10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-K

þ Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2004 or

o 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 (Address of principal executive office)	06413 (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
None Name of each exchange on which registered
Not applicable

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock, without par value
(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 þ No o

     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. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes þ No o

     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 30, 2004 was $202,693,016.

7,988,524

Number of shares of Common Stock outstanding, March 1, 2005
(excluding 51,550 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 31, 2005, for Annual Meeting
of Shareholders to be held on
May 11, 2005.

INDEX TO ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2004

	Page
	Number
Part I
Item 1. Business		3
Item 2. Properties		9
Item 3. Legal Proceedings		11
Item 4. Submission of Matters to a Vote of Security Holders		11
Part II
Item 5. Market for the Company’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities		12
Item 6. Selected Financial Data		13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 7A. Quantitative and Qualitative Disclosure About Market Risk		28
Item 8. Financial Statements and Supplementary Data		28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures		28
Item 9A. Controls and Procedures		29
Item 9B. Other Information		30
Part III
Item 10. Directors and Executive Officers of the Company		31
Item 11. Executive Compensation		32
Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters		32
Item 13. Certain Relationships and Related Transactions		32
Item 14. Principal Accountant Fees and Services		32
Part IV
Item 15. Exhibits and Financial Statement Schedule		33
Signatures		36
EX-10.5.A: AMENDED AND RESTATED DEFERRED COMPENSATION AGREEMENT
EX-10.8.A: SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
EX-10.9.2 EMPLOYMENT AGREEMENT FOR THOMAS R. MARSTON
EX-10.11.1 EMPLOYMENT & CONSULTING AGREEMENT FOR JAMES R. MCQUEEN
EX-10.12.5 SUPPLEMENTAL PARTICIPATION AGREEMENT
EX-10.13.7 AMENDED & RESTATED EMPLOYEE RETIREMENT PLAN
EX-10.28 ASSET PURCHASE AGREEMENT
EX-23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
EX-24 POWER OF ATTORNEY
EX-31.1 CERTIFICATION
EX-31.2 CERTIFICATION
EX-32.1 CERTIFICATION
EX-32.2 CERTIFICATION

3

This Form 10-K contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read in conjunction with the cautionary statements included in this Form 10-K in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Forward Looking Information”.

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 2004 approximately 77% of the Company’s earnings were attributable to water activities carried out within its five regulated water companies: The Connecticut Water Company (Connecticut Water), The Gallup Water Service, Incorporated (Gallup), The Crystal Water Company of Danielson (Crystal), The Barnstable Water Company (Barnstable Water), and The Unionville Water Company (Unionville). These five companies supply water to 87,767 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 Crystal Water and three small rental properties; BARLACO Inc. (BARLACO), a real estate company in Massachusetts; and Barnstable Holding Company, a holding company which owns Barnstable Water and BARLACO. In 2004, these unregulated companies, in conjunction with the regulated water companies, contributed the remaining 23% of the Company’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.

4

On January 26, 2005, Gallup and Crystal submitted a joint application to the Connecticut Department of Public Utility Control (DPUC) pursuant to which Gallup would be merged with and into Crystal. If the merger is approved and completed, the combined entity would be a wholly-owned subsidiary of the Company, as they both are currently. A decision is expected by April 27, 2005.

The request to merge Crystal and Gallup stems from the Company’s plan to seek rate relief for these entities in 2005. The operations were consolidated in 1999 and the service territories are geographically connected in various locations.

At this time, the Company is planning to apply to the DPUC in 2006 to merge all of its Connecticut-based, regulated utilities with and into Connecticut Water. If, and when, these combinations are completed, the resulting entity, Connecticut Water, would consist of the current subsidiaries Gallup, Crystal, Unionville, and Connecticut Water. It is expected that future rate relief applications would propose rate equalization steps, which, if approved would result, over time, in equalized rates for the Company’s customers in Connecticut. The Company believes its is likely that it will apply for rate increases for one or more of its Connecticut subsidiaries during the next 18 months.

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. The following documents are also available through the “CORPORATE GOVERNANCE” section of our website:

•   Code of Conduct – Board of Directors

•   Code of Conduct — Employees

•   Audit Committee Charter

•   Compensation Committee Charter

•   Corporate Governance Committee Charter

Copies of each of the Company’s SEC filings (without exhibits) and corporate governance documents mentioned above will also be mailed to investors, upon request by contacting the Company’s Corporate Secretary at Connecticut Water Company, 93 West Main Street, Clinton, CT 06413.

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.

5

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 $51,900,000 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 $2,443,000 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 a state could revoke our franchises and allow a governmental entity to take over some or all of our systems. While we vigorously oppose any such attempt, 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.

***    Beginning mid-2003, Unionville began imposing a 30% surcharge on its customers’ water bills to recover financing and operating costs related to the construction and use of a water interconnection with a neighboring water supplier. Annually the surcharge is subject to a retroactive refund to ratepayers if total revenue for Unionville exceeds certain stipulated amounts. To date, we have not been required to provide any such refunds. As part of the decision authorizing the surcharge, the Connecticut Department of Public Utility Control (DPUC) also limited the conditions upon which Unionville may seek a rate increase prior to September 1, 2005.

6

Our Water Systems

Our water infrastructure consists of 30 noncontiguous water systems in the State of Connecticut and one water system in Massachusetts. Our system, in total, consists of 1,385 miles of water main and reservoir storage capacity of 7.0 billion gallons. The safe, dependable yield from our 131 active wells and 19 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, 2004.

			Water		Customer Water
	Number of		Revenues		Consumption
Water Company	customers		($000’s)		(millions of gallons)
Barnstable		7,204	$	2,485		820
Connecticut Water		69,767		40,221		5,779
Crystal		3,708		2,118		459
Gallup		1,231		646		92
Unionville		5,857		3,023		651
Total		87,767	$	48,493		7,801

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		77,619	$	30,265		5,405
Commercial		6,484		6,332		1,595
Industrial		430		1,633		453
Public Authority		586		1,430		348
Fire Protection		1,720		8,310		0
Other (including non-metered accounts)		928		523		0
Total		87,767	$	48,493		7,801

7

Disposition of Property

Our water companies own various small, discrete parcels of land that are no longer required for water supply purposes. At December 31, 2004, this land totaled approximately 350 acres. Over the past years we have been slowly disposing of such excess land. The largest transaction to date has been the donation of land by Crystal to the Town of Killingly, CT for protected open space purposes over a three-year period, 2002 — 2004. In January 2004, the final parcel of land was transferred to the Town. Over the three-year period the following acreage was donated to the Town under this agreement:

Year	Acres		After-tax Profit
2002		54	$	293,000
2003		178	$	942,000
2004		133	$	707,000

In December 2004, Connecticut Water made a donation of 56 acres of land to the Town of Plymouth, CT for a new school. As a result of legislation passed in 2004, this donation was eligible for the Connecticut corporate tax credit in the same manner as a donation for open space purposes. The after tax profit from this transaction was $498,000.

Primarily due to a Connecticut corporate tax credit, which was legislatively enacted in 2000, the donation of land for protected open space purposes results in a greater after-tax profit to the Company than a sale of the land would provide.

We also have a limited amount of land held by our unregulated companies. Included in this category is approximately 100 acres of land held by BARLACO, which we acquired in February 2001 in conjunction with the Company’s acquisition of The Barnstable Holding Company.

Additional information on Disposition of Property can be found in Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operation – Commitments and Contingencies.

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, 2004, we employed a total of 193 persons. Our employees are not covered by collective bargaining agreements. We believe that our relations with our employees are good.

8

Segments of Our Business

For management purposes we divide our business into three Business segments: Water Activities, Real Estate Transactions, and Services and Rentals.

The Water Activities segment is comprised of our core regulated water activities to supply public drinking water to our customers. This segment encompasses all transactions of all our regulated companies with the exception of real estate transactions and services and rental activities.

Our Real Estate Transactions segment involves the sale or donation for income tax benefits of our limited excess real estate holdings. These transactions can be effected by either our regulated or unregulated companies. A breakdown of the net income of this segment between our regulated and unregulated companies for the past three years is as follows:

	Net Income from Real Estate Transactions
	Regulated		Unregulated		Total
2004	$	1,206,000	$	—	$	1,206,000
2003	$	942,000	$	87,000	$	1,029,000
2002	$	440,000		—	$	440,000

Our Services and Rentals segment provides contracted services to water and wastewater utilities and other clients and also leases certain of our properties to third parties. Both our regulated and unregulated companies offer these transactions. The types of services provided include contract operations of water and wastewater facilities; Linebacker^®, our service line protection plan for public drinking water customers; and providing bulk deliveries of emergency drinking water to businesses and residences via tanker truck. Our lease and rental income comes primarily from telecommunication antennas placed on our water storage tanks by telecommunication companies, as well as from the renting of residential and commercial property.

Some of the services listed above, including the service line protection plan and antenna leases, have little or no competition. But there can be considerable competition for contract operations of large water and wastewater facilities and systems. However, we have sought to develop a niche market by seeking to serve smaller facilities and systems in our service areas where there is less competition. The services and rentals segment, while relatively new and a small portion of our overall business, has grown significantly over the past five years and now provides nearly 10 percent of our overall net income. The table below describes the net income generated by this segment of our business from our regulated and unregulated companies for the past three years:

	Net Income from Services and Rentals
	Regulated		Unregulated		Total
2004	$	512,000	$	393,000	$	905,000
2003	$	411,000	$	322,000	$	733,000
2002	$	274,000	$	170,000	$	444,000

9

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. Although, our regulated water companies own their principal properties in fee, substantially all of the properties owned by Barnstable, Crystal, and Unionville companies are subject to liens as security for outstanding debt. In addition, in certain cases, our water companies are parties to limited contractual arrangements for the provision of water supply from neighboring utilities. We believe that our properties are in good operating condition. Water mains are located, for the most part, in public streets and, in a few instances, are located on land that we own in fee and land utilized pursuant to easement right, most of which are perpetual and adequate for the purpose for which they are held.

The net utility plant balances of the water companies at December 31, 2004 were as follows:

	Net Utility Plant
Barnstable	$	6,388,000
Connecticut Water		201,760,000
Crystal		11,536,000
Gallup		3,280,000
Unionville		18,812,000
Total	$	241,776,000

Sources of water supply owned, maintained, and operated by our regulated water companies include eighteen reservoirs and fifty-five well fields. In addition, Connecticut Water has an agreement with the Metropolitan District Commission (MDC) (a public water and sewer authority presently serving the City of Hartford and portions of surrounding towns), which provides, among other things, for the operation and maintenance by MDC of a filtration plant to supply up to 650,000 gallons of treated water per day for Connecticut Water’s Collinsville System. Collectively, these sources have the capacity to deliver approximately fifty-one million gallons of potable water daily to the sixteen major operating systems in the following table. In addition to the principal systems identified, our regulated water companies own, maintain, and operate fifteen small, non-interconnected satellite and consecutive water systems that, combined have the ability to deliver about one million gallons of additional water per day to their respective systems. For some small consecutive water systems, purchased water may comprise substantially all of the total available supply of the system.

Our regulated water companies own and operate fifteen water filtration facilities, having a combined treatment capacity of approximately 26.33 million gallons per day. Of these facilities, twelve are owned by Connecticut Water, two by Unionville, and one by Crystal, Gallup and Barnstable Water do not have, or require, water filtration facilities.

10

The companies’ estimated available water supply, not including water purchases or non-principal systems, is as follows:

	ESTIMATED
	AVAILABLE SUPPLY
	(MILLION GALLONS PER DAY)
Barnstable Water		3.41
Connecticut Water
Guilford System		8.60
Chester System		1.69
Naugatuck System		7.02
Terryville System		0.91
Thomaston System		1.08
Collinsville System		0.65
Northern Western System		15.12
Somers System		0.38
Stafford System		1.00
Crystal
Danielson System		3.69
Plainfield System		1.01
Thompson System		0.29
KIP System		0.50
Gallup		1.44
Unionville		4.35
Total		51.14

As of December 31, 2004, the transmission and distribution systems of our five water companies consisted of approximately 1,385 miles of main. On that date, approximately 75 percent of our mains were eight-inch diameter or larger. Substantially all new main installations are cement-lined ductile iron pipe of eight-inch diameter or larger.

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		100
Connecticut Water		1,085
Crystal		70
Gallup		20
Unionville		110
Total		1,385

We believe that our properties are maintained in good condition and in accordance with current regulations and standards of good waterworks industry practice.

11

ITEM 3. LEGAL PROCEEDINGS

We are involved in various legal proceedings from time to time. 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 subject, that presents a reasonable likelihood of a material adverse impact on the Company’s financial condition, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

12

PART II

ITEM 5. MARKET FOR THE COMPANY’S COMMON STOCK, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

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 2004 and 2003 are listed as follows:

	Price				Dividends
Period	High		Low		Paid
2004
First Quarter	$	29.76	$	27.57	$	.2075
Second Quarter		29.00		24.29	$	.2075
Third Quarter		27.55		23.83	$	.2100
Fourth Quarter		28.98		24.17	$	.2100
2003
First Quarter	$	27.49	$	24.00	$	.2050
Second Quarter		26.96		24.22	$	.2050
Third Quarter		30.41		25.20	$	.2075
Fourth Quarter		30.25		26.96	$	.2075

As of March 1, 2005, there were approximately 4,700 holders of record of our common stock.

We presently have paid or intend to pay quarterly cash dividends in 2005 on March 15, June 15, September 15 and December 15 subject to our earnings and financial condition, regulatory requirements and other factors our Board of Directors may deem relevant.

Purchases of Equity Securities by the Company – The Company has not established any share repurchase plans and thus has not repurchased any shares of its common stock during the last three months of the fiscal year ended December 31, 2004.

13

ITEM 6. SELECTED FINANCIAL INFORMATION

SUPPLEMENTAL INFORMATION (Unaudited)

SELECTED FINANCIAL DATA

Years Ended December 31, (thousands of dollars except per share
amounts and where otherwise indicated)

	2004			2003			2002			2001			2000
CONSOLIDATED STATEMENTS OF INCOME
Operating Revenues	$	48,493		$	47,115		$	45,830		$	45,392 $			43,997
Operating Expenses	$	37,842		$	35,584		$	33,996		$	34,078 $			32,335
Operating Income	$	10,651		$	11,531		$	11,834		$	11,314 $			11,662
Interest and Debt Expense	$	3,897		$	4,635		$	4,534		$	4,632		$	4,782
Net Income Applicable to Common Stock	$	9,356		$	9,172		$	8,742		$	8,401		$	7,858
Cash Common Stock Dividends Paid	$	6,641		$	6,529		$	6,277		$	6,105		$	5,890
Dividend Payout Ratio		71	%		71	%		72	%		73	%		75	%
Weighted Average Common Shares Outstanding		7,999,318			7,956,426			7,717,608			7,619,031			7,604,546
Basic Earnings Per Common Share	$	1.17		$	1.15		$	1.13		$	1.10		$	1.03
Number of Shares Outstanding at Year End		8,035,199			7,967,379			7,939,713			7,649,362			7,604,594
ROE on Year End Common Equity		10.6	%		11.0	%		10.9	%		11.9	%		11.7	%
Declared Common Dividends Per Share*	$	0.835		$	0.825		$	0.814		$	0.804		$	0.795
CONSOLIDATED BALANCE SHEET
Common Stockholders’ Equity	$	87,865		$	83,315		$	79,975		$	70,783 $			67,110
Long-Term Debt	$	66,399		$	64,754		$	64,734		$	63,953 $			66,283
Minority Interest	$	—		$	—		$	—		$	—		$	117
Preferred Stock (Consolidated, Excluding Current Maturities)	$	847		$	847		$	847		$	847		$	847
Total Capitalization	$	155,111		$	148,916		$	145,556		$	135,583		$	134,357
Stockholders’ Equity (Includes Preferred Stock)		57	%		57	%		56	%		53	%		51	%
Long-Term Debt		43	%		43	%		44	%		47	%		49	%
Net Utility Plant	$	241,776		$	235,098		$	229,097		$	202,330		$	193,169
Total Assets	$	290,940		$	281,345		$	264,799		$	231,714		$	222,546
Book Value — Per Common Share	$	10.94		$	10.46		$	10.07		$	9.25		$	8.82
OPERATING REVENUES BY REVENUE CLASS
Residential	$	30,265		$	29,172		$	28,680		$	28,621 $			27,364
Commercial		6,332			6,210			6,036			5,941			5,817
Industrial		1,633			1,616			1,709			1,687			1,905
Public Authority		1,430			1,494			1,436			1,460			1,481
Fire Protection		8,310			8,105			7,434			7,187			6,960
Other (including non-metered accounts)		523			518			535			496			470
Total Operating Revenues	$	48,493		$	47,115		$	45,830		$	45,392 $			43,997
Number of Customers (Average)		87,259			86,145			82,119			78,156			77,183
Billed Consumption (Millions of Gallons)		7,801			7,640			7,418			7,259			6,911
Number of Employees		193			195			191			181			184

*     Not restated for acquisitions accounted for under the pooling-of-interests accounting method.

14

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

Overview

The Company is a non-operating holding company, whose income is derived from the earnings of its eleven wholly-owned subsidiary companies. In 2004, approximately 77% of the Company’s earnings were attributable to water activities carried out within its five regulated water companies: Connecticut Water, Gallup, Crystal, Barnstable Water, and Unionville. The rates charged for service by these regulated water companies are subject to regulation by the Connecticut DPUC and the Massachusetts Department of Telecommunications and Energy (DTE). Over 96% of this water activity income comes from Connecticut Water, our largest subsidiary and water company. Connecticut Water has not had an increase in its rates since 1991. Primarily due to the construction of six major water treatment plants during the late 1970s and throughout the 1980s, our overall investment in gross utility plant increased by $122,881,000, or 270%, from 1978 to 1991, which resulted in our water rates being amongst the highest in Connecticut. In 1991, we began developing opportunities to increase revenues and earnings without raising regulated water rates. Through these efforts we have successfully:

- Increased our consolidated earnings each year since 1991 without increasing water rates, and;

- Continued increasing our common dividend payments per share during this period.

     We believe that it is likely that we will have to seek regulatory approval to increase rates charged at some or all of our Connecticut regulated water companies during the next 18 months. The material factors that will affect our decision to consider filing for additional rate increases in the future are:

- Expected increases in infrastructure investment necessary to insure a safe, reliable water system remains in place,

- Modest historical and projected annual growth in regulated water sales of approximately 1.5%, and;

- Increases in operating costs such as wage, pension, medical, audit and insurance costs.

On a year-to-year basis our earnings are primarily influenced by weather patterns that affect our customers’ water usage and thereby our revenues. Our revenues may fluctuate by as much as $1.5 million (or 3.0%) over or under a normal year because customers use more water in hot, dry years and less water in cool, rainy years.

Regulatory Matters and Inflation

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 capabilities. The cumulative effect of inflation over time results in significantly higher operating costs and facility replacement costs, which must be recovered from future cash flows.

15

Our water companies are 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.

Our water companies’ ability to recover their increased expenses and/or investment in utility plant is dependent on the regulatory rates they charge their customers. Changes to these rates must be approved by the appropriate regulatory authority through formal rate proceedings. The rates of our four Connecticut based water companies are regulated by the Connecticut DPUC and our Massachusetts water company’s rates are regulated by the Massachusetts DTE. Due to the subjectivity of certain items involved in the process of establishing rates such as future customer growth, inflation and allowed return on investment, we have no assurance that our water companies will be able to raise their rates to a level we consider appropriate, or to raise their rates at all, through any future rate proceeding.

The Company believes that it is likely that it will apply for rate increases for one or more of its Connecticut subsidiaries during the next 18 months.

Critical Accounting Policies and Estimates

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 to the Consolidated Financial Statements for a discussion of our significant accounting policies.) The Company believes the following policies and estimates 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.

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.

16

Pension Plan Accounting – The discount rate assumption we use to value our pension benefit obligations has a material impact on the amount of pension expense we record in a given period. Our 2003 and 2004 pension expense was calculated using assumed discount rates of 6.5% and 6.25%, respectively. In 2005, our pension expense will be calculated with an assumed discount rate of 5.75%. The following table shows how much a one percent change in our assumed discount rate would have changed our reported 2004 pension expense:

	Increase
	(Decrease)
	in expense
A 1% increase in the discount rate	($	280,000	)
A 1% decrease in the discount rate	$	292,000

Outlook

The Company’s earnings and profitability are primarily dependent upon 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. The Company’s earnings and profitability in future years will also depend upon a number of other factors, such as the ability to maintain our operating costs at lower levels, customer growth in the Company’s core regulated water utility business, growth in revenues attributable to non-water sales operations, and the timing and adequacy of rate relief if and when requested, from time to time, by our regulated water companies.

The Company believes that the factors described above and those described in detail below under the heading “Commitments and Contingencies” may have significant impact, either alone or in the aggregate, on the Company’s earnings and profitability in fiscal years 2005 and beyond. Please also review carefully the risks and uncertainties described under the heading “Forward Looking Information”.

Based on the Company’s current projections, the Company believes that its net income for the years 2005, 2006 and 2007, excluding the expected gain from the sale of Barnstable Water and BARLACO assets in 2005 and 2006 may be materially reduced from the levels reported for the years 2003 and 2004. Any such reductions would be primarily attributable to lower net income (reduced tax benefits) related to the Company’s land disposition program during 2005-07, excluding BARLACO. In addition, following the completion of the expected sale of the assets of Barnstable Water to the Town of Barnstable in 2005, it is uncertain if the net income realized from a management contract with the Town to provide full operating and management services to Barnstable’s customers, combined with any return generated from the investment of the proceeds of the sale, will be greater or less than the net income produced historically through the ownership of the Barnstable Water and BARLACO assets. During 2006 and subsequent years, the ability of the Company to maintain and increase its net income comparable to historical levels will principally depend upon the effect on the Company of the factors described above in this “Outlook” section, those factors described in the section entitled “Commitments and Contingencies” and the risks and uncertainties described in “Forward Looking Information”.

17

FINANCIAL CONDITION
Liquidity and Capital Resources

In recent years, we have attempted to limit our investment in utility plant to the amount of funds generated from our consolidated operations. Under this policy, the Company has not been required to significantly increase its long-term debt obligations in order to fund its annual construction program. The following table shows the total construction expenditures for each of the last three years and what we expect to invest on construction projects in 2005.

	Gross		Construction		Construction
	Construction		Funded by		Funded by
	Expenditures		Developers &		Company
			Others
2002	$	15,691,000	$	4,992,000	$	10,699,000
2003	$	11,909,000	$	3,522,000	$	8,387,000
2004	$	12,729,000	$	4,394,000	$	8,335,000
2005 (Projected)	$	17,033,000	$	3,000,000	$	14,033,000

We currently fund our working capital requirements through our lines of credit with four banks, which provide liquidity to satisfy ongoing cash needs. We consider the current aggregate $15,500,000 lines of credit to be adequate to finance any expected short-term borrowing requirements that may arise in 2005. All the lines have one-year lives and will expire on different dates in 2005. We expect to renew the lines in 2005. The interest rates payable are variable and fluctuate over time based on financial conditions. The weighted average interest rate on the $5,650,000 balance outstanding at December 31, 2004 was 2.832%.

During 2003, interest rates fell to historically low levels. We took advantage of the low rates and refinanced a portion of our long-term debt in the fourth quarter of 2003. In October 2003, Connecticut Water borrowed $22.93 million from the issuance of Water Facilities Refunding Revenue Bonds by the Connecticut Development Authority (Authority). The bonds were sold in two series with the following terms:

2003 A Series: $8,000,000 (Non-AMT) 4.40% Maturing 12/15/2020

2003 C Series: $14,930,000 (AMT) 5.00% Maturing 09/01/2022

The proceeds of the transaction were used to redeem the Series R and S first mortgage bonds of Connecticut Water and paid for a portion of the expenses associated with the issuance.

During the first quarter of 2004, Connecticut Water refinanced an additional portion of its long-term debt through the issuance of $12,500,000 of variable rate, taxable debenture bonds Series 2004 with a maturity date of January 4, 2029. The bonds were secured by an irrevocable direct pay letter of credit issued by a financial institution, with a five-year term expiring in March 2009. The proceeds of the sale of the bonds, which are general debt obligations of Connecticut Water, were used to redeem the $12,050,000 aggregate principal amount of Connecticut Water’s First Mortgage Bonds (Series V) and to pay a portion of the expenses associated with the bonds’ refunding.

18

In connection with the issuance of the bonds, Connecticut Water entered into an interest rate swap transaction with a counterparty in the notional principal amount of $12,500,000. The interest rate swap agreement provides that, beginning in April 2004 and thereafter on a monthly basis, Connecticut Water will pay the counterparty a fixed interest rate of 3.73% on the notional amount for a period of five years. In exchange, the counterparty will, beginning in April 2004 and thereafter on a monthly basis, pay Connecticut Water a floating interest rate (based on 105% of the U.S. Dollar one-month LIBOR rate) on the notional amount for a period of five years. The purpose of the interest rate swap is to manage the Company’s exposure to fluctuations in prevailing interest rates.

In June 2004, Unionville secured $1.6 million through the Drinking Water State Revolving Fund for costs incurred in developing a water interconnection with a neighboring water supplier. The funds were used to pay off a portion of the balances outstanding under bank lines of credit.

On September 1, 2004, Connecticut Water refinanced a portion of its existing bond indebtedness. Connecticut Water borrowed $9.55 million in sale proceeds from the issuance of Water Facilities Refunding Revenue Bonds by the Authority. The bonds were sold in two series with the following terms:

2004 A Series: $5,000,000 Variable Interest Maturing 7/1/2028

2004 B Series: $4,550,000 Variable Interest Maturing 9/1/2028

The proceeds of the transaction were used to redeem prior obligations to the Authority that were secured by the Series T and Series U first mortgage bonds of Connecticut Water.

The Company is currently in the process of negotiating additional fixed-rate, long-term borrowings from the Authority to fund ongoing and planned capital improvement projects. The Company plans to submit applications to the Connecticut DPUC with respect to these anticipated borrowings in the near future. The ability of the Company to complete these borrowing transactions will depend upon the receipt of final decisions of the DPUC with terms acceptable to the Company, which have not yet been issued, and the successful completion of negotiations with the Authority and the execution of definitive borrowing agreements.

Off-Balance Sheet Arrangements and Contractual Obligations

We do not use off-balance sheet arrangements such as securitization of receivables with any unconsolidated entities or other parties. The Company does not engage in trading or risk management activities and does not have material transactions involving related parties other than the interest rate swap agreement discussed above.

19

The following table summarizes the Company’s future contractual cash obligations as of December 31, 2004:

Payments due by Periods
(in thousands of dollars)

			Less						More
			than 1		Years		Years		than 5
Contractual Obligations	Total		year		2 - 3		4 and 5		years
Long-Term Debt (LTD)	$	66,725	$	326	$	1,011	$	752	$	64,636
Interest on LTD		60,343		2,999		5,994		5,993		45,357
Operating Lease Obligations		880		355		460		31		34
Purchase Obligations(1)		33,125		936		1,475		1,412		29,302
Total	$	161,073	$	4,616	$	8,940	$	8,188	$	139,329

(1) Includes long and short-term capital purchase obligations. Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the registrant and that specify all significant terms, including: fixed or minimum quantities, fixed minimum or variable price provisions; and the approximate timing of the transaction.

Interim Bank Loans Payable at year-end 2004 was $5,650,000, which is $4,050,000 lower than at the end of 2003.

During 2004, the Company incurred approximately $12.7 million of construction expenditures. The Company financed such expenditures through internally generated funds, customers’ advances, contributions in aid of construction and short-term borrowings.

The Board of Directors has approved a $14.0 million construction budget for 2005, 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.

RESULTS OF OPERATIONS

Overview of 2004 Results

Earnings for 2004 in total were $184,000, or $0.02 per share, higher than in 2003. The increase in earnings was due to higher net income in our ‘Real Estate’ and ‘Services and Rentals’ business segments, which more than offset a reduction in net income from our ‘Water Activities’ segment.

	Increase
	(Decrease)
Business segment	In Net Income
Real Estate	$	177,000
Services and Rentals		172,000
Water Activities		(165,000	)
Net Increase	$	184,000

20

Real Estate

The net income generated by the real estate segment increased from 2003 primarily due to the tax benefits of a 2004 donation of 56 acres of land to the Town of Plymouth, CT in addition to the donation of the final parcel of land to the Town of Killingly, CT under our 3-year agreement with the Town. The 2004 and 2003 net income in this business segment were generated from the following:

	2004		2003
Donation of land to Town of Killingly, CT	$	707,000	$	942,000
Donation of land to Town of Plymouth, CT		498,000		—
Miscellaneous sales of real estate		1,000		87,000
Net Income	$	1,206,000	$	1,029,000

Net income from this business segment are dependent on donations/sales of available land. This typically occurs when utility-owned land is deemed to be not necessary to protect water sources. The Company currently does not project completing any material land transactions in 2005.

Services and Rentals

Net income generated from the services and rental segment in 2004 increased $172,000, or 23%, over 2003 levels. The increased net income is primarily due to a 19% increase in customer enrollment in our service line maintenance program plus an increased number of leases and higher lease rates charged to the telecommunications companies that lease space on our water storage tanks for their antenna sites. The table below summarizes the net income from these two lines of business in this business segment for 2004 and 2003.

	2004		2003		Increase
Service line contracts	$	343,000	$	240,000	$103,000 or 43%
Antenna leases	$	394,000	$	330,000	$64,000 or 19%

Water Activities

The net income from water activities in 2004 was $165,000 lower than it was in 2003. A breakdown of the components of this decrease is as follows:

	Increase
	(Decrease)
Operating Revenues	$	1,378,000
Operation and Maintenance expense		1,189,000
Depreciation expense		117,000
Income Taxes		782,000
Taxes Other than Income Taxes		170,000
Other Income		(23,000	)
Interest and Debt Expense		(738,000	)
Net Decrease		($165,000	)

21

The 2.9% increase in Operating Revenues is primarily due to:

- A 2.1% increase in metered consumption in 2004 due to a hotter and drier summer and a 1.2% increase in the number of customers served;

- A $288,000 increase in revenues from Unionville’s 30% rate surcharge that went into effect mid-2003; and

- A $55,000 increase in fire protection revenues due to system expansion which increased the number of fire hydrants and revenue generating mains upon which these charges are based.

The $1,189,000 or 5.2% increase in Operation and Maintenance expense is primarily due to the following expense increases:

	Increase
SarbanesOxley Act Section 404 compliance	$	738,000
Purchased Water		261,000
Property and Liability Insurance		223,000
Total	$	1,222,000

The increase in Depreciation expense is due to the Company’s investment in new utility plant.

Income tax expense increased in 2004 due to the $613,000 increase in book pre-tax income plus a higher 2004 effective income tax rate due to flow through accounting related to book/tax timing differences and a 2003 reduction in estimated tax liabilities associated with non-current periods.

The increase in Taxes Other Than Income taxes is primarily due to increased municipal taxes related to our increased investment in utility plant.

The 16% decrease in interest and debt expense is primarily due to the lowering of our interest rates through the long-term debt refinancings that were completed in 2003 and 2004.

Overview of 2003 Results

Earnings for 2003 were higher than 2002 due to increased net income in our ‘Real Estate’ and ‘Services and Rentals’ business segments, which more than offset a reduction in net income from our ‘Water Activities’ segment.

The net income generated by the real estate segment increased from 2002 primarily because the most valuable parcel of the three parcels being donated to the Town of Killingly, CT over a three-year period was donated in 2003. The net income (tax benefits) by year from donations under this agreement are:

2002	$	293,000
2003	$	942,000
2004*	$	707,000

*donated in January, 2004

22

The net income generated from the services and rental segment increased by 65% from 2002. In 2003, we increased the profit margins generated by our service contract operations, increased customer enrollment in our service line maintenance program and increased the number of leases we have with telecommunications companies that lease space on our water storage tanks for their antenna sites.

Net income from our core ‘Water Activities’ segment declined in 2003. The unusually rainy and cool weather experienced during 2003 caused our customers on average to use less water than they would normally use. Operating revenues overall were approximately $1.3 million lower in 2003 than they would have been in a ‘normal’ weather year. This segment also experienced a 16.5% increase in operation and maintenance expense in 2003. In addition to the fact that 2003 included 10 additional months of expenses associated with Unionville, which was acquired on October 31, 2002, this segment experienced higher wages, medical, pension, insurance, and power costs. There was also a higher than normal incidence of weather related main breaks in addition to the normal increases in depreciation and property tax expense related to the Company’s increased investment in utility plant. Somewhat offsetting these negative impacts on net income was a 1.5% increase in the number of utility customers plus a lower 2003 effective income tax rate due to book/tax timing differences, lower pre-tax income and a reduction in estimated tax liabilities associated with non-current periods.

Results on a comparable basis

Because we acquired Unionville on October 31, 2002, and because we accounted for the acquisition of Unionville under the purchase method of accounting, our consolidated income statements include different amounts of Unionville operating results in years 2002 and 2003.

	Number of months
	Of Unionville Operating
	Results
2002		2
2003		12

To assist us and our investors in analyzing operating results by income statement line, Company management internally looks at our consolidated results without Unionville to measure performance on a comparable company basis. The following are comparable income statements with the results of Unionville removed.

23

2003 Results Compared with 2002

     INCOME STATEMENTS
     For the years ended, December 31, (in thousands)

	2003						2002
					Without						Without
	Consolidated		Unionville		Unionville		Consolidated		Unionville		Unionville
Operating Revenues	$	47,115	$	2,584	$	44,531	$	45,830	$	361	$	45,469
Operating Expenses
Operation and Maintenance		22,759		1,588		21,171		19,531		226		19,305
Depreciation		5,684		472		5,212		5,187		74		5,113
Income Taxes		2,008		140		1,868		4,482		6		4,476
Taxes Other Than Income Taxes		5,133		204		4,929		4,796		36		4,760
Total Operating Expenses		35,584		2,404		33,180		33,996		342		33,654
Utility Operating Income		11,531		180		11,351		11,834		19		11,815
Other Income (Deductions), Net of Taxes
Gain on Property Transactions		1,029		—		1,029		440		—		440
Non-Water Sales Earnings		733		18		715		444		—		444
Allowance for Funds Used During Construction		476		58		418		470		8		462
Other		76		1		75		126		1		125
Total Other Income (Deductions), Net of Taxes		2,314		77		2,237		1,480		9		1,471
Interest and Debt Expenses
Interest on Long-Term Debt		4,016		92		3,924		3,909		16		3,893
Other Interest Charges		385		10		375		365		—		365
Amortization of Debt Expense		234		1		233		260		—		260
Total Interest and Debt Expenses		4,635		103		4,532		4,534		16		4,518
Net Income Before Preferred Dividends		9,210		154		9,056		8,780		12		8,768
Preferred Stock Dividend Requirement		38		—		38		38		—		38
Net Income Applicable to Common Stock	$	9,172	$	154	$	9,018	$	8,742	$	12	$	8,730

24

COMMITMENTS AND CONTINGENCIES

Security – The Bioterrorism Response Act of 2001 required every public water system serving over 3,300 people to prepare Vulnerability Assessments (VA) of their critical utility assets. The last of these assessments required to be filed by our companies were submitted to the U.S. Environmental Protection Agency in June 2004 and was followed by updated Emergency Response Plans in December 2004, per statutory requirements. The information within the VA is not subject to release to the public and is protected from Freedom of Information Act inquiries.

Investment in security-related improvements is a continuing process and management believes that the costs associated with any such improvements would be chargeable for recovery in future rate proceedings.

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.

As previously disclosed on March 11, 2005, the Company entered into an agreement to sell the assets of its Massachusetts’ subsidiary, The Barnstable Water Company, and the assets of its BARLACO real estate subsidiary to the Town of Barnstable, Massachusetts. The total value of the transaction is $11 million, with $10 million to be received by Barnstable Water in 2005 for the water utility assets and associated liabilities. A separate real estate transaction for the BARLACO assets will take place in 2006 with additional proceeds of $1 million. Assuming that the Company completes the sales of the assets of Barnstable Water and BARLACO during 2005 and 2006 as described above, the Company estimates that it will record after tax gains of approximately $2.7 million and $1.4 million, respectively, from the sale of those companies’ assets in those years. At the closing of the sale of the water utility assets, the Company will also enter into a management contract with the Town to provide full operating and management services for the Barnstable Water utility operation. Under this full service contract, the customers will continue to receive the same full range of field and customer service presently provided by Barnstable Water.

25

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 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 assessed and evaluated 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.

During the quarter ended March 31, 2004, the Company received notice from the State of Connecticut Department of Environmental Protection (DEP) that its review of our approximately 7,600 acres of Class I, II, and III land was complete. The DEP notice indicated that the DEP had identified 240 parcels representing 6,823 acres of land and land underwater as land that the State of Connecticut would be interested in acquiring as open space, by either fee ownership or a conservation easement. During October 2004, the Company received notice from the DEP indicating that the State of Connecticut does not have sufficient funds available for the possible acquisition of Company lands by the State. The DEP also requested that the Company extend the sales moratorium set forth in the MOU entered into by the DEP and the Company in December 2002 beyond its current expiration date of December 31, 2004. The Company chose not to extend the MOU, thus causing it to expire on December 31, 2004. The Company is now free to consider disposition of lands to other interested parties, subject to the applicable statutory and regulatory requirements.

Rate Relief – Our four Connecticut operating subsidiaries, Connecticut Water, Crystal, Gallup, and Unionville, are regulated public utilities, which provide water services to their customers. The rates that these companies charge their water customers are subject to the jurisdiction of the regulatory authority of the Connecticut DPUC, which sets water rates for each company independently because the systems are not interconnected. Similarly, the Massachusetts DTE regulates the operations and rates of the Barnstable Water.

The DPUC and DTE may authorize the Company’s operating subsidiaries to charge rates which the DPUC and the DTE consider to be sufficient to recover the normal operating expenses of our operating subsidiaries, to provide funds for adding new or replacing water infrastructure, and to allow our operating subsidiaries to earn what the DPUC and the DTE consider to be a fair and reasonable return on our invested capital.

26

The Company believes it is likely that it will apply for rate increases for one or more of its Connecticut subsidiaries during the next 18 months.

Land Dispositions – In the past, the Company has engaged in a program of land donations to municipalities in Connecticut, which has resulted in net income (tax benefits) to the Company of approximately $4.2 million. As previously disclosed, the land donation program under the Company’s agreement with the Town of Killingly, CT was completed in January 2004 with the donation of the remaining parcel to the Town. The donation of this final parcel resulted in a net profit (tax benefit) to the Company of $707,000 during the first quarter of 2004. The donation of land to the Town of Plymouth, CT in December 2004 resulted in an additional $498,000 net income.

The Company and its subsidiaries own additional parcels of land in Connecticut and Massachusetts which may be suitable in the future for disposition, either by sale or by donation to municipalities, other local governments or private charitable entities. These additional parcels would include certain Class I and II parcels previously identified by the Connecticut DEP in the DEP notice noted above, as well as certain lands owned by BARLACO in Barnstable, Massachusetts.

During 2003 and 2004, the Company donated approximately 370 acres of land to municipalities in Connecticut for public and/or open space purposes. These donations contributed approximately $.9 million and $1.2 million, respectively to net income in those years, as a result of favorable tax treatment under federal and Connecticut tax laws. The Company currently anticipates that it will continue to pursue selected land sales and/or donations during fiscal years 2005, 2006 and 2007, but at a reduced level. The Company currently does not project completing any material land transactions in 2005. The Company is unable to predict if and when any sales or donations of some or all of these parcels may occur in the future and, if so, what amount of net income (tax benefits) may result from any such sales or donations.

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.

27

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. The profitability of our other revenue sources is subject to the amount of land we have available for sale and/or donation, the demand for the land, the continuation of the current state tax benefits relating to the donation of land for open space purposes, regulatory approval of land dispositions, the demand for telecommunications antenna site leases and the successful extensions and expansion of our service contract work. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

28

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The primary market risk faced by the Company is interest rate risk. As of December 31, 2004, the Company had no exposure to derivative financial instruments or financial instruments with significant credit risk or off-balance sheet risks. In addition, the Company 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 and the use of the interest rate swap agreement discussed below. The Company has $15,500,000 current lines of credit with four banks, under which interim bank loans payable at December 31, 2004 were $5,650,000.

     During the first quarter of 2004, Connecticut Water entered into a five-year interest rate swap transaction in connection with the refunding of its First Mortgage Bonds (Series V). The swap agreement provides for Connecticut Water’s exchange of floating rate interest payment obligations for fixed rate interest payment obligations on a notional principal amount of $12,500,000. The purpose of the interest rate swap is to manage the Company’s exposure to fluctuations in prevailing interest rates. See “Liquidity and Capital Resources” section of Item 7 – “Management’s Discussion and Analysis and Results of Operations” above for further information. The Company does not enter into derivative financial contracts for trading or speculative purposes and does not use leveraged instruments.

     Management believes that changes in interest rates will not have a material effect on income or cash flow during 2005, although there can be no assurances that interest rates will not significantly change.

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 report of PricewaterhouseCoopers LLP are included herein on pages F-3 through F-28.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

     None

 29

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures – As of December 31, 2004, 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 (as defined in Rule 13a-14(c) and Rule 13a-15(e)). 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.

Management’s Report on Internal Control Over Financial Reporting – Internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15(d) – 15(f)) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. We have used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in conducting our evaluation of the effectiveness of the internal control over financial reporting. Based on our evaluation, we concluded that the Company’s internal control over financial reporting is effective as of December 31, 2004. Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting – During the past 18 months, the Company has implemented a comprehensive plan to review, document, test the operational effectiveness, and evaluate the processes and systems of internal controls over financial reporting, as required under Section 404 of the Act and Public Accounting Oversight Board Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction With An Audit of Financial Statements” (Standard No. 2), which was adopted in June 2004.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 30

ITEM 9B. OTHER INFORMATION

On December 2, 2004, the Company entered into an amended and restated employment agreement with Thomas R. Marston, the Company’s Vice President of Planning and Treatment. The terms of Mr. Marston’s agreement are identical to those of the Company’s other executive officers. For a complete description of the material terms of these agreements, please see the description to be included in the Company’s proxy statement to be dated March 31, 2005, under the heading “Employment Contracts, Change-in-Control, and Termination Arrangement.” A copy of Mr. Marston’s employment agreement is being filed with this annual report on Form 10-K as Exhibit 10.9.2.

 31

PART III

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, 13 and 14 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed on EDGAR on or about March 31, 2005. Information concerning the executive officers of the Company is included as Item 10 of this report.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following is a list of the executive officers of the Company:

				Period Held or	Term of Office
Name	Age		Office	Prior Position	Expires
M. T. Chiaraluce		62	President, Chief Executive Officer and Chairman of the Board	Held position of President since January, 1992 and position of Chief Executive Officer since July, 1992	2005 Annual Meeting
D. C. Benoit		47	Vice President – Finance, Chief Financial Officer and Treasurer	Held current position or other executive position with the company since April, 1996	2005 Annual Meeting
J. R. McQueen		62	Senior Vice President	Held current position or other management or engineering position with the Company since October, 1965	Retired on 12/31/04
T. P. O’Neill		51	Vice President – Operations & Engineering	Held current position or other engineering position with the Company since February, 1980	2005 Annual Meeting
M. P. Westbrook		45	Vice President – Administration and Government Affairs	Held current position or other management position with the Company since September, 1988	2005 Annual Meeting

 32

				Period Held or	Term of Office
Name	Age		Office	Prior Position	Expires
T. R. Marston		52	Vice President – Planning & Treatment	Held current position or other management position with the Company since June 1974.	2005 Annual Meeting
P. J. Bancroft		55	Assistant Treasurer and Controller	Held current position or other accounting position with the Company since October, 1979	2005 Annual Meeting
M. G. DiAcri		59	Corporate Secretary	Held administrative position with the Company since February, 1990	2005 Annual Meeting

For further information regarding the executive officers see the Company’s Proxy Statement dated March 31, 2005.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 33

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

(a)	1.	Financial Statements:
		The report of independent registered public accounting firm 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
		Report of Independent Registered Public Accounting Firm	F-2
		Consolidated Statements of Income for the years Ended December 31, 2004, 2003, and 2002	F-3
		Consolidated Statements of Comprehensive Income for the years ended December 31, 2004, 2003, and 2002	F-3
		Consolidated Balance Sheets at December 31, 2004 and 2003	F-4
		Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	F-5
		Notes to Consolidated Financial Statements	F-6
	2.	Financial Statement Schedules:
		The following schedule of the Company is included on the attached page as indicated:
		Schedule II Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2004, 2003 and 2002	S-1
		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.

 34

(b)   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.

 F-1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

	Page
Index to Consolidated Financial Statements and Schedule	F-1
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002	F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, 2004, 2003 and 2002	F-3
Consolidated Balance Sheets at December 31, 2004, and 2003	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	F-5
Notes to Consolidated Financial Statements	F-6
Schedule II — Valuation and Qualifying Accounts	S-1

 F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Connecticut Water Service, Inc.:

We have completed an integrated audit of Connecticut Water Service, Inc.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Connecticut Water Service, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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 audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting, appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control

 F-2

over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 2005

 F-3

Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, (in thousands, except per share data)	2004		2003		2002
Operating Revenues	$	48,493	$	47,115	$	45,830
Operating Expenses
Operation and Maintenance		23,948		22,759		19,531
Depreciation		5,801		5,684		5,187
Income Taxes		2,790		2,008		4,482
Taxes Other Than Income Taxes		5,303		5,133		4,796
Total Operating Expenses		37,842		35,584		33,996
Utility Operating Income		10,651		11,531		11,834
Other Income (Deductions), Net of Taxes
Gain on Property Transactions		1,206		1,029		440
Non-Water Sales Earnings		905		733		444
Allowance for Funds Used During Construction		421		476		470
Other		108		76		126
Total Other Income (Deductions), Net of Taxes		2,640		2,314		1,480
Interest and Debt Expenses
Interest on Long-Term Debt		3,054		4,016		3,909
Other Interest Charges		502		385		365
Amortization of Debt Expense		341		234		260
Total Interest and Debt Expenses		3,897		4,635		4,534
Net Income Before Preferred Dividends		9,394		9,210		8,780
Preferred Stock Dividend Requirement		38		38		38
Net Income Applicable to Common Stock	$	9,356	$	9,172	$	8,742
Weighted Average Common Shares Outstanding:
Basic		7,999		7,956		7,718
Diluted		8,039		8,002		7,771
Earnings Per Common Share:
Basic	$	1.17	$	1.15	$	1.13
Diluted	$	1.16	$	1.15	$	1.12

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, (in thousands)	2004		2003		2002
Net Income	$	9,356	$	9,172	$	8,742
Other Comprehensive Income, net of tax
Qualified cash flow hedging instrument net of tax of $58		87		—		—
Comprehensive Income	$	9,443	$	9,172	$	8,742

The accompanying notes are an integral part of these consolidated financial statements.

 F-4

Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

December 31, (in thousands, except share amounts)	2004			2003
ASSETS
Utility Plant	$	333,985		$	319,616
Construction Work in Progress		7,463			9,291
Utility Plant Acquisition Adjustments		(1,273	)		(1,274	)
		340,175			327,633
Accumulated Provision for Depreciation		(98,399	)		(92,535	)
Net Utility Plant		241,776			235,098
Other Property and Investments		4,298			3,829
Cash and Cash Equivalents		707			1,122
Accounts Receivable (Less Allowance, 2004 - $212; 2003 - $271)		5,702			5,150
Accrued Unbilled Revenues		4,064			3,779
Materials and Supplies, at Average Cost		869			920
Prepayments and Other Current Assets		3,923			4,064
Total Current Assets		15,265			15,035
Unamortized Debt Issuance Expense		7,169			6,204
Unrecovered Income Taxes		16,173			15,006
Post-Retirement Benefits Other Than Pension		1,088			946
Goodwill		3,608			3,608
Deferred Charges and Other Costs		1,563			1,619
Total Regulatory and Other Long-Term Assets		29,601			27,383
Total Assets	$	290,940		$	281,345
CAPITALIZATION AND LIABILITIES
Common Stockholders’ Equity:
Common Stock Without Par Value:
Authorized - 15,000,000 Shares — Issued and Outstanding: 2004 - 8,035,199; 2003 - 7,967,379	$	55,514		$	53,766
Retained Earnings		32,264			29,549
Accumulated Other Comprehensive Income		87			—
Common Stockholders’ Equity		87,865			83,315
Preferred Stock		847			847
Long-Term Debt		66,399			64,754
Total Capitalization		155,111			148,916
Interim Bank Loans Payable		5,650			9,700
Current Portion of Long-Term Debt		326			254
Accounts Payable and Accrued Expenses		5,512			5,419
Accrued Taxes		3,300			2,545
Accrued Interest		601			626
Other Current Liabilities		559			366
Total Current Liabilities		15,948			18,910
Advances for Construction		27,157			24,579
Contributions in Aid of Construction		46,111			44,337
Deferred Federal and State Income Taxes		24,249			23,073
Unfunded Future Income Taxes		13,096			12,840
Long-Term Compensation Arrangements		7,445			6,812
Unamortized Investment Tax Credits		1,823			1,878
Commitments and Contingencies
Total Capitalization and Liabilities	$	290,940		$	281,345

The accompanying notes are an integral part of these consolidated financial statements.

 F-5

Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, (in thousands)	2004			2003			2002
Operating Activities:
Net Income Before Preferred Dividends	$	9,394		$	9,210		$	8,780
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation (including $208 in 2004, $176 in 2003, and $164 in 2002 charged to other accounts)		6,009			5,860			5,351
Change in Assets and Liabilities:
(Increase) in Accounts Receivable and Accrued Unbilled Revenues		(837	)		(153	)		(165	)
(Increase) Decrease in Other Current Assets		259			(52	)		57
(Increase) in Other Non-Current Items		(405	)		(621	)		(89	)
Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities		949			(3,129	)		(867	)
Increase in Deferred Income Taxes and Investment Tax Credits, Net		1,121			2,376			747
Net Cash and Cash Equivalents Provided by Operating Activities		16,490			13,491			13,814
Investing Activities:
Gross Additions to Utility Plant (including Allowance For Funds Used During Construction of $436 in 2004, $476 in 2003 and $470 in 2002)		(12,729	)		(11,909	)		(15,691	)
Financing Activities:
Proceeds from Interim Bank Loans		5,650			9,700			6,950
Repayment of Interim Bank Loans		(9,700	)		(6,950	)		(1,875	)
Proceeds from Issuance of Long-Term Debt		23,581			22,930			—
Repayment of Long-Term Debt Including Current Portion		(21,864	)		(22,898	)		(2,376	)
Proceeds from Issuance of Common Stock		1,751			699			753
Advances, Contributions and Funds from Others for Construction, Net		4,394			3,522			4,992
Costs Incurred to Issue Long-Term Debt and Common Stock		(1,309	)		(1,360	)		(192	)
Cash Dividends Paid		(6,679	)		(6,567	)		(6,315	)
Net Cash and Cash Equivalents Provided by (Used in) Financing Activities		(4,176	)		(924	)		1,937
Net Increase (Decrease) in Cash and Cash Equivalents		(415	)		658			60
Cash and Cash Equivalents at Beginning of Year		1,122			464			102
Cash and Cash Equivalents at End of Year (Excludes Cash Acquired from Purchase of Unionville Water Company in 2002)		707			1,122			162
Cash Acquired from Purchase of Unionville Water Company		—			—			302
Cash and Cash Equivalents at End of Year	$	707		$	1,122		$	464
Non-Cash Investing and Financing Activities:
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	$	3,581		$	4,522		$	4,811
State and Federal Income Taxes	$	1,414		$	2,407		$	3,780

F-6

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.
The Barnstable Holding Company
The Barnstable Water Company (Barnstable Water)
BARLACO, Inc.
The Unionville Water Company (Unionville)

Connecticut Water, Gallup, Crystal Water, Barnstable Water and Unionville (our “water companies”) are public water utility companies serving 87,767 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 Linebackerâ 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, Inc. BARLACO, Inc. 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. In accordance with ratemaking procedures, costs which benefit future periods, such as tank painting, are expensed over the periods they benefit. 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 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-7

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 to not degrade earnings, The Connecticut Water Company has received DPUC approval to record AFUDC on certain of its investments in these systems. Through December 31, 2004, Connecticut Water has capitalized approximately $3,125,000 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 2.1% for 2004, 2.1% for 2003 and 1.9% for 2002.

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 FAS 109 – Accounting for Income Taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting and tax bases of assets and liabilities. Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. 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.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-8

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. FAS 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, FAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board (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 FAS 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 FAS No. 123 to the Stock Option Program.

	Year Ended December 31
	2004			2003			2002
(in thousands, except for per share data)
Net income, applicable to common stockholders as reported	$	9,356		$	9,172		$	8,742
Add: Total stock-based employee compensation expense determined under intrinsic value based method for all awards, net of related tax effects		137			151			121
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(408	)		(425	)		(339	)
Pro forma net income, applicable to common stockholders	$	9,085		$	8,898		$	8,524
Earnings per share:
Basic – as reported	$	1.17		$	1.15		$	1.13
Basic – pro forma	$	1.14		$	1.12		$	1.10
Diluted – as reported	$	1.16		$	1.15		$	1.12
Diluted – pro forma	$	1.13		$	1.11		$	1.10

Under the Company’s Performance Stock Program, restricted shares of Common Stock, common stock equivalents or cash 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 $228,000, $251,000 and $201,000, for 2004, 2003 and 2002, 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 FAS No. 142, “Goodwill and Other Intangible Assets” (FAS 142), effective January 1, 2002. FAS 142 requires that goodwill no longer be amortized on a ratable basis. In accordance with FAS 142, goodwill must be allocated to reporting units and reviewed for impairment at least annually. The Company utilized a net income valuation approach in the performance of the annual goodwill impairment test.

EARNINGS PER SHARE - The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share for the years ended December 31, 2004, 2003, and 2002.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-9

Years ended December 31,	2004		2003		2002
Basic earnings per share	$	1.17	$	1.15	$	1.13
Dilutive effect of unexercised stock options		.01		—		.01
Diluted earnings per share	$	1.16	$	1.15	$	1.12
Numerator (in thousands):
Basic net income	$	9,356	$	9,172	$	8,742
Diluted net income	$	9,356	$	9,172	$	8,742
Denominator (in thousands):
Basic weighted average shares outstanding		7,999		7,956		7,718
Dilutive effect of unexercised stock options		40		46		53
Diluted weighted average shares outstanding		8,039		8,002		7,771

RECLASSIFICATION — Certain reclassifications have been made to conform previously reported data to the current presentation.

NEW ACCOUNTING PRONOUNCEMENTS - On November 29, 2004, the FASB issued SFAS 151 “Inventory Costs – an Amendment of ARB No. 43, Chapter 4” , which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS 151 will have a material effect on its financial statements.

On December 16, 2004, the FASB issued SFAS 153 “Exchanges of Nonmonetary Assets – Amendment of APB Opinion No. 29”, which addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not believe the adoption of SFAS 153 will have a material effect on its financial statements.

In December 2004, the FASB published SFAS No. 123 (revised 2004), (SFAS 123 (R)) “Share Based Payment”. SFAS 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. SFAS 123 (R) eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees”, and generally requires that such transactions be accounted for using a fair-value-based method. SFAS 123 (R) is effective as of the first interim or annual reporting period that begins after June 15, 2005, therefore, the effective date for the Company is July 1, 2005. SFAS 123 (R) applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date and as a consequence future employee stock option grants and other stock based compensation plans will be recorded as expense over the vesting period of the award based on their fair values at the date the stock based compensation is granted. The cumulative effect of initially applying SFAS 123 (R) is to be recognized as of the required effective date using a modified prospective method. Under the modified prospective method the Company will recognize stock-based compensation expense from July 1, 2005 as if the fair value based accounting method had been used to account for all outstanding unvested employee awards granted, modified or settled in prior years. The ultimate impact on future years results of operation and financial position will depend upon the level of stock based compensation granted in future years. Although the compensation expense required under the revised statement differs slightly, the impacts on the Company’s financial statements are expected to be similar to the pro forma disclosures included in Note 1 to the financial statements under “Stock Options.”

On December 21, 2004, the FASB issued FSP 109-1, which was effective upon issuance, to provide guidance on the application of SFAS No. 109, “Accounting for Income Taxes” (SFAS 109), to the provision within the American Jobs Creation Act of 2004 (Jobs Act) that provides a tax deduction on qualified production activities. The Jobs Act includes a tax deduction of up to 9% (when fully phased-in) of the lesser of (a) “qualified production activities income,” as defined in the Jobs Act, or (b) taxable income (after the deduction for the utilization of any net operating loss carryforwards). The tax deduction is limited to 50% of W-2 wages paid by the taxpayer. FSP 109-1 clarifies that the manufacturer’s deduction provided for under the Jobs Act should be accounted for as a special deduction in accordance with SFAS 109 and not as a tax rate reduction. The Company is currently assessing the Jobs Act and this pronouncement, as well as the related regulatory treatment, but currently does not expect a material impact on its financial statements.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-10

On December 21, 2004, the FASB issued FSP 109-2, which was effective upon issuance, to provide guidance on the application of the provision in the Jobs Act that allows a special one-time dividends received deduction on the repatriation of certain foreign earnings to a US taxpayer, provided certain criteria are met. This statement has no impact on the Company.

The FASB issued FASB Staff Position 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-2). FSP 106-2 provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Drug Act) for employers who sponsor postretirement health care plans that provide prescription drug benefits. FSP 106-2 also requires those employers to provide certain disclosures regarding the effect of the federal subsidy provided by the Medicare Drug Act. The Medicare Drug Act generally permits plan sponsors that provide retiree prescription drug benefits that are “actuarially equivalent” to the benefits of Medicare Part D to be eligible for a non-taxable federal subsidy. The Company has concluded that the postretirement welfare plan’s benefits will be considered actuarially equivalent to the benefits provided by Medicare Part D. The Company does not intend to apply for the government subsidy for postretirement prescription drug benefits, even though it expects to be eligible. Therefore, the impact of the subsidy on the plan’s liabilities are not reflected in the December 31, 2004 disclosure. FSP 106-2 was effective for periods beginning after June 15, 2004.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-11

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.

NOTE 3: INCOME TAX EXPENSE

Income Tax Expense for the years ended December 31, is comprised of the following:

(in thousands)	2004			2003			2002
Federal Classified as Operating Expense	$	2,572		$	1,752		$	4,065
Federal Classified as Other Income:
Land Sales		—			(11	)		—
Land Donation		(280	)		(246	)		(105	)
Non-Water Sales		450			352			276
Other		(78	)		(66	)		(52	)
Total Federal Income Tax Expense		2,664			1,781			4,184
State Classified as Operating Expense		218			256			417
State Classified as Other Income:
Land Sales		—			(3	)		(1	)
Land Donation		(965	)		(733	)		(360	)
Non-Water Sales		126			91			54
Other		30			22			(18	)
Total State Income Tax Expense (Benefit)		(591	)		(367	)		92
Total Income Tax Expense	$	2,073		$	1,414		$	4,276

The components of the Federal and State income tax provisions are:

(in thousands)	2004			2003			2002
Current:
Federal	$	1,968		$	(51	)	$	2,835
State		270			483			192
Total Current		2,238			432			3,027
Deferred Income Taxes, Net:
Federal
Investment Tax Credit		(66	)		(64	)		(63	)
Capitalized Interest and AFUDC		3			25			23
Depreciation		866			2,167			798
Other		(108	)		(296	)		591
Total Federal		695			1,832			1,349
State
Depreciation		1			6			—
Other		(861	)		(856	)		(100	)
Total State		(860	)		(850	)		(100	)
Total Deferred Income Taxes, Net		(165	)		982			1,249
Total	$	2,073		$	1,414		$	4,276

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-12

Deferred income tax (assets) and liabilities are categorized as follows on the Consolidated Balance Sheet:

(in thousands)	2004			2003
Unrecovered Income Taxes	$	(16,173	)	$	(15,006	)
Deferred Federal and State Income Taxes		24,249			23,073
Unfunded Future Income Taxes		13,096			12,840
Unamortized Investment Tax Credit		1,823			1,878
Net Deferred Income Tax Liability	$	22,995		$	22,785

Deferred income tax (assets) and liabilities are comprised of the following:

(in thousands)	2004			2003
Charitable Contribution Carryforward(1)	$	(1,108	)	$	(473	)
Tax Credit Carryforward(2)		(1,292	)		(1,110	)
Alternative Minimum Tax Carryforward		(285	)		(255	)
Prepaid Income Taxes on CIAC		(179	)		(211	)
Prepaid FIT on Services		(107	)		(71	)
Other Comprehensive Income		58			—
Accelerated Depreciation		24,247			23,018
Net of AFUDC and Capitalized Interest		161			186
Unamortized Investment Tax Credit		1,823			1,878
Other		(323	)		(177	)
Net Deferred Income Tax Liability	$	22,995		$	22,785

(1)   2004 charitable contribution carryover expires beginning in 2005 and ending in 2009.

(2)   2004 tax credit carryforward expires beginning in 2017 and ending in 2019.

The calculation of Pre-Tax Income is as follows:

(in thousands)	2004		2003		2002
Pre-Tax Income
Net Income Before Preferred Dividends	$	9,394	$	9,210	$	8,780
Income Taxes		2,073		1,414		4,276
Total Pre-Tax Income	$	11,467	$	10,624	$	13,056

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 decrease in the Company’s effective income tax rate in 2003 from 2002 is partially associated with a reassessment of tax reserves which was completed during the third quarter of 2003 when the Company filed its 2002 Income Tax Returns as well as the tax benefit associated with land donations in 2003 and the associated tax credits and deductions. The differences between the effective income tax rate recorded by the Company and the statutory federal tax rate are as follows:

	2004			2003			2002
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		2.2	%		2.3	%		(1.8	%)
Land Donation Credit		(5.6	%)		(4.5	%)		(1.8	%)
Depreciation		1.5	%		—			.5	%
Charitable Contribution – Land Donation		(5.3	%)		(4.7	%)		(1.7	%)
Pension Costs		(2.7	%)		(.3	%)		(.7	%)
Debt Refinancing Costs		(3.5	%)		(4.4	%)		.2	%
Allowance for Funds Used During Construction		(1.2	%)		(1.3	%)		(1.0	%)
Change in Estimate of Prior Year Income Tax Expense		(0.8	%)		(11.5	%)		—
Common Stock Equivalents		0.4	%		.9	%		—
Other		(0.9	%)		2.8	%		1.0	%
Effective Income Tax Rate		18.1	%		13.3	%		32.8	%

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-14

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, 2002 through December 31, 2004, appears below:

			Issuance
(in thousands, except share data)	Shares		Amount			Expense			Total
Balance, January 1, 2002		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		7,939,713		54,661			(1,592	)		53,069
Stock and equivalents issued through Performance Stock Program		8,347		305			—			305
Stock Options Exercised		19,319		394			(2	)		392
Balance, December 31, 2003		7,967,379		55,360			(1,594	)		53,766
Stock and equivalents issued through Performance Stock Program		6,893		138			—			138
Dividend Reinvestment Plan		60,927		1,622			(3	)		1,619
Tax adjustment on prior year stock options exercised		—		(9	)		—			(9	)
Balance, December 31, 2004 (1)		8,035,199	$	57,111		$	(1,597	)	$	55,514

(1)   Includes 295 restricted and 51,550 common stock equivalent shares issued through the Performance Stock Program through December 31, 2004.

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 effected 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.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-14

NOTE 5: ANALYSIS OF RETAINED EARNINGS

The summary of the changes in Retained Earnings for the period January 1, 2002 through December 31, 2004, appears below:

(in thousands, except per share data)	2004		2003		2002
Balance, Beginning of Year	$	29,549	$	26,906	$	24,441
Income Before Preferred Stock Dividends		9,394		9,210		8,780
		38,943		36,116		33,221
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:
2004 $0.835 Per Share		6,641		—		—
2003 $0.825 Per Share		—		6,529		—
2002 $0.810 Per Share		—		—		6,277
		6,679		6,567		6,315
Balance, End of Year	$	32,264	$	29,549	$	26,906

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 AND CASH EQUIVALENTS - 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, 2004 and 2003, the estimated fair value of the Company’s long-term debt was $59,149,000 and $73,678,000, respectively, as compared to the carrying amounts of $66,399,000 and $64,754,000, respectively.

The fair values shown above have been reported to meet the disclosure requirements of FAS No. 107, “Disclosures About Fair Values of Financial Instruments” and do not purport to represent the amounts at which those obligations would be settled.

INTEREST RATE SWAP - In 2004, the Connecticut Water Company entered into a five-year interest rate swap associated with its $12.5 million 2004 series variable rate unsecured water facilities revenue refinancing bonds. This was done to manage the Company’s exposure to fluctuations in prevailing interest rates. The swap agreement qualifies for hedge treatment under FAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. The fair value of the interest rate swap included in the Company’s Consolidated Balance sheet in “Deferred Charges and Other Costs” was approximately $145,000 at December 31, 2004. Changes in the fair value of this derivative instrument are recorded in “Accumulated Other Comprehensive Income” in Common Stockholders Equity.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-15

NOTE 7: LONG-TERM DEBT

Long-Term Debt at December 31, consisted of the following:

(in thousands)		2004			2003
The Connecticut Water Company
First Mortgage Bonds:
5.75%	Series T, Due 2028	$	—		$	5,000
5.3%	Series U, Due 2028		—			4,550
6.94%	Series V, Due 2029		—			12,050
			—			21,600
Unsecured Water Facilities Revenue Refinancing Bonds
5.05%	1998 Series A, Due 2028		9,640			9,640
5.125%	1998 Series B, Due 2028		7,685			7,695
4.40%	2003A Series, Due 2020		8,000			8,000
5.00%	2003C Series, Due 2022		14,930			14,930
Var.	2004 Series Variable Rate, Due 2029		12,500			—
Var.	2004 Series A, Due 2028		5,000			—
Var.	2004 Series B. Due 2028		4,550			—
			62,305			40,265
	Total Connecticut Water Company		62,305			61,865
Crystal Water Utilities Corporation
8.0%	Westbank, Due 2017		111			117
Crystal Water Company of Danielson
7.82%	Connecticut Development Authority, Due 2020		455			469
Chester Realty
6%	Note Payable, Due 2006		35			57
Barnstable Water Company
10.2%	Indianapolis Life Insurance, Due 2011		1,325			1,425
Unionville Water Company
8.125%	Farmington Savings Bank, Due 2011		963			1,075
3.56%	State of Connecticut, Due 2023		1,531			—
Total Connecticut Water Service, Inc.			66,725			65,008
Less Current Portion			(326	)		(254	)
Total Long-Term Debt		$	66,399		$	64,754

The Company’s principal payments required for years 2005 - 2009 are as follows:

(In thousands)
2005 -	$	326
2006 -	$	328
2007 -	$	332
2008 -	$	349
2009 -	$	367

At December 31, 2004 a portion of the Company’s utility plant was pledged as collateral for long-term debt.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-16

During the first quarter of 2004, Connecticut Water refinanced an additional portion of its long-term debt through the issuance of $12,500,000 of variable rate, taxable debenture bonds Series 2004 with a maturity date of January 4, 2029. The bonds have been secured by an irrevocable direct pay letter of credit issued by a financial institution, with a five-year term expiring in March 2009. The proceeds of the sale of the bonds, which are general debt obligations of Connecticut Water, were used to redeem the $12,050,000 aggregate principal amount of Connecticut Water’s First Mortgage Bongs (Series V) and to pay a portion of the expenses associated with the bonds’ refunding.

In connection with the issuance of the bonds, Connecticut Water entered into an interest rate swap transaction with a counterparty in the notional principal amount of $12,500,000. The interest rate swap agreement provides that, beginning in April 2004 and thereafter on a monthly basis, Connecticut Water will pay the counterparty a fixed interest rate of 3.73% on the notional amount for a period of five years. In exchange, the counterparty will, beginning in April 2004 and thereafter on a monthly basis, pay Connecticut Water a floating interest rate (based on 105% of the U.S. Dollar one-month LIBOR rate) on the notional amount for a period of five years. The purpose of the interest rate swap is to manage the Company’s exposure to fluctuations in prevailing interest rates.

In June 2004, Unionville secured $1.6 million through the Drinking Water State Revolving Fund for costs incurred in developing a water interconnection with a neighboring water supplier. The funds were used to pay off a portion of the balances outstanding under bank lines of credit.

On September 1, 2004, The Company refinanced a portion of its existing bond indebtedness. The Company borrowed $9.55 Million in sale proceeds from the issuance of Water Facilities Refunding Revenue Bonds by the Connecticut Development Authority (the Authority). The bonds were sold in two series with the following terms:

2004 A Series: $5,000,000 Variable Interest Maturing 7/1/2028
2004 B Series: $4,550,000 Variable Interest Maturing 9/1/2028

The proceeds of the transaction were used to redeem prior obligations to the Authority that were secured by the Series T and Series U first mortgage bonds of the Company.

In October 2003, Connecticut Water refinanced its Series R, First Mortgage Bonds with 5.00% 2003 C Series Unsecured, Tax-Exempt Water Facilities Revenue Refinancing Bonds and refinanced Series S, First Mortgage Bonds with 4.40% 2003 A Series Unsecured, Tax-Exempt Water Facilities Revenue Refinancing Bonds.

There are no mandatory sinking fund payments required on Connecticut Water Company’s outstanding Unsecured Water Facilities Revenue Refinancing Bonds. However, the 1998 Series A and B and the 2003 Series A and C Unsecured Water Facilities Revenue Refinancing Bonds provide for an estate redemption right whereby the estate of deceased bondholders or surviving joint owners may submit bonds to the Trustee for redemption at par, subject to a $25,000 per individual holder and a 3% annual aggregate limitation.

The outstanding bonds of the Company may be initially called for redemption at the following dates and prices - 1998 Series A and B Unsecured Water Facilities Revenue Refinancing Bonds, March 1, 2008 at 100% plus accrued interest; 2003 Series A Unsecured Water Facilities Revenue Refinancing Bonds, December 15, 2008 at 100% plus accrued interest; 2003 Series C Unsecured Water Facilities Revenue Refinancing Bonds, September 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, 2004 and 2003.

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.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-17

NOTE 8: PREFERRED STOCK

The Company’s Preferred Stock at December 31, consisted of the following:

(in thousands, except share data)	2004		2003
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.

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 4, the Company keeps reserved and available for issuance one one-hundredth of a share of Series A Junior Participating Preference Stock for each outstanding share of the Company’s common stock.

Barnstable Water Company paid Preferred Dividends of $4,500 in each of 2004, 2003 and 2002. 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’s total available lines of credit totaled $15,500,000 and $12,500,000 at December 31, 2004 and 2003, respectively. All of the lines have one year lives and will expire at different dates in 2005. The Company expects the lines of credit to be renewed in 2005. As of December 31, 2004 and 2003, the outstanding bank lines of credit were $5,650,000 and $9,700,000, respectively. Bank commitment fees associated with the lines of credit were approximately $37,500, $30,000, and $30,000 in 2004, 2003, and 2002 respectively.

At December 31, 2004 and 2003, the weighted average interest rates on short-term borrowings outstanding were 2.83% and 1.52%, respectively.

NOTE 10: UTILITY PLANT AND CONSTRUCTION PROGRAM

The components of utility plant and equipment at December 31, were as follows:

(in thousands)	2004		2003
Land	$	9,652	$	9,604
Source of Supply		20,724		19,417
Pumping		25,348		24,375
Water Treatment		47,726		47,547
Transmission and Distribution		209,887		199,660
General		20,228		18,548
Held for Future Use		420		465
Total	$	333,985	$	319,616

The amounts of depreciable utility plant at December 31, 2004 and 2003 included in total utility plant were $291,641,000 and $284,561,000, respectively.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-18

NOTE 11: TAXES OTHER THAN INCOME TAXES

Taxes Other than Income Taxes consist of the following:

(in thousands)	2004		2003		2002
Municipal Property Taxes	$	4,608	$	4,452	$	4,149
Payroll Taxes		695		681		647
Total	$	5,303	$	5,133	$	4,796

NOTE 12: PENSION AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS

GENERAL - As of December 31, 2004, Connecticut Water had 166 employees, Gallup 4, Crystal 7, Barnstable Water 9, and Unionville 7 for a total of 193 employees. The Company’s officers are employees of Connecticut Water. Employee expenses are charged between companies as appropriate.

Investment Strategy - The Pension Trust and Finance Committee (the Committee) reviews and approves the investment strategy of the investments made on behalf of various pension and post-retirement benefit plans existing under the Company and certain of its subsidiaries.

The targeted asset allocation ratios for those plans as set by the Committee at December 31, 2004 and 2003 were:

	2004			2003
Equity		65	%		65	%
Fixed Income		35	%		35	%
Total		100	%		100	%

The Committee recognizes that a variation of up to 5% in either direction from its targeted asset allocation mix is acceptable due to market fluctuations.

Our expected long-term rate of return on the various benefit plan assets is based upon the plan’s expected asset allocation, expected returns on various classes of plan assets as well as historical returns.

PENSION

Defined Contribution Plan - Through 2003, one of the Company’s subsidiaries, Unionville, had a noncontributory defined contribution pension plan which covered all employees who had completed one year of service. Unionville provided a contribution to the plan based upon 10% of the participant’s annual pay. The Unionville contribution charged to expense under this plan for the twelve months ended December 31, 2003 was $31,000. Effective December 31, 2003 the Unionville pension plan was terminated. Effective January 1, 2004, the employees of Unionville are covered by the Company’s noncontributory defined benefit pension plan.

Defined Benefit Plans - 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. A contribution of approximately $914,000 was made in January 2004 for plan year 2003. A contribution of $2,009,000 is expected to be made in 2005 for 2004 plan year.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-19

The following tables set forth the funded status of the Company’s retirement plans at December 31, the latest valuation date:

	Pension Benefits
(in thousands)	2004			2003
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	23,812		$	21,929
Service Cost		951			843
Interest Cost		1,458			1,390
Plan Amendments		—			(2	)
Actuarial loss/(gain)		1,807			535
Benefits paid		(979	)		(883	)
Benefit obligation, end of year	$	27,049		$	23,812
Change in Plan Assets:
Fair Value, beginning of year	$	20,311		$	17,742
Actual return on plan assets		2,004			3,452
Employer contribution		914			—
Benefits paid		(979	)		(883	)
Fair Value, end of year	$	22,250		$	20,311
Funded Status	$	(4,799	)	$	(3,501	)
Unrecognized net actuarial (gain) loss		1,577			298
Unrecognized transition obligation		24			36
Unrecognized prior service cost		827			935
Accrued Cost	$	(2,371	)	$	(2,232	)

The accumulated benefit obligation for all defined benefit pension plans was approximately $21,195,000 and $18,800,000 at December 31, 2004 and 2003, respectively.

	2004			2003
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate		5.75	%		6.25	%
Rate of compensation increase		4.50	%		4.50	%

	2004			2003
Weighted-average assumptions used to determine net periodic cost for years ended December 31:
Discount rate		6.25	%		6.50	%
Expected long-term return on plan assets		8.00	%		8.00	%
Rate of compensation increase		4.50	%		4.50	%

The discount rate is based on interest rates for long-term, high quality, fixed income investments. The Company looks at the general trend of several different bond indices.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-20

	Pension Benefits
(in thousands)	2004			2003			2002
Components of net periodic benefit costs
Service cost	$	951		$	843		$	705
Interest cost		1,458			1,390			1,345
Expected return on plan assets		(1,572	)		(1,544	)		(1,543	)
Amortization of:
Unrecognized net transition asset		12			12			13
Unrecognized net (gain)/loss		95			(2	)		(252	)
Unrecognized prior service cost		108			108			108
Net Periodic Pension Benefit Costs	$	1,052		$	807		$	376

Plan Assets

The Company’s pension plan weighted-average asset allocations at December 31, 2004, and 2003 by asset category were as follows:

	2004			2003
Equity Securities		67	%		66	%
Fixed Income		33			34
Total		100	%		100	%

Cash Flows

The Company contributed $914,000 to its pension plan in 2004 for plan year 2003 and expects to make an estimated $2,009,000 contribution for plan year 2004 in 2005.

The Plan’s expected future benefit payments are:

Year	Amount
2005	$	1,162,000
2006		1,136,000
2007		1,254,000
2008		2,011,000
2009		1,526,000
Years 2010-2014		10,566,000

POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing pension benefits, a subsidiary company, 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 Connecticut Water’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 2004 and 2003 was $473,100 for each year.

A 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, Connecticut Water requested and received approval from the DPUC to include FAS 106 costs in customer rates. The DPUC’s 1997 limited reopener of Connecticut Water’s general rate proceeding allowed it to increase customer rates $208,000 annually for FAS 106 costs. Connecticut Water’s current rates now allow for recovery of $473,100 annually for post-retirement benefit costs other than pension.

Connecticut Water has elected to recognize the transition obligation on a delayed basis over a period equal to the plan participants’ 21.6 years of average future service.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-21

The Company has concluded that the postretirement welfare plan’s benefits will be considered actuarially equivalent to the benefits provided by Medicare Part D. The Company does not intend to apply for the government subsidy for postretirement prescription drug benefits, even though it expects to be eligible. Therefore, the impact of the subsidy on the plan’s liabilities are not reflected in the December 31, 2004 disclosure.

Another subsidiary company, Barnstable Water, also provides certain health care benefits to eligible retired employees. Substantially all Barnstable Water employees may become eligible for these benefits if they retire on or after age 65 with at least 15 years of service. Post-65 medical coverage is provided for employees up to a maximum coverage of $500 per quarter. Barnstable Water’s PBOP currently is not funded.

The following tables set forth the funded status of the Company’s post-retirement health care benefits at December 31, the latest valuation date:

	Connecticut Water						Barnstable Water
(in thousands)	2004			2003			2004			2003
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	5,234		$	5,507		$	94		$	98
Service Cost		311			270			2			2
Interest Cost		323			314			6			6
Plan Participant Contributions		75			52			—			—
Plan Amendments		—			(400	)		—			—
Actuarial loss/(gain)		1,067			(129	)		2			(8	)
Benefits paid		(405	)		(380	)		(4	)		(4	)
Benefit obligation, end of year	$	6,605		$	5,234		$	100		$	94
Change in Plan Assets:
Fair Value, beginning of year	$	3,179		$	2,592		$	—		$	—
Actual return on plan assets		244			442			—			—
Employer contribution		473			473			4			4
Participants’ contributions		75			52			—			—
Benefits paid		(405	)		(380	)		(4	)		(4	)
Fair Value, end of year	$	3,566		$	3,179		$	—		$	—
Funded Status	$	(3,039	)	$	(2,055	)	$	(100	)	$	(94	)
Unrecognized net actuarial (gain) loss		988			25			(40	)		(46	)
Unrecognized transition obligation		963			1,084			58			64
Accrued Cost	$	(1,088	)	$	(946	)	$	(82	)	$	(76	)
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate		5.75	%		6.25	%		5.75	%		6.25	%
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:
Discount rate		6.25	%		6.50	%		6.25	%		6.50	%
Expected long-term return on plan assets		5.00	%		5.00	%		—			—
Rate of compensation increase		4.50	%		4.50	%		—			—

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-22

The discount rate is based on interest rates for long-term, high quality, fixed income investments. The Company looks at the general trend of several different bond indices.

	Connecticut Water									Barnstable Water
(in thousands)	2004			2003			2002			2004			2003			2002
Components of net periodic benefit costs
Service cost	$	311		$	270		$	223		$	2		$	2		$	2
Interest cost		323			314			309			6			6			7
Expected return on plan assets		(158	)		(145	)		(141	)		—			—			—
Amortization of:
Unrecognized net transition asset		121			165			165			6			6			6
Recognized net (gain)/loss		18			(31	)		(84	)		(3	)		(4	)		(3	)
Net Periodic Pension and Post Retirement Benefit Costs	$	615		$	573		$	472		$	11		$	10		$	12

Assumed health care cost trend rates at December 31:

	2004						2003
	Medical			Dental			Medical			Dental
Health care cost trend rate assumed for next year		8.5	%		8.5	%		8.5	%		8.0	%
Rate to which the cost trend rate is assumed to decline		4.0	%		4.0	%		4.0	%		3.5	%
Year that the rate reaches the ultimate trend rate		2014			2014			2013			2013

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 on Connecticut Water’s plan and would have no impact on the Barnstable Water plan:

	1-Percentage-Point		1-Percentage-Point
(in thousands)	Increase		Decrease
Effect on total of service and interest cost components	$	100	$	(82	)
Effect on post-retirement benefit obligation	$	851	$	(711	)

Plan Assets

Barnstable Water’s other post-retirement benefit plan has no assets. Connecticut Water’s other postretirement benefit plan weighted-average asset allocations at December 31, 2004 and 2003, by asset category were as follows:

	2004			2003
Equity Securities		57	%		55	%
Fixed Income		43			45
Total		100	%		100	%

Cash Flows

Connecticut Water contributed $473,100 to its other post-retirement benefit plan in 2004 for plan year 2004 and expects to contribute $473,100 in 2005 for plan year 2005.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-23

Expected future benefit payments are:

Year	Connecticut Water		Barnstable
2005	$	248,000	$	8,000
2006		264,000		8,000
2007		289,000		8,000
2008		316,000		7,000
2009		346,000		7,000
Years 2010 – 2014		2,223,000		37,000

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Connecticut Water and Barnstable Water provide additional pension benefits to senior management through supplemental executive retirement contracts. At December 31, 2004 and at December 31, 2003 the actuarial present value of the projected benefit obligation of these contracts were $1,301,000 and $964,000, respectively. Expense associated with these contracts were approximately $105,000 for 2004, $152,000 for 2003, and $106,000 for 2002.

SAVINGS PLAN - The Company and certain of its subsidiaries maintain 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 2004, 2003 and 2002 was $174,000, $166,000, and $161,000, 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, may receive up to an additional 1% of their annual base salary as a direct contribution to their 401(k) account. An incentive bonus of .6% of base pay, or a total of $51,000 was awarded in 2004. No incentive bonus was awarded in 2003. An incentive bonus of .4% of base pay, or $30,000 was awarded in 2002.

NOTE 13: STOCK-BASED COMPENSATION PLANS

The Company has two components to its Stock-Based Compensation Plans (the Plans): The Stock Option Program (SOP) and the Performance Stock Program (PSP). In total under the original Plans (1994 Plan) there were 700,000 shares authorized and 224,696 shares available for grant at December 31, 2004. The Plans terminated on April 22, 2004. The Board of Directors has adopted the 2004 Performance Stock Program, which was approved by shareholders on April 23, 2004. There are 700,000 shares authorized under the 2004 PSP and no shares have been issued as of December 31, 2004.

STOCK OPTION PROGRAM – 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, 2004, 2003 and 2002.

	2004		2003		2002
Expected life (years)		—		5.00		6.00
Risk-free interest rate (percentage)		—		2.79		3.09
Volatility (percentage)		—		30.00		30.00
Dividend yield		—		2.91		3.13

Options begin to become exercisable one year from the date of grant. Vesting periods range from one to five years. The maximum term ranges from five to ten years.

The per share weighted average fair value of stock options granted during 2003 and 2002 was $6.42 and $5.82 respectively.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-24

	For the Years Ended December 31,
	2004				2003					2002
			Weighted					Weighted					Weighted
			Average					Average					Average
			Exercise					Exercise					Exercise
	Shares		Price		Shares			Price		Shares			Price
Options:
Outstanding, beginning of year		251,835	$	22.85		235,101		$	21.41		229,811		$	20.18
Granted		—		—		36,053			29.05		39,254			25.78
Terminated		—		—		—			—		—			—
Exercised		—		—		(19,319	)		16.91		(33,964	)		18.12
Outstanding, end of year		251,835		22.85		251,835			22.85		235,101			21.41
Exercisable, end of year		196,731	$	21.48		119,992		$	21.35		71,581		$	20.74

No options were exercised during 2004. The following table summarizes the price ranges of the options outstanding and options exercisable as of December 31, 2004:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
			Contractual		Exercise				Exercise
	Shares		Life (years)		Price		Shares		Price
Range of prices:
$12.00 - $14.99		49,252		4.3	$	14.83		49,252	$	14.83
$15.00 - $17.99		—		—		—		—		--
$18.00 - $20.99		35,516		5.9		20.42		35,516		20.42
$21.00 - $23.99		58,010		4.9		22.33		58,010		22.33
$24.00 - $26.99		39,254		7.9		25.78		19,630		25.78
$27.00 - $29.99		69,803		7.6		28.52		34,323		28.24
		251,835		6.2	$	22.85		196,731	$	21.48

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 also leases certain of our properties to third parties. 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-25

											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, 2004
Water Activities	$	48,493		$	5,801	$	29,290	$	99		$	3,514	$	2,742		$	7,245
Real Estate Transactions		(12	)		—		27		—			—		(1,245	)		1,206
Services and Rentals		4,818			33		3,304		—			—		576			905
Total	$	53,299		$	5,834	$	32,621	$	99		$	3,514	$	2,073		$	9,356
For the year ended December 31, 2003
Water Activities	$	47,115		$	5,684	$	27,892	$	22		$	4,187	$	1,964		$	7,410
Real Estate Transactions		170			—		133		(1	)		—		(993	)		1,029
Services and Rentals		3,829			23		2,630		—			—		443			733
Total	$	51,114		$	5,707	$	30,655	$	21		$	4,187	$	1,414		$	9,172
For the year ended December 31, 2002
Water Activities	$	45,830		$	5,187	$	24,356	$	87		$	4,104	$	4,412		$	7,858
Real Estate Transactions		5			—		31		—			—		(466	)		440
Services and Rentals		2,928			20		2,134		—			—		330			444
Total	$	48,763		$	5,207	$	26,521	$	87		$	4,104	$	4,276		$	8,742

At December 31 (in thousands)	2004		2003
Total Plant and Other Investments:
Water	$	245,085	$	237,947
Non-Water		989		980
		246,074		238,927
Other Assets:
Water		39,897		37,205
Non-Water		4,969		5,213
		44,866		42,418
Total Assets	$	290,940	$	281,345

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-26

NOTE 15: COMMITMENTS AND CONTINGENCIES

SECURITY – The Bioterrorism Response Act of 2001 required every public water system serving over 3,300 people to prepare Vulnerability Assessments (VA) of their critical utility assets. The last of these assessments required to be filed by our companies were submitted to the U.S. Environmental Protection Agency in June 2004 and was followed by updated Emergency Response Plans in December 2004, per statutory requirements. The information within the VA is not subject to release to the public and is protected from Freedom of Information Act inquiries.

Investment in security-related improvements is a continuing process and management believes that the costs associated with any such improvements would be chargeable for recovery in future rate proceedings.

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.

As previously disclosed on March 11, 2005, the Company entered into an agreement to sell the assets of its Massachusetts’ subsidiary, Barnstable Water, and the assets of its BARLACO real estate subsidiary to the Town of Barnstable, Massachusetts. The total value of the transaction is $11 million, with $10 million to be received by Barnstable Water in 2005 for the water utility assets and associated liabilities. A separate real estate transaction for the BARLACO assets will take place in 2006 with additional proceeds of $1 million. Assuming that the Company completes the sales of the assets of Barnstable Water and BARLACO during 2005 and 2006 as described above, the Company estimates that it will record after tax gains of approximately $2.7 million and $1.4 million, respectively, from the sale of those companies’ assets in those years. At the closing of the sale of water utility assets, the Company will also enter into a management contract with the Town to provide full operating and management services for the Barnstable Water utility operation. Under this full service contract, the customers will continue to receive the same full range of field and customer services presently provided by Barnstable Water 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 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 assessed and evaluated 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.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-27

During the quarter ended March 31, 2004, the Company received notice from the State of Connecticut Department of Environmental Protection (DEP) that its review of our approximately 7,600 acres of Class I, II, and III land was complete. The DEP notice indicated that the DEP had identified 240 parcels representing 6,823 acres of land and land underwater as land that the State of Connecticut would be interested in acquiring as open space, by either fee ownership or a conservation easement. During October 2004, the Company received notice from the DEP indicating that the State of Connecticut does not have sufficient funds available for the possible acquisition of Company lands by the State. The DEP also requested that the Company extend the sales moratorium set forth in the Memorandum of Understanding (MOU) entered into by the DEP and the Company in December 2002 beyond its current expiration date of December 31, 2004. The Company chose not to extend the MOU, thus causing it to expire on December 31, 2004. The Company is now free to consider disposition of lands to other interested parties, subject to the applicable statutory and regulatory requirements.

RATE RELIEF – Our four Connecticut operating subsidiaries, Connecticut Water, Crystal, Gallup and Unionville, are regulated public utilities which provide water services to their customers. The rates that these companies charge their water customers are subject to the jurisdiction of the regulatory authority of the Connecticut DPUC, which sets water rates for each company independently because the systems are not interconnected. Similarly, the Massachusetts Department of Telecommunications and Energy (DTE) regulates the operations and rates of the Barnstable Water Company.

The DPUC and DTE may authorize the Company’s operating subsidiaries to charge rates which the DPUC and the DTE consider to be sufficient to recover the normal operating expenses of our operating subsidiaries, to provide funds for adding new or replacing water infrastructure, and to allow our operating subsidiaries to earn what the DPUC and the DTE consider to be a fair and reasonable return on our invested capital.

The Company believes it is likely that is will apply for rate increases for one or more of its Connecticut subsidiaries during the next 18 months.

LAND DISPOSITIONS – Starting with its first land donation in 2000, the Company has engaged in a program of land donations to municipalities in Connecticut, which has resulted in net income (tax benefits) to the Company of approximately $4.9 million. As previously disclosed, the land donation program under the Company’s agreement with the Town of Killingly, CT was completed in January 2004 with the donation of the remaining parcel to the Town. The donation of this final parcel resulted in a net profit (tax benefit) to the Company of $706,000 during the first quarter of 2004. The donation of land to the Town of Plymouth, CT in December 2004 resulted in an additional $498,000 net income.

The Company and its subsidiaries own additional parcels of land in Connecticut and Massachusetts which may be suitable in the future for disposition, either by sale or by donation to municipalities, other local governments or private charitable entities. These additional parcels would include certain Class I and II parcels previously identified by the Connecticut DEP in the DEP notice noted above, as well as certain lands owned by BARLACO in Barnstable, Massachusetts.

During 2003 and 2004, the Company donated approximately 370 acres of land to municipalities in Connecticut for public and/or open space purposes. These donations contributed approximately $.9 million and $1.2 million, respectively to net income in those years, as a result of favorable tax treatment under federal and Connecticut tax laws. The Company currently anticipates that it will continue to pursue selected land sales and/or donations during fiscal years 2005, 2006 and 2007, but at a reduced level. The Company currently does not project completing any material land transactions in 2005. The Company is unable to predict if and when any sales or donations of some or all of these parcels may occur in the future and, if so, what amount of net income (tax benefits) may result from any such sales or donations.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-28

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.

NOTE 16: QUARTERLY FINANCIAL DATA (Unaudited)

Selected quarterly financial data for the years ended December 31, 2004 and 2003 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
	2004		2003		2004		2003		2004		2003		2004		2003
First Quarter	$	10,919	$	10,901	$	1,906	$	2,016	$	1,975	$	2,110	$	0.25	$	0.27
Second Quarter		11,959		10,841		2,763		2,048		2,126		1,222		0.26		0.15
Third Quarter		13,916		13,673		4,388		4,606		3,740		3,873		0.47		0.49
Fourth Quarter		11,699		11,700		1,594		2,861		1,515		1,967		0.19		0.24
Year	$	48,493	$	47,115	$	10,651	$	11,531	$	9,356	$	9,172	$	1.17	$	1.15

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).
3.5	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Connecticut Water Service, Inc. dated April 23, 2004. (Exhibit 3.5 to Form 10-Q for the quarter ended 3/31/04).
4.1	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).
4.2	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).
4.3	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).
4.4	Loan Agreement dated as of April 11, 1991 between Farmington Savings Bank and The Unionville Water Company. (Exhibit 4.11 to Form 10-K for the year ended 12/31/02).
4.5	Loan Agreement dated as of October 1, 2003 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.12 to Form 10-K for the year ended 12/31/03).
4.6	Indenture of Trust dated as of October 1, 2003 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.13 to Form 10-K for the year ended 12/31/03).
4.7	Loan Agreement dated as of October 1, 2003 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.14 to Form 10-K for the year ended 12/31/03).

E-2

Exhibit
Number	Description
4.8	Indenture of Trust dated as of October 1, 2003 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.15 to Form 10-K for the year ended 12/31/03).
4.9	Bond Purchase Agreement dated as of October 10, 2003 among Connecticut Development Authority, The Connecticut Water Company and A.G. Edwards and Sons, Inc. (Exhibit 4.16 to Form 10-K for the year ended 12/31/03).
4.10	Line of Credit Agreement dated as of March 12, 2004 between Webster Bank and Connecticut Water Service, Inc. (Exhibit 4.17 to Form 10-Q for the quarter ended 3/31/04).
4.11	Bond Purchase Agreement dated as of March 12, 2004, among The Connecticut Water Company and A.G. Edwards & Sons, Inc. (Exhibit 4.18 to Form 10-Q for the quarter ended 3/31/04).
4.12	Indenture of Trust, dated as of March 1, 2004, between The Connecticut Water Company and U.S. Bank National Association, as Trustee. (Exhibit 4.19 to Form 10-Q for the quarter ended 3/31/04).
4.13	Reimbursement and Credit Agreement, dated as of March 1, 2004, between The Connecticut Water Company and Citizen’s Bank of Rhode Island. (Exhibit 4.20 to Form 10-Q for the quarter ended 3/31/04).
4.14	Letter of Credit issued by Citizen’s Bank of Rhode Island, dated as of March 4, 2004. (Exhibit 4.21 to Form 10-Q for the quarter ended 3/31/04).
4.15	Agreement No. DWSRF 200103-C Project Loan Agreement between the State of Connecticut and Unionville Water Company under the Drinking Water State Revolving Fund (DWSRF) Program, dated as of April 19, 2004. (Exhibit 4.22 to Form 10-Q for the quarter ended 6/30/04).
4.16	Collateral Assignment of Water Service Charges and Right to Receive Water Service Expense Assessments and Security Agreement between Unionville Water Company and the State of Connecticut, dated as of June 3, 2004. (Exhibit 4.23 to Form 10-Q for the quarter ended 6/30/04).
4.17	Bond Purchase Agreement, dated September 1, 2004, among The Connecticut Water Company, Connecticut Development Authority, and A.G. Edwards & Sons, Inc. (Exhibit 4.24 to Form 10-Q for the quarter ended 9/30/04).
4.18	Indenture of Trust, dated August 1, 2004, between The Connecticut Water Company and U.S. Bank National Association, as Trustee, 2004A Series. (Exhibit 4.25 to Form 10-Q for the quarter ended 9/30/04).

E-3

Exhibit
Number	Description
4.19	Indenture of Trust, dated August 1, 2004, between The Connecticut Water Company and U.S. Bank National Association, as Trustee, 2004B Series. (Exhibit 4.26 to Form 10-Q for the quarter ended 9/30/04).
4.20	Loan Agreement, dated August 1, 2004, between The Connecticut Water Company and Connecticut Development Authority for 2004 Series. (Exhibit 4.27 to Form 10-Q for the quarter ended 9/30/04).
4.21	Loan Agreement, dated August 1, 2004, between The Connecticut Water Company and Connecticut Development Authority for 2004B Series. (Exhibit 4.28 to Form 10-Q for the quarter ended 9/30/04).
4.22	Reimbursement and Credit Agreement, dated as of August 1, 2004, between The Connecticut Water Company and Citizen’s Bank of Rhode Island, 2004A Series. (Exhibit 4.29 to Form 10-Q for the quarter ended 9/30/04).
4.23	Reimbursement and Credit Agreement, dated as of August 1, 2004, between The Connecticut Water Company and Citizen’s Bank of Rhode Island, 2004B Series. (Exhibit 4.30 to Form 10-Q for the quarter ended 9/30/04).
4.24	Letters of Credit, each dated September 2, 2004, between The Connecticut Water Company and Citizen’s Bank of Rhode Island, with respect to each of the 2004A and 2004B Series Bonds. (Exhibit 4.31 to Form 10-Q for the quarter ended 9/30/04).
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. (Exhibit 10.3 to Form 10-K for the year ended 12/31/02).
10.4	The Connecticut Water Company Deferred Compensation Agreement dated December 1, 1984. (Exhibit 10.4 to Form 10-K for the year ended 12/31/84).
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

E-4

Exhibit
Number	Description
10.5.a*	The Connecticut Water Company Amended and Restated Deferred Compensation Agreement with Thomas R. Marston, dated December 2, 2004.
10.6	The Connecticut Water Company Supplemental Executive Retirement Agreement with William C. Stewart. (Exhibit 10.6a to Form 10-K for year ended 12/31/91).
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).
10.7.1a	The Connecticut Water Company Second Amended Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce dated December 17, 2003. (Exhibit 10.7.1a to Form 10-K for the year ended 12/31/03).
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).
10.7.2a	The Connecticut Water Company Second Amended Supplemental Executive Retirement Agreement with Michele G. DiAcri dated December 17, 2003. (Exhibit 10.7.2a to Form 10-K for the year ended 12/31/03).
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).
10.8.a*	The Connecticut Water Company Supplemental Executive Retirement Agreement with Thomas R. Marston dated December 2, 2004.
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).
10.8.2	The Connecticut Water Company Second Amended Supplemental Executive Retirement Agreement – standard form for other officers, dated December 17, 2003. (Exhibit 10.8.2 to Form 10-K for the year ended 12/31/03).

a)	David C. Benoit
b)	Peter J. Bancroft
c)	James R. McQueen
d)	Terrance P. O’Neill
e)	Maureen P. Westbrook

E-5

Exhibit
Number	Description
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. (Exhibit 10.9.1 to Form 10-K for the year ended 12/31/02).
10.9.2*	Employment agreement between The Connecticut Water Company and Connecticut Water Service, Inc. with Thomas R. Marston, amended and restated as of December 2, 2004.
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).
10.11.1*	Employment and Consulting Agreement between James R. McQueen and The Connecticut Water Company dated December 10, 2004.
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).
10.12.1	Trust Agreement between Connecticut Water Company and Riggs Bank N.A., Trustee, dated as of June 1, 2002. (Exhibit 10.12.1 to Form 10-K for the year ended 12/31/03).
10.12.2	Post-EGTRRA Amendment to the Savings Plan of The Connecticut Water Company, effective January 1, 2002. (Exhibit 10.12.2 to Form 10-K for the year ended 12/31/03).
10.12.3	Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company between The Unionville Water Company and Connecticut Water Company, dated December 30, 2003. (Exhibit 10.12.3 to Form 10-K for the year ended 12/31/03).

E-6

Exhibit
Number	Description
10.12.4	Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company between The Crystal Water Company of Danielson and Connecticut Water Company, dated December 30, 2003. (Exhibit 10.12.4 to Form 10-K for the year ended 12/31/03).
10.12.5*	Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company between Unionville Water Company and Connecticut Water Company, dated February 23, 2004.
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. (Exhibit 10.13.1 to Form 10-K for the year ended 12/31/02).
10.13.2	Second amendment, dated November 14, 2000 to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997. (Exhibit 10.13.2 to Form 10-K for the year ended 12/31/02).
10.13.3	Third amendment, dated November 14, 2001 to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997. (Exhibit 10.13.3 to Form 10-K for the year ended 12/31/02).
10.13.4	Fourth amendment, dated August 14, 2002 to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997. (Exhibit 10.13.4 to Form 10-K for the year ended 12/31/02).
10.13.5	Fifth amendment, dated August 14, 2002 to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997. (Exhibit 10.13.5 to Form 10-K for the year ended 12/31/02).
10.13.6	Sixth amendment, dated November 10, 2003 to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective November 12, 2003. (Exhibit 10.13.6 to Form 10-K for the year ended 12/31/03).
10.13.7*	Seventh amendment, dated May 12, 2004 to the amended and restated Connecticut Water 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 12/31/94).
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 12/31/94).

E-7

Exhibit
Number	Description
10.16	Contract between The Connecticut Water Company and The Rockville Water and Aqueduct Company dated as of January 1, 1976. (Exhibit 9(b) to Form 10-K for the year ended 12/31/75).
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 12/31/86).
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	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 12/31/78).
10.20	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).
10.21	Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the year ended 12/31/84).
10.22	Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended 12/31/87).
10.23	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 12/31/89).
10.24	1994 Performance Stock Program, as amended and restated as of April 26, 2002. (Exhibit A to Proxy Statement dated 3/19/02).
10.25	2004 Performance Stock Program, as of April 23, 2004. (Appendix A to Proxy Statement dated 3/12/04).
10.25a	Connecticut Water Service, Inc. Performance Stock Program Incentive Stock Option Grant Form. (Exhibit 10.1 to Form 10-Q for the quarter ended 9/30/04).
10.25.b	Connecticut Water Service, Inc. Performance Stock Program Non-Qualified Stock Option Grant Form. (Exhibit 10.2 to Form 10-Q for the quarter ended 9/30/04).
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).

E-8

Exhibit
Number	Description
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*	Asset Purchase Agreement by and among Connecticut Water Service, Inc., Barnstable Holding Company, Barnstable Water Company, BARLACO, Inc., and The Town of Barnstable, Massachusetts, dated as of March 10, 2005.
23.1*	Consent of Independent Registered Public Accounting Firm
24.*	Power of Attorney
31.1*	Rule 13a-14 Certification of Marshall T. Chiaraluce, Chief Executive Officer.
31.2*	Rule 13a-14 Certification of David C. Benoit, Chief Financial Officer.
32.1*	Certification of Marshall T. Chiaraluce, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	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 10-K.

36

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
March 31, 2005		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 31, 2005
(Principal Executive Officer)	of the Board, and Chief
	Executive Officer
/s/ David C. Benoit
David C. Benoit	Vice President – Finance,	March 31, 2005
(Principal Financial and Accounting Officer)	Chief Financial Officer and
	Treasurer

37

/s/ Roger Engle*	Director	March 31, 2005
Roger Engle
/s/ Mary Ann Hanley*	Director	March 31, 2005
Mary Ann Hanley
/s/ Marcia Hincks*	Director	March 31, 2005
Marcia Hincks
/s/ Mark G. Kachur*	Director	March 31, 2005
Mark G. Kachur
/s/ David A. Lentini*	Director	March 31, 2005
David A. Lentini
/s/ Ronald D. Lengyel*	Director	March 31, 2005
Ronald D. Lengyel
/s/ Robert F. Neal*	Director	March 31, 2005
Robert F. Neal
/s/ Arthur C. Reeds*	Director	March 31, 2005
Arthur C. Reeds
/s/ Lisa J. Thibdaue*	Director	March 31, 2005
Lisa J. Thibdaue
/s/ Carol P. Wallace*	Director	March 31, 2005
Carol P. Wallace
/s/ Donald B. Wilbur*	Director	March 31, 2005
Donald B. Wilbur
* - Signed by David C. Benoit, Power of Attorney

S-1

CONNECTICUT WATER SERVICE, INC. and SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

	Balance		Additions		Deductions		Balance
(In thousands)	Beginning		Charged to		From		End of
Description	of Year		Income		Reserves (1)		Year
Allowance for Uncollectible Accounts
Year Ended December 31, 2004	$	271	$	61	$	120	$	212
Year Ended December 31, 2003	$	240	$	186	$	155	$	271
Year Ended December 31, 2002	$	234	$	165	$	159	$	240

⁽¹⁾ Amounts charged off as uncollectible after deducting recoveries.

EX-10.5.A

Exhibit 10.5a

AMENDED AND RESTATED
DEFERRED COMPENSATION AGREEMENT

          THIS AGREEMENT is made as of the 2^nd day of December 2004 by and between The Connecticut Water Company (together with any affiliated companies hereinafter collectively referred to as the “Employer”) and Thomas R. Marston hereinafter referred to as the “Employee”).

W I T N E S S E T H:

          WHEREAS, the Employee is among a select group of management or highly compensated employees of the Employer who entered into a Deferred Compensation Agreement with the Employer made as of the first day of December 2004 (the “Deferred Compensation Agreement”); and

          WHEREAS, the Employer and the Employee desire to amend and restate the Deferred Compensation Agreement on the terms herein set forth; and

          WHEREAS, the Employer and the Employee are willing to enter into this Amended and Restated Deferred Compensation Agreement (the “Agreement”) on the terms herein set forth.

          NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises herein, the parties hereto agree as follows:

-2-

     1. DEFERRED COMPENSATION. The Employee may file a written election with the Employer in the form attached to this Agreement or such other form as may be approved by the Employer to defer up to 12 percent (12%) of the Employee’s salary. Such amount shall be credited to a Deferred Compensation Account as provided in Section 2 hereof. This election to defer the receipt of salary must be made before the beginning of the calendar year for which the salary is payable and shall remain in effect, unless terminated or changed, or until the date the Employee ceases to be an employee of the Employer. Any termination or change of a deferral election must be made on a form provided by the Employer for such purpose and may only be made with respect to salary which will be earned on and after the January 1 following the Employer’s receipt of such form provided that such form is received at least seven (7) days prior to the applicable January 1.

     2. DEFERRED COMPENSATION ACCOUNT. The Employer shall maintain on its books and records a Deferred Compensation Account to record its liability for future payments of deferred compensation and interest thereon required to be paid to the Employee or his beneficiary pursuant to this Agreement. However, the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee or his beneficiary. The amount reflected in said Deferred Compensation Account shall be available for the Employer’s general corporate purposes and shall be available to the Employer’s general creditors. The amount reflected in said Deferred Compensation Account shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee or his beneficiary, and any attempt to anticipate, alienate, transfer or assign the same shall be void. Neither the Employee nor his beneficiary may assert any right or claim against any specific assets of the Employer.

-3-

The Employee or his beneficiary shall have only a contractual right against the Employer for the amount reflected in said Deferred Compensation Account. Notwithstanding the foregoing, in order to pay amounts which may become due under this Agreement, the Employer may establish a grantor trust (hereinafter the “Trust”) within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. The assets in such Trust shall at all times be subject to the claims of the general creditors of the Employer in the event of the Employer’s bankruptcy or insolvency, and neither the Employee nor any beneficiary shall have any preferred claim or right, or any beneficial ownership interest in, any such assets of the Trust prior to the time such assets are paid to an Employee or beneficiary pursuant to this Agreement.

     The Employer shall credit to said Deferred Compensation Account the amount of any salary to which the Employee becomes entitled and which is deferred pursuant to Section 1 hereof, such amount to be credited as of the first business day of each month. The Employer shall also credit to said Deferred Compensation Account an Interest Equivalent in the amount and manner set forth in Section 3 hereof.

     3. PAYMENT OF DEFERRED COMPENSATION

     (a) Termination of Employment On or After Attainment of Age 65. If the Employee’s employment should terminate on or after his attainment of age sixty-five (65) for any reason other than death or on account of “Cause” as defined in subsection (d) below, he shall

-4-

be entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of an actuarially equivalent life annuity providing for equal annual payments for the life of the Employee with a guarantee that fifteen (15) annual payments will be made. Such actuarially equivalent life annuity shall be computed on the basis of a mortality table that assumes a life expectancy of age eighty (80) and uses the Interest Factor described below.

     There shall be credited to the Employee’s Deferred Compensation Account as of each January 1 and July 1, commencing with           until payment of such account is made or begins, as additional deferred compensation, an Interest Equivalent equal to fifty percent (50%) of the product of (i) the AAA Corporate Bond Yield Averages published by Moody’s Bond Survey for the Friday ending on or immediately preceding the applicable January 1 and July 1 plus three (3) percentage points (the “Interest Factor”), multiplied by (ii) the balance of the Employee’s Deferred Compensation Account, including the amount of Interest Equivalent previously credited to such Employee’s account, as of the preceding day (i.e., December 31 or June 30). The Interest Factor used to compute the annuity payable upon the Employee’s termination of employment on or after his attainment of age sixty-five (65) shall be calculated based upon the Interest Factor as of the January 1 or July 1 immediately preceding the date of the Employee’s termination of employment, whichever shall fall nearer to the date of the Employee’s termination of employment. The first annuity payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee’s termination of employment.

-5-

     Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described above. The lump sum shall be paid within sixty (60) days after the Employee’s termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee’s termination of employment.

     (b) Termination of Employment After Attainment of Age 55 and Prior to Attainment of Age 65. If the Employee’s employment should terminate after his attainment of age fifty-five (55) and prior to his attainment of age sixty-five (65) for any reason other than death or on account of “Cause” as defined in subsection (d) below, he shall be entitled to receive payment of the entire amount of his Deferred Compensation Account including an Interest Equivalent, as described below, in the form of equal annual installments over a period equal to the Employee’s remaining life, assuming a life expectancy of age eighty (80). There shall be credited to the Employee’s Deferred Compensation Account as of each January 1 and July I, commencing with            until payment of said annual installments are completed, as additional deferred compensation, an Interest Equivalent as described in subsection (a) above. The first installment payment under this subsection shall be paid within sixty (60) days after the commencement of the calendar year following the Employee’s termination of employment.

-6-

     Notwithstanding the foregoing, if provided by the Board of Directors of the Employer, in its sole discretion, the Employee shall instead receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including an Interest Equivalent, as described in subsection (a) above. The lump sum shall be paid within sixty (60) days after the Employee’s termination of employment or, at the discretion of the Board of Directors of the Employer, within sixty (60) days after the commencement of the calendar year following the Employee’s termination of employment.

     (c) Termination of Employment Prior to Attainment of Age 55. If the Employee’s employment should terminate prior to his attainment of age fifty-five (55) for any reason other than death or on account of “Cause” as defined in subsection (d) below, the Employee shall be entitled to receive payment in a lump sum of the entire amount of his Deferred Compensation Account, including the same Interest Equivalent as described in subsection (a) above. Payment under this subsection shall be made within sixty (60) days after the Employee’s termination of employment or, at the option of the Board of Directors of the Employer, in its sole discretion, within sixty (60) days after the commencement of the calendar year following the Employee’s termination of employment.

     (d) Termination of Employment for Cause. If the employment of the Employee is terminated by the Employer for Cause, the Employee shall be entitled only to a return of amounts deferred pursuant to Section 1 hereof, and this Agreement-and all payments provided for in this Agreement, including any obligation to pay interest on deferred compensation, shall

-7-

terminate. Said deferred amounts shall be paid in a lump sum within sixty (60) days after the commencement of the calendar year following the Employee’s termination of employment. As used in this Agreement, the term “Cause” shall mean:

(i)	the Employee’s rendering, while employed by the Employer, of any services, assistance or advice, either directly or indirectly, to any person, firm or organization competing with, or in opposition to, the Employer;
(ii)	the Employee’s allowing, while employed by the Employer, any use of his name by any person, firm or organization competing with, or in opposition to, the Employer; or
(iii)	willful misconduct by the Employee, including, but not limited to, the commission by the Employee of a felony or the perpetration by the Employee of a common law fraud upon the Employer.

     (e) Death While Employed. Notwithstanding anything to the contrary contained in the foregoing, if the Employee should die while employed by the Employer, his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the greater of (i) the Hypothetical Death Benefit, as defined in subsection (g) here-of, and (ii) the entire amount of his Deferred Compensation Account at the date of his death, assuming that an Interest

-8-

Equivalent were credited to such account as of each January 1 and July 1, commencing with July 1, 1996, until the date of death at the rate set forth in subsection (a) hereof. Such beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request.

     (f) Death After Termination of Employment. If the Employee should die after the termination of his employment with the Employer and prior to the date on which payment of his Deferred Compensation Account has commenced in the form of an annuity as provided in subsection (a), or has been made in the form of a lump sum as provided in subsections (a), (b), (c) or (d), or has been fully distributed in the event of payment in the form of installments as provided in subsection (b), his beneficiary, designated pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the Employee under this Agreement, a death benefit equal to the entire amount of the Employee’s Deferred Compensation Account at the date of his death (or the entire remaining amount of the Employee’s Deferred Compensation Account at the date of his death in the event that payment has commenced in the form of installments as provided in subsection (b) and, provided that the Employee’s employment shall not have terminated on account of “Cause” as defined in subsection (d) hereof, an Interest Equivalent credited to such account as of each January 1 and July 1, commencing with            until the date of death at the rate set forth in subsection (a) hereof. No Interest Equivalent shall be credited to the Employee’s Deferred Compensation Account in the event of the Employee’s death after his termination on account of “Cause” as

-9-

provided in subsection (d) hereof. The Employee’s beneficiary shall be entitled to receive such death benefit within ninety (90) days after the Employer has been notified in writing of the death of the Employee and has been provided with any additional information, forms or other documents it may reasonably request.

     If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and the Interest Equivalent set forth in subsection (a) hereof has commenced in the form of an annuity as provided in subsection (a), no additional benefits shall be payable under this Agreement after the Employee’s death except to the extent that the Employee did not receive prior to his death the guaranteed fifteen (15) annual payments provided in subsection (a), in which case the unpaid guaranteed payments shall be paid to the Employee’s beneficiary, designated pursuant to Section 4, in annual payments for the remainder of said guaranteed fifteen (15)-year term.

     If the Employee should die after the termination of his employment with the Employer and after the date on which payment of his Deferred Compensation Account and, with respect to payments made in accordance with subsections (a), (b) or (c) hereof, the Interest Equivalent set forth in subsection (a) hereof, has been paid in the form of a lump sum as provided in subsections (a), (b), (c) or (d) or has been fully distributed in the form of installments as provided in subsection (b), no additional benefits shall be payable upon the Employee’s death.

-10-

     (g) Hypothetical Death Benefit. For purposes of this Agreement, the term “Hypothetical Death Benefit” shall mean a lump sum benefit equal to the proceeds of any policy of key-man life insurance on the life of the Employee, of which the Employer is owner and beneficiary, and which policy is designated by the Employer as subject to the provisions hereof, reduced by (i) the amount of any tax imposed on the Employer with respect to such proceeds and (ii) the cost to the Employer of any tax deductions postponed as a result of salary deferrals pursuant to Section I hereof and increased by (iii) the tax deduction to the Employer which would result from payment of the Hypothetical Death Benefit to a beneficiary of the Employee. For purposes of (ii) above, an opportunity cost factor of six (6) percent pre-tax interest will be applied during the period of postponed deductions under (ii). The calculation of the Hypothetical Death Benefit shall be done by the Employer, whose calculation shall be final and binding on the Employee and his beneficiary. Anything herein to the contrary notwithstanding, the Employer shall not be required to purchase a policy of key-man life insurance on the life of any Employee, and any such policy purchased by the Employer, and all proceeds thereof, shall remain at all times available to the Employer’s general creditors.

     4. BENEFICIARY. The Employee has notified or will in the future notify the Employer of the person or persons entitled to receive payments on the death of the Employee. For the purposes of this Agreement, such person or persons are herein referred to collectively as the “beneficiary.” The person whom an Employee designates as his beneficiary for this purpose must be one of the following: the Employee’s spouse; father, mother, sister, brother, son or daughter. The beneficiary may also be a legal ward living with and dependent on the Employee

-11-

at the time of his death. If the Employee dies and has not designated a beneficiary, his beneficiary shall be his spouse, if living; otherwise, his beneficiary shall be deemed to be his estate. An Employee’s beneficiary designation may be changed at any time by the Employee giving written notice to the Employer of such change. The rights of any beneficiary presently or hereafter designated are subject to any changes made in this Agreement by the Employee and the Employer.

     5. WITHHOLDING. The Employer shall be permitted to withhold from any payment to the Employee or his beneficiary hereunder all federal, state or other taxes which may
be required with respect to such payment.

     6. ARBITRATION. In the event that a dispute shall arise with respect to any of the provisions of this Agreement, either the Employer or the Employee or his beneficiary, as the case may be, may give written notice to the other stating the claims that said party desires to arbitrate, and naming an arbitrator. Within ten (10) days after the receipt of such notice, the party receiving same shall appoint a second arbitrator by written notice to be sent to the party who requested arbitration. Within ten (10) days after receipt of such notice of appointment of the second arbitrator, the two (2) arbitrators so appointed shall meet to select a third arbitrator and shall give written notice of such selection to the Employer and the Employee or his beneficiary. The decision of a majority of the arbitrators shall be conclusive and binding upon the Employer and the Employee or his beneficiary. All notices hereunder shall be by registered mail addressed to the last known address of the party entitled to receive notice. The Employer

-12-

and the Employee shall each pay their own costs incurred in the arbitration proceeding; provided, however, that the arbitrators may require that the losing party reimburse the prevailing party for its costs if it shall be determined that the claim which gave rise to the dispute was without substantial foundation.

     7. MISCELLANEOUS.

     (a) This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Employer agrees that it will not be a party to any merger, consolidation or reorganization unless and until its obligations hereunder shall be expressly assumed by its successor or successors.

     (b) This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, or any beneficiary designated by him, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided.

     (c) This Agreement may be terminated by the Employer at any time that tax or other laws are enacted or interpreted which result or will result in costs to the Employer significantly in excess of those contemplated at the time of the execution hereof. In the event of such termination, the Employer’s sole obligation shall be to pay to the Employee in a lump sum the amount of his Deferred Compensation Account, including an Interest Equivalent as determined

-13-

by Section 3(a), as if the effective date of termination of this Agreement were considered to be the date of termination of the Employee’s employment. Such payment shall be made to the Employee within ninety (90) days after the effective date of termination of this Agreement.

     (d) This Agreement shall not supersede any contract of employment, whether oral or written, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the Employee.

     (e) If Moody’s Bond Survey shall cease to publish the Corporate Bond Yield Averages referred to in Section 3 hereof, a similar average selected by the Board of Directors of the Employer, in its sole discretion, shall be used.

     (f) This Agreement shall be executed in duplicate, and each executed copy of this Agreement shall be deemed an original.

     (g) This Agreement shall be construed in all respects under the laws of the State of Connecticut.

-14-

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

	THE CONNECTICUT WATER COMPANY
(signed by Thomas R. Marston)	(signed by Michele G. DiAcri, its Corporate Secretary)

-15-

Notice of Election to Defer Compensation

     Pursuant to the terms of the Deferred Compensation Agreement (the “Agreement”) by and between The Connecticut Water Company (the “Company”) and                                         , made as of the                      day of                                         , I hereby elect to defer, pursuant to Section 1 thereof, $                      of my bi-weekly salary payable in connection with the performance of my services as an employee of the Company beginning January 1,                     . This election shall be effective for calendar years beginning after the date hereof until the calendar year next beginning after the date on which I notify the Company to change or terminate future deferrals pursuant to the terms of Section 1 of the Agreement on a form provided by the Company.

     I understand that this election to defer shall be continued as to the salary which is earned for each calendar year for which this election to defer is effective until distribution of such deferred compensation to me upon my termination of services as an employee, or to my beneficiary in the event of my death, as provided in the Agreement. I also understand that I may change the amount deferred (including terminating deferrals) with respect to salary earned for calendar years commencing after my delivery to the Company of a written notice of change, provided such written notice is delivered to the Company on a form approved by the company at least seven (7) days before the commencement of such calendar year. Further, I understand that if I terminate deferrals I may make a new election to again defer my salary pursuant to the Agreement and that any new election to defer payment of my salary must be made and delivered to the Company as least seven (7) days before the beginning of the calendar year for which the salary is payable.

     In the event of my death, any payment to which I am entitled under the terms of the Agreement which has not been made to me at the date of my death shall be distributed to:

Primary Beneficiary(ies):

Name:

Address:

Relationship:

Percentage share:

Contingent Beneficiary(ies):

Name:

Address:

Relationship:

Percentage share:

-16-

     Notwithstanding the foregoing to the contrary, in the event of payment of the “Hypothetical Death Benefit” pursuant to Section 3(g) of the Agreement, any beneficiary designation made by me in connection with a key-man life insurance policy on my life shall supersede the beneficiary designation made hereinabove.

DATE

CONSENT

I,                                                             , consent to (1) Connecticut Water Service, Inc., and/or (2) any of its subsidiaries or affiliates, and/or (3) the trustee of a trust agreement established by any of the foregoing entities, procuring and owning a life insurance policy or policies on my life during my employment period. I acknowledge that such life insurance coverage may also be maintained by any such company or by the trustee of such trust agreement after the date my employment with Connecticut Water Service, Inc. and/or any of its subsidiaries or affiliates terminates. Such life insurance may exist in order to assist Connecticut Water Service, Inc. and/or any of its subsidiaries or affiliates in providing benefits payable to me under one or more non-qualified deferred compensation plans or agreements in which I participate. I also understand that no person may retaliate against me for refusing to consent to the issuance of insurance on my life.

     Dated at                                                                  , Connecticut, this                       day of

                                                                 , 200___.

Witness	Signature
	Name of Employee
insurance consent

EX-10.8.A

Exhibit 10.8a

SECOND AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

     WHEREAS, the Connecticut Water Company (hereinafter referred to as “Employer”) and Thomas R. Marston (hereinafter referred to as the “Employee”) entered into a Supplement Executive Retirement Agreement dated as of (hereinafter referred to as the “Agreement”); and

     WHEREAS, the parties wish to amend the Agreement in accordance with the provisions of Section 5.a. thereof;

     NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Agreement is hereby amended effective as of the date first above written as follows:

     1. The second paragraph of Section 1.a. of the Agreement is deleted and the following two paragraphs are substituted in lieu thereof:

     “For purposes of the foregoing, ‘Average Earnings’ shall have the meaning set forth in the Retirement Plan, except that in determining Average Earnings, Annual Earnings (as defined in the Retirement Plan) shall not be limited to the OBRA ‘93 annual compensation limit, the annual compensation limit imposed under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), or any similar limit on annual compensation under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Code”), imposed by any future legislation.

     In determining Average Earnings, if the Employee retires under this Agreement on or after attainment of age 62, Annual Earnings shall include the value of all of the following: (1) Performance Shares, (2) Cash Units, and (3) Restricted Stock awarded to a Participant under the Connecticut Water Service, Inc. Performance Stock Program for any year in which such awards are made, including awards made prior to the date this change in the definition of Average Earnings is adopted. The value of such awards shall be included within Annual Earnings in the year in which such amounts are finally determined and actually awarded. Such amounts, if credited to a Performance Share Account, shall not be counted a second time when payment is made from such Account.”

     2. A new Section 1.b. shall be inserted into Section 1 of the Agreement, immediately following Section 1.a. Sections 1.b. and l.c. shall be re-designated as Sections l.c. and l.d. respectively. The new Section 1.b. shall read in its entirety as follows:

     “b. Early Retirement. If, upon or after the Employee’s attainment of age 55 and prior to attainment of age 65, the Employee’s employment shall be terminated and he

1

Exhibit 10.8a

shall be eligible to receive a benefit under the Retirement Plan, the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for his life of (a) 60% of the Employee’s Average Earnings reduced by (b) the annual benefit payable to the Employee under the Retirement Plan in the form of a single life annuity for the life of the Employee (whether or not the benefit under the Retirement Plan is actually paid in such form) commencing at age 65 (whether or not the benefit under the Retirement Plan commences at such time). If such benefit shall commence to be paid prior to the Employee’s attainment of age 62, such benefit shall be reduced by 4% for each complete year by which the date of benefit commencement precedes his attainment of age 62.

     For purposes of the foregoing, ‘Average Earnings’ shall have the meaning set forth in the Retirement Plan, except that in determining Average Earnings, Annual Earnings (as defined in the Retirement Plan) shall not ‘be limited to the OBRA ‘93 annual compensation limit, the annual compensation limit imposed under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), or any similar limit on annual compensation under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Code”), imposed by any future legislation.

     In determining Average Earnings, if the Employee retires under this Agreement on or after attainment of age 62, Annual Earnings shall include the value of all of the following: (1) Performance Shares, (2) Cash Units, and (3) Restricted Stock awarded to a Participant under the Connecticut Water Service, Inc. Performance Stock Program for any year in which such awards are made, including awards made prior to the date this change in the definition of Average Earnings is adopted. The value of such awards shall be included within Annual Earnings in the year in which such amounts are finally determined and actually awarded. Such amounts, if credited to a Performance Share Account, shall not be counted a second time when payment is made from such Account.”

     3. The last sentence of the newly designated Section 1.c. (entitled “Disability Benefits”) is hereby amended by substituting therein the number 62 where the number 65 appears.

     4. The second sentence of Section 2. is hereby amended to read in its entirety as follows:

     “Such installments shall commence to be paid on the first such day which coincides with or follows the day upon which the Employee’s benefit under the Retirement Plan shall commence to be paid; provided, however, that benefits pursuant to Section 1.b. hereof shall commence at such later date as shall be requested by the Employee and approved by the Committee under the Retirement Plan, in its sole discretion.”

     5. The second paragraph of Section 2. is hereby_. amended by deleting the reference to “Section 1.a. or 1.b.” therein and substituting in lieu thereof reference to “Section 1.a., 1.b. or l.c.”

2

     6. A new Section 3. shall be inserted into the Agreement, immediately following Section 2. Existing Sections 3., 4., and 5. shall be re-designated as Sections 4., 5., and 6. respectively. The new Section 3. shall read in its entirety as follows:

     “3. DEATH BENEFIT. If the Employee has attained age 55 while in service with the Employer and dies thereafter prior to the commencement of benefits pursuant to this Agreement, and if the Employee’s spouse or other beneficiary is entitled to a death benefit under the Retirement Plan, said spouse or other beneficiary shall be entitled to receive a death benefit pursuant to this Plan. The amount of said death benefit shall be determined as if the Employee had retired on the day prior to his death with either a Joint and Survivor Annuity in effect, if his spouse is his beneficiary under the Retirement Plan, or a five years certain and life annuity (as described in the Retirement Plan) in effect, if his beneficiary is other than his spouse. If the benefit is determined under a five years certain and life annuity, it shall be paid in an actuarially equivalent lump sum, as determined by the Committee under the Retirement Plan using the appropriate factors set forth in the Retirement Plan.

     No other death benefits shall be payable in the event of the Employee’s death prior to the commencement of benefits hereunder.”

     7. Newly designated Section 6.a. of the Agreement (entitled “Miscellaneous”) is hereby amended to read in its entirety as follows:

     “a. This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, his spouse, his estate or any other beneficiary, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided and the right to receive such payments from assets held in the Trust.”

     IN WITNESS WHEREOF, the Employer and the Employee have executed this Amendment as of December 2, 1004.

EMPLOYEE	CONNECTICUT WATER COMPANY
/s/ Thomas R. Marston	BY: /s/ Michele G. DiAcri
Thomas R. Marston	Michele G. DiAcri
	Corporate Secretary

Exhibit 10.8a

FIRST AMENDMENT To
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

Effective as of August 1, 1999

     WHEREAS, the Connecticut Water Company (hereinafter referred to as the “Employer”) and Thomas R. Marston (hereinafter referred to as the “Employee”) entered into a Supplemental Executive Retirement Agreement dated as of December 2, 2004 (hereinafter referred to as the “Agreement”); and

     WHEREAS, the parties wish to amend the Agreement in accordance with the provisions of Section 5(a) thereof;

     NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Agreement is hereby amended effective as of the date first above written as follows:

1. The second paragraph of Section 1(a) of the Agreement is amended to read in Its entirety as follows:

“For purposes of the foregoing, “Average Earnings” shall have the meaning set forth in the Retirement Plan, except that in determining Average Earnings, Annual Earnings (as defined in the Retirement Plan) shall not be limited to the OBRA’93 annual compensation limit.”

	CONNECTICUT WATER SERVICE, INC.
/s/ Thomas R. Marston	BY: /s/ Michele G. DiAcri
Thomas R. Marston	Michele G. DiAcri
	Corporate Secretary
December 2, 2004	December 6, 2004

-4-

Exhibit 10.8a

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

     This Agreement, made this 2nd day of December 2004 by and between THE CONNECTICUT WATER COMPANY (hereinafter referred to as the “Employer”) and Thomas R. Marston (hereinafter referred to as the “Employee”).

WITNESSETH THAT:

     WHEREAS, the Employee is and will be rendering valuable services to the Employer in his/her capacity as an executive officer, and

     WHEREAS, the Employer desires to ensure that it will have the benefit of the Employee’s services until he/she reaches retirement, and

     WHEREAS, the Employer wishes to assist the Employee in providing for the financial requirements of the Employee in the event of his/her retirement, disability or death.

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows:

     1. SUPPLEMENTAL RETIREMENT BENEFIT

     a. Normal or Deferred Retirement. If, upon or after the Employee’s attainment of age 65 and completion of 35 consecutive years of service with Employer, the Employee’s employment shall be terminated and he/she shall be eligible to receive a benefit under The Connecticut Water Company Employees’ Retirement Plan (hereinafter referred to as the "Retirement Plan”), the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for his/her life of (a) 60% of the Employee’s Average Earnings reduced by (b) the annual benefit payable to the Employee under the Retirement Plan in the form of a single life annuity for the life of the Employee (whether or not the benefit under the Retirement Plan is actually paid in such form) commencing at the same time as benefits hereunder.

-5-

Exhibit 10.8a

     For purposes of the foregoing, “Average Earnings” shall have the meaning set forth in the Retirement Plan.

     The calculation of the benefit set forth above, and of all other benefits payable under this Agreement, shall be performed by the Committee under the Retirement Plan, and the calculations and interpretations of such Committee shall be final and binding on the parties hereto.

     b. Disability Benefit. If the Employee’s employment shall be terminated by a disability such that the Employee is considered eligible for a full disability pension under the provisions of the Social Security Act, the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for his/her life calculated in the manner set forth above; provided, however, that a reduction factor of .72 shall be applied to such annual benefit if the Employee’s benefit commencement date precedes age 62 by more than 7 complete years. If such benefit shall commence to be paid between the ages of 55 and 62 such benefit shall be reduced by 4% for each complete year by which the date of benefit commencement precedes the Employee’s attainment of age 65.

     c. Absence of Other Benefits. No benefits shall be paid to the Employee pursuant to this Agreement other than as provided above.

     2. TERMS AND CONDITIONS OF BENEFIT. The annual lifetime benefit calculated in accordance with Section 1 hereof shall be paid in monthly installments on the first day of each month. Such installments shall commence to be paid on the first such day which coincides with or follows the day upon which the Employee’s benefit under the Retirement Plan shall commence to be paid.

     The normal form in which the benefit hereunder shall be paid is, if the Employee is unmarried, an annuity for the life of the Employee only and, if the Employee is married, an annuity for the life of the Employee with the provision that after the Employee’s death, 50% of the annual benefit that was payable to the Employee shall be continued to the Employee’s surviving spouse for life (a “Joint and Survivor Annuity”). The benefit payable as a Joint and Survivor Annuity shall be calculated by applying to the benefit calculated in accordance with Section 1.a. or 1.b. hereof, as appropriate, the factors for the 50% contingent annuity option set forth in the Retirement Plan.

     Monthly installments of benefits shall cease to be paid as of the first day of the month

-6-

following the date of the Employee’s death, unless a Joint and Survivor Annuity was then in effect, in which event the installments shall cease as of the first day of the month following the death of the Employee’s surviving spouse.

     3. LIMITATION OF BENEFIT. If the Employee’s employment shall be terminated for cause involving fraud, dishonesty, moral turpitude, gross misconduct, gross failure to perform his/her duties, or disclosure of secret or other confidential information of the Employer to any competitor or to any person not authorized to receive such information, neither the Employee, his/her spouse nor his/her estate shall be entitled to receive any benefit under this Agreement.

     4. ABSENCE OF FUNDING. Benefits payable pursuant to this Agreement shall not be funded, and the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee, his spouse or his estate. Such benefits shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee, his spouse or his estate, and any attempt to anticipate, alienate, transfer or assign these benefits shall be void. The Employee, his spouse or his estate shall have only a contractual right against the Employer for the benefits hereunder. Notwithstanding the foregoing, in order to pay benefits pursuant to this Agreement, the Employer may establish a grantor trust (hereinafter the “Trust”) within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. Some or all of the assets of the Trust may be dedicated to providing benefits to the Employee, his spouse or his estate pursuant to this Agreement, but, nevertheless, all assets of the Trust shall at all times remain subject to the claims of the Employer’s general creditors in the event of the Employer’s bankruptcy or insolvency.

5. MISCELLANEOUS.

     a. This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, his spouse or his estate, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided and the right to receive such payments from assets held in the Trust.

     b. This Agreement shall not supersede any other contract of employment, whether oral or in writing, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the

-7-

Employee.

     c. This Agreement shall be construed in all respects under the laws of the State of Connecticut.

IN WITNESS WHEREOF, the Employer and the Employee have executed this Agreement as of the day and year above written.

EMPLOYEE	CONNECTICUT WATER COMPANY
/s/ Thomas R. Marston	/s/ Marshall T. Chiaraluce
Thomas R. Marston	Marshall T. Chiaraluce
	President, CEO, and Chairman

EX-10.9.2

Exhibit 10.9a

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

between

THE CONNECTICUT WATER COMPANY
CONNECTICUT WATER SERVICE, INC.

and

Thomas R. Marston

Exhibit 10.9a

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

     THIS AGREEMENT, dated as of December 2, 2004, 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 Thomas R. Marston , a resident of Higganum, CT (“Executive”).

W I T N E S S E T H :

     WHEREAS, Executive has been and continues to be employed by Company and Parent in an executive capacity and has entered into an Employment Agreement between Executive and Company and Parent dated as of the 15th day of December, 1998 which becomes effective upon a “Change-in-Control,” as defined herein, of Company or Parent; and

     WHEREAS, should Company or Parent receive a proposal from or engage in discussions with a third person concerning a possible combination with Company or Parent or the acquisition of a substantial portion of voting securities of Company or Parent, the Boards of Directors of Company and Parent have deemed it imperative that they and Company and Parent be able to rely on Executive to continue to serve in Executive’s position and that the Boards of Directors and Company and Parent be able to rely upon Executive’s advice as being in the best interests of Company and Parent and their shareholders without concern that Executive might be distracted by the personal uncertainties and risks that such a proposal or discussions might otherwise create; and

     WHEREAS, Company and Parent desire to reward Executive for Executive’s valuable, dedicated service to Company and Parent should Executive’s service be terminated under circumstances hereinafter described: and

     WHEREAS, Executive, Company and Parent are willing to enter into this Amended and Restated Employment Agreement (“Agreement”) on the terms herein set forth;

     NOW, THEREFORE, to assure Company and Parent of Executive’s continued dedication and the availability of Executive’s advice and counsel in the event of any such proposal, to induce Executive to remain in the employ of Company and Parent and to reward Executive for Executive’s valuable dedicated service to Company and Parent should Executive’s service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy of which each party acknowledges, Company, Parent and Executive agree as follows:

-2-

     1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

          (a) “Cause” shall mean Executive’s serious, willful misconduct in respect of Executive’s duties under this Agreement, including conviction for a felony or perpetration by Executive of a common law fraud upon Company or Parent which has resulted or is likely to result in material economic damage to Company or Parent, as determined by a vote of at least seventy-five percent (75%) of all of the Directors (excluding Executive) of each of Company’s and Parent’s Board of Directors;

          (b) “Change-in-Control” shall be deemed to have occurred if after the date hereof (i) a public announcement shall be made or a report on Schedule 13D shall be filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the “Act”) disclosing that any Person (as defined below), other than Company or Parent or any employee benefit plan sponsored by Company or Parent, is the beneficial owner (as the term is defined in Rule 13d-3 under the Act) directly or indirectly, of twenty percent (20%) or more of the total voting power represented by Company’s or Parent’s then outstanding voting common stock (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire voting common stock); or (ii) any Person, other than Company or Parent or any employee benefit plan sponsored by Company or Parent, shall purchase shares pursuant to a tender offer or exchange offer to acquire any voting common stock of Company or Parent (or securities convertible into such voting common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the Person in question is the beneficial owner directly or indirectly, of twenty percent (20%) or more of the total voting power represented by Company’s or Parent’s then outstanding voting common stock (all as calculated under clause (i)); or (iii) the stockholders of Company or Parent shall approve (A) any consolidation or merger of Company or Parent in which Company or Parent is not the continuing or surviving corporation (other than a merger of Company or Parent in which holders of the outstanding capital stock of Company or Parent immediately prior to the merger have the same proportionate ownership of the outstanding capital stock of the surviving corporation immediately after the merger as immediately before), or pursuant to which the outstanding capital stock of Company or Parent would be converted into cash, securities or other property, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of Company or Parent; or (iv) there shall have been a change in the composition of the Board of Directors of Company or Parent at any time during any consecutive twenty-four (24) month period such that “continuing directors” cease for any reason to constitute at least a majority of the Board unless the election, or the nomination for election of each new Director was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who were Directors at the beginning of such period; or (v) the Board of Directors of Company or Parent, by a vote of a majority of all the Directors (excluding Executive) adopts a resolution to the effect that a “Change-in-Control” has occurred for purposes of this Agreement.

-3-

          (c) “Disability” shall mean the incapacity of Executive by illness or any other cause as determined under the long-term disability insurance plan of Company in effect at the time in question, or if no such plan is in effect, then such incapacity of Executive as prevents Executive from performing the essential functions of Executive’s position with or without reasonable accommodation for a period in excess of two hundred forty (240) days (whether or not consecutive), or one hundred eighty (180) days consecutively, as the case may be, during any twelve (12) month period.

          (d) “Effective Date” shall be the date on which a Change-in-Control occurs. Anything in this Agreement to the contrary notwithstanding, if Executive’s employment is terminated prior to the date on which a Change-in-Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change-in-Control or (ii) otherwise arose in connection with or anticipation of a Change-in-Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination.

          (e) “Good Reason” shall mean the occurrence of any action which (i) removes or changes Executive’s title or reduces Executive’s job responsibilities or base salary; (ii) results in a significant worsening of Executive’s work conditions; or (iii) moves Executive’s place of employment to a location that increases Executive’s commute by more than thirty (30) miles over the length of Executive’s commute from Executive’s place of principal residence at the time the move is requested. For purposes of this subparagraph (e), any good faith determination by Executive that any such action has occurred shall be conclusive. Notwithstanding the foregoing, at any time during the period commencing on the Effective Date and ending on the 30th day after the first anniversary of the Effective Date, except for purposes of Paragraph 5(g), “Good Reason” shall mean any reason or no reason.

          (f) “Person” shall mean any individual, corporation, partnership, company or other entity, and shall include a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934.

     2. Employment.

          (a) As of the Effective Date, Company hereby agrees to continue to employ Executive and Executive agrees to remain in the employ of Company for the Term of this Agreement upon the terms and conditions hereinafter set forth. Subject to the provisions of subparagraph (b) of this Paragraph 2, and to the provisions of Paragraph 6 below, “Term” shall mean a continuously renewing period of three (3) years commencing on the Effective Date.

          (b) At any time during the Term, the Board of Directors of Company and Parent may, by written notice to Executive, advise Executive of their desire to modify or amend any of the terms or provisions of this Agreement or to delete or add any terms or provisions. Any such notice (“Notice”) shall describe the proposed modifications in reasonable detail. In the event a Notice shall be given to Executive, then Company, Parent and Executive agree to discuss

-4-

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, Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the ninety (90)-day period immediately preceding the Effective Date and Executive’s services shall be performed at such location as Executive shall determine.

          (b) During the Term, Executive will serve Company faithfully, diligently and competently and will devote full-time to Executive’s employment and will hold, in addition to the offices held on the Effective Date, such other executive offices of Company or Parent, or their respective subsidiaries and affiliates, to which Executive may be elected, appointed or assigned by the Boards of Directors of Company or Parent from time to time and will discharge such executive duties in connection therewith. Nothing in this Agreement shall preclude Executive, with the prior approval of the Board of Directors of Company, from devoting reasonable periods of time required for (i) serving as a director or member of a committee of any organization involving no conflict of interest with Company or Parent, or (ii) engaging in charitable, religious and community activities, provided, that such directorships, memberships or activities do not materially interfere with the performance of Executive’s duties hereunder.

     4. Compensation. During the Term, Company shall pay to Executive as compensation for the services to be rendered by Executive hereunder the following:

          (a) A base salary at a rate equal to the highest base salary paid or payable to Executive by Company during the twelve (12)-month period immediately preceding the month in which the Effective Date occurs, or such larger sum as the Board of Directors of Company may from time to time determine in connection with regular periodic performance reviews pursuant to Company’s policies and practices. Such compensation shall be payable in accordance with the normal payroll practices of Company. Executive shall receive an annual increase in base salary at each normal pay adjustment date during the Term, but no later than one (1) year after the date of Executive’s last increase and annually thereafter during the Term, of not less than the percentage increase in the cost-of-living since Executive’s last pay adjustment, as measured by the Consumer Price Index-All Urban Consumers of the U.S. Bureau of Labor Statistics.

          (b) In addition, Company shall pay to Executive an annual bonus, payable in cash or other form of compensation, in accordance with the Company’s practice or plan for annual bonuses for peer executives which is at least equal to the target percentage of the

-5-

midpoint of Executive’s salary grade under the Company’s Officers Incentive Program for the year preceding the fiscal year in which the Effective Date occurs.

     5. Benefits. During the Term, Executive shall be entitled to the following benefits:

          (a) Incentive, Savings and Retirement Plans. In addition to base salary and bonus payable as hereinabove provided, Executive shall be entitled to participate during the Term in all incentive, savings and retirement plans, practices, policies and programs applicable to executive employees of Company as may be in effect from time to time. Such plans, practices, policies and programs, in the aggregate, shall provide Executive with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation, benefits and reward opportunities provided by Company for Executive under such plans, practices, policies and programs as in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as provided at any time thereafter with respect to other key employees of Company or Parent.

          (b) Welfare Benefit Plans. During the Term, Executive and/or Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs applicable to executive employees of Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) at least as favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive and/or Executive’s family, as in effect at any time thereafter with respect to other key employees of Company or Parent.

          (c) Expenses. During the Term, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the most favorable policies, practices and procedures of Company in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect at any time thereafter with respect to other key employees of Company or Parent.

          (d) Fringe Benefits. During the Term, Executive shall be entitled to fringe benefits, including use of an automobile and payment of related expenses or payment of an allowance for automobile related expenses, in accordance with the most favorable plans, practices, programs and policies of Company in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect at any time thereafter with respect to other key employees of Company or Parent.

          (e) Office and Support Staff. During the Term, Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to Executive by Company at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as provided at any time thereafter with respect to other key employees of Company or Parent.

-6-

          (f) Vacation. During the Term, Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of Company as in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect at any time thereafter with respect to other key employees of Company or Parent.

          (g) Stay-on Bonus. If Executive is employed on a date on which the Board of Directors of Company or Parent approves a transaction described in clause (iii) of Paragraph 1(b), and the shareholders of Company or Parent, as applicable, subsequently approve such transaction, Executive shall receive a lump sum equal to the base salary of Executive, at the rate in effect immediately prior to such date, plus an amount equal to the target percentage of the midpoint of Executive’s salary grade under the Company’s Officers Incentive Program for the year in which such date occurs; provided Executive is employed on the fifth day following the closing of such transaction. If Executive’s employment is terminated by Company following such approval by the applicable Board of Directors and prior to the fifth day following the closing of such transaction for any reason other than for Cause, or Executive’s death, or Executive’s attainment of age sixty-five (65), or if Executive’s employment is terminated during such period by reason of Executive’s Disability, or if Executive shall voluntarily terminate Executive’s employment during such period for Good Reason, then, in addition to the amounts payable to Executive pursuant to Section 7, Executive shall be paid a lump sum equal to the base salary of Executive, at the rate in effect immediately prior to the date of termination, plus an amount equal to the target percentage of the midpoint of Executive’s salary grade under the Company’s Officers Incentive Program for the year in which termination occurs.

     6. End of Term and Notice of Termination.

          (a) End of Term. The Term shall end upon the occurrence of any of the following events:

               (i) Termination of Executive’s employment by Company for Cause.

               (ii) The voluntary termination of Executive’s employment by Executive other than for Good Reason.

               (iii) The death of Executive.

               (iv) Executive’s attainment of age sixty-five (65).

               (v) Full compliance by Company with the provisions of Paragraph 7(e) below, if Executive’s employment shall have been terminated by Company during the Term for any reason other than Cause, or if Executive’s employment shall have been terminated by reason of Executive’s Disability, or if Executive shall have voluntarily terminated Executive’s employment during the Term for Good Reason.

-7-

          (b) Notice of Termination. Any termination by Company for Cause or by Executive for Good Reason or on account of Executive’s Disability shall be communicated by notice to the other party hereto given in accordance with Section 16 of this Agreement. For purposes of this Agreement, a “notice” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the date of termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice).

          (c) Date of Termination. The date of termination means the date of receipt of the notice of termination or any later date specified therein, as the case may be; provided, however, that (i) if Executive’s employment is terminated by Company other than for Cause or on account of Executive’s Disability, the date of termination shall be the date on which Company notifies Executive of such termination and (ii) if Executive’s employment is terminated by reason of death, the date of termination shall be the date of death of Executive.

     7. Payment Upon Termination.

          (a) If Executive’s employment is terminated by Company for Cause, as defined in Paragraph 1(a), the obligations of Company under this Agreement shall cease and Executive shall forfeit all right to receive any compensation or other benefits under this Agreement except only compensation or benefits accrued or earned and vested (if applicable) by Executive as of the date of termination, including base salary through the date of termination, benefits payable under the terms of any qualified or nonqualified retirement plans or deferred compensation plans maintained by Company, any accrued vacation pay as of the date of termination not yet paid by Company and any benefits required to be paid by law such as continued health care coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) (collectively, the “Accrued Obligations”).

          (b) If Executive shall voluntarily terminate Executive’s employment during the Term, other than for Good Reason, as defined in Paragraph 1(e), the obligations of Company under this Agreement shall cease and Executive shall forfeit all right to receive any compensation or other benefits under this Agreement except only the Accrued Obligations.

          (c) In the event of the death of Executive during the Term, then, in addition to the Accrued Obligations and any other benefits which may be payable by Company in respect of the death of Executive, the base salary then payable hereunder shall continue to be paid at the then current rate for a period of six (6) months after such death to such beneficiary as shall have been designated in writing by Executive, or if no effective designation exists, then to the estate of Executive.

          (d) If Executive’s employment is terminated by reason of Executive’s attainment of age sixty-five (65), the obligations of Company under this Agreement shall cease

-8-

and Executive shall forfeit all right to receive any compensation or other benefits under this Agreement except only the Accrued Obligations.

          (e) If Executive’s employment is terminated by Company during the Term for any reason other than for Cause, or Executive’s death, or Executive’s attainment of age sixty-five (65), or if Executive’s employment is terminated during the Term by reason of Executive’s Disability, or if Executive shall voluntarily terminate Executive’s employment during the Term for Good Reason, Executive shall be entitled to receive, and Company shall be obligated to pay and provide Executive, the following amounts:

               (i) An amount in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below to be determined by a nationally recognized independent certified public accounting firm selected and retained by Company to be the reasonable value of said covenants as of the date of termination of Executive’s employment, but in no event shall such amount be greater than the aggregate value of the benefits provided in subparagraphs (e)(ii), (iii), (iv), (v), (vii), (viii), (ix) and (xi) hereinbelow. The benefits otherwise payable to Executive pursuant to said subparagraphs shall be offset by the amount, if any, payable to Executive in respect of the covenants by Executive set forth in Paragraphs 8 and 9 below. Notwithstanding the foregoing, if any benefit otherwise payable to Executive pursuant to said subparagraphs would be offset by the amount payable to Executive in respect of the covenants set forth in Paragraphs 8 and 9 below, Executive may elect to receive such benefit, but the amount payable to Executive in respect of the covenants by Executive set forth in Paragraphs 8 and 9 below shall be reduced by the value of such benefit. Said amount paid in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below shall be paid in cash in a lump sum in the month next following Executive’s date of termination of employment and shall be treated as a supplemental wage payment under applicable Treasury Regulations subject to federal tax withholding at the flat percentage rate applicable thereto.

               (ii) An amount equal to three (3) times the base salary of Executive, at the rate in effect immediately prior to the date of termination, plus an amount equal to three (3) times the target percentage of the midpoint of Executive’s salary grade under the Company’s Officers Incentive Program for the year in which termination occurs. There shall be subtracted from the aggregate amount determined in accordance with the immediately preceding sentence the amount, if any, payable to Executive under any then effective severance pay plan of Company. Such resulting amount shall be payable in equal installments over the three (3)-year period commencing on the date of termination of employment in accordance with the normal payroll practices of Company or, at Company’s option, the entire amount (determined without any discount) shall be paid in cash in a lump sum in the month next following Executive’s date of termination of employment and shall be treated as a supplemental wage payment under applicable Treasury Regulations subject to federal tax withholding at the flat percentage rate applicable thereto.

               (iii) An amount equal to the aggregate amounts that Company would have contributed on behalf of Executive under Company’s qualified defined contribution retirement plan(s), if any such plan(s) shall be in effect (other than amounts attributable to

-9-

Executive’s before-tax contributions to such plan(s)) plus estimated earnings thereon had Executive continued in the employ of Company for the three (3)-year period commencing on the date of termination and made contributions under said plan(s) at a rate, as a percentage of salary, equal to the rate at which Executive had made contributions to said plan(s) in the plan year immediately preceding Executive’s termination, to be payable in a lump sum to Executive within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Executive shall not have breached said non-competition provisions.

               (iv) An amount equal to the difference between: (A) benefits which would have been payable to Executive under any deferred compensation agreement between Company and Executive, if any such agreement shall be in effect, had Executive continued in the employ of Company for the three (3)-year period commencing on the date of termination, received compensation at least equal to that specified in Paragraph 4 of this Agreement during such time, and deferred pursuant to said deferred compensation agreement the amount of compensation specified therein; and (B) the benefits actually payable to Executive under such deferred compensation agreement; such amount to be payable in a lump sum to Executive within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Executive shall not have breached said non-competition provisions.

               (v) Additional retirement benefits equal to the difference between: (A) the annual pension benefits that would have been payable to Executive under Company’s qualified defined benefit retirement plan (the “Plan”) and under any nonqualified supplemental executive retirement plan covering Executive (the “Supplemental Plan”), if any such Plan or Supplemental Plan shall be in effect, if Executive had been continued in the employ of Company for the three (3)-year period commencing on the date of termination and had received compensation at least equal to that specified in Paragraph 4(a) of this Agreement during such time and had been fully vested in the benefits payable under any such Plan and Supplemental Plan; and (B) the annual benefits actually payable to Executive under any such Plan and Supplemental Plan. The discounted present value of such additional benefits, shall be payable to Executive in a lump sum, as calculated by the independent actuary for the Plan using the assumptions specified in the Plan, within thirty (30) days after the expiration of the non-competition period specified in Paragraph 9(a) of this Agreement, provided that Executive shall not have breached said non-competition provisions.

               (vi) At the date of termination of Executive’s employment, Executive shall be fully vested in any form of compensation previously granted to Executive (other than benefits payable under a qualified retirement plan), such as, by way of example only, restricted stock, stock options, and performance share awards.

               (vii) If Executive’s employment is terminated by reason of Executive’s Disability, Executive shall be entitled to receive, in addition to the other benefits provided under this Paragraph 7(e), disability benefits at least equal to the most favorable of those provided by Company or Parent to disabled employees in accordance with the most favorable plans,

-10-

programs, practices and policies of Company or Parent in effect at any time during the ninety (90)-day period immediately preceding the Effective Date or, if more favorable to Executive, as in effect on the date of Executive’s Disability with respect to other key employees of Company or Parent.

               (viii) During the three (3)-year period commencing on the date of termination, or such longer period as any plan, program, practice or policy may provide, Executive shall continue to participate in all life, health, disability and similar welfare benefit plans and programs of Company to the extent that such continued participation is possible under the general terms and provisions of such plans and programs, and Executive shall be credited with additional service attributable to the three (3)-year period commencing on the date of termination for purposes of determining eligibility to participate in any such plans or programs maintained by Company for retirees, with Company and Executive paying the same portion of the cost of each such plan or program as existed at the time of Executive’s termination. In the event that Executive’s continued participation (or commencement of participation for plans or programs for retirees) is not permitted, then in lieu thereof, Company shall acquire, with the same cost sharing, individual insurance policies providing comparable coverage for Executive; provided, however, that Company shall not be obligated to pay more than three (3) times Company’s current cost for comparable group coverage. If any such individual coverage is unavailable, then Company shall pay to Executive annually for the three (3)-year period commencing on the date of termination an amount equal to the sum of the average annual contributions, payments, credits, or allocations made by Company for such coverage on Executive’s behalf (or the average such contributions, payments, credits, or allocations for retirees, in the case of retiree coverage) over the three (3) calendar years preceding the date of termination of Executive’s employment.

               (ix) During the three (3)-year period commencing on the date of termination, Executive shall continue to receive such perquisites, other than those specified in the preceding subparagraphs above, as Executive was receiving at the date of termination of employment with, to the extent applicable, the same cost sharing with Company as was in effect immediately prior to Executive’s termination of employment.

               (x) Company shall reimburse Executive for the amount of any reasonable legal or accounting fees and expenses incurred by Executive to obtain or enforce any right or benefit provided to Executive by Company hereunder or as confirmed or acknowledged hereunder.

               (xi) Company shall provide Executive with outplacement services from a firm selected by the Company for a period of one (1) year commencing on the date of termination, or until Executive accepts other employment, if earlier. Such outplacement services shall be reasonable and appropriate for an employee in Executive’s position.

-11-

     8. Confidential Information. Executive understands that in the course of Executive’s employment by Company, Executive will receive or have access to confidential information concerning the business or purposes of Company and Parent, and which Company and Parent desire to protect. Such confidential information shall be deemed to include, but not be limited to, Company’s customer lists and information, and employee lists, including, if known, personnel information and data. Executive agrees that Executive will not, at any time during the period ending two (2) years after the date of termination of Executive’s employment, reveal to anyone outside Company or Parent or use for Executive’s own benefit any such information without specific written authorization by Company or Parent. Executive further agrees not to use any such confidential information or trade secrets in competing with Company or Parent at any time during or in the two (2) year period immediately following the date of termination of Executive’s employment with Company.

     9. Covenants by Executive Not to Compete With Company or Parent.

          (a) Upon the date of termination of Executive’s employment with Company for any reason, Executive covenants and agrees that Executive will not at any time during the period of two (2) years from and after such date of termination directly or indirectly in any manner or under any circumstances or conditions whatsoever be or become interested, as an individual, partner, principal, agent, clerk, employee, stockholder, officer, director, trustee, or in any other capacity whatsoever, except as a nominal owner of stock of a public corporation, in any other business which, at the date of Executive’s termination, is a Competitor (as defined herein), either directly or indirectly, with Company or Parent, or engage or participate in, directly or indirectly (whether as an officer, director, employee, partner, consultant, holder of an equity or debt investment, lender or in any other manner or capacity), or lend Executive’s name (or any part or variant thereof) to, any business which, at the date of Executive’s termination, is a Competitor, either directly or indirectly, with Company or Parent, or as a result of Executive’s engagement or participation would become, a Competitor, either directly or indirectly, with any aspect of the business of Company or Parent as it exists at the time of Executive’s termination, or solicit any officer, director, employee or agent of Company or Parent or any subsidiary or affiliate of Company or Parent to become an officer, director, employee or agent of Executive, Executive’s respective affiliates or anyone else. Ownership, in the aggregate, of less than one percent (1 %) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a violation of the foregoing provision. For the purposes of this Agreement, a Competitor is any business which is similar to the business of Company or Parent or in any way in competition with the business of Company or Parent within any of the then-existing water utility service areas of Company.

          (b) Executive hereby acknowledges that Executive’s services are unique and extraordinary, and are not readily replaceable, and hereby expressly agrees that Company and Parent, in enforcing the covenants contained in Paragraphs 8 and 9 herein, in addition to any other remedies provided for herein or otherwise available at law, shall be entitled in any court of

-12-

equity having jurisdiction to an injunction restraining Executive in the event of a breach, actual or threatened, of the agreements and covenants contained in these Paragraphs.

          (c) The parties hereto believe that the restrictive covenants of these Paragraphs are reasonable. However, if at any time it shall be determined by any court of competent jurisdiction that these Paragraphs or any portion of them as written, are unenforceable because the restrictions are unreasonable, the parties hereto agree that such portions as shall have been determined to be unreasonably restrictive shall thereupon be deemed so amended as to make such restrictions reasonable in the determination of such court, and the said covenants, as so modified, shall be enforceable between the parties to the same extent as if such amendments had been made prior to the date of any alleged breach of said covenants.

          (d) The provisions of this Paragraph 9 shall not apply if Company and Parent shall be prohibited under Paragraph 15 below from making any payments to Executive pursuant to Paragraph 7 above.

     10. No Obligation to Mitigate. So long as Executive shall not be in breach of any provision of Paragraph 8 or 9, Executive shall have no duty to mitigate damages in the event of a termination and if Executive voluntarily obtains other employment (including self-employment), any compensation or profits received or accrued, directly or indirectly, from such other employment shall not reduce or otherwise affect the obligations of Company and Parent to make payments hereunder.

     11. Resignation. In the event that Executive’s services hereunder are terminated under any of the provisions of this Agreement (except by death), Executive agrees that Executive will deliver Executive’s written resignation as an officer of Company or Parent, or their subsidiaries and affiliates, to the Board of Directors, such resignation to become effective immediately, or, at the option of the Board of Directors, on a later date as specified by the Board.

     12. Insurance. Company shall have the right at its own cost and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering Executive, and Executive agrees to submit to the usual and customary medical examination and otherwise to cooperate with Company in connection with the procurement of any such insurance, and any claims thereunder.

     13. Release. As a condition of receiving payments or benefits provided for in this Agreement, at the request of Company or Parent, Executive shall execute and deliver for the benefit of Company and Parent, and any subsidiary or affiliate of Company or Parent, a general release in the form set forth in Attachment A, and such release shall become effective in accordance with its terms. The failure or refusal of Executive to sign such a release or the revocation of such a release shall cause the termination of any and all obligations of Company and Parent to make payments or provide benefits hereunder, and the forfeiture of the right of Executive to receive any such payments and benefits. Executive acknowledges that Company and Parent have advised Executive to consult with an attorney prior to signing this Agreement and that Executive has had an opportunity to do so.

-13-

     14. Additional Benefits. In addition to the other benefits payable to Executive pursuant to this Agreement, in the event that any payment or benefit received or to be received by Executive under this Agreement (a “Payment”) is subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor to such Section, as determined by a nationally recognized independent certified public accounting firm selected by Company (the “Tax Advisor”), then the Company shall make an additional payment to Executive in a lump sum as soon as the determination of the Tax Advisor is completed, in an amount such that after receipt of such lump sum and payment of all excise and income taxes imposed with respect to such receipt and receipt of the Payment, Executive will have received an after-tax amount equal to the amount the Executive would have received had the Excise Tax not been applicable to the Payment. The determination of the Tax Advisor as provided herein shall be completed not later than forty-five (45) days following Executive’s date of termination of employment, and such determination shall be communicated in writing to Company, with a copy to Executive, within said forty-five (45) day period. The determination of the Tax Advisor as provided herein shall be deemed conclusive and binding on Company and Executive. Company shall pay the fees and other costs of the Tax Advisor hereunder.

     15. Regulatory Limitation. Notwithstanding any other provision of this Agreement, Company shall not be obligated to make, and Executive shall have no right to receive, any payment, benefit or amount under this Agreement which would violate any law, regulation or regulatory order applicable to Company or Parent at the time such payment, benefit or amount is due (“Prohibited Payment”). If and to the extent Company shall at a later date be relieved of the restriction on its ability to make any Prohibited Payment, then at such time Company or Parent shall promptly make payment of any such amounts to Executive.

     16. Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person to Executive or to the Secretary of Company and Parent, or if mailed, postage prepaid, registered or certified mail, addressed, in the case of Executive, to Executive’s last known address as carried on the personnel records of Company, and, in the case of Company and Parent, to the corporate headquarters, attention of the Secretary, or to such other address as the party to be notified may specify by notice to the other party.

     17. Successors and Binding Agreement.

          (a) Company and Parent will require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company and/or Parent, as the case may be, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Company and Parent are required to perform it. Failure of Company and Parent to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation and benefits from Company and Parent in the same amount and on the same terms as Executive would be entitled hereunder if Executive had terminated employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date on which Executive’s

-14-

employment with Company was terminated. As used in this Agreement, “Company” and “Parent” shall include any successor to Company’s and/or Parent’s, as the case may be, business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

          (b) This Agreement shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amount is still payable hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is no such designee, to Executive’s estate.

     18. Arbitration. Any dispute which may arise between the parties hereto may, if both parties agree, be submitted to binding arbitration in the State of Connecticut in accordance with the Rules of the American Arbitration Association; provided that any such dispute shall first be submitted to Company’s Board of Directors in an effort to resolve such dispute without resort to arbitration.

     19. Severability. If any of the terms or conditions of this Agreement shall be declared void or unenforceable by any court or administrative body of competent jurisdiction, such term or condition shall be deemed severable from the remainder of this Agreement, and the other terms and conditions of this Agreement shall continue to be valid and enforceable.

     20. Amendment. This Agreement may be modified or amended only by an instrument in writing executed by the parties hereto; provided, however, that the Board of Directors of Company and Parent may amend this Agreement without the consent of Executive upon receipt of a written opinion of Company’s accounting firm that a provision or provisions of this Agreement would prevent “pooling” accounting treatment in connection with any Change-in-Control and such “pooling” accounting treatment would otherwise be available in connection with such Change-in-Control, to the extent necessary to permit “pooling” accounting treatment in connection with such a Change-in-Control, provided that such amendment may not adversely affect any benefit to which Executive was entitled under the terms of this Agreement as in effect on November 17 1999, and must preserve the benefits to Executive under this Agreement to the maximum extent possible consistent with obtaining such accounting treatment.

     21. Construction. This Agreement shall supersede and replace all prior agreements and understandings between the parties hereto on the subject matter covered hereby. This Agreement shall be governed and construed under the laws of the State of Connecticut. Words of the masculine gender mean and include correlative words of the feminine gender. Paragraph headings are for convenience only and shall not be considered a part of the terms and provisions of the Agreement.

-15-

     IN WITNESS WHEREOF, Company and Parent have caused this Agreement to be executed by a duly authorized officer, and Executive has hereunto set Executive’s hand, this 2nd day of December, 2004.

The Connecticut Water Company
By	(signed)
	Michele G. DiAcri
	Corporate Secretary
Connecticut Water Service, Inc.
By	(signed)
	Thomas R. Marston
	Executive

-16-

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;

-17-

     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		EXECUTIVE
By
	Its
CONNECTICUT WATER SERVICE, INC.
By
	Its

EX-10.11.1

Exhibit 10.11.01

December 10, 2004

James R. McQueen
262 Essex Road
Old Saybrook, CT 06475

Dear Jim:

The Connecticut Water Company agrees to enter into a consulting arrangement with you for a period of not more than three years, starting on January 1, 2005, at an annual retainer rate payable to you of $8,000. In addition to the annual retainer, the Company agrees to pay you $75 per hour for hours worked, and such hours worked should not exceed 500 hours per year.

This arrangement has been approved by the Compensation Committee of the Board of Directors who has authorized Marshall T. Chiaraluce to sign on the Company’s behalf. Your signature acknowledges your acceptance of the terms herein.

Sincerely,
/s/ Michele G. DiAcri
Michele G. DiAcri
Corporate Secretary
THE CONNECTICUT WATER COMPANY	JAMES R. McQUEEN
Marshall T. Chiaraluce
President, CEO, and Chairman
/s/ Marshall T. Chiaraluce	/s/ James R. McQueen
Date: December 10, 2004	Date: December 10, 2004
Cc: Maureen P. Westbrook

EX-10.12.5

Exhibit 10.12.05

AMENDMENT TO
UNIONVILLE WATER COMPANY
MONEY PURCHASE PENSION PLAN

     THIS AMENDMENT made this 23^rd day of February 2004, by and between THE UNIONVILLE WATER COMPANY, a corporation organized under the laws of the State of Connecticut and having its principal place of business in Unionville, Connecticut (hereinafter called the “Employer”), for the purpose of amending the Unionville Water Company Money Purchase Plan (the “Plan”),

W I T N E S S E T H:

     WHEREAS, by written Plan instrument dated December 30, 2003, the Employer amended and restated the Plan by the execution of a Nonstandard Safe Harbor Adoption Agreement to the Defined Contribution Basic Plan Document 01; and

     WHEREAS, by Adoption Agreement Amendment, also dated December 30, 2003, the Employer amended the Plan for compliance with the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”); and

     WHEREAS, contributions ceased under the Plan effective December 31, 2003, and the Plan has been terminated effective as of such date; and

     WHEREAS, the Plan was submitted for Internal Revenue Service approval on January 23, 2004; and

     WHEREAS, the Employer wishes to further amend the Plan in the particulars set forth below, in order to comply with the final regulations under Section 401(a)(9) of the Internal Revenue Code of 1986, as amended (the “Code”);

     NOW, THEREFORE, the Plan is amended in the following respects:

     1. The following new unnumbered Section is added to the Plan:

     “Minimum Distribution Requirements.

          (a) General Rules.

               (1) Effective Date. The provisions of this Section will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

               (2) Precedence. The requirements of this Section will take precedence over any inconsistent provisions of the Plan.

               (3) Requirements of Treasury Regulations Incorporated. All distributions required under this Section will be determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the Code.

               (4) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

          (b) Time and Manner of Distribution.

               (1) Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

               (2) Death of the Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

                    (A) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, then, except as otherwise provided in this Section, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70-1/2, if later.

                    (B) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, then except as otherwise provided in this Section, distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

                    (C) If there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth (5th) anniversary of the Participant’s death.

-2-

                    (D) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this subparagraph (2), other than subparagraph (2)(A), will apply as if the surviving spouse were the Participant.

     For purposes of this subparagraph (2) and paragraph (d), unless subparagraph (2)(D) applies, distributions are considered to begin on the Participant’s required beginning date. If subparagraph (2)(D) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under subparagraph (2)(A). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under subparagraph (2)(A)), the date distributions are considered to begin is the date distributions actually commence.

               (3) Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with paragraphs (c) and (d) of this Section. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury regulations.

          (c) Required Minimum Distributions During Participant’s Lifetime.

               (1) Amount of Required Minimum Distributions For Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

                    (A) the quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

                    (B) if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

               (2) Lifetime. Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this paragraph (c) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

-3-

          (d) Required Minimum Distributions After Participant’s Death.

               (1) Death On or After Date Distributions Begin.

                    (A) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:

                         (i) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

                         (ii) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

                         (iii) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

                    (B) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

               (2) Death Before Date Distributions Begin.

                    (A) Participant Survived by Designated Beneficiary. Except as otherwise provided in this Section, if the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s designated beneficiary, determined as provided in subparagraph (d)(I).

                    (B) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

-4-

                    (C) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under subparagraph (b)(2)(A), this subparagraph (d)(2) will apply as if the surviving spouse were the Participant.

               (e) Definitions.

               (1) Designated beneficiary. The individual who is designated as the beneficiary under the applicable provisions of the Plan and is the designated beneficiary under Section 401 (a)(9) of the Code and Section 1.401(a)(9)-I, Q&A-4, of the Treasury regulations.

               (2) Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first 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 under subparagraph (b)(2). The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

               (3) Life expectancy. Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury regulations.

               (4) Participant’s account balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

               (5) Required beginning date. The date specified in the applicable provisions of the Plan relating to required beginning date.”

-5-

     IN WITNESS THEREOF, the Employer hereby executes this Amendment on the day year first above written.

THE UNIONVILLE WATER COMPANY

/s/ Maureen P. Westbrook

Its Vice President – Administration & Government Affairs

-6-

EX-10.13.7

Exhibit 10.13.7

SEVENTH AMENDMENT TO
THE CONNECTICUT WATER COMPANY
EMPLOYEES’ RETIREMENT PLAN

(as amended and restated as of January 1, 1997, except as otherwise provided therein)

     1. The first sentence of Section 8.2 is amended to read as follows:

     “The monthly income of an Employee who becomes eligible for a monthly benefit in accordance with Section 8.1 shall equal the Basic Retirement Income as determined in Section 4.2 based on his Average Earnings and his Credited Service as of his Termination Date reduced by the Early Retirement Percentage Factor from the applicable table in Section 5.2(b) applicable to the number of complete years by which the commencement of payment of his Retirement Income precedes his attainment of age 65, with a Percentage Factor of .72 if the Participant is covered under the table in Section 5.2(b)(I) and the commencement of payment of his Retirement Income precedes his attainment of age 65 by more than 9 complete years; and with a Percentage Factor of .40 if the Participant is covered under the table in Section 5.2(b )(2) and the commencement of payment of his Retirement Income precedes his attainment of age 65 by more than 9 complete years.”

     2. The following new Section 14.12 is added to the Plan, effective as of January 1, 2004:

     “14.12 Transfers of Plan Participants. (a) The Plan provides benefits under three separate benefit structures. One structure applies to Former Crystal Water Participants and is described in Appendix C, as set forth in the First Amendment. Another structure relates to Participants who are employees of Barnstable Water Company and is described in Appendix D, as set forth in the Fourth Amendment. The third structure is the general structure applicable under the Plan for all other Participants. The Plan document does not address what happens in the event a Participant transfers from one group to another. The purpose of this Section 14.12 is to set forth the rules which are intended to apply in such instances.

          (b) If a Former Crystal Water Company Participant transfers to the Company or a Participating Company at the request of the Company or a Participating Company, he shall continue to participate in the Plan based upon all of the Plan provisions applicable to Former Crystal Water Participants. If any other Participant transfers to Barnstable Water Company at the request of the Company or a Participating Company, he shall continue to participate in the Plan based upon all of the Plan provisions applicable to Participants who are employed by the Company or Participating Company from which he transferred. If a Participant who is employed by Barnstable Water Company transfers to the Company or a Participating Company, whether or not at the request of the Company or a Participating Company, however, he shall be covered under the provisions of paragraph (c) below.

          (c) In all other cases, if a Participant transfers from the Company or a Participating Company to another Employer, or if a Participant ceases work for the Company or a Participating Company and commences work for another Employer, and in either case a benefit formula applicable with respect to the second Employer is different than the benefit formula applicable to the first Employer, then except as otherwise provided in paragraph (d) below, no further benefits shall be earned under the first formula when he ceases work for the first Employer, and the Participant shall accrue benefits under the Plan formula applicable with respect to the second Employer from the time he commences work for such second Employer based upon compensation and service with the second Employer and the Plan provisions applicable to that Employer. Service with both Employers shall count, however, for vesting purposes.

          (d) There are different methods of crediting service under the Plan for different Employers, for both vesting purposes and for purposes of accruing benefits. Therefore, if the provisions of paragraph (c) apply, then notwithstanding anything to the contrary set forth in such paragraph (c), the following rules apply in computing Credited Service (or Benefit Service) and Vesting Service for the calendar year in which work commences for the second Employer:

               (1) If the first Employer counts Hours of Service in determining Credited Service or Benefit Service, and the second Employer does not, and if the Participant receives credit for any Hours of Service from the first Employer for the calendar year in which the Participant commences employment with the second Employer, then for that year he shall be deemed to have earned a full Year of Credited Service or Benefit Service (as the case may be) under the provisions of the Plan applicable to the first Employer, and no Credited Service or Benefit Service for that year under the provisions of the Plan applicable to the second Employer. In such event, he shall also earn one full year of Vesting Service under the Plan for that calendar year.

               (2) If the first Employer does not count Hours of Service in counting Credited Service or Benefit Service and the second Employer does count Hours of Service, and if the Participant receives credit for any period of service for the first Employer for the calendar year in which the Participant commences employment with the second Employer, then for that year, he shall be deemed to have earned a full year of Credited Service or Benefit Service under the provisions of the Plan applicable to the first Employer and no Credited Service or Benefit Service for that year under the provisions of the Plan applicable to the second Employer. In such event, he shall also earn one full year of Vesting Service under the Plan for that year.

           (e) If both Employers count hours in determining Credited Service or Benefit Service, and if the provisions of paragraph (c) apply, then for the year in which the Participant commences work for the second Employer, a year of Credited Service or Benefit Service shall be earned under the Plan provisions applicable to the first Employer (and not the second Employer) if it had been earned immediately prior to the time he commences work for the second Employer; otherwise, it shall be earned for that calendar year, if at all, under the Plan provisions applicable to the second Employer.

-2-

          (f) If a Participant transfers to an Affiliated Company that has not adopted the Plan, whether voluntarily or at the request of the Company or an Affiliated Company, then he shall accrue no further benefits under the Plan; and, in no event shall the provisions of this Section 14.12 be construed so as to provide for benefit accruals for any period during which an individual was (or is) employed by an Affiliated Company that has not adopted the Plan.”

     3. Except as hereinabove modified and amended, the Plan as amended shall remain in full force and effect.

-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 Seventh Amendment on May 12, 2004, and the Plan, as so amended, is in full force and effect.

May 12, 2004
	Michele G. DiAcri
	Corporate Secretary

EX-10.28

EXHIBIT 10.28

Execution Copy

ASSET PURCHASE AGREEMENT

among

the Town of Barnstable,

Connecticut Water Service, Inc.

the Barnstable Holding Company,

the Barnstable Water Company

and

BARLACO, Inc.

March 10, 2005

TABLE OF CONTENTS

			Page
SECTION 1		- SALE AND PURCHASE OF ASSETS		1
	1.1	Sale of Assets		1
	1.2	Satisfaction of Note		2
	1.3	Excluded Liabilities		2
	1.4	Purchase Price and Payment		3
	1.5	Transfer of Purchased Assets		3
	1.6	Delivery of Records and Contracts		3
	1.7	Closing		3
SECTION 2		- REPRESENTATIONS AND WARRANTIES OF THE SELLER, PARENT, AND BHC		4
	2.1	Organization and Qualification		4
	2.2	Authority to Execute and Perform Agreements		4
	2.3	Capitalization		4
	2.4	Financial Statements		4
	2.5	No Material Adverse Change		5
	2.6	Tax Matters		5
	2.7	Compliance with Laws		6
	2.8	Consents; No Breach		7
	2.9	Actions and Proceedings		7
	2.10	Contracts and Other Agreements		7
	2.11	Real Property		8
	2.12	Tangible Property		8
	2.13	Title to Assets; Liens		8
	2.14	Absence of Undisclosed Liabilities		9
	2.15	Insurance		9
	2.16	Brokerage		9
	2.17	Hazardous Materials		9
SECTION 3		- REPRESENTATIONS AND WARRANTIES OF THE BUYER		10
	3.1	Authority to Execute and Perform Agreements		10
	3.2	Brokerage		10

-i-

TABLE OF CONTENTS
(continued)

			Page
	3.3	Actions and Proceedings		11
	3.4	No Breach		11
SECTION 4		- COVENANTS AND AGREEMENTS		11
	4.1	Conduct of Business		11
	4.2	Continued Effectiveness of Representations and Warranties		12
	4.3	Taxes		12
	4.4	Corporate Examinations and Investigations		13
	4.5	Expenses		13
	4.6	Authorization from Others		13
	4.7	Consummation of Agreement		14
	4.8	Collection of Assets		14
	4.9	Use of Name		14
	4.10	Further Assurances		14
	4.11	Related Agreements		14
	4.12	Insurance		14
SECTION 5		- CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO CLOSE		15
	5.1	Representations, Warranties and Covenants		15
	5.2	Third Party Consents		15
	5.3	Management Agreement		15
	5.4	BARLACO Purchase and Sale Agreement		15
	5.5	Opinion of Counsel to the Seller		15
	5.6	Litigation		15
	5.7	Delivery of Instruments of Transfer		16
	5.8	No Material Change		16
	5.9	Seller Name Change and Discharge of Liabilities; Insurance		16
	5.10	Massachusetts Tax Waivers		16
	5.11	Financing		16
	5.12	Barnstable Town Council Approval		16
	5.13	Payment of Discharge Amount		16

-ii-

TABLE OF CONTENTS
(continued)

			Page
	5.14	DEP Approval		16
SECTION 6		- CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE		16
	6.1	Representations, Warranties and Covenants		17
	6.2	Litigation		17
	6.3	Delivery of the Purchase Price		17
	6.4	Required Approvals		17
	6.5	Opinion of Counsel to the Buyer		17
	6.6	DEP Approval		17
SECTION 7		- INDEMNIFICATION		17
	7.1	Survival		17
	7.2	Obligation of the Seller, Parent and BHC to Indemnify		19
	7.3	Obligation of the Buyer to Indemnify		19
	7.4	Release by Buyer		19
	7.5	Third-Party Claims		19
	7.6	Other Claims		20
SECTION 8		- TERMINATION OF AGREEMENT		20
	8.1	Termination		20
	8.2	Effect of Termination		21
SECTION 9		- MISCELLANEOUS		21
	9.1	Publicity		21
	9.2	Notices		21
	9.3	Entire Agreement		22
	9.4	Waivers and Amendments; Noncontractual Remedies; Preservation of Remedies		22
	9.5	Governing Law		22
	9.6	Enforceability in Jurisdictions; Consent		22
	9.7	Binding Effect; No Assignment		23
	9.8	Variations in Pronouns		23
	9.9	Counterparts		23

-iii-

TABLE OF CONTENTS
(continued)

		Page
9.10	Exhibits and Schedules		23
9.11	Headings		23

-iv-

EXHIBITS
A	-	Owned Real Property
B	-	Other Interests in Real Property
C	-	Assigned Agreements
D	-	Management Agreement
E	-	BARLACO Purchase and Sale Agreement
F	-	Form of Opinion of Seller’s Counsel
G	-	Form of Opinion of Town Attorney
SCHEDULES
1.1		Excluded Assets
2.5		Material Adverse Change
2.6		Taxes
2.7		Compliance with Laws; Permits
2.8		Consents
2.9		Actions and Proceedings
2.11		Real Property; Repairs and Replacements
2.13		Title to Assets
2.15		Insurance

ASSET PURCHASE AGREEMENT

     ASSET PURCHASE AGREEMENT dated as of March 10, 2005 among the Town of Barnstable, Massachusetts (the “Buyer”), the Connecticut Water Service, Inc., a Connecticut corporation (“Parent”), the Barnstable Holding Company, a Connecticut corporation and wholly owned subsidiary of Parent (“BHC”), the Barnstable Water Company, a corporation chartered under Chapter 286 of the Massachusetts Acts of 1911 and wholly owned subsidiary of BHC (the “Seller”) and BARLACO, Inc., a Massachusetts corporation and wholly owned subsidiary of BHC (“BARLACO”).

SECTION 1 — SALE AND PURCHASE OF ASSETS

     1.1 Sale of Assets. Subject to the provisions of this Agreement, at the Closing (as defined in Section 1.7 hereof), the Seller agrees to sell and the Buyer agrees to purchase all of the properties, assets and business of the Seller used or usable in its business as a water company of every kind and description, tangible and intangible, real, personal or mixed, and wherever located, including without limitation:

               (a) all of the Seller’s land as set forth in Exhibit A to this Agreement, together with the buildings, structures, pipes, fixtures and other improvements located thereon, together with construction in progress;

               (b) all of the Seller’s other interests in real property as set forth in Exhibit B to this Agreement, including easements, rights of way, leaseholds, and all other rights representing less than fee ownership;

               (c) all personal property constituting Seller’s distribution system, including pumping facilities, purification equipment, mains, pipes, fire cisterns, basins, fountains, troughs, meters and hydrants;

               (d) all office, shop, stores, transportation, laboratory and other equipment, including computers, computer programs and related software, but excluding certain essential software that is not owned by or licensed to the Seller but rather is used under a license granted to affiliates of Seller;

               (e) all materials, supplies and equipment;

               (f) to the extent that a sale by contract operates to transfer franchises, water and distribution rights under Massachusetts law, all of the Seller’s rights, franchises, and privileges, including without limitation the water and distribution rights conferred by the Seller’s charter;

               (g) the Seller’s rights and obligations under the contracts and agreements described in Exhibit C to this Agreement (the “Assigned Agreements”) that relate to its operation of a water utility;

1

               (h) intellectual property rights;

               (i) copyrights;

               (j) all of Seller’s goodwill;

               (k) all information, whether or not proprietary, that relates to the Company’s operation of a water utility, including but not limited to accounts, billing, customer service, meter reading, and other records, computer programs (to the extent permitted by the licenses for such programs), and systems, however described, necessary or useful to the operation of the water utility as a going concern, including any information, documents and data stored in any medium in the possession of any affiliate of or contractor to the Seller;

               (l) all of the Seller’s books and records relating to its business as a water company and all of its engineering and other reports and surveys relating to its water system;

provided, however, that there shall be excluded from such purchase and sale Seller’s tax returns, stock record books, corporate record books containing minutes of meetings of directors and stockholders and such other records as have to do exclusively with Seller’s organization or stock capitalization and other assets listed on Schedule 1.1 (the “Excluded Assets”). The Seller shall have access to such other books and records of the Seller at reasonable times for purposes of winding up the Seller, handling tax matters and dealing with liabilities and claims. The assets, property and business of Seller to be sold to and purchased by the Buyer or its designee) under this Agreement are hereinafter sometimes referred to as the “Purchased Assets.” The parties hereto acknowledge that in accordance with Section 4.8 hereof Seller is entitled to all accounts receivable for services rendered prior to the Closing Date, and Buyer is entitled to all accounts receivable for services rendered on or after the Closing Date.

     1.2 Satisfaction of Note. At the time of the sale and purchase of the Purchased Assets, the Buyer shall take the steps necessary to enable Seller to discharge $1.525 million of the Seller’s obligation under the Seller’s long-term note to Indianapolis Life Insurance Company dated February 15, 1991 (the “Indianapolis Note”), or such other amount as the Seller may then be obligated to pay in order to obtain a complete discharge of that note.

     1.3 Excluded Liabilities. Except as otherwise specifically provided in this Section 1.3, (a) Buyer shall not assume or be liable for any obligation or liability of Seller, of any kind or nature, known, unknown, contingent or otherwise (collectively, the “Excluded Liabilities”), including without limitation:

     (i) any liability of Seller incurred in connection with this Agreement and the transactions provided for herein, including brokerage, accounting and counsel fees, transfer and other taxes, and expenses pertaining to its liquidation or the performance by Seller of its obligations hereunder;

     (ii) any liability or obligation of Seller arising out of any contract or agreement;

     (iii) any obligations to Seller’s employees, including without limitation, any obligations arising under any employee program;

2

     (iv) any litigation, proceeding, claim by any person or entity or other obligation of Seller relating to the business or operations of or otherwise relating to the Purchased Assets prior to the Closing Date, whether or not such litigation, proceeding, claim or obligation is pending, threatened, or asserted before, on, or after the Closing Date;

     (v) Taxes (as defined in Section 2.6) whether relating to periods before or after the Closing Date; and

     (vi) any obligations under any law, including but not limited to antitrust, civil rights, health, safety, labor, and discrimination laws.

     (b) Seller shall be solely responsible for, and shall discharge, any and all liabilities and obligations of Seller, including all accounts payable in connection with purchases made or services received on or prior to the Closing Date.

     1.4 Purchase Price and Payment. In consideration of the sale of the Purchased Assets to Buyer, at the Closing, the Buyer shall:

               (a) deliver to the Seller an amount equal to $10 million less the amount delivered to Seller pursuant to Section 1.4(b) hereof in cash, by certified or bank check, or by wire transfer of immediately available funds (the “Purchase Price”); and

               (b) deliver to the Seller in cash, by certified or bank check, or by wire transfer of immediately available funds an amount sufficient to enable Seller to discharge the Indianapolis Note (the “Discharge Amount”).

     1.5 Transfer of Purchased Assets. At the Closing, Seller shall deliver or cause to be delivered to the Buyer good and sufficient instruments of assignment or transfer transferring to the Buyer title to all the Purchased Assets. Such instruments of transfer (a) shall be in the form and will contain the warranties, covenants and other provisions (not inconsistent with the provisions hereof) which are usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers, (b) shall be in form and substance satisfactory to the Buyer and its counsel, and (c) with the exceptions provided for in Section 2.13 of this Agreement, shall effectively vest in the Buyer good record and marketable title to all the Purchased Assets free and clear of all liens, restrictions and encumbrances.

     1.6 Delivery of Records and Contracts. At the Closing, Seller shall deliver or cause to be delivered to the Buyer all written leases, contracts, commitments and rights evidencing Purchased Assets, with such assignments thereof and consents to assignments as are necessary to assure the Buyer of the full benefit of the same. Seller shall also deliver to the Buyer at the Closing all of Seller’s business records, books and other data relating to its assets, business and operations (except corporate records and other property of Seller excluded under Section 1.1) and Seller shall take all requisite steps to put the Buyer (or its designee) in actual possession and operating control of the assets and business of Seller.

     1.7 Closing. The closing of the sale and purchase of the transactions contemplated hereby (the “Closing”), shall take place at the offices of Palmer & Dodge LLP at 10:00 a.m., local time, on May 15, 2005 or within 45 days after satisfaction or waiver of the conditions and

3

delivery of the items set forth in Sections 5 and 6, whichever is later, or on such other time and date and at such place as the Buyer and the Seller agree in writing (the date of such Closing shall herein be referred to as the “Closing Date”). The parties hereto acknowledge that in no event shall the Closing take place prior to the expiration of the 30-day referendum period which begins after the Barnstable Town Council approves this transaction.

SECTION 2 — REPRESENTATIONS AND WARRANTIES OF THE
SELLER, PARENT, AND BHC

     The Seller, Parent, and BHC, jointly and severally, represent and warrant to the Buyer as follows:

     2.1 Organization and Qualification. The Seller is a corporation duly organized, validly existing and in good standing under the laws of Massachusetts and has full corporate power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business as now being and as heretofore conducted. The Seller is not required to be qualified or otherwise authorized to transact business as a foreign corporation in any jurisdiction (in the United States and outside of the United States). The Seller does not file and is not required to file any franchise, income or other Tax Returns (as defined in Section 2.6) in any jurisdiction (in the United States or outside of the United States), other than Massachusetts, based upon the ownership or use of property therein or the derivation of income therefrom. The Seller does not own or lease property in any jurisdiction (in the United States or outside the United States) other than Massachusetts.

     2.2 Authority to Execute and Perform Agreements. The Seller, Parent and BHC have the full legal right and power and all authority and approvals required to enter into, execute and deliver this Agreement and the Related Agreements (as defined in Section 4.11) and to perform fully their respective obligations hereunder and thereunder, and each of this Agreement and the Related Agreements has been or will be duly executed and delivered and is or will be the valid and binding obligations of the Seller, Parent and BHC enforceable in accordance with its terms.

     2.3 Capitalization. BHC is and will be on the Closing Date the only record and beneficial owner and holder of all of the issued and outstanding shares of the Seller. There are no agreements relating to the issuance, sale or transfer of any equity securities or other securities of the Seller.

     2.4 Financial Statements. The unaudited balance sheets of the Seller as at December 31, 2001, 2002, and 2003 and the related statements of income for the years then ended, in accordance with the requirements of the Massachusetts Department of Telecommunications and Energy, and the unaudited balance sheet of the Seller as of September 30, 2004 which have previously been delivered to the Buyer, fairly present the financial condition and results of operations of the Seller as of the respective date and for the periods indicated, in each case. The foregoing financial statements of the Seller are sometimes herein called the “Financials,” the balance sheet as of September 30, 2004 is sometimes herein called the “Balance Sheet” and September 30, 2004 is sometimes herein called the “Balance Sheet Date.”

4

     2.5 No Material Adverse Change. Since the Balance Sheet Date, except as described on Schedule 2.5, there have been no changes in the assets, properties, business, operations or condition (financial or otherwise) of the Seller which either individually or in the aggregate materially and adversely affect the Seller, nor does the Seller, Parent or BHC know of any such change that is threatened, nor has there been any damage, destruction or loss materially and adversely affecting the assets, properties, business, operations or condition (financial or otherwise) of the Seller, whether or not covered by insurance.

     2.6 Tax Matters.

               (a) The Seller has paid or caused to be paid all federal, state, county, local, foreign and other taxes, including, without limitation, income taxes, net worth taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes, import duties, value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes, employment, unemployment and payroll-related taxes, withholding taxes, excise taxes, ad valorem taxes, stamp taxes, transfer taxes, windfall profit taxes, license taxes, environmental taxes and property taxes, whether or not measured in whole or in part by net income and all deficiencies, or other additions to such taxes and interest, fines and penalties thereon (hereinafter, “Taxes” or, individually, a “Tax”) required to be paid by the Seller through the date hereof whether disputed or not and whether shown on a Tax Return (as defined below) or not. Seller shall pay all accrued and unpaid Taxes owed by or with respect to Seller. No Tax deficiency or claim for additional Taxes or interest thereon or penalties in connection therewith, has been asserted or threatened to be asserted against the Seller by any taxing authority and the Seller does not know of any basis for the assertion of a tax deficiency against it.

               (b) The Seller has in accordance with applicable law timely filed all Tax returns, declarations, reports, claims for refund, or information returns or statements relating to Taxes, including any schedule or amendment thereto, and including any amendment thereof (as used herein, “Tax Return” or “Tax Returns”) required to be filed by it through the date hereof. Each of the Tax Returns filed by the Seller correctly and accurately reflects the amount of its Tax liability for such period and other required information. There has not been any audit of any Tax Return filed by the Seller and no audit of any Tax return of the Seller is in progress and the Seller has not been notified by any Tax authority that any such audit is contemplated or pending. No claim has ever been made by an authority in a jurisdiction where Seller does not file Tax Returns that Seller is or may be subject to taxation by that jurisdiction. No issue relating to Seller or involving any Tax for which Seller might be liable has been resolved in favor of any taxing authority in any audit or examination which, by application of the same principles, could reasonably be expected to result in a deficiency for Taxes of Seller for any other period. Seller has not been nor is currently in violation (or, with or without notice or lapse of time or both, would be in violation) of any applicable law or regulation relating to payment, collection, or withholding of Taxes, or the remittance thereof, and all withholding and payroll Tax requirements required to be complied with by Seller. There are no security interests on any of the assets of Seller that arose in connection with any failure (or alleged failure) to pay any Taxes. Seller has never entered into a closing agreement pursuant to Section 7121 of the Code.

               (c) Except as set forth in Schedule 2.6, since January 1, 2001, Seller has not been a member of an affiliated group filing or required to file a consolidated, combined, or

5

unitary Tax Return. Seller is not a party to or bound by, nor does it have or has it ever had any obligation under, any Tax sharing agreement, or similar contract or arrangement. Seller has no liability for the Taxes of any other person.

               (d) For purposes of this Agreement, all references to Sections of the Code shall include any predecessor provisions to such Sections and any similar provisions of federal, state, local or foreign law.

     2.7 Compliance with Laws.

               (a) Except as set forth on Schedule 2.7(a),

                         (i) the Seller is not in material violation of any order, judgment, injunction, award or decree binding upon it;

                         (ii) the Seller is not, to the best knowledge of the Seller, Parent, and BHC, in material violation of any federal, state, local or foreign law, ordinance, permit or regulation or any other requirement of any governmental or regulatory body, court or arbitrator applicable to its business or assets, including, without limitation, laws, ordinances, regulations and other requirements respecting labor, employment and employment practices, terms and conditions of employment and wages and hours, or relating to the uses of its assets, or zoning; and

                         (iii) since January 1, 2001, the Seller has not received notice of any citation, fine or penalty imposed or asserted against the Seller for, any such violation or alleged violation, provided however that the representations in paragraphs 2.7(a)(i) through (iii) apply only to the period after January 1, 2001 with respect to regulations and requirements of the United States Environmental Protection Agency (“EPA”) and any state or local counterparts, the Occupational Safety and Health Administration (“OSHA”), and laws, ordinances, regulations and other requirements respecting pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes.

               (b) Set forth on Schedule 2.7 are all of the licenses, permits, franchises, orders or approvals of any federal, state, local or foreign governmental or regulatory body, including, but not limited to, licenses issued by EPA and OSHA or otherwise relating to employment and environmental matters that are material to the conduct of Seller’s business and the uses of its assets (collectively, “Permits”). The Seller holds all Permits necessary to operate its business as presently conducted and as currently contemplated to be conducted. Such Permits are in full force and effect and, except as set forth on Schedule 2.7, such Permits will be transferred to the Buyer as part of the Purchased Assets to the maximum extent possible under the applicable laws related to such Permits. Except as set forth on Schedule 2.7, since January 1, 2001, no violations are or have been recorded with any governmental or regulatory body in respect of any Permit;

6

and no proceeding is pending or, to the best knowledge of the Seller, Parent, BARLACO, and BHC, threatened to revoke or limit any Permit.

     2.8 Consents; No Breach. All consents, permits, authorizations and approvals from any person pursuant to applicable law or contracts or other agreements with the Seller, that are required in connection with the performance of obligations of the Seller, Parent and BHC under this Agreement, or the assignment of the Purchased Assets are set forth on Schedule 2.8 hereto. The execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby will not (i) violate any provision of the Articles of Organization or Bylaws of the Seller; (ii) except as set forth on Schedule 2.8, violate, conflict with or result in the breach of any of the terms or conditions of, result in modification of the effect of, or otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any material instrument, contract or other agreement to which the Seller, Parent or BHC is a party or to which any of them or their assets or properties may be bound or subject; (iii) violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, the Seller, Parent or BHC or upon the securities, properties, assets or business of the Seller, Parent, or BHC; (iv) violate any statute, law or regulation of any jurisdiction as such statute, law or regulation relates to the Seller, Parent, or BHC or to the securities, properties, assets or business of the Seller, Parent, or BHC; (v) except as set forth on Schedule 2.8, violate any Permit; (vi) except as set forth in Schedule 2.8, require the approval or consent of any foreign, federal, state, local or other governmental or regulatory body or the approval or consent of any other person; or (vii) result in the creation of any lien or other encumbrance on the assets or properties of the Seller.

     2.9 Actions and Proceedings. Other than as described in Section 2.7 hereof, and except as disclosed on Schedule 2.9, there are no outstanding orders, judgments, injunctions, awards or decrees of any court, governmental or regulatory body or arbitration tribunal against or involving the Seller or any of its securities, assets, or properties. There are no actions, suits or claims or legal, administrative or arbitral proceedings or, to the best knowledge of the Seller, Parent, BARLACO, or BHC, investigations (whether or not the defense thereof or liabilities in respect thereof are covered by insurance) pending or, to the best knowledge of the Seller, Parent, BARLACO, or BHC, threatened against or involving the Seller or any of its securities, assets or properties. To the best knowledge of the Seller, Parent, BARLACO, or BHC, there is no fact, event or circumstance that may give rise to any suit, action, claim, investigation or proceeding that individually or in the aggregate could have a material adverse effect upon the transactions contemplated hereby or upon the assets, properties, business, operations or condition (financial or otherwise) of the Seller.

     2.10 Contracts and Other Agreements. There have been delivered or made available to the Buyer true and complete copies of all of the Assigned Agreements. All of such Assigned Agreements are valid, subsisting, in full force and effect, binding upon the Seller, and to the best knowledge of the Seller, Parent, BARLACO, and BHC, binding upon the other parties thereto in accordance with their terms, and the Seller has paid in full or accrued all amounts now due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder which are presently required to be satisfied or provided for, and is not in default under any of them, nor, to the best knowledge of the Seller, Parent, BARLACO, and BHC, is any other party

7

to any Assigned Agreement in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default thereunder.

     2.11 Real Property. (a) Schedule 2.11 contains a correct legal description, street address and tax parcel identification number of all tracts, parcels, and subdivided lots in which Seller has an ownership interest. Schedule 2.11 contains a complete list of all real property that is currently leased, or has been leased at any time during the last five years, by Seller. The real property set forth in Schedule 2.11 shall be referred to herein as “Real Property.”

               (b) To the knowledge of the Seller, Parent, BARLACO, and BHC, there is not (i) any claim of adverse possession or prescriptive rights involving any of the Real Property, (ii) any structure located on any Real Property which encroaches on or over the boundaries of neighboring or adjacent properties, or (iii) any structure of any other party which encroaches on or over the boundaries of any such Real Property.

               (c) Except as set forth on Schedule 2.11 (i) all of the buildings, plants, pipes, and structures included, relating to, or connecting to the Real Property are in condition and repair sufficient to render water utility service to the public and (ii) Seller has maintained and operated such buildings, plants, pipes and structures using its water utility engineering and operating judgment concerning the timing and extent of maintenance, including the deferral of some maintenance where such deferral would not jeopardize Seller’s ability to render water utility service to its customers. Buyer understands that the Purchased Assets are mostly old water utility assets that require constant attention and maintenance to continue to deliver water utility service to customers. Attached as Schedule 2.11 is a list of repairs and replacements performed over the past five years and a plan of future capital improvements that Seller anticipates will be required over the next five years.

     2.12 Tangible Property. The Seller’s water distribution system, including pumping facilities, purification equipment, mains, pipes, fire cisterns, basins, fountains, troughs, meters, and hydrants, office, shop, stores, transportation, laboratory, and other equipment, machinery, furniture, leasehold improvements, fixtures, structures, any related capitalized items and other tangible property material to the business of the Seller included in the Purchased Assets (“Tangible Property”) are in operating condition as described in Section 2.11 of this Agreement, and except as otherwise set forth in this Agreement, the Seller has not received notice that any of its Tangible Property is in violation of any existing law or any building, zoning, health, safety or other ordinance, code or regulation.

     2.13 Title to Assets; Liens.

               (a) With respect to the Purchased Assets other than those identified in Section 1.1(a) and Section 1.1(b), the Seller owns outright and has good marketable title to all of the Purchased Assets free and clear of any claim, lien or other encumbrance; provided, however, with respect to Seller’s rights, franchises, and privileges, including the water and distribution rights conferred by Seller’s charter included in the Purchased Assets, Seller is transferring such rights to the maximum extent possible under applicable laws.

8

               (b) With respect to the Purchased Assets identified in Section 1.1(a), Seller has or at Closing will have good marketable title to such assets free and clear of any liens and encumbrances other than (i) voluntarily created monetary liens or encumbrances which shall be discharged prior to Closing or (ii) liens and encumbrances which do not materially and adversely effect the use of the Purchased Assets in connection with Seller’s business and the business to be assumed by Buyer.

               (c) The Purchased Assets constitute all of the assets, properties or rights that are useful or necessary for the conduct of the Seller’s business as currently conducted on the date hereof and as of the Closing Date, except to the extent set forth on Schedule 2.13.

               (d) Upon delivery of and payment for the Purchased Assets as herein provided, the Buyer will acquire all of the Seller’s right, title and interest thereto, free and clear of any claim, lien or other encumbrance except as set forth above.

     2.14 Absence of Undisclosed Liabilities. To the best knowledge of Seller, Parent, BARLACO, and BHC, as at the Balance Sheet Date, the Seller had no material liabilities, whether accrued, absolute, contingent or otherwise (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of others or liabilities for Taxes due or then accrued or to become due), required to be shown on the Balance Sheet that were not fully and adequately reflected or reserved against on the Balance Sheet. The Seller has no such liabilities, other than liabilities (i) fully and adequately reflected or reserved against on the Balance Sheet, and (ii) incurred since the Balance Sheet Date in the ordinary course of business.

     2.15 Insurance. Schedule 2.15 sets forth a list of all policies or binders of fire, liability, product liability, workmen’s compensation, vehicular, directors and officers and other insurance held by or on behalf of the Seller (“Insurance”). Such Insurance policies are “claims incurred” policies covering all claims, occurrences and omissions arising or occurring prior to the Closing Date. Such Insurance is in full force and effect, all premiums with respect thereto are currently paid, are reasonably believed to be adequate for the businesses engaged in by the Seller and are in conformity with the requirements of all contracts to which the Seller is a party and to the best knowledge of the Seller, Parent, BARLACO, and BHC, are valid and enforceable in accordance with their terms. The Seller has not received notice of cancellation or nonrenewal of any such Insurance.

     2.16 Brokerage. No broker, finder, agent or similar intermediary has acted on behalf of the Seller, Parent or BHC in connection with this Agreement or the transactions contemplated hereby, and there are no brokerage commissions, finders fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Seller, Parent, or BHC, or any action taken by any of them.

     2.17 Hazardous Materials. Since January 1, 2001, except as described in Schedule 2.7 or as permitted in accordance with applicable laws and regulations and generally accepted business practices, the Seller has never generated, used or handled any Hazardous Materials (as defined below), nor has the Seller treated, stored or disposed of any Hazardous Materials at any site owned or leased by the Seller or shipped any Hazardous Materials for treatment, storage or disposal at any other site or facility. Since January 1, 2001, except as described in Schedule 2.7

9

and as permitted in accordance with applicable laws and regulations and generally accepted business practices, to the best knowledge of Seller, Parent, BARLACO, and BHC, no other person has ever generated, used, handled, stored or disposed of any Hazardous Materials at any site owned or premises leased by the Seller during the period of Seller’s ownership or lease, nor since January 1, 2001, has there been or is there threatened any release of any Hazardous Materials on or at any such site or premises. Except as described in Schedule 2.7, the Seller does not presently own, operate, lease or use, nor since January 1, 2001, has it owned, operated, leased, or used any site on which underground storage tanks are or, to the best knowledge of Seller, Parent, BARLACO, and BHC, were located. Since January 1, 2001, no lien has ever been imposed by any governmental agency on any property, facility, machinery, or equipment owned, operated, leased or used by Seller in connection with the presence of any Hazardous Materials. Other than as set forth in Schedule 2.7, no action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the knowledge of the Seller, Parent, BARLACO, or BHC, threatened concerning an environmental permit or approval or any Hazardous Materials, and to the knowledge of the Seller, Parent, BARLACO, or BHC, there is no fact or circumstance which could reasonably be expected to involve the Seller in litigation relating to the Hazardous Materials or compliance with environmental laws. For purposes of this Section 2.17, “Hazardous Materials” shall mean and include any substance that has been designated by a federal, state or local authority or law to be hazardous, toxic or otherwise harmful to health or the environment, including without limitation, PCB, asbestos, petroleum of any kind, urea formaldehyde, any “hazardous waste” as defined in either the United States Resource Conservation and Recovery Act or regulations adopted pursuant to said Act, and also any “hazardous substances” or “hazardous materials” as defined in the United States Comprehensive Environmental Response, Compensation and Liability Act, or Massachusetts General Laws Chapter 21E and its implementing regulations, 310 CMR 40.0001 et seq. The Seller has provided to Buyer (directly or to Buyer’s consultants) copies of all material documents, records and information available to Seller concerning any environmental or health and safety matter relevant to Seller, whether generated by Seller or others, including, without limitation, environmental audits, environmental risk assessments, site assessments, documentation regarding off-site disposal of Hazardous Materials, spill control plans, and reports, correspondence, permits, licenses, approvals, consents and other authorizations related to environmental or health and safety matters issued by any governmental agency.

SECTION 3- REPRESENTATIONS AND WARRANTIES OF THE BUYER

     The Buyer represents and warrants to the Seller, Parent and BHC as follows:

     3.1 Authority to Execute and Perform Agreements. The Buyer has the power and all authority and approvals required to enter into, execute and deliver this Agreement and the Related Agreements and to perform fully its obligations hereunder and thereunder, and each of this Agreement and the Related Agreements has been or will be duly executed and delivered and the valid and binding obligation of the Buyer enforceable in accordance with its terms.

     3.2 Brokerage. No broker, finder, agent or similar intermediary has acted on behalf of the Buyer in connection with this Agreement or the transactions contemplated hereby, and there are no brokerage commissions, finders’ fees or similar fees or commissions payable in

10

connection therewith based on any agreement, arrangement or understanding with the Buyer or any action taken by the Buyer.

     3.3 Actions and Proceedings. There are no actions, suits or claims, legal, administrative or arbitral proceedings pending or, to the best knowledge of the Buyer, threatened against or involving the Buyer that individually or in the aggregate could have a material adverse effect upon the transactions contemplated hereby. To the best knowledge of the Buyer, there is no fact, event or circumstance that may give rise to any suit, action, claim, investigation or proceeding that individually or in the aggregate could have a material adverse effect upon the transactions contemplated hereby.

     3.4 No Breach. The execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby will not (i) violate, conflict with or result in the breach of any of the terms or conditions of, result in modification of the effect of, or otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any material instrument, contract or other agreement to which the Buyer is a party or to which it or any of its assets or properties may be bound or subject; (ii) violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, the Buyer or upon the securities, properties, assets or business of the Buyer; (iii) violate any statute, law or regulation of any jurisdiction as such statute, law or regulation relates to the Buyer or to the properties, assets or municipal operations of the Buyer; (iv) require the approval or consent of any foreign, federal, or state governmental or regulatory body; or (vi) result in the creation of any lien or other encumbrance on the assets or properties of the Buyer. Except as set forth in Sections 5.11 and 5.12 hereof, no approvals of any governmental entity are required in order for Buyer to perform its obligations under this Agreement.

SECTION 4- COVENANTS AND AGREEMENTS

     The parties covenant and agree as follows:

     4.1 Conduct of Business. During the period from the date hereof to the Closing Date, Seller shall observe the following covenants:

               (a) Affirmative Covenants Pending Closing. The Seller will:

                         (i) Preservation of Personnel. Use reasonable efforts to preserve intact and keep available the services of Seller’s present employees;

                         (ii) Insurance. Use reasonable efforts to keep in effect casualty, public liability, worker’s compensation and other insurance policies in coverage amounts not less than those in effect on the date of this Agreement;

                         (iii) Preservation and Advancement of the Business; Maintenance of Properties, Contracts. Use reasonable efforts to preserve and advance its business, advertise, promote and market its services in accordance with past practices over the last twelve months, keep its properties intact, preserve its goodwill and its business, maintain all Tangible Property, in each case in accordance with past practices and at a quality that is currently maintained, and

11

perform and comply in all material respects with the terms of the contracts set forth in Exhibit C hereto; and

                         (iv) Ordinary Course of Business. Operate its business solely in the ordinary course and in the normal, usual and customary manner.

               (b) Negative Covenants Pending Closing. The Seller will not:

                         (i) Disposition of Assets. Sell, exchange or transfer, or mortgage, pledge or create or permit to be created any security interest on, any of its assets, including its equipment, other than in the ordinary course of business;

                         (ii) Liabilities. Incur any obligation or liability other than in the ordinary course of Seller’s business or incur any indebtedness for borrowed money;

                         (iii) Compensation. Increase the rates of direct or bonus compensation payable or to become payable to any officer, employee, agent or consultant or prepay any loans to the Seller from any such person;

                         (iv) Charter and Bylaws. Amend the Articles of Organization or Bylaws of Seller; or

                         (v) Acquisitions. Make any acquisition of property other than in the ordinary course of Seller’s business.

     4.2 Continued Effectiveness of Representations and Warranties. From the date hereof through the Closing Date, the Seller shall use reasonable efforts to conduct its business and affairs in such a manner so that the representations and warranties contained in Section 2 hereof shall continue to be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Buyer shall promptly be given notice of any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a violation or breach of this Agreement. No such information shall be deemed to avoid or cure any misrepresentation or breach of warranty or constitute an amendment of any representation, warranty or statement in this Agreement for the purpose of (i) determining the accuracy of any of the representations and warranties made by Seller, Parent or BHC in this Agreement, or (ii) determining whether any of the conditions set forth in Section 5 have been satisfied. In the event such violation or breach of this Agreement shall occur on or prior to the Closing Date, the Seller shall promptly use its best efforts to remedy the same.

     4.3 Taxes. The Seller shall prepare and timely file, in a manner consistent with prior years, all Tax reports and returns required to be filed after the date hereof and on or before the Closing Date, and shall timely pay any Taxes and estimated Taxes, required to be paid by it (including without limitation pursuant to Section 6655 of the Code) after the date hereof and on or before the Closing Date. All transfer, excise or other Taxes payable by the Seller (or by Buyer or by Seller and Buyer) to any jurisdiction (in the United States and outside the United States) by reason of the sale and transfer of the Purchased Assets pursuant to this Agreement shall be paid or provided for by the Seller after the Closing out of the consideration payable by the Buyer hereunder. Seller shall not be liable for any municipal property taxes allocable to the period on

12

and after the Closing Date. If the amount of said taxes is not known at the Closing Date, they shall be apportioned on the basis of the taxes assessed for the preceding fiscal year, with a reapportionment as soon as the new tax rate and valuation can be ascertained.

     4.4 Corporate Examinations and Investigations. Prior to the Closing Date, the Buyer shall be entitled, through its employees and representatives, to have such access to the assets, properties, business and operations of Seller, as is reasonably necessary or appropriate in connection with the Buyer’s investigation of Seller. Any such investigation and examination shall be conducted at reasonable times and under reasonable circumstances so as to minimize any disruption to or impairment of the Seller’s business and the Seller shall cooperate fully therein. No investigation by the Buyer shall diminish or obviate any of the representations, warranties, covenants or agreements of the Seller under this Agreement. In order that the Buyer may have full opportunity to make such review, the Seller shall furnish the representatives of the Buyer during such period with all such information and copies of such documents concerning the affairs of the Seller as such representatives may reasonably request and cause its officers, employees, consultants, agents, accountants and attorneys to cooperate fully with such representatives in connection with such review and to make full disclosure to the Buyer of all material facts affecting the assets, properties, business, operations and financial condition of the Seller. If this Agreement terminates, the Buyer and its affiliates shall keep confidential and shall not use in any manner any information or documents obtained from Seller concerning its assets, properties, business and operations, unless readily ascertainable from public or published information, or trade sources, or already known or subsequently developed by the Buyer independently of any investigation of the Seller, or received from a third party not under an obligation to the Seller to keep such information confidential, or otherwise required by law. If this Agreement terminates, any documents obtained from the Seller will be returned or destroyed, at the Seller’s option.

     4.5 Expenses. Each of Buyer, on the one hand, and the Seller, Parent and BHC, on the other, shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants and no such expenses of Buyer shall be borne by Seller, Parent, or BHC nor shall such expenses of Seller, Parent, or BHC be included in the Assumed Liability.

     4.6 Authorization from Others. Prior to the Closing Date, the Buyer, the Seller, Parent and BHC shall use their best efforts to obtain all authorizations, consents and permits of others required to permit the consummation by them of the transactions contemplated by this Agreement, including but not limited to, all consents set forth on Schedule 2.8, except to the extent waived by the Buyer in writing. To the extent that the assignment of any lease, contract, commitment or right which are among the Purchased Assets shall require the consent of other parties thereto and the Buyer shall have waived the receipt of such consent at the Closing, this Agreement shall not constitute an assignment thereof; however, the Seller, Parent and BHC shall use their best efforts after the Closing to obtain such consents or waivers to assure the Buyer of the benefits of such leases, contracts, commitments or rights. Nothing herein shall be deemed a waiver by the Buyer of its right to receive at the Closing an effective assignment of each of the leases, contracts, commitments or rights of the Seller which are among the Purchased Assets.

13

     4.7 Consummation of Agreement. Each of the Buyer, the Seller, Parent, and BHC shall use such party’s respective best efforts to perform and fulfill all conditions and obligations to be performed and fulfilled by them under this Agreement and further to ensure that to the extent in their collective control or capable of influence by them, no breach of any of the Seller’s, Parent’s or BHC’s respective representations, warranties and agreements hereunder or contemplated hereby occurs or exists on or prior to the Closing Date to the end that the transactions contemplated by this Agreement shall be fully carried out.

     4.8 Collection of Assets. Subsequent to the Closing, the Seller shall have the right and authority to collect all accounts receivable for services rendered before the Closing Date. Seller agrees that it will promptly transfer or deliver to the Buyer from time to time, any cash or other property that Seller may receive with respect to any claims, contracts, licenses, leases, commitments, sales orders, purchase orders, receivables of any character or any other items which are among the Purchased Assets that relate to services rendered after the Closing Date. Within five (5) days of the Closing, Seller shall provide Buyer with a good faith estimate of amounts owed to Seller from customers and water tower leases as of the Closing Date, and Buyer shall remit to Seller at Closing the amount of such good faith estimate in cash, by certified or bank check, or by wire transfer of immediately available funds. Subsequent to the Closing, but no later than ninety (90) days thereafter, the Buyer and the Seller shall determine the actual amount owed to Seller as of the Closing Date and Seller shall remit to Buyer any overpayments made to Seller or Buyer shall remit to Seller any underpayment.

     4.9 Use of Name. Except as otherwise permitted in writing by Buyer, at and following the Closing, the Seller, Parent and BHC shall cause any and all persons in which any of them has an interest (including without limitation, Seller) to cease and desist from using the name “Barnstable Water Company” or “Barnstable Water” as all or part of a trade or corporate name other than required filings identifying Barnstable Water Company, Barnstable Holding Company, or BARLACO as entities.

     4.10 Further Assurances. Prior to and after the Closing, each of the parties shall execute such documents, further instruments of transfer and assignment and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. No later than 30 days prior to Closing, Seller shall provide to Buyer the following information for all the real estate to be sold to Buyer pursuant to this Agreement, including the real property set forth in Exhibits A and B: a legal description, a copy of the deed by which Seller acquired the said real property, the parcel identified by deed, and recording information.

     4.11 Related Agreements. At or before the Closing, (i) the Buyer and the Seller shall enter into a Management Agreement substantially in the form of Exhibit D hereto and (ii) the Buyer, BARLACO, BHC, and Parent shall enter into the BARLACO Purchase and Sale Agreement in the form attached hereto as Exhibit E hereto (collectively, the “Related Agreements”).

     4.12 Insurance. Seller, Parent and BHC shall add Buyer as an additional “insured” under all existing Insurance policies as defined in Section 2.15. Following the Closing Date, the Buyer may submit claims under any applicable Insurance policy under the terms under which

14

existing coverage is provided with respect to claims, occurrences or omissions arising prior to the Closing Date. Seller, Parent and BHC shall provide commercially reasonable cooperation to the Buyer in submitting any such claims under such applicable Insurance policy. Seller, Parent or BHC, as the case may be shall pay the Buyer any insurance proceeds actually received by any of them in respect of any such claims, as soon as reasonably practicable after receipt thereof by Seller, Parent or BHC.

SECTION 5 — CONDITIONS PRECEDENT TO
THE OBLIGATION OF THE BUYER TO CLOSE

     The obligation of the Buyer to enter into and complete the Closing is subject, at the option of the Buyer acting in accordance with the provisions of this Agreement with respect to termination hereof, to the fulfillment of the following conditions, any one or more of which may be waived by it:

     5.1 Representations, Warranties and Covenants. The representations and warranties of the Seller, Parent and BHC contained in this Agreement shall be true and accurate as of the date hereof and shall be true and accurate as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Seller, Parent and BHC shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with such parties on or prior to the Closing Date. Seller, Parent, and BHC shall each have delivered to the Buyer a certificate, dated the Closing Date and signed by an officer of such party to the foregoing effect and stating that all conditions to the Buyer’s obligations hereunder have been satisfied.

     5.2 Third Party Consents. The Buyer shall have received evidence of the receipt of all authorizations, consents and permits of others required to permit the consummation by the Buyer and the Seller of the transactions contemplated by this Agreement, including but not limited to, all consents set forth on Schedule 2.8, except to the extent waived by the Buyer in writing.

     5.3 Management Agreement. Each of the Seller, Parent, BHC and Buyer shall have executed and delivered the Management Agreement in substantially the form attached hereto as Exhibit D.

     5.4 BARLACO Purchase and Sale Agreement. Each of the BHC, BARLACO, Parent and the Buyer shall have executed and delivered the Purchase and Sale Agreement in substantially the form attached hereto as Exhibit E.

     5.5 Opinion of Counsel to the Seller. The Buyer shall have received the opinion of Murtha Cullina LLP, counsel to the Seller, dated the Closing Date, addressed to the Buyer, and substantially in the form of Exhibit F hereto.

     5.6 Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body, or instituted or threatened by any governmental or regulatory body, to restrain, modify or prevent the carrying out of the transactions contemplated hereby, or to seek damages or a discovery order in connection with such transactions, or that has

15

or may have, in the reasonable opinion of the Buyer, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of Seller.

     5.7 Delivery of Instruments of Transfer. Seller shall have delivered or caused to be delivered to the Buyer instruments of transfer in conformity with Section 1.5 above.

     5.8 No Material Change. There shall have been no material adverse change in the Seller’s financial condition, business, assets, operations or prospects, nor shall any event have occurred which so far as can reasonably be foreseen on the Closing Date appears reasonably likely materially and adversely to affect the financial condition, business, assets, operations or prospects of the Seller.

     5.9 Seller Name Change and Discharge of Liabilities; Insurance. The Seller shall have delivered to the Buyer evidence of the Seller’s compliance with Sections 4.9 and 4.12 above.

     5.10 Massachusetts Tax Waivers. The Seller shall have delivered to the Buyer (i) a certificate of payment/good standing from the Commission of Revenue as provided in Massachusetts General Laws Chapter 62C, Section 44(a); and (ii) a copy of a waiver of tax lien issued by the Commissioner of Revenue pursuant to Massachusetts General Laws Chapter 62C, Sections 51 and 52 and recorded with the appropriate register of deeds as provided in Section 51 of the Massachusetts General Laws Chapter 62C, if required by applicable law.

     5.11 Financing. The Barnstable Town Council shall have approved by a two-thirds affirmative vote the borrowing, issuing of notes in the amount of, re-authorizing, appropriating and/or transferring, not less than $10,552,385 and Buyer shall have received such funds on or before the Closing Date.

     5.12 Barnstable Town Council Approval. The Barnstable Town Council shall have authorized by a majority vote the purchase by the Buyer of the Purchased Assets in accordance with this Agreement, including the Related Agreements.

     5.13 Payment of Discharge Amount. On the Closing Date, Seller shall have paid the Indianapolis Note in full.

     5.14 DEP Approval. The Seller shall have received the DEP approval required by 310 CMR §22.4 for a transfer of a water company of land used for water supply purposes.

SECTION 6 — CONDITIONS PRECEDENT
TO THE OBLIGATION OF SELLER TO CLOSE

     The obligation of the Seller to enter into and complete the Closing is subject, at the option of the Seller acting in accordance with the provisions of this Agreement with respect to

16

termination hereof, to the fulfillment of the following conditions, any one or more of which may be waived:

     6.1 Representations, Warranties and Covenants. The representations and warranties of the Buyer contained in this Agreement shall be true and accurate as of the date hereof and shall be true and accurate as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Buyer shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with such parties on or prior to the Closing Date. The Buyer shall have delivered to the Seller a certificate, dated the Closing Date and signed by the Buyer, to the foregoing effect and stating that all conditions to the obligations of the Seller hereunder have been satisfied.

     6.2 Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body, or instituted or threatened by any governmental or regulatory body, to restrain, modify or prevent the carrying out of the transactions contemplated hereby, and such action, suit or proceeding shall not have been stayed.

     6.3 Delivery of the Purchase Price. Buyer shall have delivered or caused to be delivered to Seller the Purchase Price in accordance with Section 1.4 hereof.

     6.4 Required Approvals. The transactions contemplated by this Agreement shall have been approved no later than seven business days from the date this Agreement is executed by (a) the Board of Directors and the respective holders of the outstanding capital stock of Seller, BHC, and BARLACO and (b) the Board of Directors of Parent.

     6.5 Opinion of Counsel to the Buyer. The Seller shall have received the opinion of the Town Attorney for the Town of Barnstable, dated the Closing Date, addressed to the Seller, and substantially in the form of Exhibit G hereto.

     6.6 DEP Approval. The Seller shall have received the DEP approval required by 310 CMR §22.4 for a transfer of a water company of land used for water supply purposes.

SECTION 7 — INDEMNIFICATION

     7.1 Survival. Notwithstanding any right of any party to fully investigate the affairs of the other party and notwithstanding any knowledge of facts determined or determinable by such party pursuant to such investigation or right of investigation, each party has the right to rely fully upon the representations, warranties, covenants and agreements of each other party in this Agreement or in any Schedule, certificate or financial statement delivered by any party pursuant hereto. All such representations, warranties, covenants and agreements shall survive the execution and delivery hereof and the Closing hereunder and be indemnified in accordance with this Section 7, and, except as otherwise specifically provided in this Agreement, shall thereafter:

17

               (a) (i) survive forever, with respect to (a) any claim based upon, arising out of other otherwise in respect of any breach of, any representation or warranty of the Seller contained in Section 2.2 (Authority to Execute and Perform Agreements), 2.7 (Compliance with Laws), 2.11 (Real Property), and 2.13 (Title to Assets) hereof, this clause (i) is referred to as a “Clause (i) Claim”); (ii) for any Tax Claim (as defined below) survive until the expiration of the applicable statute of limitations for such claim, taking into account any extensions or time granted to the taxing authorities, plus 90 days; or (iii) for any Environmental Claim (as defined below) survive until the second anniversary of the Closing Date; and

               (b) terminate and expire on the second anniversary of the Closing Date with respect to any General Claim or Seller Claim (as such terms are hereinafter defined) based upon, arising out of or otherwise in respect of any fact, circumstance, action or proceeding of which the party asserting such claim shall have given no notice on or prior to the second anniversary of the Closing Date to the party against which such General Claim or Seller Claim is asserted; provided, however, once notice of any such claim has been given hereunder, additional claims based upon, arising out of or otherwise in respect of such fact, circumstance, action or proceeding upon which the original claim arose may be made at any time prior to the final resolution of such claim (by means of a final, nonappealable judgment of a court of competent jurisdiction, a binding arbitration decision or a settlement approved by the parties involved) even if such resolution occurs after the second anniversary of the Closing Date, such date being deemed to have been extended to the date of such final resolution.

As used in this Section 7, the following terms have the following meanings:

                         (i) “General Claim” means any claim (other than a Clause (i) Claim, Environmental Claim, or a Tax Claim) based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation, warranty, covenant or agreement of the Seller contained in this Agreement.

                         (ii) “Tax Claim” means any claim based upon, arising out of or otherwise in respect of (A) issues raised on audit by Tax authorities with respect to the Seller’s business on or before the Closing Date, (B) any inaccuracy in or any breach of any representation, warranty, covenant or agreement of the Seller contained in this Agreement related to Taxes or (C) any other Tax liabilities of the Seller.

                         (iii) “Environmental Claim” means any claim based upon, arising out of or otherwise in respect of any breach of Section 2.7 or Section 2.17 hereof, provided such claim arises from or is a result of Seller’s negligence, or wrongful or willful misconduct, or intentional act or omission to act in violation of its duty of care, and further provided that with respect to an Environmental Claim relating to environmental conditions on or off the Real Property, Buyer shall bear the burden of establishing that such conditions resulted from Seller’s actions since January 1, 2001.

                         (iv) “Seller Claim” means any claim based upon, arising out of or otherwise in respect of any breach of any representation, warranty, covenant or agreement of the Buyer contained in this Agreement.

18

                         (v) “Buyer Claim” means any Clause (i) Claim, Tax Claim, Environmental Claim, or General Claim.

     7.2 Obligation of the Seller, Parent and BHC to Indemnify. Subject to the termination provisions set forth in Section 7.1, the Seller, Parent and BHC, jointly and severally, agree to indemnify, defend and hold harmless the Buyer (and its directors, officers, employees, affiliates and assigns) from and against all losses, liabilities, damages, claims, causes of action, deficiencies, dues, assessments, fines, fees, costs or expenses (including interest and penalties imposed or assessed by any judicial or administrative body and reasonable attorneys’ and experts’ fees and expenses), or diminution of value, whether or not involving a Third-Party Claim (as defined below) (collectively, a “Loss” or “Losses”) based upon, arising out of or otherwise in respect of (i) any Buyer Claim; (ii) any Excluded Assets or Excluded Liabilities; and (iii) the ownership or operation of the Purchased Assets or the Seller’s business on or before the Closing Date (other than any claim or demand or assertion of liability based upon, arising out of or otherwise in respect of the operation of the business by Buyer after the Closing Date).

     7.3 Obligation of the Buyer to Indemnify. Subject to the termination provisions set forth in Section 7.1, the Buyer agrees to indemnify, defend and hold harmless the Seller, Parent and BHC (and their directors, officers, employees, affiliates, and assigns) from and against any Losses based upon, arising out of or otherwise in respect of any Seller Claim.

     7.4 Release by Buyer. Except for any specific liabilities related to Compliance with Laws (Section 2.7) or Hazardous Materials (Section 2.17) pertaining to the period from January 1, 2001 to the Closing Date for which Seller, Parent, and BHC are responsible pursuant to this Section 7, Buyer forever releases Seller, Parent, and BHC from any and all Losses arising out of or relating to any environmental liabilities whatsoever.

     7.5 Third-Party Claims.

               (a) Notice of Claim. If any third party notifies any party hereto (the “Indemnitee”) with respect to any matter which may give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (a “Third-Party Claim”) that may result in a Loss, the Indemnitee shall give notice thereof (the “Claims Notice”) to any other party or parties obligated to provide indemnification pursuant to Sections 7.2 or 7.3 hereof (the “Indemnifying Party”); provided that the failure of any Indemnitee to give timely notice of a Third-Party Claim shall not affect the right to indemnification hereunder except to the extent the Indemnifying Party demonstrates actual damages caused by such failure. The Claims Notice shall describe the Third-Party Claim in reasonable detail, and shall indicate the amount (estimated, if necessary) of the Loss that has been or may be suffered by the Indemnitee.

               (b) Opportunity to Defend. The Indemnifying Party may elect to compromise or defend, and control the defense of, at its own expense and by counsel reasonably satisfactory to the Indemnitee, any Third Party Claim, provided that the Indemnitee shall have no liability under any compromise or settlement agreed to by the Indemnifying Party to which it has not consented in writing, which consent shall not be unreasonably withheld. If the Indemnifying Party elects to compromise or defend such Third-Party Claim, it shall within 30 days (or sooner, if the nature of the Third-Party Claim so requires) notify the Indemnitee of its intent to do so, and

19

the Indemnitee shall cooperate upon the request and at the expense of the Indemnifying Party, in the compromise of, or defense against, such Third-Party Claim. If the Indemnifying Party elects not to compromise or defend the Third-Party Claim, or fails to notify the Indemnitee of its election as herein provided, or fails to diligently defend or seek to compromise such Third-Party Claim after electing to assume such defense or compromise, the Indemnitee may pay, compromise or defend such Third-Party Claim and receive full indemnification for its Losses. In any event, the Indemnitee and the Indemnifying Party may participate, at their own expense, in the defense of such Third-Party Claim by the Indemnifying Party or the Indemnitee, respectively. If the named parties of any Third-Party Claim include both the Indemnifying Party and the Indemnitee and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of separate counsel for the Indemnitee shall be paid by the Indemnifying Party. If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are reasonably requested for such defense and shall otherwise cooperate with the Indemnifying Party, in which event the Indemnitee shall be reimbursed for its out-of-pocket expense. All amounts required to be paid in connection with any such Third-Party Claim pursuant to the determination of any court, governmental or regulatory body or arbitrator, and all amounts required to be paid in connection with any such compromise or settlement reached in accordance with this Section 7.4, shall be borne and paid by the Indemnifying Party. The parties agree to cooperate fully with one another in the defense, compromise or settlement of any such Third-Party Claim.

     7.6 Other Claims. Any claim for indemnification for any matter not involving a Third-Party Claim may be asserted by notice to the party from whom indemnification is sought and shall be paid promptly after such notice.

SECTION 8 — TERMINATION OF AGREEMENT

     8.1 Termination. This Agreement may be terminated on or prior to the Closing as follows:

                         (i) at the election of the Seller, Parent or BHC upon written notice to the Buyer from Seller if, on or after May 15, 2005, any one or more of the conditions to the obligation of the Seller to close has not been fulfilled;

                         (ii) at the election of the Buyer upon written notice to the Seller, Parent or BHC if, on or after May 15, 2005, any one or more of the conditions to the obligation of the Buyer to close has not been fulfilled;

                         (iii) at the election of the Seller, Parent or BHC upon written notice to the Buyer from any of them, if the Buyer has breached any representation, warranty, covenant or agreement contained in this Agreement and has not, within 15 business days of receipt by the Buyer of written notice from the Seller, Parent or BHC of such breach of representation, warranty, covenant or agreement, cured such breach;

                         (iv) at the election of the Buyer upon written notice to the Seller, Parent or BHC if the Seller, Parent or BHC has breached any representation, warranty, covenant

20

or agreement contained in this Agreement and has not, within 15 business days of receipt by the Seller, Parent or BHC of written notice from the Buyer of such breach of representation, warranty, covenant or agreement, cured such breach; or

                         (v) by mutual written agreement of the Seller, Parent, BHC and the Buyer.

     8.2 Effect of Termination. If this Agreement is terminated and the transactions contemplated hereby are not consummated as provided above, each and every representation and warranty contained in this Agreement or any Schedule hereto, or any certificate, document or other instrument delivered by the parties in connection herewith (other than the provisions of this Section 8.2, Section 4.5 (Expenses), Section 9.5 (Governing Law), Section 9.6 (Enforceability in Jurisdiction; Consent), shall expire and none of the parties hereto shall be under any liability whatsoever with respect to any such representation or warranty; provided, however, that notwithstanding the foregoing, each party shall be and remain liable to the other in the event that the failure so to close hereunder shall occur as a consequence of the failure of a party to fully perform its covenants and agreements hereunder or the material breach by a party of its representations or warranties contained herein.

SECTION 9 — MISCELLANEOUS

     9.1 Publicity. No publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be made without advance approval thereof by the Seller and the Buyer.

     9.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, two days after the date of deposit in the United States mails, as follows:

(i)	if to the Buyer, to:
		The Town of Barnstable
	with a copy to:
		Jeffrey Swope, Esq.
		Palmer & Dodge LLP
		111 Huntington Avenue
		Boston, Massachusetts 02199
(ii)	if to the Seller:
		The Barnstable Water Company
		c/o Connecticut Water Service, Inc.

21

	93 West Main Street
	Clinton, Connecticut 06413
	Attention: Marshall T. Chiaraluce
with a copy to:
	Paul R. McCary, Esq.
	Murtha Cullina LLP
	Cityplace 1
	185 Asylum Street
	Hartford, Connecticut 06103-3469

Any party may by notice given in accordance with this Section to the other parties designate another address or person for receipt of notices hereunder.

     9.3 Entire Agreement. This Agreement (including the Schedules), the Related Agreements and all other documents executed in connection with the consummation of the transactions contemplated herein contain the entire agreement among the parties with respect to the purchase of the Purchased Assets and related transactions, and supersedes all prior agreements, written or oral, with respect thereto.

     9.4 Waivers and Amendments; Noncontractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is not inaccuracy or breach.

     9.5 Governing Law. This Agreement shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts.

     9.6 Enforceability in Jurisdictions; Consent. The parties hereto intend to and hereby confer jurisdiction to enforce the provisions of this Agreement, expressly including without limitation, the provisions of Section 7 hereof, upon the courts of Massachusetts. The parties hereto hereby acknowledge and agree that any breach of their respective obligations under this Agreement or any other agreement executed in connection herewith shall be deemed to have

22

occurred in Boston, Massachusetts and that such party has purposely established minimum contact in Boston, Massachusetts within the meaning of all applicable law. Each of the parties hereto consents to the jurisdiction of said court or courts in Massachusetts and to service of process by certified mail, return receipt requested, or by any other manner provided by law. In the case of any claim involving the parties hereto, any legal action, suit or proceeding arising out of or relating to such claim may be instituted against such parties in any state or federal court located in Boston, Massachusetts and each such party agrees not to assert, by way of motion, as a defense, or otherwise, in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.

     9.7 Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. This Agreement is not assignable except by operation of law.

     9.8 Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

     9.9 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto.

     9.10 Exhibits and Schedules. The Exhibits and Schedules are a part of this Agreement as if fully set forth herein. All references herein to Sections, subsections, clauses, Exhibits and Schedules shall be deemed references to such parts of this Agreement, unless the context shall otherwise require.

     9.11 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement.

23

     IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written.

BUYER

TOWN OF BARNSTABLE

By:

Name:

Title:

SELLER

BARNSTABLE WATER COMPANY

By:

Name:

Title:

BARLACO

BARLACO, INC.

By:

Name:

Title:

BHC

BARNSTABLE HOLDING COMPANY

By:

Name:

Title:

24

PARENT

CONNECTICUT WATER SERVICE, INC.

By:

Name:

Title:

25

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-53211, 333-94525, 333-51702, 333-88544, and 333-117494) of Connecticut Water Service, Inc. of our report dated March 31, 2005 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers, LLP

Boston, Massachusetts
March 31, 2005

EX-24

Exhibit 24

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of Connecticut Water Service, Inc. (the “Company”), does hereby constitute and appoint Marshall T. Chiaraluce and David C. Benoit, and each of them singly, as his agent and attorney-in-fact to do any and all things and acts in his or her name and in the capacities indicated below and to execute any and all instruments for him or her and in his or her name in the capacities indicated below which said Marshall T. Chiaraluce and David C. Benoit, or either of them, may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the preparation and filing of the Company’s Annual Report on Form 10-K (the “Annual Report”) respecting the fiscal year ended December 31, 2004, including specifically, but not limited to, power and authority to sign for him or her in his or her name in the capacities indicated below the Annual Report and any and all amendments thereto, and each of the undersigned does hereby ratify and confirm all that said Marshall T. Chiaraluce and David C. Benoit, or either of them, shall do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of March 11, 2005.

/s/ Marshall T. Chiaraluce	/s/ David A. Lentini
Marshall T.Chiaraluce, Director	David A. Lentini, Director
/s/ Robert Engle	/s/ Robert F. Neal
Robert Engle, Director	Robert F. Neal, Director
/s/ Mary Ann Hanley	/s/ Arthur C. Reeds
Mary Ann Hanley, Director	Arthur C. Reeds, Director
/s/ Marcia L. Hincks	/s/ Lisa J. Thibdaue
Marcia L. Hincks,Director	Lisa J. Thibdaue, Director
/s/ Mark G. Kachur	/s/ Carol P. Wallace
Mark G. Kachur,Director	Carol P. Wallace, Director
/s/ Ronald D. Lengyel	/s/ Donald B. Wilbur
Ronald D.Lengyel, Director	Donald B. Wilbur, Director

EX-31.1

Exhibit 31.1

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 Connecticut Water Service, Inc.;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d -15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d.	Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; 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 over financial reporting.

/s/ Marshall T. Chiaraluce
Marshall T. Chiaraluce
Chief Executive Officer
March 31, 2005

EX-31.2

Exhibit 31.2

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 Connecticut Water Service, Inc.;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d) — 15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d.	Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; 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 over financial reporting.

/s/ David C. Benoit
David C. Benoit
Chief Financial Officer
March 31, 2005

EX-32.1

Exhibit 32.1

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 Connecticut Water Service, Inc. (the “ Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marshall T. Chiaraluce, Chief Executive Officer of the Company, hereby 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 31, 2005

EX-32.2

Exhibit 32.2

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 Connecticut Water Service, Inc. (the “ Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David C. Benoit, Chief Financial Officer of the Company, hereby 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 31, 2005