-----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, KR+sb9NsbWJ3/3XIuZ9fmGn21O2hj9tkvv1Onpcpi2qYTarKcVfxavz4fuZ2aCgC agFnmGznTsLM0xYb4j+u9Q== 0000950123-03-003258.txt : 20030326 0000950123-03-003258.hdr.sgml : 20030325 20030326092151 ACCESSION NUMBER: 0000950123-03-003258 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 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: 1934 Act SEC FILE NUMBER: 000-08084 FILM NUMBER: 03617016 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 y84639e10vk.txt CONNECTICUT WATER SERVICE, INC. UNITED STATES 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, 2002 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 Registrant's website: www.ctwater.com 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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes [X] No [ ] 2 The aggregate market value of the registrant's voting Common Stock held by non-affiliates, computed on the price of such stock at the close of business on June 28, 2002 is $230,588,576. 7,903,053 Number of shares of Common Stock outstanding, March 3, 2003 (excluding 43,642 common stock equivalent shares) DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Which Document Document is Incorporated Definitive Proxy Statement, dated Part III March 18, 2003, for Annual Meeting of Shareholders to be held on April 25, 2003. 3 PART I ITEM 1. BUSINESS The Company The Registrant, Connecticut Water Service, Inc. (referred to as "the Company", "we" or "our") was organized in 1956. Connecticut Water Service, Inc. is a non-operating holding company, whose income is derived from the earnings of its eleven wholly-owned subsidiary companies. In 2002 approximately 90% of the Company's earnings were attributable to water activities carried out within its five regulated water companies: The Connecticut Water Company, The Gallup Water Service, Incorporated, The Crystal Water Company of Danielson, The Barnstable Water Company and The Unionville Water Company. These five companies supply water to 85,536 customers in 42 towns throughout Connecticut and Massachusetts. Each of these companies is subject to state regulation regarding financial issues, rates, and operating issues, and to various other state and federal regulatory agencies concerning water quality and environmental standards. In addition to its regulated utilities, the Company owns six unregulated companies: Chester Realty, Inc., a real estate company in Connecticut; New England Water Utility Services, Inc., which provides contract water and sewer operations and other water related services; Connecticut Water Emergency Services, Inc., a provider of drinking and pool water by tanker truck; Crystal Water Utilities Corporation, a holding company which owns The Crystal Water Company of Danielson and three small rental properties; BARLACO, a real estate company in Massachusetts; and Barnstable Holding Company, a holding company which owns The Barnstable Water Company and BARLACO. In 2002, these unregulated companies, in conjunction with the regulated water companies, contributed the remaining 10% of CTWS's earnings through real estate transactions as well as services and rentals. Our mission is to provide high quality water service to our customers at a fair return to our stockholders while maintaining a work environment that attracts, retains and motivates our employees to achieve a high level of performance. Our corporate headquarters are located at 93 West Main Street, Clinton, Connecticut 06413. Our telephone number is 860.669.8636, and our Internet address is www.ctwater.com. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports will be made available free of charge through the "INVESTOR INFO (SEC Filings)" section of the Company's Internet website (http://www.ctwater.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Our Regulated Business Our business is subject to seasonal fluctuations and weather variations. The demand for water is generally greater during the warmer months than the cooler months due to customers' high water consumption related to cooling systems and various outdoor uses such as private and public swimming pools and lawn sprinklers. Demand will vary with rainfall and temperature levels from year to year and season to season, particularly during the warmer months. 4 In general, the profitability of the water utility industry is largely dependent on the timeliness and adequacy of rates allowed by utility regulatory commissions. In addition, profitability is affected by numerous factors over which we have little or no control, such as costs to comply with security, environmental, and water quality regulations. Inflation and other factors also impact costs for construction, materials and personnel related expenses. Costs to comply with environmental and water quality regulations are substantial. Since the 1974 enactment of the Safe Drinking Water Act we have spent approximately $50,400,000 in constructing facilities and conducting aquifer mapping necessary to comply with the requirements of the Safe Drinking Water Act, and other federal and state regulations, of which $3,836,000 was expended in the last five years. We are presently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with future changes in state or federal regulations, which could require us to modify existing filtration facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial. Our water companies derive their rights and franchises to operate from special state acts that are subject to alteration, amendment or repeal and do not grant us exclusive rights to our service areas. Our franchises are free from burdensome restrictions, are unlimited as to time, and authorize us to sell potable water in all the towns we now serve. There is the possibility that the state could revoke our franchises and allow a governmental entity to take over some or all of our systems. From time to time such legislation is contemplated. The rates we charge our water customers are established under the jurisdiction of and are approved by a state regulatory agency. It is our policy to seek rate relief as necessary to enable us to achieve an adequate rate of return. The following table shows information related to each of our water companies' most recent general rate filing.
- ------------------------------------------------------------------------------------------ Date of Last Allowed Allowed Rate Return on Return on Decision Equity Rate Base - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ Barnstable 1998 12.5% 11.31% - ------------------------------------------------------------------------------------------ Connecticut Water 1991 12.7% 10.74% - ------------------------------------------------------------------------------------------ Crystal 1995 12.35% 10.16% - ------------------------------------------------------------------------------------------ Gallup 1994 N/A* N/A* - ------------------------------------------------------------------------------------------ Unionville 1999 12.35% N/A** - ------------------------------------------------------------------------------------------
* Gallup's rates were based on its net income requirement, not on a rate of return methodology. ** Unionville's rates were based on a return on equity methodology, not a rate base methodology. 5 Our Water Systems Our water infrastructure consists of 28 noncontiguous water systems in the State of Connecticut and one water system in Massachusetts. Our system, in total, consists of 1,358 miles of water main and reservoir storage capacity of 7.0 billion gallons. The safe, dependable yield from our 132 active wells and 20 reservoirs is approximately 52 million gallons per day. Water sources vary among the individual systems, but overall approximately 42% of the total dependable yield comes from reservoirs and 58% from wells. We supply water, and in most cases, fire protection to all or portions of 42 towns in Connecticut and Massachusetts. The following table lists the customer count, operating revenues and customer water consumption for each of our water companies as of December 31, 2002.
- ----------------------------------------------------------------------------------------------------- Number Water Customer Water of Revenues Consumption Water Company customers ($000's) (millions of gallons) - ----------------------------------------------------------------------------------------------------- Barnstable Water Company 7,143 $ 2,552 872 - ----------------------------------------------------------------------------------------------------- Connecticut Water Company 67,926 40,150 5,884 - ----------------------------------------------------------------------------------------------------- Crystal Water Company 3,657 2,133 483 - ----------------------------------------------------------------------------------------------------- Gallup Water Service 1,197 634 88 - ----------------------------------------------------------------------------------------------------- Unionville Water Company* 5,613 361 91 - ----------------------------------------------------------------------------------------------------- Total 85,536 $ 45,830 7,418 - -----------------------------------------------------------------------------------------------------
* Revenue and consumption figures are for November and December 2002 only. The following table breaks down the above total figures by customer class:
- ------------------------------------------------------------------------------------------------------------------- Water Customer Water Number of Revenues Consumption Customer Class customers ($000's) (millions of gallons) - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Residential 75,806 $ 28,680 5,070 - ------------------------------------------------------------------------------------------------------------------- Commercial 6,176 6,036 1,501 - ------------------------------------------------------------------------------------------------------------------- Industrial 435 1,709 482 - ------------------------------------------------------------------------------------------------------------------- Public Authority 562 1,436 351 - ------------------------------------------------------------------------------------------------------------------- Fire Protection 1,641 7,434 0 - ------------------------------------------------------------------------------------------------------------------- Other (including non-metered accounts) 916 535 14 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Total 85,536 $ 45,830 7,418 - -------------------------------------------------------------------------------------------------------------------
6 Disposition of Property We have established a policy of disposing of various small, discrete parcels of land over the next several years. This land, which is no longer required for water supply purposes, totaled approximately 725 acres at the beginning of December 2002. In 2002, we donated approximately 10 acres of land to the Town of Avon and 54.2 acres to the Town of Killingly for protected open space purposes leaving a balance of approximately 661 acres as of December 31, 2002. Connecticut is continuing to encourage the protection of open space land. Legislation was passed in 2000 creating a new Connecticut corporate tax credit, which makes the donation of our excess land for protected open space purposes potentially more economically beneficial than a sale of the land. The new tax credit, in combination with federal and state charitable contribution deductions, resulted in after-tax gains from Avon and Killingly transactions of approximately $440,000 in 2002. In January 2003, 178 acres of the remaining 661 acres was donated to the Town of Killingly for protected open space purposes. Competition Our water companies face competition, presently not material, from a few private water systems operating within, or adjacent to, their franchise areas and from municipal and public authority systems whose service areas in some cases overlap portions of our water companies' franchise areas. Employees As of December 31, 2002, we employed a total of 191 persons. Our employees are not covered by collective bargaining agreements. We believe that our relations with our employees are good. Expansion In October 2002 we completed our acquisition of The Unionville Water Company in a stock transaction valued at $6.2 million. Unionville Water serves 5,613 customers in Farmington and Avon, Connecticut. As a condition to the acquisition, Unionville was granted a limited rate increase by the Connecticut Department of Public Utility Control (DPUC) to recover financing and operating costs related to a new water interconnection with a neighboring water supplier. This rate increase will be in the form of a surcharge that will begin the date the interconnection is placed into service. The surcharge will be subject to a retroactive refund to ratepayers to the extent that the DPUC determines that Unionville's revenues exceed certain levels. The interconnection will alleviate seasonal water supply shortages that have existed in the Unionville system. The expected in-service date of the interconnection is May 2003. 7 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. Substantially all of the properties owned by our Barnstable Water, Connecticut Water, Crystal Water and Unionville Water companies are subject to liens as security for debt. The net utility plant balances of the water companies at December 31, 2002 were as follows:
- -------------------------------------------------------------------------- Net Utility Plant (000's) - -------------------------------------------------------------------------- Barnstable $ 6,501 - -------------------------------------------------------------------------- Connecticut Water 192,422 - -------------------------------------------------------------------------- Crystal 9,825 - -------------------------------------------------------------------------- Gallup 3,305 - -------------------------------------------------------------------------- Unionville 17,044 - -------------------------------------------------------------------------- Total $229,097 - --------------------------------------------------------------------------
The size of each company's system(s) in terms of miles of mains is as follows:
- -------------------------------------------------------------------- Miles of Transmission and Distribution Water Mains - -------------------------------------------------------------------- Barnstable Water 101 - -------------------------------------------------------------------- Connecticut Water 1,067 - -------------------------------------------------------------------- Crystal 67 - -------------------------------------------------------------------- Gallup 18 - -------------------------------------------------------------------- Unionville 105 - -------------------------------------------------------------------- Total 1,358 - --------------------------------------------------------------------
We believe that our properties are maintained in good condition and in accordance with current standards of good waterworks industry practice. ITEM 3. LEGAL PROCEEDINGS We are involved in various legal proceedings. Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our properties is the subject that presents a reasonable likelihood of a material adverse impact on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded on the NASDAQ exchange under the symbol "CTWS". Our quarterly high and low stock prices as reported by NASDAQ and the cash dividends we paid during 2002 and 2001 are listed as follows:
- ------------------------------------------------------------------------ PRICE DIVIDENDS - ------------------------------------------------------------------------ Period HIGH LOW PAID - ------------------------------------------------------------------------ 2002 - ------------------------------------------------------------------------ First Quarter $31.00 $26.53 $.2022 - ------------------------------------------------------------------------ Second Quarter 31.09 24.00 $.2022 - ------------------------------------------------------------------------ Third Quarter 30.00 20.35 $.2050 - ------------------------------------------------------------------------ Fourth Quarter 27.12 24.05 $.2050 - ------------------------------------------------------------------------ 2001 - ------------------------------------------------------------------------ First Quarter $22.67 $19.50 $.2000 - ------------------------------------------------------------------------ Second Quarter 27.16 20.16 $.2000 - ------------------------------------------------------------------------ Third Quarter 28.10 22.90 $.2022 - ------------------------------------------------------------------------ Fourth Quarter 32.21 25.75 $.2022 - ------------------------------------------------------------------------
As of March 3, 2003 there were approximately 4,976 holders of record of our common stock. We presently intend to pay quarterly cash dividends in 2003 on March 17, June 16, September 16 and December 15 subject to our earnings and financial condition, regulatory requirements and other factors our Board of Directors may deem relevant. 9 ITEM 6 - SELECTED FINANCIAL DATA SUPPLEMENTAL INFORMATION (UNAUDITED)
Years Ended December 31, (thousands of dollars except per share amounts and where otherwise indicated) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME Operating Revenues $ 45,830 $ 45,392 $ 43,997 Operating Expenses $ 33,996 $ 34,078 $ 32,335 Operating Income $ 11,834 $ 11,314 $ 11,662 Interest and Debt Expense $ 4,534 $ 4,632 $ 4,782 Net Income Applicable to Common Stock $ 8,742 $ 8,401 $ 7,858 Cash Common Stock Dividends Paid $ 6,277 $ 6,105 $ 5,890 Dividend Payout Ratio 72% 73% 75% Weighted Average Common Shares Outstanding 7,717,608 7,619,031 7,604,546 Basic Earnings Per Average Common Share $ 1.13 $ 1.10 $ 1.03 Number of Shares Outstanding at Year End 7,939,713 7,649,362 7,604,594 ROE on Year End Common Equity 10.9% 11.9% 11.7% Declared Common Dividends Per Share* $ 0.814 $ 0.804 $ 0.795 CONSOLIDATED BALANCE SHEET Common Stockholders' Equity $ 79,975 $ 70,783 $ 67,110 Long-Term Debt $ 64,734 $ 63,953 $ 66,283 Minority Interest $ -- $ -- $ 117 Preferred Stock (Consolidated, Excluding Current Maturities) $ 847 $ 847 $ 847 - --------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 145,556 $ 135,583 $ 134,357 Stockholders' Equity (Includes Preferred Stock) 56% 53% 51% Long-Term Debt 44% 47% 49% Net Utility Plant $ 229,097 $ 202,330 $ 193,169 Book Value - Per Common Share $ 10.07 $ 9.25 $ 8.82 OPERATING REVENUES BY REVENUE CLASS Residential $ 28,680 $ 28,621 $ 27,364 Commercial 6,036 5,941 5,817 Industrial 1,709 1,687 1,905 Public Authority 1,436 1,460 1,481 Fire Protection 7,434 7,187 6,960 Other (including non-metered accounts) 535 496 470 - --------------------------------------------------------------------------------------------------------------------- Total Operating Revenues $ 45,830 $ 45,392 $ 43,997 ===================================================================================================================== Number of Customers (Average) 82,119 78,156 77,183 Billed Consumption (Millions of Gallons) 7,418 7,259 6,911 Number of Employees 191 181 184
Years Ended December 31, (thousands of dollars except per share amounts and where otherwise indicated) 1999 1998 - ------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME Operating Revenues $ 45,171 $ 42,623 Operating Expenses $ 33,382 $ 31,302 Operating Income $ 11,789 $ 11,321 Interest and Debt Expense $ 4,720 $ 4,787 Net Income Applicable to Common Stock $ 7,780 $ 7,388 Cash Common Stock Dividends Paid $ 5,688 $ 5,519 Dividend Payout Ratio 73% 75% Weighted Average Common Shares Outstanding 7,593,376 7,579,176 Basic Earnings Per Average Common Share $ 1.02 $ 0.97 Number of Shares Outstanding at Year End 7,596,141 7,580,879 ROE on Year End Common Equity 12.0% 11.8% Declared Common Dividends Per Share* $ 0.787 $ 0.778 CONSOLIDATED BALANCE SHEET Common Stockholders' Equity $ 64,915 $ 62,572 Long-Term Debt $ 67,099 $ 67,386 Minority Interest $ 142 $ 136 Preferred Stock (Consolidated, Excluding Current Maturities) $ 847 $ 847 - ------------------------------------------------------------------------------------------------- Total Capitalization $ 133,003 $ 130,941 Stockholders' Equity (Includes Preferred Stock) 49% 48% Long-Term Debt 51% 52% Net Utility Plant $ 187,613 $ 182,202 Book Value - Per Common Share $ 8.55 $ 8.25 OPERATING REVENUES BY REVENUE CLASS Residential $ 28,422 $ 26,694 Commercial 6,093 5,678 Industrial 1,850 1,747 Public Authority 1,561 1,394 Fire Protection 6,861 6,728 Other (including non-metered accounts) 384 382 - ------------------------------------------------------------------------------------------------- Total Operating Revenues $ 45,171 $ 42,623 ================================================================================================= Number of Customers (Average) 76,061 74,971 Billed Consumption (Millions of Gallons) 7,330 6,949 Number of Employees 180 189
* Not restated for acquisitions accounted for under the pooling-of-interests accounting method. The Consolidated Financial Statements for fiscal years 1992 through 2001 were audited by Arthur Anderen LLP (Andersen) who has ceased operations. A copy of the report previously issed by Andersen on our financial statements as of December 31, 2001 and for the two years then ended is included elsewhere in this Report. Such report has not been reissued by Andersen. Refer to Exhibit 23.2 for further discussion. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION OVERVIEW Connecticut Water Service, Inc. (the Company or CTWS) is a non-operating holding company, whose income is derived from the earnings of its eleven wholly-owned subsidiary companies. In 2002, approximately 90% of the Company's earnings were attributable to water activities carried out within its five regulated water companies: The Connecticut Water Company, The Gallup Water Service, Incorporated, The Crystal Water Company of Danielson, The Barnstable Water Company and The Unionville Water Company. These five companies supply water to 85,536 customers in 42 towns throughout Connecticut and Massachusetts. Each of these companies is subject to state regulation regarding financial issues, rates, and operating issues, and to various other state and federal regulatory agencies concerning water quality and environmental standards. In addition to its regulated utilities, the Company owns six unregulated companies: Chester Realty, Inc., a real estate company in Connecticut; New England Water Utility Services, Inc., which provides contract water and sewer operations and other water related services; Connecticut Water Emergency Services, Inc., a provider of drinking and pool water by tanker truck; Crystal Water Utilities Corporation, a holding company which owns The Crystal Water Company of Danielson and three small rental properties; BARLACO, a real estate company in Massachusetts; and Barnstable Holding Company, a holding company which owns The Barnstable Water Company and BARLACO. In 2002, these unregulated companies, in conjunction with the regulated water companies, contributed the remaining 10% of CTWS' earnings through real estate transactions as well as services and rentals. 2002 was the Company's 12th consecutive year of increased earnings and its 33rd consecutive year of increased dividend payments, excluding dividends paid by companies subsequently acquired and accounted for under the "pooling-of-interests" method. 11 REGULATORY MATTERS AND INFLATION The Connecticut Water Company is the Company's largest subsidiary serving over 67,900 of the Company's 85,536 utility customers. Connecticut Water Company's revenues, like the Company's other four regulated water companies, 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. 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 state regulatory approval. We do not presently plan to request rate relief for any of our regulated companies. Future economic and financial market conditions, coupled with governmental regulations and fiscal policy, plus other factors that are unpredictable and often beyond our control, will influence when we request revisions to rates charged to our customers. The Company is also subject to environmental and water quality regulations. Costs to comply with environmental and water quality regulations are substantial. We are currently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with future changes in state or federal regulations, which could require us to modify current filtration facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial. CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements are prepared in conformity with Generally Accepted Accounting Principles in the United States of America (GAAP) and as directed by the regulatory commissions to which the Company's subsidiaries are subject. See Note 1 for a discussion of our significant accounting policies. The Company believes the following policies are critical to the presentation of its consolidated financial statements. Public Utility Regulation - Statement of Financial Accounting Standards - Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (FAS 71), requires cost-based, rate-regulated enterprises such as the Company's water companies to reflect the impact of regulatory decisions in their financial statements. The state regulators, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period after the period in which costs would be charged to expense by an unregulated enterprise. The balance sheet includes regulatory assets and liabilities as appropriate, primarily related to income taxes and post-retirement benefit costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are likely to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of FAS 71. Material regulatory assets are earning a return. 12 Revenue Recognition - Revenue from metered customers includes billings to customers based on quarterly meter readings plus an estimate of water used between the customer's last meter reading and the end of the accounting period. The unbilled revenue amount is listed as a current asset on the balance sheet. The amount recorded as unbilled revenue is generally higher during the summer months when water sales are higher. Based upon historical experience, management believes the Company's estimate of unbilled revenues is reasonable. 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. After the terrorist strike on September 11, 2001, water companies have had to increase security on their water supplies and facilities. This has resulted in increases in operating and capital costs related to security, which are typically recoverable in a rate proceeding. The Company has received regulatory approval to donate certain parcels of its land in the years 2003 and 2004. Over the two-year period these donations are expected to contribute approximately $1.6 million to net income as a result of favorable tax treatment under federal and Connecticut tax laws. LIQUIDITY AND CAPITAL RESOURCES The Company is not aware of demands, events or uncertainties that will result in a decrease of liquidity or a material change in the mix or relative cost of capital resources. The Company does not use off-balance sheet arrangements such as securitization of receivables or unconsolidated entities. The Company has no material lease obligations, does not engage in trading or risk management activities and does not have material transactions involving related parties. Interim Bank Loans Payable at year end 2002 was $6,950,000, which is $5,125,000 higher than at the end of 2001. We consider the current $12,500,000 lines of credit with three banks adequate to finance any expected short-term borrowing requirements that may arise from operations during 2003. In May 2003, $6,500,000 of the lines of credit expire and the remaining $6,000,000 expires in May 2004. We expect the lines of credit to be renewed. Interest expense charged on interim bank loans will fluctuate based on financial market conditions. During 2002, the Company incurred approximately $15.7 million of construction expenditures. The Company financed such expenditures through internally generated funds, customers' advances, contributions in aid of construction and short-term borrowings. 13 The Board of Directors has approved a $9.5 million construction budget for 2003, net of amounts to be financed by customer advances and contributions in aid of construction. Funds primarily provided by operating activities are expected to finance this entire 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 of the Company's future construction program. RESULTS OF OPERATIONS 2002 COMPARED WITH 2001 On October 31, 2002, the Company issued 249,715 shares of its common stock in exchange for all the outstanding common stock of The Unionville Water Company (Unionville). This acquisition was accounted for under the purchase method of accounting; as such only the Balance Sheet and Income Statement activity from the acquisition date forward are included in the financial statements. The tables below present the Income Statements and Balance Sheets detailing the balances with and without Unionville. The narrative following the table includes explanations of the Income Statement variances excluding the amounts associated with Unionville. CONDENSED BALANCE SHEETS
December 31, (in thousands) 2002 2001 ------------------------------------- --------------------- Without Without Consolidated Unionville Unionville Unionville Variance ------------ ---------- ---------- ---------- -------- ASSETS Net Utility Plant $229,097 $17,044 $212,053 $202,330 $ 9,723 Other Property and Investments 3,557 --- 3,557 3,334 223 Total Current Assets 10,373 881 9,492 9,423 69 Total Regulatory and Other Long-Term Assets 21,772 5,621 16,151 16,627 (476) ---------------------------------- -------------------- Total Assets $264,799 $23,546 $241,253 $231,714 $ 9,539 ================================== ==================== CAPITALIZATION AND LIABILITIES Capitalization Common Stockholders' Equity $ 79,975 $ 6,177 $ 73,798 $ 70,783 $ 3,015 Preferred Stock 847 --- 847 847 --- Long-Term Debt 64,734 1,076 63,658 63,953 (295) ---------------------------------- -------------------- Total Capitalization 145,556 7,253 138,303 135,583 2,720 Current Liabilities 15,478 844 14,634 12,656 1,978 Deferred Credits 103,765 15,449 88,316 83,475 4,841 ---------------------------------- -------------------- Total Capitalization and Liabilities $264,799 $23,546 $241,253 $231,714 $ 9,539 ================================== ====================
14 INCOME STATEMENTS
For the years ended, December 31, (in thousands) 2002 2001 ----------------------------------------- ---------------------- Without Without Consolidated Unionville Unionville Unionville Variance ------------ ---------- ---------- ---------- -------- Operating Revenues $ 45,830 $361 $ 45,469 $ 45,392 $ 77 -------------------------------------- -------------------- Operating Expenses Operation and Maintenance 19,531 226 19,305 20,076 (771) Depreciation 5,187 74 5,113 4,837 276 Income Taxes 4,482 6 4,476 4,777 (301) Taxes Other Than Income Taxes 4,796 36 4,760 4,388 372 -------------------------------------- -------------------- Total Operating Expenses 33,996 342 33,654 34,078 (424) -------------------------------------- -------------------- Utility Operating Income 11,834 19 11,815 11,314 501 -------------------------------------- -------------------- Other Income (Deductions), Net of Taxes Gain on Property Transactions 440 --- 440 1,121 (681) Non-Water Sales Earnings 444 --- 444 372 72 Allowance for Funds Used During Construction 470 8 462 439 23 Merger Costs --- --- --- (352) 352 Other 126 1 125 177 (52) -------------------------------------- -------------------- Total Other Income (Deductions), Net of Taxes 1,480 9 1,471 1,757 (286) -------------------------------------- -------------------- Interest and Debt Expenses Interest on Long-Term Debt 3,909 16 3,893 4,057 (164) Other Interest Charges 365 --- 365 353 12 Amortization of Debt Expense 260 --- 260 222 38 -------------------------------------- -------------------- Total Interest and Debt Expenses 4,534 16 4,518 4,632 (114) -------------------------------------- -------------------- Net Income Before Preferred 8,780 12 8,768 8,439 329 Dividends Preferred Stock Dividend 38 --- 38 38 --- Requirement -------------------------------------- -------------------- Net Income Applicable to Common Stock $ 8,742 $ 12 $ 8,730 $ 8,401 $ 329 ====================================== ====================
15 Net Income Applicable to Common Stock for 2002 increased from that of 2001 by $329,000, or $.03 per average basic share. The increase was primarily due to the following: - Utility Operating Income increased $501,000: - Operating Expenses decreased $424,000 or 1.2%, primarily due to the decreases in Operation and Maintenance expenses and Income Taxes partially offset by an increase in Depreciation and Taxes Other Than Income Taxes. The decrease in Operation and Maintenance expenses was primarily due to a mark-to-market adjustment on the Company's common stock equivalent shares outstanding of $344,000, lower maintenance expense of $166,000 and a reduction in labor costs of $282,000. The decrease in Income Taxes was primarily due to book tax timing differences. The increase in Depreciation was due to the increased investment in Utility Plant. Taxes Other Than Income Taxes increased primarily because of an increase in Property Taxes due to a one-time property tax rebate in 2001 of $192,000 as well as an overall increase in municipal tax rates in 2002. - Operating Revenues increased $77,000 or .2% in 2002 as compared to 2001. This increase was due to the Company's additional investment in water mains and hydrants, which serves as the basis for Public Fire Protection billing. - Interest and Debt Expenses decreased $114,000: - The decrease in Interest and Debt Expenses was primarily due to the payoff of $2,033,000 of 8% long-term debt in 2002 and the refinancing of the debt with lower rate short-term debt. The weighted cost of the Company's interim debt at December 31, 2002 was 1.77%, as compared with 2.31% at December 31, 2001. - Other Income (Deductions), Net of Taxes: - The decrease was primarily due to the $681,000 decrease in Gain on Property Transactions partially offset by the $352,000 decline in Merger Costs and the $72,000 increase in Non-Water Sales Earnings. The decrease in Gain on Property Transactions was a result of donating land with a higher value in 2001 than the land donated in 2002. The reduction in Merger Costs was due to the requirement to expense such costs under the "pooling-of-interests" accounting treatment of the 2001 Barnstable acquisition. A substantial amount of the increase in Non-Water Sales Earnings was due to our Linebacker(R) maintenance service program. As of December 31, 2002, approximately 11,900 of the Company's customers were protected by Linebacker(R). 16 2001 COMPARED WITH 2000 On February 23, 2001, the Company acquired Barnstable Holding Company and accounted for the acquisition as a "pooling-of-interests". Financial statements have been restated to include the results of the acquired company for all periods presented. On September 7, 2001, the Company effected a three-for-two stock split. The distribution of these shares increased the number of shares outstanding by 2,562,052 shares. All outstanding common shares and per share amounts in this report have been restated to reflect this stock split. Appropriate adjustments to reflect this stock split were made to the Company's Performance Stock Program, the Savings Plan of the Connecticut Water Company and the Company's Dividend Reinvestment and Common Stock Purchase Plan. Net Income Applicable to Common Stock for 2001 increased from that of 2000 by $543,000, or $.07 per average basic share. The increase was primarily due to the following: - Other Income (Deductions), Net of Taxes increased $741,000: - The increase in Other Income was primarily due to The Connecticut Water Company's 2001 donation of 134.1 acres of land to the Town of Middlebury, Connecticut. This donation was responsible for the net after tax gain of $1,121,000 resulting from a Connecticut state income tax credit in addition to state and federal charitable contribution tax deductions. - Non-Water Sales Earnings increased $106,000 or 39.8%, primarily as a result of increased earnings from our unregulated activities. A substantial amount of the increase was due to our Linebacker(R) maintenance service program. Initiated in 2000, for a small annual cost to our customers, the Linebacker(R) program protects participants from incurring large expenses when their service lines break. As of December 31, 2001, approximately 9,600 of the Company's customers are protected by Linebacker(R). - Interest and Debt Expenses decreased $150,000: - The decrease in Interest and Debt Expenses was due both to declines in average balances of interim debt outstanding and lower interest rates. The weighted cost of the Company's interim debt at December 31, 2001 was 2.31% as compared with 7.25% at December 31, 2000. - Utility Operating Income decreased $348,000: - Operating Expenses increased $1,743,000 or 5.4%, primarily due to increased Operation and Maintenance expenses related to increases in wages, employee benefits and maintenance costs; an increase in Depreciation Expense due to increased investment in utility plant; increases in Income Taxes primarily due to higher taxable income, partially offset by a decrease in other taxes primarily due to property tax rebates and lower property tax revaluations. Higher Operating Revenues partially offset the increase in Operating Expenses. 17 - Operation Revenues increased $1,395,000 or 3.2% in 2001 as compared to 2000. This increase was due to increased water consumption brought on by a drier 2001 summer and fall, plus utility customer growth. COMMITMENTS AND CONTINGENCIES SECURITY - Recent amendments to the Safe Drinking Water Act require all public water systems serving over 3,300 people on an average basis to prepare Vulnerability Assessments (VA) of their critical utility assets. The assessments are to be completed by December 2003 and will be submitted to the U.S. Environmental Protection Agency along with certification that certain critical elements of the assessments are being implemented within our Emergency Contingency Plan. The information within the VA is not subject to release to the public and is protected from Freedom of Information inquiries. Investment in security-related improvements is ongoing and management believes that the costs associated with any such improvements would be chargeable for recovery in future rate proceedings. LAND DONATIONS TO BE MADE IN 2003 AND 2004 - On January 31, 2001, we signed an agreement to donate to the Town of Killingly, Connecticut approximately 365 acres of unimproved land for protected open space purposes. This land donation will be broken down into three different parcels with one of the parcels being donated each year from 2002 through 2004. Under current tax law, these donations will result in reduced federal and state income taxes totaling approximately $1,900,000. In 2002, the first parcel consisting of approximately 54 acres was donated for an after tax benefit of $293,000. In January 2003, the second parcel consisting of approximately 178 acres was donated which is expected to result in an after tax benefit of approximately $940,000. The remaining 133 acres are scheduled to be donated in 2004, provided Connecticut tax laws continue to provide favorable tax treatment for such donations, for an expected after tax benefit of approximately $700,000. REVERSE PRIVATIZATION - Our water companies derive their rights and franchises to operate from state laws that are subject to alteration, amendment or repeal, and do not grant permanent exclusive rights to our service areas. Our franchises are free from burdensome restrictions, are unlimited as to time, and authorize us to sell potable water in all towns we now serve. There is the possibility that states could revoke our franchises and allow a governmental entity to take over some or all of our systems. From time to time such legislation is contemplated. The Town of Barnstable, Massachusetts has advised the Company that it is actively considering the acquisition of the Company's wholly-owned subsidiary, The Barnstable Holding Company. The Town takes the position that it has the right to acquire The Barnstable Holding Company pursuant to the provisions of Massachusetts legislation passed in 1911. The Company has advised the Town of Barnstable that the Company does not believe the Town has any statutory right to acquire The Barnstable Holding Company. ENVIRONMENTAL AND WATER QUALITY REGULATION - The Company is subject to environmental and water quality regulations. Costs to comply with environmental and water quality regulations are substantial. We are currently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with future changes in state or federal regulations, which could require us to modify current filtration facilities and/or construct new 18 ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial. MORATORIUM ON LAND SALES - On December 4, 2002, the Company entered into a Memorandum of Understanding (MOU) with the State of Connecticut Department of Environmental Protection (DEP). The MOU provides for a voluntary two-year moratorium on the sale of approximately 7,100 acres of undeveloped Class I, II, and III water company lands held by the Company's Connecticut water company subsidiaries. Class I and II water company lands, as defined by Public Health Code regulations, are those that are within the watershed or drainage area of a public water supply. Class III lands are those that are not located within the watershed. Under the terms of the MOU, the DEP in cooperation with the Company's Connecticut water companies will assess and evaluate all undeveloped Class I, II and III land holdings to determine the desirability of the State of Connecticut's acquiring the land for open space and to develop strategies to fund the acquisitions of such properties in fee or by easement from the Company. If the DEP determines that the Company's Class I, II and III land holdings are desirable, the Company and the DEP have agreed to negotiate in good faith to determine a price for the Company's land holdings based upon appraised values. However, the Company is not obligated by the MOU to sell such lands to the State of Connecticut. If the DEP determines that certain parcels of Class III land covered by the MOU do not meet its criteria for desirable open space, the Company can apply to the Department of Public Utility Control to sell or otherwise dispose of the land. The Company has no intention of selling or otherwise disposing of Class I and II lands that have an impact on drinking water supply and water quality. The MOU does not affect the land donation to the Town of Killingly mentioned above. TAXES - Due to the current environment of state budget deficits, the Company and its subsidiaries may be subject to a higher tax burden through changes in state legislation. Also, the Company's future property tax burden may increase as state aid to towns is decreased. FORWARD LOOKING INFORMATION This report, including management's discussion and analysis, contains certain forward looking statements regarding the Company's results of operations and financial position. These forward looking statements are based on current information and expectations, and are subject to risks and uncertainties, which could cause the Company's actual results to differ materially from expected results. Our water companies are subject to various federal and state regulatory agencies concerning water quality and environmental standards. Generally, the water industry is materially dependent on the adequacy of approved rates to allow for a fair rate of return on the investment in utility plant. The ability to maintain our operating costs at the lowest possible level, while providing good quality water service, is beneficial to customers and stockholders. Profitability is also dependent on the timeliness of rate relief, when necessary, and numerous factors over which we have little or no control, such as the quantity of rainfall and temperature, industrial demand, financing costs, energy rates, tax rates, and stock market trends which may affect the return earned on pension assets, and compliance with environmental and water quality regulations. We undertake no obligation to update or revise forward looking statements, whether as a result of new information, future events, or otherwise. 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The primary market risk faced by the Company is interest rate risk. The Company has no exposure to derivative financial instruments or financial instruments with significant credit risk or off-balance sheet risks and is not subject in any material respect to any currency or other commodity risk. The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company's exposure to interest fluctuations is managed at the Company and subsidiary operations levels through the use of a combination of fixed rate long-term debt (and variable rate borrowings) under financing arrangements entered into by the Company and its subsidiaries. The Company has $12,500,000 current lines of credit with three banks, under which interim bank loans payable at December 31,2002 were $6,950,000. Management believes that any near-term change in interest rates should not materially affect the consolidated financial position, results of operations or cash flows of the Company. 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 PricewaterhouseCoopers LLP are included herein on pages F-2 through F-25. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES PREVIOUS INDEPENDENT ACCOUNTANTS On April 26, 2002, shareholders ratified the appointment of Arthur Andersen LLP ("Arthur Andersen") as independent auditors for the fiscal year ending December 31, 2002. On June 18, 2002 the Company dismissed Arthur Andersen as the Company's independent public accountants. The decision to dismiss Arthur Andersen was made by the Company's Board of Directors, based upon a recommendation of its Audit Committee. Arthur Andersen's reports on the Company's consolidated financial statements for each of the Company's fiscal years ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2001 and December 31, 2000 and through June 18, 2002, there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen's satisfaction, would have caused Arthur Andersen to make reference to the subject matter in connection with their report on the Company's consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of the Regulation S-K. 20 The Company provided Arthur Andersen with a copy of the foregoing Disclosures in June 2002 and attached as Exhibit 16 to the Company's Form 8-K filed on June 20, 2002, a copy of Arthur Andersen's response letter, dated June 19, 2002, stating its agreement with such statements. Refer to Exhibit 23.2 for further discussion. NEW INDEPENDENT ACCOUNTANTS Effective June 18, 2002, the Company retained PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal year ended December 31, 2002. During the fiscal years ended December 31, 2001 and December 31, 2000 and through June 18, 2002, the Company did not consult PricewaterhouseCoopers LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K. 21 PART III ITEM 10. EXECUTIVE OFFICERS OF THE COMPANY
Period Held or Term of Office Name Age Office Prior Position Expires ---- --- ------ -------------- ------- M.T.Chiaraluce 60 President, Chief Held position of President 2003 Annual Executive Officer and Chairman of since January, 1992 and Meeting the Board position of Chief Executive Officer since July, 1992 D.C.Benoit 45 Vice President - Finance, Chief Held current position or 2003 Annual Financial Officer and Treasurer other executive position with Meeting the company since April, 1996 J.R.McQueen 60 Vice President - Engineering and Held current position or 2003 Annual Planning other management or Meeting engineering position with the Company since October, 1965 T.P.O'Neill 49 Vice President - Operations Held current position or 2003 Annual other engineering position Meeting with the Company since February, 1980 M.P.Westbrook 43 Vice President - Administration Held current position or 2003 Annual and Government Affairs other management position Meeting with the Company since September, 1988 P.J.Bancroft 53 Assistant Treasurer and Controller Held current position or 2003 Annual other accounting position Meeting with the Company since October, 1979 M.G.DiAcri 57 Corporate Secretary Held administrative position 2003 Annual with the Company since Meeting February, 1990
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 EQUITY COMPENSATION PLAN INFORMATION- The following table provides information about the Company's common stock that may be issued upon the exercise of options and rights under all of the Company's existing equity compensation plans as of December 31, 2002. The table also includes information about certain other equity compensation plans of the Company previously adopted without stockholder approval.
- ---------------------------------------------------------------------------------------------------------- Number of Securities to Weighted average Number of securities remaining be issued upon exercise price of available for issuance under exercise of outstanding equity compensation plans outstanding options, options, warrants (excluding securities reflected warrants and rights and rights in column (a)) Plan Category (a) (#) (b)($) (c) (#) - ---------------------------------------------------------------------------------------------------------- Equity compensation plans 281,582 approved by security 235,101 $21.41 holders (1) - ---------------------------------------------------------------------------------------------------------- Equity compensation plans not approved by security 0 N/A 374,002 holders (2) - ---------------------------------------------------------------------------------------------------------- Total: 235,101 $21.41 655,584 - ----------------------------------------------------------------------------------------------------------
1) Includes the Company's Performance Stock Program, amended and restated as of April 26, 2002. This plan is described in Note 13 of the Notes to the Consolidated Financial Statements. 23 (2) Includes the Dividend Reinvestment and Common Stock Purchase Plan, amended and restated as of November 15, 2001. 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 shares directly to the Plan's agent in order to meet the requirements of the plan, or may direct the agent administering the Plan on the Company's behalf to buy the shares on the open market at its discretion. 1,200,000 shares have been registered with the Securities and Exchange Commission for that purpose. Under the plan, 825,998 shares had been issued by the Company as of December 31, 2002. Since the third quarter of 1996, the Plan's agent has been buying shares on the open market to satisfy Plan requirements. 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 (except for the Equity Compensation Plan information) and 13 is hereby incorporated by reference to the Company's definitive proxy statement to be filed on EDGAR on or about March 18, 2003. Information concerning the executive officers of the Company is included as Item 10 of this report. ITEM 14. CONTROLS AND PROCEDURES During the 90-day period prior to the filing date of this report, management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. Further, there were not any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions were taken. 24 PART IV ITEM 15. 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 and Schedule F-1 Reports of Independent Public Accountants F-2 Consolidated Statements of Income for the years Ended December 31, 2002, 2001, and 2000 F-4 Consolidated Balance Sheets at December 31, 2002 and 2001 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-6 Notes to Consolidated Financial Statements F-7 2. Financial Statement Schedules: The following schedules of the Company are included on the attached pages as indicated: Reports of Independent Public Accountants on Schedule S-1 Schedule II Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2002, 2001 and 2000 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 because the required information is set forth in the financial statements or notes thereto. 25 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: None F-1 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page Index to Consolidated Financial Statements and Schedule F-1 Reports of Independent Public Accountants F-2 Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000 F-4 Consolidated Balance Sheets at December 31, 2002, and 2001 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-6 Notes to Consolidated Financial Statements F-7 Reports of Independent Public Accountants on Schedule S-1 Valuation and Qualifying Accounts S-2 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Connecticut Water Service, Inc.: In our opinion, the accompanying balance sheet as of December 31, 2002 presents fairly, in all material respects, the financial position of Connecticut Water Service, Inc. and subsidiaries at December 31, 2002, and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of Connecticut Water Service, Inc. and subsidiaries as of December 31, 2001, and for each of the two years in the period ended December 31, 2001 were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated February 8, 2002. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 12, 2003 F-3 Set forth below is a copy of a report previously issued by Arthur Andersen LLP, in connection with the Company's filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with the Company's filing on Form 10-K. See Exhibit 23.2 for further discussion. 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., and Subsidiaries (a Connecticut corporation) as of December 31, 2001 and 2000, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Hartford, Connecticut February 8, 2002 Connecticut Water Service, Inc. and Subsidiaries F-4 CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, (in thousands, except per share data) 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues $ 45,830 $ 45,392 $ 43,997 -------- -------- -------- Operating Expenses Operation and Maintenance 19,531 20,076 18,380 Depreciation 5,187 4,837 4,718 Income Taxes 4,482 4,777 4,579 Taxes Other Than Income Taxes 4,796 4,388 4,658 -------- -------- -------- Total Operating Expenses 33,996 34,078 32,335 -------- -------- -------- Utility Operating Income 11,834 11,314 11,662 -------- -------- -------- Other Income (Deductions), Net of Taxes Gain on Property Transactions 440 1,121 532 Non-Water Sales Earnings 444 372 266 Allowance for Funds Used During Construction 470 439 416 Merger Costs - (352) (408) Other 126 177 210 -------- -------- -------- Total Other Income (Deductions), Net of Taxes 1,480 1,757 1,016 -------- -------- -------- Interest and Debt Expenses Interest on Long-Term Debt 3,909 4,057 4,100 Other Interest Charges 365 353 460 Amortization of Debt Expense 260 222 222 -------- -------- -------- Total Interest and Debt Expenses 4,534 4,632 4,782 -------- -------- -------- Net Income Before Preferred Dividends 8,780 8,439 7,896 Preferred Stock Dividend Requirement 38 38 38 -------- -------- -------- Net Income Applicable to Common Stock $ 8,742 $ 8,401 $ 7,858 ======== ======== ======== Weighted Average Common Shares Outstanding: Basic 7,718 7,619 7,605 Diluted 7,771 7,662 7,633 Earnings Per Common Share: Basic $ 1.13 $ 1.10 $ 1.03 Diluted $ 1.12 $ 1.10 $ 1.03
The accompanying notes are an integral part of these consolidated financial statements. DRAFT COPY Connecticut Water Service, Inc. and Subsidiaries F-5 CONSOLIDATED BALANCE SHEETS
December 31, (in thousands, except share amounts) 2002 2001 - --------------------------------------------------------------------------------------------------------------- ASSETS Utility Plant $ 308,385 $ 267,575 Construction Work in Progress 9,592 12,761 Utility Plant Acquisition Adjustments (1,278) (1,309) ---------- ---------- 316,699 279,027 Accumulated Provision for Depreciation (87,602) (76,697) ---------- ---------- Net Utility Plant 229,097 202,330 ---------- ---------- Other Property and Investments 3,557 3,334 ---------- ---------- Cash 464 102 Accounts Receivable (Less Allowance, 2002 - $240; 2001 - $234) 5,157 4,811 Accrued Unbilled Revenues 3,619 3,402 Materials and Supplies, at Average Cost 960 869 Prepayments and Other Current Assets 173 239 ---------- ---------- Total Current Assets 10,373 9,423 ---------- ---------- Unamortized Debt Issuance Expense 5,080 5,308 Unrecovered Income Taxes 10,718 8,963 Post-Retirement Benefits Other Than Pension 846 849 Goodwill 3,608 - Other Costs 1,520 1,507 ---------- ---------- Total Regulatory and Other Long-Term Assets 21,772 16,627 ---------- ---------- Total Assets $ 264,799 $ 231,714 ========== ========== CAPITALIZATION AND LIABILITIES Common Stockholders' Equity: Common Stock Without Par Value: Authorized - 15,000,000 Shares - Issued and Outstanding: 2002 - 7,939,713; 2001 - 7,649,362 $ 53,069 $46,342 Retained Earnings 26,906 24,441 ---------- ---------- Common Stockholders' Equity 79,975 70,783 Preferred Stock 847 847 Long-Term Debt 64,734 63,953 ---------- ---------- Total Capitalization 145,556 135,583 ---------- ---------- Interim Bank Loans Payable 6,950 1,825 Current Portion of Long-Term Debt 242 2,205 Accounts Payable 6,539 6,079 Accrued Taxes 659 1,099 Accrued Interest 747 1,284 Other Current Liabilities 341 164 ---------- ---------- Total Current Liabilities 15,478 12,656 ---------- ---------- Advances for Construction 22,069 16,075 ---------- ---------- Contributions in Aid of Construction 43,373 32,277 ---------- ---------- Deferred Federal and State Income Taxes 20,633 18,902 ---------- ---------- Unfunded Future Income Taxes 9,871 8,223 ---------- ---------- Long-Term Compensation Arrangements 5,877 6,028 ---------- ---------- Unamortized Investment Tax Credits 1,942 1,970 ---------- ---------- Commitments and Contingencies ---------- ---------- Total Capitalization and Liabilities $ 264,799 $ 231,714 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. Connecticut Water Service, Inc. and Subsidiaries F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (in thousands) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Operating Activities: Net Income Before Preferred Dividends $ 8,780 $ 8,439 $ 7,896 -------- -------- -------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $164 in 2002, $169 in 2001, and $166 in 2000 charged to other accounts) 5,351 5,006 4,884 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues (165) (153) 541 (Increase) Decrease in Other Current Assets 57 (191) 123 (Increase) Decrease in Other Non-Current Items (89) (45) 43 Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities (867) 1,089 531 Increase in Deferred Income Taxes and Investment Tax Credits, Net 747 675 1,168 -------- -------- -------- Total Adjustments 5,034 6,381 7,290 -------- -------- -------- Net Cash Provided by Operating Activities 13,814 14,820 15,186 -------- -------- -------- Investing Activities: Gross Additions to Utility Plant (including Allowance For Funds Used During Construction of $470 in 2002, $439 in 2001 and $416 in 2000) (15,691) (14,218) (10,542) -------- -------- -------- Financing Activities: Proceeds from Interim Bank Loans 6,950 1,825 1,800 Repayment of Interim Bank Loans (1,875) (1,800) (3,061) Reduction of Long-Term Debt Including Current Portion (2,376) (405) (805) Proceeds from Issuance of Common Stock 753 1,392 227 Advances, Contributions and Funds from Others for Construction, Net 4,992 4,332 2,310 Costs Incurred to Issue Long-Term Debt and Common Stock (192) (15) -- Cash Dividends Paid (6,315) (6,143) (5,928) -------- -------- -------- Net Cash Provided by (Used in) Financing Activities 1,937 (814) (5,457) -------- -------- -------- Net Increase (Decrease) in Cash 60 (212) (813) Cash at Beginning of Year 102 314 1,127 -------- -------- -------- Cash at End of Year Excluding Cash Acquired from Puchase of Unionville Water Company 162 102 314 Cash Acquired From Purchase of Unionville Water Company 302 - - -------- -------- -------- Cash at End of Year $ 464 $ 102 $ 314 ======== ======== ======== Non-cash Investing and Financing Activites: Purchase of Unionville Water Company by Issuance of Company Common Stock (see Note 2 for details) $ 6,166 $ - $ - Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (net of amounts capitalized) $ 4,811 $ 3,836 $ 4,176 State and Federal Income Taxes $ 3,780 $ 3,260 $ 3,580
F-7 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -The consolidated financial statements include the operations of Connecticut Water Service, Inc., (the Company) an investor-owned holding company and its eleven wholly owned subsidiaries, listed below: The Connecticut Water Company (Connecticut Water) The Gallup Water Service, Incorporated (Gallup) Crystal Water Utilities Corporation The Crystal Water Company of Danielson (Crystal Water) Chester Realty, Inc. New England Water Utility Services, Inc. Connecticut Water Emergency Services, Inc. Barnstable Holding Company The Barnstable Water Company (Barnstable Water) BARLACO The Unionville Water Company (Unionville) During 2002, the Company acquired The Unionville Water Company. This acquisition was accounted for using the purchase method of business combinations. Connecticut Water, Gallup, Crystal Water, Barnstable Water and Unionville (our "water companies") are public water utility companies serving 85,536 customers in 42 towns throughout Connecticut and Massachusetts. 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 net profits from rental of property are included in the Other Income (Deductions), Net of Taxes section of the Consolidated Statements of Income in the Non-Water Sales Earnings category. New England Water Utility Services, Inc. is engaged in water-related services, including the Linebacker(R) program, and contract operations. Its earnings are included in the Non-Water Sales Earnings category in the Other Income (Deductions), Net of Taxes section of the Consolidated Statements of Income. Connecticut Water Emergency Services, Inc. is a provider of emergency drinking water and pool water via tanker trucks. Its net earnings are included in the Non-Water Sales Earnings category in the Other Income (Deductions), Net of Taxes section of the Consolidated Statements of Income. Barnstable Holding Company is a holding company, owning the stock of Barnstable Water Company and BARLACO. BARLACO is a real estate company whose net profits from land sales are included in the Gain on Property Transactions category in the Other Income (Deductions), Net of Taxes 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 - Four of our 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 Barnstable Water Company is subject to the regulation of the Massachusetts Department of Telecommunications and Energy (DTE) and follows accounting policies prescribed by the DTE. The Company prepares its financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), 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 state regulators, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period after the period in which the costs would be charged to expense by an unregulated enterprise. The balance sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes and post-retirement benefit costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are likely to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of FAS 71. Material regulatory assets are earning a return. USE OF ESTIMATES - The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States of America (GAAP), 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. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-8 REVENUES - Most of our water customers are billed quarterly, with the exception of larger commercial and industrial customers, as well as 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 multiplied by 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 earned but 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. In the case of acquisitions, 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 debt and equity 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, 2002, Connecticut Water has capitalized approximately $2,333,000 of AFUDC relating to financing these acquisitions. This amount is expected to be recovered in Connecticut Water's next rate case. Each company's allowed rate of return on rate base is used to calculate its AFUDC. DEPRECIATION - Over 99% of the Company's depreciable plant is owned by its five water companies. Depreciation is computed on a straight-line basis at various rates as approved by the state regulators 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 rate, based on the average balances of depreciable property, was 1.9% for 2002, 2.0% for 2001 and 2.1% for 2000. 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 provides income tax expense for its utility operations in accordance with the regulatory accounting policies of the applicable jurisdictions (Connecticut and Massachusetts). The Connecticut DPUC requires the flow-through method of accounting for most state tax temporary differences as well as for certain federal temporary differences. The Company computed deferred tax reserves for all temporary book-tax differences using the liability method prescribed in SFAS 109. 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. Deferred tax liabilities that have not been reflected in tax expense due to regulatory treatment are described as unfunded future income taxes, and are expected to be recoverable in future years' rates. The Company believes that all deferred income tax assets will be realized in the future. The majority of all unfunded future income taxes relate 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. MUNICIPAL TAXES - Municipal taxes are generally expensed over the twelve-month period beginning on July 1 following the lien date, corresponding with the period in which the municipal services are provided. OTHER DEFERRED COSTS - In accordance with ratemaking procedures, costs which benefit future periods, such as tank painting, are expensed over the periods they benefit. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-9 STOCK OPTIONS - The Company has a Stock-Based Compensation Plan with two components: the Performance Stock Program and the Stock Option Program, which are described more fully in Note 13. Statement of Financial Accounting Standard (SFAS) No. 123 "Accounting for Stock-Based Compensation," encourages entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB opinion No. 25 "Accounting for Stock Issued to Employees" and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company accounts for its Stock Option Program under the recognition and measurement principles of APB No. 25. As such, no compensation cost related to the Stock Option Program is reflected in Net Income, as all options under this program had an exercise price equal to market value of the underlying common stock on the date of grant. The following table illustrates the effect on Net Income and Earnings Per Share if the Company had applied the fair value recognition provisions of SFAS No. 123 to the Stock Option Program.
Year Ended December 31 ---------------------- 2002 2001 2000 ---- ---- ---- (in thousands, except for per share data) Net income, as reported $ 8,742 $ 8,401 $ 7,858 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (218) (264) (182) ------- ------- -------- Pro forma net income $ 8,524 $ 8,137 $ 7,676 ======= ======= ======== Earnings per share: Basic - as reported $ 1.13 $ 1.10 $ 1.03 ======= ======= ======== Basic - pro forma $ 1.10 $ 1.07 $ 1.01 ======= ======= ======== Diluted - as reported $ 1.12 $ 1.10 $ 1.03 ======= ======= ======== Diluted - pro forma $ 1.10 $ 1.06 $ 1.01 ======= ======= ========
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 the Performance Stock Program were $201,000, $349,000 and $227,000, for 2002, 2001 and 2000, respectively. These amounts are included in Net Income, as reported. 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 state regulators. GOODWILL - The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" (FAS 142), effective January 1, 2002. SFAS 142 requires that goodwill no longer be amortized on a ratable basis. In accordance with SFAS 142, goodwill must be allocated to reporting units and reviewed for impairment at least annually. The Company utilized a discounted cash flow approach, incorporating its most recent business plan forecasts in the performance of the annual goodwill impairment test. SFAS 142 also requires that recognizable intangible assets be amortized over their useful lives and tested for impairment. Intangible assets with indefinite useful lives should be reviewed for impairment. The Company has concluded a review of intangible assets, and no adjustment was deemed necessary effective with the adoption of SFAS 142. 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, 2002, 2001, and 2000. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-10
Years ended December 31, 2002 2001 2000 - ------------------------------------------------------------------------------------------------------ Basic earnings per share $ 1.13 $ 1.10 $ 1.03 Dilutive effect of unexercised stock options .01 -- -- - ------------------------------------------------------------------------------------------------------ Diluted earnings per share $ 1.12 $ 1.10 $ 1.03 ====================================================================================================== Numerator (in thousands): - ------------------------------------------------------------------------------------------------------ Basic net income $ 8,742 $ 8,401 $ 7,858 Diluted net income $ 8,742 $ 8,401 $ 7,858 Denominator (in thousands): - ------------------------------------------------------------------------------------------------------ Basic weighted average shares outstanding 7,718 7,619 7,605 Dilutive effect of unexercised stock options 53 43 28 - ------------------------------------------------------------------------------------------------------ Diluted weighted average shares outstanding 7,771 7,662 7,633 ======================================================================================================
RECLASSIFICATION - Certain reclassifications have been made to conform previously reported data to the current presentation. NEW ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting Standard Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143 provides the accounting requirements for retirement obligations associated with tangible long-lived assets. FAS 143 is effective for fiscal years beginning after June 15, 2002, and early adoption is permitted. This accounting pronouncement is not expected to have a significant impact on our financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections." SFAS 145 rescinds and amends certain previous standards related primarily to debt and leases. The most substantive amendment requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The provisions of SFAS 145 related to the rescission of SFAS 4 are effective for financial statements issued for fiscal years beginning after May 15, 2002 and will be effective for the Company commencing with 2003. The provisions of SFAS 145 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS 145 are effective for financial statements issued on or after May 15, 2002. This accounting pronouncement is not expected to have a significant impact on our financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3. This SFAS requires that a liability for a cost associated with an exit or disposal activity be recorded at fair value when the liability is incurred. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This accounting pronouncement is not expected to have a significant impact on our financial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation," and provides alternative methods of transition for an entity that voluntarily changes to the fair-value based method of accounting for stock-based compensation. It also amends the disclosure provisions of that statement. The disclosure provisions of this statement are effective for financial statements issued for fiscal years ending after December 15, 2002. The Company does not currently plan to change to the fair-value method of accounting for its stock-based compensation. NOTE 2: 2002 PURCHASE ACQUISITION On October 31, 2002, the Company issued 249,715 shares of its common stock in exchange for all the outstanding common stock of The Unionville Water Company (Unionville). The exchange ratio was approximately 4.16 shares of the Company's common stock for each outstanding share of Unionville stock. The transaction was valued at approximately $6.2 million. This acquisition was accounted for under the purchase method of accounting, and as such the balances and income statement activity from the acquisition date forward are included in the financial statements. As a result, goodwill of $3.6 million was recorded and allocated to our water segment. There were no other intangible assets identified as part of the acquisition. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-11 The Company will operate Unionville as a wholly-owned subsidiary. Unionville serves over 5,600 customers in Farmington and Avon, Connecticut. As a condition of the acquisition, Unionville was granted permission by the DPUC to impose a limited rate increase to recover financing and operating costs related to a new water interconnection with a neighboring water supplier, once the interconnection is placed in service. The expected in-service date of the interconnection is May, 2003. The approximate 30% rate increase will be reflected in Unionville's customers' bills as a surcharge that will be subject to a retroactive refund to ratepayers to the extent that the DPUC determines that Unionville's revenues exceed certain levels. As part of its decision, the DPUC has limited the conditions upon which Unionville may seek a rate increase prior to September 1, 2005. Unionville is planning to fund a major portion of the construction costs of the interconnection mentioned above with a State Revolving Fund Loan. The tables below presents the Condensed Balance Sheet detailing the Unionville balances on October 31, 2002. UNIONVILLE CONDENSED BALANCE SHEET
October 31, 2002 (in thousands) (Unaudited) Before Acquisition After Acquisition ASSETS Net Utility Plant $ 16,448 $ 16,448 Total Current Assets 782 782 Goodwill --- 3,608 Total Regulatory and Other Long-Term Assets 2,021 2,021 -------- -------- Total Assets $ 19,251 $ 22,859 ======== ======== CAPITALIZATION AND LIABILITIES Capitalization Common Stockholders' Equity $ 2,558 $ 6,166 Long-Term Debt 1,194 1,194 -------- -------- Total Capitalization 3,752 7,360 Current Liabilities 577 577 Deferred Credits 14,922 14,922 -------- -------- Total Capitalization and Liabilities $ 19,251 $ 22,859 ======== ========
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-12 NOTE 3: INCOME TAX EXPENSE Income Tax Expense for the years ended December 31, is comprised of the following:
(in thousands) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------ Federal Classified as Operating Expense $ 4,065 $ 4,225 $ 4,002 Federal Classified as Other Income: Land Sales -- -- 32 Land Donation (105) (254) (132) Non-Water Sales 276 164 127 Other (52) (42) (21) - ------------------------------------------------------------------------------------------------------ Total Federal Income Tax Expense 4,184 4,093 4,008 - ------------------------------------------------------------------------------------------------------ State Classified as Operating Expense 417 552 577 State Classified as Other Income: Land Sales (1) -- 7 Land Donation (360) (1,012) (526) Non-Water Sales 54 41 29 Other (18) 6 6 - ------------------------------------------------------------------------------------------------------ Total State Income Tax Expense (Benefit) 92 (413) 93 - ------------------------------------------------------------------------------------------------------ Total Income Tax Expense $ 4,276 $ 3,680 $ 4,101 ======================================================================================================
The components of the Federal and State income tax provisions are:
2002 2001 2000 - ------------------------------------------------------------------------------------------------------ Current: Federal $ 2,835 $ 3,062 $ 2,853 State 192 (48) 80 - ------------------------------------------------------------------------------------------------------ Total Current 3,027 3,014 2,933 - ------------------------------------------------------------------------------------------------------ Deferred Income Taxes, Net: Federal Investment Tax Credit (63) (63) (61) Capitalized Interest 23 23 42 Depreciation 798 910 1,119 Other 591 161 55 - ------------------------------------------------------------------------------------------------------ Total Federal 1,349 1,031 1,155 - ------------------------------------------------------------------------------------------------------ State Depreciation - (1) 2 Other (100) (364) 11 - ------------------------------------------------------------------------------------------------------ Total State (100) (365) 13 - ------------------------------------------------------------------------------------------------------ Total Deferred Income Taxes, Net 1,249 666 1,168 - ------------------------------------------------------------------------------------------------------ Total $ 4,276 $ 3,680 $ 4,101 ======================================================================================================
Deferred income tax liabilities are categorized as follows on the Consolidated Balance Sheet:
2002 2001 - ------------------------------------------------------------------------------------ Deferred Federal and State Income Taxes $ 20,921 $ 18,902 Unfunded Future Income Taxes 7,471 8,223 - ------------------------------------------------------------------------------------ Net Deferred Income Tax Liability $ 28,392 $ 27,125 ====================================================================================
Deferred income tax liabilities are comprised of the following:
2002 2001 - ------------------------------------------------------------------------------------ Depreciation $ 27,125 $ 24,057 Other 1,267 3,068 - ------------------------------------------------------------------------------------ Net Deferred Income Tax Liability $ 28,392 $ 27,125 ====================================================================================
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-13 The calculation of Pre-Tax Income is as follows:
2002 2001 2000 - ------------------------------------------------------------------------------------------------------ Pre-Tax Income Net Income Before Preferred Dividends $ 8,780 $ 8,439 $ 7,896 Minority Interest Included (Deducted) Above -- -- (19) Income Taxes 4,276 3,680 4,101 - ------------------------------------------------------------------------------------------------------ Total Pre-Tax Income $ 13,056 $ 12,119 $ 11,978 ======================================================================================================
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 differences between the effective income tax rate recorded by the Company and the statutory federal tax rate are as follows:
2002 2001 2000 - --------------------------------------------------------------------------------------------------------------- Federal Statutory Income Tax Rate 34.0% 34.0% 34.0% Tax Effect of Differences: State Income Taxes Net of Federal Benefit: State Income Tax Excluding Land Donation Credit 2.3% 3.3% 3.4% Land Donation Credit (1.8%) (5.5%) (2.9%) Depreciation .5% 1.2% 1.8% Charitable Contribution - Land Donation (1.7%) (4.5%) (2.1%) Pension Costs (.7%) .6% .3% Debt Refinancing Costs .2% .2% .2% Non-deductible Merger Costs -- 1.0% 1.5% Bad Debt -- -- (.9%) Common Stock Equivalents -- 1.1% .3% Other -- (1.0%) (1.4%) - --------------------------------------------------------------------------------------------------------------- Effective Income Tax Rate 32.8% 30.4% 34.2% ===============================================================================================================
NOTE 4: COMMON STOCK The Company has 15,000,000 authorized shares of common stock, no par value. A summary of the changes in the common stock accounts for the period January 1, 2000 through December 31, 2002, appears below:
Issuance (in thousands, except share data) Shares Amount Expense Total - ------------------------------------------------------------------------------------------------------------------ Balance, January 1, 2000 7,596,141 $ 46,123 $ (1,385) $ 44,738 Stock and equivalents issued through Performance Stock Program 8,453 227 -- 227 - ------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 7,604,594 46,350 (1,385) 44,965 Stock and equivalents issued through Performance Stock Program 5,353 457 -- 457 Purchase Minority Interest of Barnstable Holding Company -- 125 -- 125 Stock Split - fractional shares (752) -- (11) (11) Stock Options Exercised 40,167 810 (4) 806 - ------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2001 7,649,362 47,742 (1,400) 46,342 Purchase Unionville Water Company 249,715 6,166 (190) 5,976 Stock and equivalents issued through Performance Stock Program 6,672 21 -- 21 Stock Options Exercised 33,964 732 (2) 730 - ------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2002 (1) 7,939,713 $ 54,661 $ (1,592) $ 53,069 ==================================================================================================================
(1) Includes 700 restricted and 37,108 common stock equivalent shares issued through the Performance Stock Program through December 31, 2002. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-14 The Company's Shareholder Rights Plan was authorized by the Board of Directors on August 12, 1998. Pursuant to the 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 affected October 11, 1998. Upon the terms of the 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 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, 2000 through December 31, 2002, appears below:
(in thousands, except per share data) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------- Balance, Beginning of Year $ 24,441 $ 22,145 $ 20,177 Income Before Preferred Stock Dividends 8,780 8,439 7,896 - --------------------------------------------------------------------------------------------------------- 33,221 30,584 28,073 - --------------------------------------------------------------------------------------------------------- Dividends Declared: Cumulative Preferred Stock, Series A, $.80 Per Share 12 12 12 Cumulative Preferred Stock, Series $.90, $.90 Per Share 26 26 26 Common Stock: 2002 $0.81 Per Share 6,277 -- -- 2001 $0.80 Per Share -- 6,105 -- 2000 $0.77 Per Share -- -- 5,890 - --------------------------------------------------------------------------------------------------------- 6,315 6,143 5,928 - --------------------------------------------------------------------------------------------------------- Balance, End of Year $ 26,906 $ 24,441 $ 22,145 =========================================================================================================
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 - Cash and cash equivalents consist of highly liquid instruments with original maturities at the time of purchase of three months or less. 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, 2002 and 2001, the estimated fair value of the Company's long-term debt was $71,979,000 and $62,726,000, respectively, as compared to the carrying amounts of $64,734,000 and $63,953,000, respectively. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-15 The fair values shown above have been reported to meet the disclosure requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Values of Financial Instruments" and do not purport to represent the amounts at which those obligations would be settled. NOTE 7: LONG-TERM DEBT Long-Term Debt at December 31, consisted of the following:
(in thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------------------ The Connecticut Water Company First Mortgage Bonds: 5.875% Series R, Due 2022 $ 14,645 $ 14,670 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 - ------------------------------------------------------------------------------------------------------------------ 44,245 44,270 Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, Due 2028 9,625 9,705 5.125% 1998 Series B, Due 2028 7,720 7,770 - ------------------------------------------------------------------------------------------------------------------ 17,345 17,475 Other 5.5% Unsecured Promissory Note, Due 2002 -- 37 - ------------------------------------------------------------------------------------------------------------------ Total Connecticut Water Company 61,590 61,782 Crystal Water Utilities Corporation 8.0% Westbank , Due 2017 122 126 - ------------------------------------------------------------------------------------------------------------------ Crystal Water Company of Danielson 7.82% Connecticut Development Authority, Due 2020 483 495 8.0% Westbank, Due 2011 - 2,033 - ------------------------------------------------------------------------------------------------------------------ Total Crystal Water Company of Danielson 483 2,528 Chester Realty 6% Note Payable, Due 2006 78 97 - ------------------------------------------------------------------------------------------------------------------ Barnstable Water Company 10.2% Indianapolis Life Insurance, Due 2011 1,525 1,625 - ------------------------------------------------------------------------------------------------------------------ Unionville Water Company 8.125% Farmington Savings Bank, Due 2011 1,178 -- - ------------------------------------------------------------------------------------------------------------------ Total Connecticut Water Service, Inc. 64,976 66,158 Less Current Portion (242) (2,205) - ------------------------------------------------------------------------------------------------------------------ Total Long-Term Debt $ 64,734 $ 63,953 ==================================================================================================================
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-16 The Company's principal payments required for years 2003 - 2007 are as follows:
(In thousands) 2003 - $ 242 2004 - $ 254 2005 - $ 277 2006 - $ 254 2007 - $ 267
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 and 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. In 2003, the Series R bonds call price will be reduced to 100%. 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 and B Unsecured Water Facilities Revenue Refinancing Bonds, March 1, 2008 at 100% plus accrued interest. Barnstable Water Company's note payable has been unconditionally guaranteed by the Company. The note agreement with Indianapolis Life Insurance Company requires the Company to meet certain financial covenants, restricts the Company's ability to incur additional debt unless certain financial tests are met, restricts liens to secure additional long-term borrowings, restricts the type of investments that the Company can purchase and contains a significant prepayment premium. The Company was in compliance with the restrictive covenants at December 31, 2002 and 2001. Unionville Water Company's term note with Farmington Savings Bank requires monthly payments of principal and interest. The note bears a fluctuating interest rate. The interest rate is adjusted on each 60-month anniversary date from the effective date of May 1, 1996. On the anniversary date (Interest Change Date) the interest rate shall be increased or decreased to a rate determined by adding 2.5 percentage points to the most recent Federal Home Loan Bank of Boston Long-Term, Regular, 5 year, Fixed Rate Mortgage Rate (Index), available 45 days prior to the Interest Change Date, rounded to the next highest one-eighth of one percentage point. Unionville may prepay the principal balance outstanding under the note without penalty for the thirty days preceding each Interest Change Date upon 30 days prior written notice to the bank. Prepayment made at any other time requires a prepayment penalty, which is 110% of the present value of the difference between the interest on the amount prepaid for the remaining term to the next Interest Change Date, as determined by the Current Index and the interest on the same amount for the remaining term to the next Interest Change Date, as determined by the Index in effect for that maturity on the day the prepayment is made. NOTE 8: PREFERRED STOCK The Company's Preferred Stock at December 31, consisted of the following:
(in thousands, except share data) 2002 2001 - ------------------------------------------------------------------------------------------------------------------ Connecticut Water Service, Inc. 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 - ------------------------------------------------------------------------------------------------------------------ 772 772 Barnstable Water Company 6% Cumulative, $100 Par Value; Authorized, Issued and Outstanding 750 Shares 75 75 - ------------------------------------------------------------------------------------------------------------------ Total Preferred Stock $ 847 $ 847 ==================================================================================================================
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. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-17 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 Shareholder Rights Plan, described in Note 5, 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. Barnstable Water Company paid Preferred Dividends of $4,500 in 2002, 2001 and 2000. These dividends are included in the Other category of the Other Income (Deductions) section of the Consolidated Statements of Income. These preferred shareholders have 1/10 of a common vote for matters related to Barnstable Water Company. NOTE 9: BANK LINES OF CREDIT The Company has a total of $12,500,000 in lines of credit provided by three banks. In May 2003, $6,500,000 of the lines of credit expire and the remaining $6,000,000 expires in May 2004. We expect the lines of credit to be renewed. The total available on the lines of credit as of December 31, 2002 was $5,550,000. Bank commitment fees associated with the lines of credit were approximately $30,000, $22,500, and $24,750 in 2002, 2001, and 2000 respectively. At December 31, 2002 and 2001, the weighted average interest rates on short-term borrowings outstanding were 1.77% and 2.31%, respectively. NOTE 10: UTILITY PLANT AND CONSTRUCTION PROGRAM The components of utility plant and equipment at December 31, are as follows:
(in thousands) 2002 2001 - --------------------------------------------------------------------------------------------------- Land $ 9,770 $ 9,404 Source of Supply 18,059 17,087 Pumping 23,841 20,331 Water Treatment 46,692 44,585 Transmission and Distribution 191,603 159,924 General (including intangible) 17,955 15,784 Held for Future Use 465 460 - --------------------------------------------------------------------------------------------------- Total $ 308,385 $ 267,575 ===================================================================================================
The amounts of depreciable utility plant at December 31, 2002 and 2001 included in total utility plant were $276,150,000 and $249,775,000, 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 approximately $9,502,000 during 2003, $9,806,000 during 2004, and $10,263,000 in 2005. During the years 2006 and 2007, construction expenditures for routine improvements to the water distribution system are expected to be approximately $8,000,000 each year. NOTE 11: TAXES OTHER THAN INCOME TAXES Taxes Other than Income Taxes consist of the following:
(in thousands) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Municipal Property Taxes $ 4,149 $ 3,788 $ 4,070 Payroll Taxes 647 600 588 - ------------------------------------------------------------------------------------------------------------------ Total $ 4,796 $ 4,388 $ 4,658 ==================================================================================================================
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-18 NOTE 12: PENSION AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS GENERAL - As of December 31, 2002, Connecticut Water Company had 161 employees, Gallup 5, Crystal 7, Connecticut Water Emergency Services 1, Barnstable Water Company 8, and Unionville 9 for a total of 191 employees. The Company's officers are employees of The Connecticut Water Company. Employee expenses are charged between companies as appropriate. Effective December 31, 2002, the Connecticut Water Company Pension Plan and the Barnstable Water Company Pension Plan merged. All Companies excluding Barnstable and Unionville: PENSION - The Company and certain of its subsidiaries have noncontributory defined benefit pension plans covering qualified employees. In general, the Company's policy is to fund accrued pension costs as permitted by federal income tax and Employee Retirement Income Security Act of 1974 regulations. Contributions of approximately $669,000 were made for 2002. No contribution was made in 2001. POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing pension benefits, a subsidiary company, The Connecticut Water Company, 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 The Connecticut Water Company's employees may become eligible for these benefits if they retire on or after age 55 with 10 years of service. The contribution for calendar years 2002 and 2001 was $473,100 for each year. A deferred regulatory asset has been recorded to reflect the amount which represents the future operating revenues expected to be recovered in customer rates under FAS 106. In 1997, The Connecticut Water Company requested and received approval from the DPUC to include FAS 106 costs in customer rates. The DPUC's 1997 limited reopener of The Connecticut Water Company's general rate proceeding allowed it to increase customer rates $208,000 annually for FAS 106 costs. The Connecticut Water Company's current rates now allow for recovery of $473,100 annually for post-retirement benefit costs other than pension. The Connecticut Water Company has elected to recognize the transition obligation on a delayed basis over a period equal to the plan participants' 21.6 years of average future service. The following tables set forth the funded status of the Company's retirement plans and post-retirement health care benefits at December 31, the latest valuation date:
PENSION BENEFITS OTHER BENEFITS (in thousands) 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation, beginning of year $ 17,339 $ 16,119 $ 4,171 $ 4,037 Service Cost 686 582 223 190 Interest Cost 1,249 1,163 309 276 Plan Participant Contributions -- -- 47 40 Plan Amendments -- 16 -- -- Actuarial loss/(gain) 1,816 387 1,184 (43) Benefits paid (688) (928) (427) (329) Merger of plans 1,527 -- -- -- - ----------------------------------------------------------------------------------------- Benefit obligation, end of year $ 21,929 $ 17,339 $ 5,507 $ 4,171 - ----------------------------------------------------------------------------------------- Change in Plan Assets: Fair Value, beginning of year $ 18,170 $ 19,218 $ 2,684 $ 2,545 Actual return on plan assets (1,484) (120) (185) (45) Employer contribution 669 -- 473 473 Participants' contributions -- -- 47 40 Benefits paid (688) (928) (427) (329) Merger of plans 1,075 -- -- -- - ----------------------------------------------------------------------------------------- Fair Value, end of year $ 17,742 $ 18,170 $ 2,592 $ 2,684 - ----------------------------------------------------------------------------------------- Funded Status $ (4,187) $ 831 $ (2,915) $ (1,487) Unrecognized net actuarial (gain) loss 1,669 (3,780) 420 (1,175) Unrecognized transition obligation 48 22 1,649 1,814 Unrecognized prior service cost 1,045 1,122 -- -- - ----------------------------------------------------------------------------------------- Accrued Cost $ (1,425) $ (1,805) $ (846) $ (848) - -----------------------------------------------------------------------------------------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-19 Weighted-average assumptions as of December 31: Discount rate 6.5% 7.25% 6.5% 7.25% Expected return on plan assets 8.0% 8.0% 5.0% 5.0% Rate of compensation increase 4.5% 4.5% -- --
PENSION BENEFITS OTHER BENEFITS (IN THOUSANDS) 2002 2001 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit costs Service cost $ 686 $ 582 $ 528 $ 223 $ 190 $ 141 Interest cost 1,249 1,163 1,060 309 276 283 Expected return on plan assets (1,448) (1,397) (1,306) (141) (128) (110) Amortization of: Unrecognized net transition asset 2 (30) (30) 165 165 165 Unrecognized net (gain)/loss (252) (356) (269) (84) (135) (135) Unrecognized prior service cost 102 101 48 -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Net Periodic Pension and Post Retirement Benefit Costs $ 339 $ 63 $ 31 $ 472 $ 368 $ 344 - -------------------------------------------------------------------------------------------------------------------------
In determining the 2002 and 2001 accumulated post-retirement benefit obligation, health care cost trends were assumed to be 8.5% grading 0.5% per year to 4%. Assumed health care cost 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 (in thousands) Increase Decrease - ------------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 76 $ (62) Effect on post-retirement benefit obligation $ 661 $ (557) - -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Connecticut Water provides additional pension benefits to senior management through a supplemental executive retirement plan. At December 31, 2002 the actuarial present value of the projected benefit obligation was $788,000. Expense associated with this plan was $108,000 for 2002, $93,000 for 2001, and $102,000 for 2000. SAVINGS PLAN - The Company and certain of its subsidiaries maintains an employee savings plan which allows participants to contribute from 1% to 15% of pre-tax compensation plus for those age 50 and older catch-up contributions as allowed by law. The Company matches 50 cents for each dollar contributed by the employee up to 4% of the employee's compensation. The Company contribution charged to expense in 2002, 2001 and 2000 was $161,000, $150,000, and $139,000, respectively. The Plan creates 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. If the specific goal or goals are attained by the end of the year, all eligible employees, except officers and certain key employees, will receive up to an additional 1% of their annual base salary as a direct contribution to their 401(k) account. For 2002, $30,000 was awarded as an incentive bonus of .4% of base pay. An incentive bonus of .6% of base pay, or $41,000 and $37,000, was awarded in 2001 and 2000 respectively. Barnstable Water: PENSION - Barnstable 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. Contributions of approximately $74,000 were made in 2002, of which approximately $30,000 was for the 2002 plan year and approximately $44,000 was for the 2001 plan year. A contribution of $55,000 was made in 2001 for the 2000 plan year. The Barnstable Water CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-20 Company Pension Plan was merged with The Connecticut Water Pension Plan on December 31, 2002. POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing pension benefits, Barnstable Water provides certain health care benefits to eligible retired employees. The Company has incurred annual expenses for PBOP of $12,000, $12,000 and $11,000 for 2002, 2001 and 2000, respectively. The Company's PBOP currently is not funded.
Barnstable Water: PENSION BENEFITS OTHER BENEFITS (in thousands) 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation, beginning of year $ 1,381 $ 1,347 $ 83 $ 86 Service Cost 19 32 2 4 Interest Cost 96 98 7 6 Actuarial loss/(gain) 114 (12) 10 (10) Benefits paid (83) (84) (4) (3) Merger of plans (1,527) -- -- -- - -------------------------------------------------------------------------------------------------------------- Benefit obligation, end of year $ -- $ 1,381 $ 98 $ 83 - -------------------------------------------------------------------------------------------------------------- Change in Plan Assets: Fair Value, beginning of year $ 1,173 $ 1,301 $ -- $ -- Actual return on plan assets (89) (99) -- -- Employer contribution 74 55 4 3 Participants' contributions -- -- -- -- Benefits paid (83) (84) (4) (3) Merger of plans (1,075) -- -- -- - -------------------------------------------------------------------------------------------------------------- Fair Value, end of year $ -- $ 1,173 $ -- $ -- - -------------------------------------------------------------------------------------------------------------- Funded Status $ (--) $ (208) $ (98) $ (83) Unrecognized net actuarial (gain)/loss -- 152 (41) (54) Unrecognized transition obligation -- 39 70 76 Unrecognized prior service cost -- 31 -- -- - -------------------------------------------------------------------------------------------------------------- Prepaid/(Accrued) Cost $ -- $ 14 $ (69) $ (61) - -------------------------------------------------------------------------------------------------------------- Weighted-average assumptions as of December 31: Discount rate 6.5% 7.25% 6.5% 7.25% Expected return on plan assets 8.0% 8.0% -- -- Rate of compensation increase 4.5% 4.5% -- --
PENSION BENEFITS OTHER BENEFITS (IN THOUSANDS) 2002 2001 2000 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------- Components of net periodic benefit costs Service cost $ 19 $ 32 $ 32 $ 2 $ 4 $ 3 Interest cost 96 98 102 7 6 6 Expected return on plan assets (95) (105) (116) -- -- -- Amortization of: Unrecognized net transition asset 11 10 10 6 6 6 Unrecognized net (gain) loss -- -- (8) (3) (4) (4) Unrecognized prior service cost 6 6 6 -- -- --
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-21 - -------------------------------------------------------------------------------------------------------------- Net Periodic Pension and Post Retirement Benefit Costs (Income) $ 37 $ 41 $ 26 $12 $ 12 $ 11 - --------------------------------------------------------------------------------------------------------------
In determining the 2002 and 2001 accumulated post-retirement benefit obligation, health care cost trends were assumed to be 8.5% grading 0.5% per year to 4%. Unionville Water: PENSION - Unionville Water Company has a non-contributory defined contribution pension plan (the Pension Plan) which covers all employees who have completed one year of service. Unionville provides a contribution to the plan based upon 10% of the participant's annual payroll. The Unionville contribution charged to expense for the two-month period ended December 31, 2002 was $9,000. NOTE 13: STOCK-BASED COMPENSATION PLAN The Company has two components to its Stock-Based Compensation Plan (the Plan): The Stock Option Program (SOP) and the Performance Stock Program (PSP). In total under the Plan there were 700,000 shares authorized and 281,582 shares available for grant at December 31, 2002. STOCK OPTION PROGRAM (SOP) - As part of the Company's SOP, stock options are permitted to be issued to officers and key employees. The Company accounts for this 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 are shown in Note 1. 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 years ended December 31, 2002, 2001 and 2000.
2002 2001 2000 ---- ---- ---- Expected life (years) 6.00 9.40 9.85 Risk-free interest rate (percentage) 3.09 5.07 5.12 Volatility (percentage) 30.00 27.36 32.01 Dividend yield 3.13 2.70 3.90
Options begin to become exercisable one year from the date of grant. Vesting periods range from one to five years. The per share weighted average fair value of stock options granted during 2002, 2001 and 2000 was $5.82, $8.67 and $5.87 respectively. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-22
For the Years Ended December 31, -------------------- --------------------- -------------------- 2002 2001 2000 -------------------- --------------------- -------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price ------ -------- ------- -------- ------- -------- Options: Outstanding, beginning of year 229,811 $ 20.18 236,228 $ 18.39 191,586 $ 17.92 Granted 39,254 25.78 33,750 22.99 44,642 21.64 Terminated -- -- -- -- -- -- Exercised (33,964) 18.12 (40,167) 16.22 -- -- ------- ------- -------- -------- ------- ------- Outstanding, end of year 235,101 21.41 229,811 20.18 236,228 18.39 ======= ======= ======== ======== ======= ======= Exercisable, end of year 71,581 $ 20.74 47,630 $ 19.94 38,319 $ 17.92 ======= ======== ======== ======== ======== =======
Options exercised during 2002 ranged in price from $14.83 per share to $22.33 per share. The following table summarizes the price ranges of the options outstanding and options exercisable as of December 31, 2002:
------------------------------------- ---------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ---------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE SHARES LIFE (YEARS) PRICE SHARES PRICE ------------------------------------- --------------------- RANGE OF PRICES: $ 13.00 - $ 17.99 62,575 6.3 $ 14.83 17,487 $ 14.83 $ 18.00 - $ 22.99 99,522 7.3 21.60 45,657 21.68 $ 23.00 - $ 27.99 73,004 9.5 26.78 8,437 27.95 ------------------------------------- ---------------------- 235,101 7.7 $ 21.41 71,581 $ 20.74 ===================================== ======================
NOTE 14: SEGMENT REPORTING Our Company operates principally in three segments: water activities, real estate transactions, and services and rentals. The water segment is comprised of our core regulated water activities to supply water to our customers. Our real estate transactions segment involves selling or donating for income tax benefits our limited excess real estate holdings. Our services and rentals segment provides services on a contract basis and leases 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-23
Interest Expense and Preferred Other Dividend Operating Other Income (net of Income Net (in thousands) Revenues Depreciation Expenses (Deductions) AFUDC) Taxes Income - ---------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 2002 Water Activities $ 45,830 $ 5,187 $ 24,326 $ 127 $ 4,104 $ 4,482 $ 7,858 Real Estate Transactions 5 -- 32 -- -- (467) 440 Services and Rentals 2,928 20 2,186 -- -- 278 444 - ---------------------------------------------------------------------------------------------------------------------- Total $ 48,763 $ 5,207 $ 26,544 $ 127 $ 4,104 $ 4,293 $ 8,742 ====================================================================================================================== For the year ended December 31, 2001 Water Activities $ 45,392 $ 4,837 $ 24,402 $ (273) $ 4,231 $ 4,741 $ 6,908 Real Estate Transactions -- -- 145 -- -- (1,266) 1,121 Services and Rentals 2,431 15 1,839 -- -- 205 372 - ---------------------------------------------------------------------------------------------------------------------- Total $ 47,823 $ 4,852 $ 26,386 $ (273) $ 4,231 $ 3,680 $ 8,401 ====================================================================================================================== For the year ended December 31, 2000 Water Activities $ 43,997 $ 4,718 $ 23,058 $ (228) $ 4,369 $ 4,564 $ 7,060 Real Estate Transactions 166 -- 253 -- -- (619) 532 Services and Rentals 2,394 13 1,936 -- 23 156 266 - ---------------------------------------------------------------------------------------------------------------------- Total $ 46,557 $ 4,731 $ 25,247 $ (228) $ 4,392 $ 4,101 $ 7,858 ======================================================================================================================
At December 31 (in thousands) 2002 2001 --------- ----------- Total Plant and Other Investments: Water $ 231,676 $ 204,750 Non-water 978 914 --------- ----------- 232,654 205,664 --------- ----------- Other Assets: Water 31,761 25,630 Non-water 384 420 --------- ----------- 32,145 26,050 --------- ----------- Total Assets $ 264,799 $ 231,714 ========= ===========
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-24 NOTE 15: COMMITMENTS AND CONTINGENCIES LAND DONATIONS TO BE MADE IN 2003 AND 2004 - On January 31, 2001, we signed an agreement to donate to the Town of Killingly, Connecticut approximately 365 acres of unimproved land for protected open space purposes. This land donation will be broken down into three different parcels with one of the parcels being donated each year from 2002 through 2004. Under current tax law, these donations will result in reduced federal and state income tax benefits totaling approximately $1,900,000. In 2002, the first parcel consisting of approximately 54 acres was donated for an after tax benefit of $293,000. In January 2003, the second parcel consisting of approximately 178 acres was donated which is expected to result in an after tax benefit of approximately $900,000. The remaining 133 acres are scheduled to be donated in 2004, provided Connecticut tax laws continue to provide favorable tax treatment for such donations, for an expected after tax benefit of approximately $700,000. HUNGERFORDS - In July 2002, the Company decided not to purchase Hungerfords as provided in the July, 1999 Joint Venture Agreement entered into by both companies. Certain financial targets to be achieved by Hungerfords, which would have provided the basis to complete the purchase, were not achieved. The Company's decision not to purchase Hungerfords had no material financial impact. REVERSE PRIVATIZATION - Our water companies derive their rights and franchises to operate from state law that are subject to alteration, amendment or repeal and do not grant permanent exclusive rights to our service areas. Our franchises are free from burdensome restrictions, are unlimited as to time, and authorize us to sell potable water in all towns we now serve. There is the possibility that states could revoke our franchises and allow a governmental entity to take over some or all of our systems. From time to time such legislation is contemplated. The Town of Barnstable, Massachusetts has advised the Company that it is actively considering the acquisition of the Company's wholly-owned subsidiary, The Barnstable Holding Company. The Town takes the position that it has the right to acquire The Barnstable Holding Company pursuant to the provisions of Massachusetts legislation passed in 1911. The Company has advised the Town of Barnstable that the Company does not believe the Town has any statutory right to acquire The Barnstable Holding Company. ENVIRONMENTAL AND WATER QUALITY REGULATION - The Company is subject to environmental and water quality regulations. Costs to comply with environmental and water quality regulations are substantial. We are in compliance with current regulations, but the regulations are subject to change. The costs to comply with future changes in state or federal regulations, which could require us to modify current filtration facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial. CONSTRUCTION - Our water companies' estimated capital expenditures for 2003, 2004 and 2005 are $9.5 million, $9.8 million and $10.3 million respectively. These capital expenditures are net of amounts financed by customer advances and contributions in aid of construction. These expenditures are expected to be financed primarily with internally generated funds. MORATORIUM ON LAND SALES - On December 4, 2002, the Company entered into a Memorandum of Understanding (MOU) with the State of Connecticut Department of Environmental Protection (DEP). The MOU provides for a voluntary two-year moratorium on the sale of approximately 7,100 acres of undeveloped Class I, II, and III water company lands held by the Company's Connecticut water company subsidiaries. Class I and II water company lands, as defined by Public Health Code regulations, are those that are within the watershed or drainage area of a public water supply. Class III lands are those that are not located within the watershed. Under the terms of the MOU, the DEP in cooperation with the Company's Connecticut water companies will assess and evaluate all undeveloped Class I, II and III land holdings to determine the desirability of the State of Connecticut's acquiring the land for open space and to develop strategies to fund the acquisitions of such properties in fee or easement from the Company. If the DEP determines that the Company's Class I, II and III land holdings are desirable, the Company and the DEP have agreed to negotiate in good faith to determine a price for the Company's land holdings based upon appraised values. However, the Company is not obligated by the MOU to sell such lands to the State of Connecticut. If the DEP determines that certain parcels of Class III land covered by the MOU do not meet its criteria for desirable open space, the Company can apply to the Department of Public Utility Control to sell or otherwise dispose of the land. The Company has no intention of selling or otherwise disposing of Class I and II lands that have an impact on drinking water supply and water quality. The MOU does not affect the land donation to the Town of Killingly mentioned above. SECURITY - Recent amendments to the Safe Drinking Water Act require all public water systems serving over 3,300 people on an average basis to prepare Vulnerability Assessments (VA) of their critical utility assets. The assessments are to be completed by December 2003 and will be submitted to the U.S. Environmental Protection Agency along with certification that certain critical elements of the assessments are being implemented within our Emergency Contingency Plan. The information within the VA is not subject to release to the public and is protected from Freedom of Information inquiries. Investment in security-related improvements is ongoing and management believes that the costs associated with any such improvements would be chargeable for recovery in future rate proceedings. TAXES - Due to the current environment of state budget deficits, the Company and its subsidiaries may be subject to a higher tax burden through changes in state legislation. Also, the Company's future property tax burden may increase as state aid to towns is decreased. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES F-25 NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended December 31, 2002 and 2001 appears below: (in thousands, except for per share data)
Net Income Basic Earnings Per Utility Applicable to Average Operating Revenues Operating Income Common Stock Common Share 2002 2001 2002 2001 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------------- First Quarter $ 10,284 $ 10,228 $ 2,499 $ 2,465 $ 1,544 $ 2,275 $ 0.20 $ 0.30 Second Quarter 10,727 10,974 2,593 2,851 1,866 1,914 0.24 0.25 Third Quarter 13,799 13,538 4,408 3,887 3,850 2,945 0.50 0.39 Fourth Quarter 11,020 10,652 2,334 2,111 1,482 1,267 0.19 0.16 -------------------------------------------------------------------------------------- Year $ 45,830 $ 45,392 $ 11,834 $ 11,314 $ 8,742 $ 8,401 $ 1.13 $ 1.10 ======================================================================================
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES E-1
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Connecticut Water Service, Inc. amended and restated as of April, 1998. (Exhibit 3.1 to Form 10-K for the year ended 12/31/98). 3.2 By-Laws, as amended, of Connecticut Water Service, Inc. as amended and restated as of August 12, 1999. (Exhibit 3.2 to Form 10-K for the year ended 12/31/99). 3.3 Certification of Incorporation of The Connecticut Water Company effective April, 1998. (Exhibit 3.3 to Form 10-K for the year ended 12/31/98). 3.4 Certificate of Amendment to the Certificate of Incorporation of Connecticut Water Service, Inc. dated August 6, 2001. (Exhibit 3.4 to Form 10-K for the year ended 12/31/01). 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)
E-2 (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) (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. (Exhibit 4.8 to Form 10-K for the year ended 12/21/98). 4.9 Loan Agreement dated as of April 19, 1990 between the Connecticut Development Authority and The Crystal Water Company of Danielson. (Exhibit 4.9 to Form 10.K for the year ended 12/31/99). 4.10 Loan Agreement dated as of February 9, 1996 between New London Trust, F.S.B. and The Crystal Water Company of Danielson. (Exhibit 4.10 to Form 10-K for the year ended 12/31/99).
E-3 4.11* Loan Agreement dated as of April 11, 1991 between Farmington Savings Bank and The Unionville Water Company. 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 April 22, 1994. 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. (Exhibit 10.5 to Form 10-K for the year ended 12/31/99). 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 The Connecticut Water Company Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce dated December 16, 1991. (Exhibit 10.6b to the Form 10-K for year ended 12/31/91). 10.7.1 The Connecticut Water Company First Amended Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce dated August 1, 1999. (Exhibit 10.7.2 to Form 10-K for the year ended 12/31/99). 10.7.2 The Connecticut Water Company Supplemental Executive Retirement Agreement with Michele G. DiAcri dated February 28, 2000. (Exhibit 10.7.2 to Form 10-K for the year ended 12/31/01). 10.8 The Connecticut Water Company Supplemental Executive Retirement Agreement - standard form for other officers, dated December 4, 1991. (Exhibit 10.6b to Form 10-K for the year ended 12/31/91).
E-4 10.8.1 The Connecticut Water Company First Amended Supplemental Executive Retirement Agreement - standard form for other officers, dated August 1, 1999. (Exhibit 10.8.2 to Form 10-K for the year ended 12/31/99). 10.9 Amended and restated employment agreement between The Connecticut Water Company and Connecticut Water Service, Inc. with officers, amended and restated as of May 9, 2001. (Exhibit 10.9 to Form 10-K for the year ended 12/31/01). 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 10.9.1* Employment agreement between The Connecticut Water Company and Connecticut Water Service, Inc. with Kevin T. Walsh, amended and restated as of January 9, 2002. 10.10 Employment and Consulting Agreement between Richard L. Mercier and Gallup Water Service, Inc. dated April 15, 1999. (Exhibit 10.10 to Form 10-K for the year ended 12/31/99). 10.11 Employment and Consulting Agreement between Roger Engle and Crystal Water Company of Danielson dated September 29, 1999. (Exhibit 10.11 to Form 10-K for the year ended 12/31/99). 10.12 Savings Plan of The Connecticut Water Company, amended and restated effective as of October 1, 2000. (Exhibit 10.12 to Form 10-K for the year ended 12/31/01). 10.13 The Connecticut Water Company Employees' Retirement Plan as amended and restated as of January 1, 1997. (Exhibit 10.11 to Form 10-K for the year ended 12/31/98). 10.13.1* First amendment, dated August 16, 2000 to the amended and restated Connecticut Water Company Employees' Retirement Plan effective January 1, 1997. 10.13.2* Second amendment, dated November 14, 2000 to the amended and restated Connecticut Water Company Employees' Retirement Plan effective January 1, 1997. 10.13.3* Third amendment, dated November 14, 2001 to the amended and restated Connecticut Water Company Employees' Retirement Plan effective January 1, 1997.
E-5 10.13.4* Fourth amendment, dated August 14, 2002 to the amended and restated Connecticut Water Company Employees' Retirement Plan effective January 1, 1997. 10.13.5* Fifth amendment, dated August 14, 2002 to the amended and restated Connecticut Water Company Employees' Retirement Plan effective 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). 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, amended and restated as of November 15, 2001. (Exhibit 99.1 to post-effective amendment filed on December 5, 2001 to Form S-3, Registration Statement No. 33-53211). 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).
E-6 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 26, 2002. (Exhibit A to Proxy Statement dated March 19, 2002). 10.26 Loan Agreement dated as of February 15, 1991 between Indianapolis Life Insurance Company and The Barnstable Water Company. (Exhibit 10.26 to Form 10-K for the year ended 12/31/01). 10.27 Guaranty Agreement by Connecticut Water Service, Inc. and Second Amendment to Note Agreement of Barnstable Water Company dated as of February 23, 2001. (Exhibit 10.27 to Form 10-K for the year ended 12/31/01). 10.28 Employment Agreement between George Wadsworth and The Barnstable Water Company dated February 23, 2001. (Exhibit 10.28 to Form 10-K for the year ended 12/31/01). 10.29 Separation Agreement between George Wadsworth, The Connecticut Water Service, Inc. and The Barnstable Water Company dated December 14, 2001. (Exhibit 10.29 to Form 10-K for the year ended 12/31/01). 23.1* Consent of PricewaterhouseCoopers LLP. 23.2* Explanation concerning absence of current written consent of Arthur Andersen LLP. 99.1* Certification of Marshall T. Chiaraluce, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2* Certification of David C. Benoit, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------- * = filed herewith 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. 25 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 - --------------------------- Marshall T. Chiaraluce Director, President Chairman March 18, 2003 (Principal Executive Officer) of the Board, and Chief Executive Officer /s/ David C. Benoit - -------------------- David C. Benoit Vice President - Finance, March 17, 2003 (Principal Financial and Accounting Officer) Chief Financial Officer and Treasurer
26 /s/ Roger Engle Director March 4, 2003 - --------------- Roger Engle /s/ Mary Ann Hanley Director March 4, 2003 - ------------------- Mary Ann Hanley /s/ Marcia Hincks Director March 6, 2003 - ----------------- Marcia Hincks /s/ Mark G. Kachur Director March 11, 2003 - ------------------ Mark G. Kachur /s/ David A. Lentini Director March 11, 2003 - -------------------- David A. Lentini /s/ Ronald D. Lengyel Director March 4, 2003 - --------------------- Ronald D. Lengyel /s/ Robert F. Neal Director March 4, 2003 - ------------------ Robert F. Neal /s/ Arthur C. Reeds Director March 3, 2003 - ------------------- Arthur C. Reeds /s/ Lisa J. Thibdaue Director March 5, 2003 - -------------------- Lisa J. Thibdaue /s/ Carol P. Wallace Director March 3, 2003 - -------------------- Carol P. Wallace /s/ Donald B. Wilbur Director March 5, 2003 - -------------------- Donald B. Wilbur
27 RULE 13a-14 CERTIFICATION FORM 10-K CERTIFICATIONS I, Marshall T. Chiaraluce, Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-K of The Connecticut Water Service, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer(s) and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Marshall T. Chiaraluce - --------------------------- Marshall T. Chiaraluce Chief Executive Officer March 18, 2003 28 RULE 13a-14 CERTIFICATION FORM 10-K CERTIFICATIONS I, David C. Benoit, Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-K of The Connecticut Water Service, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer(s) and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ David C. Benoit - -------------------- David C. Benoit Chief Financial Officer March 17, 2003 S-1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of Connecticut Water Service, Inc.: Our audit of the December 31, 2002 consolidated financial statements referred to in our report dated February 12, 2003 appearing in this Annual Report on Form 10-K of Connecticut Water Service, Inc. also included an audit of December 31, 2002 financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The 2001 and 2000 consolidated financial statement schedule information of the Company was audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on that financial statement schedule information in their report dated February 8, 2002. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 12, 2003 The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP. This report applies to supplemental Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2001 and December 31, 2000. Refer to Exhibit 23.2 for further discussion. REPORT OF PREDECESSOR AUDITOR (ARTHUR ANDERSEN LLP) ON FINANCIAL STATEMENT SCHEDULES We have audited, in accordance with accounting principles generally accepted in the United States, the financial statements of Connecticut Water Service, Inc. included in this Form 10-K, and have issued our report thereon dated February 8, 2002. 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 consolidated 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 8, 2002 S-2 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 - ----------- --------- ------ ------------ -------- Allowance for Uncollectible Accounts Year Ended December 31, 2002 $234 $165 $159 $240 ==== ==== ==== ==== Year Ended December 31, 2001 $218 $171 $155 $234 ==== ==== ==== ==== Year Ended December 31, 2000 $476 $216 $474 $218 ==== ==== ==== ====
(1) Amounts charged off as uncollectible after deducting recoveries. EX-4.11 3 y84639exv4w11.txt LOAN AGREEMENT EXHIBIT 4.11 REVOLVING AND TERM LOAN AND SECURITY AGREEMENT THIS AGREEMENT, dated as of April 11, 1991, by and between FARMINGTON SAVINGS BANK, a banking corporation organized under the laws of the State of Connecticut (hereinafter called the "Bank"), and THE UNIONVILLE WATER COMPANY, a Connecticut public service company having its main office and principal place of business at 30 Mill Street, Unionville, Connecticut 06085 (hereinafter called the "Borrower"), sets forth the terms and conditions whereby the Bank will lend funds to the Borrower to be secured, applied and repaid as follows: WITNESSETH: WHEREAS, the Borrower has made certain representations to the Bank and has requested the Bank to lend funds to the Borrower; and WHEREAS, the Bank, in reliance on said representations of the Borrower, is willing to lend such funds to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the parties hereto agree as follows: SECTION 1. THE LOAN The Loan, as that term is used herein, shall refer collectively to (i) a term loan (the "Term Loan") in the amount of One Million Nine Hundred Thousand Dollars ($1,900,000), on the terms set forth in Section 2, below, (ii) a Revolving Line of Credit (the "Revolving Line of Credit") in an amount not to exceed Five Hundred Thousand Dollars ($500,000), on the terms set forth in Section 3, below. SECTION 2. THE TERM LOAN 2.01 (a) The principal amount of the Term Loan will be One Million Nine Hundred Thousand Dollars ($1,900,000). The Term Loan will be a twenty (20) year term loan, and the entire principal amount of the Term Loan will be advanced to the Borrower in full at the Closing. (b) The Term Loan will be evidenced by a promissory note made payable to the order of the Bank and substantially in the form of Exhibit A attached hereto (the "Term Note"; such term shall also apply to any extensions, renewals, modifications, or replacements thereof), which shall be duly executed by Borrower with all appropriate blanks completed. EXHIBIT 4.11 (c) The Term Note shall bear interest as follows: (i) from the date of the Term Note through the date which is five (5) years from the date on which the first payment is due thereunder, the interest rate shall be determined by adding two and one-half percentage points (2.5%) (the "Margin") to the most recent available Federal Home Loan Bank of Boston Long-Term, Regular, 5 Year, Fixed Rate Mortgage Rate (the "Index"), one week prior to the execution of the Term Note, rounded to the next highest one-eighth of one percentage point (0.125%); and (ii) effective on the sixtieth (60th) monthly anniversary of the due date of the first payment, and on each sixtieth (60th) monthly anniversary date thereafter (each anniversary referred to herein as an "Interest Change Date"), the interest rate on the Term Note shall be increased or decreased to a rate determined in accordance with the Index. If the Index is no longer available, the Bank will use a similar index chosen by the Bank in the exercise of its reasonable discretion. The most recent Index available forty-five (45) days prior to the Interest Change Date will be the "Current Index". The applicable new interest rate will be computed by adding the Margin to the Current Index and rounding the result to the next highest one-eighth of one percentage point (0.125%). Each new interest rate will be effective beginning on each Interest Change Date. 2.02 In the event that any payment due under the Term Note or the Revolving Line of Credit Note, whether of principal, interest, or otherwise, is not received by the Bank within fifteen (15) days from the date on which it is payable, (a) the unpaid and outstanding balance of the Term Note shall bear interest, from the date on which the overdue payment was originally payable, at a rate which is 3 percentage points (3.0%) in excess of the applicable rate as set forth in Section 2.01 (c) hereof (the "default rate"), and (b) the Bank shall charge and collect (in addition to interest at the default rate) a late charge of five percent (5%) of the overdue payment. 2.03 The Borrower shall make payments on the Term Note, as follows: Beginning on the first day of the second month after the execution of the Term Note, and on the first day of each succeeding month, the Borrower shall pay to the Bank monthly payments of principal and interest in an amount adequate to amortize the Term Note, based upon the interest rate determined in accordance with Section 2.01(c) (i) above, in twenty (20) years, including a final 240th payment of all principal and interest due to repay the Term Note in full not later than twenty years and 59 days from the date of the Term Note (the "Final Maturity"), provided however, effective with the due date of the sixty-first (61st) monthly payment, and on each sixtieth (60th) monthly anniversary of that date thereafter (each such date referred to hereinafter as a "Payment Change Date"), the monthly payments of principal and interest shall be adjusted to amortize the remaining balance of the Term Note, based upon the appropriate interest rate determined in accordance with Section 2.01(c) (ii) hereof for the Interest Change Date immediately preceding the EXHIBIT 4.11 Payment Change Date, within the period measured from the applicable Interest Change Date until the Final Maturity. 2.04 The Borrower shall have the right to prepay the Term Note without penalty for the 30 days preceding each Interest Change Date upon 30 days' prior notice to the Bank. Prepayment made at any other time shall be allowed only upon payment by the Borrower of a "Prepayment Charge", as hereinafter defined. The Prepayment Charge shall be 110% of the present value of the difference between: (a) the interest on the amount prepaid for the remaining term to the next Interest Change Date, as determined by the Current Index, and (b) the interest on the same amount for the remaining term to the next Interest Change Date, as determined by the Index in effect for that maturity on the day prepayment is made. SECTION 3. THE REVOLVING LINE OF CREDIT 3.01 (a) Upon the terms and subject to the conditions of this Agreement, Bank agrees to lend and relend to the Borrower from time to time during the period from and including the date hereof through April 30, 1992, as requested by the Borrower in accordance with the terms of subsection 3.01(b) below, amounts which in the aggregate at any one time outstanding do not exceed Five Hundred Thousand Dollars ($500,000) (the "Revolving Line of Credit"). (b) The Borrower may notify the Bank at any time of its intention to borrow under the provisions of subsection 3.01(a) above. (c) The Bank will disburse the amount of such borrowing at its main office in lawful money of the United States of America by credit to an account of the Borrower maintained at such office. 3.02 The Revolving Line of Credit will be evidenced by a promissory note made by the Borrower payable to the order of the Bank in the form of Exhibit B attached hereto (the "Revolving Line of Credit Note"; such term shall also apply to any extensions, renewals, modifications, or replacements thereof; the Revolving Line of Credit Note and the Term Note are sometimes hereinafter collectively referred to as the "Notes"), which shall be duly executed by the Borrower. 3.03 (a) The Revolving Line of Credit Note shall bear interest on the unpaid principal balance thereof from time to time outstanding at a rate which shall be a floating rate equal to one percentage point (1.0%) above the Bank's "Base Rate", which rate shall change and be adjusted simultaneously with any changes in the Base Rate during the period the Revolving Line of Credit is outstanding. The Bank's Base Rate is the rate published by the Bank from time to time as such and is not necessarily the best or lowest rate charged by the Bank. EXHIBIT 4.11 (b) Interest shall be payable at the aforesaid rate(s) on the outstanding principal balance of the Revolving Line of Credit, both before and after maturity, by acceleration or otherwise, whether or not judgment is rendered hereon, until paid in full. Interest shall be computed on the basis of a year of 360 days, and shall be payable monthly in arrears, on the first day of each month, for the actual number of days in each month commencing on the first such date after the Bank first advances funds hereunder. 3.04 The Borrower may prepay the principal balance outstanding under the Revolving Line of Credit Note from time to time, in full or in part, without penalty. 3.05 In the event that any payment due under the Revolving Line of Credit Note or the Term Note, whether of principal, interest, or otherwise, is not received by the Bank within fifteen (15) days from the date on which it is payable, (a) the unpaid and outstanding balance of the Revolving Line of Credit Note shall bear interest, from the date on which the overdue payment was originally payable, at a rate which is three (3) percentage points in excess of the applicable rate as set forth in Section 3.03(a), above (the "line of credit default rate"), and (b) the Bank shall charge and collect (in addition to interest at the line of credit default rate) a late charge equal to 5% of the overdue payment. 3.06 Unless the term of the Revolving Line of Credit is extended by the Bank in the Bank's sole discretion, the Borrower shall, on April 30, 1992, make one final payment to the Bank in the amount of the then outstanding principal balance of the Revolving Line of Credit Note, with all accrued and unpaid interest and any other sums then due and owing thereunder. SECTION 4. USE OF LOAN PROCEEDS 4.01 The proceeds of the Term Loan shall be used by the Borrower exclusively for the refunding of the Borrower's existing $1,600,000 indebtedness to the Bank and to proceed with ongoing capital improvements to the Borrower's utility plant. 4.02 The proceeds of the Revolving Line of Credit shall be used by the Borrower exclusively to fund the Borrower's working capital needs. SECTION 5. MORTGAGE AND SECURITY INTEREST 5.01 To secure the prompt payment and performance of the Loan, and each portion thereof, the Borrower by these EXHIBIT 4.11 presents does hereby pledges, assigns, transfers, and grants to the Bank security interests in all of the real property, tangible and intangible personal property, and all the corporate rights and franchises, income, licenses, permits, privileges and easements of the Borrower, including, but without limiting the generality of the foregoing, all of the real estate, lands, premises and other property hereinafter described, with all of the buildings and improvements thereon and all of the hereditaments appurtenant thereto; and all machinery, engines, implements, equipment, pipe lines, conduits, aqueducts, dams, reservoirs, wells, fences, structures, fixtures and appurtenants; and all mill privileges, rights in or to the diversion of water, riparian and shore rights, releases of damages, flowage rights and easements, whether now owned, used or enjoyed, or hereafter acquired, owned or enjoyed by the Borrower (all of the foregoing, with all other property and rights and interests in property intended to be hereby conveyed, mortgaged, transferred and assigned, or at any time conveyed, mortgaged, transferred, assigned or delivered, and all money paid to and from time to time held by the Bank and all proceeds of any of the foregoing at any time conveyed, mortgaged, transferred, assigned, paid and/or delivered to and from time to time held by the Bank all of which being herein generally called, collectively, the "Property"), the Property including, but without limiting the generality of the foregoing, the following property: (a) All real estate, land and premises and all rights and interests therein, situated in several towns named and described in the instruments set forth in Exhibit C-1 attached hereto, the Borrower hereby agreeing to execute and file in the office of the Secretary of the State in accordance with Section 49-5 of the Connecticut General Statutes an Open End Mortgage Deed and Security Agreement in the form of Exhibit D attached hereto with respect to all of the Borrower's Property, including but not limited to such real property; and (b) all water supply, transmission and distributing mains, conduits and pipes of the Company, and all meters, service pipes, hydrants, hydrant connections and other appliances and apparatus physically connected with said mains, conduits and pipes as including, but not limiting the generality of the foregoing the property set forth on Exhibit C-2 attached hereto; and (c) all machinery, pumps, dams, generators, engines, implements, boilers, equipment and systems and other similar tangible personal property of the Company, including but not limiting the generality of the foregoing the property set forth on Exhibit C-3 attached hereto; and (d) all intangible property of the Borrower, including without limiting the generality of the foregoing, all accounts and accounts receivable of the Borrower; and (e) all after--acquired real and personal property and rights and interests therein, of whatever nature. 5.02 All of the foregoing security interests, rights of assignment, rights as a contracting party, and other rights, powers and privileges granted, given, conveyed and/or assigned to the Bank as described above will be senior and prior interests and rights, not subject to or junior in order of priority or preference to any competing or derogating interests or rights in or to the property or subject matter to which they pertain except as set forth on Exhibit G, attached hereto and made a part hereof. EXHIBIT 4.11 5.03 The Borrower expressly agrees to provide the Bank, upon request, and in form and substance acceptable to it, with such mortgages, security agreements, financing statements, specific contract assignments or other instruments of assignment, conveyance or memoranda of transfer, including consents of other contracting parties, as may be deemed by it to be reasonably necessary to acquire or perfect the Bank's interests in the security described above. 5.04 Until the occurrence of an Event of Default as defined hereunder, the Borrower shall have full right and authority to possess, maintain, utilize and enjoy all property and interests in property, both real and personal, and tangible and intangible, including funds, which are in any way subject to a security interest or rights as a secured party or otherwise pursuant to the terms of this Agreement or pursuant to any other instrument of security contemplated herein. SECTION 6. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Bank that, as of the date hereof: 6.01 The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. The Borrower has the requisite corporate power and authority and all necessary franchises, licenses and permits to own and operate its properties and to carry on its business as now conducted, and to enter into and bind itself to the terms of this Agreement, the Notes, and all other agreements and instruments contemplated herein, in the manner described herein, without any further or additional action of any of its directors or shareholders or other bodies or authorities. 6.02 The execution and delivery of this Agreement, the Notes, and the evidence of security contemplated herein, will not contravene any term, condition or provision of the Borrower's Certificate of Incorporation or Bylaws, or any other contract, agreement, indenture, undertaking or obligation to which the Borrower is a party or by which the Borrower or any of its assets are bound. 6.03 All governmental consents, permissions and approvals necessary to the actions required of the Borrower under the terms of this Agreement or to the conduct of the Borrower's business have been received, and are in full force and effect, and there exist no facts which would, or with notice or the passage of time or both would, cause a suspension or revocation of any such consent, permission or approval except as indicated in writing to the Bank prior to the date hereof. 6.04 The Borrower is not a party to nor is it in any way obligated under any material contract, operating arrangement, lease or other undertaking of any nature whatsoever except for this Agreement and such leases, arrangements, contracts and other EXHIBIT 4.11 obligations listed in Exhibit E attached hereto. 6.05 The Borrower has no obligation to any person or party for any broker, finder or commission fee with respect to this Agreement. 6.06 There are no claims, actions or administrative proceedings pending or threatened against the Borrower except as listed in Exhibit F attached hereto and made a part hereof. 6.07 The Borrower has good title to all of its properties and assets free and clear of all liens, claims, security interests, or other encumbrances, except as set forth and described in Exhibit G attached hereto and made a part hereof. 6.08 This Agreement, the Notes, and the other documents and instruments contemplated herein constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms. 6.09 The Borrower is in compliance with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, including without limitation, all orders set forth in that certain decision of the Connecticut Department of Public Utility Control in its Docket No. 89-11-14, dated May 23, 1990 entitled "Application of the Unionville Water Company for an Increase in Rates and Approval of Changes to its Rules and Regulations. 6.10 Exhibit J is a copy of the summary plan description of Borrower's sole employee benefit plan for its employees within the meaning of Sections 3 (1) and 3 (2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (hereinafter referred to as the "Plan"). The Plan has been administered and operated in accordance with its terms and applicable law, and is "qualified" within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Plan has not, at any time: (i) engaged in any "prohibited transaction," as such term is defined Section 4975 of the Internal Revenue Code of 1986, as amended, or described in Section 406 of ERISA; (ii) incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA, whether or not waived. 6.11 The Borrower is not and will not be engaged as one of its activities in the business of extending credit for the purpose of purchasing or carrying margin stocks or margin securities (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Loan will be applied for the purpose of purchasing EXHIBIT 4.11 or carrying or trading in any such stocks or securities or refinancing any credit previously extended, or of extending credit to others, for any such purpose. 6.12 (a) The balance sheets of the Borrower as at December 31, 1989, and the related statements of income and expense for the period ending December 31, 1989, copies of which have been heretofore furnished to the Bank, are all complete and correct in all material respects and fairly present the financial condition and results of operations of the Borrower as at the date and for the period referred to and were prepared in accordance with generally accepted accounting principles, applied on a consistent basis throughout the period and from period to period. There are no material liabilities of the Borrower, fixed or contingent, which are not reflected in such financial statements or in the notes thereto, other than liabilities arising in the ordinary course since December 31, 1989. Since December 31, 1989, there has not occurred any material adverse change in the financial condition or operations of the Borrower. 6.13 The representations and statements made by or on behalf of the Borrower in connection with this Agreement, the Loan and the negotiation thereof, including but not limited to those set forth in this Agreement, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the representations and statements made not misleading. No information, exhibit, report, brochure or financial statement furnished by either Borrower to the Bank in connection with the Loan and its negotiation contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading. 6.14 All of the Borrower's tax returns and reports, if any, required by law to be filed have been duly filed, all taxes shown as due thereon have been paid, and the Borrower has no knowledge of any proposed liability for any tax relating to its transactions, operations or income earned or accrued prior to the date hereof which might be imposed upon it. 6.15 As of the date hereof, no event has occurred and no condition exists which, with the passage of time or the giving of notice or both, would constitute an Event of Default (as defined herein). The Borrower is not in violation of any material term of any agreement, charter instrument, bylaw, or other instrument to which it is a party or by which it or any of its property may be bound. 6.16 The Borrower is, and will be upon consummation of the transactions contemplated by this Agreement, solvent, meaning that the Borrower has and will have assets in excess of its liabilities, and the Borrower is and will be able to pay its debts as they mature. 6.17 The Property of the Borrower set forth in Exhibits C-1, C-2 and C-3 represent all of the real property owned by EXHIBIT 4.11 the Borrower and substantially all of the Borrower's utility plant and equipment used and useful in its water supply and distribution business. SECTION 7. AFFIRMATIVE COVENANTS From and after the date hereof, and continuing so long as any portion of the Loan remains unpaid or the Borrower is entitled to borrow hereunder: 7.01 The Borrower (a) will preserve and keep in full force and effect its legal existence as a corporation, (b) will preserve and keep in full force and effect all franchises, licenses and permits necessary to the proper conduct of its business, and, with respect thereto, shall make in a timely manner and diligently pursue all applications for renewals or extensions of such licenses and permits as are necessary under applicable law and regulation and shall keep the Bank fully informed of the expiration date or review date of all permits and licenses and the steps being taken by the Borrower in connection therewith, (c) will remain in the business in which it is now engaged, (d) will maintain and preserve and keep its properties and equipment, whether owned in fee or otherwise, in good repair and working order, normal wear and tear excepted, and (e) from time to time will make all necessary repairs, replacements, renewals and additions thereto so that at all times its properties and equipment will be efficiently maintained and operated. 7.02 The Borrower will promptly pay and discharge or cause to be paid and discharged all lawful taxes, assessments and governmental charges or levies imposed upon the Borrower or in respect of all or any part of the properties and business of the Borrower; will promptly pay and discharge all claims for work, labor or material which if unpaid might become a lien or charge upon any property of the Borrower, provided that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings, and if such contest shall not result, during its pendency, in the levy or foreclosure of any lien against the property in question or expose the Bank or the Borrower to criminal prosecution, and provided, further, that the Borrower shall in such event set aside on their books reserves deemed by it to be adequate with respect thereto. 7.03 The Borrower shall keep all of its properties, real and personal, adequately insured at all times with such responsible insurance carriers and to such limits and with such deductibles as may be ordinarily maintained by others engaged in EXHIBIT 4.11 the same or similar business as the Borrower against loss or damage by fire and other hazards. The Borrower shall, at its expense, at all times maintain adequate insurance with responsible insurance carriers ordinarily maintained by others engaged in the same or similar business as the Borrower against liability on account of damage to persons and property and under all applicable Workers' Compensation Laws, and shall maintain adequate insurance covering such other risks as the Bank may reasonably from time to time require. The Borrower shall, at its expense, keep and maintain comprehensive liability insurance against hazards and risks ordinarily insured against and ordinarily maintained by other users of similar properties and by others engaged in the same or similar business as the Borrower, provided that in no event shall any such insurance provide for limits of liability of less than $1,750.000 per claim or $2,500,000 in the aggregate. All insurance covering the Collateral shall provide that, in the case of each separate loss, the full amount of insurance proceeds with respect thereto shall be payable to the Bank as its interests may appear; the Bank shall either apply such proceeds toward repayment of the Loan, or, at its option, make such proceeds available to the Borrower, in stages as the work progresses, for restoration of the loss or for such other purposes as the Bank may agree. If the Bank chooses to apply such proceeds toward repayment of the Loan, all such proceeds shall be applied in reduction of the Loan against payments coming due in the inverse order of their maturity. All such insurance policies shall provide for at least thirty (30) days' notice to the Bank prior to any cancellation or material modification thereof. Such policies of insurance shall provide that the rights of the Bank shall not be invalidated or affected by any act, omission, or neglect of the Borrower or any of their agents or employees. Prior to the making of the Loan hereunder the Borrower will deliver to the Bank copies of all such policies or certificates showing that the proceeds of all such insurance (other than the Workers' Compensation insurance) are payable to the Bank in accordance with this Section. 7.04 The Borrower shall provide the Bank, within 30 days after any such request, with any and all financial information or data pertaining to the operation of the business of the Borrower, the status of its accounts, and its financial condition. In addition, and without limiting the generality of the foregoing, the Borrower shall furnish to the Bank: (a) as soon as available and in any event within 30 days after the end of each fiscal quarter of the Borrower, copies of the balance sheet of the Borrower as at the end of such quarter and of the related statements of income and expense of the Borrower for such quarter and for the elapsed portion of the current fiscal year of the Borrower ended with the last day of such quarter, all in reasonable detail and with appropriate notes, if any, and all prepared and certified as complete and correct in all material respects by the President of the Borrower subject to year-end review adjustments; (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, copies of the balance sheet of the Borrower as at the end of such fiscal year and of the related statements of income and expense of the Borrower for such fiscal year, all in reasonable detail and with appropriate notes, if any, stating in comparative form the figures as at the end of and for the preceding fiscal year. The financial statements of the Borrower furnished hereunder shall be accompanied by an unqualified opinion of a firm of a certified public accountant of recognized standing, selected by Borrower EXHIBIT 4.11 and reasonably acceptable to the Bank stating that such financial statements present fairly the financial condition of the Borrower and have been prepared in accordance with generally accepted accounting principles consistently applied; (c) concurrently with the financial statements furnished pursuant to subsections (a) and (b), a certificate of the President of the Borrower to the effect that in his opinion, based upon a review made under his supervision, the Borrower has performed and observed all of, and is not in default in the performance or observance of any of, the terms, covenants and conditions of this Agreement, the Notes, and the other agreements and instruments contemplated in this Agreement, or, if such is not the case, specifying all such defaults or failures and the nature thereof of which the signer of such certificate may have knowledge and stating the action proposed to be taken in respect thereof; (d) concurrently with each of the financial statements furnished pursuant to subsection (b) a certificate of the aforesaid independent public accountants certifying to the Bank that they have reviewed and are familiar with the terms of this Agreement and all other agreements delivered in connection herewith and that based upon their examination of the affairs of the Borrower performed in accordance with such audit they are not aware of the occurrence or existence of any Event of Default or any event or condition which with the passage of time or the giving of notice or both would constitute an Event of Default, or, if they are aware of any such Event of Default, condition, or event, the nature thereof; (e) copies of all financial statements and reports which the Borrower shall send or make available generally to any of its shareholders, copies of all statements, reports and materials furnished under any note or credit agreement or other instrument (other than this Agreement) creating or providing for the creation of any indebtedness of the Borrower for borrowed money, and copies of all regular and periodic or other reports which the Borrower may be required to file with any borough or municipality or any federal or state regulatory agency and such other information relating to the business, affairs and financial condition of the Borrower as the Bank from time to time may reasonably request. All financial statements furnished under the foregoing requirements shall be prepared in accordance with generally accepted accounting principles, except as otherwise permitted herein. Throughout this Agreement, references to "indebtedness" of any person shall, unless otherwise specified, mean and refer to all obligations of such person (i) for money borrowed or (ii) incurred in connection with the acquisition of property or assets, including without limitation trade obligations incurred to suppliers in the ordinary course of business, in either case whether incurred directly or by guarantee and which in accordance with generally accepted accounting principles should be classified on a balance sheet of such person as a liability of such person whether secured or unsecured and, if secured, whether or not the person has assumed or become liable for its payment and whether or not the lender's, seller's, or lessor's remedies on default are limited to the sale or repossession of the property or asset subject to the mortgage, lien, pledge, charge, security interest created by any conditional sale agreement, capital lease or other title retention agreement securing the indebtedness. EXHIBIT 4.11 7.05 The Borrower shall retain independent accountants who shall be certified public accountants of recognized standing in the financial community so long as any portion of the Loan remains unpaid or the Borrower is entitled to borrow hereunder, who shall be acceptable to the Bank, which acceptance will not be unreasonably withheld. The Bank shall have the right upon reasonable notice to the Borrower to confer in the Bank's discretion with Borrower's independent accountants at any time upon any matters involving the Borrower's financial condition, and such accountants as a condition of their retention by Borrower are hereby authorized to discuss fully and disclose all such matters with and to the Bank. 7.06 The Borrower shall allow, and the Bank shall have the right, in the Bank's discretion, to inspect during normal business hours the books, records and accounts of the Borrower and any of the properties of the Borrower, real, personal, tangible or intangible; to verify or obtain any desired information regarding insurance coverage thereon from insurance carriers; to discuss the affairs, finances, and accounts of the Borrower, with the officers thereof and with contracting parties thereof at such reasonable times as the Bank may desire. 7.07 The Borrower at all times will maintain and conduct its operations in accordance in all material respects with the requirements of all local ordinances including zoning, health and environmental laws. The Borrower will at all times maintain and conduct its operations in accordance in all material respects with all appropriate laws, rules and regulations of any federal, state or local regulatory agency or any other body having jurisdiction over the premises including without limitation the Connecticut Department of Public Utility Control, the Connecticut Department of Health Services and the Connecticut Department of Environmental Protection. 7.08 The Borrower will reimburse the Bank at the closing of the transactions contemplated herein for the Bank's out-of-pocket disbursements and for costs, including attorneys' fees, associated with the preparation for and consummation of this Agreement, other documents required hereunder, and the closing contemplated hereunder. 7.09 The Borrower shall, at its cost and expense and upon the request of the Bank, within ten (10) days after the Bank so requests, duly execute and deliver such further instruments or documents and shall do or cause to be done such further acts as may be necessary or proper in the opinion of the Bank to implement, perfect, or maintain the perfection of the provisions and purposes of this Agreement. 7.10 The Borrower shall maintain all bank accounts with the Bank. 7.11 With respect to the Plan, and any "employee pension benefit plan" within the meaning of, and subject to, the Employee Retirement Income Security Act of 1974 ("ERISA"), adopted by the Borrower, such plan or plans shall be maintained EXHIBIT 4.11 in accordance with all material applicable provisions of ERISA, and the Borrower will not permit, at any time, such plan or plans to: (i) engage in any "prohibited transaction", as such term is defined in Section 4975 of the Internal Revenue Code of 1986, as amended, or described in Section 406 of ERISA; (ii) incur any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, whether or not waived; or (iii) terminate under circumstances which the Borrower would have reason to expect would result in the imposition of a lien on the property of the Borrower pursuant to Section 4068 of ERISA. 7.12 The Borrower shall reimburse the Bank within thirty (30) days after demand by the Bank, together with interest at the default rate, for any sums which the Bank has advanced or expended for the payment of taxes or assessments levied on or against the property of the Borrower or to obtain the discharge of any liens or encumbrances against such property or to pay for premiums on insurance which the Borrower is required to maintain; all of which advances or expenditures the Bank is hereby expressly authorized to make without prior request from or notice to the Borrower and without waiving any Event of Default hereunder. 7.14 The Borrower shall notify the Bank immediately upon becoming aware of the occurrence or creation of any Event of Default (as defined herein) or any condition which, with the passage of time or the giving of notice or both, would constitute an Event of Default. SECTION 8. NEGATIVE COVENANTS OF BORROWER So long as any portion of the Loan remains unpaid and outstanding or the Borrower may borrow hereunder, the Borrower will not, without the express written consent of the Bank: 8.01 Merge into or consolidate with, acquire or be acquired by, any other firm, corporation or other entity, or acquire all or substantially all the assets of any other firm, corporation or other entity. 8.02 Sell, lease or otherwise dispose of any substantial portion of its assets. EXHIBIT 4.11 8.03 Permit any liens, charges or encumbrances to be lodged upon or against, or to remain upon or against, any of the Borrower's properties or pledge or grant a security interest in any of its properties, except (a) the liens granted pursuant to this Agreement; (b) the liens referred to in Section 6.07 and set forth and described in Exhibit G; (c) liens for taxes not yet due; and (d) such liens for taxes, assessments and other charges as may be contested in good faith, provided that during the pendency of such contest neither the Borrower nor the Bank shall be exposed to criminal prosecution and no enforcement of any lien shall take place, and further provided that during such pendency adequate reserves against charges ultimately due shall be maintained. 8.04 In case any property is subjected to a lien in violation of Section 8.03, the Borrower will forthwith make or cause to be made provision whereby the Loan will be secured equally and ratably with all other obligations secured by such lien, and in any case the Bank shall have the benefit, to the full extent that, and with such priority as the Bank may be entitled thereto under applicable law, of an equitable lien on such property securing the Loan. Such violation of Section 8.03 shall constitute an Event of Default hereunder, whether or not any such provision is made pursuant to this Section. 8.05 Undertake any business ventures significantly different from those currently conducted by the Borrower. 8.06 Dissolve or change its present business form. 8.07 Permit or suffer any suspension or revocation of, or any impairment of the benefits of, any franchise, license, permit, or certificate issued by any governmental agency or subdivision, the maintenance of which is necessary to the conduct of Borrower's business or any portion thereof. 8.08 Make any loan or advance to any person, firm, corporation or association or any other individual or entity including any shareholder (all of which are hereinafter collectively called "person") or assume or guarantee or otherwise in any way become responsible for obligations of any person, whether by agreement to purchase the indebtedness of any person, or agreement for furnishing of funds to any person through the purchase of goods, supplies or services or by way of stock purchases, capital contributions, advances or loans for the purpose of payment or discharging the indebtedness of any person or otherwise, or have or incur any other contingent liabilities, except in the ordinary course of business. 8.09 Incur, create, assume or permit to exist any indebtedness, or liability on account of advances or credit or leases (operating or capital), or any liability evidenced by notes, bonds, debentures or similar obligations except (a) the Loan contemplated herein, any renewal or extension thereof, and any other indebtedness to the Bank, (b) those leases, arrangements, contracts and other obligations set forth on Exhibit E attached hereto and made a part hereof, (c) liabilities incurred in connection EXHIBIT 4.11 with depositing checks and other negotiable instruments acquired in the normal course of business, and (d) current operating liabilities (other than for borrowed money) incurred in the ordinary course of business. 8.10 Directly or indirectly, purchase or acquire or otherwise have any interest in the obligations or stock of, or any other debt or equity interest in, any other person, firm, corporation, joint venture or other enterprise whatsoever except (a) direct obligations of the United States of America or (b) marketable certificates of deposit, time deposits, repurchase agreements, or commercial paper issued or undertaken by the Bank. 8.11 Permit any amendment of the Certificate of Incorporation or Bylaws of the Borrower. 8.12 Purchase any assets other than in the ordinary course of the Borrower's business. SECTION 9. CONDITIONS PRECEDENT The Bank shall not be obligated to make any advance hereunder, unless and until each and every one of the following Conditions Precedent shall be met, fulfilled and completed to the Bank's full satisfaction or, in its sole discretion, accepted as modified or waived: 9.01 All necessary steps to sustain or perfect the security interests and assignments of security in connection with the security interests granted herein shall have been completed to the Bank's satisfaction, and the Bank shall have received the aforementioned documents in form and substance satisfactory to the Bank. 9.02 Except as set forth in Exhibit F, there shall be no litigation or administrative proceeding pending or threatened against the Borrower, which, if decided adversely to the Borrower, would have, in the reasonable judgment of the Bank, a materially adverse effect on the business, properties or assets of the Borrower. 9.03 Except as set forth in Exhibit G, there shall be no liens, mortgages, encumbrances, assessments or other charges against the Borrower or any of the Borrower's properties, real or personal, other than those expressly permitted by this Agreement, or as may have been consented to by the Bank. 9.04 The Bank shall have received an opinion from Wollenberg, Scully & Nicksa in form and substance substantially EXHIBIT 4.11 as set forth in Exhibit H. 9.05 The Borrower shall have delivered to the Bank an Officer's Certificate in the form and substance as set forth in Exhibit I. 9.06 The Borrower shall have paid the fees of the Bank's legal counsel in connection with the preparation, negotiation and execution of this Agreement and the documents contemplated herein. 9.07 The Borrower shall have delivered to the Bank a mortgagee's policy of title insurance upon all real property of the Borrower in an amount not less than the lesser of the principal amount of the Loan or the fair market value of such real property. 9.08 The Borrower shall be in compliance with all other terms and conditions of this Agreement. SECTION 10. CLOSING 10.01 The parties will convene at a closing for the purposes of satisfying all of the Conditions Precedent of this Agreement. The closing is being held on the date of this Agreement, at the offices of the Bank. SECTION 11. DEFAULT 11.01 The Borrower shall be (unless waived by the Bank in writing) in default with respect to the Loan upon the occurrence of any of the following events, each of which shall be deemed to be an Event of Default for the purposes of this Agreement: (a) Failure to pay any installment of principal or interest of the Notes on the due date thereof. (b) Failure of the Borrower or the Guarantor to perform or satisfy any condition, undertaking, agreement or covenant stated to be performed or satisfied by it under the terms of this Agreement or under the terms of the Notes or any other agreement, document or instrument entered into at any time in connection with the Loan, provided, however, that the Bank will not exercise any of the rights which it may have by virtue of a failure to perform or a failure to satisfy any of the covenants contained in Sections 7.02, 7.04, 7.05, 7.07, 7.11, 8.03, or 8.04 hereof unless the Borrower has failed to cure any such failure EXHIBIT 4.11 within thirty (30) days after notice from the Bank of the failure, provided further, however, that the Bank will not exercise any of the rights which it may have by virtue of a failure to perform or a failure to satisfy any of the covenants contained in Sections 7.01(b) or 8.07 hereof unless the Borrower has failed to apply to the appropriate court or other authority, within ten business days after becoming aware of the failure to perform or satisfy such covenant, for a stay of the suspension, forfeiture, lapse, revocation or impairment of that Borrower's licenses, certificates, permits, franchises or other operating rights or such court or other authority has, within thirty business days from such failure to perform or satisfy, not issued such stay or any such stay, once having been issued, subsequently ceases to be in effect. (c) Any representation or warranty made in this Agreement or in any writing furnished in connection herewith proves to be incorrect or inaccurate or incomplete in any material respect as of the date it was made or given. (d) The Borrower shall fail for a period of thirty (30) days to discharge any attachment, levy, garnishment, lien or other distraint (not permitted by this Agreement), whether by judgment or otherwise, on any of its properties, real or personal. (e) The Borrower shall be in default or breach of any material provision of any lease, agreement, contract or other undertaking entered into by the Borrower in the course of the conduct of its business which, in the Bank's reasonable discretion, is deemed to be material to the operations or conduct of business by the Borrower. (f) Dissolution, termination of existence or insolvency of the Borrower, or its inability or failure to pay its debts generally as they mature, or appointment of a receiver of any portion of its properties, or a common law assignment or trust mortgage for the benefit of its creditors, or the filing of a petition in bankruptcy or the commencement of any proceeding under any bankruptcy or insolvency laws or any law relating to the relief of debtors (state or federal) by or against the Borrower, or readjustment of its indebtedness, reorganization, or composition, by or against and with or without the consent of the Borrower provided, however, that with respect to the commencement of any proceeding under the bankruptcy or insolvency laws brought against the Borrower by a third party, such commencement shall not constitute an Event of Default if such proceeding is dismissed within sixty (60) days from its commencement. 11.02 Upon the occurrence of any Event of Default as described herein, the Bank may, in its sole discretion, declare the principal balance of the Notes, together with all interest and other charges, to be immediately due and payable, whereupon the maturity of the then unpaid balance of principal of the Notes shall be accelerated, and the same, together with all unpaid interest accrued thereon, and costs of collection including reasonable attorneys' fees, shall be immediately due and payable without any demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the Notes to the contrary notwithstanding. 11.03 In the event that any one or more of the Events of Default as described herein shall occur, the Bank may proceed to protect and enforce its rights by suit in equity or by action at law or both, whether for the specific performance of any EXHIBIT 4.11 covenant, agreement or other provision herein contained, or contained in the Notes, or in any document or instrument delivered in connection herewith or otherwise, including, but not limited to, the Notes and the Open End Mortgage. 11.04 No right or remedy herein conferred upon the Bank is intended to be exclusive of any other right or remedy contained in the Notes or in this Agreement or in any instrument or document delivered in connection herewith, and all such rights and remedies shall be cumulative and shall be in addition to every other such right or remedy contained herein or therein or now or hereafter existing at law or in equity or by statute or otherwise. 11.05 No course of dealing between the Bank and either Borrower nor any failure or delay by the Bank to exercise any right, power or privilege hereunder shall operate as a waiver of such right, power or privilege, or be construed to prevent the further or future exercise of the same or any other right, power or privilege. 11.06 The Borrower will pay all of the Bank's costs and expenses of collection of the Notes and of the enforcement, protection, and realization upon any security afforded under this Agreement or any instrument of security delivered hereunder, including reasonable attorneys' fees, and may take judgment for all such amounts in any applicable action, in addition to the other amounts of unpaid principal and interest, or other items to which it may be entitled to judgment. SECTION 12. MISCELLANEOUS 12.01 No modification, amendment or waiver of any term or condition of this Agreement, and no consent by the Bank to any departure therefrom, shall be effective unless the same shall be in writing signed by a duly authorized representative of the Bank, and the same shall then be effective only for the period and upon the specific conditions recited in such writing. 12.02 (a) This Agreement, the Notes, and any and all other instruments and documents contemplated herein shall be governed by, and construed and enforced in accordance with, Connecticut law. (b) The Borrower hereby waives trial by jury in any action or proceeding of any kind or nature in any court in which an action may be commenced arising out of this Agreement, the Loan, the Notes, or any other instrument or document evidencing or securing the Loan, or any assignment thereof, or by reason of any other cause or dispute whatsoever between the Borrower and the Bank of any kind or nature. The Borrower and the Bank hereby agree that the United States District Court for the District of Connecticut and the Superior Court of the State of Connecticut, in each case located in Hartford County, shall (in EXHIBIT 4.11 addition to such courts as by law are otherwise proper) have jurisdiction to hear and determine any claims or disputes between the Bank and the Borrower, pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Borrower expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in either of such courts, hereby waiving personal service of the writ, summons, complaint, or other process of papers issued therein, and agree that service of such summons and complaint, or other process or papers may be made by registered or certified mail addressed to the Borrower at the addresses of the Borrower (either as set forth in Section 12.03 of this Agreement or as provided to the Bank in writing) or service upon any proper officer or agent as provided by law. 12.03 All notices, requests or other communications required or permitted hereunder shall be in writing and shall be addressed to the Bank, Attention Diane M. Pelletier, Assistant Treasurer, Farmington Savings Bank, 32 Main Street, Farmington, Connecticut 06085, and to the Borrower, The Unionville Water Company, P.O. Box 157, Unionville, Connecticut 06085. 12.04 Should any stamp, excise or other tax become levied against or payable with respect to this Agreement, or any Note, or any modification of the same, or any other document or instrument contemplated hereby, the Borrower shall pay the same and hold the Bank harmless with respect thereto. Should there be any charge for recording, filing or perfection of any document or instrument contemplated hereby, the Borrower will pay the same and hold the Bank harmless with respect thereto. In the event that any law, regulation, treaty or official directive or the interpretation or application thereof by any court or governmental authority or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (i) subjects the Bank to any tax with respect to any amounts payable by the Borrower or otherwise with respect to the transactions contemplated hereunder (except for taxes on the overall net income of the Bank imposed by the United States of America or any political subdivision thereof), or (ii) imposes, codifies or deems applicable any deposit insurance, reserve, special deposit, capital maintenance or similar requirement against assets held by, or deposits in or for the account of, or loans or advances or commitments to make loans or advances by, the Bank to the Borrower (other than such requirements the effect of which is included in the determination of the interest rates for loans or advances made hereunder or in connection with the Notes), or (iii) imposes upon the Bank any other condition with respect to the loans or advances or commitments to make loans or advances made hereunder or under the Notes, and the result of any of the foregoing is to increase the cost to the Bank, reduce the income receivable by or return on equity of the Bank or impose any expense upon the Bank with respect to any loans or advances or commitments to make loans or advances hereunder or under the Notes, the Bank shall so notify the Borrower. EXHIBIT 4.11 The Borrower agrees to pay the Bank the amount of such increase in cost, reduction in income, reduced return on equity or additional expense as and when such cost, reduction in income, reduced return on equity or additional expense is incurred or determined, upon presentation by the Bank of a statement of the amount and setting forth the Bank's calculation thereof (in determining such amount, the Bank may use any reasonable averaging and attribution methods), which statement shall be deemed true and correct absent manifest error. 12.05 The captions of the various Sections hereof have been inserted for the convenience of the parties only and are not intended as limitations upon the text to which they refer. 12.06 This Agreement shall be binding upon the parties hereto, their representatives, successors and assigns; provided, however, that the Bank may assign any of its rights, powers or privileges hereunder at any time. 12.07 This Agreement may be executed in one or more counterparts, each of which shall be an original instrument and all of which together shall constitute one and the same instrument. 12.08 WITHOUT LIMITING OTHER RIGHTS ACCORDED THE BANK HEREUNDER, THE BORROWER HEREBY CERTIFIES THAT THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT IS A COMMERCIAL TRANSACTION AND HEREBY WAIVE ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY DESIRE TO USE. 12.09 The Borrower shall indemnify, defend, and hold harmless the Bank against and in respect of any and all suits, claims, proceedings, damages, and losses (other than as a result of the Bank's negligence or willful misconduct) asserted against or incurred by the Bank and arising out of or resulting from the failure of the Borrower to comply with the provisions of applicable federal, state, and local laws, regulations, and ordinances. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their duly authorized representatives as of the date and year first above written. FARMINGTON SAVINGS BANK By: /s/ Diane M. Pelletier ----------------------- Assistant Treasurer THE UNIONVILLE WATER COMPANY EXHIBIT 4.11 By: /s/ Stephen A. Flis ----------------------- Its President STATE OF CONNECTICUT) ) ss.: Farmington: April 11, 1991 COUNTY OF HARTFORD ) On this date personally appeared before me Diane M. Pelletier, who acknowledged herself to be an Assistant Treasurer of Farmington Savings Bank, a banking corporation existing under the laws of the State of Connecticut, and that she, as such Assistant Treasurer, being authorized so to do, executed the foregoing Revolving and Term Loan and Security Agreement for the purposes therein contained by signing the name of said corporation by herself as Assistant Treasurer. In Witness Whereof, I hereunto set my hand. /s/ Walter C. Nicksa, Jr. ----------------------- Commissioner of the Superior Court STATE OF CONNECTICUT) ) ss.: Farmington: April 11, 1991 COUNTY OF HARTFORD ) On this date personally appeared before me Stephen A. Flis, who acknowledged himself to be President of The Unionville Water Company, a corporation organized under the laws of the State of Connecticut, and that he, as such President, executed the Revolving and Term Loan and Security Agreement for the purposes therein contained by signing the name of the Corporation by himself as President. In Witness Whereof, I hereunto set my hand. /s/ Walter C. Nicksa, Jr. ----------------------- Commissioner of the Superior Court EXHIBIT 4.11 SCHEDULE OF EXHIBITS EXHIBIT A Form of Term Note, Section 2.01. EXHIBIT B Form of Line of Credit, Section 3.02. EXHIBIT C-1 Description of Real Property included in the Property, Section 5.01(a). EXHIBIT C-2 Description of water supply, transmission and distributing monies, etc., Section 5.01(b). EXHIBIT C-3 Description of machinery, pumps, etc., Section 5.01 (c). EXHIBIT D Form of Mortgage Deed, Section 5.01(a). EXHIBIT E Form of Leases, Arrangements, Contracts, etc., Section 6.04. EXHIBIT F List of Claims, Actions, Proceedings, etc. Section 7.06. EXHIBIT G List of Liens and Encumbrances, Section 6.07. EXHIBIT H Form of Opinion of Borrower's Counsel, Section 9.04. EXHIBIT I Form of Officer's Certificate, Section 9.05. EXHIBIT J Employee Benefit Plan, Section 6.10. EXHIBIT 4.11 EXHIBIT A TERM NOTE Farmington, Connecticut $1,900,000.00 Dated: April__, 1991 FOR VALUE RECEIVED, the undersigned, THE UNIONVILLE WATER COMPANY, a public service company with its principal place of business at 30 Mill Street, P.O. Box 157, Unionville, Connecticut 06085 (the "Borrower"), hereby promises to pay to the order of FARMINGTON SAVINGS BANK (the "Bank") the principal sum of One Million, Nine Hundred Thousand Dollars ($1,900,000.00) together with interest thereon from the date hereof on the unpaid principal balance hereof remaining outstanding from time to time at the rate hereinafter provided. The proceeds of this Term Note are to be used exclusively as set forth in the Revolving and Term Loan and Security Agreement of even date herewith between the Borrower and the Bank (the "Loan Agreement"). This Term Note shall bear interest on the unpaid principal balance hereof from time to time as follows: (i) from the date hereof through April 30, 1996, the interest rate shall be _____ percent (___%) per annum; and (ii) effective on May 1, 1996, and on each sixtieth (60th) monthly anniversary date thereafter (each anniversary referred to herein as an "Interest Change Date"), the interest rate shall be increased or decreased to a rate determined by adding two and one-half percentage points (2.5%) (the "Margin") to the most recent Federal Home Loan Bank of Boston Long-Term, Regular, 5 Year, Fixed Rate Mortgage Rate (the "Index"), available forty-five (45) days prior to the Interest Change Date (the Index so used prior to the applicable Interest Change Date shall be referred to as the "Current Index"), rounded to the next highest one-eighth of one percentage point (0.125%). Each new interest rate will be effective beginning on each Interest Change Date. If the Current Index is no longer available, the Bank will use a similar index chosen by it in the exercise of its reasonable discretion. Interest shall be payable at the applicable aforesaid rates on the outstanding principal balance of this Term Note, both before and after maturity, by acceleration or otherwise, whether or not judgment is rendered hereon, until paid in full. Interest shall be computed on the basis of a year of 360 days, and shall be payable monthly in arrears for the actual number of days in each month. The Borrower shall pay to the Bank, on the first day of each month commencing on June 1, 1991 and continuing through May 1, 1996, equal monthly payments of principal and interest in the amount of $___________ which payments are designed to EXHIBIT 4.11 amortize said principal and interest (at the initial rate hereunder) over the period beginning June 1, 1991 and ending at the Final Maturity (as hereinafter defined). Beginning on June 1, 1996, and on each sixtieth (60th) monthly anniversary of that date thereafter (each such date referred to hereinafter as a "Payment Change Date"), the monthly payments of principal and interest shall be adjusted to an amount so as to amortize the remaining balance of the principal and interest hereunder, based upon the current rate of interest applicable at the applicable Interest Change Date immediately preceding the Payment Change Date, within the period measured from the applicable Interest Change Date until the Final Maturity (as hereinafter defined). On May 1, 2011, (the "Final Maturity"), the Borrower shall make one final payment to the Bank in the amount of the then outstanding principal balance of this Term Note, together with all accrued and unpaid interest and any other sums due and owing hereunder. The Borrower may prepay the principal balance outstanding under this Term Note without penalty for the thirty (30) days preceding each Interest Change Date upon thirty (30) days' prior written notice to the Bank. Prepayment made at any other time shall be allowed only upon payment by the Borrower of a "Prepayment Change," which shall be one hundred ten percent (110%) of the present value of the difference between: (a) the interest on the amount prepaid for the remaining term to the next Interest Change Date, as determined by the Current Index, and (b) the interest on the same amount for the remaining term to the next Interest Change Date, as determined by the Index in effect for that maturity on the day prepayment is made. Any payments received by the Bank under this Term Note shall be applied first to any costs, fees, and expenses due hereunder, then to the payment of interest, and finally to the payment of principal. If any payment due hereunder, whether of principal, interest, fees or otherwise, is not received by the Bank within 15 days after the date on which it is payable, (a) the unpaid and outstanding balance of this Term Note shall bear interest, from the date on which the overdue payment was originally payable, at a rate which is three percentage points (3%) in excess of the applicable rate as set forth above (the "default rate"), and (b) the Bank shall charge and collect, in addition to interest at the default rate, a late charge equal to five percent (5%) of the overdue payment. Both principal and interest are payable in lawful money of the United States of America to the Bank at 32 Main Street, EXHIBIT 4.11 Farmington, Connecticut 06032, or at such other address as the Bank designates. This Term Note is executed pursuant to the Loan Agreement, to which reference may be had for a complete description of the terms and conditions of borrowing hereunder, including certain Events of Default and rights of acceleration. The indebtedness described herein shall have the benefit of the collateral described in the Loan Agreement. The loan evidenced by this Term Note was made in, and this Term Note shall be governed by the laws of, the State of Connecticut. The Bank shall have a lien on and, after an Event of Default, an option to set off against, all deposits and other property of the Borrower in the possession or control of or in transit to the Bank, without prior demand or notice, against the indebtedness described herein. This Term Note shall, at the option of the Bank, without necessity for notice to or demand upon the Borrower, become immediately due and payable if any payment of principal or interest on this Term Note is not paid within fifteen (15) days of the date on which it is due, or upon the occurrence of any other Event of Default, as defined in the Loan Agreement. Following default, the interest rate on this Term Note shall increase to the default rate, as that term is defined above. If this Term Note is not paid when due, whether in accordance with the terms hereof, by acceleration or otherwise, the undersigned agrees to pay all the Bank's costs of collection, including reasonable attorneys' fees. No modification, amendment, or waiver of any term or condition of this Term Note, and no consent by the Bank to any departure therefrom, shall be effective unless the same shall be in writing signed by a duly authorized representative of the Bank, and the same shall be effective only for the period and upon the specific conditions recited in such writing. If this Term Note is subject to a law which sets maximum charges, and that law is finally interpreted so that the interest or other charges collected or to be collected with respect to this Term Note exceed the permitted limits, then any such charge shall be reduced by the amount necessary to reduce the charge to the permitted limit. THE BORROWER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS TERM NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, EXHIBIT 4.11 OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY DESIRE TO USE. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED ARISING OUT OF THIS PROMISSORY NOTE. The Borrower hereby waives presentment, demand for payment, protest, notice of protest, and notice of dishonor. IN WITNESS WHEREOF, the undersigned has executed and delivered this Term Note as of the date and year first above written. THE UNIONVILLE WATER COMPANY By _____________________________________ Stephen A. Flis Its President EXHIBIT 4.11 EXHIBIT B REVOLVING LINE OF CREDIT NOTE Farmington, Connecticut $500,000.00 Dated: April ___ , 1991 FOR VALUE RECEIVED, the undersigned, THE UNIONVILLE WATER COMPANY, a Connecticut public service company with its principal place of business at 30 Mill Street, P.O. Box 157, Unionville, Connecticut 06085 (the "Borrower"), hereby promises to pay to the order of FARMINGTON SAVINGS BANK (the "Bank") the principal sum of Five Hundred Thousand Dollars ($500,000.00) or so much thereof as may have been advanced from time to time, together with interest thereon from the date hereof on the unpaid principal balance hereof remaining outstanding from time to time at the rate hereinafter provided. The proceeds of this Revolving Line of Credit Note are to be used exclusively as set forth in the Revolving and Term Loan and Security Agreement of even date herewith between the Borrower and the Bank (the "Loan Agreement"). This Revolving Line of Credit Note shall bear interest on the unpaid principal balance hereof from time to time at a rate which shall be a floating rate equal to one percentage point (1.0%) above the Bank's "Base Rate," which rate shall change and be adjusted simultaneously with any changes in the Base Rate during the period any principal balance under this Revolving Line of Credit Note is outstanding. The Bank's Base Rate is the rate published by the Bank from time to time as such and is not necessarily the best or lowest interest rate charged by the Bank. Interest shall be payable at the aforesaid rate(s) on the outstanding principal payable monthly in arrears, on the first day of each month, commencing May 1, 1991, for the actual number of days in each month. Unless the term of this Revolving Line of Credit Note is extended by the Bank in the Bank's sole discretion, the Borrower shall, on May 1, 1992, make one final payment to the Bank in the amount of the then outstanding principal balance of this Revolving Line of Credit Note, together with all accrued and unpaid interest and any other sums due and owing hereunder. The Borrower may prepay the principal balance outstanding under this Revolving Line of Credit Note from time to time, EXHIBIT 4.11 in full or in part, without penalty. Any payments received by the Bank under this Revolving Line of Credit Note shall be applied first to any costs, fees, and expenses due hereunder, then to the payment of interest, and finally to the payment of principal. If any payment due hereunder, whether of principal, interest, fees or otherwise, is not received by the Bank within 15 days after the date on which it is payable, (a) the unpaid and outstanding balance of this Revolving Line of Credit Note shall bear interest, from the date on which the overdue payment was originally payable, at a rate which is three percentage points (3%) in excess of the applicable rate as set forth above (the "default rate"), and (b) the Bank shall charge and collect, in addition to interest at the default rate, a late charge equal to five percent (5%) of the overdue payment. Both principal and interest are payable in lawful money of the United States of America to the Bank at 32 Main Street, Farmington, Connecticut 06032, or at such other address as the Bank designates. This Revolving Line of Credit Note is executed pursuant to the Loan Agreement, to which reference may be had for a complete description of the terms and conditions of borrowing hereunder, including certain Events of Default and rights of acceleration. The indebtedness described herein shall have the benefit of the collateral described in the Loan Agreement. The loan evidenced by this Revolving Line of Credit Note was made in, and this Revolving Line of Credit Note shall be governed by the laws of, the State of Connecticut. The Bank shall have a lien on and, after an Event of Default, an option to set off against all deposits and other property of the Borrower in the possession or control of or in transit to the Bank, without prior demand or notice, against the indebtedness described herein. This Revolving Line of Credit Note shall, at the option of the Bank, without necessity for notice to or demand on the Borrower, become immediately due and payable if any payment of principal or interest on this Revolving Line of Credit Note is not paid within 15 days after the date on which it is due, or upon the occurrence of any other Event of Default, as defined in the Loan Agreement. Following default, the interest rate on this Revolving Line of Credit Note shall increase to the default rate, as that term is defined above. EXHIBIT 4.11 If this Revolving Line of Credit Note is not paid when due, whether in accordance with the terms hereof, by acceleration or otherwise, the undersigned agree to pay all the Bank's costs of collection, including reasonable attorneys' fees. No modification, amendment, or waiver of any term or conditions of this Revolving Line of Credit Note, and no consent by the Bank to any departure therefrom, shall be effective unless the same shall be in writing signed by a duly authorized representative of the Bank, and the same shall be effective only for the period and upon the specific conditions recited in such writing. If this Revolving Line of Credit Note is subject to a law which sets maximum charges, which law is finally interpreted so that the interest or other charges collected or to be collected with respect to this Revolving Line of Credit Note exceed the permitted limits, than any such charge shall be reduced by the amount necessary to reduce the charge to the permitted limit. THE BORROWER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS REVOLVING LINE OF CREDIT NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY DESIRE TO USE. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION KAY BE COMMENCED ARISING OUT OF THIS PROMISSORY NOTE. The Borrower hereby waives presentment, demand for payment, protest, notice of protest, and notice of dishonor. IN WITNESS WHEREOF, the undersigned has executed and delivered this Revolving Line of Credit Note as of the date and year first above written. THE UNIONVILLE WATER COMPANY By _________________________ EXHIBIT 4.11 Stephen A. Flis Its President EXHIBIT 4.11 EXHIBIT C-1 PARCEL ONE: A certain piece or parcel of land situated on the easterly side of the extension of Knollwood Road in the Town of Farmington, County of Hartford and State of Connecticut and more particularly bounded and described as follows, to wit: Commencing at the northwesterly corner of Lot No. 128 on a map entitled, "Revised map Part Four_Section Four The Highlands Property of Howard L. Menzel, Inc. Farmington, Conn. March 9, 1960 Scale 1"_50' George R. Jenkinson C.E. Revised Sept. 25, 1961", on file in the Town Clerk's Office in said Town of Farmington; thence running easterly along the northerly line of Lot No. 128 and Lot No. 127 as shown on said map, a distance of 291.62 feet; thence running northwesterly in a line making an interior angle with the last described line of 180 5' 00" a distance of 305.08 feet to a point; thence running southerly along a curve to the left with a radius of 158.72 feet a distance of 84.92 feet; thence running southerly along the easterly highway line of Knollwood Road a distance of 11.15 feet to the point or place of beginning. PARCEL TWO: A certain piece or parcel of land, with the buildings and improvements thereon, containing 53.617 acres more or less and sited on the Northeasterly side of the Colt Highway, also known as Route 6, and on the Southerly and Easterly side of Reservoir Road in the Town of Farmington, County of Hartford and State of Connecticut, said parcel is more particularly shown on a map entitled: "Map of Land Owned By Unionville Water Company Colt Highway & Reservoir Road Farmington, Connecticut Scale 1" = 100' September 1986 Certified Substantially Correct in Accordance with Class A--2 of the Code of Recommended Practice For Accuracy of Surveys & Maps. Edward F. Reuber, Surveyor, Hodge Surveying Associates, P.C.", which map is on file in the Farmington Town Clerk's Office and to which reference Is hereby made for a more particular description. PARCEL THREE: Those certain pieces or parcels of land, with the buildings and improvements thereon, situated in the Town of Farmington, County of Hartford and State of Connecticut being shown as "Portion A of Parcel A--3 Area = 1.52 ac." and "Portion B of Parcel A--3 Area = 1.92 ac." on a map entitled "MAP OF FARMINGTON INDUSTRIAL PARK & LAND OF WEST HARTFORD VILLAGE, INC., Et. Al. Farmington & Plainville Connecticut" Scale 1" = 200'_September, 1962, bearing a latest revision date of May, 1978, by the office of Merton Hodge & Assoc., which map is on file in the Farmington Town Clerk's Office and to which reference is hereby made for a more particular description; said premises are bounded and described as follows: Portion A of Parcel A--3 Commencing at a point in the westerly street line of proposed Johnson Avenue, which point is marked by the intersection of the northeasterly corner of land now or formerly of the City of New Britain and the southeasterly corner of the land herein described, as shown on said map; thence running N 77(degree) 38' 30" W, 256.96 feet to a point; thence N 11(degree) 50' 41" W, 241.28 feet to a point; thence S 88(degree) 22' 15" H, 270.95 feet to a point; thence in a curve to the left having a radius of 728.73 feet, a distance of 36.85 feet to a point; thence S 6(degree) 10' E, 248.15 feet to the point and place of beginning. PORTION B OF PARCEL A--3 Commencing at a point 256.96 feet northwest of the westerly street line of proposed Johnson Avenue, which point is marked by the intersection of the southwesterly corner of "Portion A of Parcel A--3" and the southeasterly corner of the land herein described, as shown on said map; thence N 77(degree) 38' 30" W, 97.78 feet to a point; thence N 77(degree) 38' 34" W, 351.80 feet along the Farmington/Plainville Town Line to a point; thence N 22(degree) 11' 12" W, 165.00 feet to a point; thence S 88(degree) 22' 15" E, 452.12 feet to a point; thence S 11(degree) 50' 41" E, 241.28 feet to the point and place of beginning. Said parcels are conveyed together with such easements or rights of way appurtenant thereto as of record appear. PARCEL FOUR: A certain piece or parcel of land, with the buildings and improvements thereon, situated in the Town of Plainville, County of Hartford and State of Connecticut being shown as "Portion C of Parcel A--3 Area = 1.65 ac." on a map entitled "MAP OF FARMINGTON INDUSTRIAL PARK & LAND OF WEST HARTFORD VILLAGE, INC., Et. Al. Farmington & Plainville Connecticut" Scale 1" = 200'_September, 1962, hearing a latest revision date of May, 1978, by the office of Merton Hodge & Assoc., which map is on file in the Plainville Town Clerk's Office and to which reference is hereby made for a more particular description; said premises are bounded and described as follows: Commencing at a point, which point is marked by the intersection of the northwesterly corner of land now or formerly of the City of New Britain and the northeasterly corner of land now or formerly of Angelo Tomasso, Inc., as shown on said map; thence S 83(degree) 33' 30" W, 126.54 feet to a point; thence S 82(degree) 18' W, 112.91 feet to a point; thence N 00(degree) 48' 38" W, 296.60 feet to a EXHIBIT 4.11 point; thence S 77(degree) 38' 34" E, 351.80 feet along the Plainville/ Farmington Town Line to a point; thence S 27(degree) 56' 30" W, 217.29 feet to the point and place of beginning. Said parcel is conveyed together with such easements or rights of way appurtenant thereto as of record appear. PARCEL FIVE: Two certain pieces or parcels of land situated on in the Town of Avon, County of Hartford and State of Connecticut and being shown as Parcels "A" and "B" on a map entitled: "Map of Land To Be Conveyed To The Unionville Water Company Easterly of Huckleberry Hill Road, Avon, Conn. Scale 1" = 50' - February, 1965. Revised April 20, 1965 to Show Addition of Parcel `B'", which map is certified substantially correct by W.F. Grunewald and Edward F. Reuber, Surveyors Merton Hodge & Associates, Engineers and Surveyors and is on file in the Avon Town Clerk's Office, to which reference is hereby made for a more particular description; said parcels are bounded and described as follows: Parcel A Commencing at a point at the southeasterly corner of said parcel, which point marks the southwesterly corner of land now or formerly of Laura Clark; thence running along land now or formerly of Alfred D. and Eleanor L. Bauer N 85(degree) 06' W, a distance of 40.10 feet to a point; thence running along land now or formerly of Dorothy Penny Lee N 85 (degree) 37' N, a distance 64.13 feet to a point; thence running along land now or formerly of Malcolm D. Robertson, being a right of way, N 31(degree) 31' 50" N, a distance of 154.00 feet to a point; thence running along land now or formerly of said Robertson N 62(degree) 34' 50" E, a distance of 97.24 feet to a point; thence running along land now or formerly of said Robertson N 2(degree) 10' 10" E, a distance of 225.00 feet to a point; thence running along land now or formerly of said Robertson N 52(degree) 39' 20" E, a distance of 136.10 feet to a point on the westerly line of land now or formerly of Laura Clark; thence running along land now or formerly of said Laura Clark S 2(degree) 10' 10" W, a distance of 492.12 feet to the point or place of beginning. Said parcel contains 1.25 acres more or less. Parcel B Commencing at the southeasterly corner of land now or formerly of Malcolm D. Robertson, being shown as Parcel "A" on the above described map, which point marks the southwesterly corner of the herein described premises; thence running N 2(degree) 10' 10" E along the easterly line of said Parcel "A" as shown on said map, a distance of 492.12 feet to a point; thence running S 87(degree) 49' E along other land now or formerly of Laura Clark, a distance of 260.00feet to a point; thence running S 2(degree) 10' 10" W along other land now or formerly of Laura Clark, a distance of 504.52 feet to a point on the northerly line of land now or formerly of Alfred D. and Eleanor L. Bauer; thence running along the northerly line of land now or formerly of said Bauers, N 85(degree) 06' W, a distance of 260.30 feet to the point or place of beginning. Said parcel contains 2.97 acres more or less. PARCEL SIX: A certain piece or parcel of land situated on the easterly side of Waterville Road in the Town of Farmington, County of Hartford and State of Connecticut and bounded and described as follows, to wit: Beginning at a concrete monument in the easterly line of Waterville Road, said monument marking the intersection of the easterly line of said road with the southerly line of the right of way of the Board of Water Commissioners of the City of Hartford; thence running southerly along Waterville Road a distance of 45 feet; thence running easterly at right angles to the easterly line of Waterville Road a distance of 60 feet; thence running northerly at right angles to the last mentioned line, a distance of 15.3 feet more or less to the southerly line of the right of way of The Board of Water Commissioners of the City of Hartford, thence running westerly along the southerly line of said right of way a distance of 67 feet more or less to the point and place of beginning. PARCEL SEVEN: A certain piece or parcel of land, with the buildings and improvements thereon, situated on the Northwesterly side of Reservoir Road and the Southwesterly side of Diamond Glen Road in the Town off Farmington, County of Hartford and State of Connecticut; said premises are more particularly bounded and described as follows: Northeasterly by Diamond Glen Road; Southeasterly by Reservoir Road; Southwesterly by land now or formerly of Irwin C. and Helen S. Cowper; and Westerly by land now or formerly of Paul M. and Marilyn J. Ingram.
EXHIBIT 4.11 EXHIBIT C-2 Description of Water Supply, Transmission and Distribution Mains Five gravel packed wells at Chas House and Sons, Inc. well field off Perry Street in the Unionville Section of Farmington, Connecticut, a gravel packed well at Connecticut Sand and Stone site off Farmington Avenue, Farmington, Connecticut, a rock well at Pondwood Acres off Coppermine Road, Farmington, Connecticut, a rock well at Wells Acres off Plainville Avenue, Farmington, Connecticut and four wells at Farmington Industrial Park off Johnson Avenue, Farmington, Connecticut, all interconnected by various transmission mains with three water storage tanks located on Reservoir Road and Colt Highway, Farmington, Connecticut, Farmington Edge, Farmington, Connecticut and Anvil Drive, Avon, Connecticut. Pump houses utilized in connection therewith and pump houses for emergency connections to the Metropolitan District Commission water transmission mains located on Huckleberry Hill Road, Avon, Knollwood Road, Farmington and Waterville Road, Farmington, Connecticut. Approximately 79 miles of cast iron, asbestos cement, galvanized iron, PVC copper tubing and wrought iron transmission and distribution mains. EXHIBIT 4.11 EXHIBIT C-3 Description of Machinery, Pumps, etc. Various liquid chlorinators, water pumps, gas and diesel emergency generators located at the Company's eleven well sites in the Town of Farmington. Approximately 4273 5/8 inch meters, 286 one inch meters, 81 two inch meters and 3 four inch meters; approximately 544 fire hydrants. Various corporations, fittings, gates and boxes, hydrants and parts, service materials, sleeves, and ductile iron pipe. Personal property of the Unionville Water Company, including, but not by way of limitation, all office furniture, furnishings and equipment, computer hardware and software, laboratory and metering equipment, communication equipment, tools, transportation equipment, power operated equipment, and inventory and supplies. EXHIBIT 4.11 EXHIBIT D OPEN-END MORTGAGE AND SECURITY AGREEMENT KNOW YE, that THE UNIONVILLE WATER COMPANY, a Connecticut public service company with offices located at 30 Mill Street, Unionville, Connecticut 06085 (hereinafter called the "Grantor"), for the consideration of One Dollar ($1.00) and other valuable consideration received to its full satisfaction of FARMINGTON SAVINGS BANK, having its principal place of business at 32 Main Street, Farmington, Connecticut 06032 (hereinafter called the "Grantee"), does give, grant, bargain, sell and confirm unto the Grantee, its successors and assigns forever, all of the real property, tangible and intangible, personal property, and all corporate rights and franchises, income, licenses, permits, privileges of the Grantor including, but without limiting the generality of the foregoing (a) all of those certain pieces or parcels of land, with all buildings and improvements now existing or hereafter erected thereon, situated in the Towns of Farmington and Avon, County of Hartford and State of Connecticut, more particularly described in Exhibit A, attached hereto and hereby incorporated herein by reference together with all tangible and intangible personal property of the Grantor including but not limited to all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water, water rights, machinery, pumps, generators, engines, implements, equipment, pipelines, conduits, aqueducts, dams, reservoirs, fences, structures, fixtures and all other personal property of whatever kind and nature necessary or incidental to the proper use of the premises and the business of the Grantor, now located on or hereafter placed upon said premises, all of which are declared and shall be deemed to be fixtures and accessions to the freehold and a part of the realty and shall be covered by this Mortgage and; (b) all water supply, transmission and distributing mains, conduits and pipes of the Grantor, and all meters, service pipes, hydrants, hydrant connections and other appliances and apparatus connected with said mains, conduits and pipes including but not limited to such property described in Exhibit B attached hereto and incorporated herein by reference, (c) all machinery, pumps, generators, engines, implements, boilers, equipment and systems and all other tangible personal property of the Grantor, including but not limited to such property described in Exhibit C attached hereto and incorporated herein by reference, (d) all intangible personal property of the Grantor, including but not limited to Grantor's accounts and accounts receivable, and (e) all after-acquired real and personal property and rights and interests therein, of whatever nature (all property of the Grantor, including without limitation such property as described in paragraphs (a) through (e) above shall be collectively hereinafter referred to as the "Mortgaged Property"); TO HAVE AND TO HOLD the herein granted and bargained Mortgaged Property, with the appurtenances thereof, unto the Grantee, its successors and assigns forever, to its and their proper use and behoof. And also, the Grantor does for itself and its successors and assigns, covenant with the Grantee, its successors and assigns, that, at and until the ensealing of these presents, it EXHIBIT 4.11 is well seized of the Mortgaged Property as a good indefeasible estate IN FEE SIMPLE, and has good right to bargain and sell the same in the manner and form as above written; and the same is free from all encumbrance whatsoever, except for such items listed in the schedules of exception to coverage in the title insurance policy insuring Grantee's interest in the Mortgaged Property issued by the Connecticut Attorneys Title Insurance Company of even date herewith. AND FURTHERMORE, the Grantor does by these presents bind herself and her successors and assigns forever, to WARRANT AND DEFEND the herein granted and bargained Premises to the Grantee, its successors and assigns, against all claims and demands whatsoever, except as above stated. THE CONDITION OF THIS DEED is such that: WHEREAS, (a) to refinance a demand obligation, the proceeds of which were used to fund construction of certain utility plant facilities of the Grantor and (b) to finance the construction of additional utility plant facilities of the Grantor, and to finance the construction of the remainder of the Improvements, the Grantee has agreed to lend the Grantor the sum of One Million Nine Hundred Thousand Dollars ($1,900,000.00), said term loan to be evidenced by the Grantor's term promissory note in the principal amount of One Million Nine Hundred Thousand Dollars ($1,900,000.00) (hereinafter sometimes called the "Term Note"), in the form attached hereto and made a part hereof as Exhibit D; and WHEREAS, to finance the Grantor's working capital needs the Grantor has agreed to lend and relend to the Grantor from time to time, as requested by the Grantor amounts which in the aggregate at any one time outstanding do not exceed Five Hundred Thousand Dollars ($500,000.00), said revolving line of credit to be evidenced by the Grantor's revolving line of credit promissory note in the principal amount of Five Hundred Thousand Dollars ($500,000.00) (hereinafter sometimes called the "Revolving Line of Credit Note") in the form attached hereto and made a part hereof as Exhibit D-l (the Term Note and the Revolving Line of Credit note hereinafter referred to collectively as the "Notes"); and WHEREAS, the Grantor and the Grantee have entered into a certain Revolving and Term Loan and Security Agreement of even date herewith (hereinafter referred to as the Loan Agreement"); and WHEREAS, the Grantor has executed the Notes, the Loan Agreement, and certain other documents, all in favor of the Grantee and dated of even date herewith (which documents are hereinafter collectively referred to as the "Loan Documents"); and WHEREAS, the Grantee desires to secure the prompt payment of the Notes together with interest thereon and any EXHIBIT 4.11 additional indebtedness accruing to it on account of any future payments, advances or expenditures made by it pursuant to the terms hereof or the terms of any of the Loan Documents (all hereinafter sometimes collectively referred to as the "Liabilities"); NOW, THEREFORE, if the Liabilities shall be promptly paid according to their tenor, and all agreements and provisions herein contained are fully kept and performed by the Grantor, then this deed shall be void, otherwise to remain in full force and effect. The Grantor, in order to more fully protect the security of this mortgage deed ("Mortgage"), does hereby covenant and agree that: 1. The Grantor shall pay and perform the Liabilities in accordance with their terms and shall comply with the terms of the Loan Documents and this Mortgage. 2. Grantor shall pay and discharge as the same become due all taxes and assessments that may accrue, be levied, or assessed upon the Premises or any part thereof, or upon Grantee's interest therein or upon this Mortgage or the Liabilities or the Note, without regard to any law heretofore or hereafter enacted imposing payment of the whole or any part thereof upon the Grantee; upon the passage of any law imposing the payment of the whole or any part thereof upon Grantee or upon the rendering of a decision by any court of competent jurisdiction that the undertaking by Grantor to pay such taxes is legally inoperative, then the Liabilities, without deduction, shall, at the option of the Grantee, become immediately due and payable, notwithstanding anything contained in this Mortgage or any law heretofore enacted. Grantor shall pay or cause all such taxes or levies to be paid within ten (10) days after the same are payable and shall provide the Grantee with evidence of such payment within ten (10) days thereafter. Notwithstanding the foregoing, such taxes, levies or assessments may be contested by or on behalf of Grantor in good faith and by appropriate proceedings provided that payments are made to the extent provided by law and that the Grantor has made (in the reasonable opinion of the Grantee) adequate financial provision for any unpaid portion thereof. In the event Grantor, at any time or times hereafter, shall fail to pay any such taxes or assessments or to obtain promptly the discharge of such lien, Grantor shall so advise Grantee thereof in writing and the Grantee may (but shall be under no obligation to do so), without waiving or releasing any obligation or default of Grantor hereunder or any Event of Default hereunder, in its sole discretion, at any time or times thereafter, make such payment, or any part thereof, or obtain such discharge and take any other action with respect thereto which Grantee deems advisable. All sums so paid by Grantee and any expenses, EXHIBIT 4.11 including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be payable by the Grantor, upon demand, and payment of such sums, together with interest at a Contract Rate which is three percentage points (3%) per annum in excess of the rates then in effect under the Notes (which rates shall be computed on the basis of a year of 360 days, but shall be payable for the actual number of days such sums remain unpaid and which rate shall hereinafter be referred to as the "Default Rate") shall be secured hereby to the maximum extent permitted by law. 3. The Grantor, at its sole cost and expense, shall keep and maintain the Mortgaged Property insured for the lesser of its full insurable value or such amounts and with such deductibles as may be ordinarily maintained by others engaged in the same or similar business as the Grantor against all risk of physical loss, including damage by fire, theft, explosion, sprinklers, vandalism, malicious mischief, and all other hazards and risk ordinarily insured against by other owners or users of similar properties and notify Grantee promptly of any event or occurrence causing a material loss or diminution in the value of the Mortgaged Property and the estimated (or actual, if available) amount of such loss or diminution. The Grantor shall also keep and maintain public liability insurance naming the Grantee as an additional insured, in amounts satisfactory to the Grantee. The original or a certified copy of each policy of insurance shall be delivered to Grantee, together with evidence of payment therefor. The original (or certified copy) of any renewal or replacement policies or a certificate thereof shall be delivered to Grantee not less than ten (10) days prior to the expiration of any such policies, together with evidence of payment for such renewal or replacement policies. The provision of such insurance by other persons, such as tenants, does not release the Grantor from the aforesaid obligations. All such policies of insurance shall be subject to the approval of the Grantee with respect to companies, forms, expiration date, and amount, which approval shall not be unreasonably withheld. No changes may be made in the amount of such insurance without Grantee's prior approval, provided that the amount of insurance coverage may be increased without approval of the Grantee. Such policies of insurance shall contain an endorsement, in form and substance satisfactory to Grantee, showing loss payable to Grantee. Such endorsement, or an independent instrument furnished to Grantee, shall provide that the insurance companies will give Grantee at least ten (10) days' prior written notice before any such policy or policies of insurance shall be materially altered or cancelled and that no act or default of Grantor or any other person shall affect the right of Grantee to recover under such policy or policies of insurance in case of loss or damage. Grantor hereby directs all insurers under such policies of insurance to pay all proceeds payable thereunder directly to Grantee. Grantor irrevocably makes, constitutes and appoints Grantee (and all officers, employees or agents designated by Grantee), at the Grantee's sole option, as Grantor's true and lawful attorney (and agent--in--fact) upon the occurrence of, and during the continuation of, an Event of Default, as described in Section 13 hereof, for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Grantor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all EXHIBIT 4.11 determinations and decisions with respect to such policies of insurance. All proceeds received under any insurance policy described herein shall be held and applied, at the Grantee's sole option, towards the repair, restoration or rebuilding of the Premises or towards the Liabilities in such manner as the Grantee shall deem advisable. In the event Grantor, at any time hereafter, shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, then Grantee, without waiving or releasing any obligation or default by Grantor hereunder, or any Event of Default as defined herein, may (but shall be under no obligation to do so) at any time or times thereafter obtain and maintain such policies of insurance and pay such premium and take such other action with respect thereto which Grantee deems advisable. All sums so disbursed by Grantee shall be payable by Grantor on demand, and payment of such sums, together with interest at the Default Rate, shall be secured hereby to the maximum extent permitted by law. 4. The Grantor shall comply, in all material respects, with all agreements to which any portion of the mortgaged Property is subject. 5. During the term of the Notes, the Grantor shall not sell, transfer or convey the Mortgaged Property or any part thereof or any interest, legal or equitable, therein and shall not create or incur or suffer to be created or incurred or to exist any mortgage, lien, or other encumbrance on the Mortgaged Property, except encumbrances as to which Grantee has given its prior written consent. 6. Grantor shall comply with all laws, regulations, or requirements of any governmental agencies relating to the Mortgaged Property, and shall cause any tenant or tenants in the Mortgaged Property to do the same. 7. The Grantee shall not be compelled to release, or be prevented from foreclosing or enforcing this Mortgage upon all or any part of the Mortgaged Property, unless the entire debt and all items hereby secured shall be paid in lawful money as aforesaid; and the Grantee shall not be required to accept any part or parts of the Mortgaged Property, as distinguished from the entire whole thereof, as payment of or upon the said debt to the extent of the value of such part or parts, and shall not be compelled to accept or allow such apportionment of said debt to or among any separate parts of the Mortgaged Property. 8. The Grantor shall immediately pay to the Grantee all sums, including costs, expenses, and reasonable agents' or attorneys' fees, which the Grantee may expend or become obligated to pay in any proceedings, legal or otherwise, to prevent the commission of waste, to establish or sustain the lien of this Mortgage or its priority, or to defend against liens or encumbrances asserting priority to this Mortgage (other than those specifically excepted herein); or in payment, settlement, discharge or release EXHIBIT 4.11 of any such asserted lien or encumbrance made upon advice of counsel that the same is or may be superior or adverse to the lien of this Mortgage; or in connection with any suit to enforce or foreclose this Mortgage; or to recover any sums hereby secured. All such sums so paid by the Grantee shall be payable by the Grantor on demand, and payment of such sums, together with interest at the Default Rate, shall be secured hereby to the maximum extent permitted by law. 9. No delay or failure of the Grantee to exercise any option herein given or reserved shall constitute a waiver of such option or estop the Grantee from afterwards exercising the same or any other option at any time, and the payment or contracting to pay by the Grantee of anything the Grantor has herein agreed to pay shall not constitute a waiver of the default of the Grantor in failing to make said payments and shall not estop the Grantee from foreclosing this Mortgage on account of such failure of the Grantor. The rights, options, powers and remedies herein provided shall be cumulative and no one or more of them shall be exclusive of the other or others, or of any right or remedy now or hereafter given or allowed by law. 10. In the event the whole or any part of the Mortgaged Property shall be taken by the exercise of the right of condemnation or eminent domain or conveyed in lieu thereof to those authorized to exercise such right, or by alteration of the grade of any highway or street or other injury to or decrease in value of the Mortgaged Property, all awards and other monies payable to the Grantor on account of such taking or injury shall be deposited with the Grantee and shall be applied by the Grantee against the Liabilities in such manner as the Grantee shall deem advisable. The Grantee shall have the right to intervene and participate in any proceedings for and in connection with any taking, alteration or injury referred to in this Section 10; provided, however, that if such intervention shall not be permissible or permitted by the Court, the Grantor shall, at its expense, consult with the Grantee, its attorneys and experts and make all reasonable efforts to cooperate with them in any presentation or participation in such proceedings. The Grantor shall not enter into any agreement for the taking of the Mortgaged Property or any part thereof, with any person or persons authorized to acquire the same by condemnation or eminent domain, unless the Grantee shall have consented thereto in writing. For the purpose of effecting the provisions of this Section 10, the Grantor hereby assigns to the Grantee all of its right, title, and interest in and to any and all awards for any occurrences referred to in this Section 10, subject to the provisions of this Section 10 and the provisions of Section 11 hereof. The Grantor hereby covenants and agrees, upon request of the Grantee to make, execute and deliver any and all assignments and other instruments deemed by the Grantee necessary or desirable for the purpose of confirming or further evidencing said assignment by the Grantor of its share of the aforesaid awards to the Grantee, free, clear and discharged of any and all encumbrances of any kind or nature whatsoever created by the Grantor, except as above stated. EXHIBIT 4.11 11. Notwithstanding any taking by eminent domain or conveyance in lieu thereof, alteration of the grade of any highway or street or other injury to or decrease in value of the Mortgaged Property by any public or quasi-public authority or corporation, the Liabilities shall continue to earn interest at the rate agreed upon until any such award or payment shall have been actually received by the Grantee and any reduction in the principal sum resulting from the application by the Grantee of such award or payment as hereinafter set forth shall be deemed to take effect only on the date of such receipt. Said award or payment shall, pursuant to the provisions of Section 10 hereof, at the option of the Grantee, be applied by the Grantee against the Liabilities in such manner as the Grantee shall deem advisable. If prior to the receipt by the Grantee of such award or payment the Mortgaged Property shall have been sold on foreclosure of this Mortgage, the Grantee shall have the right to receive said award or payment to the extent of any deficiency found to be due upon such sale, with interest thereon at the highest rate being borne by any of the Liabilities, whether or not a deficiency judgment on this Mortgage shall have been sought or recovered or denied, and of the reasonable counsel fees, costs and disbursements incurred by the Grantee in connection with the collection of such award or payment. 12. The Grantee shall have the right to visit and inspect the Mortgaged Property, to examine the books of account of the Grantor relating thereto, and to discuss such accounts with the Grantor at all such reasonable times as the Grantee may request. Upon the commencement of any action to foreclose this Mortgage and upon the Grantee's request, the Grantor shall immediately deliver to the Grantee all sets of plans, specifications, building drawings, permits, licenses, leases, and other instruments pertaining to the Mortgaged Property. 13. The Grantor agrees that upon the occurrence of any Event of Default under the Loan Agreement, then, any such occurrence being an Event of Default hereunder, at the option of the Grantee, all sums owing from the Grantor to the Grantee shall become immediately due and payable without the necessity for demand or notice, and Grantee shall be entitled to all rights and remedies provided herein and by law, which remedies shall be cumulative and not exclusive. 14. As further and additional security for the performance of the terms and conditions of this Mortgage, and for the payment of the Liabilities, the Grantor hereby assigns, transfers, and sets over to the Grantee all rents from the Mortgaged Property whether now or hereafter due and payable. Until the occurrence of an Event of Default hereunder, Grantor may collect and retain such rents. The Grantor hereby agrees that upon the occurrence of an Event of Default as described in Section 13 hereof, the Grantee is hereby authorized and empowered, by its servants, agents or attorneys, to enter upon the Mortgaged Property and to collect and receive all rents therefrom, whether then due and payable or thereafter becoming due and payable by reason of any lease or leases which have heretofore or may hereafter be entered into with respect to the Mortgaged Property, and to apply the same against the Liabilities in such manner as the Grantee may deem advisable. EXHIBIT 4.11 Nothing in this Section shall in any way impair or affect any right or remedy which the Grantee might now or hereafter have were it not for the provisions of this Section, but the rights and remedies given by the provisions of this Section shall be in addition to all other rights and remedies which the Grantee may have. Grantor shall not, without the written consent of the Grantee, receive or collect rent from any tenant or any person in possession of the whole or any part of the Mortgaged Property for more than one (1) month in advance and shall not waive, release, reduce, discount or otherwise discharge or compromise any such rents. Grantor further agrees that it will not assign any of the rents, issues, and profits of the Mortgaged Property. 15. THE GRANTOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS MORTGAGE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR BY FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE GRANTEE MAY DESIRE TO USE, AND AUTHORIZES GRANTEE'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THE WAIVER. FURTHER, THE GRANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW, THE BENEFITS OF ALL VALUATION, APPRAISEMENT, HOMESTEAD EXEMPTION, STAY, REDEMPTION AND MORATORIUM LAWS, NOW IN FORCE OR WHICH MAY HEREAFTER BECOME LAWS. 16. It is the intent of the parties hereto that this instrument shall constitute a Security Agreement within the meaning of the Uniform Commercial Code as then in effect (the "Uniform Commercial Code") with respect to (a) all furniture, fixtures, machinery and equipment of the Grantor at any time located in the Mortgaged Property and all replacements thereof, substitutions therefor and additions and accessions thereto, and that a security interest shall attach thereto and (b) all other personal property of the Grantor (said property being sometimes hereinafter referred to as the "Collateral") for the benefit of the Grantee to secure the Liabilities and all other sums and charges which may become due hereunder. The Grantor hereby authorizes the Grantee to file financing and continuation statements with respect to the Collateral without the signature of the Grantor whenever lawful. Upon the occurrence of an Event of Default described in Section 15 hereof, the Grantee, pursuant to the Uniform Commercial Code, shall have the option of proceeding as to both real and personal property in accordance with its rights and remedies in respect of the real property, in which event the default provisions of the Uniform Commercial Code shall not apply. The parties agree that in the event the Grantee elects to proceed with respect to the Collateral described in subsection (a) above separately from the real property, ten (10) days' notice of the sale of the Collateral shall be reasonable notice. The EXHIBIT 4.11 Grantor agrees that, without the written consent of the Grantee, the Grantor will not remove or permit to be removed from the Mortgaged Property or the improvements thereon any of the Collateral. Any replacements, renewals and additions to or for the Collateral shall become and be immediately subject to the security interest of this Mortgage and be covered thereby. The Grantor shall, from time to time, on request of the Grantee, deliver to the Grantee an inventory of the Collateral in reasonable detail, including an itemization of all items leased to the Grantor or subject to a conditional bill of sale, security agreement or other title retention agreement. 17. This Mortgage cannot be amended, modified or changed except by an agreement in writing, signed by the party against whom enforcement of the change is sought. 18. All the covenants, conditions and agreements hereof shall bind the heirs, administrators, successors and assigns of the Grantor and shall inure to the benefit of and be available to the successors and assigns of the Grantee. 19. A waiver, in one or more instances, of any of the terms and provisions hereof, shall apply to the particular instance or instances at the particular time or times only, and shall not be a continuing waiver, and all the terms, covenants and agreements herein and all of the terms, covenants and agreements of the Notes, the Loan Agreement, and all other instruments and agreements executed and delivered in connection with any of the Liabilities shall survive and continue to remain in full force and effect. 20. Grantee may collect a "late charge" not to exceed an amount equal to five percent (5%) of any installment of interest, principal, taxes, assessments and insurance which is not paid to Grantee within fifteen (15) days of the due date thereof, to cover the extra expense involved in handling such delinquent payment. 21. This Mortgage and the Notes are to be governed by and construed in accordance with the laws of the State of Connecticut. 22. This is an open-end mortgage and the holder thereof shall have all the rights, powers and protection to which the holder of any open-end mortgage shall now or hereafter be entitled. As authorized by Connecticut General Statutes Section 49-2(c), as amended, and all other applicable laws and subject only to such limitations as are imposed by law, additional loans or advances are specifically permitted to be made under this Mortgage and shall be secured equally with, and with the same priority over the claims as, the debt secured hereby at the time of recording this Mortgage. EXHIBIT 4.11 IN WITNESS WHEREOF, the Grantor has caused this instrument to be duly executed and delivered as of this 11th day of April, 1991. Signed, sealed and delivered THE UNIONVILLE WATER COMPANY in the presence of: ____________________________________ _________________________________ Stephen A. Flis, ____________________________________ Its President, Duly Authorized STATE OF CONNECTICUT) ) ss.: Farmington: April 11, 1991 COUNTY OF HARTFORD ) On this date personally appeared before me Stephen A. Flis, who acknowledged himself to be President of Unionville Water Company, a corporation organized under the laws of the State of Connecticut, and that he, as such President, executed the Open-End Mortgage and Security Agreement for the purposes therein contained by signing the name of the Corporation by himself as President. In Witness Whereof, I hereunto set my hand. __________________________________ Commissioner of the Superior Court EXHIBIT 4.11 EXHIBIT D TERM NOTE Farmington, Connecticut $1,900,000.00 Dated: April ___, 1991 FOR VALUE RECEIVED, the undersigned, THE UNIONVILLE WATER COMPANY, a public service company with its principal place of business at 30 Mill Street, P.O. Box 157, Unionville, Connecticut 06085 (the "Borrower"), hereby promises to pay to the order of FARMINGTON SAVINGS BANK (the "Bank") the principal sum of One Million, Nine Hundred Thousand Dollars ($1,900,000.00) together with interest thereon from the date hereof on the unpaid principal balance hereof remaining outstanding from time to time at the rate hereinafter provided. The proceeds of this Term Note are to be used exclusively as set forth in the Revolving and Term Loan and Security Agreement of even date herewith between the Borrower and the Bank (the "Loan Agreement"). This Term Note shall bear interest on the unpaid principal balance hereof from time to time as follows: (i) from the date hereof through May 31, 1996, the interest rate shall be ______________ percent (%) per annum; and (ii) effective on May 1, 1996, and on each sixtieth (60th) monthly anniversary date thereafter (each anniversary referred to herein as an "Interest Change Date"), the interest rate shall be increased or decreased to a rate determined by adding two and one-half percentage points (2.5%) (the "Margin") to the most recent Federal Home Loan Bank of Boston Long-Term, Regular, 5 Year, Fixed Rate Mortgage Rate (the "Index"), available forty-five (45) days prior to the Interest Change Date (the Index so used prior to the applicable Interest Change Date shall be referred to as the "Current Index"), rounded to the next highest one-eighth of one percentage point (0.125%). Each new interest rate will be effective beginning on each Interest Change Date. If the Current Index is no longer available, the Bank will use a similar index chosen by it in the exercise of its reasonable discretion. Interest shall be payable at the applicable aforesaid rates on the outstanding principal balance of this Term Note, both before and after maturity, by acceleration or otherwise, whether or not judgment is rendered hereon, until paid in full. Interest shall be computed on the basis of a year of 360 days, and shall be payable monthly in arrears for the actual number of days in each month. EXHIBIT 4.11 The Borrower shall pay to the Bank, on the first day of each month commencing on June 1, 1991 and continuing through May 1, 1996, equal monthly payments of principal and interest in the amount of $___________ which payments are designed to amortize said principal and interest (at the initial rate hereunder) over the period beginning June 1, 1991 and ending at the Final Maturity (as hereinafter defined). Beginning on June 1, 1996, and on each sixtieth (60th) monthly anniversary of that date thereafter (each such date referred to hereinafter as a "Payment Change Date"), the monthly payments of principal and interest shall be adjusted to an amount so as to amortize the remaining balance of the principal and interest hereunder, based upon the current rate of interest applicable at the applicable Interest Change Date immediately preceding the Payment Change Date, within the period measured from the applicable Interest Change Date until the Final Maturity (as hereinafter defined). On May 1, 2011, (the "Final Maturity"), the Borrower shall make one final payment to the Bank in the amount of the then outstanding principal balance of this Term Note, together with all accrued and unpaid interest and any other sums due and owing hereunder. The Borrower may prepay the principal balance outstanding under this Term Note without penalty for the thirty (30) days preceding each Interest Change Date upon thirty (30) days' prior written notice to the Bank. Prepayment made at any other time shall be allowed only upon payment by the Borrower of a "Prepayment Change," which shall be one hundred ten percent (110%) of the present value of the difference between: (a) the interest on the amount prepaid for the remaining term to the next Interest Change Date, as determined by the Current Index, and (b) the interest on the same amount for the remaining term to the next Interest Change Date, as determined by the Index in effect for that maturity on the day prepayment is made. Any payments received by the Bank under this Term Note shall be applied first to any costs, fees, and expenses due hereunder, then to the payment of interest, and finally to the payment of principal. If any payment due hereunder, whether of principal, interest, fees or otherwise, is not received by the Bank within 15 days after the date on which it is payable, (a) the unpaid and outstanding balance of this Term Note shall bear interest, from the date on which the overdue payment was originally payable, at a rate which is three percentage points (3%) in excess of the applicable rate as set forth above (the "default rate"), and (b) the Bank shall charge and collect, in addition to interest at the EXHIBIT 4.11 default rate, a late charge equal to five percent (5%) of the overdue payment. Both principal and interest are payable in lawful money of the United States of America to the Bank at 32 Main Street, Farmington, Connecticut 06032, or at such other address as the Bank designates. This Term Note is executed pursuant to the Loan Agreement, to which reference may be had for a complete description of the terms and conditions of borrowing hereunder, including certain Events of Default and rights of acceleration. The indebtedness described herein shall have the benefit of the collateral described in the Loan Agreement. The loan evidenced by this Term Note was made in, and this Term Note shall be governed by the laws of, the State of Connecticut. The Bank shall have a lien on and, after an Event of Default, an option to set off against, all deposits and other property of the Borrower in the possession or control of or in transit to the Bank, without prior demand or notice, against the indebtedness described herein. This Term Note shall, at the option of the Bank, without necessity for notice to or demand upon the Borrower, become immediately due and payable if any payment of principal or interest on this Term Note is not paid within fifteen (15) days of the date on which it is due, or upon the occurrence of any other Event of Default, as defined in the Loan Agreement. Following default, the interest rate on this Term Note shall increase to the default rate, as that term is defined above. If this Term Note is not paid when due, whether in accordance with the terms hereof, by acceleration or otherwise, the undersigned agrees to pay all the Bank's costs of collection, including reasonable attorneys' fees. No modification, amendment, or waiver of any term or condition of this Term Note, and no consent by the Bank to any departure therefrom, shall be effective unless the same shall be in writing signed by a duly authorized representative of the Bank, and the same shall be effective only for the period and upon the specific conditions recited in such writing. If this Term Note is subject to a law which sets maximum charges, and that law is finally interpreted so that the interest or other charges collected or to be collected with respect to this Term Note exceed the permitted limits, then any such charge shall be reduced by the amount necessary to reduce the charge to the permitted limit. EXHIBIT 4.11 THE BORROWER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS TERM NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY DESIRE TO USE. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED ARISING OUT OF THIS PROMISSORY NOTE. The Borrower hereby waives presentment, demand for payment, protest, notice of protest, and notice of dishonor. IN WITNESS WHEREOF, the undersigned has executed and delivered this Term Note as of the date and year first above written. THE UNIONVILLE WATER COMPANY By ______________________________ Stephen A. Flis Its President EXHIBIT 4.11 EXHIBIT E REVOLVING LINE OF CREDIT NOTE Farmington, Connecticut $500,000.00 Dated: April ___ , 1991 FOR VALUE RECEIVED, the undersigned, THE UNIONVILLE WATER COMPANY, a Connecticut public service company with its principal place of business at 30 Mill Street, P.O. Box 157, Unionville, Connecticut 06085 (the "Borrower"), hereby promises to pay to the order of FARMINGTON SAVINGS BANK (the "Bank") the principal sum of Five Hundred Thousand Dollars ($500,000.00) or so much thereof as may have been advanced from time to time, together with interest thereon from the date hereof on the unpaid principal balance hereof remaining outstanding from time to time at the rate hereinafter provided. The proceeds of this Revolving Line of Credit Note are to be used exclusively as set forth in the Revolving and Term Loan and Security Agreement of even date herewith between the Borrower and the Bank (the "Loan Agreement"). This Revolving Line of Credit Note shall bear interest on the unpaid principal balance hereof from time to time at a rate which shall be a floating rate equal to one percentage point (1.0%) above the Bank's "Base Rate," which rate shall change and be adjusted simultaneously with any changes in the Base Rate during the period any principal balance under this Revolving Line of Credit Note is outstanding. The Bank's Base Rate is the rate published by the Bank from time to time as such and is not necessarily the best or lowest interest rate charged by the Bank. Interest shall be payable at the aforesaid rate(s) on the outstanding principal payable monthly in arrears, on the first day of each month, commencing May 1, 1991, for the actual number of days in each month. Unless the term of this Revolving Line of Credit Note is extended by the Bank in the Bank's sole discretion, the Borrower shall, on May 1, 1992, make one final payment to the Bank in the amount of the then outstanding principal balance of this Revolving Line of Credit Note, together with all accrued and unpaid interest and any other sums due and owing hereunder. The Borrower may prepay the principal balance outstanding under this Revolving Line of Credit Note from time to time, in full or in part, without penalty. Any payments received by the Bank under this Revolving Line of Credit Note shall be applied first to any costs, fees, and expenses due hereunder, then to the payment of interest, and finally to the payment of principal. EXHIBIT 4.11 If any payment due hereunder, whether of principal, interest, fees or otherwise, is not received by the Bank within 15 days after the date on which it is payable, (a) the unpaid and outstanding balance of this Revolving Line of Credit Note shall bear interest, from the date on which the overdue payment was originally payable, at a rate which is three percentage points (3%) in excess of the applicable rate as set forth above (the "default rate"), and (b) the Bank shall charge and collect, in addition to interest at the default rate, a late charge equal to five percent (5%) of the overdue payment. Both principal and interest are payable in lawful money of the United States of America to the Bank at 32 Main Street, Farmington, Connecticut 06032, or at such other address as the Bank designates. This Revolving Line of Credit Note is executed pursuant to the Loan Agreement, to which reference may be had for a complete description of the terms and conditions of borrowing hereunder, including certain Events of Default and rights of acceleration. The indebtedness described herein shall have the benefit of the collateral described in the Loan Agreement. The loan evidenced by this Revolving Line of Credit Note was made in, and this Revolving Line of Credit Note shall be governed by the laws of, the State of Connecticut. The Bank shall have a lien on and, after an Event of Default, an option to set off against all deposits and other property of the Borrower in the possession or control of or in transit to the Bank, without prior demand or notice, against the indebtedness described herein. This Revolving Line of Credit Note shall, at the option of the Bank, without necessity for notice to or demand on the Borrower, become immediately due and payable if any payment of principal or interest on this Revolving Line of Credit Note is not paid within 15 days after the date on which it is due, or upon the occurrence of any other Event of Default, as defined in the Loan Agreement. Following default, the interest rate on this Revolving Line of Credit Note shall increase to the default rate, as that term is defined above. If this Revolving Line of Credit Note is not paid when due, whether in accordance with the terms hereof, by acceleration or otherwise, the undersigned agree to pay all the Bank's costs of collection, including reasonable attorneys' fees. EXHIBIT 4.11 No modification, amendment, or waiver of any term or conditions of this Revolving Line of Credit Note, and no consent by the Bank to any departure therefrom, shall be effective unless the same shall be in writing signed by a duly authorized representative of the Bank, and the same shall be effective only for the period and upon the specific conditions recited in such writing. If this Revolving Line of Credit Note is subject to a law which sets maximum charges, which law is finally interpreted so that the interest or other charges collected or to be collected with respect to this Revolving Line of Credit Note exceed the permitted limits, than any such charge shall be reduced by the amount necessary to reduce the charge to the permitted limit. THE BORROWER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS REVOLVING LINE OF CREDIT NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY THE LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY DESIRE TO USE. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED ARISING OUT OF THIS PROMISSORY NOTE. The Borrower hereby waives presentment, demand for payment, protest, notice of protest, and notice of dishonor. IN WITNESS WHEREOF, the undersigned has executed and delivered this Revolving Line of Credit Note as of the date and year first above written. THE UNIONVILLE WATER COMPANY By_____________________________________ Stephen A. Flis Its President EXHIBIT 4.11 EXHIBIT E Leases, Arrangements, Contracts and Other Obligations Service Contracts: 1. Abacus Business Products 2. Acme Security Company 3. Cathodic Protection Services 4. Computer Support 5. Cummins Connecticut, Inc. 6. Decision Data 7. Mechanics Uniform Service 8. Pitney Bowes, Inc. 9. Russelectric, Inc. 10. Southern New England Telephone 11. Whistle Cleaning Service Leases: 1. Chas. W. House & Sons, Inc.-- Well Field Lease 2. Tunxis Realty -- Office Lease Others: 1. Extension Agreement with State of Connecticut for Tunxis Community College 2. Agreement For Wells Acres Well 3. Various Extension Agreements with developers EXHIBIT 4.11 EXHIBIT F Claims, Actions and Administrative Proceedings Pending or Threatened Docket No. 91--01--18 Application of Unionville Water Company for a Declaratory Ruling (Re: RWR Forest Park and North Meadows). EXHIBIT 4.11 EXHIBIT G Liens and Encumbrances All those items set forth in the schedules of exceptions to the coverage in the Title Insurance Policy insuring Farmington Savings Bank's interest in the property as issued by Connecticut Attorneys Title Insurance Company (Mortgagee Policy #422105). EX-10.3 4 y84639exv10w3.txt DIRECTORS DEFERRED COMPENSATION PLAN EXHIBIT 10.3 CONNECTICUT WATER SERVICE, INC. THE CONNECTICUT WATER COMPANY DIRECTORS' DEFERRED COMPENSATION PLAN AMENDED AND RESTATED APRIL 22, 1994 1. PURPOSE OF THE PLAN The purpose of the Directors' Deferred Compensation Plan (hereinafter referred to as the "Plan") is to provide a procedure whereby a member of the Board of Directors of The Connecticut Water Company and of Connecticut Water Service, Inc. (hereinafter collectively referred to as the "Company") who is not an employee of the Company (hereinafter referred to as a "Director") may defer the payment of all or a specified part of the compensation payable to the Director for services as a Director of The Connecticut Water Company and of Connecticut Water Service, Inc., including compensation payable to a Director for services as a member of a Committee of said Boards. 2. ELECTION TO DEFER A Director may elect to defer receipt of payment of all or a specified portion of all compensation payable to the Director for services as a Director during the calendar year or portion thereof following such election and succeeding calendar years until the Director ceases to be a Director, said election to be effective only with respect to compensation earned after the date of such election. Any such election shall be made by written notice delivered to the Secretary of the Company. 3. DIRECTORS' ACCOUNTS All deferred compensation shall be held in the general funds of the Company and shall be credited to each Director's account. On the first day of each month, interest shall be credited to each such account calculated on the basis of the balance in such account on the first day of each month and at the monthly rate equal to one twelfth of the "return on rate base" of the most recent rate decision for The Connecticut Water Company. 4. PAYMENT FROM DIRECTORS' ACCOUNTS The aggregate amount of deferred compensation, together with interest accrued thereon, credited to the account of any Director shall be paid in a lump sum or, if the Director elects and The Connecticut Water Company, in its sole discretion, agrees, in substantially equal annual installments over a period of years specified by the Director, not to exceed the number of years which the Director served as a member of the Board of Directors of the Company after electing to defer compensation as provided in this Plan. Such election must be made by written notice delivered to the Secretary of the Company prior to the date on which the Director ceases to be a Director. In the case of installment payments, the first installment shall be paid promptly following the calendar year in which the Director ceases to be a Director, and subsequent installments shall be paid promptly at the beginning of such succeeding calendar year until the entire amount credited to the Director's account shall have been paid. In the case of a lump sum payment, the lump sum shall be paid within sixty (60) days after the commencement of the calendar year following the date on which the Director ceases to be a Director or, at the option of The Connecticut Water Company in its sole discretion, within sixty (60) days after the Director ceases to be a Director. 5. PAYMENT IN EVENT OF DEATH If a Director should die before all deferred amounts credited to the Director's account have been distributed, the balance of any deferred compensation and interest then in the Director's account shall be paid promptly to the Director's designated beneficiary; provided, however, that the Director may specify that such deferred amounts (plus interest) shall be paid to the Director's spouse in substantially equal annual installments over a period of years not to exceed the lesser of: (i) either ten or five, as the Director shall elect, or (ii) the number of years which the Director served as a member of the Boards of Directors of the Company after electing to defer compensation as provided in this Plan, reduced by (iii) the number of years (if any) during which the Director had received payment under this Plan prior to death. If such Director did not designate a beneficiary or in the event that the beneficiary designated by such Director shall have predeceased the Director, the balance in the Director's account shall be paid promptly to the Director's estate. If payments are being made in installments to the spouse of the deceased Director, then upon the death of said spouse any amount then undistributed shall be paid promptly to the estate of said spouse. 6. TERMINATION OF ELECTION A Director may terminate an election to defer payment of compensation by written notice delivered to the Secretary of the Company. Such termination shall become effective as of the end of the calendar year in which notice of termination is given with 2 respect to compensation payable for services as a Director during subsequent calendar years. Amounts credited to the account of a Director prior to the effective date of termination shall not be affected thereby and shall be paid only in accordance with paragraphs 4 and 5 above. 7. NONASSIGNABILITY All rights to payments under this Plan are not subject in any manner to anticipation, alienation, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Director or the Director's spouse or other beneficiary. 8. INTERPRETATION AND AMENDMENT The Plan shall be administered by the Boards of the Directors of the Company. The decision of the Boards of Directors with respect to any questions arising as to the interpretation of this Plan, including the severability of any and all of the provisions thereof, shall be final, conclusive and binding. The Boards of Directors reserve the right to amend this Plan from time to time or to terminate the Plan entirely, provided, however that no amendment or termination of this Plan shall operate to annul an election already in effect for the current calendar year. 9. PAYMENTS Payments pursuant to this Plan shall be made by the Company out of its general corporate assets. Neither a Director nor any beneficiary or spouse of a Director may assert any right or claim against any specified assets of the Company. The Director and any such beneficiary or spouse shall have the status of general unsecured creditors of the Company and shall have only contractual rights against the Company for amounts credited to an account pursuant to this Plan. 3 EX-10.9.1 5 y84639exv10w9w1.txt EMPLOYMENT AGREEMENT EXHIBIT 10.9.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN THE CONNECTICUT WATER COMPANY CONNECTICUT WATER SERVICE, INC. AND KEVIN T. WALSH AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of January 9, 2002, 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 Kevin T. Walsh, a resident of Connecticut ("Employee"). WITNESSETH: WHEREAS, Employee has been and continues to be employed by Company and Parent in an Employee capacity and has entered into an Employment Agreement between Employee and Company and Parent dated as of the January 9, 2002 which becomes effective upon a "Change-in-Control," as defined herein, of Company or Parent; and WHEREAS, Company and Parent desire to reward Employee for Employee's valuable, dedicated service to Company and Parent should Employee's service be terminated under circumstances hereinafter described: and WHEREAS, Employee, 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 Employee's continued dedication and the availability of Employee's advice and counsel in the event of any such proposal, to induce Employee to remain in the employ of Company and Parent and to reward Employee for Employee's valuable dedicated service to Company and Parent should Employee'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 Employee agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Cause" shall mean Employee's serious, willful misconduct in respect of Employee's duties under this Agreement, including conviction for a felony or perpetration by Employee 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 the President and CEO of the Company; (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 Employee) 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 Employee by illness or any other cause as determined under the long-term disability insurance plan of Company in effect at the time in question, or if no such plan is in effect, then such incapacity of Employee as prevents Employee from performing the essential functions of Employee'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 Employee'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 Employee's title or reduces Employee's job responsibilities or base salary; (ii) results in a significant worsening of Employee's work conditions; or (iii) moves Employee's place of employment to a location that increases Employee's commute by more than thirty (30) miles over the length of Employee's commute from Employee's place of principal residence at the time the move is requested. For purposes of this subparagraph (e), any good faith determination by Employee that any such action has occurred shall be conclusive. (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 Employee and Employee 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 Employee, advise Employee 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 Employee, then Company, Parent and Employee 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 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, Employee'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 Employee's services shall be performed at such location as Employee shall determine. (b) During the Term, Employee will serve Company faithfully, diligently and competently and will devote full-time to Employee's employment and will hold, in addition to the offices held on the Effective Date, such other Employee offices of Company or Parent, or their respective subsidiaries and affiliates, to which Employee may be elected, appointed or assigned by the Boards of Directors of Company or Parent from time to time and will discharge such Employee duties in connection therewith. Nothing in this Agreement shall preclude Employee, 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 Employee's duties hereunder. 4. COMPENSATION. During the Term, Company shall pay to Employee as compensation for the services to be rendered by Employee hereunder the following: (a) A base salary at a rate equal to the highest base salary paid or payable to Employee by Company during the twelve (12)-month period immediately preceding the month in which the Effective Date occurs, or such larger sum as the 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. Employee 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 Employee's last increase and annually thereafter during the Term, of not less than the percentage increase in the cost-of-living since Employee'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 Employee an annual bonus, payable in cash or other form of compensation, for which he would have been eligible in accordance with the Company's practice or plan in effect at that time for annual bonuses for said employee for the year preceding the fiscal year in which the Effective Date occurs. 5. BENEFITS. During the Term, Employee shall be entitled to the following benefits: (a) Incentive. Savings and Retirement Plans. In addition to base salary and bonus payable as hereinabove provided, Employee shall be entitled to participate during the Term in all, savings and retirement plans, practices, policies and programs applicable to employees of Company as may be in effect from time to time. Such plans, practices, policies and programs, in the aggregate, shall provide Employee 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 Employee 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 Employee, as provided at any time thereafter with respect to other key employees of Company or Parent. (b) Welfare Benefit Plans. During the Term, Employee and/ or Employee'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 Employee employees of Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life,) 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 Employee and/or Employee's family, as in effect at any time thereafter with respect to other key employees of Company or Parent. (c) Expenses. During the Term, Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Employee 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 Employee, as in effect at any time thereafter with respect to other key employees of Company or Parent. (d) Fringe Benefits. During the Term, Employee 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 Employee, 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, Employee 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 Employee by Company at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Employee, as provided at any time thereafter with respect to other key employees of Company or Parent. (f) Vacation. During the Term, Employee 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, if more favorable to Employee, as in effect at any time thereafter with respect to other key employees of Company or Parent. 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 Employee's employment by Company for Cause. (ii) The voluntary termination of Employee's employment by employee other than for Good Reason. (iii) The death of Employee. (iv) Employee's attainment of age sixty-five (65). (v) Full compliance by Company with the provisions of Paragraph 7(e) below, if Employee's employment shall have been terminated by Company during the Term for any reason other than Cause, or if Employee's employment shall have been terminated by reason of Employee's Disability, or if Employee shall have voluntarily terminated Employee's employment during the Term for Good Reason. (b) Notice of Termination. Any termination by Company for Cause or by Employee for Good Reason or on account of Employee'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 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 Employee'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 Employee's employment is terminated by Company other than for Cause or on account of Employee's Disability, the date of termination shall be the date on which Company notifies Employee of such termination and (ii) if Employee's employment is terminated by reason of death, the date of termination shall be the date of death of Employee. 7. PAYMENT UPON TERMINATION. (a) If Employee's employment is terminated by Company for Cause, as defined in Paragraph 1(a), the obligations of Company under this Agreement shall cease and Employee 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 Employee 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 Employee shall voluntarily terminate Employee'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 Employee 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 Employee 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 Employee, 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 Employee, or if no effective designation exists, then to the estate of Employee. (d) If Employee's employment is terminated by reason of Employee's attainment of age sixty-five (65), the obligations of Company under this Agreement shall cease and Employee shall forfeit all right to receive any compensation or other benefits under this Agreement except only the Accrued Obligations. (e) If Employee's employment is terminated by Company during the Term for any reason other than for Cause, or Employee's death, or Employee's attainment of age sixty-five (65), or if Employee's employment is terminated during the Term by reason of Employee's Disability, or if Employee shall voluntarily terminate Employee's employment during the Term for Good Reason, Employee shall be entitled to receive, and Company shall be obligated to pay and provide Employee, the following amounts: (i) An amount in consideration of the covenants by Employee set forth in Paragraphs 8 and 9 below to be determined by 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 Employee'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 Employee pursuant to said subparagraphs shall be offset by the amount, if any, payable to Employee in respect of the covenants by Employee set forth in Paragraphs 8 and 9 below. Notwithstanding the foregoing, if any benefit otherwise payable to Employee pursuant to said subparagraphs would be offset by the amount payable to Employee in respect of the covenants set forth in Paragraphs 8 and 9 below, Employee may elect to receive such benefit, but the amount payable to Employee in respect of the covenants by Employee set forth in Paragraphs 8 and 9 below shall be reduced by the value of such benefit. Said amount paid in consideration of the covenants by Employee set forth in Paragraphs 8 and 9 below shall be paid in cash in a lump sum in the month next following Employee'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 Employee, 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 Employee's salary grade under the Company's Officers Incentive Program for the year in which termination occurs if the employee is a participant in such plan at the time of the Change-in-Control. There shall be subtracted from the aggregate amount determined in accordance with the immediately preceding sentence the amount, if any, payable to Employee 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 Employee'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 Employee under Company's qualified defined contribution retirement plan(s), if any such plan(s) shall be in effect (other than amounts attributable to Employee's before-tax contributions to such plan(s)) plus estimated earnings thereon had Employee 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 Employee had made contributions to said plan(s) in the plan year immediately preceding Employee's termination, to be payable in a lump sum to Employee within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Employee shall not have breached said non-competition provisions. (iv) An amount equal to the difference between: (A) benefits which would have been payable to Employee under any deferred compensation agreement between Company and Employee, if any such agreement shall be in effect, had Employee 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 Employee under such deferred compensation agreement; such amount to be payable in a lump sum to Employee within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Employee 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 Employee under Company's qualified defined benefit retirement plan (the "Plan") and under any nonqualified supplemental Employee retirement plan covering Employee (the "Supplemental Plan"), if any such Plan or Supplemental Plan shall be in effect, if Employee 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 Employee under any such Plan and Supplemental Plan. The discounted present value of such additional benefits, shall be payable to Employee 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 Employee shall not have breached said non-competition provisions. (vi) At the date of termination of Employee's employment, Employee shall be fully vested in any form of compensation previously granted to Employee (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 Employee's employment is terminated by reason of Employee's Disability, Employee 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 Employee, as in effect on the date of Employee's Disability with respect to other key employees of Company or Parent. (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, Employee 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 Employee 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 Employee paying the same portion of the cost of each such plan or program as existed at the time of Employee's termination. In the event that Employee'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 Employee; 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 Employee 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 Employee'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 Employee's employment. (ix) During the three (3)-year period commencing on the date of termination, Employee shall continue to receive such perquisites, other than those specified in the preceding subparagraphs above, as Employee 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 Employee's termination of employment. (x) Company shall reimburse Employee for the amount of any reasonable legal or accounting fees and expenses incurred by Employee to obtain or enforce any right or benefit provided to Employee by Company hereunder or as confirmed or acknowledged hereunder. 8. CONFIDENTIAL INFORMATION. Employee understands that in the course of Employee's employment by Company, Employee 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. Employee agrees that Employee will not, at any time during the period ending two (2) years after the date of termination of Employee's employment, reveal to anyone outside Company or Parent or use for Employee's own benefit any such information without specific written authorization by Company or Parent. Employee 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 Employee's employment with Company. 9. COVENANTS BY EMPLOYEE NOT TO COMPETE WITH COMPANY OR PARENT. (a) Upon the date of termination of Employee's employment with Company for any reason, Employee covenants and agrees that Employee 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 Employee'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 Employee's name (or any part or variant thereof) to, any business which, at the date of Employee's termination, is a Competitor, either directly or indirectly, with Company or Parent, or as a result of Employee'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 Employee'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 Employee, Employee'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) Employee hereby acknowledges that Employee'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 Employee 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 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 Employee pursuant to Paragraph 7 above. 10. NO OBLIGATION TO MITIGATE. So long as Employee shall not be in breach of any provision of Paragraph 8 or 9, Employee shall have no duty to mitigate damages in the event of a termination and if Employee 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 Employee's services hereunder are terminated under any of the provisions of this Agreement (except by death), Employee agrees that Employee will deliver Employee'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 Employee, and Employee 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, Employee 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 Employee 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 Employee to receive any such payments and benefits. Employee acknowledges that Company and Parent have advised Employee to consult with an attorney prior to signing this Agreement and that Employee has had an opportunity to do so. 14. REGULATORY LINIITATION. Notwithstanding any other provision of this Agreement, Company shall not be obligated to make, and 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 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 shall promptly make payment of any such amounts to Employee. 15. NOTICES. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person to Employee or to the Secretary of Company and Parent, or if mailed, postage prepaid, registered or certified mail, addressed, in the case of Employee, to Employee'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. 16. 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 Employee to compensation and benefits from Company and Parent in the same amount and on the same terms as Employee would be entitled hereunder if Employee 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 Employee'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, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee dies while any amount is still payable hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there is no such designee, to Employee's estate. 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 Company's Board of Directors in an effort to resolve such dispute without resort to arbitration. 18. SEVERABILIT. 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 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 Employee has hereunto set Employee's hand, this 9th day of January, 2002. The Connecticut Water Company By: /s/ Michele G. Diacri --------------------- Corporate Secretary Connecticut Water Service Inc By: /s/ Kevin T. Walsh ------------------ Employee 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 "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 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; 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 Releasees; and 6. Your agreement to the terms set forth above is voluntary. Name:________________________________________________ Signature: ______________________________ Date: ______________________ Received by: ___________________________ Date: ______________________ 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 EMPLOYEE By _______________________________ ____________________ Its CONNECTICUT WATER SERVICE, INC. By _______________________________ Its EX-10.13.1 6 y84639exv10w13w1.txt 1ST AMENDMENT TO EMPLOYEES RETIREMENT PLAN EXHIBIT 10.13.1 FIRST AMENDMENT TO THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN (as amended and restated as of January 1, 1997, except as otherwise provided therein) 1. Section 2.5 of the Plan is hereby amended, effective as of December 31, 2000, by adding a phrase at the end thereof, to read as follows: "provided that, with respect to the Crystal Plan, Anniversary Date shall mean January 1 of each year commencing on and after January 1, 1964." 2. Article II of the Plan is hereby amended, effective as of December 31, 2000, by adding the following definition to follow current Section 2.15 and by renumbering the remaining sections thereof accordingly: "Crystal Plan shall mean the Crystal Water Company of Danielson Defined Benefit Pension Plan." 3. Article II of the Plan is hereby amended, effective as of December 31, 2000, by adding the following definition to follow current Section 2.21 and by renumbering the remaining sections thereof accordingly: "Former Crystal Water Participant shall mean any Employee (as defined in Appendix C hereof) who, as of the day before the Merger Date, was an active participant in the Crystal Plan." 4. Article II of the Plan is hereby amended, effective as of December 31, 2000, by adding the following definition to follow current Section 2.22 and by renumbering the remaining sections thereof accordingly: "Merger Date shall mean December 31, 2000." 5. The Plan is hereby amended, effective as of December 31, 2000, by adding Appendix C at the end thereof, to read as follows: "APPENDIX C BENEFITS FOR FORMER EMPLOYEES OF CRYSTAL WATER COMPANY ARTICLE I PURPOSE Effective as of the Merger Date, expect as otherwise provided herein, any Former Crystal Water Participant's benefits under this Plan, on and after January 1, 1964, shall be determined in accordance with the provisions of this Appendix C. In no event shall the Accrued Benefit of a Former Crystal Water Participant be less than his or her Accrued Benefit as of December 31, 2000. ARTICLE II DEFINITIONS Capitalized terms used in this Appendix C shall have the meanings set forth in Article II of the Plan unless a contrary meaning is set forth below. The definitions set forth below shall apply solely to this Appendix C. "Accrued Benefit" means the benefit to which a Participant would be entitled at his or her Normal Retirement Date under Paragraph 4.1 hereof, based on the Participant's Compensation and Credited Service as of the Annuity Starting Date. "Actuarial Equivalent" means the same present value as the normal form of benefit computed in accordance with Paragraph 4.1 when calculated using the actuarial assumptions set forth below: (a) For purposes other than lump sum distributions: -2- Mortality Table: For Participants, Disabled Participants, Retired Participants and Terminated Participants: 1984 Unisex Pension Mortality Table with ages set back two years For Beneficiaries: 1984 Unisex Pension Mortality Table with ages set back five years Interest Factor: 7% (b) For lump sum settlements: Effective January 1, 1998, the interest and mortality factors for a lump sum distribution shall be the GATT Factors. (c) An Actuarial Equivalent benefit (other than a benefit which is paid in the form of a non-decreasing annuity for a period of not less than the life of the Participant or, in the case of a preretirement survivor annuity, the life of the Participant's surviving spouse) shall not be less than the benefit determined using the GATT factors. (d) For the purposes hereof, "GATT Factors" means, when determining the present value of a benefit, the mortality table as prescribed by the Commissioner of the Internal Revenue Service pursuant to Treasury Regulations Section 1.417(e)-1(d)(2) and the annual interest on 30-year Treasury securities as specified by the Commissioner of the Internal Revenue Service pursuant to Treasury Regulations Section 1.417(e)-1(d)(3) for the month of December preceding the Plan Year in which the benefit is to be distributed. "Annuity Starting Date" means the first day of the first period for which an amount is payable as an annuity, or, in the case of a benefit not payable as an annuity, the date on which all events have occurred that entitle the recipient to receive such benefit. "Average Compensation" means the average of a Participant's Compensation during the five (5) consecutive calendar years that produce the highest average. If the Participant has been employed for fewer than five (5) calendar years, the available years shall be averaged. For -3- purposes of determining consecutive calendar years, a year in which a Participant performed no services shall not be taken into account. "Beneficiary" means any individual, trust, estate or other recipient entitled to receive death benefits hereunder, on either a primary or a contingent basis. "Break in Service" means the failure of an Employee to complete more than 500 Hours of Service during a Plan Year. A Break in Service shall be deemed to occur as of the first day of the applicable Plan Year. "Company" means The Crystal Water Company of Danielson, any affiliated company which participated in the Crystal Plan on the day prior to the Merger Date and any successor thereto. "Compensation" means wages, as defined in Section 3401(a) of the Code, and other compensation received by a Participant during a Plan Year which are reported in Box 1 on IRS Form W-2 (Wage and Tax Statement) for such Plan Year. Compensation shall be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages on the basis of the nature or location of the employment or the services performed. Compensation also includes the following amounts with respect to a Participant during a Plan Year: (a) amounts contributed at the election of the Participant to an employee benefit plan under an arrangement described in Section 125 or 401(k) of the Code, to a simplified employee pension under an arrangement described in Code Section 408(k)(6) or to an annuity contract described in Code Section 403(b); (b) amounts deferred under an eligible deferred compensation plan within the meaning of Code Section 457(b); and -4- (c) employee contributions treated as employer contributions under Code Section 414(h)(2). "Credited Service" means each Plan Year during which an individual is an Employee and is credited with at least 1,000 Hours of Service. In the case of a Participant who incurs a Break in Service, Credited Service shall include Plan Years prior to the Break in Service only if (i) the Participant had a vested benefit prior to the Break in Service, or (ii) the number of consecutive Breaks in Service is less than six (6) or does not exceed the Participant's aggregate Vesting Years prior to such Breaks in Service. Credited Service shall include service prior to the effective date of ERISA with respect to the Crystal Plan determined in accordance with the provisions of the Crystal Plan as then in effect. "Disabled" means that a Participant or Terminated Participant, while in Employment Status, has become permanently and totally incapable of engaging in any occupation or employment for physical or mental reasons, as certified by a licensed physician. Such a Participant shall be deemed to be Disabled only if an application for benefits is filed with the Administrator by or on behalf of such individual within one year after separation from service due to becoming Disabled, pursuant to Section 11.16 of the Plan. "Eligibility Date" means January 1st of each Plan Year. "Employee" means, prior to the Merger Date, an individual performing services for the Company as a common law employee (and, on and after the Merger Date, an individual performing services for the Company as a common law employee who is a Former Crystal Water Participant) who is credited with at least 1,000 Hours of Service in the twelve-(12) month period commencing on the individual's Employment Commencement Date or Reemployment Commencement Date. A common law employee of the Company who fails to complete 1,000 Hours of Service during such period shall become an Employee for the first Plan Year during which such individual is credited with at least 1,000 Hours of Service. An individual's status as an Employee shall commence on the first day of the applicable twelve-(12) month period. An individual shall thereafter be an Employee for each Plan Year for which more than 500 Hours of Service are credited. -5- "Employment Status" means the status of an individual who is employed by the Company on a current basis or whose employment with the Company has been interrupted on a temporary or seasonal basis. "Participant" for purposes of this Appendix C shall mean a Former Crystal Water Participant who is eligible to accrue benefits under this Appendix C. "Reemployment Commencement Date" means the first date following a Break in Service on which an individual performs an Hour of Service. "Retired Participant" means a Participant who separates from service with the Company on or after his or her Normal Retirement Date or an early retirement date specified in Paragraph 4.2. "Terminated Participant" means a Participant whose status as an Employee is terminated for reasons other than death, disability or retirement. "Vesting Year" means a Plan Year in which an Employee has completed 1,000 Hours of Service. ARTICLE III EMPLOYEES ENTITLED TO PARTICIPATE 3.1 Every Former Crystal Water Participant who was eligible to participate in the Crystal Plan as of the day before the Merger Date shall continue to receive benefits under this Appendix C. The following Employees are not eligible to participate in the Crystal Plan: (a) any individual included in a unit of employees covered by a collective bargaining agreement with the Company with respect to which agreement retirement benefits were the subject of good faith negotiations and (b) Leased Employees. 3.2 The eligibility of a Participant who incurs a Break in Service and subsequently becomes an Employee shall be determined as follows: -6- (a) A Participant who had a vested benefit before incurring the Break in Service shall again become a Participant on the date as of which such individual again becomes an Employee. (b) Except as otherwise provided in 3.2(c), a Participant who did not have a vested benefit before incurring the Break in Service shall again become a Participant on the date as of which such individual again becomes an Employee, provided that the number of consecutive Breaks in Service either (i) is less than six (6) or (ii) does not exceed the aggregate number of years as an Employee prior to the Breaks in Service. (c) A former Participant who did not have a vested benefit before incurring the Break in Service and whose consecutive Breaks in Service (i) equal or exceed six (6) and (ii) exceed the aggregate number of years as an Employee prior to the Breaks in Service shall again become a Participant on the first Eligibility Date on which such individual shall have been employed by the Company as an Employee for at least six (6) months and shall have attained age 20 1/2, but without regard to any years as an Employee occurring prior to the Breaks in Service. For purposes of this Paragraph 3.2(c), the period of Employment Status from an individual's Employment or Reemployment Commencement Date to the Eligibility Date shall be used to determine months of employment as an Employee. ARTICLE IV RETIREMENT AND DISABILITY BENEFITS 4.1 Effective January 1, 1998, upon attaining his or her Normal Retirement Date, a Participant shall become entitled to an annual retirement benefit payable in equal monthly installments for life equal to the sum of: (a) 2% of the Participant's Average Compensation multiplied by the Participant's years of Credited Service prior to 1993; plus (b) 2.25% of the Participant's Average Compensation multiplied by the Participant's years of Credited Service after 1992, provided that not more than thirty-five (35) years of Credited Service shall be recognized under this Paragraph 4.1 and further provided that, if a Participant's years of Credited -7- Service exceed thirty-five (35), years of Credited Service shall be allocated first to subparagraph (b). Anything herein to the contrary notwithstanding, the Accrued Benefit of a Participant under this Paragraph 4.1 shall not be less than the Participant's Accrued Benefit as of December 31, 2000. 4.2 Effective January 1, 1998, a Participant who retires prior to his or her Normal Retirement Date shall be eligible to elect to receive benefit payments under subparagraph (a) or (b) below, provided he or she meets the applicable requirements. (a) A Participant who retires within three (3) years prior to his or her Normal Retirement Date after completing at least seven (7) years of Credited Service may elect to receive benefit payments equal to such Participant's Accrued Benefit reduced by three percent (3%) for each year by which the Annuity Starting Date precedes Normal Retirement Date. (b) A Participant who retires after attaining age sixty (60) and completing at least twenty-five (25) years of Credited Service may elect to receive benefit payments equal to such Participant's Accrued Benefit without any reduction as a result of payments being made prior to Normal Retirement Date. 4.3 (a) Subject to Section 14.9 of the Plan regarding minimum distributions, if a Participant continues in the service of the Company after attaining Normal Retirement Date, payment of retirement benefits shall not commence until such Participant becomes a Retired Participant. (b)(i) In the case of a Participant who continues in the service of the Company after attaining Normal Retirement Date, the Participant's Accrued Benefit for each Plan Year shall be equal to the greater of (A) the retirement benefit determined under Paragraph 4.1, calculated on the basis of the Participant's Average Compensation and Credited Service as of the most recent determination date for calculating benefits, or (B) the Actuarial Equivalent value, reflecting the deferred payment, of the benefit calculated under this 4.3(b)(i) as of the later of the Participant's Normal Retirement Date or the end of the prior Plan Year. -8- (ii) The portion of the benefit determined under 4.3(b)(i) that is attributable to Average Compensation and Credited Service earned after Normal Retirement Date shall be reduced, but not below zero, by the Actuarial Equivalent value of any distributions made to the Participant while employed by the Company after his Normal Retirement Date. The amount of such reduction shall be determined without regard to any portion of such distributions in excess of the amount payable under the form of benefit described in Paragraph 4.1. No reduction under this subparagraph (b)(ii) shall have the effect of reducing a Participant's annual benefit for any Plan Year below the benefit determined under this Paragraph 4.3 as of the end of the preceding Plan Year. (c) The determination date for a Retired Participant under this Paragraph 4.3 shall be the date of separation of such Retired Participant from service with the Company, and the determination date for a Participant under this Paragraph 4.3 who continues in the service of the Company shall be the last day of the prior Plan Year. 4.4 If a Participant becomes Disabled prior to his or her Normal Retirement Date, such individual's retirement shall be deemed to commence as of the date of certification by a licensed physician that such Participant has become Disabled. Such Disabled Participant shall thereupon become a Retired Participant. The benefit payable to a Disabled Participant shall be an amount equal to the Actuarial Equivalent value of his or her Accrued Benefit. 4.5 A Participant who (a) incurs a Break in Service and again becomes a Participant on any date other than the first day of a Plan Year, or (b) becomes a Retired Participant during a Plan Year before completing 1,000 Hours of Service during such Plan Year, shall receive Credited Service for each full month of employment during such Plan Year provided the individual averages at least eighty-three (83) Hours of Service per month during such Plan Year. -9- ARTICLE V PAYMENT OF BENEFITS 5.1 Subject to the cashout provisions of Section 10.5 of the Plan, unless an election under Section 10.2 of the Plan is in effect, the benefit of a married Participant shall be paid in the form of an Actuarial Equivalent joint and survivor annuity with monthly payments during the Participant's lifetime, with 100% or, at the election of the Participant, 50% or 75%, of the Participant's monthly benefit continuing to the surviving spouse after the Participant's death. The benefit of an unmarried Participant shall be paid in the form of a monthly annuity for life unless the Participant elects otherwise pursuant to Section 10.2 of the Plan. 5.2 Subject to Section 10.5 of the Plan, a Participant whose benefit is otherwise payable pursuant to Paragraph 5.1 may elect in writing in accordance with the provisions of Section 10.2 of the Plan to receive his benefits in one of the following forms: (a) monthly payments for the life of the Participant with, in the event of the Participant's death after the commencement of benefit payments but before 120 payments have been made, payments for the remainder of such 120-month period (or, at the election of the Participant, the commuted lump sum value thereof) distributed to the Beneficiary; (b) monthly payments for the life of the Participant with, in the event of the Participant's death after the commencement of benefits, payments continuing for the life of the Beneficiary; (c) monthly payments for the life of the Participant; or (d) effective January 1, 1998, a lump sum payment. ARTICLE VI DEATH BENEFITS 6.1 Subject to Section 10.5 of the Plan, unless an election under Section 9.3 of the Plan is in effect, the surviving spouse of a vested Participant who was married throughout the -10- one-year period ending on the Participant's date of death and who dies before the Annuity Starting Date shall receive a death benefit in the form of a preretirement survivor annuity, which is a monthly pension benefit for the life of the surviving spouse equal to: (a) In the case of a Participant or Terminated Participant in Employment Status or a Retired or Disabled Participant who dies before the Annuity Starting Date, the Actuarial Equivalent of such Participant's Accrued Benefit calculated as if such Participant had retired on the day before death. (b) In the case of a vested Participant or Terminated Participant who is not in Employment Status and dies before the Annuity Starting Date, the Actuarial Equivalent of such Participant's vested Accrued Benefit calculated as of the Participant's date of death.. (c) In all other cases, the death benefit payable, if any, shall be determined under Paragraph 6.2. 6.2 The Beneficiary of a Participant who dies before the Annuity Starting Date shall be entitled to receive, if an election under Section 9.3 of the Plan is in effect, an amount equal to the Actuarial Equivalent value of the Participant's vested Accrued Benefit, payable in equal annual installments over a period no longer than five (5) years or, at the election of the Beneficiary, in a single lump sum. If a Beneficiary has not been designated by a Participant, the Beneficiary shall be the surviving spouse of the Participant or, if there is no surviving spouse, the Participant's estate. ARTICLE VII TERMINATION OF PARTICIPATION. LOSS OF EMPLOYMENT STATUS AND VESTING 7.1 The eligibi1ity of a Participant or Terminated Participant to receive a distribution of benefits upon separation from service with the Company before Normal Retirement Date shall be determined under this Article. -11- 7.2 (a) Subject to subparagraph (b), the vested portion of a Participant's or a Terminated Participant's Accrued Benefit shall be determined as follows:
Vesting Years Vested Percentage - ------------- ----------------- Less than 5 0% At least 5 100%
(b) The Accrued Benefit of a Participant or Terminated Participant who is in Emp1oyment Status upon attaining Normal Retirement Date shall be 100% vested. A Disabled Participant shall be 100% vested in his or her Accrued Benefit. 7.3 (a) Except as otherwise provided in subparagraph (b), if a Terminated Participant had not achieved any percentage of vesting under Paragraph 7.2 before incurring a Break in Service, and if the number of consecutive Breaks in Service either (A) is less than six (6) or (B) does not exceed the aggregate number of Vesting Years before such Breaks in Service, all of his or her Vesting Years shall be aggregated for purposes of this Article VII. (b) If a Terminated Participant had no vested benefit under Paragraph 7.2 before incurring a Break in Service, and if the number of consecutive Breaks in Service both (A) equals or exceeds six (6) and (B) exceeds the aggregate number of Vesting Years before such Breaks in Service, all Vesting Years before such Breaks in Service shall be disregarded for purposes of this Article VII. 7.4 A Terminated Participant who has at least seven (7) Years of Credited Service on the date of termination of employment may elect to receive the Actuarial Equivalent value of his vested Accrued Benefit at any time within three (3) years prior to the date that would have been his Normal Retirement Date had he remained employed. A Terminated Participant who has at least twenty-five (25) Years of Credited Service as of his date of termination of employment may elect to receive the Actuarial Equivalent value of his vested Accrued Benefit at any time after attaining age sixty (60)." -12- EX-10.13.2 7 y84639exv10w13w2.txt 2ND AMENDMENT TO EMPLOYEES RETIREMENT PLAN EXHIBIT 10.13.2 SECOND AMENDMENT TO THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN (as amended and restated as of January 1, 1997, except as otherwise provided herein) 1. The following sentence is added to Section 2.15 at the end thereof: "Notwithstanding anything to the contrary contained in this Section 2.15, Section 2.32, or elsewhere in the Plan, in no event shall any Employee of Gallup Water Service, Inc. receive credit for Credited Service hereunder prior to January 1, 2001." 2. The following paragraph is added to Section 3.2 at the end thereof: "Employees of Gallup Water Service, Inc. shall be eligible to participate hereunder effective January 1, 2001, provided that they have satisfied the service requirements hereunder as of that date and are otherwise eligible to participate hereunder. In no event shall any employee of Gallup Water Service, Inc. receive credit for Credited Service hereunder prior to January 1, 2001." 3. Section 4.2 is amended to read as follows: "4.2 Basic Retirement Income - The monthly Basic Retirement Income with payments commencing at Normal Retirement Date under this Plan is equal to 1/12 of 1.6% of Average Earnings multiplied times years of Credited Service. This provision is effective January 1, 2001 and shall not apply to any Participant who retires, terminates employment, or dies prior to such date. Notwithstanding the foregoing, the minimum Basic Retirement Income with payments commencing at Normal Retirement Date under this Plan is equal to 1/12 of $1,000, except that for an Employee who has less than 10 years of Credited Service, the $1,000 shall be reduced by the ratio of Credited Service to 10 years. Notwithstanding the foregoing, the monthly Basic Retirement Income with payments commencing at Normal Retirement Date under this Plan shall not be less than the benefit the Participant accrued as of December 31, 2000 under the provisions of the Plan in effect at that time. Unless otherwise provided under the Plan, the accrued benefit of each "section 401(a)(17) employee" under this Plan will be the greater of the accrued benefit determined for the employee under 1 or 2 below: (1) the employee's accrued benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's total years of Service taken into account under the Plan for the purposes of benefit accruals, or (2) the sum of: (a) the employee's accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the Treasury Regulations, and (b) the employee's accrued benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's years of Service credited to the employee for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals. A "section 401(a)(17) employee" means an Employee whose current accrued benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on Annual Earnings for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000." 4. Paragraph (e) of Section 9.3 is deleted in its entirety. 5. The following paragraph (e) is added to Section 10.3: "(e) Lump Sum Option - The Actuarial Equivalent of the Participant's Retirement Income, determined without regard to an early retirement subsidy, may be payable in a single sum in lieu of any other benefits under the Plan." 6. Exhibit I of the Plan is amended in its entirety. A copy of amended Exhibit I is attached hereto. 7. Appendix C, as added by the First Amendment, is amended effective January 1, 2001 by the deletion of the word "December" in paragraph (d) of the definition of "Actuarial Equivalent" set forth in Article II, and the substitution of "November" in lieu thereof; and the addition of the following sentence at the end of said paragraph (d): "For the one year period beginning January 1, 2001 and ending December 31, 2001, said annual interest on 30-year Treasury Securities for the month of December, 2000 shall be utilized if it would produce a larger distribution." 8. Except as hereinabove modified and amended, the Plan as amended shall remain in full force and effect. 9. This Amendment is effective as of January 1, 2001. 2 EXHIBIT 10.13.2 SUGGESTED RESOLUTIONS FOR INCLUSION IN THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF THE CONNECTICUT WATER COMPANY RESOLVED: That the Second Amendment to The Connecticut Water Company Employees' Retirement Plan effective January 1, 2001, in substantially the form presented to this meeting and ordered filed with the minutes hereof, is hereby approved and adopted with such changes therein, not inconsistent with the general tenor thereof, as the officers of the Company, with the advice of counsel, deem necessary or appropriate to carry out the objectives thereof or to obtain the approval of the Internal Revenue Service that the Retirement Plan is qualified under Section 401 of the Internal Revenue Code of 1986, as amended. RESOLVED: That the officers of the Company are hereby authorized and directed to take any actions, and to execute such documents and instruments, as may be necessary or appropriate to carry out the intent of the foregoing resolution. EXHIBIT 10.13.2 CERTIFICATE The undersigned hereby certifies that The Connecticut Water Company Employees' Retirement Plan, as amended and restated effective as of January 1, 1997, except as otherwise provided therein, was duly amended by the Pension Trust Committee of the Board of Directors of The Connecticut Water Company by a First Amendment on August 16, 2000 and the Plan, as so amended, is in full force and effect. ______________________ ___________________________ Date ___________________________ Title EXHIBIT 10.13.2 CERTIFICATE The undersigned hereby certifies that The Connecticut Water Company Employees' Retirement Plan, as amended and restated effective as of January 1, 1997, except as otherwise provided therein, was duly amended by the Board of Directors of The Connecticut Water Company by a Second Amendment on November 14, 2000 and the Plan, as so amended, is in full force and effect. ______________________ ___________________________ Date ___________________________ Title EXHIBIT 10.13.2 THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN EXHIBIT I This Exhibit is attached to and made a part of the Plan. Actuarial Equivalent shall mean a benefit of equivalent current value to the benefit which would otherwise have been provided to the Participant. The factors used to determine equivalencies shall be determined as follows: - 50% Contingent Annuity Option 90% (less)(plus) .5% for each year by which the age of the Contingent Annuitant (is less than)(exceeds) the age of the Participant. Such factor not to exceed 1.0. - 75% Contingent Annuity Option 86% (less)(plus) .6% for each year by which the age of the Contingent Annuitant (is less than)(exceeds) the age of the Participant. Such factor not to exceed 1.0. - 100% Contingent Annuity Option 82% (less)(plus) .7% for each year by which the age of the Contingent Annuitant (is less than)(exceeds) the age of the Participant. Such factor not to exceed 1.0. - Lump Sum Distribution Actuarial Equivalent factors shall be determined using the UP-1984 Mortality Table and, for any Plan Year, the interest rates promulgated by the Pension Benefit Guaranty Corporation for the purposes of determining the present value of a lump sum distribution on plan termination for the month containing the first day of such Plan Year. Effective for lump sum distributions made on or after September 1, 1996, Actuarial Equivalent factors shall be determined using the mortality table prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(A)(ii)(I) of the Code and the annual rate of interest on 30-year Treasury securities for the month containing the first day of the Plan Year in which such distribution is made. Effective January 1, 2001, the annual rate of interest on 30-year Treasury securities for the month of November preceding the Plan Year in which such distribution is made shall be utilized. However, for the one year period beginning January 1, 2001 and ending December 31, 2001, the annual rate of interest on 30-year Treasury securities for the month of January, 2001 shall be utilized if it would provide a larger distribution. - Five Years Certain and Life Option: 98% - Ten Years Certain and Life Option: 93% - Lump Sum Distribution Under Years Certain and Life Options Actuarial Equivalent factors shall be determined using the mortality table prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(A)(ii)(I) of the Code and the annual rate of interest on 30-year Treasury securities for the month containing the first day of the Plan Year in which such distribution is made. Effective January 1, 2001, the annual rate of interest on 30-year Treasury securities for the month of November preceding the Plan Year in which such distribution is made shall be utilized. However, for the one year period beginning January 1, 2001 and ending December 31, 2001, the annual rate of interest on 30-year Treasury securities for the month of January, 2001 shall be utilized if it would provide a larger distribution. EX-10.13.3 8 y84639exv10w13w3.txt 3RD AMENDMENT TO EMPLOYEES RETIREMENT PLAN EXHIBIT 10.13.3 THIRD AMENDMENT TO THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN (as amended and restated as of January 1, 1997, except as otherwise provided herein) 1. The second unnumbered paragraph of Section 4.4 is amended by the addition of the following sentence at the end thereof: "For Plan Years beginning on or after January 1, 2001, for purposes of applying the limitations described in this Section 4.4, Compensation paid or made available during such Limitation Year shall include elective amounts that are not includable in the gross income of the Employee by reason of Section 132(f)(4) of the Code." 2. Paragraph (e) of Section 10.3, as set forth in the Second Amendment, is amended to read as follows: "(e) Lump Sum Option - The Actuarial Equivalent of the Participant's Retirement Income, determined without regard to any early retirement subsidy, may be payable in a single sum in lieu of any other benefits under the Plan. It is the intent of the Employer that this lump sum benefit may be payable following separation from service and prior to attainment of Early or Normal Retirement Date, as well as on or after attainment of such dates. If any such payment is made prior to attainment of Early or Normal Retirement Date, the Participant, if married, will be offered a 50% Contingent Annuitant Option with his Spouse as Contingent Annuitant; and if single, a Straight Life Annuity. The amount of any such annuity benefit prior to Early or Normal Retirement Date will be calculated to be Actuarially Equivalent to the amount of the lump sum payment, utilizing the assumptions for Actuarial Equivalent for lump sum payments. The Participant (with the consent of his spouse, if applicable) must waive payment in the form of an annuity in order to receive payment of a lump sum in such instance. If the Participant elects to receive his Retirement Income at that time and if no such waiver occurs, payment would be in the form of a 50% Contingent Annuitant Option (with his Spouse as Contingent Annuitant) or a Straight Life Annuity, as the case may be." 3. Section 10.4 is amended to read as follows: "10.4 General Limitation. All distributions under this Article shall be determined and made in accordance with Section 401(a)(9) of the Code and any regulations issued thereunder, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed income tax regulations or any successor regulation thereto. If the Participant's interest is being distributed in the form of a joint and survivor annuity for the joint lives of the Participant and a nonspouse beneficiary, annuity payments to be made on or after the Participant's required beginning date to the designated beneficiary after the Participant's death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the Participant using the table set forth in Q & A A-6 of section 1.401(a)(9)-2 of the proposed income tax regulations, or any successor regulation thereto." 4. Section 13.6 is amended to read as follows, effective January 1, 2001: "13.6 Special Limitations. (a) In the event of Plan termination, the benefit of any Highly Compensated Employee (and any Highly Compensated Former Employee) is limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code. (b) The annual payments to an Employee described in paragraph (c) below are restricted to an amount equal in each year to the payments that would be made on behalf of the Employee under a straight life annuity that is the actuarial equivalent of the sum of the Employee's accrued benefit and the Employee's other benefits under the Plan (other than a social security supplement), and the amount of payments that the Employee is entitled to receive under a social security supplement, if any. The restrictions in this paragraph (b) do not apply, however, if: (i) After payment to an Employee described in paragraph (c) of this Section 13.6 of all benefits payable to the Employee under the Plan, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities as defined in Section 412(l)(7) of the Code, or (ii) The value of the benefits payable to the Employee under the Plan for an Employee described in paragraph (c) below is less than 1 percent of the value of current liabilities before distribution, or (iii) The value of benefits payable to the Employee under the Plan for any employee described in paragraph (c) below does not exceed the amount described in Section 411(a)(11)(A) of the Code (restrictions on certain mandatory distributions). (c) The Employees whose benefits are restricted on distribution include all Highly Compensated Employees and Highly Compensated Former Employees. In any one year, the total number of Employees whose benefits are subject to restriction under this Section 13.6 is limited to the group of 25 Non-excludable Employees and former Employees with the greatest compensation in the current year or any prior year. (d) For purposes of this Section 13.6, "benefit" includes, among other benefits, loans in excess of the amounts set forth in Section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living Employee or former Employee, and an death benefits not provided for by insurance on the Employee's or former Employee's life." 5. Section 15.1 is amended to read as follows: -2- "15.1 Compensation. Compensation of an Employee as defined in Section 4.4 hereof (subject to any limitation prescribed under Section 401(a)(17) of the Code)." 6. Except as hereinabove modified and amended, the Plan, as amended, shall remain in full force and effect. 7. This Amendment is effective as of January 1, 2001. 556419 -3- EXHIBIT 10.13.3 CERTIFICATE The undersigned hereby certifies that The Connecticut Water Company Employees' Retirement Plan, as amended and restated effective as of January 1, 1997, except as otherwise provided therein, was duly amended by the Board of Directors of The Connecticut Water Company by a Third Amendment on _____________________ and the Plan, as so amended, is in full force and effect. _____________________ ____________________________ Date ____________________________ Title EX-10.13.4 9 y84639exv10w13w4.txt 4TH AMENDMENT TO EMPLOYEES RETIREMENT PLAN EXHIBIT 10.13.4 FOURTH AMENDMENT TO THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN (as amended and restated as of January 1, 1997, except as otherwise provided Therein) 1. Section 2.5 of the Plan is hereby amended, effective as of December 31, 2002, to read as follows: "Anniversary Date shall mean January 1 of each year commencing on or after January 1, 1958, provided that, with respect to the Crystal Plan, Anniversary Date shall mean January 1 of each year commencing on or after January 1, 1964, and provided further that with respect to the Barnstable Plan, Anniversary Date shall mean January 1 of each year commencing on or after January 1, 1970." 2. Article II of the Plan is hereby amended, effective as of December 31, 2002, by adding the following definitions at the end thereof: "Barnstable Plan shall mean the Barnstable Water Company Pension Plan." "Barnstable Water Participant" shall mean any employee or former employee of Barnstable Water Company who, as of the day before the Barnstable Merger Date, was a participant in the Barnstable Plan; and any other employee of Barnstable Water Company who subsequently satisfies the requirements for eligibility set forth in Article III of Appendix D hereof." "Barnstable Merger Date shall mean December 31, 2002." 3. The Plan is hereby amended, effective as of December 31, 2002, by adding Appendix D at the end thereof, to read as follows: "APPENDIX D BENEFITS FOR EMPLOYEES OF BARNSTABLE WATER COMPANY PURPOSE Effective as of the Barnstable Merger Date, the Barnstable Water Company Pension Plan shall be merged with and into this Plan, and the assets and liabilities of that Plan shall be transferred to, and shall be assumed by, this Plan. Such merger is hereby specifically authorized. Such merger shall satisfy the requirements of Section 13.3 hereof. Furthermore, in no event shall the merger reduce the accrued benefit, or other benefit protected under Section 411(d)(6) of the Code, of any Barnstable Water Participant, with respect to benefits accrued as of December 31, 2002. Except as otherwise provided herein, any Barnstable Water Participant's benefits under this Plan, on and after January 1, 1970, shall be determined in accordance with the provisions of Exhibit 10.13.4 this Appendix D. In no event shall the Accrued Benefit of a Barnstable Water Participant be less than his or her Accrued Benefit as of December 31, 2002. The provisions of this Appendix D shall apply with respect to employees of Barnstable Water Company who meet the definition of a Barnstable Water Participant. It is the intent of Barnstable Water Company and The Connecticut Water Company that Barnstable Water Participants shall continue to be treated as they were under the Barnstable Plan, subject nevertheless to the ability of The Connecticut Water Company to amend or terminate this Plan. Accordingly, the following provisions, which are also set forth below, shall apply with respect to Barnstable Water Participants. However, provisions of a general nature contained in this Plan, including without limitation Plan provisions incorporating rules under Section 415 of the Code and rules regarding eligible rollover distributions, shall apply as well to Barnstable Water Participants except to the extent that the provisions of this Appendix D expressly address the subject matter. 1. Section 1.4, Provisions of Prior Plan apply to certain persons. 2. Section 2.1, definition of Accrued Benefit. 3. Section 2.2, definition of Actual Equivalent; provided that for distributions with Annuity Starting Dates on or after December 31, 2002, the applicable mortality table referenced in paragraph (a) of Section 2.2 shall be the table set forth in Rev. Rul. 2001-62 and not the table set forth in Rev. Rul. 95-6. 4. Section 2.5, definition of Annuity Starting Date. 5. Section 2.6, definition of Average Final Compensation. 6. Section 2.7, definition of Beneficiary. 7. Section 2.9, definition of Break in Service. 8. Section 2.12, definition of Compensation. However, the definition of Compensation shall be amended to reflect any amendments to the Barnstable Plan or to this Plan to reflect the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). 9. Section 2.13, definition of Covered Compensation. 10. Section 2.14, definition of Deferred Retirement Date. 11. Section 2.15, definition of Early Retirement Date. 12. Section 2.19, definition of Hour of Service. 13. Section 2.22, definition of Normal Retirement Date. -2- 14. Section 2.26, definition of Prior Plan. 15. Section 2.27, definition of Retired Employee. 16. Section 2.30, definition of Social Security Retirement Age. 17. Section 2.31, definition of Substantial Break. 18. Section 2.35, definition of Vested Terminated Employee. 19. Section 2.36, definition of Year of Benefit Service. 20. Section 2.37, definition of Year of Eligibility and Vesting Service. 21. Article III, Participation. 22. Article IV, Requirements for Retirement Income. 23. Article V, Amount of Retirement Income, Sections 5.1 through 5.3 and Section 5.6. 24. Article VI, Termination of Employment and Vested Rights. 25. Article VII, Normal and Optional Forms of Benefit, Sections 7.1 through 7.7. 26. Article VIII, Death Benefits. 1.4 Provisions of Prior Plan apply to certain persons. Except as expressly provided in the Plan, the right to benefits of persons who were Participants in the Prior Plan on or before December 31, 2000 and who do not thereafter become Participants in the Plan, and of the contingent annuitants and other beneficiaries of such persons, shall be determined in accordance with the provisions of the Prior Plan. 2.1 "Accrued Benefit" means, with respect to any Participant at any time, the monthly benefit computed under Section 5.1, based on his Average Final Compensation and Covered Compensation as of the time such Accrued Benefit is computed. Notwithstanding the foregoing, "Accrued Benefit" for an Employee who retires or remains in service after his Social Security Retirement Age is determined as stated in the foregoing sentence, except that Covered Compensation shall be determined as of the Participant's Social Security Retirement Age. 2.2 "Actuarial Equivalent" means a benefit, as determined by the Actuary, whose value equals the value of a benefit or benefits otherwise payable in a different form or at a different time under the Plan, based on an annual interest assumption of seven percent (7%) and the Pentad 90 Mortality Table; provided, however, that for purposes of Sections 7.2, 7.4, 7.5, and 8.2(e), actuarial equivalence shall be determined in accordance with the following: -3- (a) Effective January 1, 2000, for purposes of determining the amount of a lump sum payment under Sections 7.5 and 8.2(e), the following interest and mortality assumptions shall be utilized: interest, the annual rate of interest on 30-year Treasury securities for the month of November preceding the Plan Year of the distribution (the "applicable interest rate"); and mortality, the mortality table prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(a)(ii)(I) of the Code (the "applicable mortality table"). However, for the period between January 1, 2000 and the date that this amendment and restatement is adopted, the following factors shall be utilized if they would result in a larger lump sum distribution: interest, the interest rate used by the Pension Benefit Guaranty Corporation (in effect as of the beginning of the Plan Year) in determining the present value of an immediate or deferred annuity for such a benefit upon plan termination; and mortality, the Pentad 90 Mortality Table. In no event, however, will the value of any accrued benefit be less than the value of the benefit accrued on December 31, 1988, determined in accordance with the Plan in effect on such date; and (b) for a Participant who elects a joint and survivor form of annuity, his benefit under the normal annuity form is adjusted by the percentage shown in the following table:
Percent Actuarial Survivor Factor - -------- ------ 50% 90% 67% 86% 75% 84% 100% 80%
These factors are further adjusted if the age between the Participant and beneficiary is more than 5 years. If the Participant is more than 5 years older, then subtract 0.5% for each year of difference in excess of 5. If the Participant is more than 5 years younger, add 0.5% for each year of difference in excess of 5. For a Participant who elects a life annuity with guaranteed payments, the actuarial factor is 98% if the guarantee period is 60 months and 90% if the guarantee period is 120 months. 2.5 "Annuity Starting Date" means the first day of the first period for which an amount is paid as an annuity, or in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit. 2.6 "Average Final Compensation" of a Participant means the highest average annual Compensation which such Participant earned during the three consecutive Years of Benefit Service credited to him out of the last ten Years of Benefit Service credited to him preceding the date on which he retired, terminated his employment or died. -4- 2.7 "Beneficiary" means the person designated by an Employee or retired Employee to receive certain benefits payable under the provisions of the Plan. 2.9 "Break in Service" means a Plan Year during which an Employee has not completed more than 500 Hours of Service. 2.12 "Compensation" means, subject to paragraphs (a) (b) and (c) below: the earnings reported on Form W-2 or other applicable government reporting form paid to an Employee by the Company, including overtime pay and bonuses but excluding special pay and director pay. Compensation also excludes the Company's cost for any public or private employee benefit plan, including this Plan. However, effective January 1, 2001, Compensation also includes elective deferrals of Compensation under Section 401(k) of the Code, elective reductions of Compensation under a cafeteria plan pursuant to Section 125 of the Code, and elective reductions of Compensation for qualified transportation fringe benefits under Section 132(f)(4) of the Code. (a) For Employees who complete an Hour of Service on or after January 1, 1989, Compensation in excess of $200,000 (as indexed by the Secretary of the Treasury) in any Plan Year will not be recognized for any Plan purposes. In no event will such limitation reduce the benefit of any Employee under the Plan or Prior Plan below that accrued on December 31, 1988. (b) For Employees who complete an Hour of Service on or after January 1, 1994, Compensation in excess of $150,000 (as indexed by the Secretary of the Treasury) in any Plan Year will not be recognized for any Plan purposes. In no event, however, will such limitation reduce the benefit of any Employee under the Plan or Prior Plan below that accrued on December 31, 1993. (c) In determining the compensation of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term family shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. If, as a result of the application of such rules the adjusted Compensation limitation is exceeded, then (except for purposes of determining the portion of compensation up to the integration level), the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this section prior to the application of this limitation. The family aggregation rules described in this paragraph (c) shall no longer apply, effective January 1, 1997. (d) If compensation for any prior determination period is taken into account in determining a Participant's benefits for the current Plan Year, the compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that prior determination period. For this purpose, in determining benefits in plan years beginning on or after January 1, 1989, the annual Compensation limit in effect for determination periods beginning before that date is $200,000. In addition, in determining -5- benefits in plan years beginning on or after January 1, 1994, the annual Compensation limit in effect for determination periods beginning before that date is $150,000. 2.13 "Covered Compensation" for a Participant means the average (without indexing) of the Social Security Taxable Wage Base in effect for each calendar year during the thirty-five (35) year period ending with the calendar year in which the Participant attains Social Security. Retirement Age as defined in Section 2.30. In the case of a Participant who separates from service with the Company prior to attaining Social Security Retirement Age, the Social Security Taxable Wage Base for each calendar year following such termination shall be equal to the Social Security Taxable Wage Base in effect for the calendar year in which his termination occurs. In the case of a Participant who separates from service with the Company after attaining Social Security Retirement Age, Covered Compensation shall be determined as if the Participant retired on his Social Security Retirement Age. 2.14 "Deferred Retirement Date" means, with respect to each Participant who remains in the service of the Company after his Normal Retirement Date, the first day of any calendar month coinciding with or next following the month in which he actually retires or dies. 2.15 "Early Retirement Date" means the first day of any calendar month prior to a Participant's Normal Retirement Date and after the date on which he has (a) attained age fiftyfive (55) and (b) completed at least five (5) Years of Benefit Service. 2.19 "Hour of Service" means, with respect to any Employee, (a) each hour for which the Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Company, each such hour to be credited to the Employee for the Plan Year in which the duties were performed; (b) each hour for which the Employee is directly or indirectly paid or entitled to payment by the Company (including payments made or due from a trust fund or insurer to which the Company contributes or pays premiums) on account of a period of time for which no duties are performed (irrespective of whether the employment relationship has ended) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the Employee for the Plan Year in which such period of time occurs, subject to the following rules: (i) No more than 501 Hours of Service shall be credited under this paragraph (b) to the Employee on account of any single continuous period during which the Employee performs no duties; (ii) Hours of Service shall not be credited under this paragraph (b) to an Employee for payment which solely reimburses the Employee for medicallyrelated expenses incurred by the Employee, or which is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws; and -6- (iii) If the period during which the Employee performs no duties falls within two or more Plan Years, and if the payment made on account of such period is not calculated on the basis of units of time, the Hours of Service credited with respect to such period shall be allocated between not more than the first two such Plan Years on any reasonable basis consistently applied with respect to similarly situated employees; (c) each hour not counted under paragraph (a) or (b) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to be paid by the Company, each such hour to be credited to the Employee for the Plan Year to which the award or agreement for back pay pertains; (d) each noncompensated hour that is not credited under (a), (b) or (c) above during a period of leave of absence from the Company for service in the armed forces of the United States if the Employee returns to work for the Company at a time when he has re-employment rights under federal law, to the extent required under the Uniformed Services Employment and Reemployment Rights Act (USERRA), or within such longer period as may be specified by the Company for which the Employee returns to work; (e) solely for the purposes of determining whether the Employee has incurred a Break in Service, each noncompensated hour while an Employee during a period of authorized leave of absence from the Company for a reason other than service in the armed forces of the United States if the Employee returns to work for the Company at the end of such leave, and; (f) solely for the purpose of determining whether the Employee has incurred a Break in Service in the case of an absence from work after July 31, 1985 (i) because of the Employee's pregnancy, (ii) because of the birth of the Employee's child, (iii) because of the placement of a child with the Employee in connection with the adoption of such child by the Employee, or (iv) for purposes of caring for the Employee's child immediately after its birth or placement with the Employee for adoption, the hours the Employee would have worked (not to exceed 501 hours) but for such absence from work. For purposes of this subsection (f) the following special rules will apply: (i) Any Hour of Service credited with respect to an absence shall be credited (a) only in the Plan Year in which the absence begins, if the Employee would be prevented from incurring a Break in Service in such year solely because of Hours of Service credited for such absence, or (B) in any other case, in the immediately following Plan Year; (ii) No Hours of Service shall be credited unless the Employee furnishes the Administrator with such information as the Administrator may reasonably require (in such form and at such time as the Administrator may reasonably require) establishing (a) that the absence from work is an absence described hereunder and (B) the number of days for which the absence lasted; and -7- (iii) In no event shall more than 501 Hours of Service be credited to an Employee hereunder for any absence by reason of any one pregnancy or the placement of any one child. Hours of Service to be credited to an individual under (a), (b) and (c) above will be calculated and credited pursuant to paragraphs (b) and (e) of section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by reference. Hours of Service to be credited to an individual during an absence described in (d), (e) or (f) above will be determined by the Company with reference to the individuals most recent normal work schedule. If the Company cannot so determine the number of Hours to be credited, there shall instead be credited eight Hours of Service for each day of absence. 2.22 "Normal Retirement Date" means the first day of the month coincident with or next following an Employee's Normal Retirement Age. 'Normal Retirement Age' means an Employee's Social Security Normal Retirement Age or, in the case of an Employee who first participates on or after January 1, 1995, his fifth anniversary of Plan participation, if later. 2.26 "Prior Plan" means the Plan as in effect December 31, 2000. 2.27 "Retired Employee" means any former Employee who retires from the service of the Company on his Normal, Early or Deferred Retirement Date, whichever is applicable, and who receives or is entitled to receive Retirement Income in accordance with Article V. 2.30 "Social Security Retirement Age" shall mean the age used as the retirement age for the Participant under Section 216(1) of the Social Security Act, except that such section shall be applied without regard to the age increase factor, and as if the early retirement age under Section 216(l)(2) of such Act were 62. Presently, "Social Security Retirement Age" means, with respect to a Participant born prior to 1938, the date on which he attains age 65; with respect to a Participant born after 1937 and prior to 1955, the date on which he attains age 66; and with respect to a Participant born after 1954, the date on which he attains age 67. 2.31 "Substantial Break" means, in the case of any Employee who has completed fewer than five (5) Years of Vesting Service, a series of one or more consecutive Breaks in Service, the number of which consecutive Breaks in Service equals or exceeds (a) for purposes of Section 2.36, the number of his Years of Benefit Service, or (b) for purposes of Section 2.37, the number of his Years of Vesting Service, prior to such Breaks in Service; provided, however, that no Employee shall incur a Substantial Break in Service after July 31, 1985 unless the number of consecutive Breaks in Service equals or exceeds the greater of five (5) or the number of such Years of Benefit Service, or Vesting Service, whichever is applicable. Such number of Years of Benefit Service, or Vesting Service, whichever is applicable, prior to such Breaks in Service shall be deemed not to include any such Years disregarded under Sections 2.36 or 2.37 by reason of any prior Substantial Break. 2.35 "Vested Terminated Employee" means any individual who has ceased to be an Employee and who is eligible, under Section 6.2, to receive a vested deferred retirement income. -8- 2.36 "Year of Benefit Service" means for periods on and after the Effective Date, any Plan Year during which an Employee completes 1,000 or more Hours of Service. In the case of any Employee who has a Substantial Break, any Year of Benefit Service completed before such Substantial Break shall be disregarded. For periods prior to the Effective Date (January 1, 1970), an Employee will be credited with Years of Benefit Service in an amount equal to the period of his continuous uninterrupted employment with the Company prior to such date. Benefit Service shall not be earned for any periods during which an individual is employed other than by the Company. For example, service with a related employer that has not adopted this Plan will not be taken into account. In addition, Benefit Service shall not be earned for any periods during which an individual is employed in an ineligible job classification. 2.37 "Year of Eligibility and Vesting Service" means, with respect to any Employee, each Plan Year during which he has completed 1,000 or more Hours of Service, provided that in the case of any Employee who has a Substantial Break, any Year of Vesting Service before such Substantial Break shall be disregarded. For purposes of eligibility to participate and Years of Vesting Service, but not for purposes of Benefit Service, employment with an Affiliated Company, and employment as a Leased Employee as defined in Section 414(n) of the Code, will be considered employment with the Company. An "Affiliated Company" means the Company and any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; any trade or business under common control (as defined in Section 414(c) of the Code) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o). Article III. Participation. 3.1 Persons Eligible to Participate in Plan. (a) Any Employee who was a Participant on January 1, 1989, will continue to be a Participant in this Plan. (b) Any Employee who was not a Participant on January 1, 1989 and who (a) attains age 21 and (b) completes a Year of Eligibility Service, as defined in Section 3.2, shall be eligible to be a Participant in the Plan. Participation shall commence on the first day of the month coincident with or next following the date on which the Employee completes a Year of Eligibility Service and attains age 21. -9- (c) Notwithstanding the foregoing, leased employees, as defined in Section 414(n) of the Code, shall not be eligible to participate in the Plan. 3.2 Year of Eligibility. An Employee will complete a Year of Eligibility Service if be is credited with 1,000 or more Hours of Service in an "eligibility computation period". The initial 'eligibility computation period' shall mean the twelve (12) month period commencing with the date be first performs an Hour of Service. Subsequent eligibility computation periods shall be based on the Plan Year commencing with the Plan Year following the date he first performs an Hour of Service. In the case of a reemployed former Employee who was not entitled to a vested deferred Retirement Income upon termination of employment, Years of Eligibility Service prior to a Substantial Break shall be disregarded in determining when such reemployed former Employee is eligible to participate after reemployment. 3.3 The term "Participant" shall include only those individuals who are, in fact, treated as common law employees on the payroll records of the Company and compensated by the Company as common law employees, and who otherwise satisfy the requirements for participation in the Plan. Therefore, the term "Participant" will not include any individual who is compensated other than as a common law employee (for example, as an independent contractor, leased employee or agency employee) even if such individual is subsequently determined to be or to have been a common law employee of the Company. Article IV. Requirements for Retirement Income. 4.1 Normal Retirement. Any Participant who retires on his Normal Retirement Date shall be entitled to receive a Retirement Income, commencing on his Normal Retirement Date, in the amount specified in Section 5. 1. 4.2 Deferred Retirement. Each Participant who remains in the service of the Company after his Normal Retirement Date shall be entitled to receive a Retirement Income, commencing on his Deferred Retirement Date, in the amount specified in Section 5.2. 4.3 Early Retirement. Any Participant who has not attained his Normal Retirement Date but who attains age fifty-five (55) while an Employee and who completes at least five (5) Years of Benefit Service may elect an early retirement. Any individual who elects early retirement in accordance with this Section 4.3 shall be entitled to a Retirement Income commencing on his Early Retirement Date or his Normal Retirement Date, at his election and continuing during his lifetime, in the amount specified in Section 5.3. Article V. Amount of Retirement Income. 5.1 Normal Retirement Income. Subject to the provisions of Section 5.4 and 5.5, the annual amount of Retirement Income to be payable in monthly installments to each Participant -10- who retires from employment with the Company on his Normal Retirement Date on or after January 1, 2001, commencing on his Normal Retirement Date and continuing during his lifetime, shall be equal to the sum of (i) plus (ii) times (iii) below: (i) 1.25% of his Average Final Compensation; (ii) 0.75% of his Average Final Compensation in excess of his Covered Compensation; (iii) Years of Benefit Service for up to thirty (30) Years. In no event, however, will the Normal Retirement Income of such a Participant be less than the amount accrued as of December 31, 1988 under the provisions of the Prior Plan in effect at such time, or the amount accrued as of December 31, 2000 under the provisions of the Prior Plan in effect at such time. 5.2 Deferred Retirement Income. A Participant who remains in the service of the Company after his Normal Retirement Date in accordance with Section 4.2 shall, upon actual retirement, receive an annual amount of Retirement Income to be payable in monthly installments, commencing on his Deferred Retirement Date and continuing during his lifetime, equal to the greater of (a) & (b): (a) an amount computed under Section 5.1, based on his Years of Benefit Service and his Average Final Compensation as of his Deferred Retirement Date. (b) an amount equal to the actuarial increase of his Normal Retirement Date benefit. The actuarial increase factor is 1% for each month that the Participant defers retirement beyond his Normal Retirement Date. Such Deferred Retirement Income shall be payable monthly commencing on the earlier of: (a) the Participant's Deferred Retirement Date; (b) the required commencement date set forth in Section 5.2.1; or (c) the required commencement date set forth in Section 7.7. In the event that a Participant commences receipt of payments under (c) above, his additional benefit accrual for the period between the commencement of benefits and his Deferred Retirement shall be reduced by the Actuarial Equivalent value of the aggregate amount of Retirement Income previously made to him pursuant to the provisions of Section 5.2.2, subject to the provisions of Department of Labor Regulations 2530.203-3 and other applicable law. 5.2.1 If a Participant remains actively employed by the Company beyond his Normal Retirement Date or is reemployed after Normal Retirement Age, Retirement Income will be -11- suspended for any calendar month for which he is compensated for more than 40 Hours of Service. No such suspension will occur in the case of reemployment or continued employment after Normal Retirement Age and prior to the latest commencement date set forth in Section 7.7 where the Participant accumulates 40 or more Hours of Service in any calendar month unless such Participant is notified in accordance with the procedures in Regulation Section 2530.200-3 of ERISA. 5.2.2 If a Participant is required to commence payment of his Retirement Income because be has reached the latest commencement date as provided in Section 7.7, then the Participant shall receive a Deferred Retirement Income calculated in accordance with Section 5.2 (or 5.2.1, if applicable), and as of each December 31 thereafter, an additional amount, if any, will be paid to the Participant equal to the excess of (a) over (b) where: (a) is the increase in the Participant's recalculated Deferred Retirement Income between the amount accrued on his required commencement date and the date of determination; and (b) is the Actuarial Equivalent of the Retirement Income received by the Participant pursuant to this Section. The foregoing additional payment shall be required only if, after the recalculation of the Participant's Deferred Retirement Income, such additional payment is required to comply with the minimum distribution rules contained in Section 401(a)(9) of the Code and regulations thereunder. 5.3 Early Retirement Income. The annual amount of Retirement Income to be payable in monthly installments to each Participant who retires early in accordance with Section 4.3 shall, at the Participant's election, be the amount specified in (a) or (b) below. (a) Early Retirement Income Commencing at Normal Retirement Date. The amount of a Participant's Early Retirement Income, commencing on his Normal Retirement Date, shall be his Accrued Benefit based on his Average Final Compensation, Covered Compensation and Years of Benefit Service as of his Early Retirement Date. (b) Early Retirement Income Commencing Prior to Normal Retirement Date. The amount of a Participant's Early Retirement Income, commencing on or after his Early Retirement Date but prior to his Normal Retirement Date, shall be equal to his Accrued Benefit computed under Section 5.3(a), reduced according to the following table. The reduction percentages are for each month by which the date of commencement of such Retirement Income precedes the Participant's Normal Retirement Age. -12-
Normal Retirement Age Years before NRD 65 66 67 -- -- -- 1 5/9%/mo. 5/9%/mo. 5/9%/mo. 2 5/9% 5/9% 5/9% 3 5/9% 5/9% 5/9% 4 5/9% 5/9% 5/12% 5 5/9% 5/12% 5/12% 6 5/18% 5/9% 5/9% 7 5/18% 5/18% 5/9% 8 5/18% 5/18% 5/18% 9 5/18% 5/18% 5/18% 10 5/18% 5/18% 5/18% 11 N/A 5/18% 5/18% 12 N/A N/A 5/18%
5.6 Cost of Living Increases. (a) Effective January 1, 1992 an ad-hoc cost of living increase was provided to retirees. The benefit increase is described in the Prior Plan. (b) The monthly benefits of all individuals who were receiving payment of benefits under the Plan as of September 1, 1997 were increased by fifteen percent (15%), effective beginning with monthly benefit payments for September 1997. Article VI. Termination of Employment and Vested Rights. 6.1 Forfeiture of Benefits. Any Participant who terminates employment for any cause before completion of five (5) Years of Vesting Service, shall forfeit all rights to any benefits under the Plan. 6.2 Vested Deferred Retirement Income. (a) If a Participant ceases to be an Employee for any reason other than death or retirement on or after January 1, 1989 and after he completes five (5) Years of Vesting Service and before his Normal Retirement Date, he shall have a vested and nonforfeitable right to a percentage of his Accrued Benefit, as determined under the following table:
Years of Vesting Service Vested Percentage - ------------------------ ----------------- Less than 5 0% 5 or more 100%
(b) Any Participant entitled to a vested deferred Retirement Income under this Section 6.2 who completes at least five (5) Years of Benefit Service may elect to receive -13- a pension, commencing on the first day of any month after satisfaction of the early retirement requirements in an amount equal to the amount determined in Section 5.3(b). (c) The benefit payable under (a) or (b) above is adjusted in accordance with the applicable normal form of benefits under Section 7.1. 6.3 Use of Former Vesting Schedule. If the Plan is amended and if such amendment directly or indirectly affects the computation of the nonforfeitable percentage of a Participant's Accrued Benefit, each Participant who has completed at least three (3) Years of Vesting Service and whose nonforfeitable percentage at any time after such amendment could be less than such percentage determined without regard to such amendment will have the nonforfeitable percentage of his Accrued Benefit determined without regard to such amendment. 6.4 Vesting at Normal Retirement Age. An active Participant shall have a vested and nonforfeitable right to 100% of the Retirement Income under Section 5.1 upon reaching the earlier of (a) Normal Retirement Age or, (b) the later of age 65 or the fifth anniversary of plan participation. 6.5 Benefits Upon Re-employment. Subject to the provisions of Sections 5.2.1, 6.5.1, 6.5.2 and 6.5.3, any benefit payments to a former Employee who is reemployed by the Company shall be suspended for the period of his reemployment. Upon subsequent termination of employment, the amount of his benefit shall be recomputed based on his aggregate Years of Benefit Service and his Average Final Compensation minus the Actuarial Equivalent of the payments previously received. 6.5.1 In the case of the reemployment by the Company of a former Employee who had received a lump sum distribution of his fully vested benefit, Years of Vesting Service earned before and after his reemployment shall be aggregated and Years of Benefit Service earned prior to his reemployment shall be disregarded-for purposes of determining his vested status and his accrued benefit at subsequent termination of employment. In the case of the reemployment by the Company of a former Employee who had received a lump sum distribution of less than one hundred percent of his accrued benefit, Years of Vesting Service and Years of Benefit Service earned before and after his reemployment shall be aggregated and the benefit to which he is entitled at subsequent termination shall be reduced by the Actuarial Equivalent of the benefits previously received. 6.5.2 If a Participant continues to be employed by the Company on the latest commencement date provided in Section 7.7, his Deferred Retirement Benefit shall be calculated in accordance with Section 5.2.2 and commence as provided in Section 7.7, and the recalculation provided in Section 5.2.2 shall be applied each year thereafter. 6.6 Optional Forms Upon Re-employment. If a Participant whose Annuity Starting Date is prior to his Normal Retirement Age is reemployed, the form of payment elected with respect to benefits accrued as of such pre-Normal Retirement Age Annuity Starting Date shall remain in effect with respect to the benefit he had accrued prior to his reemployment. Any -14- benefits accrued after his reemployment shall be subject to the surviving spouse benefit under Section 8.2 or qualified joint and survivor annuity under Section 7.2 unless another form of payment is properly elected. If the benefit of a reemployed Participant was payable as of an Annuity Starting Date which was after his Normal Retirement Age, the form of payment elected at such Annuity Starting Date shall remain in effect during the period of his post-Normal Retirement Age employment and shall apply to the benefits accrued during such period of reemployment. Upon subsequent retirement or required beginning date, payments will resume in accordance with such form of payment previously elected. Article VII. Normal and Optional Forms of Benefit. 7.1 Normal Form of Benefit. Except as otherwise provided in Section 7.2, the normal form of Accrued Benefit payable under the Plan to a Participant is a pension payable monthly to the Participant during his lifetime only, the first payment to be due on the first day of the calendar month coincident with or next following the Participant's actual retirement and the last payment to be due on the first day of the calendar month in which his death occurs. 7.2 Normal Form of Benefit for Certain Married Participants. The normal form of pension or vested benefit payable under the Plan to a Participant who begins to receive benefits under the Plan and is married on the Annuity Starting Date shall be a qualified joint and survivor annuity form under which a reduced pension will be payable monthly to the Participant during his lifetime and, following his death, one-half of such reduced pension will be payable monthly to the person to whom the Participant was married on the Annuity Starting Date, such amount to be payable through the first day of the calendar month in which the death of such person occurs. The joint and survivor annuity payable hereunder shall be the Actuarial Equivalent of the normal form of pension described in Section 7. 1. If the person to whom a survivor benefit is payable under this Section 7.2 dies after the Annuity Starting Date and while the Participant is alive, the Participant shall continue to receive, during his remaining lifetime, the same amount of reduced pension as was payable to him under this Section 7.2. -15- 7.3 Election of Form of Benefit. The Administrator shall provide each Participant no less than 30 days nor more than 90 days prior to Annuity Starting Date a written explanation of: (i) the terms and conditions of the qualified joint and survivor annuity; (ii) the Participant's right to make and the effect of an election to waive the qualified joint and survivor annuity form of benefit; (iii) the rights of the Participant's spouse; (iv) the right to make, and the effect of, a revocation of a previous election to waive the qualified joint and survivor annuity; and (v) the relative values of the various optional forms of benefit under the Plan. Such description shall inform any such Participant who has a spouse that he has a reasonable period of time in which to elect, with the consent of such spouse, to take his retirement benefits other than in the form described in Section 7.2, in which case the standard form of benefit payment shall be a straight life annuity set forth in Section 7.1, and shall inform such Participant of the availability of other optional forms of benefit under Section 7.4 and the availability from the Administrator of descriptive information relative to any optional forms available. Similar relevant information shall be provided to unmarried Participants with respect to the life annuity form of benefit under Section 7.1. All elections and revocations of elections hereunder shall be in writing on forms to be supplied by the Retirement Board and signed by the Participant. Any election by a Participant who has a spouse to take his benefit in a form other than that provided in Section 7.2, other than the joint and 67%, 75% or 100% spousal survivor annuity described in Section 7.4, will not be effective unless such spouse consents thereto in writing, acknowledging the effect of such election, and such consent is witnessed by a Notary Public or a Plan representative. The waiver of the qualified joint and survivor annuity will not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent. If a Participant designates a Beneficiary other than his spouse, then spousal consent to that specific Beneficiary shall be required; and similarly, any change in Beneficiary shall require spousal consent. If it is established to the satisfaction of a Plan Representative that any such written consent may not be obtained because there is no spouse or the spouse cannot be located, or under such other circumstances as the Secretary of the Treasury may prescribe, then no spousal consent shall be required. The Administrator shall maintain procedures in conformity with Code Section 417(a)(2)(B) to establish whether a spousal consent is required. The period for making any election shall be ninety (90) days duration, ending on the Annuity Starting Date, and any election may be revoked and a new election made at any time and any number of times during the election period. Any written explanation requested by the Participant must be given within a reasonable period of time after the request. All elections and options shall become effective on the Annuity Starting Date and may not thereafter be revoked or modified. Notwithstanding the foregoing provisions of this paragraph (d), if the Participant, after having received the written explanation of the qualified joint and survivor annuity, affirmatively elects a form of distribution (with spousal consent, if necessary), the Annuity Starting Date may be less than 30 days after receipt of the written explanation described in this paragraph (d) provided: (a) the Participant has been provided with information that clearly indicates that the Participant has at least 30 days to consider whether to waive the qualified joint and survivor annuity form of payment and elect (with spousal consent) a form of distribution other than a qualified joint and survivor annuity; (b) the Participant is permitted to revoke any affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the -16- expiration of the 7-day period that begins the day after the explanation of the qualified joint and survivor annuity form of payment is provided to the Participant; and (c) the Annuity Starting Date is a date after the date that the written explanation was provided to the Participant. Nevertheless, the Annuity Starting Date may be before the date that any affirmative distribution election is made by the Participant and before the date that distribution is permitted to commence in accordance with the following sentence. Distribution may not be made or commence before expiration of the seven (7) day period that begins the day after the written explanation of the qualified joint and survivor annuity described above is provided. To the extent that an unmarried Participant is permitted to waive the life annuity form of benefit payment, the foregoing provisions shall also apply with respect to the waiver of the life annuity form of benefit payment. 7.4 Optional Forms of Benefit. (a) Generally. Subject to Sections 7.2 and 7.3, a Participant may elect to have his benefit paid in any one of the optional forms described in paragraphs (1) and (2) below, which form will be the Actuarial Equivalent value of the normal form of benefit described in Section 7.1: (1) Contingent Annuitant Option: An actuarially reduced Retirement Income payable in equal monthly installments for the lifetime of the Retired Employee, with the provision that after his death, his Beneficiary, if living, shall receive lifetime Retirement Income equal to 50%, 67%, 75%, or 100% at the Participant's death, of the amount of Retirement Income payable to the Retired Employee prior to death. (2) 60 and 120 Months Certain and Life Income Option: An actuarially reduced Retirement Income payable in equal monthly installments for the lifetime of the Retired Employee, with the provision that after his death, his Beneficiary shall receive the balance, if any, of the guaranteed sixty (60) or one hundred twenty (120) monthly payments. If the Beneficiary designated by the Participant under this Section 7.4 is not the Participant's spouse, the benefits payable to the Participant must satisfy the requirements of Section 7.7. (b) Effect of the Death of Participant or Beneficiary. The election of a form of payment is void upon the death of either the Participant or Beneficiary prior to the Annuity Starting Date unless the Participant dies and had elected the form described in Section 7.4(a)(1) with his spouse as the designated Beneficiary. (c) Evidence of Beneficiary's Age. Any Participant who elects the contingent annuitant option described in-Section 7.4(a)(1) or who receives the joint and survivor annuity benefit described in Section 7.2, must submit the birth certificate (or some other satisfactory evidence of age) of his Beneficiary or spouse, as the case may be, to the Administrator with his application for retirement benefits. -17- 7.5 Distribution of Small Benefits. Notwithstanding any provision in the Plan to the contrary, if the Actuarial Equivalent lump sum value of an Accrued Benefit payable to or on behalf of any Participant hereunder upon termination or retirement does not exceed $5,000 ($3,500 prior to January 1, 2001), such benefit shall be in the form of a lump sum payment of Actuarial Equivalent value in lieu of any other benefit payable hereunder. 7.6 Statutory Deadlines for Distributions. Unless the Participant elects otherwise in writing, distribution will be made (or will commence) no later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (i) the attainment by the Participant of age 65; (ii) the tenth anniversary of the year in which the Participant commenced participation in the Plan; or (iii) the date the Participant ceases to be an Employee. 7.7 Minimum Distribution Requirements. (a) Subject to the 50% Joint and Survivor Benefit requirements described in Section 7.2, the requirements of this Section 7.7 shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. However, this Section 7.7 is not intended to create additional optional forms of benefits beyond those set forth in Section 7.4. (b) All distributions required under this Section 7.7 shall be determined and made in accordance with Section 401(a)(9) of the Code and regulations thereunder, including the minimum distribution incidental benefit requirement. (c) Required Beginning Date. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's required beginning date. (d) Limits on Distribution Periods. As of the first distribution calendar year, distributions, if not made in a single sum, may only be made over one of the following periods (or a combination thereof): (i) the life of the Participant, (ii) the life of the Participant and a designated beneficiary, (iii) a period certain not extending beyond the life expectancy of the Participant, or -18- (iv) a period certain not extending beyond the joint and last survivor expectancy of the Participant and a designated beneficiary. (e) Determination of Amount to be Distributed Each Year. If the Participant's interest is to be paid in the form of annuity distributions under the Plan, payments under the annuity shall satisfy the following requirements: (i) the annuity distributions must be paid in periodic payments made at intervals not longer than one year; (ii) the distribution period must be over a life (or lives) or over a period certain not longer than a life expectancy (or joint life and last survivor expectancy) described in Section 401(a)(9)(A)(ii) or Section 401(a)(9)(B)(iii) of the Code, whichever is applicable; (iii) the life expectancy (or joint life and last survivor expectancy) for purposes of determining the period certain shall be determined without recalculation of life expectancy; (iv) once payments have begun over a period certain, the period certain may not be lengthened even if the period certain is shorter than the maximum permitted; (v) payments must either be non-increasing or increase only as follows: (1) with any percentage increase in a specified and generally recognized cost-of-living index; (2) to the extent of the reduction to the amount of the Participant's payments to provide for a survivor benefit upon death, but only if the beneficiary whose life was being used to determine the distribution period described in paragraph (d) above dies and the payments continue otherwise in accordance with paragraph (d) over the life of the Participant; (3) to provide cash refunds of employee contributions upon the Participant's death; or (4) because of an increase in benefits under the Plan. (vi) If the annuity is a life annuity (or a life annuity with a period certain not exceeding 20 years), the amount which must be distributed on or before the Participant's required beginning date (or, in the case of distributions after the death of the Participant, the date distributions are required to begin as described below) shall be the payment which is required for one payment interval. (vii) If the annuity is a period certain annuity without a life contingency (or is a life annuity with a period certain exceeding 20 years) periodic payments for each distribution calendar year shall be combined and treated as an annual amount. The amount which must be distributed by the Participant's required beginning date (or, in the case of distributions after the death of the Participant, the date distributions are required to begin as described below) is the -19- annual amount for the first distribution calendar year. The annual amount for other distribution calendar years, including the annual amount for the calendar year in which the Participant's required beginning date (or the date distributions are required to begin as described below) occurs, must be distributed on or before December 31 of the calendar year for which the distribution is required. (f) Annuities commencing after December 31, 1988, are subject to the following additional conditions: (i) Unless the Participant's spouse is the designated beneficiary, if the Participant's interest is being distributed in the form of a period certain annuity without a life contingency, the period certain as of the beginning of the first distribution calendar year may not exceed the applicable period determined using the table set forth in Q&A A-5 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations, or in any successor regulation thereto. (ii) If the Participant's interest is being distributed in the form of a joint and survivor annuity for the joint lives of the Participant and a nonspouse beneficiary, annuity payments to be made on or after the Participant's required beginning date to the designated beneficiary after the Participant's death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the Participant using the table set forth in Q&A A-6 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations, or in any successor regulation thereto. (g) Transitional Rule. If payments under an annuity which complies with paragraph (e) above begin prior to January 1, 1989, the minimum distribution requirements in effect as of July 27, 1987, shall apply to distributions from this Plan, regardless of whether the annuity form of payment is irrevocable. This transitional rule also applies to deferred annuity contracts distributed to or owned by the employee prior to January 1, 1989, unless additional contributions are made under the Plan by the Company with respect to such contract. (h) If the form of distribution is an annuity made in accordance with paragraphs (e) through (g), any additional benefits accruing to the Participant after his or her required beginning date shall be distributed as a separate and identifiable component of the annuity beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. (i) Death Distribution Provisions. (i) Distribution beginning before death. If the Participant dies after distribution of his or her interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (ii) Distribution beginning after death. If the Participant dies before distribution of his or her interest begins, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the -20- Participant's death except to the extent that an election is made to receive distributions in accordance with (1) or (2) below: (1) If any portion of the Participant's interest is payable to a designated beneficiary, distributions may be made over the life or over a period certain not greater than the life expectancy of the designated beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; (2) If the designated beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (1) above shall not be earlier than the later of (A) December 31 of the calendar year immediately following the calendar year in which the Participant died and (B) December 31 of the calendar year in which the Participant would have attained age 70 1/2. (3) If the Participant has not made an election pursuant to this subparagraph (ii) by the time of his or her death, the Participant's designated beneficiary must elect the method of distribution no later than the earlier of (A) December 31 of the calendar year in which distributions would be required to begin under this paragraph (i), or (B) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated beneficiary, or if the designated beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (iii) For purposes of subparagraph (ii) above, if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of subparagraph (ii), with the exception of (2) therein, shall be applied as if the surviving spouse were the Participant. (iv) For purposes of this paragraph (i), any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (v) For purposes of this paragraph (i), distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if subparagraph (iii) above is applicable, the date distribution is required to begin to the surviving spouse pursuant to subparagraph (ii) above). If distribution in the form of an annuity irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. (j) Definitions. (i) Designated beneficiary. The individual who is designated as the beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and the regulations thereunder. (ii) Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first -21- distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to paragraph (i) above. (iii) Life expectancy. The life expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or designated beneficiary) as of the Participant's (or designated beneficiary's) birthday in the applicable calendar year. The applicable calendar year shall be the first distribution calendar year. If annuity payments commence before the required beginning date, the applicable calendar year is the year such payments commence. Life expectancy and joint and last survivor expectancy are computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the Income Tax Regulations. (iv) Required Beginning Date. The required beginning date of a Participant is April 1 of the calendar year following the calendar year in which he attains age 70 1/2, provided that such commencement in active service shall not be required with respect to a Participant who attains age 70 1/2 prior to January 1, 1988 and who is not a 5-percent owner. (v) 5-Percent Owner. A Participant is treated as a 5-percent owner for purposes of this Section if such Participant is a 5-percent owner as defined in Section 416 of the Code at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2. Once distributions have begun to a 5-percent owner under this Section, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year. Article VIII. Death Benefits. 8.1 Death Benefits Limited. Except as otherwise provided in Article VII above or Section 8.2 below, no benefits shall be payable under the Plan in connection with the death of a Participant. 8.2 Pre-retirement Death Benefits Payable to Spouse. (a) Married Participants Who meet Requirements For Early Retirement. If a married Participant meets the requirements for early retirement under Section 4.3 and then dies prior to his Normal Retirement Date while still in the service of the Company, his surviving spouse shall be entitled to receive a monthly spouse's pension, commencing on the date which would have been the Participant's Normal Retirement Date, unless the surviving spouse consents in writing (in such form as the Administrator may prescribe) to an earlier commencement date. Such earlier commencement date must be the first day of a calendar month and cannot precede the earliest date the Participant could have begun receiving benefits under Article VI or Article VII. The monthly amount of such survivor annuity shall be the same as the monthly annuity the spouse would have received had the Participant commenced receiving his benefit on the date the survivor annuity commences, -22- in the normal form described in Section 7.2. If the Participant remained in the service of the Company at the time of his death, the amount of the survivor annuity shall be calculated on the assumption that the Participant's service ended on the date of his death and he survived until the date the survivor annuity commences. (b) Married Participants Who Meet Requirements For Normal Retirement. If a married Participant dies on or after his Normal Retirement Date and prior to his Annuity Starting Date, his surviving spouse shall be entitled to receive a monthly spouse's pension, commencing on the first day of the month following the Participant's death and payable on the first day of each month thereafter during such spouse's lifetime. The monthly amount of such survivor annuity shall be the same as the monthly annuity the spouse would have received had the Participant commenced receiving his benefit on the date the survivor annuity commences, in the normal form described in Section 7.2. Payments will begin on the first day of the month following the Participant's death and will continue each month thereafter during the spouse's lifetime. (c) Other Married Vested Participants. A survivor annuity shall be payable under this Section 8.2(c) to the surviving spouse of any Participant (including Vested Terminated Participants) who (i) is credited with one or more Hours of Service after September 30, 1976; (ii) has not received any benefit payments as of the date of his death; (iii) dies on or after August 23, 1984; (iv) is married throughout the one year period ending on the date of his death; and (v) has met the vesting requirement described in Section 6.2 at the time of his death or termination, if earlier. Such survivor annuity shall be payable monthly, commencing on the date which would have been the Participant's Normal Retirement Date, unless the surviving spouse consents in writing (in such form as the Administrator may prescribe) to an earlier commencement date. Such earlier commencement date must be the first day of a calendar month and cannot precede the earliest date the Participant could have begun receiving benefits under Article VI or Article VII. The monthly amount of such survivor annuity shall be the same as the monthly annuity the spouse would have received had the Participant commenced receiving his benefit on the date the survivor annuity commences, in the normal form described in Section 7.2. If the Participant remained in the service of the Company at the time of his death, the amount of the survivor annuity shall be calculated on the assumption that the Participant's service ended on the date of his death and he survived until the date the survivor annuity commences. -23- (d) An individual claiming benefits under this Section 8.2 may be required by the Company to furnish satisfactory evidence of status as a surviving spouse, and the Company's determination shall be final. (e) If the Actuarial Equivalent lump sum value of the preretirement survivor annuity benefit upon the death of the Participant does not exceed $5,000, such amount shall be paid to the surviving spouse at that time in lieu of any other benefits hereunder. -24- EXHIBIT 10.13.4 CERTIFICATE The undersigned hereby certifies that The Connecticut Water Company Employees' Retirement Plan, as amended and restated effective as of January 1, 1997, except as otherwise provided therein, was duly amended by the Pension Trust Committee of the Board of Directors of The Connecticut Water Company by a Fourth Amendment on , 2002, and the Plan, as so amended, is in full force and effect. _____________________ ________________________________ Date ________________________________ Title EX-10.13.5 10 y84639exv10w13w5.txt 5TH AMENDMENT TO EMPLOYEES RETIREMENT PLAN EXHIBIT 10.13.5 FIFTH AMENDMENT TO THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN (as amended and restated as of January 1, 1997, except as otherwise provided therein) (EGTRRA AMENDMENT) SECTION 1. STATEMENT OF INTENT 1. Adoption and effective date of Amendment. This Amendment of the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This Amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this Amendment shall be effective as of the first day of the first Plan Year beginning after December 31, 2001. 2. Supersession of inconsistent provisions. This Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment. SECTION 2. LIMITATIONS ON BENEFITS 1. Effective date. This Section shall be effective for Limitation Years ending after December 31, 2001. 2. Effect on Participants. Benefit increases resulting from the increase in the limitations of Section 415(b) of the Code will be provided to all Employees participating in the Plan who have one Hour of Service on or after January 1, 2002. 3. Definitions. 3.1 Defined benefit dollar limitation. The "defined benefit dollar limitation" is $160,000, as adjusted, effective January 1 of each year, under Section 415(d) of the Code in such manner as the Secretary shall prescribe, and payable in the form of a straight life annuity. A limitation as adjusted under Section 415(d) will apply to Limitation Years ending with or within the calendar year for which the adjustment applies. 3.2 Maximum permissible benefit: The "maximum permissible benefit" is the lesser of the defined benefit dollar limitation or the defined benefit compensation limitation (both adjusted where required, as provided in (a) and, if applicable, in (b) or (c) below). (a) If the Participant has fewer than 10 years of participation in the Plan, the defined benefit dollar limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of participation in the Plan and (ii) the denominator of which is 10. In the case of a Participant who has fewer than 10 years of service with the Employer, the Exhibit 10.13.5 defined benefit compensation limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of service with the Employer and (ii) the denominator of which is 10. (b) If the benefit of a Participant begins prior to age 62, the defined benefit dollar limitation applicable to the Participant at such earlier age is an annual benefit payable in the form of a straight life annuity beginning at the earlier age that is the actuarial equivalent of the defined benefit dollar limitation applicable to the Participant at age 62 (adjusted under (a) above, if required). The defined benefit dollar limitation applicable at an age prior to age 62 is determined as the lesser of (i) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using the interest rate and mortality table (or other tabular factor) equivalence for early retirement benefits, and (ii) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using a 5 percent interest rate and the mortality table referenced in Exhibit I of the Plan. Any decrease in the defined benefit dollar limitation determined in accordance with this paragraph (b) shall not reflect a mortality decrement if benefits are not forfeited upon the death of the Participant. (c) If the benefit of a Participant begins after the Participant attains age 65, the defined benefit dollar limitation applicable to the Participant at the later age is the annual benefit payable in the form of a straight life annuity beginning at the later age that is actuarially equivalent to the defined benefit dollar limitation applicable to the Participant at age 65 (adjusted under (a) above, if required). The actuarial equivalent of the defined benefit dollar limitation applicable at an age after age 65 is determined as the lesser of (i) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for purposes of determining actuarial equivalence for delayed retirement benefits, and (ii) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using a 5 percent interest rate assumption and the mortality table referenced in Exhibit I of the Plan. SECTION 3. INCREASE IN COMPENSATION LIMIT 1. Increase in limit. The Annual Earnings or annual Compensation of each Participant taken into account in determining benefit accruals in any Plan Year beginning after December 31, 2001, shall not exceed $200,000. Annual Earnings or annual Compensation means Earnings or Compensation during the Plan Year or such other consecutive 12-month period over which Earnings or Compensation is otherwise determined under the Plan (the determination period). Accruals relating to periods prior to January 1, 2002, and the amount of Earnings or Compensation taken into account for periods prior to January 1, 2002, in determining accruals before and after January 1, 2002, shall be unaffected by this change. 2. Cost-of-living adjustment. The $200,000 limit on Annual Earnings or annual Compensation in paragraph 1 shall be adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to Annual Earnings or annual Compensation for the determination period that begins with or within such calendar year. -2- SECTION 4. MODIFICATION OF TOP-HEAVY RULES 1. Effective date. This Section shall apply for purposes of determining whether the Plan is a top-heavy plan under Section 416(g) of the Code for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years. This Section amends Article XV of the Plan. 2. Determination of top-heavy status. 2.1 Key employee. Key employee means any Employee or former Employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. 2.2 Determination of present values and amounts. This Section 2.2 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of Employees as of the determination date. 2.2.1 Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an Employee as of the determination date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period." 2.2.2 Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the determination date shall not be taken into account. 3. Minimum benefits. For purposes of satisfying the minimum benefit requirements of Section 416(c)(1) of the Code and the Plan, in determining years of service with the Employer, any service with the Employer shall be disregarded to the extent that such service occurs during a Plan Year when the Plan benefits (within the meaning of Section 410(b) of the Code) no key employee or former key employee. -3- SECTION 5. DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS 1. Effective date. This Section shall apply to distributions made after December 31, 2001. 2. Modification of definition of eligible retirement plan. For purposes of the direct rollover provisions in Section 10.6 of the Plan, an eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code. 3. Modification of definition of eligible rollover distribution to include after-tax employee contributions. For purposes of the direct rollover provisions in Section 10.6 of the Plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. SECTION 6. NEW MORTALITY TABLE Effective for distributions with annuity starting dates on or after December 31, 2002, the applicable mortality table used for purposes of adjusting any benefit or limitations under Section 415(b)(2)(B), (C) or (D) of the Internal Revenue Code, and the applicable mortality table used for purposes of satisfying the requirements of Section 417(e) of the Internal Revenue Code, and referenced in Exhibit I, Appendix C, and Appendix D of the Plan, shall be the table prescribed in Rev. Rul. 2001-62, and not the table prescribed in Rev. Rul. 95-6. -4- EXHIBIT 10.13.5 CERTIFICATE The undersigned hereby certifies that The Connecticut Water Company Employees' Retirement Plan, as amended and restated effective as of January 1, 1997, except as otherwise provided therein, was duly amended by the Pension Trust Committee of the Board of Directors of The Connecticut Water Company by a Fifth Amendment on , 2002, and the Plan, as so amended, is in full force and effect. _____________________ ________________________________ Date ________________________________ Title EX-21 11 y84639exv21.txt SUBSIDIARIES OF CONNECTICUT WATER SERVICE, INC. EXHIBIT 21 CONNECTICUT WATER SERVICE, INC. SUBSIDIARIES Following is a list of the subsidiaries of Connecticut Water Service, Inc., each of which, unless otherwise indicated, is wholly owned by the company either directly or through another subsidiary. Second-tier subsidiaries are listed under the name of the parent subsidiary.
NAME STATE OF INCORPORATION REGISTRANT: Connecticut Water Service, Inc. Connecticut SUBSIDIARIES: The Connecticut Water Company Connecticut Chester Realty, Inc. Connecticut New England Water Utility Services, Inc. Connecticut Connecticut Water Emergency Services, Inc. Connecticut The Unionville Water Company Connecticut The Gallup Water Service, Incorporated Connecticut Crystal Water Utilities Corporation Connecticut The Crystal Water Company of Danielson Connecticut Barnstable Holding Company Connecticut The Barnstable Water Company Massachusetts BARLACO Massachusetts
EX-23.1 12 y84639exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-53211, 333-94525, 333-51702, and 333-88544) of Connecticut Water Service, Inc. of our reports dated February 12, 2003 relating to the financial statements and financial statement schedules, which appear in this Form 10-K. /s/ PricewaterhouseCoopers, LLP Boston, Massachusetts March 26, 2003 EX-23.2 13 y84639exv23w2.txt EXPLANATION EXHIBIT 23.2 EXPLANATION CONCERNING ABSENCE OF CURRENT WRITTEN CONSENT OF ARTHUR ANDERSEN LLP Section 11(a) of the Securities Act of 1993, as amended (the "Securities Act"), provides that if any part of a registration statement at the time such part becomes effective contains an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant. This Annual Report on Form 10-K is incorporated by reference into the Registration Statements File Nos. 33-53211, 333-94525, 333-51702 and 333-88554 on Form S-8 (collectively, the "Registration Statements") of Connecticut Water Service, Inc. (the "Company") and, for purposes of determining any liability under the Securities Act, is deemed to be a new registration statement for each Registration Statement into which it is incorporated by reference. As recommended by the Company's Audit Committee, the Company's Board of Directors on June 18, 2002 decided to dismiss Arthur Andersen LLP ("Andersen") as the Company's independent accountants. See the Company's Current Report on Form 8-K filed June 20, 2002 for more information. After reasonable efforts, the Company has been unable to obtain Andersen's written consent to the incorporation by reference into the Registration Statements of its audit reports with respect to the Company's financial statements as of and for the fiscal years ended December 31, 2001 and 2000, though Andersen did consent on February 8, 2002 to the incorporation by reference of its audit report contained in the filing of the Company on Form 10-K for the fiscal year ended December 31, 2001. Under these circumstances, Rule 437a under the Securities Act permits the Company to file this Form 10-K without a written consent from Andersen. However, as a result, with respect to transactions in the Company securities pursuant to the Registration Statements that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Andersen may not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Andersen or any omissions of a material fact required to be stated therein. Accordingly, you may be unable to assert a claim against Andersen under Section 11(a) of the Securities Act because it has not consented to the incorporation by reference of its previously issued reports into the Registration Statements. To the extent provided in Section 11(b)(3)(C) of the Securities Act, however, other persons who may become liable under Section 11(a) of the Securities Act, including the Company's officers and directors, may still rely on Andersen's original audit reports as being made by an expert for purposes of establishing a due diligence defense under Section 11(b) of the Securities Act. The following is a copy of Arthur Andersen's consent which was filed in connection with Connecticut Water Service, Inc.'s Form 10-K on March 25, 2002. This consent has not been reissued by Arthur Andersen. 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 Statements File Nos. 33-53211, and 333-54418. /s/ Arthur Andersen LLP Hartford, Connecticut March 21, 2002 EX-99.1 14 y84639exv99w1.txt CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of The Connecticut Water Service, Inc. (the " Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marshall T. Chiaraluce, Chief Executive Officer of the Company, Certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Marshall T. Chiaraluce - -------------------------- Marshall T. Chiaraluce Chief Executive Officer March 18, 2003 EX-99.2 15 y84639exv99w2.txt CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of The Connecticut Water Service, Inc. (the " Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David C. Benoit, Chief Financial Officer of the Company, Certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ David C. Benoit - ------------------- David C. Benoit Chief Financial Officer March 17, 2003 -----END PRIVACY-ENHANCED MESSAGE-----