 years. Hungerfords installs and maintains potable water and wastewater systems for commercial, industrial and residential customers in the state. Our three year joint venture, named Hungerfords/Connecticut Water, will engage in a marketing and management strategy designed to boost our two companies' presence by collectively offering a full range of services to water users in the state. If specific financial targets are met, our Company will purchase Hungerfords in 2002. 1 3 b. GENERAL DESCRIPTION OF BUSINESS The Company, a Connecticut corporation, owns all of the outstanding stock of Connecticut Water, Gallup, Crystal Water Utilities Corporation, Chester Realty and Connecticut Water Utility Services. The Crystal Water Utilities Corporation owns all of the outstanding stock of the Crystal Water Company. Substantially all of the Company's revenues and operating income are attributable to the sale and distribution of water. In 1999 $.04 a share or approximately 2.6% of the Company's consolidated net income came from real estate sales and non-water sales earnings. See "Business -- Consolidated Operating Statistics". Connecticut Water, Crystal and Gallup are specially chartered by the General Assembly of the State of Connecticut as public service companies. As public service companies, their rates and operations are regulated by the Connecticut Department of Public Utility Control (DPUC). See "Business -- Rates" and "Business -- Regulation". Chester Realty was organized in 1969 to assist Connecticut Water in the acquisition of real estate. The assets and operations of this company are not significant. In 1999 the ownership of this company was transferred directly to the Company from Connecticut Water. In 1999, Connecticut Water Utilities Services was established to handle our unregulated business activities. By forming a separate company to handle these transactions we were able to move these transactions off the books of Connecticut Water. By removing these transactions from the oversight of the regulated arena, this new structure should give us more flexibility in the way we respond to changing market conditions and needs. Crystal Water Utilities is a holding company, owning 100% of the outstanding common stock of Crystal. In addition, it owns some rental properties. The assets and operations of this company other than its ownership of Crystal is not significant. Our three water companies supply water and, in most instances, provide fire protection in all or portions of 39 towns in Connecticut. The service areas have an estimated total population of approximately 243,000 based on DPUC population estimates of 3.5 people per average household. During the twelve months ended December 31, 1999, approximately 64% of the Company's consolidated operating revenues were received from residential customers, 12% from commercial customers, 4% from industrial customers, 3% from public authority customers, and 17% from public fire protection and other customers. Each of our water companies serve a separate franchise area. Rates are different for each company. The systems of the three water companies are not physically interconnected. 2 4 The following table sets forth the percentage of the Company's net utility plant for each of its water companies as of December 31, 1999:
UTILITY PLANT COMPANY DOLLARS PERCENT - ------- ------------ ------- Connecticut Water $172,094,000 95% Crystal 7,779,000 4% Gallup 1,469,000 1% ------------ --- $181,342,000 100% ============ ===
At December 31, 1999, our three water companies served a total of 69,474 customers. At that date, all customers were metered except fire protection customers, 402 customers of Connecticut Water's Sound View Water System, acquired in 1995; and 379 customers of its Point O'Woods Water System, acquired in 1997. The water companies require all applicants for new service, other than customers at certain seasonal systems and fire protection customers, to be metered. The Company's principal office is located at 93 West Main Street, Clinton, Connecticut 06413, and its telephone number is 860-669-8636. Our business is subject to seasonal fluctuations and weather variations. 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, and various outdoor uses such as private and public swimming pools and lawn sprinklers. From year to year and season to season, particularly during the warmer months, demand will vary with rainfall and temperature levels. The profitability of the operations of the water utility industry generally and of our three water companies (and hence the Company) is largely dependent on the timeliness and adequacy of the rates allowed by utility regulatory commissions. In addition, profitability is dependent on numerous factors over which we have little or no control, such as the quantity of rainfall and temperature in a given period of time, and compliance with environmental and water quality regulations. In addition, inflation and other factors beyond our control impact the cost of construction, materials and employee costs. See "Business -- Financing", "Business -- Rates", and "Business -- Regulation". Water Supply The estimated minimum dependable yields of sources of water supply for each of our transmission and distribution systems, as set forth under "Business -- Production Facilities as of December 31, 1999" are in excess of present average daily consumption. Except for requests for voluntary conservation in the summers of 1988, 1995 and 1999, no restrictions on water use have been required in over 25 years. Water is secured from both surface and subsurface supplies and supplied through interconnections with other water systems. In 1999, approximately 1% of our water was supplied through our interconnections with other companies. Of the water supplied by our 3 5 sources, surface sources provided approximately 50% of the supply, and well supplies provided 50%. Studies are made periodically to determine the supply and distribution needs. Major studies, covering a fifty-year planning period required of all water companies supplying 1,000 or more persons, were completed by our three water companies and submitted to the Connecticut Department of Public Health (DPH) for approval. An updated plan must be prepared every five years or as requested by the DPH. Updated plans for each of our water systems have been prepared and approved by the DPH. We will continue to explore and develop additional ground water supplies and study further development of surface water sources in anticipation of meeting future water requirements. See "Business -- Construction Program", "Business -- Rates" and "Business -- Regulation". Information on our water systems, broken down by company, and for Connecticut Water into its three operating regions is as follows: CONNECTICUT WATER'S NORTHERN REGION Connecticut Water's Northern Region is composed of eight separate systems, as listed below:
NUMBER OF CUSTOMERS SYSTEM TOWNS (OR PORTIONS THEREOF) SERVED AT 12/31/99 - ------ ---------------------------------- ----------- Western (including the former Tolland Suffield, Windsor Locks, East 29,878 Aquaduct System) Granby, Enfield, East Windsor, South Windsor, Vernon, Ellington, Tolland Somers Somers 420 Crescent Lake Enfield 161 Stafford Springs Stafford 1,016 Lakewood/Lakeview Coventry 177 Nathan Hale Coventry 40 Llynwood Bolton, Vernon 75 Reservoir Heights Vernon 21 ------ 31,788 ======
The territory served is primarily residential and commercial with some industry. Connecticut Water has entered into an agreement with the State of Connecticut, Department of Transportation, pursuant to which Connecticut Water operates and maintains, as part of its Western System, the State's water distribution system for Bradley International Airport located in Windsor Locks, Suffield and East Granby, Connecticut. 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 4 6 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. During 1995 an interconnection was completed between the Somers System and the water system of the Hazardville Water Company in Somers to provide water to the Hazardville Water Company. See "Business -- Franchises" with respect to proposals that the MDC expand its operations into the Northern Region and that MDC take over Connecticut Water's operations in South Windsor. CONNECTICUT WATER'S SHORELINE REGION Connecticut Water's Shoreline Region is composed of eight separate systems, as listed below:
NUMBER OF CUSTOMERS SYSTEM TOWNS (OR PORTIONS THEREOF) SERVED AT 12/31/99 - ------ ---------------------------------- ----------- Guilford Guilford, Old Saybrook, Westbrook, 16,002 Clinton, Madison Chester Chester, Deep River, Essex 2,326 Chester Village West Chester 11 Sound View Old Lyme 402 Point O'Woods Old Lyme 379 Bay Mountain Griswold 106 SDC Voluntown 54 Mason's Island Stonington 177 ------ 19,457 ======
The territory served is primarily residential with some commercial and industry. In 1998 Connecticut Water purchased the Mason's Island system and in 1997 purchased the Point O'Woods, Bay Mountain, and SDC water systems, all in southeastern Connecticut. These systems increased the region's water customer base by nearly 4%. 5 7 CONNECTICUT WATER'S NAUGATUCK REGION Connecticut Water's Naugatuck Region is composed of four separate systems, as listed below:
NUMBER OF CUSTOMERS SYSTEM TOWNS (OR PORTIONS THEREOF) SERVED AT 12/31/99 - ------ ---------------------------------- ----------- Central Naugatuck, City of Waterbury, 8,885 Beacon Falls, Bethany, Prospect Terryville Plymouth, Thomaston 2,048 Thomaston Thomaston 1,276 Collinsville Canton, Avon, Burlington 1,328 ------ 13,537 ======
The territory served is residential and industrial including a municipality which represented approximately 7.0% of the region's 1999 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. CRYSTAL Crystal Water Company is comprised of four separate systems, as listed below:
NUMBER OF CUSTOMERS SYSTEM TOWNS (OR PORTIONS THEREOF) SERVED AT 12/31/99 - ------ ---------------------------------- ----------- Crystal Brooklyn, Killingly 2,294 Plainfield Plainfield 592 Thompson Thompson 474 P&A Killingly 96 ----- 3,456 =====
Crystal's territory served is primarily residential and commercial with some industry. Crystal's largest customer, a municipality, accounts for approximately 7.5% of its operating revenue. 6 8 GALLUP Gallup is composed of three separate systems, as listed below:
NUMBER OF CUSTOMERS SYSTEM TOWNS (OR PORTIONS THEREOF) SERVED AT 12/31/99 - ------ ---------------------------------- ----------- Gallup Plainfield 1,056 Country Mobile Griswold 79 Lillibridge Plainfield 43 ----- 1,178 =====
Gallup's territory served is primarily residential and commercial with some industry. Gallup's largest customer, a municipality, accounted for approximately 11.5% of its operating revenue. 7 9 CONSOLIDATED OPERATING STATISTICS*
Year Ended December 31, 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- Customers (Average) Residential Metered 61,608 60,745 59,834 59,503 58,749 Commercial Metered 4,323 4,301 4,316 4,277 4,224 Industrial Metered 350 377 406 411 406 Public Authorities Metered 476 495 545 543 545 Fire Protection and Other 2,188 1,937 1,686 1,138 1,108 ------- ------- ------- ------- ------- Total 68,945 67,855 66,787 65,872 65,032 ======= ======= ======= ======= ======= Production (Millions of Gallons) Residential Metered Sales 4,602 4,334 4,291 4,179 4,302 Commercial Metered Sales 1,054 983 990 973 1,008 Industrial Metered Sales 475 444 490 485 485 Public Authorities Metered Sales 299 286 278 270 280 ------- ------- ------- ------- ------- Total Metered Consumption 6,430 6,047 6,049 5,907 6,075 Fire Protection, Company Use and Unaccounted For 921 798 811 682 877 ------- ------- ------- ------- ------- Total 7,351 6,845 6,860 6,589 6,952 ======= ======= ======= ======= ======= Operating Revenues (Thousands of Dollars) Residential Metered $27,077 $25,495 $25,816 $25,888 $26,463 Commercial Metered 5,160 4,820 4,890 4,931 5,109 Industrial Metered 1,850 1,747 1,962 1,960 1,967 Public Authorities Metered 1,374 1,208 1,218 1,216 1,247 Fire Protection and Other Non-Metered 7,163 7,033 7,031 7,019 6,901 ------- ------- ------- ------- ------- Total $42,624 $40,303 $40,917 $41,013 $41,687 ======= ======= ======= ======= ======= Average Revenue per 1,000 Gallons Residential Metered $ 5.88 $ 5.88 $ 6.02 $ 6.19 $ 6.15 Commercial Metered $ 4.90 $ 4.90 $ 4.94 $ 5.07 $ 5.07 Industrial Metered $ 3.89 $ 3.93 $ 4.00 $ 4.04 $ 4.05 Public Authorities Metered $ 4.60 $ 4.22 $ 4.38 $ 4.50 $ 4.45 Miles of Distribution Mains (End of Period) 1,109 1,094 1,079 1,062 1,058
- --------------- * The numbers for years 1995 - 1998 have been restated to include the operations of Gallup and Crystal, which were acquired in 1999. 8 10 CONSTRUCTION PROGRAM We annually project our capital expenditures for the upcoming three year period. These projections 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 current estimate of the total cost of our construction program for 2000-2002, excluding plant financed by customer advances and contributions in aid of construction, aggregates approximately $22,500,000. Of this amount, routine improvements to water systems and equipment total approximately $10,500,000, while the remaining $12,000,000 is comprised of individual larger projects addressing the replacement and expansion of infrastructure, water treatment facilities, and increased storage capacity. No significant capital expenditures are anticipated to be required by any of our non-utility subsidiaries during this period. The $22,500,000 estimate includes approximately $2,000,000 for all known costs of studies and construction of facilities to comply with existing Safe Drinking Water Act (SDWA) and OSHA 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 may be required due to changes to the SDWA, are excluded. FINANCING The Company expects to finance a significant portion of the anticipated $22,500,000 construction expenditures through 2002 with net funds generated from operations (net cash provided by operating activities less dividends paid). Net funds generated from operations were $8,447,000, $6,762,000, and $9,231,000, for the years 1999, 1998 and 1997, 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 short-term interim bank loans which may be refinanced through the sale of Preferred Stock and/or long or medium-term unsecured or secured debt and/or the sale of Common Stock when financial market conditions are considered favorable. The Company's subsidiaries are expected to receive the proceeds of any such financing by the Company in the form of advances or capital contributions. We currently have lines of credit aggregating $9,000,000, consisting of conventional lines of credit with three banks. We consider this amount adequate at this time. As of December 31, 1999, we had $2,411,000 of borrowings outstanding under these lines of credit plus $245,000 allocated to secure a Letter of Credit for one of our real estate development projects. RATES The rates of our three water companies are established under the jurisdiction of, and approved by, the DPUC. It is the Company's policy to seek rate relief as necessary to enable us to achieve an adequate rate of return. 9 11 The last general rate increase of Connecticut Water, our largest water company, was requested in 1990 and became effective March 25, 1991 based upon an allowed rate of return of 12.7% on common stock equity and 10.74% on rate base. During 1997 this rate decision was reopened for the limited purpose of flowing through to customers cost savings related to a reduction in state taxes and to allow the water company to collect FAS 106 (Postretirement Benefits other than Pension) costs in rates. Overall the water company's rates were reduced approximately 4 1/2% in 1997 due to these limited reopened rate proceedings. Crystal Water Company's last general rate increase was effective March 31, 1995 and was based upon an allowed rate of return of 12.35% on common stock equity and 10.16% on rate base. During 1997, this rate decision was also reopened for the limited purpose of flowing through to customers cost savings from a reduction in state taxes. Crystal's rates were reduced 5%, effective July 1, 1997 due to this reopener. Gallup's last general rate increase was effective January 1, 1994. Gallup's rates were not based on rate of return or rate base methodology, but rather based on its net income requirement. Similar to those for our other two water companies, Gallup's rates were reduced 5%, effective July 1, 1997 to flow through a reduction in state taxes to customers. We do not expect to file for a general rate increase for any of our water companies in 2000. The DPUC allows 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. We have, in the past, been allowed to collect these surcharges from our customers. We expect 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 DPH, 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. If appropriate, we will apply for the application of such a surcharge with respect to any mandated water system acquisition. Although there is no assurance that such a surcharge will be permitted, such a surcharge was permitted in 1995 when the DPUC and DPH ordered Connecticut Water to acquire the assets and facilities of the Sound View Water Company in Old Lyme. In 1993 the DPUC approved regulations which would permit a water company to apply for a limited rate adjustment to compensate for the effect of changes in certain costs. These costs include rate changes related to the cost of purchased water, energy, and taxes. The effects of limited reopened rate proceedings in 1997 is discussed above. We will apply 10 12 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 Connecticut legislation dealing with the competitiveness of water rates. FRANCHISES AND COMPETITION Legislation was passed in 1994 by the Connecticut General Assembly that required 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. If the DPUC makes such a finding and also concludes that the water company is unable or unwilling to provide service at a reasonable cost to customers, it may order the provision of such service or revoke the franchise held by such company. We believe that, in light of the tax and other advantages of governmentally-owned entities which are not available to Connecticut Water and our two other water companies, their rates are not excessive and we would vigorously oppose any such attempt to revoke their franchises. The Metropolitan District Commission (MDC) is a legislatively authorized quasi-government agency providing primarily water and sewer service in and around the city of Hartford and within and/or adjacent to towns in Connecticut Water's Northern Region. MDC's water rates are substantially lower than those of Connecticut Water, primarily because MDC is a tax-exempt entity, generally serving a denser population with fewer sources of supply and treatment facilities. Legislation has been proposed at various times in the past 25 years that would have the effect of permitting MDC to purchase the water company operations of Connecticut Water in South Windsor, a town which is presently served by both MDC and Connecticut Water. The Company has opposed and will continue to oppose such legislation vigorously each time and to date no such legislative proposals have passed in the General Assembly. It is not clear, at this time, whether similar legislation will be introduced or adopted by the General Assembly. It is also possible that any legislation in this area could be written in a manner which would permit a similar acquisition of Connecticut Water's water operations in towns other than South Windsor. 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 our three water companies 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, 1999, Connecticut Water's Northern Region, which includes customers in the towns mentioned above, represented approximately 50% of Connecticut Water's utility plant. Further, if such legislation were introduced, the amount of compensation to be received by Connecticut Water for its assets cannot be determined at this time. 11 13 The issues relating to water rates and service areas for customers served by privately-owned or publicly-owned water utilities have been studied more than once by legislatively established task forces as well as by the Legislature's Program Review and Investigations Committee. These studies have generally concluded that there are reasons for the differences in rates between public and privately owned water utilities and to date the legislature has not intervened regarding Connecticut Water's service area. In common with most water companies in Connecticut, our three water companies derive their 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 our water companies in their respective service areas. 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 their charters, our three water companies have, with minor exceptions, valid franchises free from burdensome restrictions and unlimited as to time, and are authorized to sell potable water in the towns (or parts thereof) in which water is now being supplied. In addition to the right to sell water as set forth above, the franchises of our three water companies 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, our three water companies, 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 the affected company to supply potable water for public or domestic use in its franchise areas. Our water companies face competition, presently not material, from a few private water systems operated within, or adjacent to, their franchise areas and from municipal and public authority systems whose service areas in some cases overlap portions of Connecticut Water'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 our water companies 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. REGULATION DEPARTMENT OF PUBLIC UTILITY CONTROL (DPUC) Our three water companies are subject to regulation by the Connecticut DPUC, which has jurisdiction over rates, standards of service, accounting procedures, issuance of 12 14 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 ours. Such audits might result in the DPUC ordering implementation of new management practices or procedures. The DPUC has not conducted any such audit of any of our companies. Connecticut Water Service, the parent holding company, is not an operating utility company. It is not a "public service company" within the meaning of the Connecticut General Statutes and is not generally subject to regulation by the DPUC. 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, our water companies are 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. We have obtained, or applied for, and complied with the terms of, all such requisite permits or approvals. 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 us in the future would require compliance with a lengthy permit application process and approval by the Commissioner. Our water companies have 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 Connecticut Water and Crystal diversions have been registered, and the Gallup diversions have a permit application pending at DEP. 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, and have been interpreted by DEP to require diversion permits in situations which the Company believes were not intended by the legislation. It is not possible at this time to fully assess the impact of DEP's application of this legislation and the DEP regulations on our water companies and their operations, but 13 15 such impact may be significant and adverse, particularly on sources held for future use or acquired sources which may not have been properly registered. 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. Our water companies have received all such requisite permits. A new general permit and permit renewal program for water treatment waste water discharges was adopted by DEP in 1995. We are in compliance with the new program. All of Connecticut Water's dams were registered with the Connecticut DEP as required by state statute. Crystal has two dams registered with the Connecticut DEP and one small structure that was acquired in the 1998 acquisition of the Powdrell and Alexander Memorial Water Association, Inc. in Killingly that was not registered by the previous owner. The DEP has issued a maintenance request for minor work at one of the registered dams, which Crystal will complete in year 2000. Expect for this item, there are no outstanding orders on either of the registered dams and Crystal is taking the initial steps to register the third structure. Gallup does not have any dams. While we recognize that a certain degree of risk is attached to ownership of dams in connection with our water companies' water collection systems, we believe that all of our dams are well maintained and are structurally stable. The DEP has promulgated regulations requiring that certain minimum flows be maintained in various waterways within the State of Connecticut. Pursuant to said regulations, our water companies are exempt from compliance at certain of our 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 certain of our sources. The cost to restore the lost safe yield is not now determinable but could be substantial. DEPARTMENT OF PUBLIC HEALTH (DPH) Our water companies are also subject to regulation by the Connecticut DPH 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 DPH 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 DPH to administer procedures designed to coordinate the comprehensive planning of public water systems. The 14 16 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. DPH 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 DPH's role) for the centralized planning of water supply. In implementing this legislation, DPH 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 our water companies, which cover many areas of the state, fall within five of the seven management areas. We are actively involved with the planning process in three of these management areas at this time. The remaining two areas of our 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. SAFE DRINKING WATER ACT (SDWA) Our water companies are 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 for, among other things, certain organic and inorganic chemical contaminants, pesticides, turbidity, microbiological contaminants, and radioactivity. The SDWA provides that the states have primary enforcement responsibility for public drinking water systems, so long as the states' regulations are no less stringent than those adopted pursuant to the SDWA. The DPH has adopted regulations which are in some cases more stringent than the Federal regulations. The SDWA was originally enacted in 1974 with major amendments in 1986 and 1996. The original SDWA authorized EPA to establish 22 interim standards for drinking water contaminants between 1977 and 1986. The 1986 SDWA amendments dictated that 83 primary drinking water standards be established within three years and an additional 25 contaminants be regulated every three years thereafter. EPA promulgated the Surface Water Treatment Rule (SWTR), the Lead and Copper Rule and the Total Coliform Rule (TCR) as well as establishing standards for various volatile and synthetic organic contaminants and inorganic contaminants pursuant to the 1986 SDWA amendments. Our water companies were in compliance with each of these rules from the time they became effective and continue to be in compliance. 15 17 At the time that the 1996 SDWA was reauthorized there were still several schedules for establishment of various regulations required by the 1986 amendments in process. The 1996 SDWA changed these schedules. The new law also eliminated the requirement to regulate 25 new contaminants every three years and replaced it with a requirement that the EPA consider five new contaminants for regulation every five years. The law also changed the basis for setting regulations to consider the costs and benefits of new regulations and to show that new regulations improve public health. The first regulations to be promulgated under the 1996 SDWA are the Stage I Disinfectant and Disinfection Byproducts (D/DBP) and Interim Enhanced Surface Water Treatment Rules. Both of these regulations were promulgated in December 1998. The Stage II D/DBP rule is scheduled to be promulgated in 2002 while the Long Term Enhanced Surface Water Treatment Rule (LTESWTR) will be promulgated in 2000. The Filter Backwash Recycle Rule is scheduled to be promulaged with the LTESWTR. Standards for radionuclides, including radon, are expected to be finalized in 2000, as is the Ground Water Disinfection Rule. A standard for arsenic is planned to be promulgated by 2001. A decision to regulate sulfate must be made by EPA by 2001. If the decision is to regulate, then the final rule must be complete by 2005. Finally, the first five contaminants that EPA must consider for regulation must be selected in 2001. Those that are regulated will be completed by 2003. Through December 31, 1999, the Company has expended approximately $49,275,000 in constructing facilities and conducting aquifer mapping necessary to comply with the requirements of the SDWA of which $11,775,000 was expended during the last 5 years. We believe that our three water companies are in substantial compliance with regulations promulgated by the EPA and DPH, as currently applied. Connecticut's aquifer protection legislation not only requires aquifer mapping, but also requires DEP, in consultation with DPH 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 the wellfields of its water companies is not known at this time. The Company anticipates spending an additional $2,700,000 on required aquifer mapping. Although the Company cannot predict either the substance of the regulations required by the 1996 SDWA amendments which have not yet been promulgated or their impact on us, the primary impact on our water companies is expected to be in the area of increased monitoring and reporting, although it is possible that such regulations may require us to make modifications to existing filtration facilities. Construction of new facilities may be required for certain groundwater sources. It is possible that costs of compliance could be substantial. DISPOSITION OF PROPERTY Although our water companies have established a program of selling various, relatively small, discrete parcels of land over the next several years, the total of which is less than 16 18 700 acres (350 owned by Connecticut Water and 350 owned by Crystal), we have no other significant amounts of excess land which we expect to sell or otherwise dispose of. Connecticut law presently imposes the following restrictions upon the disposition of property owned by water companies: (a) no property greater than three acres or any portion of a large parcel or having a value of greater than $50,000 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 DPH; (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 DPH to seek to acquire such source; (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) 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 (f) 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. Our capital gains on sales of property before income taxes totaled $161,000 in 1999, $475,000 in 1998 and $184,000 in 1997. Consistent with the 1988 legislation, the DPUC requires that benefits of the gains pertaining to property previously in the utility's rate base be allocated between the water customers and its stockholders. There has been significant interest in recent years from environmental groups, the communities where our excess lands are located, and certain legislators to attempt to maintain these lands as protected open space. Thus far, measures have focused primarily on ensuring the land sale process, established through the DPUC and DPH regulations provides adequate notice and opportunities for the state, municipalities and non-profit land holding organizations to purchase the properties before they are sold for development. Additionally, legislative initiatives have been proposed to provide tax incentives to encourage water utilities to donate or sell these parcels at a discount to such organizations. Concerns have been raised recently regarding whether the sale of a large private water company in the state with significant land holdings to an international organization will result in accelerated disposition of their lands and limited opportunities for acquisition for public open space. As the attention is focused on this matter, it is possible that there may be initiatives in this session of the General Assembly to restrict or prohibit the sale of utility lands for a period of time until the state may further study the issue and/or generate additional funding mechanisms to allow for purchase by the state, towns or non-profit land holding organizations. Connecticut Water will work vigorously to see that any such 17 19 legislation includes measures that would effectively avoid or minimize the impact on any immediately pending land sales. The likelihood that such measures will be passed by the General Assembly or the impact that such legislation would have on the Company is not clear, at this time. The impact could be significant, however, if it had the effect of a total moratorium on water company land sales, without exceptions that would allow for pending land sales to proceed. GENERAL Federal and State regulations and controls concerning environmental matters, 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 effect of existing and potential regulations and legislation upon any of the existing and proposed facilities and operations of our water companies. 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 us to replace or modify all or portions of our various water supplies, to develop replacement supplies and/or to implement new treatment techniques. In addition, we anticipate that environmental concerns including threatened and actual contamination of our water sources will become an increasing problem in the future. We have expended and will in the future be required to expend substantial amounts to prevent or remove contamination or to develop alternative water supplies. Any of the aforesaid developments may significantly increase our operating costs and capital requirements. Since the DPUC's rate setting methodology permits utilities to recover through rates prudently incurred expenses and investments in plant, based upon past DPUC practice, we expect that these expenditures and costs will ultimately be recovered through rates for water service. EMPLOYEES The Company has no employees and no subsidiaries have employees except for our water companies. The following table lists the number of employees of our water companies as of December 31, 1999:
NUMBER OF COMPANY EMPLOYEES - ------- --------- Connecticut Water 157 Crystal 7 Gallup 4 --- Total 168 ===
The Company's officers are also officers of Connecticut Water and their compensation is paid by Connecticut Water. All full-time employees of Connecticut Water and Crystal who meet specified age and length of service requirements participate in their respective Employee's Retirement Plans which are non-contributory trusteed pension plans providing 18 20 for a monthly income for employees at retirement. None of the Company's employees are covered by a collective bargaining agreement. We believe that our relationship with our employees is satisfactory. ITEM 2. PROPERTIES The properties of our water companies 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. Our water companies own their principal properties in fee, except that Connecticut Water's Collinsville System's principal source of water supply is a water supply contract with the MDC. (See below for description of this contract.) We believe that our 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 we own 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 our easements 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 our business. Substantially all of Connecticut Water's property is subject to the lien of its Mortgage Indenture securing its First Mortgage Bonds. Connecticut Water owns twelve water filtration facilities which are listed below. Gallup and Crystal do not have, nor require, water filtration facilities.
YEAR TREATMENT CAPACITY FILTRATION PLACED IN (IN MILLION FACILITIES OPERATION REGION GALLONS PER DAY) - ---------- --------- --------- ------------------ Connecticut Water 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 Windsor Locks 1988 Northern 0.30 Stewart 1989 Naugatuck 6.00 O'Bready Well 1994 Northern 0.50 Clinton Well 1997 Shoreline 1.00
Connecticut Water has an agreement with the MDC, which provides, among other things, for the operation and maintenance by MDC of a filtration plant (completed in 19 21 1990) to supply treated water for substantially all of Connecticut Water's Collinsville System, with a capacity of 650,000 gallons per day, and the provision by MDC to the Collinsville System of up to 650,000 gallons per day of water from this plant meeting all applicable Federal and State requirements. Connecticut Water paid 40% of the cost to construct this plant and pays MDC an appropriate rate for water used in excess of 400,000 gallons per day. As of December 31, 1999, the transmission and distribution systems of our three water companies consisted of approximately 1,109 miles of main, of which approximately 76 miles have been laid or acquired in the past five years. On that date, approximately 75% of our 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 107 miles of our pipelines are asbestos cement. From January 1, 1995 through December 31, 1999, our water companies have expended $53,793,000 on gross plant additions (including plant financed by customer advances and contributions in aid of construction, allowance for funds used during construction and expenditures reimbursed by any other sources), and have retired or sold property having a book value of $2,474,000, resulting in net additions during the period of $51,319,000. 20 22 PRODUCTION FACILITIES AS OF DECEMBER 31, 1999
TOTAL DEPENDABLE GREATEST 1999 STORAGE YIELD(1) AVG. DAILY AVG. DAILY CAPACITY (THOUSANDS DELIVERY DELIVERY (THOUSANDS OF GALLONS (THOUSANDS (THOUSANDS CONNECTICUT WATER 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 Tolland Aqueduct Wells(16) 42 ------ 20,752 9,167(18) 9,167 ------ ----- ----- Somers System Wells 390 135(18) 135 ------ ----- ----- Crescent Lake System(4) -- 37(18) 37 ------ ----- ----- Reservoir Heights(6) -- 5(7) 4 ------ ----- ----- Stafford Springs System #4 Reservoir 51,000 #3 Reservoir 15,000 700 #2 Reservoir 60,000 ------ 700 629(8) 529 ------ ----- ----- Llynwood System Wells 30 13(3) 9 ------ ----- ----- Lakewood/Lakeview System Wells 49 30(5) 23 ------ ----- ----- 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) 3,505 ------ ----- ----- 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) 650 ------ ----- -----
21 23
TOTAL DEPENDABLE GREATEST 1999 STORAGE YIELD(1) AVG. DAILY AVG. DAILY CAPACITY (THOUSANDS DELIVERY DELIVERY (THOUSANDS OF GALLONS (THOUSANDS (THOUSANDS CONNECTICUT WATER OF GALLONS) PER DAY) OF GALLONS) OF GALLONS) - ----------------- ----------- ----------- ----------- ----------- Chester Village West Wells 30 13(17) 10 ------ ----- ----- Sound View System Wells 182 42(17) 29 ------ ----- ----- Point O'Woods 114 43(19) 21 ------ ----- ----- Bay Mountain 56 21(19) 20 ------ ----- ----- SDC 94 8(19) 8 ------ ----- ----- Masons Island(20) -- 56(18) 56 ------ ----- ----- 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) 2,865 ------ ----- ----- Terryville System Harwinton Ave. Reservoir(11) 14,800 50 Wells 910 ------ 960 498(2) 480 ------ ----- ----- Thomaston System Thomaston Reservoir(11) 93,000 310 Wells 1,080 Waterbury Interconnection(12) 864 ------ 2,254 852(14) 391 ------ ----- ----- Collinsville System Water Acquired by Contract(15) 650 Reservoir (distribution) 100 ------ 650 403(18) 403 ------ ----- ----- CRYSTAL Crystal System 3,650 997(21) 997 ------ ----- ----- Plainfield System 990 237(21) 237 ------ ----- ----- Thompson System 290 177(21) 177 ------ ----- ----- P&A System Reservoir 1,500 0 Wells 86 ------ 86 32(21) 32 ------ ----- -----
22 24
TOTAL DEPENDABLE GREATEST 1999 STORAGE YIELD(1) AVG. DAILY AVG. DAILY CAPACITY (THOUSANDS DELIVERY DELIVERY (THOUSANDS OF GALLONS (THOUSANDS (THOUSANDS OF GALLONS) PER DAY) OF GALLONS) OF GALLONS) ----------- ----------- ----------- ----------- GALLUP Gallup System 800 309(21) 309 ------ ----- ----- Country Mobile System 67 8(21) 8 ------ ----- ----- Lillibridge System N/A 16(21) 16 ------ ----- -----
- --------------- (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) Occurred in 1995. (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. (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. (16) Connected to Northern Region, Western System on August 9, 1995. (17) Occurred in 1996. (18) Occurred in 1999. (19) Occurred in 1998. (20) Supplied by water purchased from Connecticut-American Water Company, Mystic Division. (21) Historical data before 1999 is not available. 23 25 ITEM 3. LEGAL PROCEEDINGS There are no pending legal matters, other than ordinary, routine litigation incidental to the business to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 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 Connecticut Water in 1975, the Company has paid quarterly cash dividends on its Common Stock.
PRICE ------------------ DIVIDENDS PERIOD HIGH LOW PAID* - ------ ------- ------- --------- 1999: First Quarter $27.750 $23.750 $.29333 Second Quarter 29.250 19.000 .29333 Third Quarter 37.000 28.500 .29666 Fourth Quarter 37.000 27.875 .29666 1998: First Quarter $23.000 $20.000 $.29000 Second Quarter 24.000 21.420 .29000 Third Quarter 24.420 22.917 .29333 Fourth Quarter 28.375 25.000 .29333
* Excluding effect of the 1999 Gallup and Crystal mergers. As of March 1, 2000 there were approximately 5,200 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 its subsidiaries, the financial condition of the Company and its subsidiaries, the ability of its subsidiaries to pay 24 26 dividends to the Company, the ability of the Company and the subsidiaries to sell their securities, the requirements of the construction programs of our water company subsidiaries 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. The Company has a Dividend Reinvestment and Common Stock Purchase Plan. Under the plan, customers and employees of Connecticut Water 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 and may also make optional cash payments of up to $1,000 per month to purchase additional shares of Common Stock. The Company may issue authorized but unissued shares of Common Stock to meet the requirements of the plan, or buy the shares on the open market at its discretion. 1,500,000 shares have been registered with the Securities and Exchange Commission for that purpose. Under the plan, approximately 1,170,000 shares had been issued by the Company as of December 31, 1999. Since the third quarter of 1996, the Company has been buying shares on the open market to satisfy Plan requirements. The Company has a Performance Stock Program that provides for shares of Common Stock of the Company to be issued as awards of restricted stock to eligible employees of Connecticut Water, conditioned on the attainment of performance goals established by the Compensation Committee. Under the plan 54,104 shares, 6,088 of which are restricted, and 13,357 of which are common stock equivalent shares had been issued by the Company as of December 31, 1999. In 1999 the Company's shareholders approved an amendment to our Performance Stock Program allowing the Company to issue stock options to officers and key employees. The total number of shares authorized for both the Performance Stock Program and the Stock Option Plan was set at 300,000 shares. In 1999, options for 127,723 shares were granted. These options were granted at the market price when granted which was $22.25 for 75,150 of the shares, and $33.50 for the other 52,573 shares. None of these shares were exercisable in 1999. One fifth of these shares, or 25,544 become exercisable each year over the next five years, starting in 2000. The Company has an Employee Savings 401-K Match Plan for Connecticut Water employees. Under the Plan approximately 20,550 shares of Common Stock had been issued by the Company as of December 31, 1999. On August 12, 1998 the Company's Board of Directors authorized a new Shareholder Rights Plan to replace the previous Rights Plan which had been adopted in 1988 and expired on October 11, 1998. Pursuant to the new Plan, the Board authorized a dividend distribution of one Right to purchase one one-hundredth of a share of Series A Junior Participating Preference Stock of the Company for each outstanding share of the Company's Common Stock. The distribution was effected October 11, 1998. 25 27 Upon the terms of the new Shareholder Rights Plan, each Right will entitle shareholders to buy one one-hundredth of a share of Series A Junior Participating Preference Stock at a purchase price of $90, and the Rights will expire October 11, 2008. The Rights will be exercisable only if a person or group acquires 15% or more of the Company's Common Stock or announces a tender or exchange offer for 15% or more of the Company's Common Stock. The Board will be entitled to redeem the Rights at $0.01 per Right at any time before such acquisition occurs and upon certain conditions after such a position has been acquired. Upon the acquisition of 15% or more of the Company's Common Stock by any person or group, each Right will entitle its holder to purchase, at the Right's purchase price, a number of shares of the Company's Common Stock having a market value equal to twice the Right's purchase price. In such event, Rights held by the acquiring person will not be allowed to purchase any of the Company's Common Stock or other securities of the Company. If, after the acquisition of 15% or more of the Company's Common Stock by any person or group, the Company should consolidate with or merge with and into any person and the Company should not be the surviving company, or, if the Company should be the surviving company and all or part of its Common Stock should be exchanged for the securities of any other person, or if more than 50% of the assets or earning power of the Company were sold, each Right (other than Rights held by the acquiring person, which will become void) will entitle its holder to purchase, at the Right's purchase price, a number of shares of the acquiring company's common stock having a market value at that time equal to twice the Right's purchase price. ITEM 6. SELECTED FINANCIAL DATA CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES (1998 - 1995 RESTATED) SUPPLEMENTAL INFORMATION (UNAUDITED)
Years Ended December 31, SELECTED FINANCIAL DATA 1999 1998 1997 1996 1995 - ----------------------- ---------- ---------- ---------- ---------- ---------- (Thousands of dollars except where indicated) INCOME Operating Revenues $ 42,624 $ 40,303 $ 40,917 $ 41,013 $ 41,687 Operating Expenses $ 31,397 $ 29,543 $ 30,060 $ 30,274 $ 31,070 Operating Income $ 11,227 $ 10,760 $ 10,857 $ 10,739 $ 10,616 Interest and Debt Expense $ 4,526 $ 4,606 $ 4,602 $ 4,286 $ 4,305 Net Income Applicable to Common Stock $ 7,456 $ 7,136 $ 7,027 $ 6,884 $ 6,608 Weighted Average Common Shares Outstanding 4,836,951 4,827,484 4,816,753 4,788,340 4,669,960 Basic Earnings Per Average Common Share $ 1.54 $ 1.48 $ 1.46 $ 1.44 $ 1.42 Number of Shares Outstanding at Year End 4,838,794 4,828,619 4,819,970 4,810,459 4,742,470 ROE on Year End Common Equity 11.9% 11.8% 12.0% 12.2% 12.3%
26 28
Years Ended December 31, SELECTED FINANCIAL DATA 1999 1998 1997 1996 1995 - ----------------------- ---------- ---------- ---------- ---------- ---------- (Thousands of dollars except where indicated) Cash Dividends Paid Per Common Share $ 1.145 $ 1.119 $ 1.105 $ 1.082 $ 1.061 Dividend Payout Ratio 74% 76% 76% 75% 75% BALANCE SHEET Common Stockholders' Equity $ 62,495 $ 60,326 $ 58,346 $ 56,520 $ 53,695 Long-Term Debt $ 65,399 $ 65,611 $ 58,056 $ 58,034 $ 58,072 Preferred Stock (Consolidated, Excluding Current Maturities) $ 772 $ 772 $ 772 $ 772 $ 772 ---------- ---------- ---------- ---------- ---------- Total Capitalization $ 128,666 $ 126,709 $ 117,174 $ 115,326 $ 112,539 Stockholders' Equity (Includes Preferred Stock) 49% 48% 50% 50% 48% Long-Term Debt 51% 52% 50% 50% 52% Net Utility Plant $ 181,342 $ 175,723 $ 172,081 $ 162,186 $ 154,430 Book Value -- Per Common Share $ 12.91 $ 12.49 $ 12.11 $ 11.75 $ 11.32
OPERATING DATA 1999 1998 1997 1996 1995 - -------------- ------- ------- ------- ------- ------- (Thousands of dollars except where indicated) REVENUE CLASS Residential $27,077 $25,495 $25,816 $25,888 $26,463 Commercial 5,160 4,820 4,890 4,931 5,109 Industrial 1,850 1,747 1,962 1,960 1,967 Public Authority 1,374 1,208 1,218 1,215 1,247 Fire Protection 6,788 6,660 6,698 6,720 6,586 Other (including non-metered accounts) 375 373 333 299 315 ------- ------- ------- ------- ------- Total Operating Revenues $42,624 $40,303 $40,917 $41,013 $41,687 ======= ======= ======= ======= ======= Number of Customers (Average) 68,945 67,855 66,787 65,872 65,032 Billed Consumption (Millions of Gallons) 6,430 6,047 6,049 5,907 6,075 Number of Employees 168 175 176 178 179
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Overview Connecticut Water Service, Inc. (the Company) is a non-operating holding company, whose income is derived from the earnings of its six wholly owned subsidiary companies. Approximately 97% of the Company's earnings are attributable to The Connecticut Water Company, the Company's largest water utility subsidiary with approximately an additional 2% derived from the Company's two other regulated water utility companies, The Gallup Water Service, Incorporated and The Crystal Water Company of Danielson. These three companies supply water to 69,416 customers in 39 towns throughout the State of Connecticut. Each of these companies is subject to regulation by the Connecticut Department of Public Utility Control regarding financial issues, rates, and operating issues 27 29 and to various other state and federal regulatory agencies concerning water quality and environmental standards. In addition to its regulated utilities, the Company owns three unregulated companies; Chester Realty, Inc. a real estate company, Connecticut Water Utility Services, Inc. which provides contract water and sewer operations and other water related services and Crystal Water Utilities Corporation, a holding company which owns The Crystal Water Company of Danielson and 3 small rental properties. These unregulated companies currently generate 1% of the Company's total earnings. 1999 was the Company's 9th consecutive year of increased earnings and its 30th year of increased dividend payments. Regulatory Matters and Inflation The Connecticut Water Company is the Company's largest subsidiary serving 64,782 of the Company's 69,416 utility customers. Connecticut Water Company's revenues are based on regulated rates that are determined in a regulatory rate proceeding. Connecticut Water's last general rate proceeding was in 1991. The resulting rate decision granted Connecticut Water a 12.7% allowed return on common equity and a 10.74% allowed return on rate base. During 1997 this decision was reopened for the limited purposes of flowing through to customers cost savings related to a reduction in state gross earnings taxes payable by Connecticut Water and allowing Connecticut Water to collect certain costs related to postretirement benefits other than pension. Connecticut Water's rates were reduced approximately 4.5% due to the limited reopened rate proceeding. Connecticut Water's resulting reduction in revenues was offset by a corresponding reduction in its operating expenses. 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 capability. The cumulative effect of inflation results in significantly higher facility replacement costs, which must be recovered from future cash flows. The ability of the Company's water utility subsidiaries to recover this increased investment in facilities is primarily dependent upon future rate increases, which are subject to approval by the Connecticut Department of Public Utility Control. We do not presently plan to petition the DPUC for an increase in permanent rates in 2000. Future economic and financial market conditions, coupled with governmental regulations and fiscal policy, plus other factors which are unpredictable and often beyond our control, will influence when we request revisions to rates charged to our customers. Outlook The Company's profitability is primarily attributable to the sale and distribution of water, the amount of which is dependent on seasonal weather fluctuations, particularly during the summer months when water demand will vary with rainfall and temperature levels. We are continuing our expansion through acquisitions into 2000. In 1999 we signed an agreement to purchase the White Sand Beach water system in Old Lyme, Connecticut 28 30 which services 148 customers. A decision by the Department of Public Utility Control on our application to acquire White Sand is expected in March, 2000. RESULTS OF OPERATIONS 1999 Compared with 1998 During 1999 the Company acquired Gallup Water Service, Inc. and Crystal Water Utilities Corporation and accounted for these acquisitions as "pooling of interests". Financial statements have been restated to include the results of the acquired companies for all periods presented. Net income applicable to common stock for 1999 increased from that of 1998 by $320,000, or $.06 per average common share, on an increased number of common shares outstanding due primarily to the following: - Operating revenues increased $2,321,000: -- Metered revenues increased $2,191,000 or 6.6% due to customer growth which increased metered revenues approximately $530,000 or 1.6% and an extremely hot, dry 1999 summer which significantly increased our customers' water consumption. -- Non-metered revenues increased $130,000 or 1.8% primarily due to increased Public Fire Protection revenues related to our infrastructure additions upon which the revenues are based. - Operating expenses increased $1,854,000 primarily due to the following: -- Increase in Operations and Maintenance Expense primarily due to an increase in labor and benefit costs -- Increase in Depreciation Expense due to higher investment in utility plant -- Increase in Income Tax Expense primarily due to higher taxable income -- Increase in Property Tax Expense due to our higher investment in utility plant - Other income (Deductions) decreased $227,000 primarily due to lower gains on land sales and non-water sales earnings. - Interest and debt expense decreased $80,000 primarily from lower average balances of interim bank loans payable outstanding throughout 1999. 1998 Compared with 1997 Net income applicable to common stock for 1998 increased from that of 1997 by $109,000, or $.02 per average common share, on an increased number of common shares outstanding due primarily to the following: - Other income increased $210,000, or 26%, primarily due to increased profits from land sales 29 31 partially offset by - An increase in interest and debt expense of $4,000 due to a higher level of debt (long and short-term combined) outstanding in 1998 as compared to 1997. Refinancing $18,000,000 of debt in 1998 at lower interest rates minimized the overall increase in interest expense; and - A decrease in operating income of $97,000. The elimination of the Connecticut Gross Earnings Tax for water companies on July 1, 1997 and the third quarter 1997 adoption of FAS 106 for rates had no impact on operating income but did reduce both revenues and operating expenses by approximately $835,000 in 1998 as compared to 1997. (Reduction in Gross Earnings Tax of $990,000 less an increase of $155,000 in FAS 106 costs). -- Operating revenues decreased 1.5% primarily due to: X The overall 4.5% rate reduction during the second half of 1997 primarily related to the elimination of the Connecticut Gross Earnings Tax for water companies partially offset by X Increase in metered revenues due to expansion of the customer base achieved through the Company's ongoing growth strategy; and X Higher unmetered revenues due to an increasing fire protection charges related to the expansion of the water systems -- Operating expenses decreased 1.7% primarily due to: X The elimination of the Connecticut Gross Earnings Tax; and X The 1997 Early Retirement Program; and X Reduced income tax expense due to lower taxable income, a decline in the State Corporate tax rate and utilization of new State Corporate Tax Credits partially offset by X Increased operation and maintenance expense; and X Increased depreciation expense LIQUIDITY AND CAPITAL RESOURCES Interim bank loans payable at year end 1999 were $2,411,000, $516,000 higher than at the end of 1998. The Company elected not to fund any of the 1999 construction expenditures with equity funding through its Dividend Reinvestment Program (DRIP) by issuing new shares of common stock, but instead provided DRIP shares through open market purchases and negotiated transactions. We consider the current $9,000,000 line of credit with three banks adequate to finance any expected short-term borrowing requirements that may arise from operations during 2000. Interest expense charged on interim bank loans will fluctuate based on financial market conditions experienced during 2000. 30 32 The Board of Directors has approved a construction budget for 2000 of $7,445,000, net of amounts to be financed by customer advances and contributions in aid of construction. Funds provided by operating activities are expected to finance all of this construction program given normal weather patterns and related operating revenue billings. Refer to Note 10, Utility Plant and Construction Program, in Notes to Consolidated Financial Statements for additional discussion for the Company's future construction program. Y2K DISCLOSURE By the end of 1999, the Company had completed all the changes it considered necessary for its systems to handle Year 2000 issues. As of February 11, 2000, the Company is not aware of any Year 2000-related problems associated with our internal systems or software or with the software and systems of our vendors, distributors or suppliers. It is possible, however, that Year 2000-related problems could arise at a later date. There are no plans at this time to perform additional work, nor do we expect to experience any material adverse effects on our business, financial condition or results of operations from any vendor, distributor or supplier who may experience Year 2000 problems. However, because the Company's continued Year 2000 compliance in calendar 2000 is in part dependent on the continued Year 2000 compliance of third parties, there can be no assurance that the Company's efforts alone have resolved all Year 2000 issues or that key third parties will not experience Year 2000 compliance failures as calendar year 2000 progresses. The Company's costs associated with Year 2000 were approximately $300,000 in 1999. This cost was anticipated well in advance and was funded along with the other costs in our 1999 Construction Program with internally generated funds. FORWARD LOOKING INFORMATION This report contains statements which, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties. Actual results may differ materially from such forward-looking statements for reasons including, but not limited to, changes to and development in the legislative and regulatory environments or in environmental or water quality regulations affecting the Company's business, the impact of competitive services on our non-regulated operations, weather conditions, and changes in the water utility industry, as well as such other factors as set forth in this report and in the Company's other filings with the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of Connecticut Water Service, Inc. and the Notes to Consolidated Financial Statements, together with the reports of the Company's management and of Arthur Andersen LLP are included herein on page F-1 through F-26. 31 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. EXECUTIVE OFFICERS OF THE COMPANY
PERIOD HELD OR TERM OF OFFICE NAME AGE OFFICE PRIOR POSITION EXPIRES - ---- --- ---------------- ------------------- ------------------- M. T. Chiaraluce 57 President, Chief Held position of 2000 Annual Meeting Executive President since Officer and January, 1992 and Chairman of the position of Chief Board Executive Officer since July, 1992 D. C. Benoit 42 Vice Held current 2000 Annual Meeting President -- position or other Finance, Chief executive position Financial with the Company Officer and since April, 1996 Treasurer J. R. McQueen 57 Vice Held current 2000 Annual Meeting President -- position or other Engineering and management or Planning engineering position with the Company since October, 1965 T. P. O'Neill 46 Vice Held current 2000 Annual Meeting President -- position or other Operations engineering position with the Company since February, 1980 M. P. Westbrook 40 Vice Held current 2000 Annual Meeting President -- position or other Administration management position and Government with the Company Affairs since September, 1988 P. J. Bancroft 50 Assistant Held current 2000 Annual Meeting Treasurer and position or other Controller accounting position with the Company since October, 1979 M. G. DiAcri 54 Corporate Held administrative 2000 Annual Meeting Secretary position with the Company since February, 1990
32 34 There are no family relationships between any of the Directors and Executive Officers of the Company. 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 17, 2000. Information concerning the executive officers of the Company is included as Item 4.1 of this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The report of the Company's management, the report of independent public accountants and the Company's Consolidated Financial Statements listed in the Index to Consolidated Financial Statements on page F-1 hereof are filed as part of this report, commencing on page F-2.
PAGE ---- Index to Consolidated Financial Statements F-1 Report of Independent Public Accountants F-2 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 F-3 Consolidated Balance Sheets at December 31, 1999 and 1998 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-5 Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules: The following schedules of the Company are included on the attached pages as indicated:
PAGE ---- Report of Independent Public Accountants on Schedule S-1 Schedule II Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1999, 1998 and 1997 S-2
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 33 35 because the required information is set forth in the financial statements or notes thereto. 3. Exhibits: Exhibits for Connecticut Water Service, Inc are in the Index to Exhibits E-1
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. (b) Reports on Form 8-K: On October 7, 1999, the Company filed a Form 8-K dated September 29, 1999, reporting in Item 5, Other Events, that the Company had completed the pending merger with Crystal Water Utilities Corporation. 34 36 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Index to Consolidated Financial Statements F-1 Report of Independent Public Accountants F-2 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 F-3 Consolidated Balance Sheets at December 31, 1999 and 1998 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-5 Notes to Consolidated Financial Statements F-6
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-1 37 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 of Connecticut Water Service, Inc. (a Connecticut corporation) and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1999. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Connecticut Water Service, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Hartford, Connecticut February 11, 2000 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-2 38 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, (Restated) (Restated) 1999 1998 1997 ------- ---------- ---------- (In thousands except per share amounts) Operating Revenues $42,624 $40,303 $40,917 ------- ------- ------- Operating Expenses Operation and Maintenance 17,812 17,241 16,272 Depreciation 4,390 4,133 3,774 Income Taxes 5,008 4,089 4,706 Taxes Other Than Income Taxes 4,187 4,080 4,884 Organizational Charges -- -- 424 ------- ------- ------- Total Operating Expenses 31,397 29,543 30,060 ======= ======= ======= Utility Operating Income 11,227 10,760 10,857 ------- ------- ------- Other Income (Deductions) Interest 135 152 136 Allowance for Funds Used During Construction 454 476 575 Gain on Sale of Property 161 475 184 Non-Water Sales Earnings 170 247 215 Miscellaneous Income (Deductions) (70) (42) (69) Taxes on Other Income (57) (288) (231) ------- ------- ------- Total Other Income (Deductions) 793 1,020 810 ======= ======= ======= Interest and Debt Expenses Interest on Long-Term Debt 3,943 3,918 3,751 Other Interest Charges 337 472 656 Amortization of Debt Expense 246 216 195 ------- ------- ------- Total Interest and Debt Expenses 4,526 4,606 4,602 ======= ======= ======= Net Income Before Preferred Dividends 7,494 7,174 7,065 Preferred Stock Dividend Requirement 38 38 38 ------- ------- ------- Net Income Applicable to Common Stock $ 7,456 $ 7,136 $ 7,027 ------- ------- ------- Weighted Average Common Shares Outstanding: Basic 4,837 4,827 4,816 Diluted 4,848 4,827 4,816 ------- ------- ------- Earnings Per Common Share: Basic $ 1.54 $ 1.48 $ 1.46 Diluted $ 1.54 $ 1.48 $ 1.46 ------- ------- -------
The accompanying notes are an integral part of these consolidated financial statements. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-3 39 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, (Restated) 1999 1998 -------- ---------- (Thousands of dollars) ASSETS Utility Plant $240,122 $232,120 Construction Work in Progress 5,804 4,458 Utility Plant Acquisition Adjustments (1,273) (1,273) -------- -------- 244,653 235,305 Accumulated Provision for Depreciation (63,311) (59,582) -------- -------- Net Utility Plant 181,342 175,723 -------- -------- Other Property and Investments 2,747 2,628 -------- -------- Cash 1,013 372 Accounts Receivable (Less Allowance, 1999 -- $455; 1998 -- $315) 5,301 5,247 Accrued Unbilled Revenues 2,805 2,894 Materials and Supplies, at Average Cost 761 729 Prepayments and Other Current Assets 237 245 -------- -------- Total Current Assets 10,117 9,487 ======== ======== Unamortized Debt Issuance Expense 5,722 5,968 Unrecovered Income Taxes 8,843 9,859 Postretirement Benefits Other Than Pension 1,083 1,150 Other Costs 1,031 1,140 -------- -------- Total Deferred Charges and Regulatory Assets 16,679 18,117 -------- -------- Total Assets $210,885 $205,955 ======== ======== CAPITALIZATION AND LIABILITIES Common Stockholders' Equity: Common Stock without Par Value: Authorized -- 7,500,000 Shares -- Issued and Outstanding: 1999 -- 4,838,794; 1998 -- 4,828,619 $ 44,654 $ 44,403 Retained Earnings 17,841 15,923 Preferred Stock 772 772 Long-Term Debt 65,399 65,611 -------- -------- Total Capitalization 128,666 126,709 ======== ======== Interim Bank Loans Payable 2,411 1,895 Current Portion Long Term Debt 194 424 Accrued Pension Benefits 1,816 1,767 Accounts Payable 5,124 4,287 Accrued Taxes 815 770 Accrued Interest 650 1,216 Other Current Liabilities 2,864 2,538 -------- -------- Total Current Liabilities 13,874 12,897 ======== ======== Advances for Construction 15,994 15,273 -------- -------- Contributions in Aid of Construction 24,165 22,944 -------- -------- Deferred Federal Income Taxes 16,743 15,601 -------- -------- Unfunded Future Income Taxes 8,349 9,309 -------- -------- Unfunded Postretirement Benefits Other Than Pensions 1,083 1,150 -------- -------- Unamortized Investment Tax Credits 2,011 2,072 -------- -------- Commitments and Contingencies -- -- -------- -------- Total Capitalization and Liabilities $210,885 $205,955 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-4 40 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (Restated) (Restated) 1999 1998 1997 -------- ---------- ---------- (Thousands of dollars) Operating Activities: Net Income Before Preferred Dividends $ 7,494 $ 7,174 $ 7,065 -------- -------- -------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $124 in 1999, $127 in 1998, and $119 in 1997 charged to other accounts) 4,514 4,260 3,893 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues 35 (298) (730) (Increase) Decrease in Other Current Assets (24) (161) 3 (Increase) Decrease in Other Non-Current Items 292 (73) 682 Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities 691 233 562 Increase in Deferred Income Taxes and Investment Tax Credits, Net 1,081 1,068 775 Recoverable Cleanup Costs (net) -- -- 2,343 -------- -------- -------- Total Adjustments 6,589 5,029 7,528 ======== ======== ======== Net Cash Provided by Operating Activities 14,083 12,203 14,593 ======== ======== ======== Investing Activities: Gross Additions to Utility Plant (including Allowance For Funds Used During Construction of $454 in 1999, $476 in 1998 and $575 in 1997) (10,289) (7,964) (14,034) -------- -------- -------- Financing Activities: Proceeds from Interim Bank Loans 2,411 1,895 8,811 Repayment of Interim Bank Loans (1,895) (8,811) (5,795) Proceeds from Issuance of Long-Term Debt -- 18,018 272 Reduction of Long-Term Debt Including Current Portion (442) (10,249) (200) Proceeds from Issuance of Common Stock 251 280 256 Advances, Contributions and Funds from Others for Construction, Net 2,098 761 1,835 Costs Incurred to Issue Long-Term Debt, Preferred Stock, and Common Stock -- (1,091) (133) Cash Dividends Paid (5,576) (5,438) (5,362) -------- -------- -------- Net Cash Provided by (Used in) Financing Activities (3,153) (4,635) (316) ======== ======== ======== Net Increase (Decrease) in Cash 641 (408) 243 Cash at Beginning of Year 372 780 537 -------- -------- -------- Cash at End of Year $ 1,013 $ 372 $ 780 -------- -------- -------- Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized) $ 4,488 $ 3,382 $ 4,633 State and Federal Income Taxes $ 3,650 $ 3,397 $ 3,537
The accompanying notes are an integral part of these consolidated financial statements. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-5 41 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -- The consolidated financial statements include the accounts of Connecticut Water Service, Inc. an investor-owned holding company (the Company) and its six wholly owned subsidiaries, listed below: The Connecticut Water Company The Gallup Water Service, Incorporated Crystal Water Utilities Corporation The Crystal Water Company of Danielson Chester Realty, Inc. Connecticut Water Utility Services, Inc. During 1999 the Company acquired Gallup Water Service, Inc and Crystal Water Utilities Corporation and accounted for these acquisitions as "pooling of interests". Accordingly, the Company's financial statements have been restated to include the results of the acquired companies for all periods presented. Connecticut Water, Gallup, and Crystal (our "water companies") are public water utility companies serving more than 69,400 customers in 39 towns throughout Connecticut. Crystal Water Utilities Corporation is a holding company, owning the stock of Crystal Water Company of Danielson and three small rental properties. Chester Realty, Inc. is a real estate company whose pretax profits from land sales are included in the "Gain on Sale of Property", category in the "Other Income (Deductions)" section of the Consolidated Statements of Income. Chester's pretax profits from rental of property are included in the "Other Income (Deductions)" section of the Income Statement in the "Non-Water Sales Earnings" category. Connecticut Water Utility Services, Inc. is engaged in water related services and contract operations. Its earnings are included in the "Non-Water Sales Earnings" category in the "Other Income (Deductions)" section of the Consolidated Statements of Income. Intercompany accounts and transactions have been eliminated, except those allocating costs for regulatory purposes between our regulated and non-regulated companies. PUBLIC UTILITY REGULATION -- Our three water companies are subject to regulation for rates and other matters by the Connecticut Department of Public Utility Control (DPUC) and follow accounting policies prescribed by the DPUC. The Company prepares its financial statements in accordance with generally accepted accounting principles which includes the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (FAS 71). FAS 71 requires cost-based, rate-regulated enterprises such as our water companies to reflect the impact of regulatory decisions in their financial statements. The DPUC, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period other than the period in which the costs would be charged to expense CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-6 42 by an unregulated enterprise. The balance sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes and postretirement benefits costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are probable of recovery and that its use of regulatory accounting is appropriate and in accordance with the provisions of FAS 71. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. REVENUES -- Generally, water customers are billed quarterly, except larger commercial and industrial customers, and public fire protection customers, who are billed monthly. Most customers, except fire protection customers, are metered. Revenues from metered customers are based on their usage times approved regulated rates. 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. Our water companies accrue an estimate for the amount of revenues relating to sales unbilled at the end of each quarter. UTILITY PLANT -- Utility plant is stated at the original cost of such property when first devoted to public service. The difference between the original cost and the cost to our water companies 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 -- Allowance for Funds Used During Construction (AFUDC) is the cost of funds used to finance the construction of our water companies' utility plant. Generally, utility plant under construction is not recognized as part of rate base for ratemaking purposes until facilities are placed into service, and accordingly, AFUDC is charged 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. In order for certain water system acquisitions made in and after 1995 not to degrade earnings, The Connecticut Water Company has received DPUC approval to record AFUDC on certain of its investments in these systems. Through December 31, 1999 The Connecticut Water Company has capitalized $406,000 relating to financing these acquisitions. The allowed rate of return on rate base is used to calculate AFUDC. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-7 43 DEPRECIATION -- Virtually all of the Company's depreciable plant is owned by its three water companies. Depreciation is computed on a straight line basis at various rates as approved by the DPUC on a company by company basis. Depreciation allows the utility to recover the investment in utility plant over its useful life. The overall consolidated company depreciation rates, based on the average balances of depreciable property, were 2.1% for 1999, 2.0% for 1998 and 1.9% for 1997. CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION -- Under the terms of construction contracts with real estate developers and others, our water companies receive 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. INCOME TAXES -- The Company provided deferred taxes for all temporary book-tax differences using the liability method. 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 increase or decrease future rates, an offsetting regulatory asset and liability have been recorded in the accompanying consolidated balance sheets. The Company believes that all deferred income tax assets will be realized in the future. Approximately $500,000 of the December 31, 1999 and $900,000 of the 1998 unfunded future income taxes are related to deferred Federal income taxes. The remaining balance of the unfunded future income taxes is related to deferred State income taxes. Deferred Federal income taxes consist primarily of amounts that have been provided for 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. Connecticut Corporation Business Taxes have been reflected primarily using the flow-through method of accounting for temporary 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. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-8 44 OTHER DEFERRED COSTS -- In accordance with DPUC ratemaking procedures, costs which benefit 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 lives of the outstanding debt, as approved by the DPUC. EARNINGS PER SHARE -- The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share for the twelve months ended December 31, 1999, 1998, and 1997.
Twelve Months Ended 1999 1998 1997 ------ ------ ------ Basic earnings per share $ 1.54 $ 1.48 $ 1.46 Dilutive effect of unexercised stock options -- -- -- ------ ------ ------ Diluted earnings per share $ 1.54 $ 1.48 $ 1.46 ====== ====== ====== NUMERATOR (IN THOUSANDS): 1999 1998 1997 - ------------------------- ------ ------ ------ Basic net income $7,456 $7,136 $7,027 Diluted net income $7,456 $7,136 $7,027 ====== ====== ====== DENOMINATOR (IN THOUSANDS): 1999 1998 1997 - --------------------------- ------ ------ ------ Basic weighted average shares outstanding 4,837 4,827 4,816 Dilutive effect of unexercised stock options 11 N/A N/A ------ ------ ------ Diluted weighted average shares outstanding 4,848 4,827 4,816 ====== ====== ======
RECLASSIFICATION -- Certain reclassifications have been made to conform previously reported data to the current presentation. NOTE 2: 1999 POOLING OF INTEREST ACQUISITIONS On April 16, 1999 Gallup was acquired by the Company through the issuance of 47,826 shares of common stock of the Company which were exchanged for all of the outstanding common stock of Gallup. On September 29, 1999 Crystal was acquired by the Company through the issuance of 244,508 common stock shares of the Company which were exchanged for all of the outstanding stock of Crystal. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-9 45 The combined and separate results of Connecticut Water Service, Gallup and Crystal during the period preceding and after the merger were as follows:
1999 1998 1997 ------- ------- ------- (Thousands of dollars) OPERATING REVENUES Connecticut Water Service $40,087 $37,924 $38,501 Gallup 638 583 592 Crystal 1,899 1,796 1,824 ------- ------- ------- Combined Operating Revenues $42,624 $40,303 $40,917 ======= ======= ======= NET INCOME (LOSS) APPLICABLE TO COMMON STOCK Connecticut Water Service $ 7,373 $ 6,927 $ 6,766 Gallup (74) 69 32 Crystal 157 140 229 ------- ------- ------- Combined Net Income $ 7,456 $ 7,136 $ 7,027 ======= ======= =======
NOTE 3: INCOME TAX EXPENSE Income Tax Expense is comprised of the following:
1999 1998 1997 ------ ------ ------ (Thousands of dollars) Federal Classified as Operating Expense $4,322 $3,472 $3,842 Federal Classified as Other Income 32 216 157 ------ ------ ------ Total Federal Income Tax Expense 4,354 3,688 3,999 ------ ------ ------ State Classified as Operating Expense 686 617 864 State Classified as Other Income 25 72 65 ------ ------ ------ Total State Income Tax Expense 711 689 929 ------ ------ ------ Total Income Tax Expense $5,065 $4,377 $4,928 ====== ====== ======
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-10 46 The components of the Federal and State income tax provisions are:
1999 1998 1997 ------ ------ ------ Current: Federal $3,273 $2,620 $2,715 ------ ------ ------ State 711 689 929 ------ ------ ------ Total Current 3,984 3,309 3,644 ------ ------ ------ Deferred Income Taxes, Net: Federal Investment Tax Credit (61) (61) (62) Capitalized Interest 36 32 47 Depreciation 1,106 1,097 1,299 ------ ------ ------ Total Deferred Income Taxes, Net 1,081 1,068 1,284 ------ ------ ------ Total $5,065 $4,377 $4,928 ====== ====== ======
Deferred income tax liabilities are categorized as following on the Consolidated Balance Sheet:
1999 1998 ------- ------- Deferred Federal Income Taxes $16,743 $15,601 Unfunded Future Income Taxes 8,349 9,309 ------- ------- $25,092 $24,910
Deferred income tax liabilities (assets) are comprised of the following:
1999 1998 ------- ------- Depreciation $23,710 $23,166 Other 1,382 1,744 ------- ------- Net deferred income tax liability $25,092 $24,910 ======= =======
The calculation of Pre-Tax Income is as follows:
1999 1998 1997 ------- ------- ------- Pre-Tax Income Net Income Before Preferred Dividends $ 7,494 $ 7,174 $ 7,065 Income Taxes 5,065 4,377 4,928 ------- ------- ------- Total Pre-Tax Income $12,559 $11,551 $11,993 ======= ======= =======
In accordance with required regulatory treatment, deferred income taxes are not provided for certain timing differences. This treatment, along with other items, causes differences between the statutory income tax rate and the effective income tax rate. The CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-11 47 differences between the effective income tax rate recorded by the Company and the statutory Federal tax rate are as follows:
1999 1998 1997 ---- ---- ---- Federal Statutory Income Tax Rate 34.0% 34.0% 34.0% Tax Effect of Differences: State Income Taxes Net of Federal Benefit 3.7% 3.9% 5.1% Depreciation 1.2% 1.5% 1.4% Pension Costs .2% .4% .5% Debt Refinancing Costs .2% (2.6)% .2% Non-deductible Merger Costs .4% 0% 0% Other .6% .7% (.1)% ---- ---- ---- Effective Income Tax Rate 40.3% 37.9% 41.1% ==== ==== ====
NOTE 4: COMMON STOCK The Company has 7,500,000 authorized shares of common stock, no par value. A summary of the changes in the common stock accounts for the period January 1, 1997 through December 31, 1999, appears below:
ISSUANCE SHARES AMOUNT EXPENSE TOTAL --------- -------- ------- ------- (Thousands of dollars except share amounts) Balance, January 1, 1997 4,810,459 $45,252 $(1,216) $44,036 --------- ------- ------- ------- Dividend Reinvestment Plan -- -- (133) (133) Stock and equivalents issued through Performance Stock Program 5,526 178 -- 178 Stock issued to Employee Savings 401-K Match Plan 3,985 78 -- 78 --------- ------- ------- ------- Balance, December 31, 1997 (restated) 4,819,970 45,508 (1,349) 44,159 Stock Split -- fractional shares (587) -- (36) (36) Stock and equivalents issued through Performance Stock Program 7,281 211 -- 211 Stock issued to Employee Savings 401-K Match Plan 1,955 69 -- 69 --------- ------- ------- ------- Balance, December 31, 1998 (restated) 4,828,619 45,788 (1,385) 44,403
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-12 48
ISSUANCE SHARES AMOUNT EXPENSE TOTAL --------- -------- ------- ------- (Thousands of dollars except share amounts) Stock and equivalents issued through Performance Stock Program 10,175 251 -- 251 --------- ------- ------- ------- Balance, December 31, 1999(1) 4,838,794 $46,039 $(1,385) $44,654 ========= ======= ======= =======
(1) Includes 6,088 restricted and 13,357 common stock equivalent shares issued through the Performance Stock Program. On August 12, 1998 the Board and Directors authorized a new Shareholder Rights Plan. Pursuant to the new Plan, the Board authorized a dividend distribution of one Right to purchase one one-hundredth of a share of Series A Junior Participating Preference Stock of the Company for each outstanding share of the Company's common stock. The distribution was effected October 11, 1998. Upon the terms of the new Shareholder Rights Plan, each Right will entitle shareholders to buy one one-hundredth of a share of Series A Junior Participating Preference Stock at a purchase price of $90, and the Rights will expire October 11, 2008. The Rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender or exchange offer for 15% or more of the Company's common stock. The Board will be entitled to redeem the Rights at $0.01 per Right at any time before such acquisition occurs and upon certain conditions after such a position has been acquired. Upon the acquisition of 15% or more of the Company's common stock by any person or group, each Right will entitle its holder to purchase, at the Right's purchase price, a number of shares of the Company's common stock having a market value equal to twice the Right's purchase price. In such event, Rights held by the acquiring person will not be allowed to purchase any of the Company's common stock or other securities of the Company. If, after the acquisition of 15% or more of the Company's common stock by any person or group the Company should consolidate with or merge with and into any person and the Company should not be the surviving company, or, if the Company should be the surviving company and all or part of its common stock should be exchanged for the securities of any other person, or if more than 50% of the assets or earning power of the Company were sold, each Right (other than Rights held by the acquiring person, which will become void) will entitle its holder to purchase, at the Right's purchase price, a number of shares of the acquiring Company's common stock having a market value at that time equal to twice the Right's purchase price. 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 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-13 49 the Company have been paid or set aside for payment. All such Preferred Stock dividends have been paid. NOTE 5: ANALYSIS OF RETAINED EARNINGS The summary of the changes in Retained Earnings for the period January 1, 1997 through December 31, 1999, appears below:
1999 1998 1997 ------- ------- ------- (Thousands of dollars) Balance at Beginning of Year (restated) $15,923 $14,187 $12,484 Income Before Preferred Dividends 7,494 7,174 7,065 ------- ------- ------- 23,417 21,361 19,549 ======= ======= ======= Dividends Declared: Cumulative Preferred, Series A, $.80 Per Share 12 12 12 Cumulative Preferred, Series $.90, $.90 Per Share 26 26 26 Common Stock: 1999 $1.15 Per Share 5,538 -- -- 1998 $1.12 Per Share -- 5,400 -- 1997 $1.11 Per Share -- -- 5,324 ------- ------- ------- 5,576 5,438 5,362 ------- ------- ------- Balance at End of Year $17,841 $15,923 $14,187 ======= ======= =======
NOTE 6: 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 -- The carrying amount approximates fair value. LONG-TERM DEBT -- 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, 1999 and 1998, the estimated fair value of the Company's long-term debt was $57,324,000 and $69,350,000, respectively, as compared to the carrying amounts of $65,399,000 and $65,611,000, 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. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-14 50 NOTE 7: LONG-TERM DEBT Long-Term Debt at December 31, consisted of the following:
1999 1998 ------- ------- (Thousands of dollars) The Connecticut Water Company First Mortgage Bonds: 5.875% Series R, Due 2022 $14,800 $14,800 6.65% Series S, Due 2020 8,000 8,000 5.75% 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 12,050 ------- ------- 44,400 44,400 ------- ------- Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, Due 2028 10,000 10,000 5.125% 1998 Series B, Due 2028 8,000 8,000 ------- ------- 18,000 18,000 ------- ------- Other 5.5% Unsecured Promissory Note, Due 2002 103 132 ------- ------- Total Connecticut Water Company 62,503 62,532 ------- ------- Crystal Water Utilities Corporation 8.0% New London Trust, Due 2017 $ 133 $ 137 ------- ------- Crystal Water Company of Danielson 6.25% Farmer's Home Administration, Due 2015 -- 18 7.82% Connecticut Development Authority, Due 2020 518 528 8.0% New London Trust, Due 2011 2,298 2,416 ------- ------- Total Crystal 2,816 2,962 ------- ------- Gallup Water Service 9.58% Citizens Bank, Due 1999 $ -- $ 255 ------- ------- Chester Realty 6% Note Payable, Due 2006 $ 141 $ 149 ------- ------- Total Connecticut Water Service, Inc. 65,593 66,035 ------- ------- Less Current Portion (194) (424) ------- ------- Total Long-Term Debt $65,399 $65,611 ======= =======
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-15 51 Principal payments required for years 2000 - 2004 are as follows: 2000 -- $194,000 2001 -- $209,000 2002 -- $225,000 2003 -- $204,000 2004 -- $220,000
Substantially all utility plant is pledged as collateral for long-term debt. There are no mandatory sinking fund payments required on Connecticut Water Company's outstanding First Mortgage Bonds or the Unsecured Water Facilities Revenue Refinancing Bonds. However, the Series R First Mortgage Bonds and the 1998 Series A & B Unsecured Water Facilities Revenue Refinancing 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. The call price of the Series R bonds will reduce annually until the year 2003, when the call price becomes 100%. Series R bonds are callable for redemption at 102% from September 1, 1999 through August 31, 2000, then at 101.5% from September 1, 2000 through August 31, 2001. The other outstanding bonds may be initially called for redemption by the Company at the following dates and prices -- Series S, December 15, 2003 at 102%; Series T, July 1, 2003 and Series U, September 1, 2003 at 100% plus accrued interest to the date of redemption; Series V, January 1, 2004 at 103.5%, 1998 Series A & B Unsecured Water Facilities Revenue Refinancing Bonds, March 1, 2008 at 100% plus accrued interest. In 1998 Connecticut Water Company's Series Q, First Mortgage Bonds were refinanced with 5.05% 1998 Series A Unsecured, Tax-Exempt Water Facilities Revenue Refinancing Bonds. Also Connecticut Water Company's $8,000,000 interim bank loans were refinanced with 5.125% tax exempt, 1998 Series B Unsecured Water Facilities Revenue Refinancing Bonds. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-16 52 NOTE 8: PREFERRED STOCK The Company's Preferred Stock at December 31, consisted of the following:
1999 1998 ---- ---- (Thousands of dollars) Cumulative Series A Voting, $20 Par Value; Authorized Issued and Outstanding 15,000 Shares $300 $300 Cumulative Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares, Issued and Outstanding 29,499 Shares 472 472 ---- ---- Total $772 $772 ==== ====
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 prices of the Series A and Series $.90 Preferred Stock, if called by the Company, are $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 similar to the Company's existing Preferred Stock. No shares of the $25 par value Preferred Stock have been issued. 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. 150,000 of such shares have been designated as "Series A Junior Participating Preference Stock". Pursuant to the new Shareholder Rights Plan, described in Note 4, the Company keeps reserved and available for issuance one one-hundredth of a share of Series A Junior Participating Preference Stock for each outstanding share of the Company's common stock. NOTE 9: BANK LINES OF CREDIT The Company has a total of $9,000,000 in lines of credit provided by three banks. The available lines of credit as of December 31, 1999 was $6,335,000. In addition to the $2,411,000 of interim borrowing against these lines of credit, an additional $254,000 has been allocated to secure a Letter of Credit for one of the Company's real estate development projects. Bank commitment fees were approximately $25,000, $19,000, and $20,000 in 1999, 1998, and 1997, respectively, on the lines of credit. At December 31, 1999 and 1998, the weighted average interest rates on short-term borrowings outstanding were 6.81% and 5.82%, respectively. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-17 53 NOTE 10: UTILITY PLANT AND CONSTRUCTION PROGRAM The components of utility plant and equipment at December 31, are as follows:
1999 1998 -------- -------- (Thousands of dollars) Source of Supply $ 20,805 $ 20,028 Pumping 16,922 16,041 Water Treatment 42,864 42,194 Transmission and Distribution 144,417 139,022 General (including intangible) 14,505 14,226 Held for Future Use 609 609 -------- -------- Total $240,122 $232,120 ======== ========
The amounts of depreciable plant at December 31, 1999 and 1998 included in total plant were $219,530,000 and $213,897,000, respectively. Our water companies are engaged in continuous construction programs. Estimated annual capital expenditures, net of amounts financed by customer advances and contributions in aid of construction, are expected to be $7,445,000 during 2000, $8,204,000 during 2001, and $7,203,000 in 2002. During the period 2003 to 2004, construction expenditures for routine improvements to the water distribution system are expected to be approximately $5,000,000 each year. NOTE 11: TAXES OTHER THAN INCOME TAXES Taxes Other than Income Taxes consist of the following:
1999 1998 1997 ------ ------ ------ (Thousands of dollars) Municipal Property Taxes $3,644 $3,525 $3,338 Payroll Taxes 543 555 555 Connecticut Gross Earnings Tax(A) -- -- 991 ------ ------ ------ Total $4,187 $4,080 $4,884 ====== ====== ======
(A) The Connecticut Gross Earnings Tax was legislatively eliminated for water companies effective July 1, 1997. The rates of our three water companies were correspondingly reduced at the same time. NOTE 12: PENSION AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS GENERAL -- As of December 31, 1999 Connecticut Water had 157 employees, Gallup 4, and Crystal 7 for a total of 168 employees. The Company's officers are employees of Connecticut Water Company. Employee expenses are charged between CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-18 54 companies as appropriate. Connecticut Water Company has a post-retirement benefit plan including pension and post-retirement medical, dental, and life insurance. Crystal has a pension plan, whereas Gallup does not have any post-retirement benefits plans. Connecticut Water: PENSION -- Connecticut Water Company 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. Connecticut Water's policy is to fund accrued pension costs as permitted by Federal income tax regulations. No funding was made for 1999. Funding of $159,000 was made for 1998. POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP) -- In addition to providing pension benefits, Connecticut Water provides certain medical, dental and life insurance benefits to retired employees partially funded by a 501(c)(9) Voluntary Employee Beneficiary Association Trust that has been approved by the DPUC. Substantially all of Connecticut Water's employees may become eligible for these benefits if they retire on or after age 55 with 10 years of service. The contributions for calendar years 1999, 1998, and 1997 were $473,000, $473,000, and $317,000, respectively. A deferred regulatory asset has been recorded to reflect the amount which represents the future operating revenues expected to be recovered in customers rates under FAS 106. In 1997 Connecticut Water requested and received approval from the DPUC to include FAS 106 costs in customer rates. The DPUC's 1997 limited reopener of Connecticut Water's general rate proceeding allowed it to increase customer rates $208,000 annually for FAS 106 costs. Connecticut Water's current rates now allow for recovery of $473,000 annually for post-retirement benefits costs other than pension. Connecticut Water 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. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-19 55
PENSION BENEFITS OTHER BENEFITS CONNECTICUT WATER: 1999 1998 1999 1998 - ------------------ ------- ------- ------- ------- (Thousands of Dollars) CHANGE IN BENEFIT OBLIGATION Benefit obligation, beginning of year $12,557 $11,472 $ 3,866 $ 3,907 Service Cost 504 392 173 152 Interest Cost 908 872 268 262 Actuarial loss/(gain) (624) 541 (154) (321) Benefits paid (729) (720) (290) (134) ------- ------- ------- ------- BENEFIT OBLIGATION, END OF YEAR $12,616 $12,557 $ 3,863 $ 3,866 ======= ======= ======= ======= CHANGE IN PLAN ASSETS Fair Value, beginning of year $16,915 $14,851 $ 2,057 $ 1,558 Actual return on plan assets 2,417 2,625 181 130 Employer contribution -- 159 473 473 Participant's contributions N/A N/A 38 30 Benefits paid (729) (720) (290) (134) ------- ------- ------- ------- FAIR VALUE, END OF YEAR $18,603 $16,915 $ 2,459 $ 2,057 ======= ======= ======= ======= Funded Status $ 5,987 $ 4,358 $(1,404) $(1,809) Unrecognized net actuarial (gain) (7,917) (6,090) (1,823) (1,650) Unrecognized transition obligation (65) (97) 2,144 2,309 Unrecognized prior service cost 186 218 N/A N/A ------- ------- ------- ------- ACCRUED BENEFIT (COST) $(1,809) $(1,611) $(1,083) $(1,150) ======= ======= ======= =======
PENSION BENEFITS OTHER BENEFITS 1999 1998 1999 1998 ------- ------- ------- ------- Weighted-average assumptions as of December 31 Discount rate 7.5% 7.0% 7.5% 7.0% Expected return on plan assets 8.0% 8.0% 5.0% 5.0% Rate of compensation increase 4.5% 4.5% N/A N/A
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-20 56
PENSION BENEFITS OTHER BENEFITS 1999 1998 1997 1999 1998 1997 ------- ----- ----- ----- ----- ----- (Thousands of Dollars) COMPONENTS OF NET PERIODIC BENEFIT COSTS Service cost $ 504 $ 393 $ 392 $ 173 $ 152 $ 164 Interest cost 908 872 740 268 262 272 Expected return on plan assets (1,093) (928) (835) (94) (63) (54) Amortization of: Unrecognized Net Transition Asset (32) (32) (32) 165 165 165 Unrecognized net (Gain) Loss (121) (118) (190) (106) (113) (127) Unrecognized Prior Service Cost 32 32 32 -- -- -- FAS 88 Early Retirement Costs -- -- 366 -- -- 81 ------- ----- ----- ----- ----- ----- Net Periodic Pension Costs $ 198 $ 219 $ 473 $ 406 $ 403 $ 501 ======= ===== ===== ===== ===== =====
In determining the 1998 accumulated post-retirement benefit obligation, health care cost trends of 6% were assumed for 1998, grading down to 5.5% in 1999 and after. For the 1999 accumulated post-retirement benefit obligation, the rate of 5.5% was assumed for all years. Assumed health care costs trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT INCREASE DECREASE ------------------ ------------------ (Thousands of Dollars) Effect on total of service and interest cost components $ 67 $ (63) Effect on postretirement benefit obligation $475 $(442)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -- Connecticut Water provides additional pension benefits to senior management through a supplemental executive retirement plan. At December 31, 1999 the actuarial present value of the projected benefit obligation was $503,000. Expense associated with this plan was $76,000 for 1999, $99,000 for 1998 and 1997. SAVINGS PLAN -- The Connecticut Water Company maintains an employee savings plan which allows participants to contribute from 1% to 15% of pre-tax compensation. The Company matches 50 cents for each dollar contributed by the employee up to 4% of the employees' compensation. The contribution charged to expense in 1999, 1998 and 1997 was $127,000, $85,000 and $78,000, respectively. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-21 57 Effective for 1999 the Plan was modified to create the possibility for an "incentive bonus" contribution to the 401(k) plan tied to the attainment of a specific goal or goals to be identified each year starting in 1999. If the specific goal or goals are attained by the end of the year, all employees, except officers and certain key employees, will receive an additional 1% of their annual base salary as a direct contribution to their 401(k) account. In 1999 the goal was not met and therefore no incentive contribution was made. Crystal Water: PENSION -- Crystal has a defined benefit pension plan covering employees who have completed six months of service and who have attained the age of 20 1/2. Accrued pension costs and required contributions to the plan are actuarially calculated annually taking into account the employees' service to date and their expected future earnings. The following tables set forth the plan's funded status as of December 31, 1999 and 1998 and the net pension cost for 1999, 1998 and 1997 of ($150,000), $14,000 and $27,000 respectively.
1999 1998 ----- ------- (Thousands of Dollars) Actuarial present value of benefit obligations $ 576 $ 1,008 Projected benefit obligation for salary increase 313 367 Projected benefit obligation 889 1,375 Plan assets at fair value 764 1,503 Unfunded (overfunding) projected benefits 125 (128) Unrecognized gains/(loss) 243 663 Unrecognized prior service cost (334) (350) Unrecognized transition obligation (27) (29) ----- ------- Accrued pension costs $ 7 $ 156 ----- -------
1999 1998 ----- ------- Weighted-average assumptions as of December 31 Discount rate 7.5% 8.0% Expected return on plan assets 8.0% 8.0% Rate of compensation increase 4.5% 5.0%
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-22 58 Crystal Water:
1999 1998 1997 ------ ----- ----- (Thousands of Dollars) Service costs $ 48 $ 49 $ 44 Interest cost of benefit obligation 110 73 63 Return on assets (117) (96) (73) Amortization of unrecognized gain/loss (23) (15) (9) Amortization of prior service cost 15 1 -- Amortization of transition asset 2 2 2 Settlement (gain)/loss (185) -- -- ----- ---- ---- Net pension (gain) cost $(150) $ 14 $ 27
NOTE 13: STOCK BASED COMPENSATION PLANS INCENTIVE OPTIONS -- In 1999 the Company's shareholders approved an amendment to its Performance Stock Program to permit the issuance of stock options to officers and key employees. The Company accounts for the plan under APB Opinion No. 25, under which no compensation cost has been recognized in the Consolidated Statements of Income. On a pro forma basis, the Company's net income and earnings per share would have been the following amounts had compensation cost for the plan been determined consistent with SFAS No. 123, "Accounting for Stock Based Compensation." Under SFAS No. 123, the Company would have been required to value such options and record such amounts in the financial statements as compensation expense.
1999 ------ Net income (in thousands of dollars): As reported $7,456 Pro forma $6,589 Earnings Per Share: As reported $ 1.54 Pro forma $ 1.36
For purposes of this calculation, the Company arrived at the fair value of each stock grant at the date of grant by using the Black Scholes Option Pricing model with the following weighted average assumptions used for grants for the year ended December 31, 1999; risk-free interest rate of 5.5%; estimated period to exercise of 8 years; expected volatility of 25.89 percent and a dividend yield of 3.7 percent. At December 31, 1999, options which have been granted are not exercisable. The options begin to become exercisable in 2000, one year from the dates of the grants. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-23 59
NUMBER OF NUMBER OF OPTIONS OPTIONS EXERCISABLE GRANTED AS OF AS OF PRICE PER 12/31/99 12/31/99 SHARE ----------- --------- ------------- Balance at January 1, 1999 -- -- N/A Granted April 23, 1999 -- 75,150 $ 22.25 Granted December 8, 1999 -- 52,573 $ 33.50 -- ------- Balance at December 31, 1999 -- 127,723 $22.25-$33.50 == =======
Weighted average fair values of options granted in 1999 was $6.78. PERFORMANCE STOCK PROGRAM -- Under the Company's Performance Stock Program, restricted shares of Common Stock may be awarded annually to officers and key employees. To the extent that 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 $216,000, $170,000, and $173,000 for 1999, 1998 and 1997, respectively. NOTE 14: SEGMENT REPORTING Our Company operates principally in three segments: water activities, real estate sales and services/rentals. The water segment is comprised of our core regulated water activities to supply water to our customers. Our real estate sales segment involves the selling off our limited excess real estate holdings. Our services and rentals segment is comprised of providing services on a contract basis and leasing certain of our properties to others. The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies. Financial data for reportable segments is as follows: CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-24 60
INTEREST EXPENSE AND PREFERRED OTHER OTHER DIVIDEND OPERATING INCOME (NET OF INCOME NET REVENUES DEPRECIATION EXPENSES (DEDUCTIONS) AFUDC) TAXES INCOME -------- ------------ --------- ------------ --------- ------ ------ (In thousands) Year ended December 31, 1999 Water Activities $42,624 $4,390 $21,999 $ 65 $4,084 $4,943 $7,273 Real Estate Sales 447 286 0 0 64 97 Services/Rentals 1,410 16 1,224 0 26 58 86 ------- ------ ------- ---- ------ ------ ------ Total $44,481 $4,390 $23,509 $ 65 $4,110 $5,065 $7,456 ======= ====== ======= ==== ====== ====== ====== Year ended December 31, 1998 Water Activities $40,303 $4,133 $21,321 $110 $4,168 $4,089 $6,702 Real Estate Sales 710 235 0 0 190 285 Services/Rentals 1,073 21 805 0 0 98 149 ------- ------ ------- ---- ------ ------ ------ Total $42,086 $4,154 $22,361 $110 $4,168 $4,377 $7,136 ======= ====== ======= ==== ====== ====== ====== Year ended December 31, 1997 Water Activities $40,917 $3,774 $21,580 $ 58 $4,065 $4,768 $6,788 Real Estate Sales 349 165 0 0 74 110 Services/Rentals 1,091 18 858 0 0 86 129 ------- ------ ------- ---- ------ ------ ------ Total $42,357 $3,792 $22,603 $ 58 $4,065 $4,928 $7,027 ======= ====== ======= ==== ====== ====== ======
AT DECEMBER 31 1999 1998 -------- -------- (In thousands) Total Plant and Other Investments $183,310 $177,550 Water 779 801 -------- -------- Non-water 184,089 178,351 ======== ======== Other Assets 26,246 27,465 Water 550 139 -------- -------- Non-water 26,796 27,604 -------- -------- Total Assets $210,885 $205,955 ======== ========
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-25 61 NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended December 31, 1999 and 1998 appears below:
BASIC EARNINGS PER NET INCOME AVERAGE OPERATING UTILITY APPLICABLE TO COMMON REVENUES OPERATING INCOME COMMON STOCK SHARE ----------------- ----------------- --------------- ------------- 1999 1998 1999 1998 1999 1998 1999 1998 ------- ------- ------- ------- ------ ------ ----- ----- (Thousands of dollars except per share amounts) First Quarter $ 9,450 $ 9,240 $ 2,414 $ 2,404 $1,510 $1,419 $0.31 $0.30 Second Quarter 10,233 9,383 2,765 2,363 1,811 1,529 0.37 0.32 Third Quarter 12,892 12,020 3,763 3,639 2,716 2,658 0.56 0.55 Fourth Quarter 10,049 9,660 2,285 2,354 1,419 1,530 0.30 0.31 ------- ------- ------- ------- ------ ------ ----- ----- Year $42,624 $40,303 $11,227 $10,760 $7,456 $7,136 $1.54 $1.48 ======= ======= ======= ======= ====== ====== ===== =====
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-26 62
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Connecticut Water Service, Inc. amended and restated as of April, 1998. 3.2* By-Laws, as amended, of Connecticut Water Service, Inc. as amended and restated as of August 12, 1999. 3.3 Certification of Incorporation of The Connecticut Water Company effective April, 1998. 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) (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)
E-1 63
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (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 (Exhibit 4.2 (xxii) to Form 10-K for year ended 12/31/94) 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 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) 4.7 Bond Purchase Agreement dated as of December 1, 1993. (Exhibit 4.8 to Form 10-K for year ended December 31, 1993) 4.8 Loan Agreement dated as of March 9, 1998 between the Connecticut Development Authority and The Connecticut Water Company. 4.9* Loan Agreement dated as of April 19, 1990 between the Connecticut Development Authority and The Crystal Water Company of Danielson. 4.10* Loan Agreement dated as of February 9, 1996 between New London Trust, F.S.B. and The Crystal Water Company of Danielson. 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) 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 Amended and Restated Deferred Compensation Agreement dated May 14, 1999
E-2 64
EXHIBIT NUMBER DESCRIPTION - ------- ----------- a) Marshall T. Chiaraluce b) David C. Benoit c) James R. McQueen d) Kenneth W. Kells 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) 10.7.1 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) 10.7.2* The Connecticut Water Company Amended Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce dated August 1, 1999. 10.8.1 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) 10.8.2* The Connecticut Water Company Amended Supplemental Executive Retirement Agreement -- standard form for other officers, dated August 1, 1999. 10.9* The Connecticut Water Company Employment Agreements with Officers, amended and restated as of November 18, 1999 a) Marshall T. Chiaraluce b) Michele G. DiAcri c) James R. McQueen d) David C. Benoit e) Peter J. Bancroft f) Maureen P. Westbrook g) Terrance P. O'Neill 10.10* Employment and Consulting Agreement between Richard L. Mercier and Gallup Water Service, Inc. dated April 15, 1999. 10.11* Employment and Consulting Agreement between Roger Engle and Crystal Water Company of Danielson dated September 29, 1999. 10.12 Savings Plan of The Connecticut Water Company, amended and restated effective as of January 1, 1999. 10.13 The Connecticut Water Company Employees' Retirement Plan as amended and restated as of January 1, 1997. 10.14 Water Supply Agreement dated June 13, 1994, between The Connecticut Water Company and the Hazardville Water Company. (Exhibit 10.15 to Form 10-K for year ended December 31, 1994) 10.15 November 4, 1994 Amendment to Agreement dated December 11, 1957 between The Connecticut Water Company (successor to the Thomaston Water Company) and the City of Waterbury. (Exhibit 10.16 to Form 10-K for year ended December 31, 1994)
E-3 65
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.16 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) 10.17 Agreement dated August 13, 1986 between The Connecticut Water Company and the Metropolitan District. (Exhibit 10.14 to Form 10-K for the year ended December 31, 1986) 10.18 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) 10.19 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) 10.20 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) 10.21 Dividend Reinvestment and Common Stock Purchase Plan as amended. (Registration Statement No. 33-53211 as amended) 10.22 Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the year ended December 31, 1984) 10.23 Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended December 31, 1987) 10.24 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) 10.25 Performance Stock Program, as amended and restated as of April 23, 1999. (Exhibit A to CTWS Proxy Statement dated March 17, 1999) 24.1* Consent of Arthur Andersen LLP 27.0* Financial Data Schedule
- --------------- Note: Exhibits 10.1 through 10.13, 10.24 and 10.25 set forth each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form-10K. E-4 66 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, Chairman of the Board 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 Director, President Chairman of the February 28, 2000 - ------------------------------------- Board, and Chief Executive Officer Marshall T. Chiaraluce (Principal Executive Officer) /s/ DAVID C. BENOIT Vice President -- Finance, Chief February 25, 2000 - ------------------------------------- Financial Officer and Treasurer David C. Benoit (Principal Financial and Accounting Officer)
67
SIGNATURE TITLE DATE --------- ----- ---- /s/ FRANCIS E. BAKER, JR. Director February 25, 2000 - ------------------------------------- Francis E. Baker, Jr. /s/ HAROLD E. BIGLER, JR. Director February 28, 2000 - ------------------------------------- Harold E. Bigler, Jr. /s/ MARY ANN HANLEY Director February 25, 2000 - ------------------------------------- Mary Ann Hanley /s/ MARCIA L. HINCKS Director February 25, 2000 - ------------------------------------- Marcia L. Hincks /s/ RONALD D. LENGYEL Director February 25, 2000 - ------------------------------------- Ronald D. Lengyel /s/ RUDOLPH E. LUGINBUHL Director February 25, 2000 - ------------------------------------- Rudolph E. Luginbuhl /s/ HARVEY G. MOGER Director February 25, 2000 - ------------------------------------- Harvey G. Moger /s/ ROBERT F. NEAL Director February 25, 2000 - ------------------------------------- Robert F. Neal /s/ WARREN C. PACKARD Director February 24, 2000 - ------------------------------------- Warren C. Packard /s/ ARTHUR C. REEDS Director February 24, 2000 - ------------------------------------- Arthur C. Reeds /s/ DONALD B. WILBUR Director February 25, 2000 - ------------------------------------- Donald B. Wilbur
68 SCHEDULES 69 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 11, 2000. 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 11, 2000 S-1 70 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 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, 1999 $315 $171 $ 31 $455 ==== ==== ==== ==== Year Ended December 31, 1998(2) $147 $162 $ (6) $315 ==== ==== ==== ==== Year Ended December 31, 1997(2) $162 $134 $149 $147 ==== ==== ==== ====
- --------------- (1) Amounts charged off as uncollectible after deducting recoveries (2) Restated S-2 71 EXHIBITS TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 24.1 Consent of Arthur Andersen LLP 27.0 Financial Data Schedule 72 EXHIBIT 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-53211 and 33-394525. /s/ ARTHUR ANDERSEN LLP --------------------------------------- Hartford, Connecticut March 07, 2000 EX-3.2 2 EX-3.2 1 EXHIBIT 3.2 AUGUST 12, 1999 AMENDED AND RESTATED BYLAWS OF CONNECTICUT WATER SERVICE, INC. ARTICLE I GENERAL These Bylaws are intended to supplement and implement applicable provisions of law and of the Certificate of Incorporation of Connecticut Water Service, Inc. (the "Corporation") with respect to the regulation of the affairs of the 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 1 2 the 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 properly brought before an 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 than one hundred twenty (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 a 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 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 Article II, 2 3 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 Subparagraph 5 of Paragraph B of Article SEVENTH of the Corporation's Certificate of Incorporation, special meetings of stockholders of the Corporation may be called 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 (as defined in Article IV, Section 1 of these Bylaws) and shall be called upon the written request of the stockholders who hold at least thirty-five percent (35%) of all the votes entitled to be cast on any issue proposed to be considered at such special meeting. 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 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 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 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 3 4 Corporation not later than the close of business on the tenth (10th) 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 warrant that such proposal was not properly brought before the meting in accordance with the provisions of this Article II, 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 ten (10) but not more than sixty (60) days prior to the date of such meeting, to each stockholder entitled to vote at such a meeting at his residence or usual place of business, as shown on the records of the Corporation, provided that any one or more of such stockholders, as to himself or themselves, may waive such notice in writing or by attendance without protest at such meeting. 4 5 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. Section 6. Stockholders' Action Without Meeting: Any action which, under any provision of the Connecticut Business Corporation Act, may be taken at a meeting of stockholders may be taken without such a meeting if a 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 has 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 5 6 than (i) with respect to an election to be held at an annual meeting, and (ii) with respect to an election to be held at a special meeting of stockholders called for election of Directors, the close of business on the tenth (10th) 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 person 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 stockholders 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 provisions of this Article II, Section 7, and if he should so determine, he shall so declare to 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. 6 7 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 (9) nor more than fifteen (15) 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 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 Directors, as fixed in accordance with the foregoing, is referred to herein as the "number of directorships." The Directors shall be classified (exclusively 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 FOURTH 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 seventy (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 sixty-five (65). 7 8 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 FOURTH 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 from office or other cause shall be filled by the Board of Directors in accordance with the provisions of Article FOURTH 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 or under the direction of 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 statues 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 committees 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. 8 9 Section 6. Compensation: The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at 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 (30) 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 (70), 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, nor shall any Director Emeritus be counted for the purposes of determining a quorum. The Board of Directors by annual resolution may invite one or more Directors Emeritus to attend Board meetings for the succeeding twelve (12) months, in which event such person or persons shall be compensated at the same rate paid to each Director for attendance at such meetings. 9 10 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 (1) 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 residence or usual place of business at least two (2) 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, the Certificate of Incorporation or 10 11 these Bylaws, all questions shall be decided by vote of 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 Article V, Section 6 shall constitute presence in person at such meeting. Section 7. Directors' Action Without Meeting: If all 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 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, including a Chairman of the Board, as the Board of 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. 11 12 Section 2. Chairman of the Board: The Chairman shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as are properly required of him by the Board of Directors. If provided by the Board of Directors, the Chairman shall be the chief executive officer of the Corporation, and as such, the Chairman shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 3. President: Unless otherwise provided by the Board of Directors, the President shall be the chief executive officer of the Corporation. In the absence of the Chairman or in the event of the Chairman's liability or refusal to act, the President shall preside at all meetings of the stockholders and the Board of Directors. If the President is the chief executive officer of the Corporation, he shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall also perform such other duties as are properly required of him by the Board of Directors. Section 4. 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 5. Secretary: The Secretary shall keep the minutes of the meetings of stockholders and the Board of Directors and shall give notice of all such meetings as required in 12 13 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 6. 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 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 (2) 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 Fourth of the Corporation's Certificate of 13 14 Incorporation) required by law, the Corporation's Certificate of Incorporation or these Bylaws, the affirmative vote of the holders of at least eighty percent (80%) 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 Section 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 VIII. ARTICLE IX REFERENCES Reference in these Bylaws to a provision of the General Statutes of Connecticut or any provision of Connecticut law set forth in such Statutes is to such provision of the General Statutes of Connecticut, Revision of 1958, as amended, or the corresponding provision(s) of any subsequent Connecticut law. Reference in these Bylaws to a provision of the Connecticut Business Corporation Act is to such provision of the codification in the Connecticut General Statutes of the Connecticut Business Corporation Act, as amended, or the corresponding provision(s) of any subsequent Connecticut law. 14 EX-4.9 3 EX-4.9 1 Exhibit 4.9 LOAN AGREEMENT among the CONNECTICUT DEVELOPMENT AUTHORITY THE CRYSTAL WATER COMPANY OF DANIELSON and CRYSTAL WATER UTILITIES CORPORATION Dated as of April 19, 1990 2 TABLE OF CONTENTS
Page ---- Parties 1 Background 2 SECTION 1 - DEFINITIONS AND INTERPRETATION 1.1 - Definitions 3 1.2 - Interpretation 5 SECTION 2 - THE LOAN 2.1 - Loan 7 2.2 - The Closing 7 2.3 - Term 7 2.4 - Interest and Payments 7 2.5 - Late Charges 7 2.6 - Note 8 2.7 - Security 8 2.8 - Guaranty 8 2.9 - Prepayment 8 2.10 - Interest After Judgement 8 2.11 - Application of Payments 8 2.12 - Failure to Meet Conditions 9 SECTION 3 - CONDITIONS OF CLOSING 3.1 - Warranties and Representations True; No Prohibited Action 10 3.2 - Compliance with This Agreement 10 3.3 - Officers' Certificates 10 3.4 - Execution and Delivery of Financing Documents 10 3.5 - Perfection and Priority of Mortgage, Guaranty Mortgage and Stock Pledge 10 3.6 - Opinion of Counsel 11 3.7 - Certification of Costs 11 3.8 - Department of Health Services Certification 12 3.9 - Completion of Project 12 3.10 - DPUC Approvals 12 3.11 - Site Plan and Zoning Compliance 12 3.12 - Insurance 12 3.13 - Good Standing Certificates; Tax Clearances 13 3.14 - Affirmative Action Plan 13
3 SECTION 3 - CONDITIONS OF CLOSING (continued) 3.15 - Commitment Fee 13 3.16 - Compliance with Loan Authorization 13 3.17 - Proceedings Satisfactory 14 SECTION 4 - WARRANTIES AND REPRESENTATIONS OF THE COMPANY AND GUARANTOR 4.1 - Corporate Existence and Authority 15 4.2 - Enforceability of Financing Documents; No Prohibition or Consent 15 4.3 - DPUC Approvals 16 4.4 - Eligibility of the Company 16 4.5 - Use of Proceeds 17 4.6 - Real Estate 17 4.7 - Transmission Rights 17 4.8 - Property 17 4.9 - Perfection and Priority of Mortgage 17 4.10 - Compliance with Laws 18 4.11 - No Litigation 18 4.12 - Burdensome Contracts 18 4.13 - Taxes 18 4.14 - Financial Statements; No Adverse Change 18 SECTION 5 - COVENANTS OF THE COMPANY AND THE GUARANTOR 5.1 - Payment of Loan 19 5.2 - Expenses and Additional Indebtedness 19 5.3 - Indemnification 20 5.4 - Corporate Existence and Authority 20 5.5 - DPUC and Department of Health Services Compliance 20 5.6 - Taxes 20 5.7 - Maintenance of Property and Insurance 21 5.8 - Liens 21 5.9 - Compliance with Laws 21 5.10 - Financial Statements 22 5.11 - Protection of Mortgage and the Guaranty Mortgage 23 5.12 - Default Notification 23
3 4 SECTION 6 - DEFAULT AND REMEDIES 6.1 - Events of Default 24 6.2 - Remedies upon Event of Default 25 6.3 - Reinstatement 26 6.4 - Marshalling 26 6.5 - Partial Release 26 6.6 - No Waiver 26 6.7 - Remedies Cumulative 27 6.8 - Waiver of Rights 27 SECTION 7 - MISCELLANEOUS 7.1 - Governing Laws 28 7.2 - Notices 28 7.3 - Amendment and Waiver 28 7.4 - Duplicate Originals 29 7.5 - Severability 29 7.6 - Binding Effect 29 7.7 - Term of this Agreement 29
4 5 LOAN AGREEMENT THIS LOAN AGREEMENT is made and dated as of April 19, 1990 among the CONNECTICUT DEVELOPMENT AUTHORITY, with its principal office at 217 Washington Street, Hartford, Connecticut, 06106 (the "Authority"), THE CRYSTAL WATER COMPANY OF DANIELSON (the "Company") and CRYSTAL WATER UTILITIES CORPORATION (the "Guarantor"), both with their principal office at 321 Main Street, Danielson, Connecticut 06239. 6 BACKGROUND A. Pursuant to Title 32, Chapter 579, of the Connecticut General Statutes, as amended (the "Act"), the Bond Commission of the State of Connecticut has been granted the power, from time to time, to authorize the issuance of bonds of the State of Connecticut to provide funds for low-interest loans to investor-owned water companies which supply water to at least twenty-five but fewer than ten thousand customers for the planning, design, modification or construction of drinking water facilities of such companies made necessary by the requirements of the Safe Drinking Water Act of 1974 (the "Safe Drinking Water Act"), or by an order of the Department of Health Services of the State of Connecticut deeming the water supplied by such companies to be inadequate, which facilities include, but need not be limited to, collection facilities, treatment facilities, wells, tanks, mains, pumps, transmission facilities and any other machinery and equipment necessary to meet the requirements of the Safe Drinking Water Act. B. The Act provides that each loan made pursuant thereto shall be authorized by the Authority or, if the Authority so determines, by a committee of the Authority, one of whose members may be its Executive Director. C. On May 4, 1988, the Company first applied to the Authority for a loan under the Act to finance certain improvements to its drinking water facilities made necessary by the requirements of the Safe Drinking Water Act or an order of the Department of Health Services of the State of Connecticut. D. By a Loan Authorization dated March 7, 1989 (the "Loan Authorization") the Authority authorized a loan to the Company in an amount not to exceed $587,000 on the terms and conditions therein set forth. E. The Loan Authorization requires that the Guarantor guarantee the loan. F. The Authority, in reliance on the representations and warranties of the Company and the Guarantor in the loan application and herein, is willing to make the loan to the Company authorized in the Loan Authorization, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 2 7 SECTION 1 DEFINITIONS AND INTERPRETATION 1.1 Definitions For purposes of this Agreement, the following words and terms shall have the respective meanings set forth below or in the Section of this Agreement referenced below: "Act" is defined in the recitals of this Agreement. "Agreement" means this Loan Agreement and any amendments or supplements thereto. "Authority" is defined in the recitals to this Agreement. "Closing" is defined in Section 2.2. "Closing Date" is defined in Section 2.2. "Company" is defined in the first paragraph of this Agreement. "Default" means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Department of Health Services" means the Department of Health Services of the State of Connecticut. "DPUC" means the Department of Public Utility Control of the State of Connecticut. "Equipment" means tangible Property which is not Real Estate. "Event of Default" is defined in Section 6.1. "Financing Documents" means this Agreement, the Note, the Mortgage, the Guaranty, the Guaranty Mortgage, the Stock Pledge, and all other documents or agreements executed and/or delivered in connection with the Loan. "General Statutes" means the General Statutes of Connecticut, revision of 1958, as amended. "Guarantor" is defined in the first paragraph of this Agreement. "Guaranty" is defined in Section 2.8. 3 8 "Guaranty Mortgage" is defined in Section 2.8. "Indebtedness" means the Note, any amounts due from the Company and the Guarantor to the Authority under Sections 2.5, 5.2 and 5.3, and all other indebtedness, obligations and liabilities of the Company and the Guarantor to the Authority, whether arising under the Note, this Agreement, any of the other Financing Documents, or otherwise. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of this Agreement, the Company and the Guarantor each shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention or vesting shall constitute a Lien. "Loan" means the loan in the original principal amount of $587,000 made by the Authority to the Company pursuant to this Agreement. "Loan Application" means the initial loan application of the Company to the Authority dated May 4, 1988 together with all amendments, supplements and modifications thereto thereafter submitted by the Company to the Authority, and including all correspondence, exhibits, schedules, financial statements, cost estimates and other documents furnished by or on behalf of the Company or the Guarantor with respect thereto. "Loan Authorization" means the Loan Authorization from the Authority to the Company dated March 7, 1989 and any amendments or supplements thereto. "Mortgage" is defined in Section 2.7. "Note" is defined in Section 2.6. "Person" means an individual, partnership, corporation, trust, unincorporated organization, government, government agency or governmental subdivision. "Project" means the improvements to the Company's drinking water facilities more particularly described in Exhibit A to this Agreement. 4 9 "Property" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible, and whether now owned or hereafter acquired, and includes, without limitation, the Project, Real Estate, Equipment, and Transmission Rights. "Real Estate" means realty and other interests in real property, including buildings and improvements thereon and fixtures related thereto, whether owned, leased or subject to other right of use or occupancy, but does not otherwise include Transmission Rights. "Safe Drinking Water Act" means the Federal Safe Drinking Water Act of 1974, 42 U.S.C. Sections 300f et seq. "Stock Pledge" is defined in Section 2.8. "Transmission Rights" means easements, rights-of-way, and other rights or interests in or through Real Estate of others for purposes of laying and maintaining water mains, pipes, pumping stations or other water transmission facilities, whether arising by contract or otherwise and whether recorded or unrecorded. 1.2 Interpretation (a) References to a "Section" or "Sections" herein refer to this Agreement unless otherwise stated. (b) Words of the masculine gender mean and include correlative words of the feminine and neuter genders and words importing the singular number mean and include the plural number and vice versa. (c) Any headings preceding the texts of the several Sections of this Agreement, and any table of contents or list of exhibits appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. (d) All approvals, consents and acceptances required to be given or made by any party hereunder shall be at the sole discretion of the party whose approval, consent, or acceptance is required. (e) All notices to be given hereunder shall be given in writing within a reasonable time unless otherwise specifically provided. (f) If a reference to a provision of the General Statutes appears in a Section intended to have effect after the date of this Agreement, such reference shall be deemed to include successor statutes of similar import. 5 10 (g) Where any provision of this Agreement refers to action to be taken by any Person, or which any Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. (h) Each Exhibit referred to in this Agreement shall be considered a part of this Agreement as if fully set forth herein. 6 11 SECTION 2 THE LOAN 2.1 Loan The Authority agrees to lend to the Company, and the Company agrees to borrow from the Authority on the Closing Date, in accordance with and subject to the terms and conditions of this Agreement, the sum of Five Hundred Eighty-Seven Thousand Dollars ($587,000). 2.2 The Closing The closing (the "Closing") of the Loan shall be conducted by the Authority's special counsel, Shipman & Goodwin. The Closing shall be held on such date as shall be mutually agreed to by the Company and the Authority (the "Closing Date"), at 10 a.m. local time at the offices of Shipman & Goodwin, 799 Main Street, Hartford, Connecticut, or such other place as the parties hereto shall mutually agree. At the Closing the Company will deliver to the Authority the Note, dated the Closing Date, in the stated principal amount of $587,000, against payment by the Authority to the Company of such amount. 2.3 Term The Loan will mature and be finally due and payable on July 1, 2020. 2.4 Interest and Payments The Loan will bear interest on the unpaid principal balance thereof from (and including) the Closing Date at an annual rate of seven and eighty-two hundredths percent (7.82%). Interest on the unpaid principal balance from (and including) the Closing Date through June 30, 1990 shall be paid at the Closing. Thereafter, the Loan shall be repaid over a term of 30 years in equal quarterly payments of principal and interest, beginning October 1, 1990, all as more fully set forth in the Note. 2.5 Late Charges The Authority may assess a late charge not to exceed an amount equal to five percent (5%) of any scheduled quarterly payment of principal and interest on the Note which is not paid within ten (10) days of the day on which such payment is due in order to cover the extra expenses involved in handling such delinquent payment. 7 12 2.6 Note The Loan will be evidenced by the Company's 7.82% Secured Promissory Note due July 1, 2020 (the "Note") substantially in the form set forth as Exhibit B to this Agreement. 2.7 Security The Loan will be Secured by a first security interest in all of the Company's Property under a Mortgage and Security Agreement (the "Mortgage") substantially in the form set forth in Exhibit C to this Agreement. 2.8 Guaranty The Loan will be guaranteed by agreement of the Guarantor (the "Guaranty"), substantially in the form set forth in Exhibit D to this Agreement. The Guaranty will be secured by a Guaranty Mortgage and Security Agreement (the "Guaranty Mortgage") and a Stock Pledge Agreement (the "Stock Pledge"), from the Guarantor, substantially in the forms set forth in Exhibits E and F to this Agreement, respectively. 2.9 Prepayment The principal balance of the Loan may be prepaid in whole or in part without premium or penalty as of the due date of any scheduled quarterly payment of principal and interest. The Authority may require that any partial prepayment be in the amount of $10,000 or a multiple thereof. 2.10 Interest After Judgment If the Authority should obtain a judgment against the Company with respect to the Indebtedness, interest shall accrue on such judgment at the interest rate provided for in the Note or as provided by statute, whichever is greater at the time. 2.11 Application of Payments (a) So long as no Default has occurred and is continuing: i) regularly scheduled quarterly payments on the Note shall be applied first to accrued interest and then to principal as set forth in the Note; ii) partial prepayments of principal on the Note, including the proceeds of insurance on the Company's Property paid to and retained by the Authority, shall be applied to the then outstanding principal balance on the Note, but will not delay the due date or change the amount of any scheduled quarterly payment required under the Note, except to the extent that the Authority agrees to such delay or change in writing; and 8 13 iii) amounts paid to the Authority pursuant to Sections 5.2 or 5.3 or late charges assessed under Section 2.5 shall be applied consistent with the invoice, statement or demand made for such payment. (b) While a Default exists, all payments and other amounts received by the Authority with respect to the Indebtedness, whether regular payment, prepayment or otherwise, including the proceeds of the sale or other disposition of any of the Company's or the Guarantor's Property, or of insurance with respect thereto, paid to and retained by the Authority, may be applied by the Authority to pay the Indebtedness in such manner, order and amount as the Authority in its sole discretion may determine, notwithstanding any characterization thereof by the Company or the Guarantor or any entry with respect thereto on the books and records of the Company or the Guarantor. 2.12 Failure to Meet Conditions If at the Closing the Company fails to deliver the Note to the Authority, or if any of the conditions specified in Section 3 have not been fulfilled, the Authority may thereupon elect to be relieved of all further obligations under this Agreement. 9 14 SECTION 3 CONDITIONS OF CLOSING The Authority's obligation to make the Loan at the Closing on the Closing Date is subject to the following conditions precedent: 3.1 Warranties and Representations True; No Prohibited Action (a) The warranties and representations of the Company and the Guarantor contained in Section 4 shall be true in all respects on the Closing Date with the same effect as though made on and as of that date. (b) The Company and the Guarantor shall not have taken any action or permitted any condition to exist which would have been prohibited by Sections 5.4 to 5.9, inclusive, had such Sections been binding and effective at all times during the period from the date of the Company's Loan Application to and including the Closing Date. 3.2 Compliance with this Agreement The Company and the Guarantor shall have performed and complied with all agreements and conditions contained herein which are required to be performed or complied with before or at the Closing. 3.3 Officers' Certificates The Authority shall have received certificates dated the Closing Date and signed, respectively, by the Secretary of the Company and the Secretary of the Guarantor, substantially in the forms of Exhibits G and H, to this Agreement, respectively, with respect to certain corporate matters. 3.4 Execution and Delivery of Financing Documents The Company and the Guarantor each shall have duly executed and delivered to the Authority the Financing Documents to which they are a party. 3.5 Perfection and Priority of Mortgage, Guaranty Mortgage and Stock Pledge (a) On or before the Closing Date, the Company shall cause an original counterpart of the Mortgage to be filed with the town clerks of all towns in which the Company owns Real Estate and the Guarantor shall cause an original counterpart of the Guaranty Mortgage to be filed with the town clerks of all towns in which the Guarantor owns Real Estate. 10 15 (b) The Company shall furnish to the Authority at the Closing, at the company's expense, a policy of title insurance, in a form and issued by a title insurance company acceptable to the Authority, insuring that the Mortgage is a valid lien with respect to the Company's Real Estate, subject to no Lien except as may be approved by the Authority. The Guarantor shall furnish to the Authority at the Closing, at the Guarantor's expense, a policy of title insurance in a form and issued by a title insurance Company acceptable to the Authority, insuring that the Guaranty Mortgage is a valid lien with respect to the Guarantor's Real Estate, subject to no lien except as may be approved by the Authority. (c) The Company and the Guarantor shall each furnish to the Authority a current search on Form UCC-11 of the records of the Uniform Commercial Code Division of the office of the Secretary of the State of Connecticut showing no Liens on the Company's Property and Guarantor's Property, respectively, except as may be approved by the Authority. (d) The Guarantor shall deliver to the Authority, pursuant to the Stock Pledge, any shares of stock of the Borrower held by the Guarantor. (e) The Authority agrees that the Mortgage shall be subject to two prior mortgages to the State of Connecticut and the Guaranty Mortgage shall be subject to a prior mortgage to The Brooklyn Savings Bank. The priority of the Mortgage, Guaranty Mortgage and Stock Pledge with respect to certain liens granted to The Citizens National Bank ("Citizens Bank") to secure the Citizens Bank Loan (as hereafter defined) shall be determined pursuant to a Subordination and Intercreditor Agreement between the Authority and Citizens Bank of even date herewith. (f) The Company and the Guarantor, each shall execute and deliver to the Authority at the Closing such other financing statements, certificates and other documents as the Authority may reasonably request in order to give effect to and perfect its security interest under the Mortgage and the Guaranty Mortgage. 3.6 Opinion of Counsel The Authority shall have received from counsel to the Company and the Guarantor a closing opinion dated the Closing Date and in a form prescribed by the Authority. 3.7 Certification of Costs The Authority shall have received a certificate dated the Closing Date and signed by the President of the Company as to the actual cost of the Project, substantially in the form prescribed by the Authority, together with copies of appropriate bills of sale, construction contracts, invoices, receipts and other evidence of such costs if the Authority so requests, and an opinion of the Company's independent public accountant with respect thereto substantially in the form prescribed by the Authority. 11 16 3.8 Department of Health Services Certification The Authority shall have received a certification from the Department of Health Services, substantially in the form prescribed by the Authority, with respect to the completion of the Project and its compliance with the Safe Drinking Water Act, and certain other matters. 3.9 Completion of Project The Authority shall be satisfied that the Project has been completed substantially in accordance with the Loan Application and the Loan Authorization. 3.10 DPUC Approvals The Company shall have obtained favorable final decisions from the DPUC with respect to the Company's application to the DPUC to undertake the Loan and concurrent financing in the amount of $1,250,000.00 (the "Citizens Bank Loan"), and the Company's application to the DPUC to amend its rates. Each such final decision shall be satisfactory in form and substance to the Authority and shall include no burdensome conditions or restrictions. A certified copy of each such final decision shall be furnished by the Company to the Authority at the Closing. The Company shall also have furnished to the Authority certification from the DPUC that the costs of the Project are reasonable. 3.11 Site Plan and Zoning Compliance If required by the Authority, the Company shall have furnished the Authority with a site plan locating the Project in place, together with a certificate from the zoning enforcement officer of the town in which the Project is located to the effect that the Project is in compliance with the state building code and all local land use regulations, including those relating to zoning, subdivisions and inland wetlands. 3.12 Insurance The Company and the Guarantor each shall have furnished the Authority with a lender's certificate of insurance and copies of the policies of insurance referred to therein, establishing to the satisfaction of the Authority that the Company and the Guarantor each has obtained property and liability insurance in such amounts and with such coverages as is customary and reasonable for similarly situated, investor-owned water companies from such insurers as shall be reasonably satisfactory to the Authority. The Authority shall be named under standard, non-contributory mortgagee and loss payee clauses with respect to the Company's Property and the Guarantor's Property. 12 17 3.13 Good Standing Certificates; Tax Clearances The Company shall furnish the Authority with: (a) reasonably current long-form certificates of the Secretary of the State of Connecticut with respect to the corporate existence and good standing of the Company and the Guarantor; (b) a reasonably current certificate of the DPUC to the effect that the Company is a public service company subject to DPUC jurisdiction and has filed all required annual reports and is in good standing with the DPUC; (c) a letter from the tax collector of each town in which Property of the Company and the Guarantor is located confirming that the Company and the Guarantor are current in the payment of all municipal real and personal property taxes assessed against them there; and (d) a letter from the Department of Revenue Services of the State of Connecticut confirming that the Company and the Guarantor has filed all corporation business tax returns and gross earnings tax returns required to the date thereof and has paid the taxes shown as due thereon. 3.14 Affirmative Action Plan The Company shall have filed with the Authority and the Authority shall have approved an appropriate Affirmative Action Plan for the Company. 3.15 Commitment Fee Any balance owing with respect to the commitment fee due to the Authority from the company pursuant to the terms of the Loan Authorization shall have been paid. 3.16 Compliance with Loan Authorization Except to the extent expressly modified by this Agreement, the Company and the Guarantor each shall have performed and complied with all agreements and conditions contained in the Loan Authorization which are required to be performed or complied with before or at the Closing. 13 18 3.17 Proceedings Satisfactory All proceedings taken in connection with the transactions contemplated by this Agreement and all documents relating to the transactions contemplated by this Agreement shall be satisfactory to the Authority and its special counsel. The Authority shall have received such additional documents not inconsistent with the terms of this Agreement as the Authority or its special counsel may reasonably request. 14 19 SECTION 4 WARRANTIES AND REPRESENTATIONS OF THE COMPANY AND GUARANTOR The Company and Guarantor each hereby represents and warrants as follows: 4.1 Corporate Existence and Authority (a) The Company and the Guarantor each is a validly organized and existing corporation in good standing under the laws of the State of Connecticut and is not in violation of any provisions of its, charter, certificate of incorporation or bylaws. (b) The execution, delivery and performance of the Financing Documents are within the corporate powers of the Company and the Guarantor, have been duly authorized and approved by the boards of directors of the Company and the Guarantor, and require no stockholder approval or other corporate authorization. (c) The Company is a "public service company" and a "water company" within the meaning of Section 16-1 of the General Statutes, subject to the jurisdiction of the DPUC. The Company is current in filing all required reports and financial statements and is in good standing with the DPUC. (d) The Company is legally authorized to own and operate its properties, to lay and maintain its mains and to supply water for public and domestic use in the town(s) of Killingly, Brooklyn, Thompson and Plainfield, and the Company is the sole company supplying water for such use in said town(s). (e) The Company has valid and sufficient franchises to engage in the taking, collection, distribution and sale of water in the area served by it, the right to install and maintain pipes and conduits in public highways and grounds, and the power of eminent domain, which franchises, right and power are free from burdensome restrictions and unlimited as to time. 4.2 Enforceability of Financing Documents; No Prohibition or Consent (a) The Financing Documents constitute valid and legally binding agreements of the Company and the Guarantor, enforceable in accordance with their respective terms. (b) Neither the execution and delivery of the Financing Documents, the consummation of the transactions contemplated thereby, nor the fulfillment by the Company and the Guarantor of or compliance by the Company and the Guarantor with the terms and conditions thereof is in contravention of the Company's or the Guarantor's certificate of incorporation, charter or bylaws or any applicable law, regulation, order or 15 20 judgment, or is prevented or limited by or conflicts with or will result in a breach of or default under the terms, conditions or provisions of any contractual or other restriction on the Company or the Guarantor, evidence of its indebtedness or agreement or instrument of whatever nature to which the Company or the Guarantor is a party or by which it or any of its Property is bound. No event has occurred and no condition exists which, upon the execution and delivery of any of the Financing Documents, would constitute a Default. (c) There is no action or proceeding pending or, to the knowledge of the Company or the Guarantor, threatened against or affecting the Company or the Guarantor before any court, administrative agency or arbitration board that would materially and adversely affect the ability of the Company or the Guarantor to perform its obligations under the Financing Documents. All authorizations, approvals and consents of governmental bodies or agencies required in connection with the execution, delivery and performance of the Financing Documents have been obtained, and no authorization, approval or consent of any other Person is required therefor. 4.3 DPUC Approvals (a) The DPUC, by final decision dated November 20, 1989 approved an amended schedule of rates for the Company allowing the costs of the Project to be included in the Company's rate base and designed to produce increases in the Company's annual revenues of approximately $238,973. (b) The DPUC, by final decision dated November 20, 1989, approved the Loan, including the grant by the Company to the Authority of a security interest in its Property as contemplated by the Mortgage, and approved the Citizens Bank Loan. 4.4 Eligibility of the Company (a) The Company is a "water facility" as defined in Section 32-23x of the General Statutes. All of the outstanding capital stock of the Company is owned by the Guarantor. (b) The Company provides water service on a daily basis to at least twenty-five but fewer than ten thousand customers. (c) The Company is subject to the provisions of the Safe Drinking Water Act. The Project was necessary in order that the Company might comply with the provisions of the Safe Drinking Water Act and of an order of the Department of Health Services deeming the water supplied by the Company to be inadequate. The Project has been satisfactorily completed, and by virtue thereof the Company now is in compliance with the provisions of the Safe Drinking Water Act and such order. 16 21 4.5 Use of Proceeds All of the proceeds of the Loan will be used by the Company to pay the costs of planning, design, modification or construction of eligible drinking water facilities within the meaning of the Act. 4.6 Real Estate Except as set forth in Exhibit I to this Agreement, none of the Company's or the Guarantor's Real Estate is subject to any Lien which either (a) secures an obligation with respect to borrowed money or (b) is of a nature or character which materially impairs the value of the Real Estate or interferes with the use of the Real Estate in the Company's or the Guarantor's operations. 4.7 Transmission Rights The Company has Transmission Rights sufficient to permit it adequately to serve the town(s) of Killingly, Brooklyn, Thompson and Plainfield. The Company's Transmission Rights are free from burdensome restrictions and are unlimited as to time. 4.8 Property The Company and the Guarantor each owns all Property which it purports to own and which is used by it in the conduct of its business. None of its Property is subject to any Lien, except as set forth in Exhibit J to this Agreement. 4.9 Perfection and Priority of Mortgage The Mortgage has been duly recorded with the Town Clerk of the town(s) of Killingly, Brooklyn, Thompson and Plainfield, and the Guaranty Mortgage has been duly recorded with the Town Clerk of the town of Killingly. Financing Statements naming the Company as debtor and the Authority as secured party, and describing the Company's Property as collateral, have been filed with the office of the Secretary of the State of Connecticut and the Town Clerk of the towns of Killingly, Brooklyn, Thompson and Plainfield. Financing Statements naming the Guarantor as debtor and the Authority as secured party, and describing the Guarantor's Property as collateral, have been filed with the Office of the Secretary of the State of Connecticut and the Town Clerk of the town of Killingly. No further action is necessary to perfect or make effective the security interest in the Property of the Company and the Guarantor intended to be created by the Mortgage and the Guaranty Mortgage, and the Mortgage and Guaranty Mortgage create valid and direct liens on all of the Property of the Company and the Guarantor, respectively, subject only to those Liens contemplated by this Agreement or described in an Exhibit attached hereto. 17 22 4.10 Compliance with Laws The Company and Guarantor each is in compliance with all applicable federal, state and local laws and regulations affecting it, its Property and its business, including those relating to land use, including zoning, subdivision and inland wetlands; health; occupational safety; and environmental quality. 4.11 No Litigation There is no action or proceeding pending or, to the knowledge of the Company or the Guarantor, threatened against or affecting the Company or the Guarantor before any court, administrative agency or arbitration board. 4.12 Burdensome Contracts Neither the Company nor the Guarantor is a party to any burdensome contract or agreement which could or might materially and adversely affect its business operations or financial condition. 4.13 Taxes All tax returns required to be filed by the Company and the Guarantor in any jurisdiction have in fact been filed, and all taxes, assessments, fees and other governmental charges upon the Company and the Guarantor, or upon any of their Property, income or franchises which are due and payable have been paid. Each of the Company and the Guarantor knows of no proposed additional tax assessment against it, and each has adequately provided or reserved on its books for taxes for all open years and for its current fiscal year. 4.14 Financial Statements; No Adverse Change (a) The financial statements of the Company and the Guarantor furnished to the Authority as part of the Loan Application or thereafter in connection with the Loan have been prepared in accordance with generally accepted accounting principles and present in a complete and fair manner the financial position of the Company and the Guarantor, respectively, and the results of their operations for the fiscal periods covered thereby. (b) Since the end of the last fiscal period for which financial statements have been furnished to the Authority, there has been no material and adverse change in the Company's and the Guarantor's business, Property or financial condition. 18 23 SECTION 5 COVENANTS OF THE COMPANY AND THE GUARANTOR The Company and Guarantor each covenants that on and after the Closing Date, and for so long as any part of the Indebtedness shall remain outstanding: 5.1 Payment of Loan The Company will pay the Note according to its terms and the Company and Guarantor each will comply with each provision of this Agreement and each provision of the other Financing Documents binding upon it. 5.2 Expenses and Additional Indebtedness (a) The Company and the Guarantor (promptly, and in any event within thirty (30) days of receiving any invoice, statement or demand therefor) will pay all of the out-of-pocket expenses of the Authority, including the reasonable fees and disbursements of special counsel to the Authority, relating to: i) this Agreement and the transactions contemplated hereby, including the Closing; ii) perfecting, sustaining or defending the security interest of the Authority in the Company's and the Guarantor's Property; iii) protecting, maintaining and preserving the Company's and the Guarantor's Property following an Event of Default, including the payment by the Authority as deemed necessary by it in its sole discretion of insurance premiums, taxes, expenses of maintenance and repair, and the fees and disbursements of custodians, receivers, appraisers, liquidators and others retained with respect to the Property; and iv) collection of the Note and enforcement of the rights of the Authority under the Financing Documents following an Event of Default, including foreclosure of the Mortgage or the Guaranty Mortgage. (b) The Company and the Guarantor shall pay the reasonable fees and expenses of special counsel to the Authority in connection with the preparation of the Financing Documents whether or not the Loan is made. (c) Amounts due to the Authority under this Section 5.2 remaining unpaid thirty (30) days after the Company has received an invoice, statement or demand therefor shall bear interest at the rate provided for in the Note and shall be considered an addition to the principal balance on the Note, secured by and entitled to the benefit of the Mortgage. 19 24 5.3 Indemnification The Company and Guarantor each, jointly and severally, agrees to protect, defend and hold harmless the Authority and the members, officers and employees thereof from any claim, demand, suit, action or other proceeding whatsoever by any Person, arising or purportedly arising from or in connection with the Financing Documents, the transactions contemplated thereby or actions taken thereunder (except for any willful misconduct or gross negligence of any such indemnified party), or the construction, use or operation of the Project. 5.4 Corporate Existence and Authority (a) The Company will maintain its corporate existence in Connecticut and its status as a "public service company" and a "water company" within the meaning of Section 16-1 of the General Statutes and as a "water facility" within the meaning of the Act, and will preserve and keep in existence all of its rights and franchises. The Guarantor will maintain its corporate existence in Connecticut. (b) Without the prior written consent of the Authority, neither the Company nor the Guarantor will consolidate with, merge with or into or sell or transfer all or a significant part of their Property to any other Person, or issue any additional shares of their capital stock. 5.5 DPUC and Department of Health Services Compliance (a) The Company will file with the DPUC in a timely fashion all required reports and financial statements and will comply with all laws and regulations relating to its status as a public service company and all DPUC decisions, rulings, and orders applicable to the Company. (b) The Company will comply with all laws and regulations administered by the Department of Health Services and applicable to the Company, and all applicable orders of the Department of Health Services. 5.6 Taxes The Company and the Guarantor each will file in a timely fashion all tax returns required of it in any jurisdiction and will pay, before they become delinquent, all taxes, assessments, fees and other governmental charges upon it, or upon any of its Property, income or franchises; provided that such items need not be paid while being contested by it in good faith and by appropriate legal proceedings so long as adequate book reserves have been established with respect thereto and its title to, and its right to use, its Property is not materially and adversely affected thereby. 20 25 5.7 Maintenance of Property and Insurance (a) The Company and the Guarantor each will maintain its Property in good condition and make all necessary renewals, replacements, additions, betterments and improvements thereto, and the Company will maintain Transmission Rights sufficient adequately to provide water to its service area. (b) The Company and the Guarantor will maintain, with such insurers as shall be reasonably satisfactory to the Authority, casualty and liability insurance in such amounts and with such coverages as is customary and reasonable for similarly situated companies. Without limiting the foregoing, the Company shall maintain casualty insurance with respect to its Property in an aggregate amount not less than the outstanding principal balance of the Loan, and public liability insurance with an aggregate limit not less than $1,000,000. 5.8 Liens The Company and the Guarantor each will not agree to, cause, or permit any of its Property to be subject to any Lien, except: (a) Liens contemplated by this Agreement or described in an Exhibit attached hereto; (b) Liens securing taxes, assessments, fees or governmental charges, provided the payment thereof is not required by Section 5.6; (c) attachments, judgments and other similar Liens arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; and (d) reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other similar title exceptions or encumbrances affecting Real Estate, provided they neither (i) secure an obligation with respect to borrowed money, nor (ii) are of a nature or character which materially impairs the value of the Real Estate or interferes with the use of the Real Estate in the Company's or the Guarantor's operations. 5.9 Compliance with Laws The Company and the Guarantor each will comply with all applicable federal, state and local laws and regulations affecting it, its Property and its business, including those relating to land use, including zoning, subdivision and inland wetlands; health; occupational safety; and environmental quality. 21 26 5.10 Financial Statements (a) The Company and the Guarantor each will at all times keep accurate and complete records and books of account with respect to all of the its business activities, in accordance with sound accounting practices and generally accepted accounting principles, such records and accounts to be maintained at the address set forth on the first page of this Agreement. (b) The Company and Guarantor each shall furnish to the Authority (i) within 90 days after the end of each fiscal year, its balance sheet as of the end of such fiscal year, and the related statements of earnings and retained earnings and changes in financial position for the year then ended, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year in reasonable detail, including all supporting schedules and comments, all of which shall be prepared in accordance with generally accepted accounting principles consistently maintained, and certified by independent public accountants of recognized standing, satisfactory to the Authority; (ii) within 90 days after the end of each fiscal year, a statement from its independent public accountants indicating that, in the preparation of such statements, said accountants have obtained no knowledge of any default in any obligation to the Authority, or disclosing all defaults of which the accountants have obtained knowledge; (iii) such quarterly financial statements as the Authority may from time to time request; and (iv) such other financial information and statements relating to the Company or the Guarantor as the Authority reasonably may request. (c) The Authority, or any Person designated by it, shall have the right (to be exercised in a reasonable manner), from time to time, to call at the Company's and Guarantor's place or places of business during reasonable business hours, and, without hindrance or delay, to inspect, audit, check and make extracts from the books, records, journals, orders, receipts and any correspondence and other data relating to the Company's or the Guarantor's business or to any transactions between the parties hereto, and shall have the right to make such verification concerning the Company's and the Guarantor's Property as the Authority may consider reasonable under the circumstances, all at the Company's expense. (d) The Company shall deliver to the Authority copies of all financial statements, reports, rate requests, applications or other filings with the DPUC within 15 days of such filing and, within 15 days of receipt, copies of all DPUC rulings and orders with respect to the Company. (e) The Company and the Guarantor each shall deliver to the Authority copies of all reports or other communications to its shareholders within 15 days of the mailing thereof. 22 27 5.11 Protection of Mortgage and the Guaranty Mortgage The Company and the Guarantor each from time to time as the Authority may request will execute such additional financing statements, certificates and other documents as the Authority reasonably may require in order to continue in effect, perfect, preserve, and maintain the priority of the security interest intended to be afforded by the Mortgage and the Guaranty Mortgage. 5.12 Default Notification Upon becoming aware of the existence or occurrence of a Default under this Agreement, the Company or the Guarantor immediately shall provide to the Authority written notice identifying the Default and specifying the corrective action it is taking with respect thereto. 23 28 SECTION 6 DEFAULT AND REMEDIES 6.1 Events of Default Each of the following is an Event of Default under this Agreement: (a) the failure of the Company to make payment of any installment of principal and/or interest due under the Note within ten (10) days of its due date; (b) the failure of the Company or the Guarantor to pay any amount due the Authority pursuant to Section 2.5, Section 5.2 or Section 5.3 or any other Indebtedness within the time prescribed by this Agreement, and if no time is prescribed, within thirty (30) days of demand therefor made by the Authority; (c) the failure of the Company or the Guarantor to keep in force any insurance required by this Agreement or any of the other Financing Documents; (d) the actual or threatened waste, removal or demolition of, or material alteration to any significant part of the Company's or the Guarantor's Property; (e) the inaccuracy in any material respect of any representation made by or on behalf of the Company or the Guarantor in the Loan Application, this Agreement Or any of the other Financing Documents; (f) the material breach by the Company or the Guarantor of any its warranties in Section 4 of this Agreement; (g) the failure, for thirty (30) days after notice thereof from the Authority, of the Company or the Guarantor to observe or perform any other covenant or agreement in this Agreement, including but not limited to Section 5, or in any of the other Financing Documents; (h) without the prior written consent of the Authority, a change in the stock ownership or control of the Company or the Guarantor; (i) any default or event of default under any note, mortgage, security agreement or other instrument evidencing, securing or guarantying the Citizens Bank Loan or any modification, supplement or refinancing thereof; (j) the failure, for thirty (30) days after notice thereof from the Authority, of the Company or the Guarantor to observe and perform any of its covenants or agreements under any other note, mortgage, security agreement or other instrument evidencing, securing or guaranteeing a debt of the Company or the Guarantor, other than the Loan 24 29 (including, without limitation, the Citizens Bank Loan) to any Person, or the acceleration after default in the payment of any indebtedness due thereunder; (k) the failure of the Company or the Guarantor generally to pay its debts as such debts become due; (1) the entry of a decree or order for relief by a court having jurisdiction in respect of the Company or the Guarantor in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or the Guarantor or for any substantial part of the its property, or the issuance of an order for the winding-up or liquidation of the affairs of the Company or the Guarantor and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or upon the commencement by the Company or the Guarantor of a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by the Company or the Guarantor to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or the Guarantor or for any substantial part of the property of the Company or the Guarantor or the making by the Company or the Guarantor of any assignment for the benefit of creditors, or the taking of corporate action by the Company or the Guarantor in furtherance of any of the foregoing; (m) the revocation under Section 16-10a of the General Statutes of all or any part of the Company's franchise to operate as a public service company; (n) without the prior written consent of the Authority, the filing by the Company with the DPUC pursuant to Section 16-43 or Section 16-46 of the General Statutes of any application to merge or consolidate, sell, lease, assign, mortgage or dispose of an essential part of its franchise or Property, or dissolve or terminate its corporate existence; and (o) an Event of Default under any other Financing Document. 6.2 Remedies upon Event of Default In addition to, and not in limitation of, any other term of this Agreement or any other right or remedy hereunder or in accordance with law, upon the occurrence of any Event of Default: (a) the whole of the principal sum and accrued interest on the Note, and all other Indebtedness, at the option of the Authority and without notice, demand or legal process of any kind, shall become immediately due and payable; 25 30 (b) the Authority may proceed to enforce the performance or observance of any obligations, agreements, or covenants of the Company or the Guarantor in this Agreement or any of the other Financing Documents, to collect the amounts then due and thereafter to become due, and to foreclose the Mortgage or the Guaranty Mortgage, or the Stock Pledge, or otherwise enforce and realize upon its security interest in the Company's or the Guarantor's Property; and (c) in connection with any of the foregoing, the Authority may from time to time exercise any rights and remedies and take any action available to it at law or in equity, including the Uniform Commercial Code, in addition to and not in lieu of, any rights and remedies provided for in this Agreement or in any of the other Financing Documents. 6.3 Reinstatement In the event that any Event of Default is waived in writing by the Authority, then such Event of Default shall be annulled and the parties hereto shall be restored to their former rights hereunder, but no such waiver shall extend to any subsequent or other Event of Default or impair any other right of the Authority. 6.4 Marshalling The Authority shall not be compelled to release, or be prevented from foreclosing or enforcing the Mortgage upon all or any part of the Company's Property or the Guaranty Mortgage upon all or any part of the Guarantor's Property unless the entire Indebtedness shall be paid, and shall not be required to accept any part of the Company's or the Guarantor's Property, as distinguished from the whole, as payment of or upon the Indebtedness or to allow any apportionment of the Indebtedness to or among any separate parts of the Company's or the Guarantor's Property. 6.5 Partial Release The Authority, without notice, and without regard to the consideration, if any, paid therefor, and notwithstanding the existence at that time of any inferior liens thereon, may release any part of the Company's or Guarantor's Property from its security interests or any Person primarily or contingently liable for the Indebtedness, or may agree to extend the time for payment thereof, without in any way affecting the existence or priority of its security interest or the liability of any Person not expressly released. 6.6 No Waiver No delay or failure on the part of the Authority in the exercise of any right or remedy under this Agreement or any of the other Financing Documents shall operate as a waiver thereof, and no single or partial exercise by the Authority of any such right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. 26 31 6.7 Remedies Cumulative The rights and remedies provided in this Agreement and the other Financing Documents are cumulative and the Authority may recover judgment thereon, issue execution therefor, and resort to every other right or remedy available at law or in equity, without first exhausting and without impairing or affecting the security of or any right or remedy afforded by this Agreement or any of the other Financing Documents, and no enumerated or special rights or powers herein shall be construed to limit any grant of general rights or powers or take away or limit any rights of the Authority under applicable law. 6.8 Waiver of Rights THE COMPANY AND THE GUARANTOR EACH ACKNOWLEDGES THAT THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT IS A COMMERCIAL TRANSACTION, AND VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHT IT MAY HAVE TO NOTICE AND HEARING UNDER CHAPTER 903A OF THE GENERAL STATUTES OR AS OTHERWISE ALLOWED BY LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY. 27 32 SECTION 7 MISCELLANEOUS 7.1 Governing Laws This Agreement and each of the other Financing Documents shall be governed and construed in accordance with the laws of the State of Connecticut. 7.2 Notices Notices and other communications under this Agreement or any of the other Financing Documents shall be deemed sufficiently given when personally delivered or when mailed by registered or certified mail, postage prepaid, addressed as follows: (a) if to the Authority: Connecticut Development Authority 217 Washington Street Hartford, CT 06106 Attention: Water Company Loans or to such other address as the Authority shall have furnished in writing to the Company, or (b) if to the Company or Guarantor at: 321 Main Street P.O. Box 648 Danielson, CT 06239 or to such other address as the Company or the Guarantor shall have furnished in writing to the Authority. 7.3 Amendment and Waiver (a) This Agreement and any of the other Financing Documents may be amended, and the observance of any provision hereof or thereof may be waived, but only by an appropriate instrument in writing signed, in the case of an amendment, by all of the parties hereto, and in the case of a waiver, by the party against whom the waiver is to operate. 28 33 (b) No such amendment or waiver shall extend to or affect any provision of this Agreement or any of the other Financing Documents, or any Default or Event of Default, not expressly amended or waived. 7.4 Duplicate Originals This Agreement and each of the other Financing Documents may be signed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 7.5 Severability If any provision of this Agreement or any of the other Financing Documents or the application thereof to any Person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement or such Financing Document, or the application of such provision to other Persons or circumstances, shall not be affected thereby, and each provision shall be valid and enforceable to the fullest extent permitted by law. 7.6 Binding Effect This Agreement and each of the other Financing Documents shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 7.7 Term of this Agreement This Agreement and the other Financing Documents shall continue in full force and effect as long as any Indebtedness remains outstanding. 29 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATTEST [SEAL] THE CRYSTAL WATER COMPANY OF DANIELSON By: /s/ Randolph Kempain By: /s/ Roger Engle ---------------------- ----------------- Randolph Kempain Roger Engle Its Secretary Its President ATTEST [SEAL] CRYSTAL WATER UTILITIES CORPORATION By: /s/ Randolph Kempain By: /s/ Roger Engle ---------------------- ----------------- Randolph Kempain Roger Engle Its Secretary Its President CONNECTICUT DEVELOPMENT AUTHORITY By: /s/ Brian Day --------------- Its Loan Officer 30 EX-4.10 4 EX-4.10 1 Exhibit 4.10 LOAN AND SECURITY AGREEMENT THIS AGREEMENT made this 9th day of February, 1996, between THE CRYSTAL WATER COMPANY OF DANIELSON, a public service company specially chartered by the General Assembly of the State of Connecticut whose principal place of business is P.O. Box 648, 321 Main Street, Danielson, Connecticut (the "Debtor"), and NEW LONDON TRUST, F.S.B., a federal savings bank organized and existing under the laws of the United States of America and having an office at 203 Main Street, Danielson, Connecticut 06239 (the "Secured Party"). WITNESSETH: In consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, receipt of which is hereby acknowledged, Debtor and Secured Party agree as follows: 1. COMMERCIAL MORTGAGE LOAN. Subject to the terms and conditions contained in this Agreement, Secured Party agrees to make a commercial mortgage loan (the "Loan") to Debtor in the principal amount of TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS ($2,700,000). In addition to this Agreement, the Loan shall be evidenced by the Mortgage Note (the "Note"), a copy of which is attached hereto as Exhibit A. The Loan will be payable in principal installments as set forth in the Note. 2. INTEREST RATE. The Loan shall bear interest at the rates set forth and described in the Note. 3. USE OF LOAN PROCEEDS. Loan proceeds shall be used to refinance existing indebtedness with Citizens National Bank and The Connecticut Development Authority ("CDA"). 4. SECURITY INTEREST. To secure payment and performance of each and all of the Obligations, Debtor hereby assigns and grants to Secured Party a continuing security interest in all tangible and intangible personal property of Debtor, including, without limitation, Accounts, Chattel Paper, Equipment, General Intangibles, Instruments, and Inventory, together, in each instance, with the renewals, substitutions, replacements, additions, accessories, rental payments, products and proceeds (including, without limitation, insurance proceeds) thereof, (hereinafter, collectively called the "Collateral"). 5. DEFINITIONS. (a) The term "Accounts" shall mean, any right to payment held by Debtor, whether in the form of accounts receivable, notes, drafts, acceptances or other forms of obligations and receivables now or hereafter received by or belonging to Debtor for Inventory sold or leased by it or for services rendered by it whether or not earned by performance, together with all guarantees and security therefor and all proceeds thereof, whether cash proceeds or otherwise, including, without limitation, all right, title and interest of Debtor in the Inventory which gave rise to any such Accounts, including, without limitation, the right of stoppage in transit and all returned, rejected, rerouted or repossessed Inventory; (b) The term "Chattel Paper" shall mean a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods, whether now or hereafter held by Debtor; (c) The term "Equipment" shall mean all the machinery, equipment, furniture, tools, goods and other tangible personal property, excluding Motor Vehicles and Inventory, now owned or hereafter acquired by Debtor; 2 (d) The term "Financing Agreements" shall mean all agreements, notes, instruments, mortgages, security agreements and documents evidencing, securing or relating in any way to any and all loans, overdrafts, indebtedness, obligations, guaranties and liabilities of Debtor or any guarantor of the Loan to Secured Party of every kind and description, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, including without limitation, this Agreement and the Note; (e) The term "General Intangibles" shall mean any intangible personal property (including, without limitation, things in action) now or hereafter held by Debtor, other than Accounts, Chattel Paper and Instruments; (f) The term "Guarantor" shall mean Crystal Water Utilities Corporation. (g) The term "Instruments" shall mean a negotiable instrument or a certificated security, as defined in the Uniform Commercial Code of Connecticut, or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which, in the ordinary course of business, is transferred by delivery with any necessary endorsement or assignment, whether now or hereafter held by Debtor; (h) The term "Inventory" shall mean all goods, merchandise, raw materials, work in process, finished goods and products and other tangible personal property now owned or hereafter acquired by Debtor and held for sale or lease, or furnished or to be furnished under contracts of service or used or consumed in Debtor's business; (i) The term "Loan Account" shall mean the account on the books of Secured Party in which will be recorded the Loan made by Secured Party to Debtor pursuant to this Agreement, payments made on the Loan, and other debits and credits as provided by this Agreement; (j) The term "Obligations" shall mean any and all loans, overdrafts, indebtedness, obligations, guaranties and liabilities of Debtor to Secured Party of every kind and description, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, regardless of how they arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, including, but not limited to, the Loan, and all costs, expenses, fees, charges and attorneys' and other professional fees incurred by Secured Party in connection with any of the foregoing, or in any way connected with or related to the preservation, realization, enforcement, protection or defense of the Collateral, this Agreement, the Note, and the other Financing Agreements, and the rights and remedies hereunder or thereunder; (k) The term "Subordinated Debt" shall mean such of the liabilities of Debtor with respect to which payment has been subordinated to the payment of the Obligations pursuant to a subordination agreement in form and substance satisfactory to the Secured Party. 6. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Secured Party that: (a) Financial Statements. The financial statements, as of December 31, 1994 and prepared by David R. Daggett, previously furnished to Secured Party, present fairly in all material respects the financial position at such date and the results of operations of Debtor as of and for the periods then ending, in conformity with generally accepted accounting principles, there has been no material adverse change in the financial condition of Debtor since the date thereof, and there are no liabilities, fixed or contingent, not disclosed in such statements, except as incurred in the ordinary course of business since the date thereof. 3 (b) Business/Annual Report. Debtor's regular annual report and its audited financial report to the Department of Public Utility Control of the State of Connecticut ("DPUC") for its fiscal year ended December 31, 1994, correctly describes the business, financial condition and properties of Debtor, and the financial statements contained therein have been prepared in accordance with generally accepted accounting principles, except to the extent such principles are modified in accordance with the Uniform System of Accounts for Class A Utilities duly adopted by the DPUC and then in effect. (c) Ownership of Assets. Debtor has good and marketable title to its assets, free from any liens, mortgages, security interests, pledges or encumbrances, except: (i) as permitted in Section 8(a) hereof, and (ii) as shown on Exhibit B attached hereto. Except as shown on Exhibit B, no financing statements covering all or any part of Debtor's assets are on file in the office of the Secretary of the State of Connecticut or in any other federal, state or local governmental office, whether or not properly filed under applicable law. (d) Corporate Organization. Debtor is, and will continue to be, a corporation duly organized, validly existing and in good standing as a public service company under the laws of the State of Connecticut, and is, and will continue to be, duly qualified as a foreign corporation in good standing in every jurisdiction in which such qualification is necessary. Debtor has corporate power to enter into the Financing Agreements and to borrow hereunder, and has all requisite authorizations and permits to own and operate Debtor's properties and assets and to carry on Debtor's business as now being conducted. (e) Litigation: Taxes. There are no actions, suits, proceedings, or investigations pending, or judgments or orders outstanding, or, to the knowledge of Debtor, threatened against Debtor, which, if adversely decided against Debtor, could have a material adverse effect on the condition, operations or prospects (financial or otherwise) of Debtor, and Debtor has filed all required federal, state and local tax returns, and has paid all taxes as shown on such returns, and has provided adequate reserves for payment of any tax which is being contested. (f) Authority. The execution, delivery and performance of this Agreement, the Note, and each and every other agreement, instrument and document required to be executed or delivered to Secured Party by Debtor in connection with the Loan have been duly authorized by all necessary corporate action; the execution, delivery and performance of said agreements, instruments and documents, the consummation of the transactions therein contemplated, and the fulfillment of or compliance with the terms and provisions therein, are within Debtor's powers and are not in contravention of any provisions of Debtor's Certificate of Incorporation/Charter or By-Laws. The execution, delivery and performance of said agreements, instruments and documents will not result in a violation of any laws, or a breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of Debtor's assets (other than the security interest granted to Secured Party hereunder) pursuant to any of the terms, conditions or provisions of any agreement, instrument or other undertaking to which Debtor is a party or by which Debtor is bound. No consent, approval, authorization or other order of, or registration or filing with any governmental body is required in connection with the execution, delivery and performance of said agreements, instruments and documents. (g) Defaults. Debtor is not in default under any agreement, indenture, mortgage, deed of trust, or any other agreement or any court order or other order issued by any governmental body to which Debtor is a party or by which Debtor may be bound. (h) Environmental, Health, Safety Laws. Debtor has not received any notice, order, petition or similar document in connection with or arising out of any violation of any environmental, health or safety law, regulation, rule or order, and Debtor knows of no basis for any claim of such a violation or of any threat thereof. (i) Other Laws. Debtor is not in violation of any law, regulation, rule or order including, but not limited to, the laws, regulations, rules and orders described in subparagraph (g) above, which violation materially and adversely affects the financial condition of Debtor or the ability of Debtor to perform hereunder. 4 (j) Business Location. The Collateral, the books and records relating thereto, and the principal place of business of Debtor are all at the address of Debtor first written above. (k) Business Name. The name of Debtor has not changed for at least the past ten (10) years and during such period, Debtor has conducted, and currently conducts, its business solely in its own name without the use of a tradename or the intervention of or through any entity of any kind, except as shown on Exhibit B. (l) Water Company, Franchise Area. Debtor is a water company within the meaning of Section 16-1 (10), and conducts its business as such only in the Connecticut Towns of Killingly, Plainfield, Thompson and Brooklyn. (m) Permissible CDA Indebtedness. Secured Party has agreed to accept liens on the Collateral, as well as liens on certain real estate and properties located in the Towns of Killingly, Brooklyn and Thompson, respectively, owned by Debtor and property located at 321 Main Street, Danielson, Connecticut owned by Guarantor (collectively, the "Real Estate Collateral") reportedly subordinate to liens of the CDA only (the "CDA Liens"). Debtor hereby represents that the CDA Liens secure the repayment of indebtedness in favor of the CDA in the present amount of $562,157.00 (the balance as of fiscal year end December 31, 1994 and hereinafter referred to as the "Current CDA Debt"). Debtor hereby acknowledges that Secured Party has agreed to subordinate its liens and security interests to the CDA Liens only (that secure the Current CDA Debt) and to no other liens whatsoever. 7. AFFIRMATIVE COVENANTS. Debtor covenants and agrees that, from the date hereof until payment in full of the Loan and payment and performance of all the Obligations, unless Secured Party otherwise agrees in writing, Debtor and Guarantor (where indicated) shall: (a) Financial Reports. Furnish to Secured Party: (i) Within one hundred twenty (120) days after the end of each fiscal year of Debtor and Guarantor, their respective audited financial statements in form and substance acceptable to Secured Party, which shall be prepared in conformity with generally accepted accounting principles, and certified by the President or Treasurer of Debtor, as presenting fairly in all material respects the financial position of Debtor and Guarantor, as the case may be, as of the date of the period then ended and the results of operations of Debtor and Guarantor, as the case may be, as of and for the periods then ending, together with a statement that no Event of Default then exists under this Agreement, the Note or Guarantor's guaranty. (ii) Within thirty (30) days after the end of each six-month period, Debtor-prepared financial statements in form and substance satisfactory to Secured Party. (iii) Copies of all income tax returns of the Debtor and Guarantor, and any requests for extensions of filing deadlines, within ten (10) days of the filing of such returns or requests for extensions. (iv) Within fifteen (15) days of each filing date, all reports and applications filed with the DPUC, including, without limitation, Debtor's annual report and also any DPUC decisions concerning Debtor within fifteen (15) days of the draft of final decision. (v) Promptly upon Secured Party's written request, such other information about the financial condition, operations, and business of Debtor, or Guarantor, as Secured Party may, from time to time, request. (b) Taxes and Other Liens. File all required federal, state and local tax returns and pay when due all taxes, assessments and other charges of every nature which may be levied or assessed against Debtor or its assets, including without limitation, claims for labor, supplies and rent, except those liabilities being contested in good faith and for which Debtor maintains reserves in amount and form satisfactory to Secured Party. 5 (c) Casualty Insurance. Keep its properties insured against fire and other hazards (so-called "All Risk" coverage) in amounts and with insurers satisfactory to Secured Party, which insurance shall by the terms of the policy be payable to Secured Party as its interest may appear pursuant to a loss payee/mortgagee clause satisfactory to Secured Party. Secured Party shall have the right to apply the proceeds of any such insurance in reduction of the Obligations, whether or not then due and payable, in such manner as Secured Party in its sole discretion may determine. Without limiting the generality of the foregoing, such insurance must provide that it may not be canceled without 30 days prior written notice to Secured Party. Debtor hereby appoints Secured Party its attorney-in-fact, coupled with an interest, to settle, adjust and compromise any insurance losses, to collect and receive payments of insurance, and to endorse Debtor's name on all documents, checks and drafts in connection therewith. (d) Maintain Collateral. Maintain and preserve the Collateral in good repair, working order and condition, and make all needed and proper repairs, renewals, replacements, additions or improvements thereto, and immediately notify Secured Party of any event causing material loss or depreciation in the value of the Collateral and the amount of such loss or depreciation. (e) Inspection. Allow Secured Party by or through any of its officers, agents, attorneys, or accountants designated by it, to enter the offices and plants of Debtor to examine, inspect and make copies of the books and records of Debtor and to inspect the Collateral, all at such times and as often as Secured Party may reasonably request. (f) Liability Insurance. Maintain general public liability insurance against claims for personal injury, death or property damage in respect to the Real Estate Collateral in an aggregate amount of no less than $1,000,000, with companies satisfactory to Secured Party and in forms satisfactory to Secured Party, and workmen's compensation insurance, employment or similar insurance, as required by applicable law. (g) Defend Collateral. Defend the Collateral against all liens, claims and demands of all persons, and allow Secured Party, at the expense of Debtor, to contest or defend any such liens, claims and demands in Debtor's name. Cause the security interest of Secured Party to be properly noted on all certificates of title issued or outstanding with respect to any of the Collateral, and deposit same with Secured Party. (h) Financing Statements. From time to time, at the request of Secured Party, execute, deliver and file one or more financing statements, assignments, and other agreements, instruments or documents, and amendments and renewals thereof, and do all other acts as Secured Party deems necessary or desirable to create and maintain a valid and enforceable second priority security interest in the Collateral, and pay, upon demand, Secured Party's costs, charges and expenses, including without limitation, attorneys' fees incurred by Secured Party in connection therewith. Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact, coupled with an interest, to execute and file one or more financing statements, amendments and renewals thereof on Debtor's behalf. (i) Books and Records. Maintain complete and accurate books and records relating to its financial affairs at all times in accordance with generally accepted accounting principles, the Collateral, the Obligations, and Debtor's covenants hereunder. (j) Compliance with Laws. Comply with all laws, orders, rules and regulations applicable to Debtor of any governmental body or agency, including without limitation, environmental and health and safety laws, orders, rules and regulations. (k) Notification of Default. Give prompt written notice to Secured Party upon the occurrence of an Event of Default, or of any state of facts which would constitute an Event of Default hereunder or, which, but for the giving of notice or passage of time, or both, would constitute an Event of Default. 6 (l) Notification of Litigation. Give prompt written notice to Secured Party of the commencement or threat of litigation, including arbitration proceedings, and any proceedings before any governmental agency, or the occurrence of any other event, which, if decided adversely to Debtor, could have an adverse effect upon the condition, operations or prospects (financial or otherwise) of Debtor. (m) ERISA; Labor Disputes. Give prompt written notice to Secured Party of: (i) any event which causes Debtor to become subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and, upon becoming subject thereto, comply in all respects with ERISA; and (ii) any labor dispute or controversy resulting or likely to result in a strike or work stoppage against Debtor. 8. FINANCIAL AND OTHER COVENANTS. Debtor covenants and agrees that, from the date hereof until payment in full of the Loan and payment and performance of all the Obligations, unless Secured Party otherwise agrees in writing, Debtor shall: (a) Encumbrances. Not create or permit to exist any lien, mortgage, encumbrance or security interest against any of its assets, whether now owned or hereafter acquired, except for (i) security interests in favor of Secured Party, (ii) liens for taxes not yet due and payable, (iii) pledges or deposits in connection with or to secure worker's compensation, unemployment or liability insurance, and (iv) the CDA Liens. (b) Limitation on Indebtedness. Not create or assume any liability for borrowed money from any person or entity other than Secured Party (excluding the Current CDA Debt). (c) Name; Collateral. Not change Debtor's name, adopt any trade names or conduct Debtor's business under any trade name or style other than as shown on Exhibit B, or change Debtor's place of business or the present location of the Collateral, or any records relating to the Collateral. (d) Margin Stock. Not use any part of the proceeds of the Loan, directly or indirectly, for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or to extend credit to any entity or person for the purpose of purchasing or carrying any such margin stock. (e) Depository Accounts. Establish and maintain all of its depository accounts with the Secured Party. (f) Net Worth. Maintain a net worth (i.e., total assets less total liabilities) of $500,000 or greater on an annual basis. (g) Debt Service Coverage Ratio. Not permit its debt service coverage ratio to fall below 1.2 at any time (debt service coverage ratio is defined as annual net income plus depreciation, interest and deferred federal income taxes divided by the annual debt service payment). (h) Total Assets. Not permit its total assets to fall below $5,000,000 at any time during the term of the Loan. 9. PAYMENTS BY SECURED PARTY. At its option, but without any liability for failing to do so, Secured Party may pay for insurance on the Collateral and taxes, assessments or other charges which Debtor fails to pay in accordance with the provisions hereof, or of the other Financing Agreements, and may discharge any security interest in or lien upon the Collateral. No such payment or discharge of any such security interest or lien shall be deemed to constitute a waiver by Secured Party of the violation of any covenant hereunder by Debtor as a result of Debtor's failure to make any such payment or Debtor's suffering of any such security interest or lien. Any payment made, or expense incurred by Secured Party, pursuant to this or any other Section of this Agreement shall be added to and become a part of the Obligations, shall bear interest at the Default Rate, and shall be charged to the Loan Account. 7 10. EVENTS OF DEFAULT. Secured Party shall have the right at its option to terminate the Loan and/or declare any or all of the Obligations to be immediately due and payable without notice upon the occurrence of any one of the following events (each being an "Event of Default"): (a) The failure by Debtor to pay any of the Obligations when due, or such failure by Guarantor of any of the Obligations; (b) The failure by Debtor or such Guarantor to observe, perform or comply with any condition or covenant in this Agreement or any of the other Financing Agreements; (c) The existence of an event of default under any of the other Financing Agreements; (d) If any representation or warranty made by Debtor or Guarantor in this Agreement or in any of the other Financing Agreements, or any statement, certificate or other data furnished by Debtor or Guarantor in connection with any of the Obligations proves to be incorrect or untrue in any material respect when made; (e) The entry of a judgment for the payment of money against Debtor which remains unsatisfied and in effect for any period of thirty (30) consecutive days without a stay of execution, or appeal; (f) The insolvency of Debtor or Guarantor (the term "insolvency" shall mean either a negative tangible net worth or an inability to pay Debtor's or Guarantor's debts as they mature); (g) The filing by or against Debtor or Guarantor of any petition seeking an arrangement, reorganization or the like, the commencement of any proceedings under any bankruptcy or insolvency law by or against either of them, the adjudication of any of them as a bankrupt, the appointment of a receiver for all or any part of their respective assets, or the making of an assignment for the benefit of creditors, or the calling of a meeting of creditors, or the appointment of a committee of creditors or liquidating agents, by, for, or of either of them; (h) The death, dissolution, liquidation, insolvency, or termination of legal existence of Debtor or Guarantor, or merger or consolidation of Debtor or Guarantor with or into any other person or entity; (i) The failure by Debtor or Guarantor to pay any other indebtedness or obligations owed to others for borrowed money (including, without limitation, the Current CDA Debt) or if any such other indebtedness or obligation shall be accelerated; or (j) If, at any time, Secured Party believes in good faith that the prospect of payment or performance of any of the Obligations is impaired, or there is a change in the condition or affairs (financial, operating or otherwise) of Debtor or any such guarantor which Secured Party believes, in good faith, impairs its security or increases its risk, 11. REMEDIES OF SECURED PARTY: NOTICES. When the Obligations, or any of them, become immediately due and payable, whether by reason of passage of time, acceleration, or otherwise, Secured Party may, in addition to and not in limitation of Secured Party's rights set forth in Section 14 of this Agreement, pursue any legal remedy available to it to collect the Obligations outstanding at said time, to enforce its rights under the Financing Agreements, and to enforce any and all other rights or remedies available to it both under the Uniform Commercial Code of Connecticut (the "Code"), and otherwise, including, without limitation, the right to take possession of the Collateral and dispose of the same on Debtor's premises, all without judicial process, Debtor hereby waiving any right Debtor might otherwise have to require Secured Party to resort to judicial process and further waiving Debtor's right to notice and hearing under the Constitution of the United States or any state or under any Federal or state law, and no such action shall operate as a waiver of any other right or remedy of Secured Party under the terms of any of the Financing Agreements, or the law, all rights and remedies of Secured Party being cumulative and not 8 alternative. In addition, Secured Party may require Debtor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the expenses (including all attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all Obligations, application as to particular Obligations or against principal or interest to be in Secured Party's sole discretion. Any notice which Secured Party is required to give Debtor under the Code shall be deemed to constitute reasonable notice if such notice is mailed, return receipt requested, at least seven (7) days prior to such action. Debtor shall be liable to Secured Party and shall pay to Secured Party on demand any deficiency which may remain after such sale, lease, disposition, collection or liquidation of the Collateral. Debtor agrees that the powers granted hereunder, being coupled with an interest, shall be irrevocable so long as any of the Obligations remain outstanding. 12. SET-OFF. Debtor hereby grants to Secured Party a lien and right of set-off for all Obligations upon or against all moneys, deposits, property, collateral and securities and the proceeds thereof, now or hereafter held or received by, or in transit to, Secured Party from or for Debtor, whether for safekeeping, pledge, custody, transmission, collection or otherwise. Secured Party may at any time apply the same, or any part thereof, to the Obligations, or any part thereof, whether or not matured or demanded at the time of such application. 13. RIGHTS OF SECURED PARTY. With respect both to the Obligations and the Collateral, Debtor hereby consents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of the Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromising or adjusting of any claims thereof, all in such manner and at such time or times as Secured Party may deem advisable. Secured Party shall have no duty as to the collection or protection of the Collateral or any income thereon, nor as to the preservation of any rights against prior parties, nor as to the preservation of any rights pertaining thereto beyond the safe custody thereof. Secured Party may exercise its rights with respect to the Collateral without resorting or regard to other collateral or sources of reimbursement for the Obligations. Secured Party shall not be deemed to have waived any of its rights under the Financing Agreements or upon or under the Obligations or the Collateral unless such waiver is in writing and signed by Secured Party. No delay or omission on the part of Secured Party in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. Secured Party may revoke any permission or waiver previously granted to Debtor, and such revocation shall be effective whether given orally or in writing. All rights and remedies of Secured Party with respect to the Obligations or the Collateral, whether evidenced hereby or by any other document, shall be cumulative and may be exercised singularly or concurrently. 14. GENERAL PROVISIONS. (a) Expenses. Debtor shall pay on demand all expenses of Secured Party arising out of this transaction or in connection with the negotiation, preparation, administration, collection, defense, protection, preservation or enforcement of, or realization on, this Agreement, the other Financing Agreements, the Obligations, or any of the Collateral, or any waiver, modification or amendment of any provision of any of the foregoing, including, without limitation, attorneys' fees of outside counsel, and other professionals' fees, and the allocation costs of in-house legal counsel, and including, without limitation, any fees or expenses associated with any travel or other costs relating to any appraisals, examinations, administration of this Agreement, the other Financing Agreements or any of the Collateral, and the amounts of all such expenses shall, until paid, be Obligations secured by the Collateral. (b) Survival. This Agreement and the security interest granted to Secured Party by Debtor and every representation, warranty, covenant and other term contained herein shall survive until the Obligations have been paid in full. 9 (c) Notices. Any notice required to be given hereunder shall be effective when delivered to an overnight mail or messenger service or deposited in the mails, first class, postage prepaid, registered or certified mail, return receipt requested, to Debtor or Secured Party, as the case may be, at its address set forth above. Either of the parties hereto may notify the other that any such notice shall be given to such other address as such party may so instruct by written notice similarly given. (d) Entire Agreement. This Agreement is the entire agreement between the parties hereto and cannot be amended or modified except by a writing signed by Debtor and Secured Party. (e) Governing Law. This Agreement and the other Financing Agreements shall be construed in accordance with and governed by the laws of the State of Connecticut. Debtor hereby consents to service of process, and to be sued, in the State of Connecticut and consents to the jurisdiction of the courts of the State of Connecticut and the United States District Court for the District of Connecticut, for the purpose of any suit, action, or other proceeding arising hereunder, and expressly waives any and all objections it may have to venue in any such courts. (f) Headings. Sections and subsection headings have been inserted herein for convenience only and form no part of this Agreement and shall not be deemed to affect the meaning or construction of any of the covenants, agreements, conditions or terms hereof. (g) Severability. If any term or provision of this Agreement shall be invalid, illegal or unenforceable for any reason whatsoever, such term or provision shall be severable from the remainder of this Agreement and the validity, legality and enforceability of the remaining terms and provisions shall not in any way be affected or impaired thereby. (h) Binding. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns provided, however, that Debtor may not assign its rights hereunder without the prior written consent of Secured Party in its sole discretion, and any such attempted assignment without such consent shall be null and void. If Debtor consists of more than one person or entity, they shall be jointly and severally liable for all obligations herein contained. (i) Interpretation. As used herein, plural or singular include each other, and pronouns of any gender are to be construed as masculine, feminine or neuter, as context requires. 16. PREJUDGMENT REMEDY WAIVER; WAIVERS. DEBTOR AND GUARANTOR ACKNOWLEDGE THAT THE LOAN EVIDENCED AND SECURED BY THIS AGREEMENT IS A COMMERCIAL TRANSACTION AND DEBTOR AND GUARANTOR HEREBY WAIVE THEIR RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH SECURED PARTY MAY DESIRE TO USE, and further, Debtor and Guarantor waive diligence, demand, presentment for payment, notice of nonpayment, protest and notice of protest, and notice of any renewals or extensions of the Note or Guarantor's guaranty, and all rights under any statute of limitations. 17. WAIVER OF JURY TRIAL. DEBTOR AND GUARANTOR HEREBY WAIVE TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE ENFORCEMENT OF ANY OF SECURED PARTY'S RIGHTS AND REMEDIES. DEBTOR AND GUARANTOR ACKNOWLEDGE THAT THEY MAKE THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH THEIR ATTORNEYS. NO PARTY TO THIS AGREEMENT HAS AGREED WITH OR REPRESENTED TO ANY OTHER PARTY HERETO THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. BORROWER: THE CRYSTAL WATER COMPANY OF DANIELSON By: Roger Engle Its President GUARANTOR: CRYSTAL WATER UTILITIES CORPORATION By: Roger Engle Its President NEW LONDON TRUST, F.S.B. By: Brian P. McNamara Its Vice President 11 EXHIBIT A ATTACH COPY OF MORTGAGE NOTE 12 MORTGAGE NOTE $2,700,00.00 Danielson, Connecticut February 9, 1996 FOR VALUE RECEIVED, the undersigned THE CRYSTAL WATER COMPANY OF DANIELSON, a public service company specially chartered by the General Assembly of the State of Connecticut ("Maker"), promises to pay to the order of NEW LONDON TRUST, F.S.B., a federal savings bank organized under the laws of the United States of America having its principal place of business in Danielson, Connecticut ("Payee"), or any subsequent holder hereof (Payee or any subsequent holder hereof sometimes being hereinafter referred to as "Holder"), at the office of Payee at 203 Main Street, Danielson, Connecticut 06293, or at such other place as Holder may designate from time to time in writing, the principal sum of TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS ($2,700,000.00), together with: (i) interest at the rate and in the manner hereinafter provided; (ii) all amounts which may be or become due under the Mortgage (as hereinafter defined) or under any other document securing the indebtedness evidenced by this Note; (iii) all costs and expenses, including reasonable attorneys' and appraisers' fees, incurred in collecting or attempting to collect the indebtedness evidenced by this Note, or in foreclosing or otherwise enforcing the Mortgage or protecting or sustaining the lien of the Mortgage or in any litigation or controversy arising from or connected with this Note or the Mortgage; and (iv) all taxes and duties assessed upon the indebtedness evidenced by this Note or by the Mortgage or upon the Property (as hereinafter defined). Refer to paragraph 17 for defined terms. 1. This Note shall bear interest on the unpaid balance at a rate to be determined as follows: (a) Until the first Adjustment Date, the interest rate shall be eight percent (8%) per annum. (b) The interest rate during each Adjustment Period shall be a fixed rate per annum equal to the Index Rate less one quarter of one percentage point (.25%) as determined on the Adjustment Date which is the first day of such Adjustment Period; provided, however, the interest rate for any Adjustment Period shall not exceed 11.25% per annum for that particular Adjustment Period. 2. Principal and interest shall be due and payable, with interest payable in arrears, in monthly installments as follows: (a) Payments in the amount of $25,802.61 shall be due and payable on the first (1st) day of the month immediately following the date of this Note and on the first day of each and every month thereafter through and including the first Adjustment Date; provided, however, that if this Note is dated after the first day of a month, the interest that would accrue through the end of such month shall be payable in advance on the date of this Note, and, in that event, the monthly installments referred to above shall commence on the first day of the second month following the date of this Note through and including the first Adjustment Date. (b) Beginning with the first monthly payment due and payable after each Adjustment Date, monthly payments hereunder shall be adjusted to the amount that would fully amortize the then-outstanding principal balance at the adjusted interest rate then in effect in equal payments over a period of fifteen years from the date of the first payment due hereunder. Payments of such amounts shall be due and payable on the first day of the month immediately following the first Adjustment Date and on the first day of each and every month thereafter until the entire principal balance of the indebtedness evidenced by this Note and all interest and other amounts from time to time payable hereunder shall have been paid in full; (c) Provided, however, that, if not sooner paid, all amounts owing under this Note shall be due and payable in full on April 1, 2011. 13 3. Maker may prepay the indebtedness evidenced by this Note, in full, at any time, subject to the concurrent payment to Holder of an amount equal to the Prepayment Premium; provided, however, that any prepayment in full of the then outstanding principal balance of this Note after the Reference Date shall not be subject to payment of the Prepayment Premium. Amounts so prepaid shall be applied to interest and other charges accrued under this Note to the date prepayment shall have been received by Holder and then to principal, in the inverse order of the installments of principal payable under this Note. If the maturity of this Note shall be accelerated for any reason, then a tender of payment by Maker, or by anyone on behalf of Maker, of the amount necessary to satisfy all sums due hereunder shall constitute an evasion of the payment terms hereof and shall be deemed to be a voluntary prepayment under this Note, and any such prepayment, to the extent permitted by law, shall require the concurrent payment to Holder of the aforesaid Prepayment Premium. 4. All amounts owing under this Note shall be payable in legal tender of the United States of America. Interest shall be calculated on the daily unpaid principal balance of the indebtedness evidenced by this Note on the basis of a three hundred sixty (360) day year, provided that interest shall be due for the actual number of days elapsed during the period for which interest is being charged. Each payment hereunder shall be applied first to the payment of late charges, if any, then to interest and the balance to principal. 5. Any payment under this Note which is stated to be due on a day other than a "Business Day" (a day on which banks are open for business in Connecticut) shall be made on the next succeeding Business Day, and any such extension of time shall be included in the computation of the amount of interest to be paid; provided, however, that, if any such extension would cause any payment to be payable in the next following calendar month, such payment shall be made on the next preceding Business Day. 6. It shall be an Event of Default hereunder if Maker shall fail to make any payment hereunder when due or if any "Event of Default" (as defined in the Mortgage) shall occur. If an Event of Default or any other cause for acceleration of the indebtedness evidenced by this Note shall occur, then, at the option of Holder, all amounts remaining unpaid under this Note shall immediately become due and payable. The failure to exercise any such option or any other rights hereunder or any delay in such exercise, shall not constitute a waiver of the right to exercise such option or such other right at a later time so long as such Event of Default shall remain uncured, and shall not constitute a waiver of the right to exercise such option or other right in the event of any other Event of Default. The acceptance by Holder of payment of any sum payable hereunder after the due date of such payment shall not be a waiver of Holder's right either to require prompt payment when due of all other sums payable hereunder or to declare a default for failure to make prompt payment in full. 7. Upon the occurrence of any Event of Default, or upon maturity hereof (by acceleration or otherwise), the outstanding principal balance of the indebtedness evidenced by this Note shall, at the option of Holder, bear interest from the date of occurrence of such Event of Default or such maturity until collection (including any period of time occurring after judgment), at the lower of (a) the highest rate allowed by applicable law, or (b) four percent (4%) in excess of the interest rate that otherwise would have been in effect under this Note. If Holder shall not receive the full amount of any payment due under the terms of this Note or the Mortgage within ten (10) days after the due date of such payment, then Maker shall pay to Holder, upon demand, a late charge equal to five percent (5%) of the total amount of such payment, to cover the additional expenses involved in handling such overdue payment. Such charge shall be in addition to, and not in lieu of, any other remedy Holder may have and shall be in addition to, and not in lieu of, Maker's obligation to pay any reasonable fees and charges of any agents or attorneys employed by Holder in the event of any default hereunder. 8. Maker and each endorser, guarantor and surety of this Note, and each other person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note (a) waive demand, presentment, protest, notice of protest, notice of dishonor, diligence in collection, notice of nonpayment and all notices of a like nature, and (b) consent to (i) all renewals, extensions or modifications of this Note or the Mortgage (including any affecting the time of payment), (ii) all advances under this Note or the Mortgage, (iii) the release, surrender, exchange or substitution of all or any part of the security for the 14 indebtedness evidenced by this Note, or the taking of any additional security, (iv) the release of any or all other persons from liability, whether primary or contingent, for the indebtedness evidenced by this Note or for any related obligations, and (v) the granting of any other indulgences to any such person. Any such renewal, extension, modification, advance, release, surrender, exchange, substitution, taking or indulgence may take place without notice to any such person, and, whether or not any such notice is given, shall not affect the liability of any such person. 9. Maker and each endorser, guarantor and surety of this Note, and each other person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note, hereby give Holder a lien and right of setoff for all of their respective liabilities in respect of such indebtedness upon and against all of their respective deposits, credits and property (other than the Property), now or hereafter in the possession or control of Holder or in transit to it. Holder may at any time apply the same, or any part thereof, to any liability of Maker or any such other person, whether matured or unmatured. 10. Maker and each endorser, guarantor and surety of this Note, and each other person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note, hereby acknowledge that the transaction of which this Note is a part is a commercial transaction, and to the extent allowed under Connecticut General Statutes Sections 52-278a to 52-278n, inclusive, or by other applicable law, hereby waive their right to notice and hearing with respect to any prejudgment remedy which holder or its successors or assigns may desire to use. 11. If any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part, or in any respect, or if any one or more of the provisions of this Note shall operate, or would prospectively operate, to invalidate this Note, then such provision or provisions only shall be deemed to be null and void and of no force or effect and shall not affect any other provision of this Note, and the remaining provisions of this Note shall remain operative and in full force and effect, shall be valid, legal and enforceable, and shall in no way be affected, prejudiced or disturbed thereby. 12. This Note may not be modified or terminated orally, but only by a written instrument signed by the party against whom enforcement of any such modification or termination is sought. Time is and shall be of the essence in the performance of all obligations under this Note. This Note shall be governed by and construed in accordance with the laws of the State of Connecticut. 13. As used in this Note, words of any gender shall be deemed to apply equally to any other gender, the plural shall include the singular and the singular shall include the plural (as the context shall require), and the word "person" shall refer to individuals, entities, authorities and other natural and juridical persons of every type. 14. If this Note is now, or hereafter shall be, signed by more than one person, it shall be the joint and several obligation of all such persons (including, without limitation, all makers, endorsers, guarantors and sureties, if any) and shall be binding on all such persons and their respective heirs, executors, administrators, legal representatives, successors and assigns. This Note and all covenants, agreements and provisions set forth in this Note shall inure to the benefit of Holder and its successors and assigns. 15. Each adjustment in the interest rate on this Note pursuant to paragraph 1 (b) hereof shall take effect automatically on the applicable Adjustment Date. Holder shall use reasonable efforts to mail to Maker, within ten (10) days after each Adjustment Date, written notice (the "Adjustment Notice") specifying the interest rate at which this Note will bear interest from and after the applicable Adjustment Date and specifying the amount of each monthly installment that will be payable from and after such Adjustment Date. Notwithstanding the foregoing, Maker shall not be relieved of any obligations under the terms of this Note in the event of any failure of Holder to mail an Adjustment Notice, or any failure of Holder to mail an Adjustment Notice in a timely or proper manner, or any failure of Maker to receive an Adjustment Notice, or the presence of any error or errors in an Adjustment Notice. 15 16. The indebtedness evidenced by this Note is secured by, among other things, a blanket mortgage of even date herewith (the "Mortgage"), delivered to Holder encumbering certain real estate and properties located in the Towns of Killingly, Brooklyn, Plainfield and Thompson, respectively, (collectively, the "Property"), more particularly described in the Mortgage. The Mortgage is incorporated herein by reference and shall be deemed a part of this Note as if set forth in full herein. 17. As used in this Note, the following terms shall have the following meanings: (a) "Index Rate" on any Adjustment Date shall mean the prime rate as published in the "Money Rates" table of the Wall Street Journal. If more than one prime rate is published in the "Money Rates" table, the highest of those rates will be the Prime Rate for purposes of this Note. If the Wall Street Journal ceases to publish a "Money Rates" table, or if a prime rate is no longer included in the rates published therein, Holder will designate a comparable index. The selection of a comparable index shall be made in Holder's sole discretion. If interest hereunder is computed in relation to the Prime Rate, then as said Prime Rate changes from time to time, the interest rate hereunder shall change correspondingly on the date of each Prime Rate change, without notice or demand of any kind. (b) "Reference Date" shall mean April 1, 2003. (c) "Adjustment Date" shall mean the date each year, following the Reference Date, which is the anniversary of the Reference Date. (d) "Adjustment Period" shall mean the one-year period commencing on each Adjustment Date. (e) "Prepayment Premium" shall mean the payment by Maker of an amount equal to (1) 5% of the then outstanding balance hereof, if paid during the first year of the loan evidenced by this Note (the "Loan"), (2) 4% of the then outstanding balance hereof, if paid during the second year of the Loan, (3) 3% of the then outstanding balance hereof, if paid during the third year of the Loan, (4) 2% of the then outstanding balance hereof, if paid during the fourth year of the Loan, and (5) 1% of the then outstanding balance hereof, if paid during the fifth year through and including the seventh year of the Loan. THE CRYSTAL WATER COMPANY OF DANIELSON By: Roger Engle Its President 16 EXHIBIT B Description of Financing Statements, Liens, Mortgages and other Encumbrances (See Section 6(c)): Previously furnished to and disclosed to the Secured Party. Tradenames (See Sections 6(j) and 8(h)): None EX-10.5 5 EX-10.5 1 -1- Exhibit 10.5 AMENDED AND RESTATED DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT is made as of the ____ day of __________, 1999 by and between The Connecticut Water Company (together with any affiliated companies hereinafter collectively referred to as the "Employer") and Marshall T. Chiaraluce (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Employee is among a select group of management or highly compensated employees of the Employer who entered into a Deferred Compensation Agreement with the Employer made as of the first day of January, 1992 (the "Deferred Compensation Agreement"); and WHEREAS, the Employer and the Employee desire to amend and restate the Deferred Compensation Agreement on the terms herein set forth; and WHEREAS, the Employer and the Employee are willing to enter into this Amended and Restated Deferred Compensation Agreement (the "Agreement") on the terms herein set forth. NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises herein, the parties hereto agree as follows: 2 -2- 1. DEFERRED COMPENSATION. The Employee may file a written election with the Employer in the form attached to this Agreement or such other form as may be approved by the Employer to defer up to 12 percent (12%) of the Employee's salary. Such amount shall be credited to a Deferred Compensation Account as provided in Section 2 hereof. This election to defer the receipt of salary must be made before the beginning of the calendar year for which the salary is payable and shall remain in effect, unless terminated or changed, or until the date the Employee ceases to be an employee of the Employer. Any termination or change of a deferral election must be made on a form provided by the Employer for such purpose and may only be made with respect to salary which will be earned on and after the January 1 following the Employer's receipt of such form provided that such form is received at least seven (7) days prior to the applicable January 1. 2. DEFERRED COMPENSATION ACCOUNT. The Employer shall maintain on its books and records a Deferred Compensation Account to record its liability for future payments of deferred compensation and interest thereon required to be paid to the Employee or his beneficiary pursuant to this Agreement. However, the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee or his beneficiary. The amount reflected in said Deferred Compensation Account shall be available for the Employer's general corporate purposes and shall be available to the Employer's general creditors. The amount reflected in said Deferred Compensation Account shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee or his beneficiary, and any attempt to anticipate, alienate, transfer or assign the same shall be void. Neither the Employee 3 -3- nor his beneficiary may assert any right or claim against any specific assets of the Employer. The Employee or his beneficiary shall have only a contractual right against the Employer for the amount reflected in said Deferred Compensation Account. Notwithstanding the foregoing, in order to pay amounts which may become due under this Agreement, the Employer may establish a grantor trust (hereinafter the "Trust") within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. The assets in such Trust shall at all times be subject to the claims of the general creditors of the Employer in the event of the Employer's bankruptcy or insolvency, and neither the Employee nor any beneficiary shall have any preferred claim or right, or any beneficial ownership interest in, any such assets of the Trust prior to the time such assets are paid to an Employee or beneficiary pursuant to this Agreement. The Employer shall credit to said Deferred Compensation Account the amount of any salary to which the Employee becomes entitled and which is deferred pursuant to Section 1 hereof, such amount to be credited as of the first business day of each month. The Employer shall also credit to said Deferred Compensation Account an Interest Equivalent in the amount and manner set forth in Section 3 hereof. 3. PAYMENT OF DEFERRED COMPENSATION (a) Termination of Employment On or After Attainment of Age 65. If the Employee's employment should terminate on or after his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account 4 -4- including an Interest Equivalent, as described below, in the form of an actuarially equivalent life annuity providing for equal annual payments for the life of the Employee with a guarantee that fifteen (15) annual payments will be made. Such actuarially equivalent life annuity shall be computed on the basis of a mortality table that assumes a life expectancy of age eighty (80) and uses the Interest Factor described below. There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with January 1, 1992 until payment of such account is made or begins, as additional deferred compensation, an Interest Equivalent equal to fifty percent (50%) of the product of (i) the AAA Corporate Bond Yield Averages published by Moody's Bond Survey for the Friday ending on or immediately preceding the applicable January 1 and July 1 plus two (2) percentage points (the "Interest Factor"), multiplied by (ii) the balance of the Employee's Deferred Compensation Account, including the amount of Interest Equivalent previously credited to such Employee's account, as of the preceding day (i.e., December 31 or June 30). The Interest Factor used to compute the annuity payable upon the Employee's termination of employment on or after his attainment of age sixty-five (65) shall be calculated based upon the Interest Factor as of the January 1 or July 1 immediately preceding the date of the Employee's termination of employment, whichever shall fall nearer to the date of the Employee's termination of employment. The first annuity payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 5 -5- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (b) Termination of Employment After Attainment of Age 55 and Prior to Attainment of Age 65. If the Employee's employment should terminate after his attainment of age fifty-five (55) and prior to his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of equal annual installments over a period equal to the Employee's remaining life, assuming a life expectancy of age eighty (80). There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with January 1, 1992 until payment of said annual installments are completed, as additional deferred compensation, an Interest Equivalent as described in subsection (a) above. The first installment payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 6 -6- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described in subsection (a) above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (c) Termination of Employment Prior to Attainment of Age 55. If the Employee's employment should terminate prior to his attainment of age fifty-five (55) for any reason other than death or on account of "Cause" as defined in subsection (d) below, the Employee shall be entitled to receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including the same Interest Equivalent as described in subsection (a) above. Payment under this subsection shall be made within sixty (60) days after the Employee's termination of employment or, at the option of the Board of Directors of the Employer, in its sole discretion, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (d) Termination of Employment for Cause. If the employment of the Employee is terminated by the Employer for Cause, the Employee shall be entitled only to a return of amounts deferred pursuant to Section 1 hereof, and this Agreement and all payments provided for in this Agreement, including any obligation to pay interest on deferred compensation, shall terminate. 7 -7- Said deferred amounts shall be paid in a lump sum within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. As used in this Agreement, the term "Cause" shall mean: (i) the Employee's rendering, while employed by the Employer, of any services, assistance or advice, either directly or indirectly, to any person, firm or organization competing with, or in opposition to, the Employer; (ii) the Employee's allowing, while employed by the Employer, any use of his name by any person, firm or organization competing with, or in opposition to, the Employer; or (iii) willful misconduct by the Employee, including, but not limited to, the commission by the Employee of a felony or the perpetration by the Employee of a common law fraud upon the Employer. (e) Death While Employed. Notwithstanding anything to the contrary contained in the foregoing, if the Employee should die while employed by the Employer, his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the greater of (i) the Hypothetical Death Benefit, as defined in subsection (g) hereof, and (ii) the entire amount of his Deferred Compensation Account at the date of his death, assuming that an Interest 8 -8- Equivalent were credited to such account as of each January 1 and July 1, commencing with January 1, 1992, until the date of death at the rate set forth in subsection (a) hereof. Such beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. (f) Death After Termination of Employment. If the Employee should die after the termination of his employment with the Employer and prior to the date on which payment of his Deferred Compensation Account has commenced in the form of an annuity as provided in subsection (a), or has been made in the form of a lump sum as provided in subsections (a), (b), (c) or (d), or has been fully distributed in the event of payment in the form of installments as provided in subsection (b), his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the entire amount of the Employee's Deferred Compensation Account at the date of his death (or the entire remaining amount of the Employee's Deferred Compensation Account at the date of his death in the event that payment has commenced in the form of installments as provided in subsection (b)) and, provided that the Employee's employment shall not have terminated on account of "Cause" as provided in subsection (d) hereof, an Interest Equivalent credited to such account as of each January 1 and July 1, commencing with January 1, 1992, until the date of death at the rate set forth in subsection (a) hereof. No Interest Equivalent shall be credited to the Employee's Deferred Compensation Account in the event of the Employee's death after his termination on account of "Cause" as 9 -9- provided in subsection (d) hereof. The Employee's beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and the Interest Equivalent set forth in subsection (a) hereof has commenced in the form of an annuity as provided in subsection (a), no additional benefits shall be payable under this Agreement after the Employee's death except to the extent that the Employee did not receive prior to his death the guaranteed fifteen (15) annual payments provided in subsection (a), in which case the unpaid guaranteed payments shall be paid to the Employee's beneficiary, designated pursuant to Section 4, in annual payments for the remainder of said guaranteed fifteen (15)-year term. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and, with respect to payments made in accordance with subsections (a), (b) or (c) hereof, the Interest Equivalent set forth in subsection (a) hereof, has been paid in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the form of installments as provided in subsection (b), no additional benefits shall be payable upon the Employee's death. 10 -10- (g) Hypothetical Death Benefit. For purposes of this Agreement, the term "Hypothetical Death Benefit" shall mean a lump sum benefit equal to the proceeds of any policy of key-man life insurance on the life of the Employee, of which the Employer is owner and beneficiary, and which policy is designated by the Employer as subject to the provisions hereof, reduced by (i) the amount of any tax imposed on the Employer with respect to such proceeds and (ii) the cost to the Employer of any tax deductions postponed as a result of salary deferrals pursuant to Section 1 hereof and increased by (iii) the tax deduction to the Employer which would result from payment of the Hypothetical Death Benefit to a beneficiary of the Employee. For purposes of (ii) above, an opportunity cost factor of six (6) percent pre-tax interest will be applied during the period of postponed deductions under (ii). The calculation of the Hypothetical Death Benefit shall be done by the Employer, whose calculation shall be final and binding on the Employee and his beneficiary. Anything herein to the contrary notwithstanding, the Employer shall not be required to purchase a policy of key-man life insurance on the life of any Employee, and any such policy purchased by the Employer, and all proceeds thereof, shall remain at all times available to the Employer's general creditors. 4. BENEFICIARY. The Employee has notified or will in the future notify the Employer of the person or persons entitled to receive payments on the death of the Employee. For the purposes of this Agreement, such person or persons are herein referred to collectively as the "beneficiary." The person whom an Employee designates as his beneficiary for this purpose must be one of the following: the Employee's spouse, father, mother, sister, brother, son or daughter. The beneficiary may also be a legal ward living with and dependent on the Employee 11 -11- at the time of his death. If the Employee dies and has not designated a beneficiary, his beneficiary shall be his spouse, if living; otherwise, his beneficiary shall be deemed to be his estate. An Employee's beneficiary designation may be changed at any time by the Employee giving written notice to the Employer of such change. The rights of any beneficiary presently or hereafter designated are subject to any changes made in this Agreement by the Employee and the Employer. 5. WITHHOLDING. The Employer shall be permitted to withhold from any payment to the Employee or his beneficiary hereunder all federal, state or other taxes which may be required with respect to such payment. 6. ARBITRATION. In the event that a dispute shall arise with respect to any of the provisions of this Agreement, either the Employer or the Employee or his beneficiary, as the case may be, may give written notice to the other stating the claims that said party desires to arbitrate, and naming an arbitrator. Within ten (10) days after the receipt of such notice, the party receiving same shall appoint a second arbitrator by written notice to be sent to the party who requested arbitration. Within ten (10) days after receipt of such notice of appointment of the second arbitrator, the two (2) arbitrators so appointed shall meet to select a third arbitrator and shall give written notice of such selection to the Employer and the Employee or his beneficiary. The decision of a majority of the arbitrators shall be conclusive and binding upon the Employer and the Employee or his beneficiary. All notices hereunder shall be by registered mail addressed to the last known address of the party entitled to receive notice. The Employer and the Employee 12 -12- shall each pay their own costs incurred in the arbitration proceeding; provided, however, that the arbitrators may require that the losing party reimburse the prevailing party for its costs if it shall be determined that the claim which gave rise to the dispute was without substantial foundation. 7. MISCELLANEOUS. (a) This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Employer agrees that it will not be a party to any merger, consolidation or reorganization unless and until its obligations hereunder shall be expressly assumed by its successor or successors. (b) This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, or any beneficiary designated by him, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided. (c) This Agreement may be terminated by the Employer at any time that tax or other laws are enacted or interpreted which result or will result in costs to the Employer significantly in excess of those contemplated at the time of the execution hereof. In the event of such termination, the Employer's sole obligation shall be to pay to the Employee in a lump sum the amount of his Deferred Compensation Account, including an Interest Equivalent as determined by Section 3(a), as if the effective date of termination of this Agreement were considered to be 13 -13- the date of termination of the Employee's employment. Such payment shall be made to the Employee within ninety (90) days after the effective date of termination of this Agreement. (d) This Agreement shall not supersede any contract of employment, whether oral or written, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the Employee. (e) If Moody's Bond Survey shall cease to publish the Corporate Bond Yield Averages referred to in Section 3 hereof, a similar average selected by the Board of Directors of the Employer, in its sole discretion, shall be used. (f) This Agreement shall be executed in duplicate, and each executed copy of this Agreement shall be deemed an original. (g) This Agreement shall be construed in all respects under the laws of the State of Connecticut. 14 -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. THE CONNECTICUT WATER COMPANY ___________________________ By__________________________________ Marshall T. Chiaraluce Its 15 -15- Notice of Election to Defer Compensation Pursuant to the terms of the Deferred Compensation Agreement (the "Agreement") by and between The Connecticut Water Company (the "Company") and Marshall T. Chiaraluce, made as of the first day of January, 1992 and amended and restated as of the ____ day of ____________, 1999, I hereby elect to defer, pursuant to Section 1 thereof, ____% of my salary payable in connection with the performance of my services as an employee of the Company beginning __________, ____. This election shall be effective for calendar years beginning after the date hereof until the calendar year next beginning after the date on which I notify the Company to change or terminate future deferrals pursuant to the terms of Section 1 of the Agreement on a form provided by the Company. I understand that this election to defer shall be continued as to the salary which is earned for each calendar year for which this election to defer is effective until distribution of such deferred compensation to me upon my termination of services as an employee, or to my beneficiary in the event of my death, as provided in the Agreement. I also understand that I may change the amount deferred (including terminating deferrals) with respect to salary earned for calendar years commencing after my delivery to the Company of a written notice of change, provided such written notice is delivered to the Company on a form approved by the Company at least seven (7) days before the commencement of such calendar year. Further, I understand that if I terminate deferrals I may make a new election to again defer my salary pursuant to the Agreement and that any new election to defer payment of my salary must be made and delivered to the Company at least seven (7) days before the beginning of the calendar year for which the salary is payable. In the event of my death, any payment to which I am entitled under the terms of the Agreement which has not been made to me at the date of my death shall be distributed to: Primary Beneficiary(ies): Name:______________________________ Address:___________________________ Relationship:______________________ Percentage Share:__________________ Contingent Beneficiary(ies): Name:______________________________ Address:___________________________ Relationship:______________________ Percentage Share:__________________ in accordance with the provisions of Section 3 of the Agreement. 16 -16- Notwithstanding the foregoing to the contrary, in the event of payment of the "Hypothetical Death Benefit" pursuant to Section 3(g) of the Agreement, any beneficiary designation made by me in connection with a key-man life insurance policy on my life shall supersede the beneficiary designation made hereinabove. - ------------------------- ------------------------------ Date Marshall T. Chiaraluce 17 -1- Exhibit 10.5 AMENDED AND RESTATED DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT is made as of the ____ day of ________, 1999 by and between The Connecticut Water Company (together with any affiliated companies hereinafter collectively referred to as the "Employer") and David C. Benoit (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Employee is among a select group of management or highly compensated employees of the Employer who entered into a Deferred Compensation Agreement with the Employer made as of the first day of July, 1996 (the "Deferred Compensation Agreement"); and WHEREAS, the Employer and the Employee desire to amend and restate the Deferred Compensation Agreement on the terms herein set forth; and WHEREAS, the Employer and the Employee are willing to enter into this Amended and Restated Deferred Compensation Agreement (the "Agreement") on the terms herein set forth. NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises herein, the parties hereto agree as follows: 18 -2- 1. DEFERRED COMPENSATION. The Employee may file a written election with the Employer in the form attached to this Agreement or such other form as may be approved by the Employer to defer up to 12 percent (12%) of the Employee's salary. Such amount shall be credited to a Deferred Compensation Account as provided in Section 2 hereof. This election to defer the receipt of salary must be made before the beginning of the calendar year for which the salary is payable and shall remain in effect, unless terminated or changed, or until the date the Employee ceases to be an employee of the Employer. Any termination or change of a deferral election must be made on a form provided by the Employer for such purpose and may only be made with respect to salary which will be earned on and after the January 1 following the Employer's receipt of such form provided that such form is received at least seven (7) days prior to the applicable January 1. 2. DEFERRED COMPENSATION ACCOUNT. The Employer shall maintain on its books and records a Deferred Compensation Account to record its liability for future payments of deferred compensation and interest thereon required to be paid to the Employee or his beneficiary pursuant to this Agreement. However, the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee or his beneficiary. The amount reflected in said Deferred Compensation Account shall be available for the Employer's general corporate purposes and shall be available to the Employer's general creditors. The amount reflected in said Deferred Compensation Account shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee or his beneficiary, and any 19 -3- attempt to anticipate, alienate, transfer or assign the same shall be void. Neither the Employee nor his beneficiary may assert any right or claim against any specific assets of the Employer. The Employee or his beneficiary shall have only a contractual right against the Employer for the amount reflected in said Deferred Compensation Account. Notwithstanding the foregoing, in order to pay amounts which may become due under this Agreement, the Employer may establish a grantor trust (hereinafter the "Trust") within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. The assets in such Trust shall at all times be subject to the claims of the general creditors of the Employer in the event of the Employer's bankruptcy or insolvency, and neither the Employee nor any beneficiary shall have any preferred claim or right, or any beneficial ownership interest in, any such assets of the Trust prior to the time such assets are paid to an Employee or beneficiary pursuant to this Agreement. The Employer shall credit to said Deferred Compensation Account the amount of any salary to which the Employee becomes entitled and which is deferred pursuant to Section 1 hereof, such amount to be credited as of the first business day of each month. The Employer shall also credit to said Deferred Compensation Account an Interest Equivalent in the amount and manner set forth in Section 3 hereof. 3. PAYMENT OF DEFERRED COMPENSATION (a) Termination of Employment On or After Attainment of Age 65. If the Employee's employment should terminate on or after his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be 20 -4- entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of an actuarially equivalent life annuity providing for equal annual payments for the life of the Employee with a guarantee that fifteen (15) annual payments will be made. Such actuarially equivalent life annuity shall be computed on the basis of a mortality table that assumes a life expectancy of age eighty (80) and uses the Interest Factor described below. There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with July 1, 1996 until payment of such account is made or begins, as additional deferred compensation, an Interest Equivalent equal to fifty percent (50%) of the product of (i) the AAA Corporate Bond Yield Averages published by Moody's Bond Survey for the Friday ending on or immediately preceding the applicable January 1 and July 1 plus three (3) percentage points (the "Interest Factor"), multiplied by (ii) the balance of the Employee's Deferred Compensation Account, including the amount of Interest Equivalent previously credited to such Employee's account, as of the preceding day (i.e., December 31 or June 30). The Interest Factor used to compute the annuity payable upon the Employee's termination of employment on or after his attainment of age sixty-five (65) shall be calculated based upon the Interest Factor as of the January 1 or July 1 immediately preceding the date of the Employee's termination of employment, whichever shall fall nearer to the date of the Employee's termination of employment. The first annuity payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 21 -5- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (b) Termination of Employment After Attainment of Age 55 and Prior to Attainment of Age 65. If the Employee's employment should terminate after his attainment of age fifty-five (55) and prior to his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of equal annual installments over a period equal to the Employee's remaining life, assuming a life expectancy of age eighty (80). There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with July 1, 1996 until payment of said annual installments are completed, as additional deferred compensation, an Interest Equivalent as described in subsection (a) above. The first installment payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 22 -6- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described in subsection (a) above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (c) Termination of Employment Prior to Attainment of Age 55. If the Employee's employment should terminate prior to his attainment of age fifty-five (55) for any reason other than death or on account of "Cause" as defined in subsection (d) below, the Employee shall be entitled to receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including the same Interest Equivalent as described in subsection (a) above. Payment under this subsection shall be made within sixty (60) days after the Employee's termination of employment or, at the option of the Board of Directors of the Employer, in its sole discretion, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (d) Termination of Employment for Cause. If the employment of the Employee is terminated by the Employer for Cause, the Employee shall be entitled only to a return of amounts deferred pursuant to Section 1 hereof, and this Agreement and all payments provided for in this Agreement, including any obligation to pay interest on deferred compensation, shall terminate. 23 -7- Said deferred amounts shall be paid in a lump sum within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. As used in this Agreement, the term "Cause" shall mean: (i) the Employee's rendering, while employed by the Employer, of any services, assistance or advice, either directly or indirectly, to any person, firm or organization competing with, or in opposition to, the Employer; (ii) the Employee's allowing, while employed by the Employer, any use of his name by any person, firm or organization competing with, or in opposition to, the Employer; or (iii) willful misconduct by the Employee, including, but not limited to, the commission by the Employee of a felony or the perpetration by the Employee of a common law fraud upon the Employer. (e) Death While Employed. Notwithstanding anything to the contrary contained in the foregoing, if the Employee should die while employed by the Employer, his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the greater of (i) the Hypothetical Death Benefit, as defined in subsection (g) hereof, and (ii) the entire amount of his Deferred Compensation Account at the date of his death, assuming that an Interest 24 -8- Equivalent were credited to such account as of each January 1 and July 1, commencing with July 1, 1996, until the date of death at the rate set forth in subsection (a) hereof. Such beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. (f) Death After Termination of Employment. If the Employee should die after the termination of his employment with the Employer and prior to the date on which payment of his Deferred Compensation Account has commenced in the form of an annuity as provided in subsection (a), or has been made in the form of a lump sum as provided in subsections (a), (b), (c) or (d), or has been fully distributed in the event of payment in the form of installments as provided in subsection (b), his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the entire amount of the Employee's Deferred Compensation Account at the date of his death (or the entire remaining amount of the Employee's Deferred Compensation Account at the date of his death in the event that payment has commenced in the form of installments as provided in subsection (b)) and, provided that the Employee's employment shall not have terminated on account of "Cause" as defined in subsection (d) hereof, an Interest Equivalent credited to such account as of each January 1 and July 1, commencing with July 1, 1996, until the date of death at the rate set forth in subsection (a) hereof. No Interest Equivalent shall be credited to the Employee's Deferred Compensation Account in the event of the Employee's death after his termination on account of "Cause" as provided in subsection (d) 25 -9- hereof. The Employee's beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and the Interest Equivalent set forth in subsection (a) hereof has commenced in the form of an annuity as provided in subsection (a), no additional benefits shall be payable under this Agreement after the Employee's death except to the extent that the Employee did not receive prior to his death the guaranteed fifteen (15) annual payments provided in subsection (a), in which case the unpaid guaranteed payments shall be paid to the Employee's beneficiary, designated pursuant to Section 4, in annual payments for the remainder of said guaranteed fifteen (15)-year term. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and, with respect to payments made in accordance with subsections (a), (b) or (c) hereof, the Interest Equivalent set forth in subsection (a) hereof, has been paid in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the form of installments as provided in subsection (b), no additional benefits shall be payable upon the Employee's death. 26 -10- (g) Hypothetical Death Benefit. For purposes of this Agreement, the term "Hypothetical Death Benefit" shall mean a lump sum benefit equal to the proceeds of any policy of key-man life insurance on the life of the Employee, of which the Employer is owner and beneficiary, and which policy is designated by the Employer as subject to the provisions hereof, reduced by (i) the amount of any tax imposed on the Employer with respect to such proceeds and (ii) the cost to the Employer of any tax deductions postponed as a result of salary deferrals pursuant to Section 1 hereof and increased by (iii) the tax deduction to the Employer which would result from payment of the Hypothetical Death Benefit to a beneficiary of the Employee. For purposes of (ii) above, an opportunity cost factor of six (6) percent pre-tax interest will be applied during the period of postponed deductions under (ii). The calculation of the Hypothetical Death Benefit shall be done by the Employer, whose calculation shall be final and binding on the Employee and his beneficiary. Anything herein to the contrary notwithstanding, the Employer shall not be required to purchase a policy of key-man life insurance on the life of any Employee, and any such policy purchased by the Employer, and all proceeds thereof, shall remain at all times available to the Employer's general creditors. 4. BENEFICIARY. The Employee has notified or will in the future notify the Employer of the person or persons entitled to receive payments on the death of the Employee. For the purposes of this Agreement, such person or persons are herein referred to collectively as the "beneficiary." The person whom an Employee designates as his beneficiary for this purpose must be one of the following: the Employee's spouse, father, mother, sister, brother, son or daughter. The beneficiary may also be a legal ward living with and dependent on the Employee 27 -11- at the time of his death. If the Employee dies and has not designated a beneficiary, his beneficiary shall be his spouse, if living; otherwise, his beneficiary shall be deemed to be his estate. An Employee's beneficiary designation may be changed at any time by the Employee giving written notice to the Employer of such change. The rights of any beneficiary presently or hereafter designated are subject to any changes made in this Agreement by the Employee and the Employer. 5. WITHHOLDING. The Employer shall be permitted to withhold from any payment to the Employee or his beneficiary hereunder all federal, state or other taxes which may be required with respect to such payment. 6. ARBITRATION. In the event that a dispute shall arise with respect to any of the provisions of this Agreement, either the Employer or the Employee or his beneficiary, as the case may be, may give written notice to the other stating the claims that said party desires to arbitrate, and naming an arbitrator. Within ten (10) days after the receipt of such notice, the party receiving same shall appoint a second arbitrator by written notice to be sent to the party who requested arbitration. Within ten (10) days after receipt of such notice of appointment of the second arbitrator, the two (2) arbitrators so appointed shall meet to select a third arbitrator and shall give written notice of such selection to the Employer and the Employee or his beneficiary. The decision of a majority of the arbitrators shall be conclusive and binding upon the Employer and the Employee or his beneficiary. All notices hereunder shall be by registered mail addressed to the last known address of the party entitled to receive notice. The Employer and the Employee 28 -12- shall each pay their own costs incurred in the arbitration proceeding; provided, however, that the arbitrators may require that the losing party reimburse the prevailing party for its costs if it shall be determined that the claim which gave rise to the dispute was without substantial foundation. 7. MISCELLANEOUS. (a) This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Employer agrees that it will not be a party to any merger, consolidation or reorganization unless and until its obligations hereunder shall be expressly assumed by its successor or successors. (b) This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, or any beneficiary designated by him, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided. (c) This Agreement may be terminated by the Employer at any time that tax or other laws are enacted or interpreted which result or will result in costs to the Employer significantly in excess of those contemplated at the time of the execution hereof. In the event of such termination, the Employer's sole obligation shall be to pay to the Employee in a lump sum the amount of his Deferred Compensation Account, including an Interest Equivalent as determined by Section 3(a), as if the effective date of termination of this Agreement were considered to be 29 -13- the date of termination of the Employee's employment. Such payment shall be made to the Employee within ninety (90) days after the effective date of termination of this Agreement. (d) This Agreement shall not supersede any contract of employment, whether oral or written, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the Employee. (e) If Moody's Bond Survey shall cease to publish the Corporate Bond Yield Averages referred to in Section 3 hereof, a similar average selected by the Board of Directors of the Employer, in its sole discretion, shall be used. (f) This Agreement shall be executed in duplicate, and each executed copy of this Agreement shall be deemed an original. (g) This Agreement shall be construed in all respects under the laws of the State of Connecticut. 30 -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. THE CONNECTICUT WATER COMPANY ____________________________ By__________________________________ David C. Benoit Its 31 -15- Notice of Election to Defer Compensation Pursuant to the terms of the Deferred Compensation Agreement (the "Agreement") by and between The Connecticut Water Company (the "Company") and David C. Benoit, made as of the first day of July, 1996 and amended and restated as of the ____ day of ____________, 1999, I hereby elect to defer, pursuant to Section 1 thereof, ____% of my salary payable in connection with the performance of my services as an employee of the Company beginning __________, ____. This election shall be effective for calendar years beginning after the date hereof until the calendar year next beginning after the date on which I notify the Company to change or terminate future deferrals pursuant to the terms of Section 1 of the Agreement on a form provided by the Company. I understand that this election to defer shall be continued as to the salary which is earned for each calendar year for which this election to defer is effective until distribution of such deferred compensation to me upon my termination of services as an employee, or to my beneficiary in the event of my death, as provided in the Agreement. I also understand that I may change the amount deferred (including terminating deferrals) with respect to salary earned for calendar years commencing after my delivery to the Company of a written notice of change, provided such written notice is delivered to the Company on a form approved by the Company at least seven (7) days before the commencement of such calendar year. Further, I understand that if I terminate deferrals I may make a new election to again defer my salary pursuant to the Agreement and that any new election to defer payment of my salary must be made and delivered to the Company at least seven (7) days before the beginning of the calendar year for which the salary is payable. In the event of my death, any payment to which I am entitled under the terms of the Agreement which has not been made to me at the date of my death shall be distributed to: Primary Beneficiary(ies): Name:______________________________ Address:___________________________ Relationship:______________________ Percentage Share:__________________ Contingent Beneficiary(ies): Name:______________________________ Address:___________________________ Relationship:______________________ Percentage Share:__________________ in accordance with the provisions of Section 3 of the Agreement. 32 -16- Notwithstanding the foregoing to the contrary, in the event of payment of the "Hypothetical Death Benefit" pursuant to Section 3(g) of the Agreement, any beneficiary designation made by me in connection with a key-man life insurance policy on my life shall supersede the beneficiary designation made hereinabove. - ------------------------- ------------------------------ Date David C. Benoit 33 -1- Exhibit 10.5 AMENDED AND RESTATED DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT is made as of the ____ day of ___________, 1999 by and between The Connecticut Water Company (together with any affiliated companies hereinafter collectively referred to as the "Employer") and James R. McQueen (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Employee is among a select group of management or highly compensated employees of the Employer who entered into a Deferred Compensation Agreement with the Employer made as of the first day of January, 1989 (the "Deferred Compensation Agreement"); and WHEREAS, the Employer and the Employee desire to amend and restate the Deferred Compensation Agreement on the terms herein set forth; and WHEREAS, the Employer and the Employee are willing to enter into this Amended and Restated Deferred Compensation Agreement (the "Agreement") on the terms herein set forth. NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises herein, the parties hereto agree as follows: 34 -2- 1. DEFERRED COMPENSATION. The Employee may file a written election with the Employer in the form attached to this Agreement or such other form as may be approved by the Employer to defer up to 12 percent (12%) of the Employee's salary. Such amount shall be credited to a Deferred Compensation Account as provided in Section 2 hereof. This election to defer the receipt of salary must be made before the beginning of the calendar year for which the salary is payable and shall remain in effect, unless terminated or changed, or until the date the Employee ceases to be an employee of the Employer. Any termination or change of a deferral election must be made on a form provided by the Employer for such purpose and may only be made with respect to salary which will be earned on and after the January 1 following the Employer's receipt of such form provided that such form is received at least seven (7) days prior to the applicable January 1. 2. DEFERRED COMPENSATION ACCOUNT. The Employer shall maintain on its books and records a Deferred Compensation Account to record its liability for future payments of deferred compensation and interest thereon required to be paid to the Employee or his beneficiary pursuant to this Agreement. However, the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee or his beneficiary. The amount reflected in said Deferred Compensation Account shall be available for the Employer's general corporate purposes and shall be available to the Employer's general creditors. The amount reflected in said Deferred Compensation Account shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee or his beneficiary, and any attempt to anticipate, alienate, transfer or assign the same shall be void. Neither the Employee 35 -3- nor his beneficiary may assert any right or claim against any specific assets of the Employer. The Employee or his beneficiary shall have only a contractual right against the Employer for the amount reflected in said Deferred Compensation Account. Notwithstanding the foregoing, in order to pay amounts which may become due under this Agreement, the Employer may establish a grantor trust (hereinafter the "Trust") within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. The assets in such Trust shall at all times be subject to the claims of the general creditors of the Employer in the event of the Employer's bankruptcy or insolvency, and neither the Employee nor any beneficiary shall have any preferred claim or right, or any beneficial ownership interest in, any such assets of the Trust prior to the time such assets are paid to an Employee or beneficiary pursuant to this Agreement. The Employer shall credit to said Deferred Compensation Account the amount of any salary to which the Employee becomes entitled and which is deferred pursuant to Section 1 hereof, such amount to be credited as of the first business day of each month. The Employer shall also credit to said Deferred Compensation Account an Interest Equivalent in the amount and manner set forth in Section 3 hereof. 3. PAYMENT OF DEFERRED COMPENSATION (a) Termination of Employment On or After Attainment of Age 65. If the Employee's employment should terminate on or after his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account 36 -4- including an Interest Equivalent, as described below, in the form of an actuarially equivalent life annuity providing for equal annual payments for the life of the Employee with a guarantee that fifteen (15) annual payments will be made. Such actuarially equivalent life annuity shall be computed on the basis of a mortality table that assumes a life expectancy of age eighty (80) and uses the Interest Factor described below. There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with January 1, 1989, until payment of such account is made or begins, as additional deferred compensation, an Interest Equivalent equal to fifty percent (50%) of the product of (i) the AAA Corporate Bond Yield Averages published by Moody's Bond Survey for the Friday ending on or immediately preceding the applicable January 1 and July 1 plus one and one-half (1 1/2) percentage points (the "Interest Factor"), multiplied by (ii) the balance of the Employee's Deferred Compensation Account, including the amount of Interest Equivalent previously credited to such Employee's account, as of the preceding day (i.e., December 31 or June 30). The Interest Factor used to compute the annuity payable upon the Employee's termination of employment on or after his attainment of age sixty-five (65) shall be calculated based upon the Interest Factor as of the January 1 or July 1 immediately preceding the date of the Employee's termination of employment, whichever shall fall nearer to the date of the Employee's termination of employment. The first annuity payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 37 -5- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (b) Termination of Employment After Attainment of Age 55 and Prior to Attainment of Age 65. If the Employee's employment should terminate after his attainment of age fifty-five (55) and prior to his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of equal annual installments over a period equal to the Employee's remaining life, assuming a life expectancy of age eighty (80). There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with January 1, 1989 until payment of said annual installments are completed, as additional deferred compensation, an Interest Equivalent as described in subsection (a) above. The first installment payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 38 -6- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described in subsection (a) above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (c) Termination of Employment Prior to Attainment of Age 55. If the Employee's employment should terminate prior to his attainment of age fifty-five (55) for any reason other than death or on account of "Cause" as defined in subsection (d) below, the Employee shall be entitled to receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including the same Interest Equivalent as described in subsection (a) above. Payment under this subsection shall be made within sixty (60) days after the Employee's termination of employment or, at the option of the Board of Directors of the Employer, in its sole discretion, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (d) Termination of Employment for Cause. If the employment of the Employee is terminated by the Employer for Cause, the Employee shall be entitled only to a return of amounts deferred pursuant to Section 1 hereof, and this Agreement and all payments provided for in this Agreement, including any obligation to pay interest on deferred compensation, shall terminate. 39 -7- Said deferred amounts shall be paid in a lump sum within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. As used in this Agreement, the term "Cause" shall mean: (i) the Employee's rendering, while employed by the Employer, of any services, assistance or advice, either directly or indirectly, to any person, firm or organization competing with, or in opposition to, the Employer; (ii) the Employee's allowing, while employed by the Employer, any use of his name by any person, firm or organization competing with, or in opposition to, the Employer; or (iii) willful misconduct by the Employee, including, but not limited to, the commission by the Employee of a felony or the perpetration by the Employee of a common law fraud upon the Employer. (e) Death While Employed. Notwithstanding anything to the contrary contained in the foregoing, if the Employee should die while employed by the Employer, his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the greater of (i) the Hypothetical Death Benefit, as defined in subsection (g) hereof, and (ii) the entire amount of his Deferred Compensation Account at the date of his death, assuming that an Interest 40 -8- Equivalent were credited to such account as of each January 1 and July 1, commencing with January 1, 1989, until the date of death at the rate set forth in subsection (a) hereof. Such beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. (f) Death After Termination of Employment. If the Employee should die after the termination of his employment with the Employer and prior to the date on which payment of his Deferred Compensation Account has commenced in the form of an annuity as provided in subsection (a) or has been made in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the event of payment in the form of installments as provided in subsection (b), his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the entire amount of the Employee's Deferred Compensation Account at the date of his death (or the entire remaining amount of the Employee's Deferred Compensation Account at the date of his death in the event that payment has commenced in the form of installments as provided in subsection (b)) and, provided that the Employee's employment shall not have terminated on account of "Cause" as provided in subsection (d) hereof, an Interest Equivalent credited to such account as of each January 1 and July 1, commencing with January 1, 1989, until the date of death at the rate set forth in subsection (a) hereof. No Interest Equivalent shall be credited to the Employee's Deferred Compensation Account in the event of the Employee's death after his termination on account of "Cause" as 41 -9- provided in subsection (d) hereof. The Employee's beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and the Interest Equivalent set forth in subsection (a) hereof has commenced in the form of an annuity as provided in subsection (a), no additional benefits shall be payable under this Agreement after the Employee's death except to the extent that the Employee did not receive prior to his death the guaranteed fifteen (15) annual payments provided in subsection (a), in which case the unpaid guaranteed payments shall be paid to the Employee's beneficiary, designated pursuant to Section 4, in annual payments for the remainder of said guaranteed fifteen (15)-year term. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and, with respect to payments made in accordance with subsections (a), (b) or (c) hereof, the Interest Equivalent set forth in subsection (a) hereof, has been paid in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the form of installments as provided in subsection (b), no additional benefits shall be payable upon the Employee's death. 42 -10- (g) Hypothetical Death Benefit. For purposes of this Agreement, the term "Hypothetical Death Benefit" shall mean a lump sum benefit equal to the proceeds of any policy of key-man life insurance on the life of the Employee, of which the Employer is owner and beneficiary, and which policy is designated by the Employer as subject to the provisions hereof, reduced by (i) the amount of any tax imposed on the Employer with respect to such proceeds and (ii) the cost to the Employer of any tax deductions postponed as a result of salary deferrals pursuant to Section 1 hereof and increased by (iii) the tax deduction to the Employer which would result from payment of the Hypothetical Death Benefit to a beneficiary of the Employee. For purposes of (ii) above, an opportunity cost factor of six (6) percent pre-tax interest will be applied during the period of postponed deductions under (ii). The calculation of the Hypothetical Death Benefit shall be done by the Employer, whose calculation shall be final and binding on the Employee and his beneficiary. Anything herein to the contrary notwithstanding, the Employer shall not be required to purchase a policy of key-man life insurance on the life of any Employee, and any such policy purchased by the Employer, and all proceeds thereof, shall remain at all times available to the Employer's general creditors. 4. BENEFICIARY. The Employee has notified or will in the future notify the Employer of the person or persons entitled to receive payments on the death of the Employee. For the purposes of this Agreement, such person or persons are herein referred to collectively as the "beneficiary." The person whom an Employee designates as his beneficiary for this purpose must be one of the following: the Employee's spouse, father, mother, sister, brother, son or daughter. The beneficiary may also be a legal ward living with and dependent on the Employee 43 -11- at the time of his death. If the Employee dies and has not designated a beneficiary, his beneficiary shall be his spouse, if living; otherwise, his beneficiary shall be deemed to be his estate. An Employee's beneficiary designation may be changed at any time by the Employee giving written notice to the Employer of such change. The rights of any beneficiary presently or hereafter designated are subject to any changes made in this Agreement by the Employee and the Employer. 5. WITHHOLDING. The Employer shall be permitted to withhold from any payment to the Employee or his beneficiary hereunder all federal, state or other taxes which may be required with respect to such payment. 6. ARBITRATION. In the event that a dispute shall arise with respect to any of the provisions of this Agreement, either the Employer or the Employee or his beneficiary, as the case may be, may give written notice to the other stating the claims that said party desires to arbitrate, and naming an arbitrator. Within ten (10) days after the receipt of such notice, the party receiving same shall appoint a second arbitrator by written notice to be sent to the party who requested arbitration. Within ten (10) days after receipt of such notice of appointment of the second arbitrator, the two (2) arbitrators so appointed shall meet to select a third arbitrator and shall give written notice of such selection to the Employer and the Employee or his beneficiary. The decision of a majority of the arbitrators shall be conclusive and binding upon the Employer and the Employee or his beneficiary. All notices hereunder shall be by registered mail addressed to the last known address of the party entitled to receive notice. The Employer and the Employee 44 -12- shall each pay their own costs incurred in the arbitration proceeding; provided, however, that the arbitrators may require that the losing party reimburse the prevailing party for its costs if it shall be determined that the claim which gave rise to the dispute was without substantial foundation. 7. MISCELLANEOUS. (a) This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Employer agrees that it will not be a party to any merger, consolidation or reorganization unless and until its obligations hereunder shall be expressly assumed by its successor or successors. (b) This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, or any beneficiary designated by him, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided. (c) This Agreement may be terminated by the Employer at any time that tax or other laws are enacted or interpreted which result or will result in costs to the Employer significantly in excess of those contemplated at the time of the execution hereof. In the event of such termination, the Employer's sole obligation shall be to pay to the Employee in a lump sum the amount of his Deferred Compensation Account, including an Interest Equivalent as determined by Section 3(a), as if the effective date of termination of this Agreement were considered to be 45 -13- the date of termination of the Employee's employment. Such payment shall be made to the Employee within ninety (90) days after the effective date of termination of this Agreement. (d) This Agreement shall not supersede any contract of employment, whether oral or written, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the Employee. (e) If Moody's Bond Survey shall cease to publish the Corporate Bond Yield Averages referred to in Section 3 hereof, a similar average selected by the Board of Directors of the Employer, in its sole discretion, shall be used. (f) This Agreement shall be executed in duplicate, and each executed copy of this Agreement shall be deemed an original. (g) This Agreement shall be construed in all respects under the laws of the State of Connecticut. 46 -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. THE CONNECTICUT WATER COMPANY ___________________________ By__________________________________ James R. McQueen Its 47 -15- Notice of Election to Defer Compensation Pursuant to the terms of the Deferred Compensation Agreement (the "Agreement") by and between The Connecticut Water Company (the "Company") and James R. McQueen, made as of the first day of January, 1989 and amended and restated as of the ____ day of ____________, 1999, I hereby elect to defer, pursuant to Section 1 thereof, ____% of my salary payable in connection with the performance of my services as an employee of the Company beginning __________, ____. This election shall be effective for calendar years beginning after the date hereof until the calendar year next beginning after the date on which I notify the Company to change or terminate future deferrals pursuant to the terms of Section 1 of the Agreement on a form provided by the Company. I understand that this election to defer shall be continued as to the salary which is earned for each calendar year for which this election to defer is effective until distribution of such deferred compensation to me upon my termination of services as an employee, or to my beneficiary in the event of my death, as provided in the Agreement. I also understand that I may change the amount deferred (including terminating deferrals) with respect to salary earned for calendar years commencing after my delivery to the Company of a written notice of change, provided such written notice is delivered to the Company on a form approved by the Company at least seven (7) days before the commencement of such calendar year. Further, I understand that if I terminate deferrals I may make a new election to again defer my salary pursuant to the Agreement and that any new election to defer payment of my salary must be made and delivered to the Company at least seven (7) days before the beginning of the calendar year for which the salary is payable. In the event of my death, any payment to which I am entitled under the terms of the Agreement which has not been made to me at the date of my death shall be distributed to: Primary Beneficiary(ies): Name:_________________________________ Address:______________________________ Relationship:_________________________ Percentage Share:_____________________ Contingent Beneficiary(ies): Name:_________________________________ Address:______________________________ Relationship:_________________________ Percentage Share:_____________________ in accordance with the provisions of Section 3 of the Agreement. 48 -16- Notwithstanding the foregoing to the contrary, in the event of payment of the "Hypothetical Death Benefit" pursuant to Section 3(g) of the Agreement, any beneficiary designation made by me in connection with a key-man life insurance policy on my life shall supersede the beneficiary designation made hereinabove. - ------------------------- ------------------------------ Date James R. McQueen 49 -1- Exhibit 10.5 AMENDED AND RESTATED DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT is made as of the ____ day of _____________, 1999 by and between The Connecticut Water Company (together with any affiliated companies hereinafter collectively referred to as the "Employer") and Kenneth W. Kells (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Employee is among a select group of management or highly compensated employees of the Employer who entered into a Deferred Compensation Agreement with the Employer made as of the first day of January, 1989 (the "Deferred Compensation Agreement"); and WHEREAS, the Employer and the Employee desire to amend and restate the Deferred Compensation Agreement on the terms herein set forth; and WHEREAS, the Employer and the Employee are willing to enter into this Amended and Restated Deferred Compensation Agreement (the "Agreement") on the terms herein set forth. NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises herein, the parties hereto agree as follows: 50 -2- 1. DEFERRED COMPENSATION. The Employee may file a written election with the Employer in the form attached to this Agreement or such other form as may be approved by the Employer to defer up to 12 percent (12%) of the Employee's salary. Such amount shall be credited to a Deferred Compensation Account as provided in Section 2 hereof. This election to defer the receipt of salary must be made before the beginning of the calendar year for which the salary is payable and shall remain in effect, unless terminated or changed, or until the date the Employee ceases to be an employee of the Employer. Any termination or change of a deferral election must be made on a form provided by the Employer for such purpose and may only be made with respect to salary which will be earned on and after the January 1 following the Employer's receipt of such form provided that such form is received at least seven (7) days prior to the applicable January 1. 2. DEFERRED COMPENSATION ACCOUNT. The Employer shall maintain on its books and records a Deferred Compensation Account to record its liability for future payments of deferred compensation and interest thereon required to be paid to the Employee or his beneficiary pursuant to this Agreement. However, the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee or his beneficiary. The amount reflected in said Deferred Compensation Account shall be available for the Employer's general corporate purposes and shall be available to the Employer's general creditors. The amount reflected in said Deferred Compensation Account shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee or his beneficiary, and any attempt to anticipate, alienate, transfer or assign the same shall be void. Neither the Employee 51 -3- nor his beneficiary may assert any right or claim against any specific assets of the Employer. The Employee or his beneficiary shall have only a contractual right against the Employer for the amount reflected in said Deferred Compensation Account. Notwithstanding the foregoing, in order to pay amounts which may become due under this Agreement, the Employer may establish a grantor trust (hereinafter the "Trust") within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. The assets in such Trust shall at all times be subject to the claims of the general creditors of the Employer in the event of the Employer's bankruptcy or insolvency, and neither the Employee nor any beneficiary shall have any preferred claim or right, or any beneficial ownership interest in, any such assets of the Trust prior to the time such assets are paid to an Employee or beneficiary pursuant to this Agreement. The Employer shall credit to said Deferred Compensation Account the amount of any salary to which the Employee becomes entitled and which is deferred pursuant to Section 1 hereof, such amount to be credited as of the first business day of each month. The Employer shall also credit to said Deferred Compensation Account an Interest Equivalent in the amount and manner set forth in Section 3 hereof. 3. PAYMENT OF DEFERRED COMPENSATION (a) Termination of Employment On or After Attainment of Age 65. If the Employee's employment should terminate on or after his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account 52 -4- including an Interest Equivalent, as described below, in the form of an actuarially equivalent life annuity providing for equal annual payments for the life of the Employee with a guarantee that fifteen (15) annual payments will be made. Such actuarially equivalent life annuity shall be computed on the basis of a mortality table that assumes a life expectancy of age eighty (80) and uses the Interest Factor described below. There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with January 1, 1989, until payment of such account is made or begins, as additional deferred compensation, an Interest Equivalent equal to fifty percent (50%) of the product of (i) the AAA Corporate Bond Yield Averages published by Moody's Bond Survey for the Friday ending on or immediately preceding the applicable January 1 and July 1 plus two (2) percentage points (the "Interest Factor"), multiplied by (ii) the balance of the Employee's Deferred Compensation Account, including the amount of Interest Equivalent previously credited to such Employee's account, as of the preceding day (i.e., December 31 or June 30). The Interest Factor used to compute the annuity payable upon the Employee's termination of employment on or after his attainment of age sixty-five (65) shall be calculated based upon the Interest Factor as of the January 1 or July 1 immediately preceding the date of the Employee's termination of employment, whichever shall fall nearer to the date of the Employee's termination of employment. The first annuity payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 53 -5- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (b) Termination of Employment After Attainment of Age 55 and Prior to Attainment of Age 65. If the Employee's employment should terminate after his attainment of age fifty-five (55) and prior to his attainment of age sixty-five (65) for any reason other than death or on account of "Cause" as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of equal annual installments over a period equal to the Employee's remaining life, assuming a life expectancy of age eighty (80). There shall be credited to the Employee's Deferred Compensation Account as of each January 1 and July 1, commencing with January 1, 1989 until payment of said annual installments are completed, as additional deferred compensation, an Interest Equivalent as described in subsection (a) above. The first installment payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. 54 -6- Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described in subsection (a) above. The lump sum shall be paid within sixty (60) days after the Employee's termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (c) Termination of Employment Prior to Attainment of Age 55. If the Employee's employment should terminate prior to his attainment of age fifty-five (55) for any reason other than death or on account of "Cause" as defined in subsection (d) below, the Employee shall be entitled to receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including the same Interest Equivalent as described in subsection (a) above. Payment under this subsection shall be made within sixty (60) days after the Employee's termination of employment or, at the option of the Board of Directors of the Employer, in its sole discretion, within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. (d) Termination of Employment for Cause. If the employment of the Employee is terminated by the Employer for Cause, the Employee shall be entitled only to a return of amounts deferred pursuant to Section 1 hereof, and this Agreement and all payments provided for in this Agreement, including any obligation to pay interest on deferred compensation, shall terminate. 55 -7- Said deferred amounts shall be paid in a lump sum within sixty (60) days after the commencement of the calendar year following the Employee's termination of employment. As used in this Agreement, the term "Cause" shall mean: (i) the Employee's rendering, while employed by the Employer, of any services, assistance or advice, either directly or indirectly, to any person, firm or organization competing with, or in opposition to, the Employer; (ii) the Employee's allowing, while employed by the Employer, any use of his name by any person, firm or organization competing with, or in opposition to, the Employer; or (iii) willful misconduct by the Employee, including, but not limited to, the commission by the Employee of a felony or the perpetration by the Employee of a common law fraud upon the Employer. (e) Death While Employed. Notwithstanding anything to the contrary contained in the foregoing, if the Employee should die while employed by the Employer, his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the greater of (i) the Hypothetical Death Benefit, as defined in subsection (g) hereof, and (ii) the entire amount of his Deferred Compensation Account at the date of his death, assuming that an Interest 56 -8- Equivalent were credited to such account as of each January 1 and July 1, commencing with January 1, 1989, until the date of death at the rate set forth in subsection (a) hereof. Such beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. (f) Death After Termination of Employment. If the Employee should die after the termination of his employment with the Employer and prior to the date on which payment of his Deferred Compensation Account has commenced in the form of an annuity as provided in subsection (a), or has been made in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the event of payment in the form of installments as provided in subsection (b), his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the entire amount of the Employee's Deferred Compensation Account at the date of his death (or the entire remaining amount of the Employee's Deferred Compensation Account at the date of his death in the event that payment has commenced in the form of installments as provided in subsection (b)) and, provided that the Employee's employment shall not have terminated on account of "Cause" as provided in subsection (d) hereof, an Interest Equivalent credited to such account as of each January 1 and July 1, commencing with January 1, 1989, until the date of death at the rate set forth in subsection (a) hereof. No Interest Equivalent shall be credited to the Employee's Deferred Compensation Account in the event of the Employee's death after his termination on account of "Cause" as 57 -9- provided in subsection (d) hereof. The Employee's beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and the Interest Equivalent set forth in subsection (a) hereof has commenced in the form of an annuity as provided in subsection (a), no additional benefits shall be payable under this Agreement after the Employee's death except to the extent that the Employee did not receive prior to his death the guaranteed fifteen (15) annual payments provided in subsection (a), in which case the unpaid guaranteed payments shall be paid to the Employee's beneficiary, designated pursuant to Section 4, in annual payments for the remainder of said guaranteed fifteen (15)-year term. If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and, with respect to payments made in accordance with subsections (a),(b) or (c) hereof, the Interest Equivalent set forth in subsection (a) hereof, has been paid in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the form of installments as provided in subsection (b), no additional benefits shall be payable upon the Employee's death. 58 -10- (g) Hypothetical Death Benefit. For purposes of this Agreement, the term "Hypothetical Death Benefit" shall mean a lump sum benefit equal to the proceeds of any policy of key-man life insurance on the life of the Employee, of which the Employer is owner and beneficiary, and which policy is designated by the Employer as subject to the provisions hereof, reduced by (i) the amount of any tax imposed on the Employer with respect to such proceeds and (ii) the cost to the Employer of any tax deductions postponed as a result of salary deferrals pursuant to Section 1 hereof and increased by (iii) the tax deduction to the Employer which would result from payment of the Hypothetical Death Benefit to a beneficiary of the Employee. For purposes of (ii) above, an opportunity cost factor of six (6) percent pre-tax interest will be applied during the period of postponed deductions under (ii). The calculation of the Hypothetical Death Benefit shall be done by the Employer, whose calculation shall be final and binding on the Employee and his beneficiary. Anything herein to the contrary notwithstanding, the Employer shall not be required to purchase a policy of key-man life insurance on the life of any Employee, and any such policy purchased by the Employer, and all proceeds thereof, shall remain at all times available to the Employer's general creditors. 4. BENEFICIARY. The Employee has notified or will in the future notify the Employer of the person or persons entitled to receive payments on the death of the Employee. For the purposes of this Agreement, such person or persons are herein referred to collectively as the "beneficiary." The person whom an Employee designates as his beneficiary for this purpose must be one of the following: the Employee's spouse, father, mother, sister, brother, son or daughter. The beneficiary may also be a legal ward living with and dependent on the Employee 59 -11- at the time of his death. If the Employee dies and has not designated a beneficiary, his beneficiary shall be his spouse, if living; otherwise, his beneficiary shall be deemed to be his estate. An Employee's beneficiary designation may be changed at any time by the Employee giving written notice to the Employer of such change. The rights of any beneficiary presently or hereafter designated are subject to any changes made in this Agreement by the Employee and the Employer. 5. WITHHOLDING. The Employer shall be permitted to withhold from any payment to the Employee or his beneficiary hereunder all federal, state or other taxes which may be required with respect to such payment. 6. ARBITRATION. In the event that a dispute shall arise with respect to any of the provisions of this Agreement, either the Employer or the Employee or his beneficiary, as the case may be, may give written notice to the other stating the claims that said party desires to arbitrate, and naming an arbitrator. Within ten (10) days after the receipt of such notice, the party receiving same shall appoint a second arbitrator by written notice to be sent to the party who requested arbitration. Within ten (10) days after receipt of such notice of appointment of the second arbitrator, the two (2) arbitrators so appointed shall meet to select a third arbitrator and shall give written notice of such selection to the Employer and the Employee or his beneficiary. The decision of a majority of the arbitrators shall be conclusive and binding upon the Employer and the Employee or his beneficiary. All notices hereunder shall be by registered mail addressed to the last known address of the party entitled to receive notice. The Employer and the Employee 60 -12- shall each pay their own costs incurred in the arbitration proceeding; provided, however, that the arbitrators may require that the losing party reimburse the prevailing party for its costs if it shall be determined that the claim which gave rise to the dispute was without substantial foundation. 7. MISCELLANEOUS. (a) This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Employer agrees that it will not be a party to any merger, consolidation or reorganization unless and until its obligations hereunder shall be expressly assumed by its successor or successors. (b) This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, or any beneficiary designated by him, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided. (c) This Agreement may be terminated by the Employer at any time that tax or other laws are enacted or interpreted which result or will result in costs to the Employer significantly in excess of those contemplated at the time of the execution hereof. In the event of such termination, the Employer's sole obligation shall be to pay to the Employee in a lump sum the amount of his Deferred Compensation Account, including an Interest Equivalent as determined by Section 3(a), as if the effective date of termination of this Agreement were considered to be 61 -13- the date of termination of the Employee's employment. Such payment shall be made to the Employee within ninety (90) days after the effective date of termination of this Agreement. (d) This Agreement shall not supersede any contract of employment, whether oral or written, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the Employee. (e) If Moody's Bond Survey shall cease to publish the Corporate Bond Yield Averages referred to in Section 3 hereof, a similar average selected by the Board of Directors of the Employer, in its sole discretion, shall be used. (f) This Agreement shall be executed in duplicate, and each executed copy of this Agreement shall be deemed an original. (g) This Agreement shall be construed in all respects under the laws of the State of Connecticut. 62 -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. THE CONNECTICUT WATER COMPANY ___________________________ By__________________________________ Kenneth W. Kells Its 63 -15- Notice of Election to Defer Compensation Pursuant to the terms of the Deferred Compensation Agreement (the "Agreement") by and between The Connecticut Water Company (the "Company") and Kenneth W. Kells, made as of the first day of January, 1989 and amended and restated as of the ____ day of ____________, 1999, I hereby elect to defer, pursuant to Section 1 thereof, ____% of my salary payable in connection with the performance of my services as an employee of the Company beginning __________, ____. This election shall be effective for calendar years beginning after the date hereof until the calendar year next beginning after the date on which I notify the Company to change or terminate future deferrals pursuant to the terms of Section 1 of the Agreement on a form provided by the Company. I understand that this election to defer shall be continued as to the salary which is earned for each calendar year for which this election to defer is effective until distribution of such deferred compensation to me upon my termination of services as an employee, or to my beneficiary in the event of my death, as provided in the Agreement. I also understand that I may change the amount deferred (including terminating deferrals) with respect to salary earned for calendar years commencing after my delivery to the Company of a written notice of change, provided such written notice is delivered to the Company on a form approved by the Company at least seven (7) days before the commencement of such calendar year. Further, I understand that if I terminate deferrals I may make a new election to again defer my salary pursuant to the Agreement and that any new election to defer payment of my salary must be made and delivered to the Company at least seven (7) days before the beginning of the calendar year for which the salary is payable. In the event of my death, any payment to which I am entitled under the terms of the Agreement which has not been made to me at the date of my death shall be distributed to: Primary Beneficiary(ies): Name:_________________________________ Address:______________________________ Relationship:_________________________ Percentage Share:_____________________ Contingent Beneficiary(ies): Name:_________________________________ Address:______________________________ Relationship:_________________________ Percentage Share:_____________________ in accordance with the provisions of Section 3 of the Agreement. 64 -16- Notwithstanding the foregoing to the contrary, in the event of payment of the "Hypothetical Death Benefit" pursuant to Section 3(g) of the Agreement, any beneficiary designation made by me in connection with a key-man life insurance policy on my life shall supersede the beneficiary designation made hereinabove. - ------------------------- ------------------------------ Date Kenneth W. Kells EX-10.7.2 6 EX-10.7.2 1 EXHIBIT 10.7.2 FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT Effective as of August 1, 1999 WHEREAS, the Connecticut Water Company (hereinafter referred to as the "Employer") and Marshall T. Chiaraluce (hereinafter referred to as the "Employee") entered into a Supplemental Executive Retirement Agreement dated as of December 16,1991 (hereinafter referred to as the "Agreement"); and WHEREAS, the parties wish to amend the Agreement in accordance with the provisions of Section 5(a) thereof; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Agreement is hereby amended effective as of the date first above written as follows: 1. The second paragraph of Section l(a) of the Agreement is amended to read in its entirety as follows: "For purposes of the foregoing, "Average Earnings" shall have the meaning set forth in the Retirement Plan, except that in determining Average Earnings, Annual Earnings (as defined in the Retirement Plan) shall not be limited to the OBRA '93 annual compensation limit." /s/ Marshall T. Chiaraluce Connecticut Water Service, Inc. - -------------------------------- Marshall T. Chiaraluce By: /s/ Michele G. DiAcri -------------------------- August 13, 1999 Michele G. DiAcri Corporate Secretary August 13, 1999 EX-10.8.2 7 EX-10.8.2 1 Exhibit 10.8.2 FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT Effective as of__________, 1999 WHERESAS, the Connecticut Water Company (hereinafter referred to as the "Employer") and ____________________ (hereinafter referred to as the "Employee") entered into a Supplemental Executive Retirement Agreement dated as of ___________, 199_ (hereinafter referred to as the "Agreement"); and WHEREAS, the parties wish to amend the Agreement in accordance with the provisions of Section 5(a) thereof; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Agreement is hereby amended effective as of the date first above written as follows: 1. The second paragraph of Section 1(a) of the Agreement is amended to read in its entirety as follows: "For purposes of the foregoing, "Average Earnings" shall have the meaning set forth in the Retirement Plan, except that in determining Average Earnings, Annual Earnings (as defined in the Retirement Plan) shall not be limited to the OBRA '93 annual compensation limit." EX-10.9 8 EX-10.9 1 EXHIBIT 10.9 AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN THE CONNECTICUT WATER COMPANY CONNECTICUT WATER SERVICE, INC. AND ----------------------------- 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of __________________, 199_, is made by and between The Connecticut Water Company, a Connecticut corporation having its principal place of business in Clinton, Connecticut, ("Company"), Connecticut Water Service, Inc., a Connecticut corporation and holder of all of the outstanding capital stock of Company ("Parent") and ___________________, a resident of ________________ ("Executive"). W I T N E S S E T H : WHEREAS, Executive has been and continues to be employed by Company and Parent in an executive capacity and has entered into an Employment Agreement between Executive and Company and Parent dated as of the ____ day of _____________, 19__ which becomes effective upon a "Change-in-Control," as defined herein, of Company or Parent; and WHEREAS, should Company or Parent receive a proposal from or engage in discussions with a third person concerning a possible combination with Company or Parent or the acquisition of substantial portion of voting securities of Company or Parent, the Boards of Directors of Company and Parent have deemed it imperative that they and Company and Parent be able to rely on Executive to continue to serve in Executive's position and that the Boards of Directors and Company and Parent be able to rely upon Executive's advice as being in the best interests of Company and Parent and their shareholders without concern that Executive might be distracted by the personal uncertainties and risks that such a proposal or discussions might otherwise create; and WHEREAS, Company and Parent desire to reward Executive for Executive's valuable, dedicated service to Company and Parent should Executive's service be terminated under circumstances hereinafter described: and WHEREAS, Executive, Company and Parent are willing to enter into this Amended and Restated Employment Agreement ("Agreement") on the terms herein set forth; NOW, THEREFORE, to assure Company and Parent of Executive's continued dedication and the availability of Executive's advice and counsel in the event of any such proposal, to induce Executive to remain in the employ of Company and Parent and to reward Executive for Executive's valuable dedicated service to Company and Parent should Executive's service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy of which each party acknowledges, Company, Parent and Executive agrees as follows: 3 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Cause" shall mean Executive's serious, willful misconduct in respect of Executive's duties under this Agreement, including conviction for a felony or perpetration by Executive of a common law fraud upon Company or Parent which has resulted or is likely to result in material economic damage to Company or Parent, as determined by a vote of at least seventy-five percent (75%) of all of the Directors (excluding Executive) of each of Company's and Parent's Board of Directors; (b) "Change-in-Control" shall be deemed to have occurred if after the date hereof (i) a public announcement shall be made or a report on Schedule 13D shall be filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "Act") disclosing that any Person (as defined below), other than Company or Parent or any employee benefit plan sponsored by Company or Parent, is the beneficial owner (as the term is defined in Rule 13d-3 under the Act) directly or indirectly, of twenty percent (20%) or more of the total voting power represented by Company's or Parent's then outstanding voting common stock (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire voting common stock); or (ii) any Person, other than Company or Parent or any employee benefit plan sponsored by Company or Parent, shall purchase shares pursuant to a tender offer or exchange offer to acquire any voting common stock of Company or Parent (or securities convertible into such voting common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the Person in question is the beneficial owner directly or indirectly, of twenty percent (20%) or more of the total voting power represented by Company's or Parent's then outstanding voting common stock (all as calculated under clause (i)); or (iii) the stockholders of Company or Parent shall approve (A) any consolidation or merger of Company or Parent in which Company or Parent is not the continuing or surviving corporation (other than a merger of Company or Parent in which holders of the outstanding capital stock of Company or Parent immediately prior to the merger have the same proportionate ownership of the outstanding capital stock of the surviving corporation immediately after the merger as immediately before), or pursuant to which the outstanding capital stock of Company or Parent would be converted into cash, securities or other property, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of Company or Parent; or (iv) there shall have been a change in the composition of the Board of Directors of Company or Parent at any time during any consecutive twenty-four (24) month period such that "continuing directors" cease for any reason to constitute at least a majority of the Board unless the election, or the nomination for election of each new Director was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who were Directors at the beginning of such period; or (v) the Board of Directors of Company or Parent, by a vote of a majority of all the Directors (excluding Executive) adopts a resolution to the effect that a "Change-in-Control" has occurred for purposes of this Agreement. (c) "Disability" shall mean the incapacity of Executive by illness or any other cause as determined under the long-term disability insurance plan of Company in effect at the 4 time in question, or if no such plan is in effect, then such incapacity of Executive as prevents Executive from performing the essential functions of Executive's position with or without reasonable accommodation for a period in excess of two hundred forty (240) days (whether or not consecutive), or one hundred eighty (180) days consecutively, as the case may be, during any twelve (12) month period. (d) "Effective Date" shall be the date on which a Change-in-Control occurs. Anything in this Agreement to the contrary notwithstanding, if Executive's employment is terminated prior to the date on which a Change-in-Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change-in-Control or (ii) otherwise arose in connection with or anticipation of a Change-in-Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. (e) "Good Reason" shall mean the occurrence of any action which (i) removes or changes Executive's title or reduces Executive's job responsibilities or base salary; (ii) results in a significant worsening of Executive's work conditions; or (iii) moves Executive's place of employment to a location that increases Executive's commute by more than thirty (30) miles over the length of Executive's commute from Executive's place of principal residence at the time the move is requested. For purposes of this subparagraph (e), any good faith determination by Executive that any such action has occurred shall be conclusive. Notwithstanding the foregoing, at any time during the period commencing on the Effective Date and ending on the 30th day after the first anniversary of the Effective Date, except for purposes of Paragraph 5(g), "Good Reason" shall mean any reason or no reason. (f) "Person" shall mean any individual, corporation, partnership, company or other entity, and shall include a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934. 2. EMPLOYMENT. (a) As of the Effective Date, Company hereby agrees to continue to employ Executive and Executive agrees to remain in the employ of Company for the Term of this Agreement upon the terms and conditions hereinafter set forth. Subject to the provisions of subparagraph (b) of this Paragraph 2, and to the provisions of Paragraph 6 below, "Term" shall mean a continuously renewing period of three (3) years commencing on the Effective Date. (b) At any time during the Term, the Board of Directors of Company and Parent may, by written notice to Executive, advise Executive of their desire to modify or amend any of the terms or provisions of this Agreement or to delete or add any terms or provisions. Any such notice ("Notice") shall describe the proposed modifications in reasonable detail. In the event a Notice shall be given to Executive, then Company, Parent and Executive agree to discuss the proposed modification(s) and to attempt in good faith to reach agreement with respect thereto and to reduce such agreement to writing in an amendment to be executed by all the parties ("Amendment"). If a Notice is given hereunder and an Amendment shall not have been executed 5 on or before the sixtieth (60th) day following the date on which Notice is given, then the Term shall thereupon be automatically converted to a fixed period ending three (3) years after the expiration of such sixty (60) days. 3. DUTIES OF EMPLOYMENT. (a) During the Term, Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the ninety (90)-day period immediately preceding the Effective Date and Executive's services shall be performed at such location as Executive shall determine. (b) During the Term, Executive will serve Company faithfully, diligently and competently and will devote full-time to Executive's employment and will hold, in addition to the offices held on the Effective Date, such other executive offices of Company or Parent, or their respective subsidiaries and affiliates, to which Executive may be elected, appointed or assigned by the Boards of Directors of Company or Parent from time to time and will discharge such executive duties in connection therewith. Nothing in this Agreement shall preclude Executive, with the prior approval of the Board of Directors of Company, from devoting reasonable periods of time required for (i) serving as a director or member of a committee of any organization involving no conflict of interest with Company or Parent, or (ii) engaging in charitable, religious and community activities, provided, that such directorships, memberships or activities do not materially interfere with the performance of Executive's duties hereunder. 4. COMPENSATION. During the Term, Company shall pay to Executive as compensation for the services to be rendered by Executive hereunder the following: (a) A base salary at a rate equal to the highest base salary paid or payable to Executive by Company during the twelve (12)-month period immediately preceding the month in which the Effective Date occurs, or such larger sum as the Board of Directors of Company may from time to time determine in connection with regular periodic performance reviews pursuant to Company's policies and practices. Such compensation shall be payable in accordance with the normal payroll practices of Company. Executive shall receive an annual increase in base salary at each normal pay adjustment date during the Term, but no later than one (1) year after the date of Executive's last increase and annually thereafter during the Term, of not less than the percentage increase in the cost-of-living since Executive's last pay adjustment, as measured by the Consumer Price Index-All Urban Consumers of the U.S. Bureau of Labor Statistics. (b) In addition, Company shall pay to Executive an annual bonus, payable in cash or other form of compensation, in accordance with the Company's practice or plan for annual bonuses for peer executives which is at least equal to the target percentage of the midpoint of Executive's salary grade under the Company's Officers Incentive Program for the year preceding the fiscal year in which the Effective Date occurs. 5. BENEFITS. During the Term, Executive shall be entitled to the following benefits: 6 (a) Incentive, Savings and Retirement Plans. In addition to base salary and bonus payable as hereinabove provided, Executive shall be entitled to participate during the Term in all incentive, savings and retirement plans, practices, policies and programs applicable to executive employees of Company as may be in effect from time to time. Such plans, practices, policies and programs, in the aggregate, shall provide Executive with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation, benefits and reward opportunities provided by Company for Executive under such plans, practices, policies and programs as in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as provided at any time thereafter with respect to other key employees of Company or Parent. (b) Welfare Benefit Plans. During the Term, Executive and/or Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs applicable to executive employees of Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) at least as favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive and/or Executive's family, as in effect at any time thereafter with respect to other key employees of Company or Parent. (c) Expenses. During the Term, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the most favorable policies, practices and procedures of Company in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect at any time thereafter with respect to other key employees of Company or Parent. (d) Fringe Benefits. During the Term, Executive shall be entitled to fringe benefits, including use of an automobile and payment of related expenses or payment of an allowance for automobile related expenses, in accordance with the most favorable plans, practices, programs and policies of Company in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect at any time thereafter with respect to other key employees of Company or Parent. (e) Office and Support Staff. During the Term, Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to Executive by Company at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as provided at any time thereafter with respect to other key employees of Company or Parent. (f) Vacation. During the Term, Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of Company as in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, 7 if more favorable to Executive, as in effect at any time thereafter with respect to other key employees of Company or Parent. (g) Stay-on Bonus. If Executive is employed on a date on which the Board of Directors of Company or Parent approves a transaction described in clause (iii) of Paragraph 1(b), and the shareholders of Company or Parent, as applicable, subsequently approve such transaction, Executive shall receive a lump sum equal to the base salary of Executive, at the rate in effect immediately prior to such date, plus an amount equal to the target percentage of the midpoint of Executive's salary grade under the Company's Officers Incentive Program for the year in which such date occurs; provided Executive is employed on the fifth day following the closing of such transaction. If Executive's employment is terminated by Company following such approval by the applicable Board of Directors and prior to the fifth day following the closing of such transaction for any reason other than for Cause, or Executive's death, or Executive's attainment of age sixty-five (65), or if Executive's employment is terminated during such period by reason of Executive's Disability, or if Executive shall voluntarily terminated Executive's employment during such period for Good Reason, then, in addition to the amounts payable to Executive pursuant to Section 7, Executive shall be paid a lump sum equal to the base salary of Executive, at the rate in effect immediately prior to the date of termination, plus an amount equal to the target percentage of the midpoint of Executive's salary grade under the Company's Officers Incentive Program for the year in which termination occurs. 6. END OF TERM AND NOTICE OF TERMINATION. (a) End of Term. The Term shall end upon the occurrence of any of the following events: (i) Termination of Executive's employment by Company for Cause. (ii) The voluntary termination of Executive's employment by Executive other than for Good Reason. (iii) The death of Executive. (iv) Executive's attainment of age sixty-five (65). (v) Full compliance by Company with the provisions of Paragraph 7(e) below, if Executive's employment shall have been terminated by Company during the Term for any reason other than Cause, or if Executive's employment shall have been terminated by reason of Executive's Disability, or if Executive shall have voluntarily terminated Executive's employment during the Term for Good Reason. (b) Notice of Termination. Any termination by Company for Cause or by Executive for Good Reason or on account of Executive's Disability shall be communicated by notice to the other party hereto given in accordance with Section 16 of this Agreement. For purposes of this Agreement, a "notice" means a written notice which (i) indicates the specific 8 termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) if the date of termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (c) Date of Termination. The date of termination means the date of receipt of the notice of termination or any later date specified therein, as the case may be; provided, however, that (i) if Executive's employment is terminated by Company other than for Cause or on account of Executive's Disability, the date of termination shall be the date on which Company notifies Executive of such termination and (ii) if Executive's employment is terminated by reason of death, the date of termination shall be the date of death of Executive. 7. PAYMENT UPON TERMINATION. (a) If Executive's employment is terminated by Company for Cause, as defined in Paragraph 1(a), the obligations of Company under this Agreement shall cease and Executive shall forfeit all right to receive any compensation or other benefits under this Agreement except only compensation or benefits accrued or earned and vested (if applicable) by Executive as of the date of termination, including base salary through the date of termination, benefits payable under the terms of any qualified or nonqualified retirement plans or deferred compensation plans maintained by Company, any accrued vacation pay as of the date of termination not yet paid by Company and any benefits required to be paid by law such as continued health care coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") (collectively, the "Accrued Obligations"). (b) If Executive shall voluntarily terminate Executive's employment during the Term other than for Good Reason, as defined in Paragraph 1(e), the obligations of Company under this Agreement shall cease and Executive shall forfeit all right to receive any compensation or other benefits under this Agreement except only the Accrued Obligations. (c) In the event of the death of Executive during the Term, then, in addition to the Accrued Obligations and any other benefits which may be payable by Company in respect of the death of Executive, the base salary then payable hereunder shall continue to be paid at the then current rate for a period of six (6) months after such death to such beneficiary as shall have been designated in writing by Executive, or if no effective designation exists, then to the estate of Executive. (d) If Executive's employment is terminated by reason of Executive's attainment of age sixty-five (65), the obligations of Company under this Agreement shall cease and Executive shall forfeit all right to receive any compensation or other benefits under this Agreement except only the Accrued Obligations. (e) If Executive's employment is terminated by Company during the Term for any reason other than for Cause, or Executive's death, or Executive's attainment of age sixty- 9 five (65), or if Executive's employment is terminated during the Term by reason of Executive's Disability, or if Executive shall voluntarily terminate Executive's employment during the Term for Good Reason, Executive shall be entitled to receive, and Company shall be obligated to pay and provide Executive, the following amounts: (i) An amount in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below to be determined by a nationally recognized independent certified public accounting firm selected and retained by Company to be the reasonable value of said covenants as of the date of termination of Executive's employment, but in no event shall such amount be greater than the aggregate value of the benefits provided in subparagraphs (e)(ii),(iii),(iv),(v),(vii),(viii),(ix) and (xi) hereinbelow. The benefits otherwise payable to Executive pursuant to said subparagraphs shall be offset by the amount, if any, payable to Executive in respect of the covenants by Executive set forth in Paragraph 8 and 9 below. Notwithstanding the foregoing, if any benefit otherwise payable to Executive pursuant to said subparagraphs would offset by the amount payable to Executive in respect of the covenants set forth in Paragraph 8 and 9 below, Executive may elect to receive such benefit, but the amount payable to Executive in respect of the covenants by Executive set forth in Paragraph 8 and 9 below shall be reduced by the value of such benefit. Said amount paid in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below shall be paid in cash in a lump sum in the month next following Executive's date of termination of employment and shall be treated as a supplemental wage payment under applicable Treasury Regulations subject to federal tax withholding at the flat percentage rate applicable thereto. (ii) An amount equal to three (3) times the base salary of Executive, at the rate in effect immediately prior to the date of termination, plus an amount equal to three (3) times the target percentage of the midpoint of Executive's salary grade under the Company's Officers Incentive Program for the year in which termination occurs. There shall be subtracted from the aggregate amount determined in accordance with the immediately preceding sentence the amount, if any, payable to Executive under any then effective severance pay plan of Company. Such resulting amount shall be payable in equal installments over the three (3)-year period commencing on the date of termination of employment in accordance with the normal payroll practices of Company or, at Company's option, the entire amount (determined without any discount) shall be paid in cash in a lump sum in the month next following Executive's date of termination of employment and shall be treated as a supplemental wage payment under applicable Treasury Regulations subject to federal tax withholding at the flat percentage rate applicable thereto. (iii) An amount equal to the aggregate amounts that Company would have contributed on behalf of Executive under Company's qualified defined contribution retirement plan(s), if any such plan(s) shall be in effect (other than amounts attributable to Executive's before-tax contributions to such plan(s)) plus estimated earnings thereon had Executive continued in the employ of Company for the three (3)-year period commencing on the date of termination and made contributions under said plan(s) at a rate, as a percentage of salary, equal to the rate at which Executive had made contributions to said plan(s) in the plan year immediately preceding Executive's termination, to be payable in a lump sum to Executive within 10 thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Executive shall not have breached said non-competition provisions. (iv) An amount equal to the difference between: (A) benefits which would have been payable to Executive under any deferred compensation agreement between Company and Executive, if any such agreement shall be in effect, had Executive continued in the employ of Company for the three (3)-year period commencing on the date of termination, received compensation at least equal to that specified in Paragraph 4 of this Agreement during such time, and deferred pursuant to said deferred compensation agreement the amount of compensation specified therein; and (B) the benefits actually payable to Executive under such deferred compensation agreement; such amount to be payable in a lump sum to Executive within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Executive shall not have breached said non-competition provisions. (v) Additional retirement benefits equal to the difference between: (A) the annual pension benefits that would have been payable to Executive under Company's qualified defined benefit retirement plan (the "Plan") and under any nonqualified supplemental executive retirement plan covering Executive (the "Supplemental Plan"), if any such Plan or Supplemental Plan shall be in effect, if Executive had been continued in the employ of Company for the three (3)-year period commencing on the date of termination and had received compensation at least equal to that specified in Paragraph 4(a) of this Agreement during such time and had been fully vested in the benefits payable under any such Plan and Supplemental Plan; and (B) the annual benefits actually payable to Executive under any such Plan and Supplemental Plan. The discounted present value of such additional benefits, shall be payable to Executive in a lump sum, as calculated by the independent actuary for the Plan using the assumptions specified in the Plan, within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Executive shall not have breached said non-competition provisions. (vi) At the date of termination of Executive's employment, Executive shall be fully vested in any form of compensation previously granted to Executive (other than benefits payable under a qualified retirement plan), such as, by way of example only, restricted stock, stock options, and performance share awards. (vii) If Executive's employment is terminated by reason of Executive's Disability, Executive shall be entitled to receive, in addition to the other benefits provided under this Paragraph 7(e), disability benefits at least equal to the most favorable of those provided by Company or Parent to disabled employees in accordance with the most favorable plans, programs, practices and policies of Company or Parent in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect on the date of Executive's Disability with respect to other key employees of Company or Parent. 11 (viii) During the three (3)-year period commencing on the date of termination, or such longer period as any plan, program, practice or policy may provide, Executive shall continue to participate in all life, health, disability and similar welfare benefit plans and programs of Company to the extent that such continued participation is possible under the general terms and provisions of such plans and programs, and Executive shall be credited with additional service attributable to the three (3)-year period commencing on the date of termination for purposes of determining eligibility to participate in any such plans or programs maintained by Company for retirees, with Company and Executive paying the same portion of the cost of each such plan or program as existed at the time of Executive's termination. In the event that Executive's continued participation (or commencement of participation for plans or programs for retirees) is not permitted, then in lieu thereof, Company shall acquire, with the same cost sharing, individual insurance policies providing comparable coverage for Executive; provided, however, that Company shall not be obligated to pay more than three (3) times Company's current cost for comparable group coverage. If any such individual coverage is unavailable, then Company shall pay to Executive annually for the three (3)-year period commencing on the date of termination an amount equal to the sum of the average annual contributions, payments, credits, or allocations made by Company for such coverage on Executive's behalf (or the average such contributions, payments, credits, or allocations for retirees, in the case of retiree coverage) over the three (3) calendar years preceding the date of termination of Executive's employment. (ix) During the three (3)-year period commencing on the date of termination, Executive shall continue to receive such perquisites, other than those specified in the preceding subparagraphs above, as Executive was receiving at the date of termination of employment with, to the extent applicable, the same cost sharing with Company as was in effect immediately prior to Executive's termination of employment. (x) Company shall reimburse Executive for the amount of any reasonable legal or accounting fees and expenses incurred by Executive to obtain or enforce any right or benefit provided to Executive by Company hereunder or as confirmed or acknowledged hereunder. (xi) Company shall provide Executive with outplacement services from a firm selected by the Company for a period of one (1) year commencing on date of termination, or until Executive accepts other employment, if earlier. Such outplacement services shall be reasonable and appropriate for an employee in Executive's position. 8. CONFIDENTIAL INFORMATION. Executive understands that in the course of Executive's employment by Company, Executive will receive or have access to confidential information concerning the business or purposes of Company and Parent, and which Company and Parent desire to protect. Such confidential information shall be deemed to include, but not be limited to, Company's customer lists and information, and employee lists, including, if known, personnel information and data. Executive agrees that Executive will not, at any time during the period ending two (2) years after the date of termination of Executive's employment, 12 reveal to anyone outside Company or Parent or use for Executive's own benefit any such information without specific written authorization by Company or Parent. Executive further agrees not to use any such confidential information or trade secrets in competing with Company or Parent at any time during or in the two (2) year period immediately following the date of termination of Executive's employment with Company. 9. COVENANTS BY EXECUTIVE NOT TO COMPETE WITH COMPANY OR PARENT. (a) Upon the date of termination of Executive's employment with Company for any reason, Executive covenants and agrees that Executive will not at any time during the period of two (2) years from and after such date of termination directly or indirectly in any manner or under any circumstances or conditions whatsoever be or become interested, as an individual, partner, principal, agent, clerk, employee, stockholder, officer, director, trustee, or in any other capacity whatsoever, except as a nominal owner of stock of a public corporation, in any other business which, at the date of Executive's termination, is a Competitor (as defined herein), either directly or indirectly, with Company or Parent, or engage or participate in, directly or indirectly (whether as an officer, director, employee, partner, consultant, holder of an equity or debt investment, lender or in any other manner or capacity), or lend Executive's name (or any part or variant thereof) to, any business which, at the date of Executive's termination, is a Competitor, either directly or indirectly, with Company or Parent, or as a result of Executive's engagement or participation would become, a Competitor, either directly or indirectly, with any aspect of the business of Company or Parent as it exists at the time of Executive's termination, or solicit any officer, director, employee or agent of Company or Parent or any subsidiary or affiliate of Company or Parent to become an officer, director, employee or agent of Executive, Executive's respective affiliates or anyone else. Ownership, in the aggregate, of less than one percent (1%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a violation of the foregoing provision. For the purposes of this Agreement, a Competitor is any business which is similar to the business of Company or Parent or in any way in competition with the business of Company or Parent within any of the then-existing water utility service areas of Company. (b) Executive hereby acknowledges that Executive's services are unique and extraordinary, and are not readily replaceable, and hereby expressly agrees that Company and Parent, in enforcing the covenants contained in Paragraphs 8 and 9 herein, in addition to any other remedies provided for herein or otherwise available at law, shall be entitled in any court of equity having jurisdiction to an injunction restraining Executive in the event of a breach, actual or threatened, of the agreements and covenants contained in these Paragraphs. (c) The parties hereto believe that the restrictive covenants of these Paragraphs are reasonable. However, if at any time it shall be determined by any court of competent jurisdiction that these Paragraphs or any portion of them as written, are unenforceable because the restrictions are unreasonable, the parties hereto agree that such portions as shall have been determined to be unreasonably restrictive shall thereupon be deemed so amended as to make such restrictions reasonable in the determination of such court, and the said covenants, as 13 so modified, shall be enforceable between the parties to the same extent as if such amendments had been made prior to the date of any alleged breach of said covenants. (d) The provisions of this Paragraph 9 shall not apply if Company and Parent shall be prohibited under Paragraph 15 below from making any payments to Executive pursuant to Paragraph 7 above. 10. NO OBLIGATION TO MITIGATE. So long as Executive shall not be in breach of any provision of Paragraph 8 or 9, Executive shall have no duty to mitigate damages in the event of a termination and if Executive voluntarily obtains other employment (including self-employment), any compensation or profits received or accrued, directly or indirectly, from such other employment shall not reduce or otherwise affect the obligations of Company and Parent to make payments hereunder. 11. RESIGNATION. In the event that Executive's services hereunder are terminated under any of the provisions of this Agreement (except by death), Executive agrees that Executive will deliver Executive's written resignation as an officer of Company or Parent, or their subsidiaries and affiliates, to the Board of Directors, such resignation to become effective immediately, or, at the option of the Board of Directors, on a later date as specified by the Board. 12. INSURANCE. Company shall have the right at its own cost and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering Executive, and Executive agrees to submit to the usual and customary medical examination and otherwise to cooperate with Company in connection with the procurement of any such insurance, and any claims thereunder. 13. RELEASE. As a condition of receiving payments or benefits provided for in this Agreement, at the request of Company or Parent, Executive shall execute and deliver for the benefit of Company and Parent, and any subsidiary or affiliate of Company or Parent, a general release in the form set forth in Attachment A, and such release shall become effective in accordance with its terms. The failure or refusal of Executive to sign such a release or the revocation of such a release shall cause the termination of any and all obligations of Company and Parent to make payments or provide benefits hereunder, and the forfeiture of the right of Executive to receive any such payments and benefits. Executive acknowledges that Company and Parent have advised Executive to consult with an attorney prior to signing this Agreement and that Executive has had an opportunity to do so. 14. BENEFITS LIMITATION. Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by Executive under this Agreement (a "Payment") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor to such Section, as determined by a nationally recognized independent certified public accounting firm selected by Company (the "Tax Advisor"), then such Payment shall be reduced to the extent necessary to avoid the application of the Excise Tax, but only if such reduction would result in Executive's receipt of a greater Payment on an after-tax basis than would be 14 receivable by Executive had such Excise Tax been paid. For purposes of this limitation, (a) no portion of any payment, whether pursuant to this Agreement or any other plan or agreement, the receipt of which Executive, in the determination of the Tax Advisor, shall have effectively waived prior to the date which is fifteen (15) days following the date of termination of Executive's employment and prior to the earlier of the date of constructive receipt and the date of payment thereof shall be taken into account; and (b) any reduction in the Payment made pursuant to this Paragraph shall be made from the payments and benefits to be made pursuant to clauses (i),(ii),(iii),(iv),(v),(vii),(viii), (ix) and (xi) of Paragraph 7(e), in such order as may be determined by Executive, except to the extent that such payments and benefits, in the determination of the Tax Advisor, are reasonable compensation within the meaning of Section 280G of the Code. The determination of the Tax Advisor as provided herein shall be completed not later than forty-five (45) days following Executive's date of termination of employment, and such determination shall be communicated in writing to Company, with a copy to Executive, within said forty-five (45) day period. The determination of the Tax Advisor as provided herein shall be deemed conclusive and binding on Company and Executive. If any Payment is made before the Tax Advisor determines that such Payment is subject to the Excise Tax, such Payment, to the extent it exceeds the "Reduced Amount," as defined herein, shall be treated for all purposes as a loan to Executive which Executive shall repay to Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that such loan shall be deemed to have been made and such amount shall be payable by Executive to Company only if the treatment of such Payment as a loan would result in Executive's receipt of a greater Payment on an after-tax basis than would be receivable by Executive had such Excise Tax been paid. Furthermore, no such loan shall be deemed to have been made if such deemed loan would not either eliminate the amount on which Executive is subject to Excise Tax or generate a refund of such Excise Tax. For purposes of this Paragraph 14, "Reduced Amount" shall mean an amount expressed in present value, as determined in accordance with Section 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code, that maximizes the aggregate present value of the Payments without causing any Payment to be non-deductible by Company because of Section 280G of the Code. Executive and Company agree that they shall reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or liability for Excise Tax with respect to the Payments. Company agrees to indemnify Executive and hold Executive harmless for any penalties, interest or expenses Executive may be required to pay in the event it is determined that Excise Tax is owed. Executive agrees that Executive will not take any position on Executive's income tax return or otherwise that is inconsistent with the positions of Company with respect to the treatment of any Payment, which may be contended is a "parachute" payment under Section 280G of the Code. Company shall pay the fees and other costs of the Tax Advisor hereunder. 15. REGULATORY LIMITATION. Notwithstanding any other provision of this Agreement, Company shall not be obligated to make, and Executive shall have no right to receive, any payment, benefit or amount under this Agreement which would violate any law, regulation or regulatory order applicable to Company or Parent at the time such payment, benefit or amount is due ("Prohibited Payment"). If and to the extent Company shall at a later date be relieved of the restriction on its ability to make any Prohibited Payment, then at such time Company or Parent 15 shall promptly make payment of any such amounts to Executive. 16. NOTICES. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person to Executive or to the Secretary of Company and Parent, or if mailed, postage prepaid, registered or certified mail, addressed, in the case of Executive, to Executive's last known address as carried on the personnel records of Company, and, in the case of Company and Parent, to the corporate headquarters, attention of the Secretary, or to such other address as the party to be notified may specify by notice to the other party. 17. SUCCESSORS AND BINDING AGREEMENT. (a) Company and Parent will require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company and/or Parent, as the case may be, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Company and Parent are required to perform it. Failure of Company and Parent to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation and benefits from Company and Parent in the same amount and on the same terms as Executive would be entitled hereunder if Executive had terminated employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date on which Executive's employment with Company was terminated. As used in this Agreement, "Company" and "Parent" shall include any successor to Company's and/or Parent's, as the case may be, business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amount is still payable hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, to Executive's estate. 18. ARBITRATION. Any dispute which may arise between the parties hereto may, if both parties agree, be submitted to binding arbitration in the State of Connecticut in accordance with the Rules of the American Arbitration Association; provided that any such dispute shall first be submitted to Company's Board of Directors in an effort to resolve such dispute without resort to arbitration. 19. SEVERABILITY. If any of the terms or conditions of this Agreement shall be declared void or unenforceable by any court or administrative body of competent jurisdiction, such term or condition shall be deemed severable from the remainder of this Agreement, and the other terms and conditions of this Agreement shall continue to be valid and enforceable. 16 20. AMENDMENT. This Agreement may be modified or amended only by an instrument in writing executed by the parties hereto; provided, however, that the Board of Directors of Company and Parent may amend this Agreement without the consent of Executive upon receipt of a written opinion of Company's accounting firm that a provision or provisions of this Agreement would prevent "pooling" accounting treatment in connection with any Change-in-Control and such "pooling" accounting treatment would otherwise be available in connection with such Change-in-Control, to the extent necessary to permit "pooling" accounting treatment in connection with such a Change-in-Control, provided that such amendment may not adversely affect any benefit to which Executive was entitled under the terms of this Agreement prior to this amendment and restatement, and must preserve the benefits to Executive under this Agreement to the maximum extent possible consistent with obtaining such accounting treatment. 21. CONSTRUCTION. This Agreement shall supersede and replace all prior agreements and understandings between the parties hereto on the subject matter covered hereby. This Agreement shall be governed and construed under the laws of the State of Connecticut. Words of the masculine gender mean and include correlative words of the feminine gender. Paragraph headings are for convenience only and shall not be considered a part of the terms and provisions of the Agreement. IN WITNESS WHEREOF, Company and Parent have caused this Agreement to be executed by a duly authorized officer, and Executive has hereunto set Executive's hand, this ____ day of _________________, 19__. Connecticut Water Service, Inc. The Connecticut Water Company By (Title) Executive 17 ATTACHMENT A RELEASE We advise you to consult an attorney before you sign this Release. You have until the date which is seven (7) days after the Release is signed and returned to ____________________ ("Company") to change your mind and revoke your Release. Your Release shall not become effective or enforceable until after that date. In consideration for the benefits provided under your Employment Agreement dated _________________________ with Company and _____________________ ("Parent"), and more specifically enumerated in Exhibit 1 hereto, by your signature below you agree to accept such benefits and not to make any claims of any kind against Company, its past and present and future parent corporations, subsidiaries, divisions, subdivisions, affiliates and related companies or their successors and assigns, including without limitation Parent, or any and all past, present and future Directors, officers, fiduciaries or employees of any of the foregoing (all parties referred to in the foregoing are hereinafter referred to as the "Releases") before any agency, court or other forum, and you agree to release the Releases from all claims, known or unknown, arising in any way from any actions taken by the Releases up to the date of this Release, including, without limiting the foregoing, any claim for wrongful discharge or breach of contract or any claims arising under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, Connecticut's Fair Employment Practices Act or any other federal, state or local statute or regulation and any claim for attorneys' fees, expenses or costs of litigation. THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE YOU WILL HAVE WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASEES BASED ON ANY ACTIONS TAKEN BY THE RELEASEES UP TO THE DATE OF THIS RELEASE. By signing this Release, you further agree as follows: 1. You have read this Release carefully and fully understand its terms; 2. You have had at least twenty-one (21) days to consider the terms of the Release; 3. You have seven (7) days from the date you sign this Release to revoke it by written notification to Company. After this seven (7) day period, this Release is final and binding and may not be revoked; 4. You have been advised to seek legal counsel and have had an opportunity to do so; 18 5. You would not otherwise be entitled to the benefits provided under your Employment Agreement with Company and Parent had you not agreed to waive any right you have to bring a lawsuit or legal claim against the Releases; and 6. Your agreement to the terms set forth above is voluntary. Name: ----------------------------------- Signature: Date: ------------------------------ --------------- Received by: Date: ---------------------------- --------------- 19 EXHIBIT 1 1. 2. 3. 4. 5. etc. NOTE: THIS EXHIBIT IS TO BE COMPLETED AT THE TIME OF TERMINATION TO REFLECT ALL BENEFITS AND PAYMENTS MADE UNDER THE EMPLOYMENT AGREEMENT. Acknowledged and Agreed: THE CONNECTICUT WATER COMPANY EXECUTIVE By ----------------------------- ----------------------------- Its CONNECTICUT WATER SERVICE, INC. By ----------------------------- Its EX-10.10 9 EX-10.10 1 Exhibit 10.10 Richard L. Mercier EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENT by and between Connecticut Water Company, a Connecticut corporation with its principal office and place of business in Clinton, Connecticut (the "Company"), Connecticut Water Service, Inc., a Connecticut corporation and holder of all of the outstanding capital stock of Company (the "Parent") and Richard L. Mercier, a resident of Plainfield, CT (the "Employee"), dated April 15, 1999. WHEREAS, the Company and the Parent have determined that it is in the best interests of the Company and the Parent to employ the Employee as President of Gallup Water Service, Incorporated and the Employee desires to serve in that capacity. WHEREAS, the Company and the Parent have determined that it is in the best interests of the Company and the Parent to engage Richard L. Mercier as a Consultant after the employment period and Mercier desires to serve in that capacity. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. a) Employment Period. The Company shall employ the Employee, and the Employee shall serve the Company, on the trams and conditions set forth in this Agreement, for the period commencing on or before [date of closing] and ending on the fourth anniversary of such commencement date (the "Employment Period"). b) Consulting Period. After the Employment Period the Parent shall engage the Employee as a Consultant and not as an Employee. Said Consulting period shall continue until Richard L. Mercier obtains the age of 70. The employee must complete the employment period described in Section (1)(a) to be engaged as a Consultant. 2.) Position and Duties. a) During the Employment Period, the Employee shall have the title of President of Gallup Water Service, Incorporated and shall report directly to the CEO of the Company. The Employee's authority, duties and responsibilities shall be those which are described in "Schedule A" attached hereto. 2 b) During the Consulting Period, Richard L. Mercier shall have the title of Consultant and shall report directly to the CEO of the Parent. The Consultant's authority, duties and responsibilities shall be those which are described in "Schedule B" attached hereto. c) During the Consulting Period, Richard L. Mercier shall be responsible for the payment of his own social security taxes, federal and state income taxes, pension payments if any, and any similar items. Richard L. Mercier shall not be entitled to workers compensation benefits and shall not be entitled to unemployment compensation benefits. If the nature of the responsibilities required during the employment or consulting period change from those duties outlined in Attachments A and B, the Company shall make an immediate payment of the amounts due to Richard L. Mercier under the terms of this agreement. 3.) Compensation. a.) Base Salary. During the Employment Period, the Employee shall receive an annual base salary ("Annual Base Salary") equal to $72,825, to be earned and paid at a biweekly rate of $2,800.96. During any period after the end of the Employment Period when the Employee is employed by the Company, the Annual Base Salary shall be as agreed upon by the Employee and the Company. During the Consulting Period, Richard L. Mercier shall receive annual fees equal to $18,000.00 to be paid on a quarterly basis of $4,500.00 per quarter. b.) Other Benefits. During the Employment Period and any subsequent period when the Employee is employed by the Company or any of its other Affiliated Companies: (i) the Employee shall be entitled to participate in all qualified deferred compensation, savings and retirement plans, practices, policies and programs of the Company in accordance with the plans, practices, programs and policies of The Connecticut Water Company ("CWC") set forth, from time to time, in such plans or any CWC employee manual; and (ii) the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group 3 life insurance, and accidental death and travel accident insurance plans and programs) in accordance with the plans, practices, programs and policies of CWC set forth, from time to time, in such plans or any CWC employee manual. Richard L. Mercier will also have use of a company vehicle during his employment and may purchase that vehicle, at its then book value, at the time he ceases to be an employee. If the Employee terminates employment with the Company or any of its other Affiliated Companies at or after having attained age 70, the Employee shall also be entitled to receive from the Company an annual supplemental executive retirement benefit having a value equal to the excess, if any, of (i) or (ii), where: (i) it an annual benefit of $18,000.00 payable to the Employee as a life annuity as of the date of the Employee's retirement, and (ii) is the annual benefit, if any, payable to the Employee under The Connecticut Water Company's qualified deferred benefit retirement plan and any non-qualified retirement plan covering the Employee, as a life annuity as of the date of the Employee's retirement, calculated in accordance with the terms of such plans. Such supplemental executive retirement benefit shall cease as of the date of the Employee's death and shall be an unfunded obligation of the Company. For the purpose of determining the eligibility of the Employee to participate in such retiree medical and dental and retiree life insurance benefit plans as the Company may maintain for the benefit of employees of the Company, the Employee shall receive credit for six (6) years of service, provided he has completed the Employment period as defined in Section (1)(a), and shall participate in any such plans in accordance with the terms and conditions thereof. c.) Expenses. During the Employment and Consulting Periods and any subsequent period when the Employee/Consultant is employed by the Company, the Employee/Consultant shall be entitled to receive prompt reimbursement for all reasonable authorized travel and other authorized expenses incurred by the Employee/Consultant in carrying out the Employee's/Consultant's duties under this Agreement in accordance with the policies and procedures established by the Company. d.) Fringe Benefits. During the Employment Period and any subsequent period when the Employee is employed by the Company, the Employee shall be entitled to Fringe benefits including sick time and holidays in accordance with the plans, practices, programs and policies of CWC set forth, from time to time, in such plans or any CWC employee manual. 4 e.) Vacation. During the Employment Period and any subsequent period when the Employee is employed by the Company, the Employee shall be entitled to two weeks' paid vacation annually in accordance with the plans, policies, programs and practices of CWC as set forth, from time to time, in such plans or any CWC employee manual. 4.) Termination of Employment. a.) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death. The Company shall be entitled to terminate the Employee because of the Employee's Disability during the Employment Period. "Disability" means that the Employee has been unable, with or without accommodation, for a period of 180 consecutive business days, to perform the Employees' duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), unless the Employee returns to full-time performance of the Employee's duties before the Disability Effective Date. In the event that the Company terminates the Employee due to Disability, the Employee shall be considered to have completed the Employment Period as defined in Section (1)(a) and shall receive disability benefits as provided in paragraph 6 hereof. The Employee shall have no disability benefits other than those set forth in paragraph 6 hereof. b.) By the Company. The Company may terminate the Employee's employment for Cause. "Cause" means: the Employee's commission of a felony under the laws of the United States or any state thereof (in connection with his employment) as determined by a Court of Competent Jurisdiction. c.) A termination of the Employee's employment by the Employee shall be effected by giving the Company written notice of the termination. d.) Date of Termination. The "Date of Termination" means the date of the Employee's death, the date on which the termination of the Employee's employment by the Company for Cause is effective, or the date that is 60 days after the date on which the Employee gives the Company notice of a termination of employment, as the case may be. 5 5. Termination of Consulting. a) The Consulting services of Richard L. Mercier shall be initiated upon completion of the employment period described in Section (1)(a) and shall terminate only upon his death or upon his attaining the age of 70 and not upon his disability. Richard L. Mercier's retirement benefits in existence since age 55 shall continue until Richard L. Mercier's death. 6. Obligations of the Company upon Termination. a.) Cause; Other than Death. If the Employee's employment is terminated by the Company other than for cause or death during the Employment Period, or if the employee becomes disabled during the Employment Period, the Company shall pay the amounts described in subparagraph (i) below to the Employee in a lump sum in cash within 30 days after the Date of Termination OR AT THE EMPLOYEE'S OPTION IN A MANNER DESCRIBED IN PARAGRAPH 3(a), REDUCED BY ANY PAYMENT TO EMPLOYEE DUE TO DISABILITY COVERAGE PROVIDED IN 3 (b), THROUGH THE REMAINDER OF THE INITIAL EMPLOYMENT PERIOD. The payments provided pursuant to this subparagraph (a) of Paragraph 5 are intended as either or both severance pay or liquidated damages for a termination of the Employee's employment by the Company other than for Cause or death and shall be the sole and exclusive remedy therefor. 1) The amounts to be paid in a lump sum as described above are: A. The Employee's accrued but unpaid cash compensation (the "Accrued Obligations"), which shall equal the sum of (1) any portion of the Employee's Annual Base Salary through the Date of Termination that has not yet been paid; (2) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) that has not yet been paid; and (3) any accrued but unpaid vacation pay. B. Severance pay ill an amount equal to the Employee's annual Base Salary for the period, if any, from the Date of Termination to the end of the initial four year Employment Period set forth in Section 1 hereof. 6 C. The aggregate Company matching contributions and Company profit sharing contributions, if any, that would have been made by the Company under the Savings Plan of the Company or any successor program of the Company in effect on the date on which termination shall have occurred, if the Employee had continued to be employed, and to participate on a fully vested basis in the Savings Plan or such successor program to the same extent as the Employee participated for the last month during which the Employee was permitted to participate, for the period, if any, from the Date of Termination to the end of the initial four year Employment Period set forth in Section 1 hereof at an annual rate of compensation equal to the Employee's Annual Base Salary. The discounted present value of such contributions shall be payable to the Employee in a lump sum, as calculated by the independent actuary for the Employees' Pension Plan using the assumptions specified in the Employees' Pension Plan. (2) For the period, if any, from the Date of Termination to the end of the initial four year Employment Period set forth in Section 1 hereof, the Employee shall continue to be entitled to participate in such employee welfare benefit plans, within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, maintained by the Company in which the Employee shall be a participant on the Date of Termination, subject to the terms and conditions of such employee welfare benefit plans as may be in effect from time to time during such period under this Agreement, with benefits based upon compensation equal to the Employee's Annual Base Salary. The extent that such benefits shall not be payable or provided under any such employee welfare benefit plan, the Company shall pay or provide such benefits on an individual basis. The medical, dental, health and other employee welfare benefits provided for hereunder shall be secondary to any comparable benefits provided by another employer. b.) By Reason of Death. If the Employee's employment or the Consultant's services are terminated by reason of death at any time, this Agreement shall terminate without further obligations to Mr. Mercier's legal representatives under this Agreement, other than for payment of the Accrued Obligations and life insurance as provided in Section (3)(b) as may be applicable. 7 7.) Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Employee's future participation in any plan, program, policy or practice provided by the Company or any of the other Affiliated Companies for which the Employee may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of the other Affiliated Companies. Vested benefits and other amounts that the Employee is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of the other Affiliated Companies on or after the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement, as the case may be, except as otherwise explicitly modified by this Agreement. 8.) Full Settlement. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, but if the Employee secures other employment, any employee welfare benefits the Company is required to provide to the Employee following termination of the Employee's employment shall be secondary to those provided by another employer (if any). 9.) Confidential Information. The Employee understands that in the course of the Employee's employment by the Company, the Employee will receive or have access to confidential information concerning the business or proposes of the Company and any of the other Affiliated Companies and which the Company or any of the other Affiliated Companies desire to protect. Such confidential information shall be deemed to include, but not be limited to, the Company's customer lists and information, and employee lists, including, if known, personnel information and data. The Employee agrees that the Employee will not, at any time during the period of his employment, or at any time during the period ending two (2) years after the date of termination, reveal to anyone outside the Company or any of the other Affiliated Companies or use for the Employee's own benefit any such information without specific written authorization by the Company or the Parent. 10.) Covenants by the Employee Not to Compete with the Company or the Parent a) Upon file Date of Termination of the Employee's employment with the Company for any reason, the Employee covenants and agrees that the Employee will not at any time during the period of two years from and after such Date of Termination directly or indirectly in any manner or under any circumstances or conditions whatsoever be or become interested, as an individual, partner, principal, agent, clerk, employee, stockholder, officer, director, trustee or in any other capacity whatsoever, except as a nominal owner of stock of a public corporation, in any other business which, at the date of the Employee's 8 termination, is a Competitor (as defined herein), with directly or indirectly, with the Company or any of the other Affiliated Companies, or engage or participate in, directly or indirectly (whether as an officer, director, employee, partner, consultant, holder of any equity or debt investment, lender or in any other manner or capacity), or lend the Employee's name (or any part or variant thereof) to, any business which, at the date of the Employee's termination, is a Competitor, either directly or indirectly, with the Company or any of the other Affiliated Companies, or as a result of the Employee's engagement or participation would become, a Competitor, either directly or indirectly, with any aspect of the business of the Company or any of the other Affiliated Companies, as it exists at the time of the Employee's termination, or solicit any officer, director, employee or agent of the Company or any of the other Affiliated Companies or any subsidiary or affiliate of the Company or any of the other Affiliated Companies to become an officer, director, employee or agent of the Employee, the Employee's respective affiliates or anyone else. Ownership, in the aggregate, of less than (1%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock lists on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a violation of the foregoing provision. For the purposes of this Agreement, a Competitor is any business which is similar to the business of the Company or any of the other Affiliated Companies or in any way in competition with the business of the Company or any of the other Affiliated Companies within any of the then-existing service areas of the Company or any of the other Affiliated Companies. b) The Employee hereby acknowledges that the Employee's services are unique and extraordinary, and are not readily replaceable, and hereby expressly agrees that the Company and the Parent, in enforcing the covenants contained in Paragraphs 8 and 9 herein, in addition to any the remedies provided for herein or otherwise available at law, shall be entitled in any court of equity having jurisdiction to an injunction restraining the Employee in the event of a breach, actual or threatened, of the agreements and covenants contained in this Section 9. c) The parties hereto believe that the restrictive covenants of this Section 9 are reasonable. However, if at any time is shall be determined by any court of competent jurisdiction that this Section 9 or any portion of it as written, are unenforceable because the restrictions are unreasonable, the parties hereto agree that such portions as shall have been determined to be unreasonably restrictive shall thereupon be amended as to make such restrictions reasonable in the determination of such court, and the said covenants, as so modified, shall be enforceable between the parties to the same extent as if such amendments had been made prior to the date of any alleged breach of said covenants. 9 11.) Insurance. The Company shall have the right at its own cost and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering the Employee, and the Employee agrees to submit to the usual and customary medical examination and otherwise to cooperate with the Company in connection with the procurement of any such insurance, and any claims thereunder. 12.) Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person to the Employee or to the Secretary of the Company and the Parent, or if mailed, postage prepaid, registered or certified mail, addressed, in the case of the Employee, to the Employee's last known address as carried on the personnel records of the Company, and, in the case of the Company and the Parent, to the corporate headquarters, attention of the Secretary, or to such other address as the party to be notified may specify by notice to the other party. 13.) Successors and Assigns. a.) Assignment by Employee. This Agreement is personal to the Employee and shall not be assignable by the Employee. b.) Assignment by the Company. This Agreement shall inure to the benefit of and by binding upon the Company and the other Affiliated Companies and their respective successors and assigns. As used in this Agreement, the "Company" and the other Affiliated Companies shall mean both the Company and the other Affiliated Companies, respectively, and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 14.) Release. Prior to receiving severance payments or benefits provided for in Paragraph 6(a) of this Agreement, at the request of the Company or the Parent, the Employee shall execute and deliver for the benefit of the Company and the Parent, and any of the Affiliated Companies, a general release in the form set forth in Attachment C, and such release shall, become effective in accordance with its terms. The failure or refusal of the Employee to sign such a release or the revocation of such a release shall cause the termination of any and all obligations of the Company and the Parent to make payment or provide benefits hereunder and the forfeiture of the right of the Employee to receive any such payments and benefits. The Employee acknowledges that the Company and the Parent have advised the Employee to consult with an attorney prior to signing this Agreement and that the Employee has had an opportunity to do so. 10 15.) Arbitration. Any dispute which may arise between the parties hereto shall, be submitted to binding arbitration in the State of Connecticut in accordance with the Rules of the American Arbitration Association. 16.) Severability. If any of the terms or conditions of this Agreement shall be declared void or unenforceable by any court or administrative body of competent jurisdiction, such term or condition shall be deemed severable from the remainder of this Agreement, and the other terms and conditions of this Agreement shall continue to be valid and enforceable. 17.) Amendment. This Agreement may be modified or amended only by an instrument in writing executed by the parties hereto. 18.) Construction. This Agreement is intended to include all prior agreements and understandings between the parties as have been set-forth in various letters including without limitation a certain letter from Connecticut Water Service, Inc. to Richard L. Mercier dated February 10, 1999. This Agreement shall be governed and construed under the laws of the State of Connecticut. Words of the masculine gender mean and include correlative words of the feminine gender. Paragraph headings are for convenience only and shall not be considered a part of the terms and provisions of the Agreement. IN WITNESS WHEREOF, the Company and the Parent have caused this Agreement to be executed by a duly authorized officer, and the Employee and the Consultant have hereunto set the Employee and the Consultant's hand, this 13th day of April, 1999. CONNECTICUT WATER SERVICE, INC. /s/ David C. Benoit - ------------------------------------------- David C. Benoit Vice President of Finance and Treasurer 11 CONNECTICUT WATER COMPANY /s/ David C. Benoit - ------------------------------------------- David C. Benoit Vice President of Finance and Treasurer /s/ Richard L. Mercier - ------------------------------------------- Richard L. Mercier Employee /s/ Richard L. Mercier - ------------------------------------------- Richard L. Mercier Consultant 12 SCHEDULE A POSITION DESCRIPTION PRESIDENT - GALLUP WATER SERVICE, INCORPORATED 1. Serves as a primary spokesman for the company in developing its public image and represents the company in its relationships with major customers, suppliers, the financial community, industry groups, government bodies, as well as directing participation in appropriate outside meetings. Develops and maintains appropriate working relationships with government officials. 2. Works with external agencies to address opportunities for expanding service territories, as well as to expand the economic development of the operating regions. 3. Recommends programs aimed at achieving growth, diversification, and profitability. 4. Works with CEO to ensure that future planning is carried out. 5. At specified intervals, reviews with the CEO operating and capital budgets, performance toward objectives and changes. 6. Develops, grows and manages a profitable business. Preserves the strength of the company to best preserve its independence and the interests of the stockholders and customers. 7. Ensures that corporate policies are uniformly understood and properly interpreted and administered by subordinates. 8. Works with the CEO to develop the basic objectives, policies and operating plans of the business, both tactical and strategic. Ensures that regulatory history and trends are recognized for their impact. 9. Maintains a strong management team, assuring the availability of qualified people to support and strengthen the resources of the business in meeting its objectives. 13 SCHEDULE B POSITION DESCRIPTION CONSULTANT A. Develops and maintains appropriate working relationships with government officials. B. Works with external agencies to address opportunities for expanding service territories, as well as expand the economic development of the operating regions. C. Recommends programs aimed at achieving growth, diversification, and profitability. D. Works with the CEO to develop the basic objectives, policies, and operating plans of the business, both tactical and strategic. Ensures that regulatory history and trends are recognized for their impact. 14 ATTACHMENT C RELEASE We advise you to consult an attorney before you sign this Release. You have until the date which is seven (7) days after the Release is signed and returned to the [ ] Water Company ("the Company") to change your mind and revoke your Release. Your Release shall not become effective or enforceable until after that date. In consideration for the severance benefits and payments provided under your Employment Agreement dated ___________ with the Company and Connecticut Water Service, Inc. ("the Parent"), and more specifically enumerated in Exhibit 1 hereto, by your signature below you agree to accept such benefits and not to make any claims of any kind against the Company, its past and present and future Parent corporations, subsidiaries, divisions, subdivisions, affiliates and related companies or their successors and assigns, including without limitation the Parent, or any and all past, present and future Directors, officers, fiduciaries or employees of any of the foregoing (all parties referred to in the foregoing are hereinafter referred to as the "Releasees") before any agency, court or other forum, and you agree to release the Releasees from all claims, known or unknown, arising in any way from any actions taken by the Releasees up to the date of this Release, including, without limiting the foregoing, any claim for wrongful discharge or breach of contract or any claims arising under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, Connecticut's Fair Employment Practices Act or any other federal, state or local statute or regulation and any claim for attorneys' fees, expenses or costs of litigation. THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE YOU WILL HAVE WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASEES BASED ON ANY ACTIONS TAKEN BY THE RELEASEES UP TO THE DATE OF THIS RELEASE. By signing this Release, you further agree as follows: 1.) You have read this Release carefully and fully understand its terms; 2.) You have had at least twenty-one (21) days to consider the terms of the Release; 3.) You have seven (7) days from the date you sign this Release to revoke it by written notification to the Company. After this seven (7) day period, THIS Release is final and binding and may not be revoked; 4.) You have been advised to seek legal counsel and have had an opportunity to do so; 15 5.) You would not otherwise be entitled to the severance benefits provided under your Employment Agreement with the Company and the Parent had you not agreed to waive any right you have to bring a lawsuit or legal claim against the Releasees; and 6.) Your agreement to the terms set forth above is voluntary. Name: _____________________________ Signature: _____________________________ Date: _____________________________ Received by: _____________________________ Date: _____________________________ EX-10.11 10 EX-10.11 1 Exhibit 10.11 Roger Engle EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENT by and between Crystal Water Company, a Connecticut corporation with its principal office and place of business in Danielson, Connecticut (the "Company"), Connecticut Water Service, Inc., a Connecticut corporation and holder of all of the outstanding capital stock of Company (the "Parent") and Roger Engle, a resident of Brookly, CT (Mr. Engle or the "Employee"), dated as of September 29, 1999. WHEREAS, the Company and the Parent have determined that it is in the best interests of the Company and the Parent to employ Roger Engle as President of the Company and Mr. Engle desires to serve in that capacity; WHEREAS, the Company and the Parent have determined that it is in the best interests of the Company and the Parent to engage Roger Engle as a Consultant after the employment period and Mr. Engle desires to serve in that capacity. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Employment Period. The Company shall employ the Employee, and the Employee shall serve the Company, on the trams and conditions set forth in this Agreement, for the period commencing on or before September 29, 1999 and ending on December 30, 1999 (the "Employment Period"). 2. Consultant Period. After the Employment Period the Parent shall engage Mr. Engle as a Consultant and not as an Employee. Said Consulting period shall continue for a period of 10 years, terminating on December 31, 2009 (the "Consulting Period"). If the Employee resigns prior to the completion of the Employment Period described in Section (1) the Company shall not be required to engage Mr. Engle as a Consultant. 3. Position, Duties and Location. a) During the Employment Period, the Employee shall have the title of President of the Company and shall report directly to the CEO of the Parent. The Employee's authority, duties and responsibilities shall be those described in "Schedule A" attached hereto. 2 b) During the Consulting Period, Mr. Engle shall have the title of Consultant and shall report directly to the CEO of the Parent. The Consultant's authority, duties and responsibilities shall be those described in "Schedule B" attached hereto. c) During the Consulting Period, Mr. Engle shall not be an Employee of the Parent or any of the other Affiliated Companies (as hereinafter defined) and as an independent contractor shall be responsible for the payment of his own social security taxes, federal and state income taxes, pension contributions if any, and any similar items. Mr. Engle shall not be entitled to unemployment compensation or disability benefits during the Consultant Period. d) During the Employment Period and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee shall devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee under this Agreement, use the Employee's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Employee to serve on corporate, civic or charitable boards or committees so long as such activities do not involve a conflict of interest with the Company or the Parent or other "Affiliated Companies" (as hereinafter defined) or interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. For purposes of this Agreement, "Affiliated Companies" means the Parent and all companies controlled by, controlling or under common control with the Parent. e) During the Employment Period, the Employee shall be entitled to maintain his office at the Company's present office location in Danielson, CT. During the Consultant Period, the Company shall provide such office space and secretarial assistance as may be necessary for the fulfillment of duties consistent with Schedule B attached hereto. 4.) Compensation. a.) Base Salary. The Employee shall be paid at a biweekly rate of $4615.38 for the duration of the Employment Period. The total Annual Base Salary due Mr. Engle for the period from January 1, 1999 up to and including the Employment Period shall not exceed $120,551 including any holiday or other leave for which he has been paid. b.) Consultant Fees. During the Consultant Period, Mr. Engle shall receive fees equal to $16,000 on an annual basis to be paid on a quarterly basis of $4,000 per quarter on the first day of the first month of each quarter. 3 c.) Other Benefits. (1) During the Employment Period: (i) the Employee shall be entitled to participate in all qualified deferred compensation, savings and retirement plans, practices, policies and programs of the Company in accordance with the plans, practices, programs and policies available to Officers of the Company set forth, from time to time, in such plans or any Company employee manual; and (ii) the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs provided by the Company for Officers of the Company in accordance with the plans, practices, programs and policies of the Company set forth, from time to time, in such plans or Company employee manual. (2) Upon completion of the Consulting Period, the employee will thereafter receive a supplemental executive retirement benefit designed to pay him $16,000 per year, regardless of any payments then due him under any pension plan of the Company. (3) The Employee will have use of his current company vehicle during his employment and shall be given that vehicle, at the end of the Employment Period, provided he assumes responsibility for all taxes, insurance and maintenance of said vehicle after his retirement. (4) Upon completion of the Employment Period, the Employee shall receive benefits available to Company retirees including the option to take payment of retirement benefits in a lump sum payout in accordance with the terms of the Crystal Water Company Defined Benefit Pension Plan as amended effective January 1, 1998. (5) The Company shall maintain a life insurance policy for Mr. Engle which will provide a lump sum payment of $150,000 to his spouse should his death occur during the Consulting Period. d.) Expenses. During the Employment and Consulting Periods, the Employee/Consultant shall be entitled to receive prompt reimbursement for all reasonable authorized travel and other authorized expenses incurred by the Employee/Consultant in carrying out the Employee's/Consultant's duties under this Agreement in accordance with the policies and procedures established by the Company or the Parent, as applicable. e.) Fringe Benefits. During the Employment Period, the Employee shall be entitled to Fringe benefits in accordance with the plans, practices, programs and policies of the Company set forth, from time to time, in such plans or any Company employee manual. f.) Vacation. During the Employment Period, the Employee shall be entitled to four weeks' paid vacation annually in accordance with the plans, policies, programs and practices of the Company as set forth, from time to time, in such plans or any Company employee manual. 4 g.) Consideration for Board of Directors. Upon completion of the Employment Period and subsequent retirement, Mr. Engle shall be recommended by the CEO of the Parent to the Connecticut Water Company Committee on Directors for consideration as a candidate for nomination to the Board of Directors of Connecticut Water Company for election at the Year 2000 Meeting of Shareholders. 5.) Termination of Employment. a.) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death. The Company shall be entitled to terminate the Employee's employment because of the Employee's Disability during the Employment Period. "Disability" means that the Employee has been unable, with or without accommodation, for a period of 180 consecutive business days, to perform the Employees' duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), unless the Employee returns to full-time performance of the Employee's duties before the Disability Effective Date. In the event that the Company terminates the Employee due to Disability, the Employee shall be considered to have completed the Employment Period as defined in Paragraph (1) and the Employee shall not be entitled to any disability benefits other than specifically set forth in this Agreement. b.) By the Company. The Company may terminate the Employee's employment for Cause. "Cause" means: (i) the Employee's failure to perform the duties of his employment in any material respect after notice from the Company and failure to cure within ten business days after delivery of such notice, (ii) malfeasance or gross negligence in the performance of the Employee's duties of employment, (iii) the Employee's commission of a felony under the laws of the United States or any state thereof (whether or not in connection with his employment), (iv) the commission by the Employee of a fraud upon the Company or any of the other Affiliated Companies, (b) willful misconduct on the part of the Employee, (vi) the Employee's breach of any of the provisions of Paragraph 10 or 11 of this Agreement, or (vii) any other act or omission by the employee (other than an act or omission resulting from the exercise by the Employee of good faith business judgment) which is materially injurious to the financial condition or the business reputation of the Company or any of the Affiliated Companies provided, however, that the Employee may, within ten (10) days of receipt of such notice, request in writing a hearing by the Board of the Parent. Upon such request, the Employee shall be entitled to be heard by the Board of Directors of the Parent, which shall determine whether or not the Employee shall be terminated and shall provide its reasons for any termination to the Employee in writing. 5 c.) By the Employee. A termination of the Employee's employment by the Employee shall be effected by giving the Company written notice of the termination. d.) No Waiver. The failure to set forth any fact or circumstance in a Notice of Termination for Cause shall not constitute a waiver of the right to assert, and shall not preclude the party giving notice from asserting, such fact or circumstance in an attempt to enforce any right under or provision of this Agreement. e.) Date of Termination. The "Date of Termination" means the date of the Employee's death, the Disability Effective Date, the date on which the termination of the Employee's employment by the Company for Cause is effective, or the date that is 60 days after the date on which the Employee gives the Company notice of a termination of employment, as the case may be. 6. Termination of Consulting. The Consulting services of Roger Engle shall commence on January 1, 2000 upon completion of the Employment Period and, unless terminated by the Parent, which may be done by the Parent for any of the reasons specified in clauses (iii), (iv), (vi), or (viii) of the definition of "cause," shall terminate only upon his death or upon his completing the 10 year Consulting Period. 7. Obligations of the Company upon Termination. a.) Other Than for Cause or Death. If, during the Employment Period, the Company terminates the Employee's employment, other than for Cause or death, the Company shall continue to pay Employee all amounts contemplated by this Agreement as a result of his being an Employee of the Company, including the $16,000.00 per year annual benefits payable to the Employee under Paragraph 4(c)(2) hereof. b.) For Cause or Death. If the Employee's employment is terminated due to death or by the Company for Cause during the Employment Period or if the Employee voluntarily terminates employment, the Company shall pay the Employee the Annual Base Salary through the Date of Termination and the amount of any compensation previously deferred by the Employee (together with any accrued interest or earning thereon), and any benefits due in accordance with the Crystal Water Company Defined Benefit Plan as amended effective January 1, 1998, in each case to the extent not yet paid, and neither the Company nor any Affiliated Company shall have any further obligations under this Agreement. 6 8.) Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Employee's future participation in any plan, program, policy or practice provided by the Company or any of the other Affiliated Companies for which the Employee may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of the other Affiliated Companies. Vested benefits and other amounts that the Employee is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of the other Affiliated Companies on or after the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement, as the case may be, except as otherwise explicitly modified by this Agreement. 9.) Full Settlement. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, but if the Employee secures other employment, any employee welfare benefits the Company is required to provide to the Employee following termination of the Employee's employment shall be secondary to those provided by another employer (if any). 10.) Confidential Information. Mr. Engle understands that in the course of his Employment/Consultant period by the Company, he will receive or have access to confidential information concerning the business or proposes of the Company and any of the other Affiliated Companies and which the Company or any of the other Affiliated Companies desire to protect. Such confidential information shall be deemed to include, but not be limited to, the Company's customer lists and information, and employee lists, including, if known, personnel information and data. Mr. Engle agrees that he will not, at any time during the period ending earlier of (i) two years after the Date of Termination or (ii) two years after completion of the Consulting Period reveal to anyone outside the Company or any of the other Affiliated Companies or use for his own benefit any such information without specific written authorization by the Company or the Parent. Mr. Engle further agrees not to use any such confidential information or trade secrets in competing with the Company or any of the other Affiliated Companies at any time during or in the period ending the earlier of (i) the two-year period immediately following the Date of Termination, or (ii) two years after completion of the Consulting Period. 7 11.) Covenants by the Employee Not to Compete with the Company or the Parent (a) Mr. Engle covenants and agrees that he will not at any time during the period ending the earlier of (i) two years from and after such Date of Termination or (ii) two years after completion of the Consulting Period directly or indirectly in any manner or under any circumstances or conditions whatsoever be or become interested, as an individual, partner, principal, agent, clerk, employee, stockholder, officer, director, trustee or in any other capacity whatsoever, except as a nominal owner of stock of a public corporation, in any other business which, at any such date, is a Competitor (as defined herein), either directly or indirectly, with the Company or any of the other Affiliated Companies, or engage or participate in, directly or indirectly (whether as an officer, director, employee, partner, consultant, holder of an equity or debt investment, lender or in any other manner or capacity), or lend the Employee's name (or any part or variant thereof) to, any business which, at any such date, is a Competitor, either directly or indirectly, with the Company or any of the other Affiliated Companies, or as a result of the Employee's engagement or participation would become, a Competitor, either directly or indirectly, with any aspect of the business of the Company or any of the other Affiliated Companies, as it exists at any such date, or solicit any officer, director, employee or agent of the Company or any of the other Affiliated Companies or any subsidiary or affiliate of the Company or any of the other Affiliated Companies to become an officer, director, employee or agent of the Employee, the Employee's respective affiliates or anyone else. Ownership, in the aggregate, of less than five percent (5%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a violation of the foregoing provision. For the purposes of this Agreement, a Competitor is any business service areas then being served by the Company or any of the other Affiliated Companies which is similar to the business of the Company or any of the other Affiliated Companies or in any way in competition with the business of the Company or any of the other Affiliated Companies. (b) The Employee hereby acknowledges that the Employee's services are unique and extraordinary, and are not readily replaceable, and hereby agrees that the Company and the Parent, in enforcing the covenants contained in Paragraphs 10 and 11 herein, in addition to any the remedies provided for herein or otherwise available at law, shall be entitled in any court of equity having jurisdiction to an injunction restraining the Employee in the event of a breach, actual or threatened, of the agreements and covenants contained in Paragraphs 10 or 11. 8 c) The parties hereto believe that the restrictive covenants of this Paragraph 11 are reasonable. However, if at any time is shall be determined by any court of competent jurisdiction that this Paragraph 11 or any portion of it as written, are unenforceable because the restrictions are unreasonable, the parties hereto agree that such portions as shall have been determined to be unreasonably restrictive shall thereupon be amended as to make such restrictions reasonable in the determination of such court, and the said covenants, as so modified, shall be enforceable between the parties to the same extent as if such amendments had been made prior to the date of any alleged breach of said covenants. 12.) Insurance. The Company shall have the right at its own cost and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering the Employee, and the Employee agrees to submit to the usual and customary medical examination and otherwise to cooperate with the Company in connection with the procurement of any such insurance, and any claims thereunder. 13.) Release. As a condition of eligibility for severance payments or benefits provided for in Paragraph 7(a) of this Agreement, at the request of the Company or the Parent, the Employee shall execute and deliver for the benefit of the Company and the Parent, and any of the Affiliated Companies, a general release in the form set forth in Schedule C, and such release shall become effective in accordance with its terms provided that neither the Company nor the Parent is in breach of its obligations under that Agreement at the time such request is made. The failure or refusal of the Employee to sign such a release or the revocation of such a release shall cause the termination of any and all obligations of the Company and the Parent to make payments or provide benefits hereunder, and the forfeiture of the right of the Employee to receive any such payments and benefits. The Employee acknowledges that the Company and the Parent have advised the Employee to consult with an attorney prior to signing this Agreement and that the Employee has had an opportunity to do so. 14.) Regulatory Limitation. Notwithstanding any other provision of this Agreement, the Company shall not be obligated to make, and the Employee shall have no right to receive, any payment, benefit or amount under this Agreement which would violate any law, regulation or regulatory order applicable to the Company, or any of the other Affiliated Companies at the time such payment, benefit or amount is due ("Prohibited Payment"). If and to the extent the Company shall at a later date be relieved of the restriction on its ability to make any Prohibited Payment, then at such time the Company, or the Parent shall promptly make payment of any such amounts to the Employee. The parties hereto acknowledge that as of the date of this Agreement, no payment, benefit, or amount payable under this Agreement would be a Prohibited Payment. 9 15.) Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person to the Employee or to the Secretary of the Company and the Parent, or if mailed, postage prepaid, registered or certified mail, addressed, in the case of the Employee, to the Employee's last known address as carried on the personnel records of the Company, and, in the case of the Company and the Parent, to the corporate headquarters, attention of the CEO, or to such other address as the party to be notified may specify by notice to the other party. 16.) Successors and Assigns. a.) Assignment by Employee. This Agreement is personal to the Employee and shall not be assignable by the Employee. b.) Assignment by the Company. This Agreement shall inure to the benefit of and by binding upon the Company and the other Affiliated Companies and their respective successors and assigns. As used in this Agreement, the "Company" and the other Affiliated Companies shall mean both the Company and the other Affiliated Companies, respectively, and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 17.) Arbitration. Any dispute which may arise between the parties hereto may, if both parties agree, be submitted to binding arbitration in the State of Connecticut in accordance with the Rules of the American Arbitration Association; provided that any such dispute shall first be submitted to the Company's Board of Directors in an effort to resolve such dispute without resort to arbitration. 18.) Severability. If any of the terms or conditions of this Agreement shall be declared void or unenforceable by any court or administrative body of competent jurisdiction, such term or condition shall be deemed severable from the remainder of this Agreement, and the other terms and conditions of this Agreement shall continue to be valid and enforceable. 19.) Amendment. This Agreement may be modified or amended only by an instrument in writing executed by the parties hereto. 20.) Construction. This Agreement supersede and replace all prior agreements and understandings between the parties hereto on the subject matter covered hereby. This Agreement shall be governed and construed under the laws of the State of Connecticut. Words of the masculine gender mean and include correlative words of the feminine gender. Paragraph headings are for convenience only and shall not be considered a part of the terms and provisions of the Agreement. 21.) Guarantee. The Parent hereby guarantees the obligations of the Company hereunder. 10 IN WITNESS WHEREOF, the Company and the Parent have caused this Agreement to be executed by a duly authorized officer, and the Employee has hereunto set the Employee's hand, this ____ day of _____ 19__. CONNECTICUT WATER SERVICE, INC. /s/ Marshall T. Chiaraluce - --------------------------------------------- Marshall T. Chiaraluce President & CEO CRYSTAL WATER COMPANY - --------------------------------------------- /s/ Randolph Kempain [Someone other than Engle] /s/ Roger Engle - --------------------------------------------- Roger Engle 11 SCHEDULE A POSITION DESCRIPTION PRESIDENT - CRYSTAL WATER COMPANY 1. Serves as a primary spokesman for the company in developing its public image and represents the company in its relationships with major customers, suppliers, the financial community, industry groups, government bodies, as well as directing participation in appropriate outside meetings. Develops and maintains appropriate working relationships with government officials. 2. Works with external agencies to address opportunities for expanding service territories, as well as to expand the economic development of the operating regions. 3. Recommends programs aimed at achieving growth, diversification, and profitability. 4. Works with CEO to ensure that future planning is carried out. 5. At specified intervals, reviews with the CEO operating and capital budgets, performance toward objectives and changes. 6. Develops, grows and manages a profitable business. Preserves the strength of the company to best preserve its independence and the interests of the stockholders and customers. 7. Ensures that corporate policies are uniformly understood and properly interpreted and administered by subordinates. 8. Works with the CEO to develop the basic objectives, policies and operating plans of the business, both tactical and strategic. Ensures that regulatory history and trends are recognized for their impact. 9. Maintains a strong management team, assuring the availability of qualified people to support and strengthen the resources of the business in meeting its objectives. 12 SCHEDULE B POSITION DESCRIPTION CONSULTANT A. Develops and maintains appropriate working relationships with government officials. B. Works with external agencies to address opportunities for expanding service territories, as well as expand the economic development of the operating regions. C. Recommends programs aimed at achieving growth, diversification, and profitability. D. Works with the CEO to develop the basic objectives, policies, and operating plans of the business, both tactical and strategic. Ensures that regulatory history and trends are recognized for their impact. 13 ATTACHMENT C RELEASE We advise you to consult an attorney before you sign this Release. You have until the date which is seven (7) days after the Release is signed and returned to the Crystal Water Company ("the Company") to change your mind and revoke your Release. Your Release shall not become effective or enforceable until after that date. In consideration for the severance benefits and payments provided under your Employment Agreement dated ___________ with the Company and Connecticut Water Service, Inc. ("the Parent"), and more specifically enumerated in Exhibit 1 hereto, by your signature below you agree to accept such benefits and not to make any claims of any kind against the Company, its past and present and future Parent corporations, subsidiaries, divisions, subdivisions, affiliates and related companies or their successors and assigns, including without limitation the Parent, or any and all past, present and future Directors, officers, fiduciaries or employees of any of the foregoing (all parties referred to in the foregoing are hereinafter referred to as the "Releasees") before any agency, court or other forum, and you agree to release the Releasees from all claims, known or unknown, arising in any way from any actions taken by the Releasees up to the date of this Release, including, without limiting the foregoing, any claim for wrongful discharge or breach of contract or any claims arising under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, Connecticut's Fair Employment Practices Act or any other federal, state or local statute or regulation and any claim for attorneys' fees, expenses or costs of litigation. THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE YOU WILL HAVE WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASEES BASED ON ANY ACTIONS TAKEN BY THE RELEASEES UP TO THE DATE OF THIS RELEASE. By signing this Release, you further agree as follows: 1.) You have read this Release carefully and fully understand its terms; 2.) You have had at least twenty-one (21) days to consider the terms of the Release; 3.) You have seven (7) days from the date you sign this Release to revoke it by written notification to the Company. After this seven (7) day period, THIS Release is final and binding and may not be revoked; 4.) You have been advised to seek legal counsel and have had an opportunity to do so; 14 5.) You would not otherwise be entitled to the severance benefits provided under your Employment Agreement with the Company and the Parent had you not agreed to waive any right you have to bring a lawsuit or legal claim against the Releasees; and 6.) Your agreement to the terms set forth above is voluntary. By signing this Release, you do not agree to release the Company from future performance of its obligation to pay or provide severance benefits in accordance with your Employment Agreement, and any failure to pay or provide such benefit will void this release. Name: _____________________________ Signature: _____________________________ Date: _____________________________ Received by: _____________________________ Date: _____________________________ EX-27 11 EX-27
OPUR1 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 181,342 2,747 10,117 16,679 0 210,885 44,654 0 17,841 62,495 0 772 65,399 2,411 0 0 0 0 0 0 79,808 210,885 42,624 5,008 26,389 31,397 11,227 793 12,020 4,526 7,494 38 7,456 5,538 3,943 14,083 1.54 1.54
-----END PRIVACY-ENHANCED MESSAGE-----