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, 2007

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 (State or other jurisdiction of incorporation or organization)	06-0739839 (I.R.S. Employer 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
Common Stock, without par value Name of each exchange on which registered
The Nasdaq Stock Market, Inc.

Securities registered pursuant to Section 12 (g) of the Act:
None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

     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, (Section 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. þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o       Smaller reporting company o

(Do not check if a smaller reporting company)

          Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

     As of June 30, 2007, the aggregate market value of the registrant’s voting Common Stock held by non-affiliates of the registrant was $198,764,170 based on the closing sale price on such date as reported on the NASDAQ.

Number of shares of Common Stock, no par value, outstanding as of March 1, 2008 was 8,351,867, excluding 49,679 common stock equivalent shares.

DOCUMENTS INCORPORATED BY REFERENCE

	Part of Form 10-K Into Which
Document	Document is Incorporated
Definitive Proxy Statement, dated	Part III
March 18, 2008, for Annual Meeting of Shareholders to be held on May 15, 2008.

INDEX TO ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2007

		Page
		Number
Part I
Item 1.	Business		4
Item 1A.	Risk Factors		9
Item 1B.	Unresolved Staff Comments		13
Item 2.	Properties		13
Item 3.	Legal Proceedings		15
Item 4.	Submission of Matters to a Vote of Security Holders		15
Part II
Item 5.	Market for the Company’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
Item 6.	Selected Financial Data		18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk		33
Item 8.	Financial Statements and Supplementary Data		34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		34
Item 9A.	Controls and Procedures		34
Item 9B.	Other Information		35
Part III
Item 10.	Directors, Executive Officers and Corporate Governance		36
Item 11.	Executive Compensation		36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		36
Item 13.	Certain Relationships and Related Transactions, and Director Independence		37
Item 14.	Principal Accountant Fees and Services		37
Part IV
Item 15.	Exhibits and Financial Statement Schedules		38
	Signatures		40
EX-4.33: BOND PURCHASE AGREEMENT
EX-4.34: LOAN AGREEMENT
EX-4.35: INDENTURE OF TRUST
EX-10.5.h: 8TH AMENDMENT TO A/R EMPLOYEES' RETIREMENT PLAN
EX-10.5.i: 9TH AMENDMENT TO A/R EMPLOYEES' RETIREMENT PLAN
EX-21: SUBSIDIARIES
EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS, LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

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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 risk factors described in Item 1A below and 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 incorporated in 1974, with The Connecticut Water Company (Connecticut Water) as its largest subsidiary which was organized in 1956. Connecticut Water Service, Inc. is a non-operating holding company, whose income is derived from the earnings of its four wholly-owned subsidiary companies. In 2007, approximately 91% of the Company’s earnings from continuing operations were attributable to water activities carried out within its regulated water company, Connecticut Water. As of December 31, 2007, Connecticut Water supplied water to 84,418 customers in 41 towns throughout Connecticut. As a regulated water company Connecticut Water 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 utility, the Company owns three unregulated companies, two of which were active and one of which was inactive as of December 31, 2007. In 2007, these unregulated companies, together with real estate transactions within Connecticut Water, contributed the remaining 9% of the Company’s earnings from continuing operations through real estate transactions as well as services and rentals. The two active companies are Chester Realty, Inc., a real estate company in Connecticut; and New England Water Utility Services, Inc. (NEWUS), which provides contract water and sewer operations and other water related services.

The inactive company is The Barnstable Holding Company (Barnstable Holding), a holding company which previously owned BARLACO Inc. (BARLACO) and Barnstable Water Company (Barnstable Water). BARLACO, a real estate company in Massachusetts whose entire inventory of land was sold in 2006; and Barnstable Water, a company that was a public service company until its assets were sold to the Town of Barnstable, Massachusetts in 2005; were each merged with and into Barnstable Holding during 2007. As a result of the sale of the assets of Barnstable Water, results of its operations have been classified as discontinued operations.

Our mission is to provide high quality water service to our customers at a fair return to our stockholders while maintaining a work environment that attracts, retains and motivates our employees to achieve a high level of performance.

Our corporate headquarters are located at 93 West Main Street, Clinton, Connecticut 06413. Our telephone number is 860.669.8636, and our internet address is www.ctwater.com.

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to these documents will be made available free

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of charge through the “INVESTOR INFORMATION” 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 SEC). 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, 93 West Main Street, Clinton, CT 06413.

Our Regulated Business

On June 29, 2007, the Company announced that its principal operating subsidiary, Connecticut Water, and its unregulated subsidiary, NEWUS, had entered into definitive purchase agreements to acquire the regulated water utility assets of Eastern Connecticut Regional Water Company, Inc. (Eastern), a wholly-owned subsidiary of Birmingham Utilities, Inc. (Birmingham) and the unregulated assets of Birmingham H2O Services, Inc. (H2O). The agreements called for Connecticut Water and NEWUS to pay a combined $3.5 million for the assets acquired, which had a book value of $9.9 million. On November 16, 2007, the Connecticut Department of Public Utility Control (DPUC) issued a final decision approving the transactions and the accounting treatment described in Note 17 of the Notes to Consolidated Financial Statements. The transaction was completed on January 16, 2008, at which point all of the former customers of Eastern became customers of Connecticut Water. The acquisition of Eastern added more than 2,300 residential customers residing in 14 towns across Connecticut, some only a few miles from existing Connecticut Water systems. The Company is currently integrating Eastern’s customers and employees into Connecticut Water’s operations. The Company expects the integration to be materially complete in the first quarter of 2008. For more information, please refer to Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 17 of the Notes to Consolidated Financial Statements.

In April 2006, the DPUC approved the Company’s application to merge Unionville Water Company (Unionville) and Crystal Water Company (Crystal) into Connecticut Water. The Company completed these mergers on May 31, 2006. In July 2006, the Company filed a rate application with the DPUC for the newly merged Connecticut Water requesting an increase in rates of approximately $14.6 million, or 30%. On January 16, 2007, the DPUC issued its final decision and approved a Settlement Agreement; negotiated with the Office of Consumer Counsel and the DPUC’s Prosecutorial Staff; that allowed Connecticut Water an increase of revenues of approximately $10,940,000, or 22.3%. The Settlement Agreement allowed Connecticut Water to defer a portion of the approved rate increase, approximately $3.8 million. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision. Through December 31, 2007, the Company has recorded approximately $3.8 million in deferred revenues. The second phase of the increase is expected to

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occur on April 1, 2008. On January 31, 2008, the Company filed to reopen the case, a procedure required by the Settlement Agreement, to implement the second phase. In addition to the approval for the inclusion in current rates of the previously approved deferred revenues of $3.8 million, the filing includes requested recovery of the costs associated with $15.5 million of additional capital investments made in 2007. This portion of the second phase of the increase was also called for in the Settlement Agreement.

The total increase associated with this second phase is a request of 12.6%, of which approximately 8.2% is for deferred revenues and 4.4% for the investment in additional capital in 2007. Additionally, Connecticut Water agreed not to apply for a general rate increase that would become effective prior to January 1, 2010.

A final decision on this second phase is expected by the end of March 2008.

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.

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 $57.6 million 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 $7.4 million 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.

Connecticut Water derives its rights and franchises to operate from special state acts that are subject to alteration, amendment or repeal and do not grant us exclusive rights to our service areas. Our franchises are free from burdensome restrictions, are unlimited as to time, and authorize us to sell potable water in all the towns we now serve. There is the possibility that the State of Connecticut could attempt to revoke our franchises and allow a governmental entity to take over some or all of our systems. While we would vigorously oppose any such attempts, 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 the DPUC. It is our policy to seek rate relief as necessary to enable us to achieve an adequate rate of return. As noted above, on January 16, 2007, the DPUC approved an increase of revenues of approximately $10,940,000, or 22.3%, for Connecticut Water effective January 1,

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2007. Connecticut Water’s allowed return on equity and return on rate base are 10.125% and 8.07%, respectively.

Our Water Systems

Our water infrastructure consists of 28 noncontiguous water systems in the State of Connecticut. Our system, in total, consists of approximately 1,400 miles of water main and reservoir storage capacity of 7.0 billion gallons. The safe, dependable yield from our 122 active wells and 18 reservoirs is approximately 49 million gallons per day. Water sources vary among the individual systems, but overall approximately 35% of the total dependable yield comes from reservoirs and 65% from wells.

As of December 31, 2007, Connecticut Water’s 84,418 customers consumed approximately 7.3 billion gallons of water generating $59,026,000 in revenue. We supply water, and in most cases, fire protection to all or portions of 41 towns in Connecticut.

The following table breaks down the above total figures by customer class as of December 31, 2007, 2006 and 2005:

	2007		2006		2005
Customers:
Residential		75,579		74,253		72,968
Commercial		5,532		5,485		5,333
Industrial		426		429		428
Public Authority		602		587		580
Fire Protection		1,599		1,562		1,526
Other (including non-metered accounts)		680		931		928
Total		84,418		83,247		81,763
Water Revenues ($000’s)
Residential(1)	$	38,354	$	29,067	$	29,980
Commercial		6,762		5,652		5,619
Industrial		1,764		1,589		1,538
Public Authority		1,924		1,507		1,625
Fire Protection		9,482		8,708		8,267
Other (including non-metered accounts)		740		422		424
Total	$	59,026	$	46,945	$	47,453
Customer Water Consumption
(millions of gallons)
Residential		5,186		4,933		5,260
Commercial		1,259		1,198		1,188
Industrial		423		424		423
Public Authority		389		363		405
Total		7,257		6,918		7,276

(1) Includes $3.8 million of deferred revenues in 2007 as allowed under the 2007 Rate Decision.

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Connecticut Water owns various small, discrete parcels of land that are no longer required for water supply purposes. At December 31, 2007, this land totaled approximately 250 acres. Over the past several years, we have been disposing of these land parcels. For more information, please refer to Segments of Our Business below.

Additional information on land dispositions can be found in Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Commitments and Contingencies.

Competition

Connecticut Water faces competition from a few small privately-owned water systems operating within, or adjacent to, our franchise areas and from municipal and public authority systems whose service areas in some cases overlap portions of our franchise areas.

Employees

As of December 31, 2007, we employed a total of 206 persons. Our employees are not covered by collective bargaining agreements.

Segments of Our Business

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

Water Activities – 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 our regulated water company with the exception of certain real estate transactions.

Real Estate Transactions – Our Real Estate Transactions segment involves the sale or donation for income tax benefits of our real estate holdings. These transactions can be effected by any of our subsidiary companies. During 2007, the Company engaged in two land transactions totaling 33 acres and increased its valuation allowance, resulting in a net profit of $167,000.

In February 2006, the Company sold 109 acres of land that were owned by BARLACO to the Town of Barnstable, Massachusetts for $1.0 million.

In 2005, the Company sold 74 acres of land in Bristol, Connecticut for $475,000.

In 2005, the Company reduced after-tax profit by $353,000 by recording a reserve for income taxes. This was due to an examination by the Internal Revenue Service (IRS), which was examining the fair market value of the property reflected on the Company’s 2002, 2003 and 2004 tax returns. The IRS completed its examination during 2006 and no adjustment to the Company’s 2002 – 2004 tax liability was needed. As a result, the reserve of $353,000, along with an additional $623,000 in reserves was reversed in 2006.

A breakdown of the net income of this segment between our regulated and unregulated companies for the past three years is as follows:

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	Income (Loss) from Real Estate Transactions from
	Continuing Operations
	Regulated			Unregulated			Total
2005	$	(69,000	)	$	8,000		$	(61,000	)
2006	$	1,083,000		$	980,000		$	2,063,000
2007	$	199,000		$	(32,000	)	$	167,000

Services and Rentals – 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 through our unregulated companies. 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 the renting of residential and commercial property.

Some of the services listed above, including the service line protection plan, 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 approximately 7% of our overall net income in 2007. Net income generated by this segment of our business was $651,000, $515,000 and $463,000 for the years 2007, 2006 and 2005, respectively.

ITEM 1A. RISK FACTORS

Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including, but not limited to, those set forth below, any one of which could cause our actual results to vary materially from recent results or anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, see the discussion in “Forward Looking Information” in Item 7 below – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” at pages F-6 to F-27.

Because we incur significant capital expenditures annually, we depend on the rates we charge our customers.

The water utility business is capital intensive. On an annual basis, we spend significant sums for additions to or replacement of property, plant and equipment. Our ability to maintain and meet our financial objectives is dependent upon the rates we charge our customers. These rates are subject to approval by the DPUC. The Company is entitled to file rate increase requests, from time to time, to recover our investments in utility plant and expenses; however as part of our recent Settlement Agreement with the DPUC, we have agreed not to request rate relief that would become effective prior to January 2010. Once a rate increase petition is filed with the DPUC, the ensuing administrative and hearing process may be lengthy and costly. The timing of

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our future rate increase requests are dependent on the terms of our rate case decision on January 16, 2007 (including the second phase of the rate case filed in January 2008) and also partially dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase to the extent approved. We can provide no assurances that any future rate increase requests will be approved by the DPUC; and, if approved, we cannot guarantee that any such rate increase requests will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase. Additionally, the DPUC may rule that a company must reduce its rates.

Under a 2007 law, the DPUC may authorize regulated water companies to use a rate adjustment mechanism, such as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects completed and in service for the benefit of the customers. The Company does not expect to be able to take advantage of the WICA mechanism until the first quarter of 2009, at the earliest. For more information related to WICA, please refer to the “Executive Overview” found in Item 7 of this Form 10-K.

Our operating costs could be significantly increased because of state and federal environmental and health and safety laws and regulations.

Our water and wastewater services are governed by various federal and state environmental protection and health and safety laws and regulations, including the federal Safe Drinking Water Act, the Clean Water Act and similar state laws, and federal and state regulations issued under these laws by the U.S. Environmental Protection Agency and state environmental regulatory agencies. These laws and regulations establish, among other things, criteria and standards for drinking water and for discharges into the waters of the United States and/or Connecticut. Pursuant to these laws, we are required to obtain various environmental permits from environmental regulatory agencies for our operations. We cannot assure that we have been or will be at all times in full compliance with these laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.

Environmental laws and regulations are complex and change frequently. These laws, and the enforcement thereof, have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with these laws and our permits, it is possible that new or stricter standards could be imposed that will raise our operating costs. Although these costs may be recovered in the form of higher rates, there can be no assurance that the DPUC would approve rate increases to enable us to recover such costs. In summary, we cannot be assured that our costs of complying with, or discharging liabilities under, current and future environmental and health and safety laws will not adversely affect our business, results of operations or financial condition.

Our business is subject to seasonal fluctuations which could affect demand for our water services and our revenues.

Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional requirements for water in connection with irrigation systems, swimming pools, cooling systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels. In the event that temperatures during the typically warmer months are cooler than normal,

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or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.

Declining per customer residential water usage may reduce our revenues, financial condition and results of operations in future years.

A trend of declining per customer residential water usage in Connecticut has been observed, which we would attribute to the declining household size reported throughout the state, as well as increased water conservation, including the use of more efficient household fixtures and appliances among residential users. Our regulated business is heavily dependent on revenue generated from rates we charge to our residential customers for the volume of water they use. The rate we charge for our water is regulated by the DPUC and we may not unilaterally adjust our rates to reflect changes in demand. Declining volume of residential water usage may, thus, have a negative impact on our operating revenues in the future if regulators do not reflect any usage declines in the rate setting design process.

Potential drought conditions may impact our ability to serve our current and future customers’ demand for water and our financial results.

We depend on an adequate water supply to meet the present and future demands of our customers. Drought conditions could interfere with our sources of water supply and could adversely affect our ability to supply water in sufficient quantities to our existing and future customers. An interruption in our water supply could have a material adverse effect on our financial condition and results of operations. Moreover, governmental restrictions on water usage during drought conditions may result in a decreased demand for our water, even if our water reserves are sufficient to serve our customers during these drought conditions, which may adversely affect our revenues and earnings.

The failure of, or the requirement to repair, upgrade or dismantle, any of our dams may adversely affect our financial condition and results of operations.

We own 32 dams throughout the state of Connecticut. While the Company maintains robust dam maintenance and inspection programs, a failure of any of those dams could result in injuries and damage to residential and/or commercial property downstream for which we may be responsible, in whole or in part. The failure of a dam could also adversely affect our ability to supply water in sufficient quantities to our customers and could adversely affect our financial condition and results of operations. Any losses or liabilities incurred due to the failure of one of our dams might not be covered by insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.

Any failure of our reservoirs, storage tanks, mains or distribution networks could result in losses and damages that may affect our financial condition and reputation.

Connecticut Water distributes water through an extensive network of mains and stores water in reservoirs and storage tanks located across Connecticut. A failure of major mains, reservoirs, or tanks could result in injuries and damage to residential and/or commercial property for which we may be responsible, in whole or in part. The failure of major mains, reservoirs or tanks may also result in the need to shut down some facilities or parts of our water distribution network in order to conduct repairs. Such failures and shutdowns may limit our ability to supply water in

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sufficient quantities to our customers and to meet the water delivery requirements prescribed by governmental regulators, including the DPUC, and adversely affect our financial condition, results of operations, cash flow, liquidity and reputation. Any business interruption or other losses might not be covered by insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.

Any future acquisitions we may undertake may involve risks and uncertainties.

An important element of our growth strategy is the acquisition and integration of water systems in order to move into new service areas and to broaden our current service areas. Connecticut Water has completed three acquisitions since the beginning of 2007 through the filing of this report on Form 10-K on March 17, 2008. The acquisitions of Avery Heights, Hilldale Park Homeowner’s Association, and Birmingham’s Eastern Division water systems have increased the Company’s customer base by approximately 2,300 customers. Following these acquisitions, The Connecticut Water Company now serves more than 86,000 customers, or a population of nearly 300,000 people, in more than 50 Connecticut towns. We will not be able to acquire other businesses if we cannot identify suitable acquisition opportunities or reach mutually agreeable terms with acquisition candidates. It is our intent, when practical, to integrate any businesses we acquire with our existing operations. The negotiation of potential acquisitions as well as the integration of acquired businesses could require us to incur significant costs and cause diversion of our management’s time and resources. Future acquisitions by us could result in:

• dilutive issuances of our equity securities;

• incurrence of debt and contingent liabilities;

• failure to have effective internal control over financial reporting;

• fluctuations in quarterly results; and

• other acquisition-related expenses.

Some or all of these items could have a material adverse effect on our business as well as our ability to finance our business and comply with regulatory requirements. The businesses we acquire in the future may not achieve sales and profitability that would justify our investment and any difficulties we encounter in the integration process, including in the integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins and adversely affect our internal controls. In addition, as consolidation becomes more prevalent in the water and wastewater industries, the prices for suitable acquisition candidates may increase to unacceptable levels and limit our ability to grow through acquisitions.

Water supply contamination may adversely affect our business.

Our water supplies are subject to contamination, including contamination from the development of naturally-occurring compounds, chemicals in groundwater systems, pollution resulting from man-made sources, such as MTBE, and possible terrorist attacks. In the event that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to substitute the flow of water from an uncontaminated water source or provide additional treatment. We may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities, or development of new treatment methods. If we are unable to substitute water supply from an uncontaminated water source, or to adequately treat the

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contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results and financial condition. The costs we incur to decontaminate a water source or an underground water system could be significant and could adversely affect our business, operating results and financial condition and may not be recoverable in rates. We could also be held liable for consequences arising out of human exposure to hazardous substances in our water supplies or other environmental damage. For example, private plaintiffs have the right to bring personal injury or other toxic tort claims arising from the presence of hazardous substances in our drinking water supplies. Our insurance policies may not be sufficient to cover the costs of these claims.

The need to increase security may continue to increase our operating costs.

In addition to the potential pollution of our water supply as described above, in the wake of the September 11, 2001 terrorist attacks and the ongoing threats to the nation’s health and security, we have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. These costs may be significant. We are currently not aware of any specific threats to our facilities, operations or supplies; however, it is possible that we would not be in a position to control the outcome of terrorist events should they occur.

Key employee turnover may adversely affect our operating results.

Our success depends significantly on the continued individual and collective contributions of our management team. The loss of the services of any member of our senior management team or the inability to hire and retain experienced management personnel could harm our operating results.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

The properties of our regulated water company 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. In certain cases, our water company may be a party 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 simple and/or 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 of the Company at December 31, 2007 was solely owned by Connecticut Water. Connecticut Water’s net utility plant balance as of December 31, 2007 was $277,662,000, nearly $15 million more than the balance of net utility plant as of December 31, 2006, due primarily to normal plant additions.

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Sources of water supply owned, maintained, and operated by Connecticut Water include eighteen reservoirs and fifty-two 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 forty-seven million gallons of potable water daily to the fourteen major operating systems in the following table. In addition to the principal systems identified, Connecticut Water owns, maintains, and operates fourteen 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. During 2006, the Company entered into, and the DPUC approved, a purchased water agreement with the South Central Connecticut Regional Water Authority (RWA) to purchase up to one million gallons per day billed at the RWA’s wholesale rate. Activation of the interconnection will occur in 2008 on an as needed basis. As part of the DPUC’s decision approving the purchased water agreement, they allowed the Company to capitalize $75,000 per year as the cost to reimburse RWA for capital investments needed to provide for increased water sales. The Company will be allowed to treat these costs as a regulatory asset.

Connecticut Water owns and operates sixteen water filtration facilities, having a combined treatment capacity of approximately 29.33 million gallons per day.

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

	ESTIMATED
	AVAILABLE SUPPLY
	(MILLION GALLONS PER DAY)
Chester System		1.69
Collinsville System		0.65
Danielson System		3.76
Gallup System		0.60
Guilford System		9.31
Naugatuck System		6.91
Northern Western System		16.16
Plainfield System		1.01
Somers System		0.28
Stafford System		1.00
Terryville System		0.94
Thomaston System		0.73
Thompson System		0.29
Unionville System		3.88
Total		47.21

As of December 31, 2007, the transmission and distribution systems of Connecticut Water consisted of approximately 1,400 miles of main. On that date, approximately 76 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.

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

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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.

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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 Global Select Market under the symbol “CTWS”. Our quarterly high and low stock prices as reported by NASDAQ and the cash dividends we paid during 2007 and 2006 are listed as follows:

	Price				Dividends
Period	High		Low		Paid
2007
First Quarter	$	25.09	$	22.52	$	.2150
Second Quarter		25.00		23.62		.2150
Third Quarter		25.61		23.10		.2175
Fourth Quarter		25.15		22.40		.2175
2006
First Quarter	$	26.43	$	23.81	$	.2125
Second Quarter		27.71		20.29		.2125
Third Quarter		24.39		21.90		.2150
Fourth Quarter		23.18		21.35		.2150

As of March 1, 2008, there were approximately 4,200 holders of record of our common stock.

We presently intend to pay quarterly cash dividends in 2008 on March 17, June 16, 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 – In May 2005, the Company adopted a common stock repurchase program (Share Repurchase Program). The Share Repurchase Program allows the Company to repurchase up to 10% of its outstanding common stock, at a price or prices that are deemed appropriate. As of December 31, 2007, no shares have been repurchased. Currently, the Company has no plans to repurchase shares under the Share Repurchase Program.

Performance Graph – Set forth below is a line graph comparing the cumulative total shareholder return for each of the years 2002 – 2007 on the Company’s Common Stock, based on the market price of the Common Stock and assuming reinvestment of dividends, with the cumulative total shareholder return of companies in the Standard & Poor’s 500 Index and the Standard and Poor’s 500 Utility Index.

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	2002		2003		2004		2005		2006		2007
Connecticut Water Service, Inc.		100.00		112.95		111.62		106.76		102.83		110.43
Standard & Poor’s 500 Index		100.00		128.68		142.69		149.70		173.34		182.86
Standard & Poor’s 500 Utilities Index		100.00		126.26		156.91		183.34		221.82		264.87

(Source: Standard & Poor’s Institutional Market Service)

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ITEM 6. SELECTED FINANCIAL INFORMATION

SELECTED FINANCIAL DATA

Years Ended December 31, (thousands of dollars except per share
amounts and where otherwise indicated)	2007			2006			2005			2004			2003
CONSOLIDATED STATEMENTS OF INCOME
Continuing Operations
Operating Revenues	$	59,026		$	46,945		$	47,453		$	46,008		$	44,598
Operating Expenses	$	46,324		$	39,962		$	37,486		$	35,487		$	33,380
Other Utility Income, Net of Taxes	$	552		$	542		$	571		$	520		$	465
Total Utility Operating Income	$	13,254		$	7,525		$	10,538		$	11,041		$	11,683
Interest and Debt Expense	$	4,411		$	4,461		$	3,583		$	3,451		$	4,369
Income from Continuing Operations	$	8,781		$	6,708		$	7,166		$	9,163		$	8,890
Cash Common Stock Dividends Paid	$	7,146		$	7,014		$	6,773		$	6,641		$	6,529
Dividend Payout Ratio from Continuing Operations		81	%		105	%		95	%		72	%		73	%
Weighted Average Common Shares Outstanding		8,270,494			8,227,953			8,094,346			7,999,318			7,956,426
Basic Earnings Per Common Share from Continuing Operations	$	1.06		$	0.81		$	0.89		$	1.15		$	1.12
Number of Shares Outstanding at Year End		8,376,842			8,270,394			8,169,627			8,035,199			7,967,379
ROE on Year End Common Equity		8.8	%		7.0	%		7.6	%		10.4	%		10.7	%
Declared Common Dividends Per Share	$	0.865		$	0.855		$	0.845		$	0.835		$	0.825
CONSOLIDATED BALANCE SHEET
Common Stockholders’ Equity	$	100,098		$	95,938		$	94,076		$	87,865		$	83,315
Long-Term Debt (Consolidated, Excluding Current Maturities)		92,285			77,347			77,404			66,399			64,754
Preferred Stock		772			772			847			847			847
Total Capitalization	$	193,155		$	174,057		$	172,327		$	155,111		$	148,916
Stockholders’ Equity (Includes Preferred Stock)		52	%		56	%		55	%		57	%		57	%
Long-Term Debt		48	%		44	%		45	%		43	%		43	%
Net Utility Plant	$	277,662		$	263,187		$	247,703		$	241,776		$	235,098
Total Assets	$	360,813		$	328,140		$	306,035		$	290,940		$	281,345
Book Value — Per Common Share	$	11.95		$	11.60		$	11.52		$	10.94		$	10.46
OPERATING REVENUES BY REVENUE CLASS
Residential	$	38,354		$	29,067		$	29,980		$	28,974		$	27,831
Commercial		6,762			5,652			5,619			5,479			5,327
Industrial		1,764			1,589			1,538			1,635			1,616
Public Authority		1,924			1,507			1,625			1,430			1,302
Fire Protection		9,482			8,708			8,267			8,087			8,026
Other (Including Non-Metered Accounts)		740			422			424			403			496
Total Operating Revenues	$	59,026		$	46,945		$	47,453		$	46,008		$	44,598
Number of Customers (Average)		84,023			82,552			81,211			87,259			86,145
Billed Consumption (Millions of Gallons)		7,257			6,918			7,276			7,801			7,640
Number of Employees		206			200			191			193			195

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

FINANCIAL CONDITION

Executive Overview

The Company is a non-operating holding company, whose income is derived from the earnings of its four wholly-owned subsidiary companies: The Connecticut Water Company (Connecticut Water), New England Water Utility Services, Inc. (NEWUS), Chester Realty Company (Chester Realty), and Barnstable Holding Company (Barnstable Holding).

In 2007, approximately 91% of the Company earnings from continuing operations were attributable to the water activities of its largest subsidiary, Connecticut Water, a regulated water utility with 84,418 customers throughout 41 Connecticut towns, as of December 31, 2007. The rates charged for service by Connecticut Water are subject to review and approval by the Connecticut Department of Public Utility Control (DPUC).

After 15 years without filing rate cases, the Company’s 2007 financial results reflect operations under a new rate structure. The Company has spent considerable time and effort over the past 18 months to ensure that our corporate structure is aligned with our new strategy that will see us requesting rate relief on a more consistent basis in the future. This is important because of the Company’s renewed focus on its regulated business as the primary driver of earnings growth and to ensure that we are allowed a fair rate of return on the utility plant that we use to serve our customers.

In an effort to stimulate growth, the Company has stepped up its efforts to acquire water companies near our existing service territories. To that end, the Company announced in June 2007 that Connecticut Water entered into a definitive purchase agreement to acquire the regulated water utility assets of Eastern Connecticut Regional Water Company (Eastern), a regulated subsidiary of Birmingham Utilities, Inc. (Birmingham). The acquisition of Eastern, which closed on January 16, 2008, added more than 2,300 residential customers residing in 14 towns across Connecticut, some only a few miles from existing Connecticut Water systems. See Our Regulated Business, under Item 1 – “Business” and Note 17 to the “Notes to Consolidated Financial Statements” for more information on the acquisition of Eastern. In 2008 and beyond, the Company will continue to look for acquisition candidates that we would easily be able to “tuck-in” to existing service territories, as well as possible acquisitions outside of our service territories, including outside the State of Connecticut. Additionally, the Company plans to continue its efforts to tie in private well owners whose homes are in close proximity to our mains. In 2007, Connecticut Water added 303 customers in our existing service territories. Lastly, the Company will continue to work with developers to encourage public water use for new residential construction within Connecticut Water’s service areas.

Over the next twenty years, the Environmental Protection Agency expects water companies to spend over $275 billion in infrastructure costs nationwide to ensure compliance with existing and future water regulations. Recognizing the importance of timely infrastructure replacement and improvement, the Company, along with other investor-owned regulated water companies in the state, campaigned for the passage of the Water Infrastructure and Conservation Adjustment (WICA) Act in the Connecticut General Assembly in 2007. WICA allows the Company to add a

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surcharge to customers’ bills, subject to DPUC approval, to reflect the replacement of certain types of aging utility plant; principally water mains, meters, service lines and water conservation related investments; without a full rate proceeding. The signing of WICA into law in June 2007 will help to eliminate the regulatory lag from the time the Company invests in replacement, or certain qualified new, plant and when it can begin to recover that investment in the rates charged to customers. The Company, however, does not expect to be able to take advantage of the WICA mechanism until the first quarter of 2009.

While the Company plans to file more frequent rate cases, continue to make acquisitions and, in the future, utilize the WICA adjustment to increase its earnings through its regulated subsidiary, it will also look to NEWUS to increase its earnings in the unregulated business. As part of the Company’s January 2008 acquisition of Eastern, NEWUS acquired the operation and maintenance contracts of Birmingham H2O Services Inc., an unregulated business of Birmingham that has nearly 50 contracts for unregulated water systems in eastern Connecticut, totaling approximately $650,000 in revenues. The Company will continue to seek out maintenance and service contracts with new customers and renew existing contracts that have proven to be beneficial to the Company, as well as to continue the expansion of the Linebacker^® program.

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.

Connecticut Water is also subject to environmental and water quality regulations. Costs to comply with environmental and water quality regulations are substantial. We are currently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with future changes in state or federal regulations, which could require us to modify current filtration facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial.

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

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted 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

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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 No. 71, “Accounting for the Effects of Certain Types of Regulation” (SFAS 71), requires cost based, rate-regulated enterprises such as Connecticut Water 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 SFAS 71. Material regulatory assets, other than deferred revenue, are earning a return.

Revenue Recognition – The Company’s accounting policies regarding revenue recognition by segment are as follows:

Water Activities – Most of our water customers are billed quarterly, with the exception of larger commercial and industrial customers, as well as public and private fire protection customers who are billed monthly. Most customers, except fire protection customers, are metered. Revenues from metered customers are based on their water usage multiplied by approved, regulated rates and are earned when water is delivered. Public fire protection revenues are based on the length of the water main, and number of hydrants in service and are earned on a monthly basis. Private fire protection charges are based on the diameter of the connection to the water main. Our water companies accrue an estimate for metered customers for the amount of revenues earned relating to water delivered but unbilled at the end of each quarter.

Real Estate Transactions – Revenues are recorded when a sale or other transaction has been completed and title to the real estate has been transferred.

Services and Rentals – Revenues are recorded when the Company has delivered the services called for by contractual obligation.

Benefit Plan Accounting – Management evaluates the appropriateness of the discount rate through the modeling of a bond portfolio which approximates the pension and postretirement plan liabilities. Management further considers rates of high quality corporate bonds of approximate maturities as published by nationally recognized rating agencies consistent with the duration of the Company’s pension and postretirement plans.

The discount rate assumption we use to value our pension and postretirement benefit obligations has a material impact on the amount of expense we record in a given period. Our 2007 and 2006 pension and postretirement expense was calculated using assumed discount rates of 5.75% and 5.50%, respectively. In 2008, our pension and postretirement expense will be calculated using an assumed discount rate of 6.30%. The following table shows how much a one percent change in our assumed discount rate would have changed our reported 2007 pension and postretirement expense:

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	Increase			Increase
	(Decrease) in			(Decrease) in
	pension expense			postretirement expense
1% Increase in the discount rate	$	(327,000	)	$	(208,000	)
1% Decrease in the discount rate	$	380,000		$	252,000

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 current or 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 when requested, from time to time, by our regulated water company.

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 2008 and beyond. Please also review carefully the risks and uncertainties described in Item 1A – Risk Factors and those described below under the heading “Forward Looking Information”.

Based on the Company’s current projections, assuming normal weather patterns, the Company believes that its Net Income from Continuing Operations for the year 2009 will increase from the levels reported for 2008, primarily as a result of the second phase of the rate increase which we expect to be approved by the DPUC effective April 1, 2008. During 2009 and subsequent years, the ability of the Company to maintain and increase its Net Income from Continuing Operations 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”.

FINANCIAL CONDITION

Liquidity and Capital Resources

In recent years, we have relied on both internally generated funds and periodic debt and equity issuances in order to fund our construction budget. Looking forward, we expect construction expenditures will be in excess of cash generated from operations and funds generated from the Company’s dividend reinvestment plan; therefore, we will require additional external debt financings. We expect that this funding will initially come in the form of interim bank loans, with refinancing into long-term debt as the aggregate balance on the interim loans accumulates. The Company considers both market interest rates and the availability of tax-exempt financing opportunities through the Connecticut Development Authority. Although the Company believes it will be able to secure such funding when and as it is needed, we cannot be assured that funding with favorable interest rates will be available to the Company or that any new debt issuances will be tax exempt.

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The following table shows the total construction expenditures excluding non-cash contributed utility plant for each of the last three years and what we expect to invest on construction projects in 2008.

			Construction
	Gross		Funded by		Construction
	Construction		Developers &		Funded by
	Expenditures		Others		Company
2005	$	16,957,000	$	2,701,000	$	14,256,000
2006	$	17,792,000	$	1,593,000	$	16,199,000
2007	$	19,841,000	$	1,092,000	$	18,749,000
2008 (Projected)	$	23,400,000	$	5,000,000	$	18,400,000

During 2007, the Company incurred approximately $19.8 million of construction expenditures. The Company financed the expenditures through internally generated funds, long-term debt issuances, proceeds from its dividend reinvestment plan, customers’ advances, contributions in aid of construction and short-term borrowings.

The Board of Directors has approved an $18.4 million construction budget for 2008, net of amounts to be financed by customer advances and contributions in aid of construction. Funds primarily provided by operating activities, short-term borrowings and long-term debt issuances are expected to finance this entire construction program given normal weather patterns and related operating revenue billings.

We currently fund our working capital requirements through our lines of credit with three banks, which provide liquidity to satisfy ongoing cash needs. We consider the current aggregate $21,000,000 lines of credit to be adequate to finance any expected short-term borrowing requirements that may arise in 2008. If additional funding is needed during 2008, the Company does not foresee any obstacles to obtaining new short-term financing arrangements. The lines of credit have lives that range from 12 to 29 months, which expire during 2008 and 2009. We expect to renew the lines as they expire. The interest rates payable are variable and fluctuate over time based on financial conditions. The weighted average interest rate on the $6,459,000 aggregate balance outstanding at December 31, 2007 was 5.47%.

In connection with the 2004 issuance of the $12.5 million variable rate 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 began in April 2004 and thereafter on a monthly basis, paying 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 November 2005, Connecticut Water borrowed $10 million through the issuance of Water Facilities Revenue Bonds by the Authority sold in a single series with an interest rate of five percent maturing on October 1, 2040. The proceeds from the sale of the bonds were used to

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finance construction and installation of various capital improvements to Connecticut Water’s existing water systems.

In November 2005, Crystal borrowed $5 million through the issuance of Water Facilities Revenue Bonds by the Authority sold in a single series with an interest rate of five percent maturing on October 1, 2040. The proceeds from the sale of the bonds were used to finance the construction of a water treatment plant in the Town of Killingly, CT and to facilitate the interconnection of two systems in the Town of Killingly. As a result of the merger of Crystal into Connecticut Water, this debt issuance became a liability of Connecticut Water.

In December 2007, Connecticut Water borrowed $15 million through the issuance of Water Facilities Revenue Bonds by the Authority sold in a single series with an interest rate of five percent maturing on December 1, 2037. The proceeds from the sale of the bonds are being used to finance construction and installation of various capital improvements to the Company’s existing water system.

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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 (other than the interest rate swap agreement discussed above) and does not have material transactions involving related persons.

The following table summarizes the Company’s future contractual cash obligations as of December 31, 2007:

Payments due by Periods
(in thousands of dollars)

			Less						More
			than 1		Years		Years		than 5
Contractual Obligations	Total		year		2 and 3		4 and 5		years
Long-Term Debt (LTD)	$	92,292	$	7	$	16	$	17	$	92,252
Interest on LTD		96,687		4,184		8,366		8,365		75,772
Operating Lease Obligations		996		302		458		236		—
Purchase Obligations (1) (2)		101,572		999		1,881		1,977		96,715
Long-Term Compensation Agreement(3)		48,525		5,341		6,649		6,654		29,881
Total (4) (5)	$	340,072	$	10,833	$	17,370	$	17,249	$	294,620

(1)	Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority (RWA) to purchase water from RWA. The agreement was signed on May 13, 2005 and will remain in effect for a minimum of ten (10) years from that date. Connecticut Water has agreed to purchase at least three million (3,000,000) gallons of water per calendar year from RWA. Water sales to Connecticut Water are billed monthly at the most current RWA retail rate.
(2)	Connecticut Water has an agreement with The Metropolitan District (MDC) to purchase water from MDC. The agreement became effective on October 6, 2000 for a term of fifty (50) years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service.
(3)	Pension and post retirement contributions cannot be reasonably estimated beyond 2008 and may be impacted by such factors as return on pension assets, changes in the number of plan participants and future salary increases. The amounts included for pension and post retirement contributions are management’s best estimate.
(4)	We pay refunds on Advances for Construction over a specific period of time based on operating revenues related to developer-installed water mains or as new customers are connected to and take service from such mains. After all refunds are paid, any remaining balance is transferred to Contributions in Aid of Construction. The refund amounts are not included in the above table because the refund amounts and timing are dependent upon several variables, including new customer connections, customer consumption levels and future rate increases, which cannot be accurately estimated. Portions of these refund amounts are payable annually through 2020 and amounts not paid by the contract expiration dates become non-refundable.
(5)	We intend to fund these contractual obligations with cash flows from operations and liquidity sources held by or available to us.

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RESULTS OF OPERATIONS

Overview of 2007 Results from Continuing Operations

Income from Continuing Operations for 2007 was $8,781,000, or $1.06 per basic share, an increase of $2,073,000, or $0.25 per basic share, compared to 2006. The increase in earnings was due to higher net income in our Water Activities segment partially offset by decreases in net income in our Real Estate Transactions segment. Changes in net income for our segments were as follows:

	2007 Net		2006 Net		Increase
Business Segment	Income		Income		(Decrease)
Water Activities	$	7,963,000	$	4,130,000	$	3,833,000
Real Estate		167,000		2,063,000		(1,896,000	)
Services and Rentals Transactions		651,000		515,000		136,000
Total	$	8,781,000	$	6,708,000	$	2,073,000

Water Activities

The increase in net income from Water Activities in 2007, over 2006 results was $3,833,000, or $0.46 per share. A breakdown of the components of this increase was as follows:

						Increase
	2007			2006		(Decrease)
Operating Revenues	$	59,026,000		$	46,945,000	$	12,081,000
Operation and Maintenance		29,864,000			26,451,000		3,413,000
Depreciation		6,525,000			5,881,000		644,000
Income Taxes		4,195,000			2,055,000		2,140,000
Taxes Other than Income Taxes		5,740,000			5,575,000		165,000
Other Utility Income		552,000			542,000		10,000
Other (Deductions) Income		(972,000	)		608,000		(1,580,000	)
Interest and Debt Expense (net of AFUDC)		4,319,000			4,003,000		316,000
Total Income from Water Activities	$	7,963,000		$	4,130,000	$	3,833,000

The 25.7% increase in Operating Revenues was primarily due to the rate increase effective January 1, 2007, specifically:

- an increase of $9,287,000, or 32.0%, in revenues from residential customers in 2007, including $3,823,000 in deferred revenues;

- a $1,701,000, or 19.4%, increase in all other metered customers, including commercial, industrial and public authority customers; and

- a $1,092,000, or 12.0%, increase in non-metered revenues which was primarily due to increased fire protection charges related to the expansion of our water system which increased the number of fire hydrants and revenue generating mains upon which these charges are based.

The $3,413,000, or 12.9%, increase in Operation and Maintenance expense was due to the following changes in expenses:

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					Increase
	2007		2006		(Decrease)
Post-retirement medical expense	$	1,759,000	$	473,000	$	1,286,000
Labor		10,842,000		10,240,000		602,000
Outside services		1,480,000		998,000		482,000
Purchased water		1,291,000		866,000		425,000
Utility costs		3,282,000		2,947,000		335,000
Vehicle		1,214,000		942,000		272,000
Rate case cost amortization		270,000		35,000		235,000
Maintenance		1,632,000		1,526,000		106,000
Customer		709,000		606,000		103,000
Other employee benefit costs		2,768,000		3,697,000		(929,000	)
Other		4,617,000		4,121,000		496,000
Total Operation and Maintenance Expense	$	29,864,000	$	26,451,000	$	3,413,000

Post-retirement medical expense increased over the prior year due to the accounting treatment under the January 2007 rate decision. Prior to 2007, the Company was able to recover approximately $473,000 in post-retirement medical expense while deferring any remaining Statement of Financial Accounting Standards No. 106 (SFAS 106) costs on the balance sheet as a regulatory asset. Beginning in 2007, the Company fully expensed the costs determined under SFAS 106. The increase in Labor over 2006 levels was due to normal wage increases and a non-recurring wage adjustment for a majority of hourly employees made early in 2006. Outside services increased over the prior year due to increases in audit, legal and other consulting related costs. Purchased water costs have increased primarily due to increases in the rates charged to the Company by other water utilities. The Company has seen an increase in its Vehicle costs due to rising gas prices, increased insurance rates and higher repair costs. Despite efforts to keep our Utility expense down, such as signing commodity contracts directly with suppliers, Utility costs have increased as our electric providers continue to increase the rates they charge to customers. When filing for a rate increase, the DPUC allows companies to defer costs associated with the filing and then to amortize these expenses through Operation and Maintenance expense. The Company is now seeing an increase in Rate case cost amortization since it has begun to amortize the costs to file the 2006 rate case during 2007. Offsetting these increases was a decrease to Other employee benefit costs due to a reduction in stock based compensation expense and a decrease in pension costs.

The Company saw an increase in Depreciation of $644,000, or 11.0%, due to the Company’s increased capital spending during 2007 in advance of the second phase of the 2006 rate case, filed in January 2008. The Company expects that this line item will continue to increase as the Company looks to replace aging infrastructure in order to take advantage of WICA in future years.

The increase in Income Tax expense associated with the Water Activities segment of $2,140,000 was due primarily to higher pre-tax net income in 2007.

The increase in Taxes Other Than Income Taxes was primarily due to higher property taxes due to towns charging higher property tax rates on our ever increasing property balances.

28

The increase in Other Utility Operating Income was due to higher income generated from antenna sites on our utility property leased to telecommunication companies.

The decrease in Other Income was primarily due to the regulatory treatment of income taxes related to certain compensation and directors fees (disallowed costs) based on the outcome of the Company’s Settlement Agreement approved by the DPUC in January 2007. This change resulted in a reversal of a regulatory liability of $986,000 in 2006. There was no similar reversal in 2007, and there are none expected in future years.

Interest and Debt Expense remained relatively flat year over year due to the relatively similar capital structure during most of 2007 when compared to 2006. In 2008, the Company expects that Interest and Debt Expense will increase due to the $15 million bond issuance in December 2007.

Real Estate Transactions

The net income generated by the Real Estate Transactions segment decreased $1,896,000, or $0.23 per share, from 2006 due to the sale of land from BARLACO to the Town of Barnstable, Massachusetts and the reversal of reserves during 2006 compared to limited real estate activity during 2007. During 2007, the Company sold 33 acres, in two separate transactions, generating approximately $201,000 in net income. Additionally, upon completion of the 2006 tax return in the third quarter of 2007, the Company received an additional tax benefit relating to the 2006 BARLACO land sale transaction of approximately $20,000. Offsetting these gains, the Company increased its valuation allowance by approximately $54,000 generating an overall net gain in the Real Estate Transactions segment of $167,000.

The agreement the Town of Barnstable entered into with the Company to purchase Barnstable Water’s assets also included a provision whereby the Town of Barnstable would acquire, through a bargain sale purchase, all of the land owned by BARLACO for an additional $1 million. The BARLACO land was sold in February 2006. The Company recorded a gain on the bargain land sale for 2006 of $980,000. This gain is reported on the Gain (Loss) on Property Transactions line of the 2006 Consolidated Statements of Income.

Additionally in 2006, the Company reversed $976,000 of reserves related to an examination by the Internal Revenue Service (IRS) of the Company’s Federal Income Tax Returns for the years 2002 – 2004, which focused primarily on the value of land donated by the Company. The IRS completed its examination in 2006 without adjustment to the previously filed tax returns.

Income from this business segment is largely dependent on the tax deductions received 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 plans to continue to utilize land donations and sales in 2008 to generate income for this segment of our business.

Services and Rentals

Net income generated from the Services and Rental segment in 2007 increased $136,000, over 2006 levels, with a $0.02 increase to basic earnings per share. The increased net income was

29

primarily due to increases in the prices we charge our customers and in customer enrollment in our service line maintenance program.

Overview of 2006 Results from Continuing Operations

Income from Continuing Operations for 2006 was $6,708,000, or $0.81 per basic share, a decrease of $458,000, or $0.08 per basic share, compared to 2005. The decrease in earnings was due to lower net income in our Water Activities segment partially offset by increases in net income in our Real Estate segment. Changes in net income for our segments were as follows:

	Increase
	(Decrease)
Business Segment	In Net Income
Water Activities	$	(2,634,000	)
Real Estate		2,124,000
Services and Rentals		52,000
Net (Decrease)	$	(458,000	)

Water Activities

The decrease in net income from Water Activities in 2006 was $2,634,000, or $ 0.34 per share, lower than it was in 2005. A breakdown of the components of this decrease was as follows:

	Increase
	(Decrease)
Operating Revenues	$	(508,000	)
Operation and Maintenance		2,591,000
Depreciation		157,000
Income Taxes		(462,000	)
Taxes Other than Income Taxes		190,000
Other Utility Income		(29,000	)
Other Income		1,320,000
Interest and Debt Expense (net of AFUDC)		941,000
Total (Decrease)	$	(2,634,000	)

The 1.0% decrease in Operating Revenues was primarily due to the following:

- a $947,000, or 2.4%, decrease in revenues from metered customers in 2006 due to decreased customer water consumption of approximately 4.9%, due to unfavorable weather conditions, despite an increase in the number of customers served of 1.8%;

- off setting the decrease from metered revenues was a $439,000, or 5.1%, increase in non-metered revenues which was primarily due to increased fire protection charges related to the expansion of our water system which increased the number of fire hydrants and revenue generating mains upon which these charges are based.

30

The $2,591,000, or 10.9%, increase in Operation and Maintenance expense was primarily due to the following expenses:

	Increase
	(Decrease)
Labor	$	1,464,000
Other employee benefit costs		1,142,000
Utility costs		412,000
Pension expense		254,000
Other outside services		(486,000	)
Legal services		(185,000	)
Maintenance		(112,000	)
Other		102,000
Total Increase	$	2,591,000

The increase in Labor over 2005 levels was due to a non-recurring wage adjustment for a majority of hourly employees made early in 2006. Other employee benefits increased primarily due to increased costs associated with medical benefits offered to employees and retirees of the Company. Utility costs have increased as our power providers continue to increase the rates they charge to customers. Offsetting these increases was a decrease to Other outside services due to a decrease in audit fees and general consulting fees.

The decrease in Income Tax expense associated with the Water Activities segment of $462,000 was due primarily to lower pre-tax net income in 2006, and by flow through accounting related to book/tax timing differences.

The increase in Taxes Other Than Income Taxes was primarily due to increased payroll taxes related to increased salaries.

The decrease in Other Utility Operating Income was due to a reduction of income generated from antenna sites on our utility property leased to telecommunication companies.

The increase in Other Income was primarily due to the regulatory treatment of income taxes related to certain compensation and directors fees (disallowed costs) based on the outcome of the Company’s Settlement Agreement issued by the DPUC in January 2007. This change resulted in a reversal of a regulatory liability of $986,000.

The increase in Interest and Debt Expense was due to the following:

- Higher interest expense on long-term debt primarily due to the issuance of $15.0 million in new bonds in November 2005, resulting in a full year’s worth of expense in 2006 compared to a partial year in 2005;

- Higher other interest charges on interim bank loans with higher interest rates; and

- Amortization of the debt issuance costs of the bonds issued in 2005.

31

Real Estate Transactions

The net income generated by the Real Estate Transactions segment increased $2,124,000, or $0.26 per share, in 2006 due to the sale of land from BARLACO to the Town of Barnstable, Massachusetts during 2006. The agreement the Town of Barnstable entered into with the Company to purchase Barnstable Water’s assets also included a provision whereby the Town of Barnstable would acquire, through a bargain sale purchase, all of the land owned by BARLACO for an additional $1 million. The BARLACO land was sold in February 2006. The Company recorded a gain on the bargain land sale for 2006 of $980,000. This gain is reported on the Gain (Loss) on Property Transactions line of the Consolidated Statements of Income.

Additionally, the Company reversed $976,000 of reserves related to an examination by the IRS of the Company’s Federal Income Tax Returns for the years 2002 – 2004, which focused primarily on the value of land donated by the Company. The IRS completed its examination in 2006 without adjustment to the previously filed tax returns.

Income from this business segment is largely dependent on the tax deductions received on donations/sales of available land. This typically occurs when utility-owned land is deemed to be not necessary to protect water sources.

Services and Rentals

Net income generated from the Services and Rental segment in 2006 increased $52,000, over 2005 levels, with no impact on earnings per share. The increased net income was primarily due to increases in the prices we charge our customers and in customer enrollment in our service line maintenance program.

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 will be eligible for recovery in future rate proceedings.

Reverse Privatization – Connecticut Water derives its 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.

Environmental and Water Quality Regulation – The Company is subject to environmental and water quality regulations. Costs to comply with environmental and water quality regulations

32

are substantial. 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 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.

Rate Relief – Connecticut Water is a regulated public utility, which provides water services to its customers. The rates that regulated companies charge their water customers are subject to the jurisdiction of the regulatory authority of the DPUC.

In July 2006, the Company filed a rate application with the DPUC for Connecticut Water requesting an increase in rates of approximately $14.6 million or 30%. On January 16, 2007, the DPUC issued its final decision and approved a Settlement Agreement, negotiated with the Office of Consumer Counsel and the DPUC’s Prosecutorial Staff, that allowed Connecticut Water an increase of revenues of approximately $10,940,000, or 22.3%. The Settlement Agreement allowed Connecticut Water to defer a portion of the approved rate increase, approximately $3.8 million. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision. Through December 31, 2007, the Company has recorded approximately $3.8 million in deferred revenues. The second phase of the increase is expected to occur on April 1, 2008. On January 31, 2008, the Company filed to reopen the case, a procedure required by the Settlement Agreement, to implement the second phase. In addition to the approval for the inclusion in current rates of the previously approved deferred revenues of $3.8 million, the filing includes requested recovery of the costs associated with $15.5 million of additional capital investments made in 2007. This portion of the second phase of the increase was also called for in the Settlement Agreement.

The total increase associated with this second phase is a request of 12.6%, of which approximately 8.2% is for deferred revenues and 4.4% for the investment in additional capital in 2007. Additionally, Connecticut Water agreed not to apply for a general rate increase that would become effective prior to January 1, 2010.

A final decision on this second phase is expected by the end of March 2008.

In June 2007, the State of Connecticut adopted legislation which permits regulated water companies to recapture money spent on eligible infrastructure improvements without a full rate case proceeding. The DPUC may authorize regulated water companies to use a rate adjustment mechanism, such as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects completed and in service for the benefit of the customers. Regulated water companies may only charge customers such an adjustment to the extent allowed by the DPUC based on a water company’s infrastructure assessment report, as approved by the DPUC and upon semiannual filings which reflect plant additions consistent with such report. The Company does not expect to be able to take advantage of the WICA mechanism until at least the first quarter of 2009.

In any future rate proceedings, the DPUC may authorize Connecticut Water to charge rates which the DPUC considers to be sufficient to recover the normal operating expenses and to allow Connecticut Water an opportunity to earn what the DPUC considers to be a fair and reasonable return on our invested capital.

33

Land Dispositions – The Company and its subsidiaries own additional parcels of land in Connecticut, 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 for long term conservation by the Connecticut DEP, which have restrictions on development and resale based on provisions of the Connecticut General Statutes.

In previous years, the Company generated a substantial portion of its net income in land donations and sales. However, land donations are not expected to generate income at historical levels in future periods. The Company plans to continue to utilize land donations and sales in 2008 to generate income for this segment of our business.

Capital Expenditures – The Company has received approval from its Board of Directors to spend $18.4 million on capital expenditures in 2008.

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.

Regulated water companies, including Connecticut Water, 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 to be sought from, and granted by, the DPUC, when necessary, and numerous factors over which we have little or no control, such as the quantity of rainfall and temperature, customer demand and related conservation efforts, 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. From time to time, the Company may acquire other regulated and/or unregulated water companies. Profitability is often dependent on identification and consummation of business acquisitions and the profitable integration of these acquired businesses into the Company’s operations. 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.

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, 2007, the Company had no exposure to derivative financial instruments or financial instruments with

34

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 $21,000,000 current lines of credit with three banks, under which interim bank loans payable at December 31, 2007 were $6,459,000.

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 the “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 2008, 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, independent registered public accounting firm are included herein on pages F-2 through F-27.

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

None

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures – As of December 31, 2007, 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 Exchange Act 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 Company’s 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 Rule 13a-15(f)) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

35

financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

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 was effective as of December 31, 2007. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 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 – 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.

ITEM 9B. OTHER INFORMATION

None

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, 2008. Certain information concerning the executive officers of the Company is included as Item 10 of this report.

36

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

	Age in			Period Held or		Term of Office
Name	2008*		Office	Prior Position		Expires
E. W. Thornburg		47	President, Chief	Held position since		2008 Annual Meeting
			Executive Officer	March 2006
D. C. Benoit		51	Vice President -	Held current		2008 Annual Meeting
			Finance, Chief	position or other
			Financial Officer	executive position
			and Treasurer	with the Company
				since April 1996
T. P. O’Neill		53	Vice President -	Held current		2008 Annual Meeting
			Operations &	position or other
			Engineering	engineering
				position with the
				Company since
				February 1980
M. P. Westbrook		49	Vice President -	Held current		2008 Annual Meeting
			Administration and	position or other
			Government Affairs	management position
				with the Company
				since September
					1988
T. R. Marston		55	Vice President -	Held current		2008 Annual Meeting
			Business	position or other
			Development	position with the
				Company since June
					1974
D. J. Meaney		47	Corporate Secretary	Held current		2008 Annual Meeting
				position or other
				communications
				position with the
				Company since
				August 1994
K. A. Johnson		41	Vice President -	Held current		2008 Annual Meeting
			Human Resources	position or other
				human resources
				position with the Company
					since May 2007

* - Age shown is as of filing date of March 17, 2008.

For further information regarding the executive officers see the Company’s Proxy Statement dated March 31, 2008.

ITEM 11. EXECUTIVE COMPENSATION

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

37

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

38

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(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, 2007, 2006, and 2005	F-3
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006, and 2005	F-3
	Consolidated Balance Sheets at December 31, 2007 and 2006	F-4
	Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005	F-5
	Notes to Consolidated Financial Statements	F-6
2.	Financial Statement Schedule:
	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, 2007, 2006, and 2005	S-1
	All other schedules provided for in the applicable 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.

39

(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
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Income for the years ended December 31, 2007, 2006, and 2005		F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006, and 2005		F-3
Consolidated Balance Sheets at December 31, 2007 and 2006		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005		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.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of comprehensive income present fairly, in all material respects, the financial position of Connecticut Water Service, Inc. and its subsidiaries (the “Company”) at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 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 accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide 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.

PricewaterhouseCoopers LLP
Stamford, Connecticut
March 17, 2008

F-3

Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, (in thousands, except per share data)	2007			2006		2005
Operating Revenues	$	59,026		$	46,945	$	47,453
Operating Expenses
Operation and Maintenance		29,864			26,451		23,860
Depreciation		6,525			5,881		5,724
Income Taxes		4,195			2,055		2,517
Taxes Other Than Income Taxes		5,740			5,575		5,385
Total Operating Expenses		46,324			39,962		37,486
Net Operating Revenues		12,702			6,983		9,967
Other Utility Income, Net of Taxes		552			542		571
Total Utility Operating Income		13,254			7,525		10,538
Other Income (Deductions), Net of Taxes
Gain (Loss) on Real Estate Transactions		167			2,063		(61	)
Non-Water Sales Earnings		651			515		463
Allowance for Funds Used During Construction		92			458		521
Other		(972	)		608		(712	)
Total Other (Deductions) Income, Net of Taxes		(62	)		3,644		211
Interest and Debt Expenses
Interest on Long-Term Debt		3,500			3,526		2,929
Other Interest Charges		537			514		294
Amortization of Debt Expense		374			421		360
Total Interest and Debt Expenses		4,411			4,461		3,583
Income from Continuing Operations		8,781			6,708		7,166
Discontinued Operations, Net of Tax of $(244) and $1,720 in 2006 and 2005, respectively		—			243		3,158
Net Income		8,781			6,951		10,324
Preferred Stock Dividend Requirement		38			38		38
Total Net Income Applicable to Common Stock	$	8,743		$	6,913	$	10,286
Weighted Average Common Shares Outstanding:
Basic		8,270			8,188		8,094
Diluted		8,333			8,237		8,143
Earnings Per Common Share:
Basic — Continuing Operations	$	1.06		$	0.81	$	0.89
Basic — Discontinued Operations		—			0.03		0.38
Basic — Net Income Applicable to Common Stock	$	1.06		$	0.84	$	1.27
Diluted — Continuing Operations	$	1.05		$	0.81	$	0.88
Diluted — Discontinued Operations		—			0.03		0.38
Diluted — Net Income Applicable to Common Stock	$	1.05		$	0.84	$	1.26

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, (in thousands)	2007			2006			2005
Net Income Applicable to Common Stock	$	8,743		$	6,913		$	10,286
Other Comprehensive Income, net of tax
Qualified cash flow hedging instrument net of tax of $(148), $(22), and $129 in 2007, 2006, and 2005, respectively		(222	)		(45	)		207
Adjustment to pension and post-retirement benefits other than pension, net of tax of $56 in 2007		143			—			—
Comprehensive Income	$	8,664		$	6,868		$	10,493

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)	2007			2006
ASSETS
Utility Plant	$	384,421		$	362,837
Construction Work in Progress		1,407			2,755
		385,828			365,592
Accumulated Provision for Depreciation		(108,166	)		(102,405	)
Net Utility Plant		277,662			263,187
Other Property and Investments		6,652			4,905
Cash and Cash Equivalents		337			1,377
Restricted Cash		8,220			—
Accounts Receivable (Less Allowance, 2007 - $352; 2006 - $285)		6,507			5,305
Accrued Unbilled Revenues		4,545			4,233
Materials and Supplies, at Average Cost		987			900
Prepayments and Other Current Assets		2,375			2,335
Total Current Assets		22,971			14,150
Unamortized Debt Issuance Expense		7,685			7,398
Unrecovered Income Taxes		30,278			24,372
Post-Retirement Benefits Other Than Pension		6,410			6,023
Goodwill		3,608			3,608
Deferred Charges and Other Costs		5,547			4,497
Total Regulatory and Other Long-Term Assets		53,528			45,898
Total Assets	$	360,813		$	328,140
CAPITALIZATION AND LIABILITIES
Common Stockholders’ Equity:
Common Stock Without Par Value:
Authorized - 25,000,000 Shares — Issued and Outstanding: 2007 — 8,376,842; 2006 — 8,270,394	$	62,808		$	60,165
Retained Earnings		37,272			35,676
Accumulated Other Comprehensive Income		18			97
Common Stockholders’ Equity		100,098			95,938
Preferred Stock		772			772
Long-Term Debt		92,285			77,347
Total Capitalization		193,155			174,057
Interim Bank Loans Payable		6,459			5,250
Current Portion of Long-Term Debt		7			7
Accounts Payable and Accrued Expenses		5,984			6,048
Accrued Taxes		1,316			464
Accrued Interest		810			887
Other Current Liabilities		337			314
Total Current Liabilities		14,913			12,970
Advances for Construction		34,583			32,183
Contributions in Aid of Construction		47,865			47,217
Deferred Federal and State Income Taxes		28,616			26,002
Unfunded Future Income Taxes		25,404			20,155
Long-Term Compensation Arrangements		14,717			13,933
Unamortized Investment Tax Credits		1,560			1,623
Commitments and Contingencies
Total Capitalization and Liabilities	$	360,813		$	328,140

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)	2007			2006			2005
Operating Activities:
Net Income	$	8,781		$	6,951		$	10,324
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Deferred Revenues		(3,823	)		—			—
Gain on Sale of BARLACO Assets Sold		—			(980	)		—
Earnings from Discontinued Operations		—			(243	)		(3,158	)
Allowance for Funds Used During Construction		(131	)		(491	)		(575	)
Depreciation (including $338 in 2007, $396 in 2006, and $188 in 2005 charged to other accounts)		7,173			6,277			5,912
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues		(1,513	)		268			(342	)
(Increase) Decrease in Other Current Assets		(129	)		(805	)		2,600
Decrease (Increase) in Other Non-Current Items		2,072			(549	)		(556	)
Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities		1,258			690			(3,603	)
Increase (Decrease) in Deferred Income Taxes and Investment Tax Credits, Net		1,893			(1,492	)		2,332
Total Adjustments		6,800			2,675			2,610
Net Cash and Cash Equivalents Provided by Continuing Operations		15,581			9,626			12,934
Net Cash and Cash Equivalents Provided by (Used In) Discontinued Operations		—			243			(185	)
Net Cash and Cash Equivalents Provided by Operating Activities		15,581			9,869			12,749
Investing Activities:
Company Financed Additions to Utility Plant		(18,749	)		(16,199	)		(14,256	)
Advances from Others for Construction		(961	)		(1,102	)		(1,955	)
Net Additions to Utility Plant Used in Continuing Operations		(19,710	)		(17,301	)		(16,211	)
Release of Restricted Cash		—			2,686			—
Proceeds from Sale of BARLACO Assets Sold (Net of $35 in Transaction Costs)		—			965			—
Proceeds from Sale of Barnstable Water Company Assets (Net of $114 in Transaction Costs)		—			—			9,885
Sale (Purchase) of Short Term Investments		—			6,922			(6,713	)
Net Cash and Cash Equivalents Used in Investing Activities in Continuing Operations		(19,710	)		(6,728	)		(13,039	)
Net Cash and Cash Equivalents Used in Investing Activities in Discontinued Operations		—			—			(171	)
Net Cash Used in Investing Activities		(19,710	)		(6,728	)		(13,210	)
Financing Activities:
Net Proceeds from Interim Bank Loans		6,459			5,250			4,750
Net Repayment of Interim Bank Loans		(5,250	)		(4,750	)		(5,650	)
Repayment of Long-Term Debt Including Current Portion		(62	)		(2,381	)		(665	)
Proceeds from Issuance of Long-Term Debt		6,482			—			12,282
Proceeds from Issuance of Common Stock		1,238			1,401			2,038
Proceeds from Exercise of Stock Options		809			284			455
Redemption of Preferred Stock		—			(75	)		—
Costs Incurred to Issue Long-Term Debt and Common Stock		(367	)		(4	)		(934	)
Advances from Others for Construction		961			1,102			1,955
Cash Dividends Paid		(7,181	)		(7,030	)		(6,838	)
Net Cash and Cash Equivalents Provided by (Used in) Financing Activities in Continuing Operations		3,089			(6,203	)		7,393
Net Cash and Cash Equivalents Used in Financing Activities in Discontinued Operations		—			—			(3,200	)
Net Cash and Cash Equivalents Provided by (Used in) Financing Activites		3,089			(6,203	)		4,193
Net (Decrease) Increase in Cash and Cash Equivalents		(1,040	)		(3,062	)		3,732
Cash and Cash Equivalents at Beginning of Year		1,377			4,439			707
Cash and Cash Equivalents at End of Year	$	337		$	1,377		$	4,439
Non-Cash Investing and Financing Activities:
Non-Cash Contributed Utility Plant (see Note 1 for details)	$	2,116		$	3,295		$	1,231
Short-term Investment of Bond Proceeds Held in Trust	$	8,220		$	—		$	2,628
Supplemental Disclosures of Cash Flow Information:
Cash Paid for Continuing Operations During the Year for:
Interest	$	4,398		$	4,159		$	3,511
State and Federal Income Taxes	$	2,096		$	1,176		$	3,515
Cash Paid for Discontinued Operations During the Year for:
Interest	$	—		$	—		$	106
State and Federal Income Taxes	$	—		$	73		$	410

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

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 four wholly-owned subsidiaries, listed below:

The Connecticut Water Company (Connecticut Water)
Chester Realty, Inc. (Chester Realty)
New England Water Utility Services, Inc. (NEWUS)
Barnstable Holding Company (Barnstable Holding)

Connecticut Water is our sole public water utility company, which served 84,418 customers in 41 towns throughout Connecticut as of December 31, 2007. During 2006, The Crystal Water Company of Danielson (Crystal) and The Unionville Water Company (Unionville) subsidiaries were merged with and into Connecticut Water.

Chester Realty 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.

NEWUS is engaged in water-related services, including the Linebackerâ program, emergency drinking water, pool water and contract operations. Its earnings are included in the Non-Water Sales Earnings category the Consolidated Statements of Income.

Barnstable Holding is an inactive holding company, which previously owned the stock of two other inactive companies, Barnstable Water Company (Barnstable Water) and BARLACO, Inc. (BARLACO) prior to their merger with and into Barnstable Holding. BARLACO was a real estate company which held real estate for sale. In February 2006, BARLACO sold all of its real estate holdings to the Town of Barnstable, as disclosed in Note 2.

Intercompany accounts and transactions have been eliminated.

PUBLIC UTILITY REGULATION - Our public water utility company is subject to regulation for rates and other matters by the Connecticut Department of Public Utility Control (DPUC) and follows accounting policies prescribed by the DPUC. The Company prepares its financial statements in accordance with accounting principles generally accepted 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,” (SFAS 71). SFAS 71 requires cost-based, rate-regulated enterprises, such as Connecticut Water, 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 SFAS 71, 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 SFAS 71. Material regulatory assets are earning a return.

Regulatory assets and liabilities are comprised of the following:

	December 31,
(in thousands)	2007		2006
Assets
Postretirement benefits	$	6,136	$	8,317
Unrecovered income taxes and other		25,404		20,155
Deferred revenue (included in deferred charges)		3,823		—
Other (included in deferred charges)		1,806		1,819
	$	37,169	$	30,291
Liabilities
Investment Tax Credits	$	1,560	$	1,623
Unfunded future income taxes and other		25,404		20,155
	$	26,964	$	21,778

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

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Postretirement benefits include pension and other postretirement benefit costs. The costs include actuarially determined pension and post-retirement benefit costs in excess of amounts funded. Connecticut Water believes these costs will be recoverable in future years, through rates, as funding is required. The recovery period is dependent on contributions made to the plans and the discount rate used to value the obligations.

Certain items giving rise to deferred state income taxes, as well as a portion of deferred federal income taxes related primarily to differences between book and tax depreciation expense, are recognized for ratemaking purposes on a cash or flow-through basis and will be recovered in rates as they reverse.

Deferred revenue represents a portion of the rate increase granted in Connecticut Water’s 2007 rate decision. The regulator’s decision required the Company to defer for future collection, beginning in 2008, a portion of the increase.

Regulatory liabilities include deferred investment tax credits. These liabilities will be given back to customers in rates as tax deductions occur in the future.

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.

REVENUES - The Company’s accounting policies regarding revenue recognition by segment are as follows:

Water Activities - Most of our water customers are billed quarterly, with the exception of larger commercial and industrial customers, as well as public and private fire protection customers who are billed monthly. Most customers, except fire protection customers, are metered. Revenues from metered customers are based on their water usage multiplied by approved, regulated rates and are earned when water is delivered. Public fire protection revenues are based on the length of the water main, and number of hydrants in service and are earned on a monthly basis. Private fire protection charges are based on the diameter of the connection to the water main. Our water companies accrue an estimate for metered customers for the amount of revenues earned relating to water delivered but unbilled at the end of each quarter, which is reflected as Accrued Unbilled Revenues in the accompanying balance sheets.

Real Estate Transactions - Revenues are recorded when a sale or other transaction has been completed and title to the real estate has been transferred.

Services and Rentals - Revenues are recorded when the Company has delivered the services called for by contractual obligation.

UTILITY PLANT - Utility plant is stated at the original cost of such property when first devoted to public service. 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. Accounting policies relating to other areas of utility plant are listed below:

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 utility plant. The amount shown on the Consolidated Statements of Income relates to the equity portion. The debt portion is included as an off set to Other Interest Charges. 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, Connecticut Water has received DPUC approval to record AFUDC on certain of its investments in these systems. Through December 31, 2006, Connecticut Water has capitalized approximately $3.9 million of AFUDC relating to financing these acquisitions. As part of the Company’s most recent rate decision, approved on January 16, 2007 and effective as of January 1, 2007, the DPUC has approved the inclusion of this capitalized amount in rate base. The Company did not record any AFUDC on water system acquisitions in 2007.

Connecticut Water’s allowed rate of return on rate base is used to calculate its AFUDC.

Customers’ Advances For Construction, Contributed Plant and Contributions In Aid Of Construction - -Under the terms of construction contracts with real estate developers and others, Connecticut Water periodically receives either advances for the costs of new main installations or title to the main after it is constructed and

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-8

financed by the developer. 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.

Utility Plant is added in two ways. The majority of the Company’s plant additions occur from direct investment of Company funds that originated through operating activities or financings. The Company manages the construction of these plant additions. These plant additions are part of the Company’s depreciable utility plant and are generally part of rate base. The Company’s rate base is a key component of how its regulated rates are set, and is recovered through the depreciation component of the Company’s rates. The second way in which plant additions occur are through developer advances and contributions. Under this scenario either the developer funds the additions through payments to the Company, who in turn manages the construction of the project, or the developer pays for the plant construction directly and contributes the asset to the Company after it is complete. Plant additions that are financed by a developer, either directly or indirectly, are excluded from the Company’s rate base and not recovered through the rates process, and are also not depreciated.

The components that comprise Net Additions to Utility Plant during the last three years are as follows:

in thousands	2007		2006		2005
Additions to Utility Plant:
Company Financed	$	18,749	$	16,199	$	14,256
Allowance for Funds Used During Construction		131		491		575
Subtotal — Utility Plant Increase to Rate Base		18,880		16,690		14,831
Advances from Others for Construction		961		1,102		1,955
Net Additions to Utility Plant — Continuing Operations		19,841		17,792		16,786
Plus: Discontinued Operations		—		—		171
Net Additions to Utility Plant	$	19,841	$	17,792	$	16,957

Depreciation - Depreciation is computed on a straight-line basis at various rates as approved by the state regulator on a company by company basis. Depreciation allows the Company 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 2.0% for 2007, 2006, and 2005.

INCOME TAXES - The Company provides income tax expense for its utility operations in accordance with the regulatory accounting policies of the applicable jurisdictions. 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 liabilities for all temporary book-tax differences using the liability method prescribed in Statement of Financial Accounting Standards No. 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 reflected 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.

The Company adopted FIN 48 “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” in 2007. See Note 4.

MUNICIPAL TAXES - Municipal taxes which are reflected as Taxes Other than Income 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.

STOCK OPTIONS - In the past, the Company has issued stock options to certain employees; but has not done so since 2003. For more information regarding stock based compensation, please see Note 14, Stock Based Compensation Plans.

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 regulator.

GOODWILL - As part of the purchase of the Unionville Water Company in October 2002, the Company recorded goodwill of $3.6 million representing the amount of the purchase price over net book value of the assets acquired. The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142).

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F-9

In accordance with SFAS 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. As of December 31, 2007, there was no impairment of the Company’s goodwill.

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, 2007, 2006, and 2005.

Years ended December 31,	2007		2006		2005
Basic Earnings per Share from Continuing Operations	$	1.06	$	0.81	$	0.89
Dilutive Effect of Stock Awards		0.01		—		0.01
Diluted Earnings per Share	$	1.05	$	0.81	$	0.88
Numerator (in thousands)
Basic Income from Continuing Operations	$	8,781	$	6,708	$	7,166
Diluted Income from Continuing Operations	$	8,781	$	6,708	$	7,166
Denominator (in thousands)
Basic Weighted Average Shares Outstanding		8,270		8,188		8,094
Dilutive Effect of Stock Awards		63		49		49
Diluted Weighted Average Shares Outstanding		8,333		8,237		8,143

RECLASSIFICATIONS AND REVISIONS — Certain reclassifications have been made to conform previously reported data to the current presentation. Included in these reclassifications are amounts for deferred income tax liabilities and regulatory assets.

NEW ACCOUNTING PRONOUNCEMENTS - In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value. SFAS 157 also provides for certain disclosure requirements, including, but not limited to, the valuation techniques used to measure fair value and a discussion of changes in valuation techniques, if any, during the period. This statement is effective in fiscal years beginning after November 15, 2007, except for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis, for which the effective date is fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS 157 and believes that the adoption of this standard will not have a material effect on its financial position and results of operations.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS 159), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes (i.e., unrealized gains and losses) in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the potential impact that the adoption of SFAS 159 will have on its financial position and results of operations.

In December, 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007) “Business Combinations” (SFAS 141(R)), which establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination. This statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 141(R) will have on its financial position and results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (SFAS 160), which establishes and expands accounting and reporting standards for minority interests, which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. SFAS 160 is effective for business combinations for which the

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F-10

acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This statement is effective for fiscal years beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 160 will have on its financial position and results of operations.

NOTE 2: SALE OF BARNSTABLE WATER COMPANY ASSETS — DISCONTINUED OPERATIONS

On May 20, 2005, the Company completed the sale of the assets of one of its Massachusetts’ subsidiaries, Barnstable Water, to the Town of Barnstable, Massachusetts. Upon completion of the sale, the Town of Barnstable and Barnstable Water entered into a one year management contract for Barnstable Water to provide the Town with full operating and management services for the water system’s operations. Under the terms of the one year management contract, Barnstable Water was paid $130,000 a month for operating and management services performed by Barnstable Water for the Town of Barnstable. This management contract could be terminated within the 12 month period by 30 days written notice by either party. In January 2006, the Company received notice of termination. The last day of the operating contract was February 7, 2006.

The Company received $10.0 million in gross proceeds from the sale of its water utility assets, advances, and contributions in aid of construction. The gain, net of income taxes of $1.6 million was $3.0 million in 2005 and has been included in Net Income from Discontinued Operations.

The sale of Barnstable Water’s assets has been classified as ‘Discontinued Operations’ in the Consolidated Statements of Income as there will be no continuing involvement due to the termination of the management contract with the Town of Barnstable. All of the results of Barnstable Water, including current and prior years and the gain on the sale of the utility’s assets, have been reclassified and are included as ‘Discontinued Operations’.

There were no Discontinued Operations during the year ending December 31, 2007. The Net Income from Discontinued Operations for the years ending December 31, 2006 and 2005 would have been presented in the 2006 and 2005 financial statements, as follows:

	Year ended December 31,
(in thousands)	2006			2005
Water Activities:
Operating Revenues	$	—		$	802
Income Taxes		(244	)		( 9	)
Net Income from Water Activites		243			(11	)
Services and Rentals:
Revenues	$	—		$	1,067
Income Taxes		(12	)		132
Net Income from Services and Rentals		—			213
Gain on Sale of Assets:
Income Taxes	$	—		$	1,597
Gain on Sale of Assets		—			2,956
Total Net Income from Discontinued Operations	$	243		$	3,158

NOTE 3: SALE OF BARLACO ASSETS

The agreement the Town of Barnstable entered into with the Company to purchase Barnstable Water’s assets also included a provision whereby the Town of Barnstable would acquire, through a bargain sale purchase, all of the land owned by BARLACO for an additional $1 million. The BARLACO land was sold in February 2006. The Company has recorded a gain on the bargain land sale for 2006 of $980,000. This gain is reported on the Gain (Loss) on Property Transactions line of the Consolidated Statements of Income.

NOTE 4: INCOME TAX EXPENSE

In June 2006, the FASB issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48), which became effective for the Company as of January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the

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financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The reassessment of our tax positions in accordance with FIN 48 did not have an impact on our results of operations, financial condition or liquidity. From time to time, the Company is assessed interest and penalties by taxing authorities. In those cases, the charges would appear on the Other line item on the Income Statement. During 2007, the Company was charged approximately $2,000 in interest relating to the 2003 federal tax examination. There were no such charges for the years ending December 31, 2006 and 2005. Additionally, there were no accruals relating to interest or penalties as of December 31, 2007 and 2006. The Company remains subject to examination by federal authorities for the 2005 through 2007 tax years and by state authorities for the tax years 2003 through 2007.

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

(in thousands)	2007			2006			2005
Federal Classified as Operating Expense from Continuing Operations	$	3,834		$	2,080		$	2,400
Federal Classified as Other Utility Income from Continuing Operations		238			232			251
Federal Classified as Other Income from Continuing Operations
Land Sales		61			287			132
Land Donations		83			(892	)		87
Non-Water Sales		332			264			216
Other		(529	)		(981	)		179
Total Federal Income Tax Expense from Continuing Operations		4,019			990			3,265
State Classified as Operating Expense from Continuing Operations		361			(26	)		(62	)
State Classified as Other Utility Income from Continuing Operations		57			68			60
State Classified as Other Income from Continuing Operations
Land Sales		14			89			31
Land Donations		(199	)		(902	)		225
Non-Water Sales		79			79			59
Other		(101	)		(191	)		34
Total State Income Tax Expense from Continuing Operations		211			(883	)		347
Total Income Tax Expense from Continuing Operations	$	4,230		$	107		$	3,612

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

(in thousands)	2007			2006			2005
Current from Continuing Operations
Federal	$	1,938		$	1,165		$	1,758
State		158			221			(377	)
Total Current from Continuing Operations		2,096			1,386			1,381
Deferred Income Taxes from Continuing Operations, Net
Federal
Investment Tax Credit		(63	)		(63	)		(62	)
Deferred Revenue		1,202			—			—
Land Donations		260			(501	)		388
Depreciation		1,206			1,173			721
Other		(524	)		(784	)		459
Total Federal from Continuing Operations		2,081			(175	)		1,506
State
Land Donations		(108	)		(134	)		(25	)
Other		161			(970	)		750
Total State from Continuing Operations		53			(1,104	)		725
Total Deferred Income Taxes from Continuing Operations		2,134			(1,279	)		2,231
Total from Continuing Operations	$	4,230		$	107		$	3,612

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-12

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

(in thousands)	2007			2006
Unrecovered Income Taxes	$	(30,278	)	$	(24,372	)
Deferred Federal and State Income Taxes		28,616			26,002
Unfunded Future Income Taxes		25,404			20,155
Unamortized Investment Tax Credit		1,560			1,623
Other		(80	)		(80	)
Net Deferred Income Tax Liability	$	25,222		$	23,328

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

(in thousands)	2007			2006
Charitable Contribution Carryforward (1)	$	(2,977	)	$	(3,048	)
Valuation Allowance		1,888			1,722
Tax Credit Carryforward (2)		(1,436	)		(1,349	)
Alternative Minimum Tax Carryforward		—			(4	)
Prepaid Income Taxes on CIAC		(209	)		(72	)
Prepaid FIT on Services		(174	)		(171	)
Other Comprehensive Income		(29	)		63
Accelerated Depreciation		26,975			25,822
Net of AFUDC and Capitalized Interest		211			186
Unamortized Investment Tax Credit		1,560			1,623
Other		(587	)		(1,444	)
Net Deferred Income Tax Liability	$	25,222		$	23,328

(1)	2007 charitable contribution carryover expires beginning in 2008 and ending in 2011.
(2)	State tax credit carry-forwards expire beginning 2016 and ending in 2019.

The calculation of Pre-Tax Income from Continuing Operations is as follows:

(in thousands)	2007		2006		2005
Pre-Tax Income
Income From Continuing Operations	$	8,781	$	6,708	$	7,166
Income Taxes		4,230		107		3,612
Total Pre-Tax Income From Continuing Operations	$	13,011	$	6,815	$	10,778

In accordance with required regulatory treatment, deferred income taxes are not provided for certain timing differences. This treatment, along with other items, causes differences between the statutory income tax rate and the effective income tax rate. The differences between the effective income tax rate recorded by the Company and the statutory federal tax rate are as follows:

	2007			2006			2005
Federal Statutory Tax Rate		34.0	%		34.0	%		34.0	%
Tax Effect Differences:
State Income Taxes Net of Federal Benefit		1.1	%		(0.1	%)		2.1	%
Reversal of Regulatory Liability		—			(14.4	%)		—
Adjustment to Taxes Due to Closed IRS Examination		—			(14.3	%)		—
Depreciation		1.7	%		2.6	%		1.6	%
Charitable Contributions — Land Donation (Net of Valuation Allowance)		0.4	%		(7.7	%)		0.8	%
Pension Costs		(5.3	%)		7.7	%		(3.3	%)
Allowance for Funds Used During Construction		(0.3	%)		(2.9	%)		(1.4	%)
Change in Estimate of Prior Year Income Tax Expense		0.2	%		0.6	%		(2.5	%)
Rate Case Expense		0.6	%		(3.6	%)		—
Other		0.1	%		(0.3	%)		2.2	%
Effective Income Tax Rate for Continuing Operations		32.5	%		1.6	%		33.5	%

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

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NOTE 5: COMMON STOCK

The Company has 25,000,000 authorized shares of common stock, no par value. A summary of the changes in the common stock accounts for the period January 1, 2005 through December 31, 2007, appears below:

			Issuance
(in thousands, except share data)	Shares		Amount			Expense			Total
Balance, January 1, 2005		8,035,199	$	57,111		$	(1,597	)	$	55,514
Stock and equivalents issued through Performance Stock Program		29,379		99			—			99
Dividend Reinvestment Plan		60,486		1,529			—			1,529
Stock Options Exercised and Expensed		44,563		865			(2	)		863
Balance, December 31, 2005		8,169,627	$	59,604		$	(1,599	)	$	58,005
Stock and equivalents issued through Performance Stock Program		23,058		323			—			323
Dividend Reinvestment Plan		60,747		1,401			—			1,401
Stock Options Exercised and Expensed		16,962		441			(2	)		439
Other Paid in Capital		—		(3	)		—			(3	)
Balance, December 31, 2006		8,270,394	$	61,766		$	(1,601	)	$	60,165
Stock and equivalents issued through Performance Stock Program, Net of Forfeitures		13,975		420			—			420
Dividend Reinvestment Plan		54,567		1,326			—			1,326
Stock Options Exercised and Expensed		37,906		902			(5	)		897
Balance, December 31, 2007 1		8,376,842	$	64,414		$	(1,606	)	$	62,808

¹ Includes 36,279 restricted shares and 68,425 common stock equivalent shares issued through the Performance Stock Programs through December 31, 2007.

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 Company is considering whether to extend or let terminate its Shareholder Rights Plan in 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.

Additionally, 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.

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NOTE 6: RETAINED EARNINGS

The summary of the changes in Retained Earnings for the period January 1, 2005 through December 31, 2007, appears below:

(in thousands, except per share data)	2007		2006		2005
Balance, beginning of year	$	35,676	$	35,777	$	32,264
Net Income		8,781		6,951		10,324
Sub-total		44,457		42,728		42,588
Dividends declared:
Cumulative Preferred Stock, Series A, $0.80 per share		12		12		12
Cumulative Preferred Stock, Series $0.90, $0.90 per share		26		26		26
Common Stock:
2007 $0.865 per Common Share		7,147		—		—
2006 $0.855 per Common Share		—		7,014		—
2005 $.0845 per Common Share		—		—		6,773
Total Dividends Declared		7,185		7,052		6,811
Balance, end of year	$	37,272	$	35,676	$	35,777

NOTE 7: 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.

RESTRICTED CASH - As part of the December 2007 bond offering, described in Note 8 to the Notes to the Consolidated Financial Statements, the Company recorded unused proceeds from this bond issuance as restricted cash as the funds can only be used for certain capital expenditures. The Company expects to use the proceeds during 2008.

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, 2007 and 2006, the estimated fair value of the Company’s long-term debt was $91,109,000 and $78,574,000, respectively, as compared to the carrying amounts of $92,285,000 and $77,347,000, respectively.

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

INTEREST RATE SWAP — In 2004, Connecticut Water entered into a five-year interest rate swap associated with its $12.5 million 2004 series variable rate unsecured water facilities revenue refinancing bonds to manage the Company’s exposure to fluctuations in prevailing interest rates. The swap agreement qualifies for hedge treatment under Statement of Financial Accounting Standards 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 $45,000 and $414,000 at December 31, 2007 and December 31, 2006, respectively. Changes in the fair value of this derivative instrument are recorded in “Other Comprehensive Income” in Common Stockholders’ Equity.

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NOTE 8: LONG-TERM DEBT

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

(in thousands)				2007			2006
Connecticut Water Company
Unsecured Water Facilities Revenue Bonds
	5.05	%	1998 Series A, Due 2028	$	9,640		$	9,640
	5.125	%	1998 Series B, Due 2028		7,635			7,635
	4.40	%	2003A Series, Due 2020		8,000			8,000
	5.00	%	2003C Series, Due 2022		14,915			14,930
	Var.		2004 Series Variable Rate, Due 2029		12,500			12,500
	Var.		2004 Series A, Due 2028		5,000			5,000
	Var.		2004 Series B, Due 2028		4,550			4,550
	5.00	%	2005 A Series, Due 2040		14,960			15,000
	5.00	%	2007 A Series, Due 2037		15,000			—
			Total Connecticut Water Company		92,200			77,255
Chester Realty
Regulated Secured
	5.45	%	Westbank, Due 2017		92			99
			Total Chester Realty		92			99
Total Connecticut Water Service, Inc.					92,292			77,354
			Less Current Portion		(7	)		(7	)
			Total Long-Term Debt		$92,285			$77,347

The Company’s principal payments required for years 2008 — 2012 are as follows:

(in thousands)
2008	$	7
2009	$	8
2010	$	8
2011	$	8
2012	$	9

In December 2007, Connecticut Water borrowed $15 million through the issuance of Water Facilities Revenue Bonds by the Connecticut Development Authority (Authority) sold in a single series with an interest rate of five percent maturing on December 1, 2037. The proceeds from the sale of the bonds have been used to finance construction and installation of various capital improvements to the Company’s existing water system.

In November 2005, Connecticut Water borrowed $10 million through the issuance of Water Facilities Revenue Bonds by the Authority sold in a single series with an interest rate of five percent maturing on October 1, 2040. The proceeds from the sale of the bonds have been used to finance construction and installation of various capital improvements to the Company’s existing water system.

In November 2005, Crystal borrowed $5 million through the issuance of Water Facilities Revenue Bonds by the Authority sold in a single series with an interest rate of five percent maturing on October 1, 2040. The Crystal Water Company Series A Water Facility Revenue Bonds may be initially called for redemption on October 1, 2009 at 100% plus accrued interest. The proceeds of the sale of the bonds have been used to finance the construction of a water treatment plant in the Town of Killingly, CT and to facilitate the interconnection of two systems in the Town of Killingly. In the table above, the $5 million Water Facilities Revenue Bonds has been combined with Connecticut Water $10 million Water Facilities Revenue Bonds. The $14.96 million shown in the table above for 2007 includes a partial pay-down of the debt during 2007.

In connection with the 2004 issuance of the $12.5 million variable rate 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. See Note 7.

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

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There are no mandatory sinking fund payments required on Connecticut Water’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 Unsecured Water Facility Revenue Bonds of Connecticut Water may be initially called for redemption at the following dates and prices — 1998 Series A and B, March 1, 2008 at 100% plus accrued interest; 2003 Series A, December 15, 2008 at 100% plus accrued interest; 2003 Series C, September 1, 2008 at 100% plus accrued interest; and 2005 A Series, October 1, 2009 at 100% plus accrued interest.

Financial Covenants - The Company is required to comply with certain covenants in connection with various long term loan agreements. The covenants are normal and customary in bank and loan agreements. The Company is in compliance with the covenants at December 31, 2007.

NOTE 9: PREFERRED STOCK

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

(in thousands, except share data)	2007		2006
Connecticut Water Service, Inc.
Cumulative Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000 Shares	$	300	$	300
Cumulative Series $0.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares, Issued and Outstanding 29,999		472		472
Total Preferred Stock	$	772	$	772

All or any part of any series of either class of the Company’s issued Preferred Stock may be called for redemption by the Company at any time. The per share redemption prices of the Series A and Series $.90 Preferred Stock, if called by the Company, are $21.00 and $16.00, respectively.

The Company is authorized to issue 400,000 shares of an additional class of Preferred Stock, $25 par value, the general preferences, voting powers, restrictions and qualifications of which are similar to the Company’s existing Preferred Stock. No shares of the $25 par value Preferred Stock have been issued. The Company is also authorized to issue 1,000,000 shares of $1 par value Preference Stock, junior to the Company’s existing Preferred Stock in rights to dividends and upon liquidation of the Company. 150,000 of such shares have been designated as “Series A Junior Participating Preference Stock”. Pursuant to the Shareholder Rights Plan, described in Note 4, the Company keeps reserved and available for issuance one one-hundredth of a share of Series A Junior Participating Preference Stock for each outstanding share of the Company’s common stock.

NOTE 10: BANK LINES OF CREDIT

The Company’s total available lines of credit totaled $21,000,000 and $15,000,000 at December 31, 2007 and 2006, respectively. The Company increased these lines because of an increased construction spending program and to partially fund previously announced acquisitions. The lines of credit have lives that range from 12 to 29 months, which will expire throughout 2008 and 2009. The Company expects the lines of credit to be renewed upon their expiration. As of December 31, 2007 and 2006, the outstanding bank lines of credit were $6,459,000 and $5,250,000 respectively.

At December 31, 2007 and 2006, the weighted average interest rates on these short-term borrowings outstanding were 5.47% and 5.735%, respectively.

NOTE 11: UTILITY PLANT AND CONSTRUCTION PROGRAM

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

(in thousands)	2007			2006
Land	$	9,507		$	9,443
Source of supply		25,876			25,132
Pumping		24,999			24,531
Water treatment		52,919			52,785
Transmission and distribution		246,676			230,252
General		25,235			21,486
Held for future use		429			428
Acquisition Adjustment		(1,220	)		(1,220	)
Total	$	384,421		$	362,837

The amounts of depreciable utility plant at December 31, 2007 and 2006 included in total utility plant were $336,204,000 and $313,736,000, respectively. Non-depreciable plant is primarily funded through CIAC.

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NOTE 12: TAXES OTHER THAN INCOME TAXES

Taxes Other than Income Taxes consist of the following:

(in thousands)	2007		2006		2005
Municipal Property Taxes	$	4,903	$	4,743	$	4,708
Payroll Taxes		837		832		677
Total Taxes Other than Income Taxes	$	5,740	$	5,575	$	5,385

NOTE 13: LONG-TERM COMPENSATION ARRANGEMENTS

The Company has accrued for the following long-term compensation arrangements as of December 31, 2007 and 2006:

(in thousands)	2007		2006
Defined Benefit Pension Plan	$	2,199	$	3,524
Post Retirement Benefit Other than Pension		6,464		6,107
Supplemental Executive Retirement		4,055		2,414
Deferred Officers’ Wages		1,325		1,239
Other Long-Term Compensation		674		649
Long-Term Compensation Arrangements	$	14,717	$	13,933

The Company adopted the recognition provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” (SFAS 158) as of December 31, 2006, which requires that the funded status of defined benefit pension and other postretirement plans be fully recognized in the balance sheet. The supplemental executive retirement, deferred officers' wages and other long-term compensation arrangements do not follow APB 12.

In its 2006 Form 10-K filed with the SEC on March 16, 2007, the Company misapplied SFAS 158 related to the recognition of the funded status of the pension and post-retirement medical plans related to certain former employees. The Company reported its adjustment to initially apply SFAS 158 of $152,000 in its Consolidated Statements of Comprehensive Income. It should have only been reported directly to Accumulated Other Comprehensive Income in the Capitalization and Liabilities section of the Balance Sheets, where it was correctly presented. The misapplication had no impact on the Consolidated Statements of Net Income, Balance Sheets or Statements of Cash Flows. The Company has updated its 2006 Consolidated Statement of Comprehensive Income in order to correct the misapplication of SFAS 158.

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, 2007 and 2006 were:

	2007			2006
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. The expected long-term rate of return on the Company’s pension plan is 8%.

PENSION

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. The Company amortizes actuarial gains and losses over the average remaining service period of active participants, without regard to a specified corridor of a percentage of the greater of the obligation or market-related value of assets. A contribution of $45,000 was made in 2007 for the 2006 plan year. A contribution of approximately $3,500,000 is expected to be made in 2008 for plan year 2007.

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The following tables set forth the benefit obligation and fair value of the assets of the Company’s retirement plans at December 31, the latest valuation date:

Pension Benefits

(in thousands)	2007			2006
Change in benefit obligation:
Benefit obligation, beginning of year	$	31,539		$	30,509
Service cost		1,277			1,228
Interest cost		1,789			1,681
Actuarial gain		(2,415	)		(208	)
Benefits paid		(1,825	)		(1,671	)
Benefit obligation, end of year	$	30,365		$	31,539
Change in plan assets:
Fair value, beginning of year	$	28,015		$	24,846
Actual return on plan assets		1,931			2,390
Employer contributions		45			2,450
Benefits paid		(1,825	)		(1,671	)
Fair value, end of year	$	28,166		$	28,015
Funded Status	$	(2,199	)	$	(3,524	)
Amount Recognized in Consolidated Balance Sheets Consisted of:
Non-current asset	$	—		$	—
Current liability		—			—
Non-current liability		(2,199	)		(3,524	)
Net amount recognized	$	(2,199	)	$	(3,524	)

The accumulated benefit obligation for all defined benefit pension plans was approximately $23,934,000 and $24,593,000 at December 31, 2007 and 2006, respectively.

	2007			2006
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate		6.30	%		5.75	%
Rate of compensation increase		4.50	%		4.50	%
Weighted-average assumptions used to determine net periodic cost for years ended December 31:
Discount rate		5.75	%		5.50	%
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 trends of several different bond indices.

The following table shows the components of periodic benefit costs:

Pension Benefits

(in thousands)	2007			2006			2005
Components of net periodic benefit costs
Service cost	$	1,277		$	1,228		$	1,050
Interest cost		1,789			1,681			1,552
Expected return on plan assets		(2,017	)		(1,836	)		(1,645	)
Amortization of:
Net transition obligation		2			2			10
Net loss		69			75			322
Prior service cost		345			491			98
Net Periodic Pension Benefit Costs	$	1,465		$	1,641		$	1,387

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The following table shows the other changes in plan assets and benefit obligations recognized as a regulatory asset (liability):

Pension Benefits

(in thousands)	2007			2006
Change in net (gain)	$	(2,329	)		—
Amortization of transition obligation		(2	)		—
Amortization of prior service cost		(69	)		—
Amortization of net loss (gain)		(345	)		2,585
Total changes recognized to Regulatory Asset (Liability)		(2,745	)		2,585

	2007			2006
Amounts Recognized as a Regulatory Asset (Liability) at December 31:
Transition obligation	$	9		$	11
Prior service cost		585			655
Net (gain) loss		(754	)		1,919
Total Recognized as a Regulatory Asset (Liability)	$	(160	)	$	2,585

	2008
Estimated Net Periodic Benefit Cost Amortizations for the periods January 1 - - December 31,:
Amortization of transition obligation	$	2
Amortization of prior service cost		69
Amortization of net loss (gain)		101
Total Estimated Net Periodic Benefit Cost Amortizations	$	172

Plan Assets

The Company’s pension plan weighted-average asset allocations at December 31, 2007, and 2006 by asset category were as follows:

	2007			2006
Equity		64	%		66	%
Fixed Income		36	%		34	%
Total		100	%		100	%

The Plan’s expected future benefit payments are:

(in thousands)
2008	$	1,651
2009	$	1,621
2010	$	1,853
2011	$	1,642
2012	$	2,592
Years 2013 - 2017	$	14,745

POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing pension benefits, Connecticut Water, provides certain medical, dental and life insurance benefits to retired employees partially funded by a 501(c)(9) Voluntary Employee Beneficiary Association Trust that has been approved by the DPUC. Substantially all of Connecticut Water’s employees may become eligible for these benefits if they retire on or after age 55 with 10 years of service. The contribution for calendar years 2007 and 2006 was $1,758,600 and $473,100, respectively.

A regulatory asset has been recorded to reflect the amount which represents the future SFAS 106 costs expected to be recovered in customer rates. In 1997, Connecticut Water requested and received approval from the DPUC to include SFAS 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 SFAS 106 costs. Prior to the January 2007 rate decision, Connecticut Water’s rates allowed for recovery of $473,100 annually for post-retirement benefit costs other than pension. As a result of the January 2007 rate decision, the Company will follow the provisions of SFAS 158 for regulated companies that allows the creation of a regulatory asset for costs that will be recovered in the future under provisions of SFAS 71.

The Company amortizes actuarial gains and losses over the average remaining service period of active participants, without regard to a specified corridor of a percentage of the greater of the obligation or market-related value of assets. 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.

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, because the costs associated with the administration of Medicare Part D would have outweighed the benefits received by the Company. Therefore, the impact of the subsidy on the plan’s liabilities is not reflected in the December 31, 2007 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. Barnstable Water no longer has any employees; therefore, no new participants will be entering Barnstable Water’s PBOP.

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The following tables set forth the benefit obligation and fair value of the assets of the Company’s post-retirement health care benefits at December 31, the latest valuation date:

PBOP Benefits

(in thousands)	2007			2006
Change in benefit obligation:
Benefit obligation, beginning of year	$	10,283		$	8,253
Service cost		651			599
Interest cost		610			485
Plan participant contributions		138			99
Actuarial loss		1,083			1,343
Benefits paid		(449	)		(496	)
Benefit obligation, end of year	$	12,316		$	10,283
Change in plan assets:
Fair value, beginning of year	$	4,260		$	3,845
Actual return on plan assets		198			339
Employer contributions		1,759			473
Participants’ contributions		138			99
Benefits paid		(449	)		(496	)
Fair value, end of year	$	5,906		$	4,260
Funded Status	$	6,410		$	6,023
Amount Recognized in Consolidated Balance Sheets Consisted of:
Non-current asset	$	—		$	—
Current liability		—			—
Non-current liability		6,410			6,023
Net amount recognized		6,410		$	6,023

	2007			2006
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate		6.30	%		5.75	%
Weighted-average assumptions used to determine net periodic cost for years ended December 31:
Discount rate		5.75	%		5.50	%
Expected long-term return on plan assets		5.00	%		5.00	%

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

The following table shows the components of periodic benefit costs:

PBOP Benefits

(in thousands)	2007			2006			2005
Components of net periodic benefit costs
Service cost	$	651		$	599		$	460
Interest cost		610			485			405
Expected return on plan assets		(189	)		(178	)		(168	)
Other		225			—			—
Amortization of:
Net transition obligation		120			120			120
Recognized net loss		342			273			164
Net Periodic Post Retirement Benefit Costs	$	1,759		$	1,299		$	981

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	2007		2006
Amounts Recognized as a Regulatory Asset at December 31:
Transition obligation	$	602	$	723
Prior service cost		—		—
Net (gain) loss		3,611		2,878
Total Recognized as a Regulatory Asset	$	4,213	$	3,601

There were no other changes in plan assets and benefit obligations recognized as a regulatory asset.

	2008
Estimated Benefit Cost Amortizations for the periods January 1 - December 31,:
Amortization of transition obligation	$	121
Amortization of prior service cost		—
Amortization of net loss (gain)		360
Total Estimated Net Periodic Benefit Cost Amortizations	$	481

Assumed health care cost trend rates at December 31:

	2007						2006
	Medical			Dental			Medical			Dental
Health care cost trend rate assumed for next year		10.0	%		10.0	%		9.0	%		9.0	%
Rate to which the cost trend rate is assumed to decline		5.0	%		5.0	%		4.5	%		4.5	%
Year that the rate reaches the ultimate trend rate		2017			2017			2016			2016

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
(in thousands)	Increase		Decrease
Effect on total of service and interest cost components	$	216	$	(176	)
Effect on post-retirement benefit obligation	$	1,648	$	(1,380	)

Plan Assets

Barnstable Water’s other post-retirement benefit plan has no assets. Connecticut Water’s other post-retirement benefit plan weighted-average asset allocations at December 31, 2007 and 2006 by asset category were as follows:

	2007			2006
Equity		44	%		63	%
Fixed Income		56	%		37	%
Total		100	%		100	%

The Company made a contribution of $1,758,600 on December 28, 2007. In the table above, this contribution is classified as fixed income as there was not enough time for these funds to be invested in line with the plan’s target allocation.

Cash Flows

Connecticut Water contributed $1,758,600 to its other post-retirement benefit plan in 2007 for plan year 2007 and expects to contribute $1,954,000 in 2008 for plan year 2008.

Expected future benefit payments are:

(in thousands)
2008	$	446
2009	$	505
2010	$	547
2011	$	599
2012	$	669
Years 2013 - 2017	$	4,513

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) - The Company and certain of its subsidiaries provide additional pension benefits to senior management through supplemental executive retirement contracts. At December 31, 2007 and 2006, the actuarial present value of the projected benefit obligation of these contracts were $3,109,000 and $2,870,000, respectively. Expense associated with these contracts was approximately $1,363,000 for 2007, $503,000 for 2006, and $194,000 for 2005 and is reflected in Other Income (Deductions) in the Statements of Income.

Included in Other Property and Investments at December 31, 2007 and 2006 is $3,513,000 and $1,836,000 of marketable securities purchased by the Company to fund these obligations.

SAVINGS PLAN (401(k)) - 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 aged 50 years 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 2007, 2006 and 2005 was $213,000, $186,000, and $168,000, 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. No incentive bonus was awarded in 2007 or 2006. An incentive bonus of .6% of base pay, or a total of $50,000 was accrued for 2005 and paid in 2006.

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NOTE 14: STOCK BASED COMPENSATION PLANS

The Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R) “Share Based Payments” (SFAS 123(R)) as of January 1, 2006 using the modified prospective transition method, which does not require restatement of prior year results. The resulting impact on the income statement for the fiscal year ended December 31, 2006 was an expense of approximately $32,000, net of tax benefits of $75,000. SFAS 123(R) requires that all share-based payments to employees, including grants of stock options, be recognized as compensation expense in the financial statements based on their fair value.

Prior to January 1, 2006, the Company followed Accounting Principles Board Opinion No. 25 (APB No. 25) and the disclosure requirements for SFAS 123(R) with pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting as defined in SFAS 123(R) had been applied. The Company’s consolidated financial statements as of and for the year ended December 31, 2006 reflect the impact of adopting SFAS 123(R). The total compensation cost related to non-vested stock option awards recognized during 2007 was approximately $25,000. There are no stock option costs to be recognized in future years.

For purposes of calculating the fair value of each stock grant at the date of grant, the Company used the Black Scholes Option Pricing model. Under the Plans, 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.

Under the Company’s Performance Stock Plan (PSP), restricted shares of Common Stock, common stock equivalents or cash units may be awarded annually to officers and key employees. Based upon the occurrence of certain events, including the achievement of goals established by the Compensation Committee, the restrictions on the stock can be removed. Amounts charged to expense on account of restricted shares of Common Stock, common stock equivalents or cash units pursuant to the PSP were $542,000, $702,000 and $265,000, for 2007, 2006 and 2005, respectively.

The Company’s 2004 Performance Stock Program (2004 PSP), approved by shareholders in 2004, authorizes the issuance of up to 700,000 shares of Company Common Stock. As of December 31, 2007, there were 626,711 shares available for grant. In total, under the original Plans (1994 Plans) there were 700,000 shares authorized and 222,033 shares available for payment of dividend equivalents on shares already awarded under the 1994 Plan as performance shares at December 31, 2007. There are four forms of awards under the 2004 PSP. Stock options are one form of award. The Company has not issued any stock options since 2003, and does not anticipate issuing any for the foreseeable future. The other three forms of award which the Company has continued to issue are: Restricted Stock, Performance Shares and Cash Units.

STOCK OPTIONS - The Company issued stock options between 1999 and 2003 and accounted for those options under APB No. 25 through December 31, 2005, under which no compensation cost has been recognized in the Consolidated Statements of Income. Beginning January 1, 2006, compensation expense was recognized when SFAS 123(R) became effective. If SFAS 123(R) had been followed for 2005, the impact on Net Income and Earnings per Share would have been negligible.

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

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No stock options were awarded or issued during 2007, 2006 or 2005.

	2007					2006					2005
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
For the Years Ended December 31:
Options:
Outstanding, beginning of year		180,853		$	24.62		202,271		$	24.04		251,835		$	22.85
Granted		—			—		—			—		—			—
Forfeited		—			—		—			—		—			—
Terminated		(36,286	)		27.71		(4,456	)		27.95		(5,001	)		25.78
Exercised		(37,906	)		21.33		(16,962	)		16.76		(44,563	)		17.11
Outstanding, end of year		106,661		$	24.74		180,853		$	24.62		202,271		$	24.04
Exercisable, end of year		106,661		$	24.74		171,840		$	24.39		175,685		$	23.44

The intrinsic value of options exercised during the year ended December 31, 2007 was $120,000. The following table summarizes the price ranges of the options outstanding and options exercisable as of December 31, 2007:

	Options Outstanding and Exercisable
			Weighted
			Average		Weighted
			Remaining		Average
			Contractual		Exercise
	Shares		Life (years)		Price
Range of prices:
$12.00 - $14.99		6,059		1.3	$	14.83
$15.00 - $17.99		—		—		—
$18.00 - $20.99		14,074		2.9		20.42
$21.00 - $23.99		23,214		1.9		22.33
$24.00 - $26.99		22,535		4.9		25.78
$27.00 - $29.99		40,779		4.9		28.51
		106,661		3.8	$	24.74

The intrinsic value of exercisable options as of December 31, 2007 was approximately $130,000. The average remaining contractual term of exercisable options as of December 31, 2007 was approximately 3.8 years.

RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS - The Company has granted restricted shares of Common Stock and Performance Shares to key members of management under the 2004 PSP. These Common Stock share awards provide the grantee with the rights of a shareholder, including the right to receive dividends and to vote such shares, but not the right to sell or otherwise transfer the shares during the restriction period. The value of these restricted shares is based on the market price of the Company’s Common Stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods. The adoption of SFAS No. 123(R) had no impact on the Company’s recognition of stock-based compensation expense associated with the restricted stock awards.

RESTRICTED STOCK (Non-Performance-Based Awards) - The following tables summarize the non-performance-based restricted stock amounts and activity:

	2007					2006
				Grant Date				Grant Date
				Weighted				Weighted
	Number of			Average Fair		Number of		Average
For the years ended December 31,	Shares			Value		Shares		Fair Value
Non-vested at beginning of year		26,495		$	25.20		21,988	$	25.24
Granted		—			—		4,507		25.00
Vested		(9,359	)		25.24		—		—
Forfeited		(2,044	)		25.24		—		—
Non-vested at end of year		15,092		$	25.17		26,495	$	25.20

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There were no vested restricted stock shares as of December 31, 2006. The shares began vesting during 2007. There have been 2,044 forfeitures of non-performance-based restricted stock for the year ended December 31, 2007. We do not expect any shares to be forfeited in the first quarter of 2008.

Total stock-based compensation recorded in the statement of income related to the non-performance-based restricted stock awards was $48,000 and $187,000 during the years ended December 31, 2007 and 2006, respectively, including accelerated vesting for an approved retirement during 2006. The Compensation Committee of the Board of Directors may approve retirements of key employees that trigger accelerated vesting. There was no expense recognized in the first nine months of 2005 because the program was initiated in the fourth quarter of 2005. Total expense for 2005 was $5,000.

As of December 31, 2007, $380,000 of unrecognized compensation costs related to non-performance-based restricted stock is expected to be recognized over a straight-line basis for a period of 6 years.

RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS (Performance-Based) - The following tables summarize the performance-based restricted stock amounts and activity:

	2007					2006
				Grant Date					Grant Date
				Weighted					Weighted
	Number of			Average		Number of			Average
For the years ended December 31,	Shares			Fair Value		Shares			Fair Value
Non-vested at beginning of year		18,059		$	25.90		7,667		$	26.73
Granted		13,186		$	22.38		18,059		$	24.93
Vested		(7,666	)	$	24.26		(6,087	)	$	24.51
Forfeited		(4,780	)	$	24.93		(1,580	)	$	24.51
Non-vested at end of year		18,799		$	25.11		18,059		$	25.90

The fair value of performance-based restricted shares vested during the year ended December 31, 2007 was $151,000.

Total stock based compensation recorded in the Consolidated Statements of Income related to performance-based restricted stock awards was $484,000 and $515,000 for the year ended December 31, 2007 and 2006, respectively.

The Company is estimating a forfeiture rate of 30%. Upon meeting specific performance targets, 17,100 shares, reduced for actual performance targets achieved in 2007, will begin vesting in the first quarter of 2008 and the remaining earned shares will vest over four years. The cost is being recognized ratably over the vesting period. The aggregate intrinsic value of performance-based restricted stock as of December 31, 2007 was $263,000.

NOTE 15: 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.

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Financial data for reportable segments is as follows:

										Interest					Income
					Other					Expense					(Loss) from
					Operating		Other Income			(net of		Income			Continuing
(in thousands)	Revenues		Depreciation		Expenses		(Deductions)			AFUDC)		Taxes			Operations
For the year ended December 31, 2007
Water Activities	$	60,025	$	6,525	$	35,755	$	(1,641	)	$	4,281	$	3,860		$	7,963
Real Estate Transactions		227		—		101		—			—		(41	)		167
Services and Rentals		4,411		25		3,304		—			20		411			651
Total	$	64,663	$	6,550	$	39,160	$	(1,641	)	$	4,301	$	4,230		$	8,781
For the year ended December 31, 2006
Water Activities	$	47,927	$	5,881	$	32,166	$	(598	)	$	3,969	$	1,183		$	4,130
Real Estate Transactions		1,002		—		359		—			—		(1,420	)		2,063
Services and Rentals		4,092		36		3,189		—			8		344			515
Total	$	53,021	$	5,917	$	35,714	$	(598	)	$	3,977	$	107		$	6,708
For the year ended December 31, 2005
Water Activities	$	48,441	$	5,724	$	29,351	$	(481	)	$	3,266	$	2,855		$	6,764
Real Estate Transactions		495		—		81		—			—		475			(61	)
Services and Rentals		3,244		36		2,463		—			—		282			463
Total	$	52,180	$	5,760	$	31,895	$	(481	)	$	3,266	$	3,612		$	7,166

The Revenues shown in Water Activities above consist of revenues from water customers of $59,026,000, $46,945,000 and $47,453,000 in the years 2007, 2006 and 2005, respectively. Additionally, there were revenues associated with utility plant leased to others of $999,000, $982,000 and $988,000 in the years 2007, 2006 and 2005, respectively.

At December 31 (in thousands):	2007		2006
Total Plant and Other Investments:
Water	$	283,641	$	267,395
Non-Water		673		697
Total Plant and Other Investments		284,314		268,092
Other Assets:
Water		75,441		56,663
Non-Water		1,058		3,385
Total Other Assets		76,499		60,048
Total Assets	$	360,813	$	328,140

NOTE 16: 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 will be eligible for recovery in future rate proceedings.

Reverse Privatization — Connecticut Water derives its 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.

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 presently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

F-26

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.

Rate Relief - Connecticut Water is a regulated public utility, which provides water services to its customers. The rates that regulated companies charge their water customers are subject to the jurisdiction of the regulatory authority of the DPUC.

In July 2006, the Company filed a rate application with the DPUC for Connecticut Water requesting an increase in rates of approximately $14.6 million or 30%. On January 16, 2007, the DPUC issued its final decision and approved a Settlement Agreement, negotiated with the Office of Consumer Counsel and the DPUC’s Prosecutorial Staff, that allowed Connecticut Water an increase of revenues of approximately $10,940,000, or 22.3%. The Settlement Agreement allowed Connecticut Water to defer a portion of the approved rate increase, approximately $3.8 million. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision. Through December 31, 2007, the Company has recorded approximately $3.8 million in deferred revenues. The second phase of the increase is expected to occur on April 1, 2008. On January 31, 2008, the Company filed to reopen the case, a procedure required by the Settlement Agreement, to implement the second phase. In addition to the approval for the inclusion in current rates of the previously approved deferred revenues of $3.8 million, the filing includes requested recovery of the costs associated with $15.5 million of additional capital investments made in 2007. This portion of the second phase of the increase was also called for in the Settlement Agreement.

The total increase associated with this second phase is a request of 12.6%, of which approximately 8.2% is for deferred revenues and 4.4% for the investment in additional capital in 2007. Additionally, Connecticut Water agreed not to apply for a general rate increase that would become effective prior to January 1, 2010.

A final decision on this second phase is expected by the end of March 2008.

In June 2007, the State of Connecticut adopted legislation which permits regulated water companies to recapture money spent on eligible infrastructure improvements without a full rate case proceeding. The DPUC may authorize regulated water companies to use a rate adjustment mechanism, such as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects completed and in service for the benefit of the customers. Regulated water companies may only charge customers such an adjustment to the extent allowed by the DPUC based on a water company’s infrastructure assessment report, as approved by the DPUC and upon semiannual filings which reflect plant additions consistent with such report. The Company does not expect to be able to take advantage of the WICA mechanism until at least the first quarter of 2009.

In any future rate proceedings, the DPUC may authorize Connecticut Water to charge rates which the DPUC considers to be sufficient to recover the normal operating expenses and to allow Connecticut Water an opportunity to earn what the DPUC considers to be a fair and reasonable return on our invested capital.

Land Dispositions - The Company and its subsidiaries own additional parcels of land in Connecticut, 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 Class I and II parcels previously identified for long term conservation by the Connecticut DEP, which have restrictions on development and resale based on provisions of the Connecticut General Statutes.

In previous years, the Company generated a substantial portion of its net income in land donations and sales. However, land donations are not expected to generate income at historical levels in future periods. The Company plans to continue to utilize land donations and sales in 2008 to generate income for this segment of our business.

Capital Expenditures - The Company has received approval from its Board of Directors to spend $18.4 million on capital expenditures in 2008.

NOTE 17: SUBSEQUENT EVENTS

ACQUISITIONS - On June 29, 2007, the Company announced that its principal operating subsidiary, Connecticut Water, and its unregulated subsidiary, NEWUS, have entered into definitive purchase agreements to acquire the regulated water utility assets of Eastern Connecticut Regional Water Company, Inc. (Eastern), a wholly-owned subsidiary of Birmingham Utilities, Inc. (Birmingham) and the unregulated assets of Birmingham H2O Services, Inc. (H2O). The agreements called for Connecticut Water and NEWUS to pay a combined $3.5 million for the assets

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acquired, which had a book value of $9.9 million. On November 16, 2007, the DPUC issued a final decision approving the transactions. The transaction was completed January 16, 2008, at which point all of the former customers of Eastern became customers of Connecticut Water.

NOTE 18: QUARTERLY FINANCIAL DATA (Unaudited)

Selected quarterly financial data for the years ended December 31, 2007 and 2006 appears below:

(in thousands, except for per share data)

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	2007		2006		2007		2006		2007		2006		2007		2006
Operating Revenues	$	13,162	$	10,458	$	14,446	$	11,428	$	16,951	$	13,346	$	14,467	$	11,713
Total Utility Operating Income		2,412		1,581		2,969		2,092		5,021		3,513		2,852		339
Income from Continuing Operations		1,475		1,697		1,862		977		3,899		3,503		1,545		531
Discontinued Operations		—		19		—		6		—		215		—		3
Net Income		1,475		1,716		1,862		983		3,899		3,718		1,545		534
Basic Earnings per Common Share - Continuing Operations		0.18		0.21		0.22		0.12		0.47		0.42		0.19		0.06
Basic Earnings per Common Share - Discontinued Operations		—		—		—		—		—		0.03		—		—
Basic Earnings per Common Share		0.18		0.21		0.22		0.12		0.47		0.45		0.19		0.06

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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 17, 2007. (Exhibit 3.1 to Form 8-K filed on August 21, 2007).
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 3/31/03).
4.1	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).
4.2	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).
4.3	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).
4.4	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).
4.5	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).
4.6	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).
4.7	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).

E-2

Exhibit
Number	Description
4.8	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).
4.9	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).
4.10	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).
4.11	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).
4.12	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).
4.13	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).
4.14	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).
4.15	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).
4.16	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).
4.17	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).
4.18	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).
4.19	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).

E-3

Exhibit
Number	Description
4.20	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).
4.21	Bond Purchase Agreement, dated October 28, 2005, among The Connecticut Water Company, Connecticut Development Authority and A.G. Edwards & Sons, Inc., Connecticut Water 2005A Series. (Exhibit 4.24 to Form 10-K for the year ended 12/31/05).
4.22	Loan Agreement, dated October 1, 2005, between The Connecticut Water Company and Connecticut Development Authority, Connecticut Water 2005A Series. (Exhibit 4.25 to Form 10-K for the year ended 12/31/05).
4.23	Indenture of Trust, dated October 1, 2005, between Connecticut Development Authority and U.S. Bank National Association, as Trustee, Connecticut Water 2005A Series. (Exhibit 4.26 to Form 10-K for the year ended 12/31/05).
4.24	Insurance Agreement, dated November 30, 2005, between The Connecticut Water Company and Financial Guaranty Insurance Company, as Insurer for The Connecticut Water 2005A Series. (Exhibit 4.27 to Form 10-K for the year ended 12/31/05).
4.25	Bond Purchase Agreement, dated November 16, 2005, among The Crystal Water Company of Danielson, Connecticut Water Service, Inc., Connecticut Development Authority and A.G. Edwards & Sons, Inc., Crystal Water 2005A Series. (Exhibit 4.28 to Form 10-K for the year ended 12/31/05).
4.26	Guaranty dated as of October 1, 2005 from Connecticut Water Service, Inc. to U.S. Bank National Association, as Trustee, Crystal Water 2005A Series. (Exhibit 4.29 to Form 10-K for the year ended 12/31/05).
4.27	Loan Agreement, dated October 1, 2005, between The Crystal Water Company of Danielson and Connecticut Development Authority, Crystal Water 2005A Series. (Exhibit 4.30 to Form 10-K for the year ended 12/31/05).
4.28	Indenture of Trust, dated October 1, 2005, between Connecticut Development Authority and U.S. Bank National Association, as Trustee, Crystal Water 2005A Series. (Exhibit 4.31 to Form 10-K for the year ended 12/31/05).
4.29	Insurance Agreement, dated November 30, 2005, between The Crystal Water Company of Danielson and Financial Guaranty Insurance Company, as Insurer for the Crystal Water 2005A Series. (Exhibit 4.32 to Form 10-K for the year ended 12/31/05).
4.30	First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between The Connecticut Water Company and Citizen’s Bank of Rhode Island, 2004A Series. (Exhibit 10.1 to Form 10-Q for the period ending 3/31/06).

E-4

Exhibit
Number	Description
4.31	First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between The Connecticut Water Company and Citizen’s Bank of Rhode Island, 2004B Series. (Exhibit 10.2 to Form 10-Q for the period ending 3/31/06).
4.32	First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between The Connecticut Water Company and Citizen’s Bank of Rhode Island, 2004 Series Variable Rate, due 2029. (Exhibit 10.3 to Form 10-Q for the period ending 3/31/06).
4.33*	Bond Purchase Agreement, dated December 5, 2007, among The Connecticut Water Company, Connecticut Development Authority, and Edward Jones and Company, L.P. water facilities Revenue Bonds – 2007A Series (AMT).
4.34*	Loan Agreement dated as of December 5, 2007, among The Connecticut Water Company, and Connecticut Development Authority, Water Facilities Revenue Bonds – 2007A Series (AMT).
4.35*	Indenture of Trust dated as of December 5, 2007, among The Connecticut Water Company, and Connecticut Development Authority, Water Facilities Revenue Bonds – 2007A Series (AMT).
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 January 1, 2008. (Exhibit 10.7 to Form 8-K filed on January 30, 2008).
10.4	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).
10.4a	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).
10.4b	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).
10.4c	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-5

Exhibit
Number	Description
10.4d	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).
10.4e	Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company between Unionville Water Company and Connecticut Water Company, dated February 23, 2004. (Exhibit 10.12.5 to Form 10-K for the year ended 12/31/04).
10.5	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).
10.5a	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).
10.5b	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).
10.5c	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).
10.5d	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).
10.5e	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).
10.5f	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).
10.5g	Seventh Amendment, dated May 12, 2004 to the amended and restated Connecticut Water Employees’ Retirement Plan effective January 1, 1997. (Exhibit 10.13.7 to Form 10-K for the year ended 12/31/04).
10.5h*	Eighth Amendment, effective March 28, 2005, to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997.

E-6

Exhibit
Number	Description
10.5i*	Ninth Amendment, effective August 9, 2006, to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997.
10.6	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).
10.7	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).
10.8	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).
10.9	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).
10.10	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).
10.11	Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the year ended 12/31/84).
10.12	Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended 12/31/87).
10.13	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).
10.14	1994 Performance Stock Program, as amended and restated as of April 26, 2002. (Exhibit A to Proxy Statement dated 3/19/02).
10.14a	First Amendment to The Connecticut Water Service, Inc. Performance Stock Program Amended and Restated as of April 26, 2002 (the “Plan”) dated December 1, 2005. (Exhibit 10.22a to Form 10-K for the year ended 12/31/05).
10.14b	Second Amendment to The Connecticut Water Service, Inc. Performance Stock Program Amended and Restated as of April 26, 2002 (the “Plan”) dated January 1, 2008. (Exhibit 10.5 to 8-K filed on 1/30/08).

E-7

Exhibit
Number	Description
10.15	2004 Performance Stock Program, as of April 23, 2004. (Appendix A to Proxy Statement dated 3/12/04).
10.15a	First Amendment to The Connecticut Water Service, Inc. 2004 Performance Stock Program, dated January 7, 2004. (Exhibit 10.23f to Form 10-K for the year ended 12/31/05).
10.15b	Second Amendment to The Connecticut Water Service, Inc. 2004 Performance Stock Program, dated January 1, 2008. (Exhibit 10.6 to Form 8-K filed on 1/30/08).
10.15c	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).
10.15d	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).
10.15e	Restricted Stock Agreement, standard form for officers, dated December 1, 2005 (Exhibit 10.1 to Form 8-K dated 1/13/06).
10.15f	Long-Term Performance Award Agreement, standard form for officers, dated January 11, 2006 (Exhibit 10.2 to Form 8-K dated 1/13/06).
10.15g	Performance Award Agreement, standard form for officers, dated January 11, 2006 (Exhibit 10.3 to Form 8-K dated 1/13/06).
10.16	Settlement Agreement between Connecticut Water Company, Mary J. Healey, Office of Consumer Counsel of the State of Connecticut, and the Prosecutorial Staff of the DPUC, dated December 4, 2006. (Exhibit 10.1 to Form 8-K dated 12/6/06).
10.16a	Revised Settlement Agreement between Connecticut Water Company, Mary J. Healey, Office of Consumer Counsel of the State of Connecticut, and the Prosecutorial Staff of the DPUC, dated December 20, 2006. (Exhibit 99.1 to Form 8-K dated 1/18/07).
10.16b	Final Decision of the Connecticut DPUC, Docket No. 06-07-08, dated January 16, 2007. (Exhibit 99.2 to Form 8-K dated 1/18/07).
10.17	Connecticut Water Service, Inc. and Subsidiaries Employee Code of Conduct, January 1, 2007.
10.18	Asset Purchase Agreement between The Connecticut Water Company and the Eastern Connecticut Regional Water Company, Inc., dated as of June 29, 2007 (Exhibit 99.1 to Form 8-K filed on July 3, 2007).
10.19	Asset Purchase Agreement between New England Water Utility Services, Inc. and Birmingham H2O Services Inc., dated as of June 29, 2007 (Exhibit 99.2 to Form 8-K filed on July 3, 2007).

E-8

Exhibit
Number	Description
10.20	Employment agreement between The Connecticut Water Company and Connecticut Water Service, Inc. with Nicholas A. Rinaldi amended and restated as of November 5, 2007 (Exhibit 10.1 to Form 8-K dated on November 9, 2007).
10.21	Form of Amended Restated Employment Agreement with the Company’s executive officers (Exhibit 10.1 to Form 8-K filed on January 30, 2008, including:
	a) Peter J. Bancroft
	b) David C. Benoit
	c) Kristen A. Johnson
	d) Thomas R. Marston
	e) Daniel J. Meaney
	f) Terrance P. O’Neill
	g) Nicholas A. Rinaldi
	h) Eric W. Thornburg
	i) Maureen P. Westbrook
10.22	Form of Amended and Restated Supplemental Executive Retirement Agreement with the Company’s executive officers (Exhibit 10.2 to Form 8-K filed on January 30, 2008), including:
	a) Peter J. Bancroft
	b) David C. Benoit
	c) Kristen A. Johnson
	d) Thomas R. Marston
	e) Daniel J. Meaney
	f) Terrance P. O’Neill
	g) Nicholas A. Rinaldi
	h) Eric W. Thornburg
	i) Maureen P. Westbrook
10.23	Form of Amended and Restated Deferred Compensation Agreement with the Company’s executive officer (Exhibit 10.3 to Form 8-K filed on January 30, 2008), including:
	a) Peter J. Bancroft
	b) David C. Benoit
	c) Kristen A. Johnson
	d) Thomas R. Marston
	e) Daniel J. Meaney
	f) Terrance P. O’Neill
	g) Nicholas A. Rinaldi
	h) Eric W. Thornburg
	i) Maureen P. Westbrook

E-9

Exhibit
Number	Description
10.24	Employment agreement between The Connecticut Water Company and Connecticut Water Service, Inc. with Kristen A. Johnson amended and restated as of January 24, 2008 (Exhibit 10.1 and 10.2 to Form 8-K dated on January 30, 2008).
10.25	Employment agreement between The Connecticut Water Company and Connecticut Water Service, Inc. with Thomas R. Marston amended and restated as of January 24, 2008 (Exhibit 10.1 and 10.2 to Form 8-K dated on January 30, 2008).
21*	Connecticut Water Service, Inc. Subsidiaries Listing
23.1*	Consent of Independent Registered Public Accounting Firm
31.1*	Rule 13a-14 Certification of Eric W. Thornburg, Chief Executive Officer.
31.2*	Rule 13a-14 Certification of David C. Benoit, Chief Financial Officer.
32.1*	Certification of Eric W. Thornburg, 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 10.5i, 10.13 through 10.15g, and 10.20 through 10.25 set forth each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.

 40 

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/ Eric W. Thornburg
March 17, 2008		Eric W. Thornburg
		President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Connecticut Water Service, Inc. in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Eric W. Thornburg
Eric W. Thornburg (Principal Executive Officer)	President, Director, and Chief Executive Officer	March 17, 2008
/s/ David C. Benoit
David C. Benoit	Vice President — Finance,	March 17, 2008
(Principal Financial and Accounting Officer)	Chief Financial Officer and Treasurer

 41 

Signature	Title	Date
/s/ Mary Ann Hanley	Director	March 10, 2008
Mary Ann Hanley
/s/ Heather Hunt	Director	March 12, 2008
Heather Hunt
/s/ Mark G. Kachur	Director	March 7, 2008
Mark G. Kachur
/s/ Ronald D. Lengyel	Director	March 10, 2008
Ronald D. Lengyel
/s/ David A. Lentini	Director	March 10, 2008
David A. Lentini
/s/ Arthur C. Reeds	Director	March 8, 2008
Arthur C. Reeds
/s/ Lisa J. Thibdaue	Director	March 10, 2008
Lisa J. Thibdaue
/s/ Carol P. Wallace	Director	March 12, 2008
Carol P. Wallace
/s/ Donald B. Wilbur	Director	March 7, 2008
Donald B. Wilbur

 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, 2007	$	285	$	265	$	198	$	352
Year Ended December 31, 2006	$	256	$	225	$	196	$	285
Year Ended December 31, 2005	$	212	$	156	$	112	$	256

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

EX-4.33

Exhibit 4.33

BOND PURCHASE AGREEMENT

among

CONNECTICUT DEVELOPMENT AUTHORITY,

THE CONNECTICUT WATER COMPANY

and

EDWARD D. JONES & CO., L.P.

Dated December 5, 2007

$15,000,000
Connecticut Development Authority
5.00% Water Facilities Revenue Bonds
(The Connecticut Water Company Project – 2007A Series) (AMT)

BOND PURCHASE AGREEMENT

     AGREEMENT, dated December 5, 2007, among the Connecticut Development Authority (the “Authority”), The Connecticut Water Company (the “Company”) and Edwards D. Jones & Co., L.P. (the “Underwriter”), with respect to the sale and purchase of the Authority’s $15,000,000 5.00% Water Facilities Revenue Bonds (The Connecticut Water Company Project – 2007A Series) (the “Bonds”) on the terms and subject to the conditions herein set forth:

     1. The Borrower has previously filed with the Authority its application for the issuance of the Bonds by the Authority, and the Authority has authorized the Bonds by a resolution duly adopted October 17, 2007 (the “Resolution”). The Bonds will be special obligations of the Authority payable solely out of the revenues or other receipts, funds or moneys pledged therefore, and from any amounts otherwise available to the Trustee for the payment thereof under the indenture referred to below. The proceeds of the sale of the Bonds will be loaned to the Company for use in the acquisition, construction and installation of certain additions to the water system of the Company (the “Project”) located in certain municipalities within the State of Connecticut (the “State”). All such projects are to be used for water facilities purposes, all as more particularly described in the Loan Agreement (the “Agreement”), dated as of December 1, 2007 by and between the Authority and the Company. Pursuant to the Agreement, the Company will execute and deliver to the Authority the Company’s note (the “Note”) to evidence its indebtedness thereunder. Payments on the Note shall be applied to the amounts due on the Bonds.

     The Bonds shall be in all respects as described in, and shall be issued under and pursuant to, an Indenture of Trust (the “Indenture”), dated as of December 1, 2007, between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). In connection with the execution and delivery of the Indenture, the Authority and the Trustee will execute and deliver a Letter of Representation (the “Letter of Representation”) to The Depository Trust Company (“DTC”). In order to assure the exclusion of interest on the Bonds from gross income for purposes of federal income taxation, the Company, the Authority and the Trustee will enter into a Tax Regulatory Agreement relating to the Bonds, dated as of the date of issuance of the Bonds (the “Tax Regulatory Agreement”).

     In this Bond Purchase Agreement, the term “Financing Documents” (1) when used with respect to the Company, means the Agreement, the Note, the Tax Regulatory Agreement, the Continuing Disclosure Agreement dated as of December 1, 2007 between the Company and the Trustee, as dissemination agent (the “Disclosure Agreement”), and the general certificate of the Company delivered in connection with the issuance of the Bonds and (2) when used with respect to the Authority, means any of the foregoing documents and agreements referred to in (1) above to which the Authority is a direct party. The Financing Documents when such term is used with respect to the Company, do not include any documents or agreements to which the Company is not a direct party, including the Bonds, the Indenture or the Letter of Representation.

     2. Subject to the terms and conditions and upon the basis of the representations hereinafter set forth, the Authority hereby agrees to sell the Bonds to the Underwriter and the Underwriter hereby agrees to purchase the Bonds from the Authority at the purchase price of

1

$15,000,000.00. The Bonds shall be dated their date of delivery, shall mature on December 1, 2037 and shall bear interest at a rate of 5% per annum, payable on June 1 and December 1 in each year, commencing June 1, 2008. It will be a condition to the Authority’s obligation to sell the Bonds to the Underwriter and the obligation of the Underwriter to purchase the Bonds that all Bonds be sold and delivered by the Authority and paid for by the Underwriter on the Closing Date, as hereinafter defined.

     3. The date of delivery and payment for the Bonds (the “Closing Date”) will be December 21, 2007 unless not later than the fifth day preceding such date the Authority, the Company and the Underwriter agree that the Closing Date will be a specified date not later than the thirtieth day subsequent to such date, in which event the Closing Date will be the date so specified. The Bonds shall be available for inspection and packaging at least twenty-four hours before the Closing Date.

     The Authority will authorize the Trustee to authenticate and deliver the Bonds to the Underwriter through the facilities of DTC, 55 Water Street, New York, New York, utilizing the FAST System pursuant to which the Trustee will take custody of the Bonds as agent for DTC, at approximately 11:00 A.M., New York City time on the Closing Date, in typewritten form, bearing CUSIP numbers, duly executed and authenticated, registered in the name of Cede & Co., as nominee for DTC, against payment therefor by wire transfer or other manner payable in immediately available funds to the Trustee for the account of the Authority. The payment for the Bonds to the Authority and the delivery thereof to the Underwriter shall be made at the offices of Murtha Cullina LLP, City Place I, 185 Asylum Street, Hartford, Connecticut. The Bonds will be delivered in the form and denominations and shall be otherwise as described in the Indenture.

     4. The Authority represents and warrants that:

     (a) It is a body corporate and politic constituting a public instrumentality and political subdivision of the State of Connecticut duly organized and existing under the laws of the State of Connecticut, particularly the State Commerce Act, constituting Connecticut General Statutes, Sections 32-la through 32-23zz, as amended (the “Act”). The Authority is authorized to issue the Bonds in accordance with the Act and to lend the proceeds thereof to the Company to finance the improvements described in the Indenture.

     (b) The Authority has complied with the provisions of the Act and has full power and authority pursuant to the Act to consummate all transactions contemplated by this Bond Purchase Agreement, the Bonds, the Resolution, the Indenture and the Financing Documents, and to issue, sell and deliver the Bonds to the Underwriter as provided herein.

     (c) The Resolution has been duly adopted by the Authority and is still in full force and effect. The Resolution has authorized the execution, delivery and due performance of this Bond Purchase Agreement, the Bonds, the Indenture and the Financing Documents, and the taking of any and all action as may be required on the part of the Authority to carry out, give effect to and consummate the transactions contemplated by this Bond Purchase Agreement, and all approvals necessary in connection with the foregoing have been received, except the State Treasurer’s approval.

2

     (d) When delivered to and paid for by the Underwriter in accordance with the terms of this Bond Purchase Agreement, the Bonds will have been duly authorized, executed, authenticated, issued and delivered and will constitute valid and binding special obligations of the Authority payable solely from revenues or other receipts, funds or moneys pledged therefor under the Indenture and from any amounts otherwise available therefor under the Indenture, and will be entitled to the benefit of the Indenture. Neither the State nor any municipality thereof will be obligated to pay the Bonds or the interest thereon. Neither the faith and credit nor the taxing power of the State nor any municipality thereof is pledged for the payment of the principal, and premium, if any, of and interest on the Bonds.

     (e) The execution and delivery of this Bond Purchase Agreement, the Bonds, the Indenture and the Financing Documents, and compliance with the provisions thereof, will not conflict with or constitute on the part of the Authority a violation of, breach of or default under its by-laws or any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Authority is a party or by which the Authority is bound, or, to the knowledge of the Authority, any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Authority or any of its activities or properties, and all consents, approvals, authorizations and orders of governmental or regulatory authorities which are required for the consummation by the Authority of the transactions contemplated thereby have been obtained, except the State Treasurer’s approval.

     (f) Subject to the provisions of the Agreement and the Indenture, the Authority will apply the proceeds from the sale of the Bonds to the purposes specified in the Indenture and the Financing Documents.

     (g) To the best knowledge of the Authority, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body pending or threatened against or affecting the Authority, or to the best knowledge of the Authority, any basis therefor, wherein an unfavorable decision, ruling or finding would adversely affect the transactions contemplated hereby and by the Indenture, or which, in any way, would adversely affect the validity of the Bonds, the Resolution, the Indenture, the Financing Documents, this Bond Purchase Agreement, or any agreement or instrument to which the Authority is a party and which is used or contemplated for use in consummation of the transactions contemplated hereby and by the Indenture or the exemption from taxation as set forth therein.

     (h) The representations and warranties of the Authority contained in Section 2.1 of the Loan Agreement are true and correct as of the date hereof.

     (i) Any certificate signed by any Authorized Representative of the Authority under the Resolution or this Bond Purchase Agreement and delivered to the Underwriter or to the Trustee shall be deemed a representation and warranty by the Authority to the Underwriter and the Company as to the statements made therein.

     (j) The information with respect to the Authority in the Official Statement of the Authority, dated the date hereof, is correct and complete, except that none of the representations and warranties herein apply to statements in or omissions from the Official Statement made in reliance on or in conformity with information furnished, to the Authority by the Company, or to

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information under the headings “THE PROJECT”, “THE BONDS—Book-Entry Only System”, “TAX MATTERS”, “LEGAL MATTERS” and “INDEPENDENT ACCOUNTANTS”, or to anything contained or incorporated by reference in the appendices to the Official Statement or otherwise with respect to the Company. The Authority has authorized the use of the Official Statement in both its preliminary and final forms and delivered duly executed copies thereof in final form to the Underwriter.

     It is specifically understood and agreed that the Authority makes no representation as to the financial position or business condition of the Company or any other person and does not, with respect to the Official Statement or otherwise, except to the extent the Authority deems the Preliminary Official Statement to be final as provided in Section 9 hereof, represent or warrant as to any of the statements, materials (financial or otherwise), representations or certifications furnished or to be made and furnished by the Company or any other person in connection with the sale of the Bonds, or as to the correctness, completeness or accuracy of any of such statements, materials, representations or certificates.

     5. The Company represents and warrants that:

     (a) The Company has been duly organized and validly exists as a corporation under the laws of the State of Connecticut, having all requisite corporate power to carry on its business as now constituted.

     (b) The execution and delivery by the Company of the Financing Documents and this Bond Purchase Agreement, and all other agreements herein contemplated to be performed by the Company, and the performance of the conditions herein contained and those in each of such instruments to be performed are not in contravention of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under any indenture, mortgage deed of trust or other agreement or instrument to which the Company is a party, or the Certificate of Incorporation and any special acts incorporated by reference therein or Bylaws of the Company, or any order, rule or regulation applicable to the Company of any court or of any federal or State regulatory body or administrative agency or other governmental body having jurisdiction over the Company or over any of its properties, or any statute, rule or regulation of any jurisdiction applicable to the Company, or result in the creation or imposition of any lien, charge or encumbrance upon any of the properties or assets of the Company pursuant to the terms of any indenture, agreement or undertaking binding upon it; and, to the extent required by law, the Connecticut Department of Public Utility Control (the “DPUC”) has approved or waived approval of all matters relating to the Company’s participation in the transactions contemplated in the Financing Documents which require such approval or waiver of approval; such approval or waiver of approval remains in full force and effect in the form issued; and, assuming that the Bonds are securities described in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Section 3(a)(12) and (29) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), no other consent, approval, authorization or other order of any regulatory body or administrative agency or other governmental body is legally required for the Company’s participation in connection therewith, except as have been obtained.

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     (c) Except as disclosed or incorporated by reference in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, or before or by any court, public board or body, pending, or to the knowledge of the Company threatened, wherein an unfavorable decision, ruling or finding would (i) in the opinion of the Company, involve the possibility of any judgment or liability to the extent not covered by insurance which would result in any material adverse change in the business, properties or operations of the Company, (ii) materially adversely affect the transactions contemplated by this Bond Purchase Agreement or (iii) materially adversely affect the validity or enforceability of the Financing Documents or this Bond Purchase Agreement.

     (d) The Company will not take or omit to take any action which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner contrary to that provided in the Financing Documents.

     (e) Except as disclosed or incorporated by reference in the Official Statement, the Company is not a party to or bound by any contract, agreement or other instrument, or subject to any judgment, order, writ, injunction, decree, rule or regulation which, in the Company’s opinion, materially adversely affects, or in the future may, so far as the Company can now reasonably foresee, materially adversely affect the business, operations, properties, assets or condition, financial or otherwise, of the Company.

     (f) Neither this Bond Purchase Agreement, other than Section 4 hereof as to which no representation is made, nor any other document, certificate or written statement furnished to the Underwriter or the Authority by or on behalf of the Company, when read together with the information disclosed or incorporated by reference in the Official Statement, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading or incomplete.

     (g) The Company has not taken and will not take any action and knows of no action that any person, firm or corporation has taken or intends to take, which would cause interest on the Bonds to be includable in the gross income of the recipients thereof for federal income tax purposes.

     (h) The Company will deliver or cause to be delivered all opinions, certificates, letters and other instruments and documents required to be delivered by the Company pursuant to this Bond Purchase Agreement.

     (i) The Financing Documents and this Bond Purchase Agreement, when executed and delivered, will be legal, valid, binding and enforceable obligations of the Company, except to the extent that such enforceability may be limited by bankruptcy or insolvency or other laws affecting creditors’ rights generally or by general principles of equity.

     (j) The Company has authorized and consents to the use of the Official Statement by the Underwriter. The information with respect to the Company included or incorporated by reference in Appendix A to the Preliminary Official Statement and the descriptions contained

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therein of the Indenture and the Financing Documents and the Company’s participation in the transactions contemplated thereby, with such additions or amendments as heretofore have been agreed upon between the Authority, the Company and the Underwriter and which are reflected in the Official Statement, are correct and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of circumstances under which they were made not misleading except that the Company makes no representation as to (A) the information contained in Appendix D of each of the Preliminary Official Statement and the Official Statement or the information contained in each of the Preliminary Official Statement and the Official Statement under the captions “INTRODUCTION — The Authority”, “THE AUTHORITY”, “THE BONDS — Book Entry Only System”, “TAX MATTERS” and “UNDERWRITING” or (B) the information with respect to DTC and its book-entry system. The financial statements included in Appendix B to each of the Preliminary Official Statement and the Official Statement have been prepared in accordance with generally accepted accounting principles as applied in the case of rate-regulated public utilities, comply with the Uniform System of Accounts and ratemaking practices prescribed by the DPUC (except as otherwise disclosed in the notes to such financial statements) and fairly present the financial position, results of operations, retained earnings and statements of cash flows of the Company at the respective dates and for the respective periods indicated.

     (k) There has been no material adverse change in the business, properties, operations or financial condition of the Company, taking into account season revenue fluctuations, from that shown or incorporated by reference in the Official Statement.

     (l) The representations and warranties of the Company contained in Section 2.2 of the Loan Agreement are true and correct as of the date hereof.

     (m) The Company has obtained all approvals required in connection with the execution and delivery of, and performance by the Company of its obligations under, this Bond Purchase Agreement and the Financing Documents.

     (n) Any certificate signed by an officer of the Company and delivered to the Underwriter at the time of the purchase and sale of the Bonds shall be deemed a representation and warranty by the Company to the Underwriter as to the statements made therein.

     (o) The Company deems the Preliminary Official Statement to be final as of its date for purposes of Rule 15c2-12 of the SEC.

     (p) No material event of default or event which, with notice or lapse of time or both, would constitute a material event of default or default under any material agreement or material instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject has occurred and is continuing.

     (q) The Company will undertake, pursuant to the Disclosure Agreement, to provide certain annual financial information and notices of the occurrence of certain events, if material. A description of this undertaking is set forth in the Preliminary Official Statement and will be set forth in the Official Statement.

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     6. The Company agrees to indemnify and hold harmless the Authority, the Underwriter, any member, officer, official, employee or agent of the Authority or the State or the Underwriter, and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Securities Act, as amended (for purposes of this paragraph, collectively the “Indemnified Parties”), to the extent permitted under the applicable law, against any and all losses, claims, damages, liabilities or expenses whatsoever, joint or several, caused by (1) any breach of any representation or warranty made by the Company in this Bond Purchase Agreement or the Financing Documents or (2) any untrue statement or misleading statement or allegedly misleading statement of a material fact contained in the Official Statement or caused by any omission or alleged omission from the Official Statement of any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue or misleading statement or omission or allegedly untrue or misleading statement or omission in the information contained under the captions “INTRODUCTION — The Authority”, “THE AUTHORITY”, “THE BONDS — Book Entry Only System”, “TAX MATTERS” and “UNDERWRITING” or in Appendix D thereto (except to the extent that the information set forth in such section is premised on facts and representations made in writing by the Company); provided, however, that in the case of clause (2) above such indemnity shall not inure to the benefit of the Underwriter (or any person controlling the Underwriter or any officer or employee of the Underwriter) if (i) the Company has caused to be delivered to the Underwriter on a timely basis sufficient quantities of the Official Statement, as amended or supplemented, and (ii) a copy of the Official Statement, as then so amended or supplemented, was not sent or given by or on behalf of the Underwriter to the person asserting such loss, claim, damage, liability or expense prior to or with written confirmation of the sale of such Bonds to such person by the Underwriter, and (iii) the receipt of the Official Statement, as then so supplemented or amended, would have been a valid defense to the loss, claim, damage, liability or expense asserted. This indemnity agreement shall not be construed as a limitation on any other liability which the Company may otherwise have to any Indemnified Party.

     The Underwriter agrees to indemnify and hold harmless the Authority and the Company, and each director, officer or employee of the Authority and the Company, and each person who controls either of them within the meaning of Section 15 of the Securities Act (for purposes of this paragraph, an “Indemnified Party”) to the same extent as the foregoing indemnity from the Company to the Underwriter, but only with reference to written information furnished to the Authority or the Company by or on behalf of the Underwriter specifically for inclusion in the Official Statement under the caption “UNDERWRITING”. This indemnity agreement shall not be construed as a limitation on any other liability which the Underwriter may otherwise have to any Indemnified Party.

     An Indemnified Party will, promptly after receiving notice of the commencement of any action against such Indemnified Party in respect of which indemnification may be sought against the Company or the Underwriter, as the case may be (in any case the “Indemnifying Party”), notify the Indemnifying Party in writing of the commencement of the action, enclosing a copy of all papers served, but the omission so to notify the Indemnifying Party of any such action shall not relieve the Indemnifying Party of any liability which it may have to any Indemnified Party otherwise than under this Section. If such action is brought against an Indemnified Party and

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such Indemnified Party notices the Indemnifying Party of its commencement, the Indemnifying Party may, or if so requested by the Indemnified Party shall, participate in it or assume its defense, with counsel reasonably satisfactory to the Indemnified Party, and after notice from the Indemnifying Party to the Indemnified Party of an election to assume the defense, the Indemnifying Party will not be liable to the Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense other than reasonable costs of investigation subsequently incurred by the Indemnified Party in connection with the defense thereof. Until the Indemnifying Party assumes the defense of any such action at the request of the Indemnified Party, the Indemnifying Party may participate at its own expense in the defense of the action. If the Indemnifying Party does not employ counsel to have charge of the defense or if any Indemnified Party reasonably concludes that there may be defenses available to it or them which are different from or in addition to those available to the Indemnifying Party or the Indemnified Party and the Indemnifying Parties may have conflicting interests which would make it inappropriate for the same counsel to represent both of them, reasonable legal and other expenses incurred by such Indemnified Party will be paid by the Indemnifying Party and the Indemnifying Party shall not have the right to direct the defense of such action on behalf of such Indemnified Party (it being understood, however, that the Indemnifying Party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) approved by the Underwriter in the case of paragraph (a) representing all Indemnified Parties who are parties to such action). Any obligation under this Section 5 of an Indemnifying Party to reimburse an Indemnified Party for expenses includes the obligation to reimburse the Indemnified Party to cover such expenses in reasonable amounts and at reasonable periodic intervals upon receipt by the Indemnifying Party of an invoice for such expenses not more often than monthly as requested by the Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall not be liable for any settlement of any action or claim effected without its consent, which consent shall not be unreasonably withheld.

     In order to provide for just and equitable contribution in circumstances in which the indemnification provided for above is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company or Underwriter on grounds of policy or otherwise, the Company and the Underwriter shall contribute to the total losses, claims, damages and liabilities (including reasonable legal or other expenses of investigation or defense) to which they may be subject (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Underwriter from the offering of the Bonds or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Underwriter in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The respective relative benefits received by the Company and the Underwriter shall be deemed to be in the same proportion as the proceeds from the sale (i.e., the principal amount of the Bonds) bears to the discount or fee in connection with such sale received by the Underwriter as an underwriting fee, as set forth in Section 12 hereof. The relative fault of the Company and the Underwriter shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriter and the parties’ relative intent, knowledge, access to information and opportunity to

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correct or prevent such statement or omission. However, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person who controls the Underwriter within the meaning of Section 15 of the Securities Act will have the same rights to contribution as the Underwriter, and each person who controls the Company within the meaning of Section 15 of the Securities Act and each officer and each director of the Company will have the same rights to contribution as the Company, subject to the foregoing sentence. Any party entitled to contribution will, promptly after receiving notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made under this paragraph, notify each party from whom contribution may be sought, but the omission to notify such party shall not relieve any party from whom contribution may be sought from any other obligation it may have otherwise than pursuant to this paragraph.

     7. The Company’s obligations hereunder, except those contained in Sections 6 and 12, will be conditioned upon the approval by the DPUC of the issuance of the Note, the loan under the Agreement and the transactions of the Company contemplated by the Financing Documents; the purchase of and payment for the Bonds in accordance herewith on the Closing Date; the performance of the obligations of the Authority and the Underwriter not dependant on the performance of the Company; and the delivery to the Authority of the approving opinion of Winston & Strawn LLP, Bond Counsel, in form and substance substantially in the form set forth as Appendix D to the Official Statement.

     8. The Authority’s obligation to deliver the Bonds and to accept payment therefor are subject to the performance of the obligations of the Company and the Underwriter not dependent on the performance of the Authority, and will be conditioned upon the approval by the DPUC of the issuance of the Note, the loan under the Agreement and the transactions of the Company contemplated by the Financing Documents; the purchase of and payment for the Bonds in accordance herewith on the Closing Date; the delivery by the Underwriter to the Authority of a certificate substantially in the form of Schedule I to the Tax Regulatory Agreement; and the delivery to the Authority of the approving opinion of Winston & Strawn LLP, Bond Counsel, in form and substance substantially in the form set forth as Appendix D to the Official Statement, and will be subject to the further condition that all documents, certificates, opinions and other items to be delivered at the closing pursuant hereto and as otherwise may reasonably be requested by Bond Counsel not be unsatisfactory in form and substance to Bond Counsel.

     9. The Underwriter’s obligations hereunder to purchase and pay for the Bonds will be subject to (i) the approval by the DPUC of the issuance of the Note, the loan under the Agreement and the transactions of the Company contemplated by the Financing Documents, (ii) the performance by the Authority of its obligations to be performed hereunder at or prior to the Closing Date, (iii) the performance by the Company of its obligations to be performed hereunder at or prior to the Closing Date, (iv) the continued accuracy in all material respects of the representations and warranties of the Authority and the Company contained herein and in the Agreement as of the date hereof and as of the Closing Date, and (v) in the reasonable judgment of the Underwriter, the following conditions:

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     (a) After the date hereof, no litigation may be threatened or pending in any court (i) seeking to restrain or enjoin the issuance or delivery of the Bonds or the payment, collection or application of the proceeds thereof or moneys and securities pledged or to be pledged under the Indenture, or (ii) in any way questioning or affecting the validity of the Bonds or any provisions of the Indenture, the Financing Documents or this Bond Purchase Agreement or any proceedings taken by the Authority with respect to the foregoing, or (iii) questioning the Authority’s creation, organization or existence or the titles to office of any of its officers authorized under the Resolution, or its power to lend or provide money in connection with the Project as referred to in the Indenture and the Agreement, or (iv) questioning the Company’s power to enter into and perform the Financing Documents or this Bond Purchase Agreement;

     (b) The market value of the Bonds has not been adversely affected by reason of the fact that between the date hereof and the Closing Date:

     (1) legislation has been enacted by the Congress or recommended to the Congress for passage by the President of the United States, or favorably reported for passage to either House of the Congress by any Committee of such House to which such legislation has been referred for consideration, or

     (2) a decision has been rendered by a Court of the United States, or the United States Tax Court, or

     (3) an order, ruling, regulation or official statement has been made by the Treasury Department of the United States or the Internal Revenue Service,

with the purpose or effect, directly or indirectly, of imposing federal income taxation upon such revenues or other income as would be derived by the Authority under the Agreement or such interest on the Bonds as would be received by the true owners and holders thereof, other than a person who, within the meaning of Section 147(a) of the Internal Revenue Code of 1986, as amended (the “Code”), is a “substantial user” or “related person”;

     (c) The market value of the Bonds has not in the opinion of the Underwriter been materially adversely affected by reason of the fact that between the date hereof and the Closing Date any legislation, ordinance, rule or regulation has been introduced in or enacted by any governmental body, department or agency in the State, or a decision has been rendered by any court of competent jurisdiction within the State with the purpose or effect, directly or indirectly, of imposing state income taxation upon such revenues or other income as would be derived by the Authority under the Agreement or such interest on the Bonds as would be received by the true owners and holders thereof;

     (d) No stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission may have been issued or made after the date hereof to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the Bonds, as contemplated hereby or by the Official Statement, is in violation or would be in violation unless registered or otherwise qualified under any provisions of the Securities Act of

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1933, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect;

     (e) After the date hereof, no legislation may have been introduced in or enacted by the House of Representatives or the Senate or the Congress of the United States of America, nor shall a decision by a court of the United States of America have been rendered, or a ruling, regulation or official statement by or on behalf of the Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter have been made or proposed to the effect that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration, qualification or other requirements of the Securities Act of 1933, as amended and as then in effect, or of the Securities Act of 1934, as amended and then in effect, or of the Trust Indenture Act of 1939, as amended and as then in effect;

     (f) (i) No event shall have occurred after the date hereof, which, in the opinion of the Underwriter, makes untrue, incorrect or inaccurate, in any material respect, any statement or information contained or incorporated by reference in the Official Statement (including the Appendices thereto), or which is not reflected in the Official Statement but should be reflected therein for the purpose for which the Official Statement is to be used in order to make the statements and information contained therein in light of the circumstances under which they were made not misleading in any material respect, and (ii) there shall be no material adverse change (not in the ordinary course of business) in the condition of the Company from that set forth in or incorporated by reference in the Official Statement and the Appendix A thereto;

     (g) In the judgment of the Underwriter, the market price of the Bonds, or the market price generally of obligations of the general character of the Bonds, shall not have been adversely affected because: (a) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; (b) the New York Stock Exchange, Inc. or other national securities exchange, or any governmental authority, shall impose, as to the Bonds or similar obligations, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, underwriters; (c) a general banking moratorium shall have been established by federal, New York or Connecticut authorities; or (d) a war involving the United States of America shall have been declared, or any other national calamity shall have occurred, or any conflict involving the armed forces of the United States of America has escalated to such a magnitude as to materially adversely affect the Underwriter’s ability to market the Bonds;

     (h) All matters relating to this Bond Purchase Agreement, the Bonds and the sale thereof, the Indenture, the Financing Documents and the consummation of the transactions contemplated by this Bond Purchase Agreement must be approved by the Underwriter but such approval may not be unreasonably withheld; and

     (i) At or prior to the Closing Date the Underwriter must have received the following documents:

     (1) Certified copies of the executed Financing Documents and the Indenture.

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     (2) The legal opinions of the following, dated the Closing Date, in the form and substance satisfactory to Bond Counsel and the Underwriter:

     (A) Murtha Cullina LLP, counsel to the Company.

     (B) Day Pitney LLP, counsel to the Trustee.

     (C) Winston & Strawn LLP, Bond Counsel, substantially in the form set forth as Appendix D to the Official Statement.

     (D) Winston & Strawn LLP, Bond Counsel, concerning supplementary matters.

The respective forms of such opinions above are subject, in each case, only to such changes therein as counsel to the Underwriter approve;

     (3) The legal opinion of Shipman, Sosensky, Randich & Marks, LLC, counsel to the Underwriter, addressed to the Underwriter in the form and substance satisfactory to the Underwriter;

     (4) A certificate of an Authorized Representative of the Authority, dated the Closing Date, to the effect that (i) on and as of the Closing Date, each of the representations and warranties of the Authority set forth in Section 4 hereof is true, accurate and complete and all agreements of the Authority herein provided and contemplated to be performed on or prior to the Closing Date have been so performed; (ii) the executed copies of the Financing Documents and the certified copies of the Resolution authorizing the Bonds are true, correct and complete copies of such documents and have not been modified, amended, superseded or rescinded but remain in full force and effect as of the Closing Date; (iii) the Bonds have been duly authorized, executed and delivered by the Authority; (iv) this Bond Purchase Agreement, the Indenture and the Financing Documents and any and all other agreements and documents required to be executed and delivered by the Authority in order to carry out, give effect to and consummate the transactions contemplated hereby and by the Indenture have each been duly authorized, executed and delivered by the Authority, and as of the Closing Date each is in full force and effect and substantially all right, title and interest inuring to the Authority under the Agreement has been duly pledged, and the loan payments thereunder assigned, to the Trustee under the Indenture for the benefit of the holders of the Bonds; (v) no litigation is pending or threatened to restrain or enjoin the issuance or sale of the Bonds or in any way contesting the validity or affecting the authority for the issuance of the Bonds, the authorization, execution or performance of the Indenture and the Financing Documents, or the existence or powers of the Authority or the right of the Authority to finance the Project; and (vi) the Treasurer of the State has approved all matters and resolutions of the Authority required by the Act to be approved by the Treasurer with respect to the issuance, sale and delivery of the Bonds;

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     (5) A certificate of the Chairman, President and Chief Executive Officer, Vice President-Finance, Chief Financial Officer and Treasurer, any Vice President, Assistant Treasurer or Secretary of the Company, dated the Closing Date, as to the due incorporation, valid existence of the Company under the laws of the State, and the due authorization, execution and delivery by the Company of this Bond Purchase Agreement and the Financing Documents and annexing resolutions of the Board of Directors or Executive Committee or both with respect to such authorizations;

     (6) A certificate of the Chairman, President and Chief Executive Officer, Vice President-Finance, Chief Financial Officer and Treasurer, any Vice President, Assistant Treasurer or Secretary of the Company, dated the Closing Date, certifying severally that (i) the Company does not have any material contingent obligations or any material contractual agreements which are not disclosed or incorporated by reference in the Official Statement, (ii) so far as is known to the Company, there are no material pending or threatened legal proceedings to which the Company is or may be made a party or to which any of its property is or may become subjugated, which has not been fully disclosed or incorporated by reference in the Official Statement, (iii) there is no action or proceeding pending, or to its best knowledge threatened, looking toward the dissolution or liquidation of the Company and there is no action or proceeding pending, or to its best knowledge threatened, by or against the Company affecting the validity and enforceability of the terms of the Financing Documents or this Bond Purchase Agreement, (iv) since December 31, 2006 there has been no material adverse change in the financial condition of the Company, taking into account seasonal revenue fluctuations, not disclosed or incorporated by reference in the Official Statement, and (v) the representations and warranties of the Company contained herein are true, complete and correct as of the Closing Date, with the same effect as if those representations and warranties had been made on and as of such date;

     (7) A certificate, satisfactory in form and substance to the Underwriter, of one or more duly authorized officers of the Trustee, dated the Closing Date, as to the due execution and delivery of the Indenture and the Disclosure Agreement by the Trustee and the due authentication and delivery of the Bonds by the Trustee thereunder;

     (8) Letters from Standard & Poor’s Ratings Service, the rating agency, indicating that the rating for the Bonds is no less than “A”;

     (9) A letter from PricewaterhouseCoopers LLP, independent auditors for the Company, dated the Closing Date and addressed to the Underwriter;

     (10) A copy of the order of the DPUC approving the issuance of the Bonds and the transactions of the Company contemplated by the Financing Documents;

     (11) Certificates evidencing that the insurance required to be obtained pursuant to the Agreement is in place;

     (12) A letter or other written evidence satisfactory to Bond Counsel that the State Treasurer has approved the issuance of the Bonds in accordance with the Act;

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     (13) A letter or other written evidence satisfactory to Bond Counsel that an elected official has approved the issuance of the Bonds in accordance with the applicable provisions of the Code; and

     (14) Such additional certificates, instruments or other documents as the Underwriter may reasonably require to evidence the accuracy, as of the Closing Date, of the representations and warranties herein contained, and the due performance and satisfaction by the Company at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by any one or all of them in connection with this Bond Purchase Agreement, the Financing Documents or the Indenture.

     In addition:

     The Authority hereby represents that the Preliminary Official Statement, with such additions and amendments as have been heretofore agreed upon between the Authority and the Underwriter, is deemed final as of the date thereof, except for the omission of offering prices, interest rates, selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Bonds depending on such matters. Such representation is made in reliance upon the Company’s representation herein that material relating to the Company included in the Preliminary Official Statement is true and correct. The Company has contracted with a printer acceptable to the Underwriter for the delivery to the Underwriter at Company’s expense of the number of copies requested by the Underwriter of the Official Statement and will cooperate with the Underwriter to secure the delivery thereof with reasonable promptness and within seven business days. The Underwriter agrees to file a copy of such Official Statement with a nationally recognized municipal securities information repository within five (5) days after such final Official Statements are made available to the Underwriter and to advise the Authority as to the location and time of such filing. Should the Underwriter require additional copies of the Official Statement, the Authority agrees to cooperate with the Underwriter in obtaining such copies at Company’s expense if such request is made within 90 days from the date hereof and at the Underwriter’s expense if such request is made thereafter. The Underwriter has taken and will continue to take action to comply with the Securities Exchange Commission Municipal Securities Disclosure Rule, 17 C.F.R. §240.15c2-12 and the provisions of this paragraph shall survive the expiration hereof to the extent necessary for such purpose.

     Except as provided in Sections 6 and 12 hereof, if the Authority or the Company shall fail or be unable to satisfy the conditions of their obligations contained in this Bond Purchase Agreement, or if the Underwriter’s obligations hereunder shall be terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase Agreement shall terminate and neither the Authority nor the Underwriter nor the Company shall be under any further obligation hereunder.

     SIMULTANEOUSLY WITH OR BEFORE DELIVERY OF THE BONDS, THE UNDERWRITER SHALL FURNISH TO THE AUTHORITY A CERTIFICATE SUBSTANTIALLY IN FORM ATTACHED TO THE TAX REGULATORY AGREEMENT ACCEPTABLE TO BOND COUNSEL TO THE EFFECT THAT (I) THE UNDERWRITER HAS MADE A BONA FIDE PUBLIC OFFERING OF THE BONDS TO THE PUBLIC AT

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INITIAL OFFERING PRICES NOT GREATER THAN THE RESPECTIVE PRICES SHOWN ON THE COVER OF THE OFFICIAL STATEMENT, OR IN THE CASE OF DISCOUNT OBLIGATIONS SOLD ON A YIELD BASIS, AT YIELDS NO LOWER THAN THOSE SHOWN ON THE COVER, INCLUDING INTEREST ACCRUED ON THE BONDS FROM THE DATE THEREOF, AND (II) A SUBSTANTIAL AMOUNT OF THE FINAL AMOUNT OF EACH MATURITY OF THE BONDS WAS SOLD TO THE FINAL PURCHASER THEREOF (NOT INCLUDING BOND HOUSES AND BROKERS OR SIMILAR PERSONS OR ORGANIZATIONS ACTING IN THE CAPACITY OF UNDERWRITER OR WHOLESALERS) AT PRICES NOT GREATER THAN SUCH OFFERING PRICES OR YIELDS. Bond Counsel advises that (i) such certificate must be made on the best knowledge, information and belief of the Underwriter, (ii) the sale to the public of 10% or more of each maturity of the Bonds at prices or yields not greater than the Initial Offering Prices or Yields would be sufficient for the purpose of certifying as to the sale of a substantial amount of the Bonds, and (iii) reliance on other facts as a basis for such certification would require evaluation by Bond Counsel to assure compliance with the statutory requirement.

     10. The Authority and the Company agree that all representations, warranties and covenants made by them herein, and in certificates or other instruments delivered pursuant hereto or in connection herewith, shall be deemed to have been relied upon by the Underwriter notwithstanding any investigation heretofore or hereafter made by the Underwriter on its behalf, and that all representations, warranties and covenants made by the Authority and the Company herein and therein and all of the Underwriter’s rights hereunder and thereunder shall survive the delivery of the Bonds.

     11. The Underwriter has received reasonable assurances that the Company will comply with its written undertaking, set forth in Section 6.11 of the Agreement and in the Disclosure Agreement, to provide certain required disclosure information to the Trustee, as dissemination agent, for the benefit of the bondholders and that procedures are, or will be, in place such that the Trustee, as dissemination agent, will receive prompt notice of any material event or Company’s failure, in any material respect, to comply with its undertaking.

     12. The Authority shall pay, but only from proceeds of the Bonds or moneys to be provided by the Company, any expenses incident to the performance of its obligations hereunder including but not limited to (a) the cost of the preparation and printing (for distribution on or prior to the date hereof) of the Financing Documents, the Indenture, the Preliminary Official Statement and the final Official Statement (in such numbers as the Authority, the Company and the Underwriter shall mutually agree upon), and this Bond Purchase Agreement; (b) the cost of the preparation and printing of the Bonds; (c) the fees and disbursements of Winston & Strawn LLP, Bond Counsel; (d) the fees of any other attorneys, experts or consultants retained by the Authority; and (e) any fee to the rating agencies.

     The Underwriter shall pay (a) the cost of the preparation and printing of the Blue Sky Survey, if any; (b) all advertising expenses in connection with the public offering of the Bonds; (c) the fees and disbursements of Shipman, Sosensky, Randich & Marks, LLC, counsel to the Underwriter, subject to reimbursement by the Company; and (d) all other expenses incurred by the Underwriter in connection with their public offering and distribution of the Bonds, including the fees and disbursements of all attorneys, experts and consultants retained by them.

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     On or prior to the Closing Date, the Company shall pay the fees and disbursements of the Underwriter in the aggregate amount of $458,500.

     13. All communications hereunder shall be in writing and, unless otherwise directed in writing, shall be addressed as follows: if to the Authority at 999 West Street, Rocky Hill, Connecticut 06067, Attention: Executive Director; if to the Company at 93 West Main Street, Clinton, Connecticut 06413, Attention: Vice President-Finance, Chief Financial Officer and Treasurer; if to the Underwriter at 12555 Manchester Road, St. Louis, Missouri 63131, Attention: Tom Lally, Director.

     14. This Bond Purchase Agreement shall be construed and enforceable in accordance with the laws of the State of Connecticut.

     15. All terms used but not defined herein shall have the meanings set forth in the Official Statement.

     16. This Bond Purchase Agreement may be executed in any number of counterparts, each of which, when so executed and delivered shall be an original; but such counterparts shall together constitute but one and the same Bond Purchase Agreement.

     17. In case any one or more of the provisions contained in this Bond Purchase Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Bond Purchase Agreement, but this Bond Purchase Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.

     18. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Underwriter, the Authority and the Company. This Agreement may be signed in several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument.

CONNECTICUT DEVELOPMENT AUTHORITY
By:
	Authorized Representative

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THE CONNECTICUT WATER COMPANY
By:	/s/ David C. Benoit
	David C. Benoit, Vice President-Finance, CFO and Treasurer
EDWARD D. JONES & CO, L.P.
By:	/s/ Tom Lally
	Tom Lally, Director

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EX-4.34

Exhibit 4.34

[EXECUTION COPY]

CONNECTICUT DEVELOPMENT AUTHORITY

and

THE CONNECTICUT WATER COMPANY

LOAN AGREEMENT

Dated as of December 1, 2007

Connecticut Development Authority
$15,000,000 Water Facilities Revenue Bonds
(The Connecticut Water Company Project — 2007A Series)

TABLE OF CONTENTS

	Page
PREAMBLE		1
ARTICLE I DEFINITIONS AND INTERPRETATION		3
Section 1.1. Definitions		3
Section 1.2. Interpretation		7
ARTICLE II REPRESENTATIONS AND WARRANTIES		9
Section 2.1. Representations by the Authority		9
Section 2.2. Representations by the Borrower		10
ARTICLE III THE LOAN		13
Section 3.1. Loan Clauses		13
Section 3.2. Other Amounts Payable		13
Section 3.3. Manner of Payment		14
Section 3.4. Obligation Unconditional		14
Section 3.5. Securities Clauses		14
Section 3.6. Issuance of Bonds		14
Section 3.7. Effective Date and Term		14
Section 3.8. No Additional Bonds		15
ARTICLE IV THE PROJECT		16
Section 4.1. Completion of the Project		16
Section 4.2. Payment of Additional Project Costs by Borrower		17
Section 4.3. Completion Certificate		17
Section 4.4. No Warranty Regarding Condition, Suitability or Cost of Project		17
Section 4.5. Taxes		17
Section 4.6. Insurance		17
Section 4.7. Compliance with Law		18
Section 4.8. Maintenance and Repair		18
Section 4.9. Disposition of Project Realty by Borrower		18
Section 4.10. Leasing of the Project Realty and the Project Equipment		19
Section 4.11. Project Equipment		19
Section 4.12. Borrower Contribution		19
ARTICLE V CONDEMNATION DAMAGE AND DESTRUCTION		20
Section 5.1. No Abatement of Payments Hereunder		20
Section 5.2. Project Disposition Upon Condemnation, Damage or Destruction		20
Section 5.3. Application of Net Proceeds of Insurance or Condemnation		20
ARTICLE VI COVENANTS		21
Section 6.1. The Borrower to Maintain its Corporate Existence; Conditions under which Exceptions Permitted		21
Section 6.2. Indemnification, Payment of Expenses, and Advances		21
Section 6.3. Incorporation of Tax Regulatory Agreement; Payments Upon Taxability		23
Section 6.4. Public Purpose Covenants		24
Section 6.5. Further Assurances and Corrective Instruments		24
Section 6.6. Covenant by Borrower as to Compliance with Indenture		24
Section 6.7. Assignment of Agreement or Note		24
Section 6.8. Inspection		25

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	Page
Section 6.9. Default Notification		25
Section 6.10. Covenant Against Discrimination		25
Section 6.11. Covenant to Provide Disclosure		25
Section 6.12. Negative Pledge		25
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES		26
Section 7.1. Events of Default		26
Section 7.2. Remedies on Default		27
Section 7.3. Remedies on Public Purpose Default		27
Section 7.4. No Duty to Mitigate Damages		28
Section 7.5. Remedies Cumulative		28
ARTICLE VIII PREPAYMENT PROVISIONS		30
Section 8.1. Optional Prepayment		30
Section 8.2. Notices of Prepayment		31
Section 8.3. Mandatory Prepayment on Taxability and Receipt of Request for Redemption of a Deceased Holder’s Bonds		31
ARTICLE IX GENERAL		32
Section 9.1. Indenture		32
Section 9.2. Benefit of and Enforcement by Bondholders		32
Section 9.3. Force Majeure		32
Section 9.4. Amendments		32
Section 9.5. Notices		32
Section 9.6. Prior Agreements Superseded		33
Section 9.7. Execution of Counterparts		33
Section 9.8. Time		33
Section 9.9. Separability of Invalid Provisions		33
Section 9.10. Third Party Beneficiaries		33
Section 9.11. Governing Law		33
APPENDICES
Appendix A — Form of Promissory Note
Appendix B — Description of Project Realty
Appendix C — Description of Project Equipment

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Connecticut Development Authority

The Connecticut Water Company

LOAN AGREEMENT

     THIS LOAN AGREEMENT, made and dated as of December 1, 2007, by and between the CONNECTICUT DEVELOPMENT AUTHORITY, a body corporate and politic constituting a public instrumentality and political subdivision of the State of Connecticut, and THE CONNECTICUT WATER COMPANY, a corporation organized and existing under the laws of the State of Connecticut,

WITNESSETH THAT:

     WHEREAS, the State Commerce Act, constituting Connecticut General Statutes, Sections 32-1a through 32-23zz, as amended (the “Act”), declares that there is a continuing need in the State (1) for industrial development and activity to provide and maintain employment and tax revenues and to control, abate and prevent pollution to protect the public health and safety, (2) for the development of recreation facilities to promote tourism, provide and maintain employment and tax revenues, and promote the public welfare, (3) for the development of commercial and retail sales and service facilities in urban areas to provide and maintain construction and permanent employment and tax revenues, to improve conditions of deteriorated physical development, slow economic growth and eroded financial health of the public and private sectors in urban areas and to revitalize the economy of urban areas, and (4) for assistance to public service businesses providing transportation and utility services in the State, and that the availability of financial assistance and suitable facilities are important inducements to industrial and commercial enterprises to remain or locate in the State and to provide industrial, recreation, urban and public service projects; and

     WHEREAS, the Act provides that (1) the term “project” as used therein means any facility, plant, works, system, building, structure, utility, fixture or other real property improvement located in the State, and the land on which it is located or which is reasonably necessary in connection therewith, which is of a nature or which is to be used or occupied by any person for purposes which would constitute it as an economic development project, recreation project, urban project, public service project or health care project, and any real property improvement reasonably related thereto, and (2) a project may also include or consist exclusively of machinery, equipment or fixtures; and

     WHEREAS, the Act provides that the Authority shall have power to determine the location and character of, and extend credit or make loans to any person for the planning, designing, acquiring, improving and equipping of, a project which may be secured by loan, lease or sale agreements, contracts and other instruments, upon such terms and conditions as the Authority shall determine to be reasonable, to require the inclusion in any contract, loan agreement or other instrument of such provisions for the construction, use, operation, maintenance and financing of the project as the Authority may deem necessary or desirable, to issue its bonds for such purposes, subject to the approval of the Treasurer of the State, and, as security for the payment of the principal or redemption price, if any, of and interest on any such bonds, to pledge or assign such a loan, lease or sale agreement and the revenues and receipts derived by the Authority from such a project; and

     WHEREAS, by resolution adopted on April 18, 2007, in furtherance of the purposes of the Act, the Authority has accepted the application of The Connecticut Water Company (the “Borrower”) for assistance in the financing of various capital projects located in the State of Connecticut; and

     WHEREAS, the Borrower currently owns certain existing facilities within certain municipalities in the State and at this time requests assistance in the design, acquisition, installation, improvement and construction of certain facilities consisting of water treatment and storage facilities, transmission and distribution mains, service lines, meters, hydrants and pumping equipment for the purpose of supplying safe potable water to the general public within its service area; and

     WHEREAS, the Authority has by a further resolution adopted on October 17, 2007 authorized the issuance of not to exceed $15,000,000 principal amount of its Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series) for the purpose of providing funds for the Projects; and

     WHEREAS, pursuant to such resolution the Bonds (as hereinafter defined) are to be secured by an Indenture of Trust of even date herewith, by and between the Authority and U.S. Bank National Association, as Trustee; and

     WHEREAS, the Bonds shall be special obligations of the Authority, payable solely from the revenues or other receipts, funds or monies to be derived by the Authority under this Agreement or the Indenture and from any amounts otherwise available under the Indenture for the payment of the Bonds; and

     WHEREAS, the Authority proposes with the proceeds of the Bonds to make a loan to the Borrower and the Borrower proposes to borrow such proceeds from the Authority for the purpose of financing the acquisition, construction and installation of the Project; and

     WHEREAS, the Borrower acknowledges that the Authority is providing financing for the Project in furtherance of the Authority’s corporate purposes under the Act, that the accomplishment of these purposes is dependent upon the compliance of the Borrower with its covenants contained in this Agreement, that the Authority has a resulting beneficial interest in the Project, and that the Borrower’s use of and interest in the Project as provided hereby are in furtherance of the discharge of a public purpose; and

     WHEREAS, the Connecticut Department of Public Utility Control (the “DPUC”) has approved the issuance of the Note;

     NOW, THEREFORE, in consideration of the premises and of the mutual representations, covenants and agreements herein set forth, the Authority and the Borrower, each binding itself, its successors and assigns, do mutually promise, covenant and agree as follows (provided that in the performance of the agreements of the Authority herein contained, any obligation it may incur for the payment of money shall not be an obligation, debt or liability of the State or any municipality thereof and neither the State nor any municipality thereof shall be liable on any obligation so incurred, but any such obligation shall be payable solely out of the revenues or other receipts, funds or monies to be derived by the Authority under this Agreement or the Indenture and from any amounts otherwise available under the Indenture for the payment of the Bonds):

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ARTICLE I
DEFINITIONS AND INTERPRETATION

     Section 1.1. Definitions. For the purposes of this Agreement, the following words and terms shall have the respective meanings set forth as follows, and any capitalized word or term used but not defined herein is used as defined in the Indenture:

     “Act” means the State Commerce Act, constituting Connecticut General Statutes, Sections 32-la through 32-23zz, as amended.

     “Agreement” means this Loan Agreement and any amendments and supplements hereto.

     “Authority” means the Connecticut Development Authority, a body corporate and politic constituting a public instrumentality and political subdivision of the State of Connecticut, duly organized and existing under the laws of the State, and any body, board, authority, agency or other political subdivision or instrumentality of the State which shall hereafter succeed to the powers, duties and functions thereof.

     “Authorized Representative” means, in the case of the Authority, the Chairman or Vice Chairman, the President, any Executive Vice President, Deputy Director or any Senior Vice President or any Vice President thereof and, in the case of the Borrower, the Chairman, the President and Chief Executive Officer, the Vice President-Finance, Chief Financial Officer and Treasurer, and any Vice President, Assistant Treasurer or Secretary thereof and, when used with reference to the performance of any act, the discharge of any duty or the execution of any certificate or other document, any officer, employee or other person authorized to perform such act, discharge such duty or execute such certificate or other document.

     “Beneficial Owner” shall have the meaning specified in Section 2.3(F) of the Indenture. If any person claims to the Trustee to be a Beneficial Owner, for purposes of Section 2.4(C) of the Indenture, such person shall prove such claim to the satisfaction of the Trustee with such documentation and signature guaranties as the Trustee may request.

     “Bonds” means the $15,000,000 Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series) authorized and issued pursuant to Section 2.3 of the Indenture.

     “Bond Counsel” means Winston & Strawn LLP or such other nationally recognized bond counsel selected by the Authority and reasonably satisfactory to the Borrower and the Trustee.

     “Borrower” means (i) The Connecticut Water Company, a corporation organized and existing under the laws of the State of Connecticut, and its successors and assigns and (ii) any surviving, resulting or transferee corporation as provided in Section 6.1 hereof.

     “Business Day” means any day (i) that is not a Saturday or Sunday, (ii) that is a day on which banks located in Hartford, Connecticut and New York, New York are not required or authorized to remain closed, (iii) that is a day on which banking institutions in the cities in which the principal offices of the Trustee and the Paying Agent are located and are not required or authorized to remain closed and (iv) that is a day on which the New York Stock Exchange, Inc. is not closed.

     “Code” means the Internal Revenue Code of 1986, as amended and regulations promulgated thereunder.

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     “Completion Date” means the date of completion of the Project as specified and established in accordance with Section 4.3 hereof.

     “Debt Service Fund” means the special trust fund so designated, established pursuant to Section 5.1 of the Indenture.

     “DTC” or “The Depository Trust Company” shall mean the limited-purpose trust company organized under the laws of the State of New York which shall act as securities depository for the Bonds, and any successor thereto.

     “Determination of Taxability” means with respect to the Bonds (1) a ruling by the Internal Revenue Service, (2) the receipt by the owner of any of the Bonds from the Internal Revenue Service of a notice of assessment and demand for payment and (provided the Borrower has been afforded the opportunity to participate at its own expense in all appeals and proceedings to which such owner of the Bonds is a party relating to such assessment and demand for payment) the expiration of the appeal period provided therein if no appeal is taken or, if an appeal is taken by such owner as provided in Section 6.3 of this Agreement within the applicable appeal period which has the effect of staying the demand for payment, a final unappealable decision by a court of competent jurisdiction, or (3) the admission in writing by the Borrower, in any case to the effect that the interest on any Bonds is includable in the gross income for federal income tax purposes (other than for purposes of any alternative minimum tax or foreign branch profits tax) of an owner or former owner thereof, other than for a period during which such owner or former owner is or was a “Substantial User” of the Project financed by such Bonds or a “Related Person” as such terms are defined in the Code. For purposes of this definition, the term owner means the Beneficial Owner of the Bonds so long as the Book-Entry System is in effect.

     “DPUC” means the State Department of Public Utilities Control.

     “Disclosure Agreement” means the agreement by and between the Borrower and U.S. Bank National Association, as dissemination agent, dated the date of the initial delivery of the Bonds, providing for the provision of certain information subsequent to the issuance of the Bonds.

     “Event of Default” means an Event of Default as defined in subsection 7.1 hereof.

     “Financing Documents” (1) when used with respect to the Borrower, means this Agreement, the Tax Regulatory Agreement, the Note, the Disclosure Agreement and the general certificate of the Borrower delivered in connection with the issuance of the Bonds, and (2) when used with respect to the Authority, means any of the foregoing documents and agreements to which the Authority is a direct party. The Financing Documents do not include any documents or agreements to which the Borrower is not a direct party, including the Bonds or the Indenture.

     “Fitch” means Fitch Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, at the direction of the Borrower, by notice to the Trustee and the Borrower.

     “Indenture” means the Indenture of Trust relating to the Bonds, of even date herewith, by and between the Authority and the Trustee, together with all indentures supplemental thereto made and entered into in accordance therewith.

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     “Interest Payment Date” shall mean June 1, 2008 and each December 1 and June 1 thereafter on which interest is payable on the Bonds as provided in the forms of the Bonds.

     “Moody’s” means Moody’s Investors Services, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, at the direction of the Borrower, by notice to the Trustee and the Borrower.

     “Net Proceeds” when used with respect to any insurance or condemnation award, means the gross proceeds from such award less all expenses (including attorney’s fees and expenses and any extraordinary expenses) incurred by the Trustee in the collection thereof.

     “Note” means the promissory note of the Borrower to the Authority, dated the date of initial delivery of the Bonds in the form attached as Appendix A to this Agreement, and any amendments or supplements made in conformity with this Agreement and the Indenture.

     “Outstanding”, when used with reference to a Bond or Bonds, as of any particular date, means all Bonds which have been authenticated and delivered under the Indenture, except:

     (1) any Bonds canceled by the Trustee because of payment or redemption prior to maturity or surrendered to the Trustee for cancellation;

     (2) any Bond (or portion of a Bond) paid or redeemed or for the payment or redemption of which there has been separately set aside and held in the Debt Service Fund either:

     (a) monies in an amount sufficient to effect payment of the principal or applicable Redemption Price thereof, together with accrued interest on such Bond to the payment or redemption date, which payment or redemption date shall be specified in irrevocable instructions given to the Trustee to apply such monies to such payment on the date so specified; or

     (b) obligations of the kind described in subsection 12.1(B) of the Indenture in such principal amounts, of such maturities, bearing such interest and otherwise having such terms and qualifications as shall be necessary to provide monies in an amount sufficient to effect payment of the principal or applicable Redemption Price of such Bond, together with accrued interest on such Bond to the payment or redemption date, which payment or redemption date shall be specified in irrevocable instructions given to the Trustee to apply such obligations to such payment on the date so specified; or

     (c) any combination of (a) and (b) above;

     (3) Bonds in exchange for or in lieu of which other Bonds shall have been authenticated and delivered under Article III of the Indenture; and

     (4) any Bond deemed to have been paid as provided in subsection 12.1 of the Indenture.

     “Paying Agent” means any paying agent for the Bonds appointed pursuant to Section 9.10 of the Indenture (and may include the Trustee), and its successor or successors and any other corporation which may at any time be substituted in its place in accordance with the Indenture.

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     “Permitted Encumbrances” mean, as of any particular date, (i) liens for taxes not yet due and payable, (ii) any lien created by this Agreement and the Indenture, (iii) utility, access and other easements and rights-of-way, that will not interfere with or impair the value or use of the Project as herein provided, (iv) any mechanic’s, laborer’s, materialman’s, supplier’s or vendor’s lien or right in respect thereof if payment is not yet due and payable and for which statutory lien rights exist, (v) such minor defects, irregularities, easements, and rights-of- way (including agreements with any railroad the purpose of which is to service the railroad siding) as normally exist with respect to property similar in character to the Project and which do not materially impair the value or use of the property affected thereby for the purpose for which it was acquired hereunder, and (vi) any mortgage, lien, security interest or other encumbrance to which the Authority may consent as provided in Section 4.9 hereof.

     “Principal User” means any principal user of the Project within the meaning of Section 144(a)(2)(B) of the Code, including without limitation any person who is a greater-than-10-percent-owner (or if none, the person(s) who holds the largest ownership interest in the Project), lessee or user of more than 10% of the Project measured either by occupiable space or fair rental value under any formal or informal agreement or, under the particular facts and circumstances, anyone who is a principal customer of the Project. The term “principal customer” means any person, who purchases output of the Project under a contract if the percentage of output taken or to be taken by such person, multiplied by a fraction the numerator of which is the term of such contract and the denominator of which is the economic life of the Project, exceeds 10%. In the case of a person who purchases output of an electric or thermal energy, gas, water or other similar facility, such person is a principal customer if the total output purchased by such person during any one year period beginning with the date the facility is placed in service is more than 10 percent of the facility’s output during each such period. Co-owners or co-lessees who are shareholders in a corporation or who are collectively treated as a partnership subject to subchapter K under section 761(a) of the Code are not treated as Principal Users merely by reason of their ownership of corporate or partnership interests.

     “Project” means the Borrower’s interest in the Project Realty and other interests in the real property, and in all Project Equipment wherever located and whether now owned or hereafter acquired or refinanced in whole or in part with the proceeds of the Bonds and any additions and accessions thereto, substitutions therefor and replacements, improvements, extensions and restorations thereof, described in the appendices hereto, as amended from time to time in accordance with this Agreement.

     “Project Equipment” means all personal property, goods, leasehold improvements, machinery, equipment, furnishings, furniture, fixtures, tools and attachments wherever located and whether now owned or hereafter acquired, financed in whole or in part with the proceeds of the Bonds, and any additions and accessions thereto, substitutions therefor and replacements thereof, including, without limitation the Project Equipment described in Appendix C hereto, as amended from time to time in accordance herewith.

     “Project Realty” means the realty and other interests in the real property financed in whole or in part from the proceeds of the Bonds, together with all replacements, improvements, extensions, substitutions, restorations and additions thereto which are made pursuant hereto, including without limitation, the Project Realty described in Appendix B, as amended from time to time in accordance herewith.

     “Rating Agency” shall mean S&P, Moody’s and Fitch, or, in each case, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority, at the direction of the Borrower, by notice to the Trustee and the Borrower.

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     “Redemption Price” means, when used with respect to a Bond or a portion thereof, the principal amount of such Bond or portion thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to the Indenture.

     “Related Person” means, with respect to any Principal User, a person which is a related person (as defined in Section 144(a)(3) of the Code, and by reference to Sections 267, 707(b) and 1563(a) of the Code, except that 50% is to be substituted for 80% in Section 1563(a)).

     “S&P” means Standard & Poor’s Ratings Services, a division of McGraw Hill, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation or division shall be dissolved, eliminated, reorganized, or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority at the direction of the Borrower, by notice to the Trustee and the Borrower.

     “State” means the State of Connecticut.

     “Substantial User” means any substantial user of the Project within the meaning of Section 147(a) of the Code.

     “Supplemental Indenture” means any indenture supplemental to the Indenture or amendatory of the Indenture, adopted by the Authority in accordance with Article X of the Indenture.

     “Tax Incidence Date” means the date as of which interest on the Bonds becomes or became includable in the gross income of the recipient thereof (other than the Borrower or another Substantial User or Related Person) for federal income tax purposes for any cause, as determined by a Determination of Taxability.

     “Tax Regulatory Agreement” means the Tax Regulatory Agreement, dated as of the date of initial issuance and delivery of the Bonds, among the Authority, the Borrower and the Trustee, and any amendments and supplements thereto.

     “Term”, when used with reference to this Agreement, means the term of this Agreement determined as provided in Article III hereof.

     “Trustee” means U.S. Bank National Association, and its successor or successors hereafter appointed in the manner provided in the Indenture.

     Section 1.2. Interpretation. In this Agreement:

     (1) The terms “hereby”, “hereof”, “hereto”, “herein”, “hereunder” and any similar terms, as used in this Agreement, refer to this Agreement, and the term “hereafter” means after, and the term “heretofore” means before, the date of this Agreement.

     (2) Words of the masculine gender mean and include correlative words of the feminine and neuter genders and words importing the singular number mean and include the plural number and vice versa.

     (3) Words importing persons include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public bodies, as well as natural persons.

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     (4) Any headings preceding the texts of the several Articles and Sections of this Agreement, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

     (5) Nothing contained in this Agreement shall be construed to cause the Borrower to become the agent for the Authority or the Trustee for any purpose whatsoever, nor shall the Authority or the Trustee be responsible for any shortage, discrepancy, damage, loss or destruction of any part of the Project wherever located or for whatever cause.

     (6) All approvals, consents and acceptances required to be given or made by any person or party hereunder shall be at the sole discretion of the party whose approval, consent or acceptance is required.

     (7) All notices to be given hereunder shall be given in writing within a reasonable time unless otherwise specifically provided.

     (8) If any provision of this Agreement shall be ruled invalid by any court of competent jurisdiction, the invalidity of such provision shall not affect any of the remaining provisions hereof.

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ARTICLE II

REPRESENTATIONS AND WARRANTIES

     Section 2.1. Representations by the Authority.

     The Authority represents and warrants that:

     (1) It is a body corporate and politic constituting a public instrumentality and political subdivision of the State, duly organized and existing under the laws of the State including the Act. The Authority is authorized to issue the Bonds in accordance with the Act and to use the proceeds thereof to finance the Project.

     (2) The Authority has complied with the provisions of the Act and has full power and authority pursuant to the Act to consummate all transactions contemplated by the Bonds, the Indenture and the Financing Documents.

     (3) By resolution duly adopted by the Authority and still in full force and effect, the Authority has authorized the execution, delivery and due performance of the Bonds, the Indenture and the Financing Documents, and the taking of any and all action as may be required on the part of the Authority to carry out, give effect to and consummate the transactions contemplated by this Agreement and the Indenture, and all approvals necessary in connection with the foregoing have been received.

     (4) The Bonds have been duly authorized, executed, authenticated, issued and delivered, constitute valid and binding special obligations of the Authority payable solely from revenues or other receipts, funds or monies pledged therefor under the Indenture and from any amounts otherwise available under the Indenture, and are entitled to the benefit of the Indenture. Neither the State nor any municipality thereof is obligated to pay the Bonds or the interest thereon. Neither the faith and credit nor the taxing power of the State nor any municipality thereof is pledged for the payment of the principal, and premium, if any, of and interest on the Bonds.

     (5) The execution and delivery of the Bonds, the Indenture and the Financing Documents and compliance with the provisions thereof, will not conflict with or constitute on the part of the Authority a violation of, breach of or default under its by-laws or any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Authority is a party or by which the Authority is bound, or, to the knowledge of the Authority, any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Authority or any of its activities or properties, and all consents, approvals, authorizations and orders of governmental or regulatory authorities which are required for the consummation by the Authority of the transactions contemplated thereby have been obtained.

     (6) Subject to the provisions of this Agreement and the Indenture, the Authority will apply the proceeds of the Bonds to the purposes specified in the Indenture and the Financing Documents.

     (7) There is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body pending or threatened against or affecting the Authority, or to the best knowledge of the Authority, any basis therefor, wherein an unfavorable decision, ruling or finding would adversely affect the transactions contemplated hereby or by the Indenture, or which, in any way, would adversely affect the validity of the Bonds, or the validity of or

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enforceability of the Indenture or the Financing Documents, or any agreement or instrument to which the Authority is a party and which is used or contemplated for use in consummation of the transactions contemplated hereby and by the Indenture.

     (8) It has not made any commitment or taken any action which will result in a valid claim for any finders or similar fees or commitments in respect of the transactions contemplated by this Agreement.

     (9) The representations of the Authority set forth in the Tax Regulatory Agreement are by this reference incorporated in this Agreement as though fully set forth herein.

     Section 2.2. Representations by the Borrower.

     The Borrower represents and warrants that:

     (1) The Borrower has been duly incorporated and validly exists as a corporation under the laws of the State of Connecticut, is not in violation of any provision of its certificate of incorporation or its by-laws, has corporate power to enter into and perform the Financing Documents, and by proper corporate action has duly authorized the execution and delivery of the Financing Documents.

     (2) The Financing Documents constitute valid and legally binding obligations of the Borrower, enforceable in accordance with their respective terms, except to the extent that such enforceability may be limited by bankruptcy or insolvency or other laws affecting creditors’ rights generally or by general principles of equity.

     (3) Neither the execution and delivery of the Financing Documents, the consummation of the transactions contemplated thereby, nor the fulfillment by the Borrower of or compliance by the Borrower with the terms and conditions thereof is prevented or limited by or conflicts with or results in a breach of, or default under the terms, conditions or provisions of any contractual or other restriction of the Borrower, evidence of its indebtedness or agreement or instrument of whatever nature to which the Borrower is now a party or by which it is bound, or constitutes a material default under any of the foregoing. No event has occurred and no condition exists which, upon the execution and delivery of any Financing Documents, constitutes an Event of Default hereunder or an Event of Default thereunder or, but for the lapse of time or the giving of notice, would constitute an Event of Default hereunder or an Event of Default thereunder.

     (4) There is no action or proceeding pending or, to the knowledge of the Borrower, threatened against the Borrower before any court, administrative agency or arbitration board that may materially and adversely affect the ability of the Borrower to perform its obligations under the Financing Documents and all authorizations, consents and approvals of governmental bodies or agencies required in connection with the execution and delivery of the Financing Documents and in connection with the performance of the Borrower’s obligations hereunder or thereunder have been obtained.

     (5) The execution, delivery and performance of the Financing Documents and any other instrument delivered by the Borrower pursuant to the terms hereof or thereof are within the corporate powers of the Borrower and have been duly authorized and approved by the board of directors of the Borrower and are not in contravention of law or of the Borrower’s certificate of incorporation or by-laws, as amended to date, or of any undertaking or agreement to which the Borrower is a party or by which it is bound.

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     (6) The Borrower represents that it has not made any commitment or taken any action which will result in a valid claim for any finders’ or similar fees or commitments in respect of the transactions described in this Agreement other than the fees to various parties to the transactions contemplated hereby which have been heretofore paid or provided.

     (7) The Project is included within the definition of a “project” in the Act. The Borrower intends the Project to continue to be an authorized project under the Act during the Term of this Agreement.

     (8) All amounts shown in Schedule D of the Tax Regulatory Agreement are eligible costs of a project financed by bonds issued by the Authority under the Act, and may be financed by amounts in the various Accounts of the Project Fund under the Indenture. None of the proceeds of the Bonds will be used directly or indirectly as working capital or to finance inventory.

     (9) The Project is in material compliance with all applicable federal, State and local laws and ordinances (including rules and regulations) relating to zoning, building, safety and environmental quality.

     (10) The Borrower intends to proceed with due diligence to complete the Project pursuant to Section 4.1 hereof. The Borrower has obtained, or will obtain, or will cause to be obtained, all necessary material approvals from any and all governmental agencies requisite to the Project, and has also obtained or will cause to be obtained, all material occupancy permits and authorizations from appropriate authorities authorizing the occupancy and use of the Project for the purposes contemplated hereby. The Borrower further represents and warrants that it will complete the Project, or cause the Project to be completed, in accordance with all material federal, State and local laws, ordinances and regulations applicable thereto.

     (11) The availability of financial assistance from the Authority, among other factors, has induced the Borrower to locate the Project in the State. The Borrower does not presently intend to lease the Project.

     (12) The Borrower will not take or omit to take any action which action or omission will in any way cause the proceeds of the Bonds to be applied in a manner contrary to that provided in the Indenture and the Financing Documents as in force from time to time.

     (13) The Borrower has not taken and will not take any action and knows of no action that any other person, firm or corporation, has taken or intends to take, which would cause interest on the Bonds to be includable in the gross income of the recipients thereof for federal income tax purposes. The representations, certifications and statements of reasonable expectation made by the Borrower in the Tax Regulatory Agreement and relating to Project description, composite issues, bond maturity and average asset economic life, use of Bond proceeds, arbitrage and related matters are hereby incorporated by this reference as though fully set forth herein.

     (14) The Borrower has good and marketable title in fee simple to the Project Realty subject only to Permitted Encumbrances and to irregularities or defects in title which may exist which do not materially impair the use of such properties in the Borrower’s business.

     (15) The Borrower has good and merchantable title to the Project Equipment owned by the Borrower as of the date hereof, free and clear of liens and encumbrances, other than Permitted Encumbrances.

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     (16) As of the date of hereof, neither the Borrower, nor to its knowledge anyone acting on behalf of the Borrower, has entered into negotiations with any person for the purpose of undertaking any borrowing concurrently with or subsequent to the issuance of the Bonds and to be secured wholly or partially by a lien or encumbrance on the Project or any part thereof, and the Borrower has no present intention of undertaking any such borrowing.

     (17) The Borrower will use all of the proceeds of the Bonds to finance the Project Costs.

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ARTICLE III

THE LOAN

     Section 3.1. Loan Clauses. (A) Subject to the conditions and in accordance with the terms of this Agreement, the Authority agrees to make a loan to the Borrower from the proceeds of the Bonds in the amount of $15,000,000 and the Borrower agrees to borrow such amount from the Authority.

     (B) The loan shall be made at the time of delivery of the Bonds and receipt of payment therefor by the Authority against receipt by the Authority of the Note duly executed and delivered to evidence the pecuniary indebtedness of the Borrower hereunder. As and for the loan the Authority shall apply the proceeds of the Bonds as provided in the Indenture on the terms and conditions therein prescribed.

     (C) On or before the Business Day immediately preceding each due date for the payment of the principal of or interest on the Bonds, until the principal or Redemption Price, if any, of and interest on the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, the Borrower shall make loan payments to the Trustee for the account of the Authority in an amount which, when added to any moneys then on deposit in the Debt Service Fund and available therefor, shall be equal to the amount payable on such due date with respect to the Bonds as provided in Section 5.3 of the Indenture, including amounts due for the payment of the principal of and interest on the Bonds. In addition, the Borrower shall pay to the Trustee, as and when the same shall become due, all other amounts due under the Financing Documents, together with interest thereon at the then applicable rate as set forth herein in Section 6.2(G). The Borrower shall have the option to prepay its loan obligation in whole or in part at the times and in the manner provided in Article VIII hereof.

     (D) Anything herein to the contrary notwithstanding, any amount at any time held in the Principal and Interest Account of the Debt Service Fund by the Trustee pursuant to this Section shall be credited against the next succeeding loan payment obligation of the Borrower as provided in subsection 3.1(C) hereof. If, on any due date for payments with respect to the Bonds, the balance in the Debt Service Fund is insufficient to make such payments, the Borrower agrees forthwith to pay to the Trustee by no later than 11:00 a.m. on such due date the amount of the deficiency. If at any time the amount held by the Trustee in the Debt Service Fund shall be sufficient to pay or provide for the payment of the Bonds in accordance with Section 12.1 of the Indenture, the Borrower shall not be obligated to make any further payments under the foregoing provisions.

     Section 3.2. Other Amounts Payable. (A) The Borrower hereby further expressly agrees to pay to the Trustee as and when the same shall become due, (i) an amount equal to the initial and annual fees of the Trustee for the ordinary services of the Trustee rendered and its ordinary expenses incurred under the Indenture, including fees and expenses as Paying Agent and the reasonable fees and expenses of Trustee’s counsel, including fees and expenses as registrar and in connection with preparation and delivery of new Bonds upon exchanges or transfers, (ii) the reasonable fees and expenses of the Trustee and any Paying Agents on the Bonds for acting as paying agents as provided in the Indenture, including reasonable fees and expenses of its counsel, (iii) the reasonable fees and charges of the Trustee for extraordinary services rendered by it and extraordinary expenses incurred by it under the Indenture, including reasonable counsel fees and expenses, and (iv) reasonable fees and expenses of Bond Counsel and the Authority for any future action requested of either.

     (B) The Borrower also agrees to pay all amounts payable by it under the Financing Documents at the time and in the manner therein provided.

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     (C) The Borrower agrees to pay all Rebatable Arbitrage (and penalties, if any) due to the United States of America pursuant to Section 148 (f) of the Code.

     (D) The Borrower also agrees to pay directly to the Authority on the date of issuance and delivery of the Bonds and on the second anniversary date of the date of issuance and delivery of the Bonds and each anniversary date thereafter, a fee equal to 1/8th of 1% of the principal amount of the Bonds Outstanding, such fee to be payable without notice, demand or invoice of any kind at the Authority’s address as set forth herein or at such other address and to the attention of such other person, or to such account as the Authority may stipulate by written notice to the Borrower.

     Section 3.3. Manner of Payment. The payments provided for in Section 3.1 hereof shall be made by any reasonable method providing immediately available funds at the time and place of payment directly to the Trustee for the account of the Authority and shall be deposited in the Debt Service Fund. The additional payments provided for in Section 3.2 shall be made in the same manner directly to the entitled party or to the Trustee for its own use or disbursement to the Paying Agents, as the case may be.

     Section 3.4. Obligation Unconditional. The obligations of the Borrower under the Financing Documents shall be absolute and unconditional, irrespective of any defense or any rights of setoff, recoupment or counterclaim it might otherwise have against the Authority or the Trustee. The Borrower will not suspend or discontinue any such payment or terminate this Agreement (other than in the manner provided for hereunder) for any cause, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, failure of title, or commercial frustration of purpose, or any damage to or destruction of the Project, or the taking by eminent domain of title to or the right of temporary use of all or any part of the Project, or any change in the tax or other laws of the United States, the State or any political subdivision of either thereof, or any failure of the Authority or the Trustee to perform and observe any agreement or covenant, whether expressed or implied, or any duty, liability or obligation arising out of or connected with the Financing Documents.

     Section 3.5. Securities Clauses. The Authority hereby notifies the Borrower and the Borrower acknowledges that, among other things, the Borrower’s loan payments and all of the Authority’s right, title and interest under the Financing Documents to which it is a party (except its rights under Sections 6.2, 6.4, 7.2(A)(2) and 7.3 hereof) are being concurrently with the execution and delivery hereof endorsed, pledged and assigned without recourse by the Authority to the Trustee as security for the Bonds as provided in the Indenture.

     Section 3.6. Issuance of Bonds. The Authority has concurrently with the execution and delivery hereof sold and delivered the Bonds under and pursuant to a resolution adopted by the Authority on October 17, 2007, authorizing their issuance under and pursuant to the Indenture. The proceeds of sale of the Bonds shall be applied as provided in Articles IV and V of the Indenture.

     Section 3.7. Effective Date and Term. (A) This Agreement shall become effective upon its execution and delivery by the parties hereto, shall remain in full force from such date and, subject to the provisions hereof (including particularly Articles VII and VIII), shall expire on such date as the Indenture shall be discharged and satisfied in accordance with the provisions of subsection 12.1(A) thereof. The Borrower’s obligations under Sections 6.2 and 6.3 hereof, however, shall survive the expiration of this Agreement in accordance with the provisions of such Sections.

     (B) Within 60 days of such expiration the Authority shall deliver to the Borrower any documents and take or cause the Trustee, at the Borrower’s expense, to take any such reasonable actions as may be necessary to effect the cancellation, release and satisfaction of the Indenture and the Financing Documents.

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     Section 3.8. No Additional Bonds. No Additional Bonds on a parity with the Bonds may be issued under the Indenture.

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ARTICLE IV

THE PROJECT

     Section 4.1. Completion of the Project. (A) The Borrower agrees that it will undertake and complete the Project for the purposes and in the manner intended hereby and by the Borrower’s application for assistance to the Authority and that it will cause such improvements to be made to the Project as are necessary for the operation thereof in the manner herein provided.

     (B) The Borrower may modify, alter and amend the plans for the Project from time to time and at any time, provided that such modifications, alterations and amendments do not materially impair the operation of the Project as water facilities under the Act and provided that no material modifications, alterations or amendments shall be made unless the Borrower shall have theretofore delivered to the Trustee an opinion of Bond Counsel to the effect that such amendment, modification or alteration and the expenditure of amounts from the Project Fund in connection therewith will not cause interest on the Bonds to be subject to federal income taxation, together with any written representations or certifications of fact made by or on behalf of the Borrower upon which such counsel has relied in rendering such opinion.

     (C) The Borrower affirms that it shall bear all of the costs and expenses in connection with the preparation of the Financing Documents and the Indenture, the preparation and delivery of any legal instruments and documents necessary in connection therewith and their filing and recording, if required, and all taxes and charges payable in connection with any of the foregoing. Such costs and all other costs of the Project shall be paid by the Borrower in the manner and to the extent provided in the Indenture.

     (D) The Borrower hereby agrees that in order to effectuate the purposes of the Financing Documents, it will make, execute, acknowledge and deliver any contracts, orders, receipts, writings and instructions with any other persons, firms, or corporations and in general do all things which may be requisite or proper, all for the purpose of carrying out and completing the Project. The Borrower will use its best efforts to complete the Project, or cause the Project to be completed, with all reasonable dispatch. If for any reason the completion of such work is delayed, there shall be no liability on the part of the Authority and no diminution in or postponement of the payments required in Section 3.1 hereof to be paid by the Borrower.

     (E) The Borrower has obtained or shall obtain all necessary material approvals from any and all governmental agencies requisite to the undertaking and completion of the Project and in compliance with all federal, State and local laws, ordinances and regulations applicable thereto. Upon completion of the Project, the Borrower shall obtain all material required permits and authorizations from appropriate authorities, if any be required, authorizing the operation and uses of the Project for the purposes contemplated hereby, where failure to obtain such approvals, permits and authorizations would have a material adverse effect on the transactions contemplated hereby.

     (F) The Borrower covenants that it will take, or cause to be taken, such action and institute such proceedings within its power and authority as shall be necessary to cause and require all contractors and material suppliers to complete their contracts diligently in accordance with the terms of the contracts, including, without limitation, the correcting of any defective work.

     (G) Upon the occurrence of a default by any contractor or subcontractor or supplier under any contract made by it in connection with the Project, the Borrower will promptly proceed, to the extent it deems appropriate in the circumstances, either separately or in conjunction with others, to exhaust the remedies of the Borrower against any such contractor or subcontractor or supplier for the performance of such contract.

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     (H) The Borrower will have good and marketable title in fee simple to the Project Realty to be owned by it subject only to Permitted Encumbrances, sufficient for the purposes of this Agreement.

     Section 4.2. Payment of Additional Project Costs by Borrower. In the event that moneys in the Project Fund are not sufficient to pay Project Costs in full, the Borrower shall nonetheless complete the Project, or cause the Project to be completed, and shall pay that portion of the Project Costs as may be in excess of the moneys available therefor in the Project Fund and shall not be entitled to any reimbursement therefor from the Authority or from the Trustee or from the holders of any of the Bonds, nor shall it be entitled to any diminution of the amounts payable under the Financing Documents.

     Section 4.3. Completion Certificate. The date of completion of the Project shall be evidenced to the Trustee by the certificate of an Authorized Representative of the Borrower stating that the Project has been completed in accordance with the Agreement and in accordance with the plans and specifications therefor. Notwithstanding the foregoing, such certificate shall state (1) that it is given without prejudice to any rights of the Borrower against third parties which exist at the date of such certificate or which may subsequently come into being, (2) that it is given only for the purpose of this Section and (3) that no person other than the Trustee or the Authority may benefit therefrom.

     Section 4.4. No Warranty Regarding Condition, Suitability or Cost of Project. Neither the Authority, nor the Trustee, nor any Bondholder makes any warranty, either expressed or implied, as to the Project or its condition or that it will be suitable for the Borrower’s purposes or needs, or that the insurance required hereunder will be adequate to protect the Borrower’s business or interest, or that the proceeds of the Bonds will be sufficient to complete the Project.

     Section 4.5. Taxes. (A) The Borrower will pay when due all material (1) taxes, assessments, water rates and sewer use or rental charges, (2) payments in lieu thereof which may be required by law, and (3) governmental charges and impositions of any kind whatsoever which may now or hereafter be lawfully assessed or levied upon the Project Realty and the Project Equipment or any part thereof, or upon the rents, issues, or profits thereof, whether directly or indirectly. With respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Borrower shall be obligated to pay, or cause to be paid, only such installments as are required to be paid during the Term.

     (B) The Borrower may, at its expense and in its own name, in good faith contest any such taxes, assessments and other charges and payments in lieu of taxes including assessments and, in the event of such contest, may permit the taxes, assessments or other charges or payments in lieu of taxes, including assessments so contested to remain unpaid, provided either (1) prior written notice thereof has been given to the Authority and the Trustee and reserves satisfactory to the Authority are maintained during the period of such contest and any appeal therefrom, or (2) such contest is conducted in full compliance with Connecticut General Statutes Chapter 203 unless, in either case, by nonpayment of such taxes, assessments or other charges or payments, the Project or any part thereof will be subject to loss or forfeiture, and as a result thereof a lien or charge will be placed upon any payment pursuant to this Agreement or the value or operation of the Project Realty and the Project Equipment will be materially impaired, in which event such taxes, assessments or other charges or payments shall be paid forthwith. Nothing herein shall preclude the Borrower, at its expense and in its own name and behalf, from applying for any tax exemption allowed by the federal government, the State or any political or taxing subdivision thereof under any existing or future provision of law which grants or may grant such tax exemption.

     Section 4.6. Insurance. (A) The Borrower shall insure the Project Realty and the Project Equipment against loss or damage by fire, flood, lightning, windstorm, vandalism and malicious mischief and other hazards, casualties, contingencies and extended coverage risks in such amounts and in such

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manner as is customary with companies in the same or similar business, and shall pay when due the premiums thereon. In the event of loss or damage to the Project Realty or Project Equipment, the Net Proceeds of any insurance provided under this subsection shall be applied to the manner set forth in Article V hereof. Any excess proceeds of insurance remaining after application as required by this Section shall be paid to the Borrower, but only if the Borrower is not in default under this Agreement. If the Borrower is in default under this Agreement, such amounts shall be applied as provided in Article VIII of the Indenture. At least ten days prior to the expiration of any policy required under this Section the Borrower shall furnish evidence satisfactory to the Authority and the Trustee that such policy has been renewed or replaced.

     (B) The Borrower further agrees that it will at all times carry public liability insurance with respect to the Project Realty and the Project Equipment in a minimum amount of $5,000,000 with provisions for a deductible amount not in excess of five percent of the amount of coverage thereunder. In the event of a public liability occurrence, the Net Proceeds of the insurance provided under this subsection shall be applied to satisfy or extinguish the liability.

     (C) As an alternative to the hazard insurance and public liability insurance requirements of subsections (A) or (B) above the Borrower may self-insure against hazard or public liability risks if (1) self-insurance is the Borrower’s customary method of insurance against such risks in similar circumstances, and (2) the Borrower maintains self-insurance reserves adequate and available to meet such risks. Amounts available under any such self-insurance arrangement upon the occurrence of an insured event shall be applied in the same manner as the Net Proceeds of any insurance maintained pursuant to such subsections would have been applied.

     (D) The insurance coverage required by this Section may be effected under overall blanket or excess coverage policies of the Borrower or any affiliate and may be carried with any insurer other than an unauthorized insurer under the Connecticut Unauthorized Insurers Act. The Borrower shall furnish evidence satisfactory to the Authority or the Trustee, promptly upon the request of either, that the required insurance coverage is valid and in force. The Borrower shall also give the Trustee not less than ten (10) days prior written notice of the expiration of any insurance coverage required by this Section then in effect.

     Section 4.7. Compliance with Law. The Borrower will observe and comply with all material laws, regulations, ordinances, rules, and orders (including without limitation those relating to zoning, land use, environmental protection, air, water and land pollution, wetlands, health, equal opportunity, minimum wages, worker’s compensation and employment practices) of any federal, state, municipal or other governmental authority relating to the Project Realty and the Project Equipment except during any period during which the Borrower at its expense and in its name shall be in good faith contesting its obligation to comply therewith.

     Section 4.8. Maintenance and Repair. At its own expense, the Borrower will keep and maintain the Project Realty and the Project Equipment in accordance with sound utility operating practice and in good condition, working order and repair, will not commit or suffer any waste thereon, and will make all material repairs and replacements thereto which may be required in connection therewith. Nothing in this Section 4.8 shall (1) apply to any portion of the Project beyond its useful or economic life or (2) apply to the use and disposition by the Borrower of any part of the Project in the ordinary course of its business.

     Section 4.9. Disposition of Project Realty by Borrower. (A) The Borrower shall not sell, assign, encumber (other than Permitted Encumbrances), convey or otherwise dispose of its interests in the

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Project Realty or any part thereof during the Term without the prior written consent of the Authority, except as permitted hereby.

     (B) The Borrower may, however, grant such rights of way or easements over, across, or under, the Project Realty as shall be necessary or convenient for the operation or use of the Project Realty, including but not limited to easements or rights-of-way for utility, roadway, railroad or similar purposes in connection with the Project Realty, or for the use of the real property adjacent to or near the Project, and owned by or leased to the Borrower, but only if such rights-of-way or easements shall not materially or adversely affect the value and operation of the Project. In addition, the Borrower may sell or assign, or cause to be sold or assigned, a portion of the Project Realty or development rights in the Project Realty to the State, a municipality within the State or a conservation organization, but only if such sale or assignment shall not materially or adversely affect the value or operation of the Project.

     (C) In the event the Authority consents to any disposition of the Borrower’s interest in the Project Realty, the proceeds of the disposition shall be deposited in the Redemption Account of the Debt Service Fund for the redemption of the Bonds under the Indenture. No conveyance or release effected under the provisions of this Section shall entitle the Borrower to any abatement or diminution of the amounts payable hereunder or under the Note, or relieve the Borrower of the obligation to perform all of its covenants and agreements under the Financing Documents.

     Section 4.10. Leasing of the Project Realty and the Project Equipment. The Borrower may not lease the Project Realty or the Project Equipment to any person during the Term of this Agreement without the prior written consent of the Authority. No lease shall relieve the Borrower from primary liability for any of its obligations hereunder, and in the event of any such lease the Borrower shall continue to remain primarily liable for payment of the applicable amounts specified in Article III hereof and for performance and observance of the other agreements on its part herein provided to be performed and observed by it to the same extent as though no lease had been made.

     Section 4.11. Project Equipment. (A) The Borrower shall have the right to install, operate, use, remove and dispose of the Project Equipment in the normal and ordinary course of its business operations, and shall not be required to replace any item of Project Equipment which is discarded or sold for scrap. The Borrower shall not, however, either in one transaction or a series of transactions sell, convey, transfer, remove or otherwise dispose of more than 20% by value of the Project Equipment without prior notice to and the consent of the Authority, unless such Project Equipment is replaced by property of similar value and utility.

     (B) The Borrower shall maintain with the Trustee separate and reasonably detailed descriptions of each item of property constituting the Project Equipment. Without limiting the foregoing, the Project Equipment list appended hereto at the date of execution and delivery of this Agreement shall be modified to the extent required by this Section in connection with any disbursement for Project Equipment from the Project Fund and any replacement of material items of Project Equipment under this Section or under Section 5.2 hereof.

     Section 4.12. Borrower Contribution. The Borrower agrees to deposit with the Trustee on the date of issuance of the Bonds a contribution in the amount of $312,375.00 (which will be applied to the payment of certain costs and expenses incurred in connection with the issuance, execution and sale of the Bonds for which the Borrower is responsible, including compensation and expenses of the Trustee, bond insurance premium, legal, accounting and consulting expenses and fees, costs of printing and engraving, underwriting expenses and recording and filing fees), which amount shall be deposited by the Trustee in the Project Fund established pursuant to Section 5.1 of the Indenture.

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ARTICLE V

CONDEMNATION DAMAGE AND DESTRUCTION

     Section 5.1. No Abatement of Payments Hereunder. If the Project Realty or Project Equipment shall be damaged or either partially or totally destroyed, or if title to or the temporary use of the whole or any part thereof shall be taken or condemned by a competent authority for any public use or purpose, there shall be no abatement or reduction in the amounts payable by the Borrower hereunder and the Borrower shall continue to be obligated to make such payments. In any such case the Borrower shall promptly give written notice thereof to the Authority and the Trustee.

     Section 5.2. Project Disposition Upon Condemnation, Damage or Destruction. In the event of any such condemnation, damage or destruction the Borrower shall:

     (1) At its own cost, repair, restore or reconstruct, or cause to be repaired, restored or reconstructured, the Project Realty and Project Equipment to substantially its condition immediately prior to such event or to a condition of at least equivalent value, regardless of whether or not the proceeds of any and all policies of insurance covering such damage or destruction, or the amount of the award or compensation or damages recovered on account of such taking or condemnation, shall be available or sufficient to pay the cost thereof;

     (2) At its own cost, replace or relocate, or cause to be replaced or relocated, the Project Realty and Project Equipment at its site in such fashion as to render the replacement or relocated structures, improvements and items, machinery, equipment or other property of equivalent value to the Project Realty and Project Equipment immediately prior to such event; or

     (3) If and as permitted by Section 8.1 hereof, exercise its option to prepay its loan obligation in full.

     Section 5.3. Application of Net Proceeds of Insurance or Condemnation. (A) The Net Proceeds from any insurance or condemnation award with respect to the Project Realty or Project Equipment shall be deposited either (1) in the Renewal Fund and applied to pay for the cost of making such repairs, restorations, reconstructions, replacements or relocations, or to reimburse the Borrower, the Authority or the Trustee for payment therefor from time to time as provided in the Indenture or (2) if prepayment of the loan is then permitted and the Borrower exercises its option to prepay the loan, in the Redemption Account of the Debt Service Fund and applied to the payment of the Note and redemption of the Bonds.

     (B) Notwithstanding the provisions of subsection (A) of this Section, any insurance or condemnation proceeds attributable to improvements, machinery, equipment and other property installed in or about the Project Realty and the Project Equipment, but which do not constitute a portion of the Project Realty and the Project Equipment, shall be paid as the Borrower may direct. The Trustee and the Authority agree to execute such documents as may be reasonably necessary to accomplish the purposes of this subsection.

     (C) The Borrower, the Authority and the Trustee shall cooperate and consult with each other in all matters pertaining to the settlement or adjustment of any and all claims and demands for damages on account of any taking or condemnation of the Project Realty or the Project Equipment or pertaining to the settlement, compromising or arbitration of any claim on account of any damage or destruction thereof.

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ARTICLE VI

COVENANTS

     Section 6.1. The Borrower to Maintain its Corporate Existence; Conditions under which Exceptions Permitted. (A) The Borrower covenants and agrees that, during the Term of this Agreement it will maintain its corporate existence, will continue to be a corporation either organized under the laws of or duly qualified to do business as a foreign corporation in the State and in all jurisdictions necessary in the operation of its business, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it.

     (B) The Borrower may, however, without violating the agreements contained in this Section, consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entity and thereafter liquidate or dissolve, if (a) the Borrower is the surviving, resulting or transferee corporation, as the case may be, or (b) in the event the Borrower is not the surviving, resulting or transferee corporation, as the case may be, such corporation (i) is a solvent corporation either organized under the laws of or duly qualified to do business as a foreign corporation subject to service of process in the State and (ii) assumes in writing all of the obligations of the Borrower herein, and under the Note.

     Section 6.2. Indemnification, Payment of Expenses, and Advances. (A) The Borrower agrees to protect, defend and hold harmless the Authority, the State, agencies of the State, members, servants, agents, directors, officers and employees, now or forever, of the Authority or the State (each an “Authority Indemnified Party”), the Trustee and the Paying Agent, agents, directors, officers and employees, now or forever, of the Trustee and the Paying Agent (each an “Indemnified Party”), from any claim, demand, suit, action or other proceeding and any liabilities, costs, and expenses whatsoever by any person or entity whatsoever, arising or purportedly arising from or in connection with the Financing Documents, the Indenture, the Bonds, or the transactions contemplated thereby or actions taken thereunder by any person (including without limitation the filing of any information, form or statement with the Internal Revenue Service, if applicable), except for any willful and material misrepresentation, willful misconduct or gross negligence on the part of the Indemnified Party or the Authority Indemnified Party or any bad faith on the part of any indemnitee other than an Authority Indemnified Party.

     The Borrower agrees to indemnify and hold harmless any Indemnified Party against any and all claims, demands, suits, actions or other proceedings and all liabilities, costs and expenses whatsoever caused by any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in the written information provided by the Borrower in connection with the issuance of the Bonds or incorporated by reference therein or caused by any omission or alleged omission from such information of any material fact relating to the Borrower or the Project required to be stated therein or necessary in order to make the statements made therein in the light of the circumstances under which they were made, not misleading.

     (B) The Authority and the Trustee shall not be liable for any damage or injury to the persons or property of the Borrower or its members, directors, officers, agents, servants or employees, or any other person who may be about the Project due to any act or omission of any person other than the Authority or the Trustee, respectively, or their respective members, directors, officers, agents, servants and employees.

     (C) The Borrower releases each Indemnified Party from, agrees that no Indemnified Party shall be liable for, and agrees to hold each Indemnified Party harmless against, any reasonable attorney

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fees and expenses, expenses or damages incurred because of any investigation, review or lawsuit commenced by the Trustee or the Authority in good faith with respect to the Financing Documents, the Indenture, the Bonds and the Project and the Authority or the Trustee, as the case may be, shall promptly give written notice to the Borrower with respect thereto.

     (D) All covenants, stipulations, promises, agreements and obligations of the Authority and the Trustee contained herein shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the Authority and the Trustee and not of any member, director, officer or employee of the Authority or the Trustee in its individual capacity, and no recourse shall be had for the payment of the Bonds or for any claim based thereon or hereunder against any member, director, officer or employee of the Authority or the Trustee or any natural person executing the Bonds.

     (E) In case any action shall be brought against one or more of the Indemnified Parties based upon any of the above and in respect of which indemnity may be sought against the Borrower, such Indemnified Party shall promptly notify the Borrower in writing, enclosing a copy of all papers served, but the omission so to notify the Borrower of any such action shall not relieve it of any liability which it may have to any Indemnified Party otherwise than under this Section 6.2. In case any such action shall be brought against any Indemnified Party and it shall notify the Borrower of the commencement thereof, the Borrower shall be entitled to participate in and, to the extent that it shall wish, to assume the defense thereof with counsel satisfactory to such Indemnified Party, and after notice from the Borrower to such Indemnified Party of the Borrower’s election so to assume the defense thereof, the Borrower shall not be liable to such Indemnified Party for any subsequent legal or other expenses attributable to such defense, except as set forth below, other than reasonable costs of investigation subsequently incurred by such Indemnified Party in connection with the defense thereof. The Indemnified Party shall have the right to employ its own counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the employment of counsel by such Indemnified Party has been authorized by the Borrower, (ii) the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Borrower and the Indemnified Party in the conduct of the defense of such action (in which case the Borrower shall not have the right to direct the defense of such action on behalf of the Indemnified Party); or (iii) the Borrower shall not in fact have employed counsel satisfactory to the Indemnified Party to assume defense of such action.

     (F) The Borrower also agrees to pay all reasonable or necessary out-of-pocket expenses of the Authority and the Trustee in connection with the issuance of the Bonds, the administration of the Financing Documents and the enforcement of its rights thereunder, including without limitation the costs of preparation and distribution of closing transcripts relating thereto.

     (G) In the event the Borrower fails to pay any amount or perform any act under the Financing Documents, the Trustee or the Authority may pay the amount or perform the act, in which event the costs, disbursements, expenses and reasonable counsel fees and expenses thereof, together with interest thereon from the date the expense is paid or incurred at the prime interest rate publicly announced from time to time by the Trustee as a commercial bank plus 1% shall be an additional obligation hereunder payable upon demand by the Authority or the Trustee.

     (H) The Borrower shall defend, indemnify, and hold the Authority, its agents, members, officers and employees, and the Trustee and its agents, directors, officers and employees, harmless from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature, known or unknown, contingent or otherwise, related to or in connection with the Project, arising out of, or in any way related to, (i) the presence, disposal, release, or threatened release of any hazardous materials, asbestos, petroleum or petroleum by-products which are on, from, or affecting the soil, water, vegetation, buildings, personal property, persons, animals, or otherwise, except in

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compliance with all applicable federal, State and local laws or regulations; (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to hazardous materials, asbestos, petroleum or petroleum by-products; (iii) any lawsuit brought or threatened, settlement reached, or government order relating to such hazardous materials, asbestos, petroleum or petroleum by-products and/or (iv) any violation of laws, orders, regulations, requirements or demand of government authorities or any policies or requirements of the Authority which are based upon or in any way related to such hazardous materials, asbestos, petroleum or petroleum by-products including, without limitation, reasonable attorney and consultant fees, investigation and laboratory fees, court costs, and litigation expenses. Notwithstanding the foregoing, the Borrower shall have no obligation to defend, indemnify and hold harmless the Authority or the Trustee or their respective agents, members, officers or employees under this Section 6.2(H) in the event and to the extent that any such claims, demands, penalties, fines, liabilities, settlements, damages, costs or other expenses arise out of or result from the willful misconduct or gross negligence of the Authority or the Trustee or their respective agents, members, officers or employees. The provisions of this paragraph shall be in addition to any and all other obligations and liabilities the Borrower may have to the Authority or the Trustee at common law, and shall survive the termination of this Agreement.

     (I) Any obligation of the Borrower to the Authority under this Section shall be separate from and independent of the other obligations of the Borrower hereunder, and may be enforced directly by the Authority against the Borrower, irrespective of any action taken by or on behalf of the owners of the Bonds.

     (J) The obligations of the Borrower under this section, notwithstanding any other provisions contained in the Financing Documents, shall survive the termination of this Agreement and shall be recourse to the Borrower, and for the enforcement thereof any Indemnified Party shall have recourse to the general credit of the Borrower.

     Section 6.3. Incorporation of Tax Regulatory Agreement; Payments Upon Taxability. (A) For purpose of this Section, the term owner means the Beneficial Owner of the Bonds so long as the Book-Entry System is in effect.

     (B) The representations, warranties, covenants and statements of expectation of the Borrower set forth in the Tax Regulatory Agreement are by this reference incorporated in this Agreement as though fully set forth herein.

     (C) If any owner of the Bonds receives from the Internal Revenue Service a notice of assessment and demand for payment with respect to interest on any Bond (except a notice and demand based upon the assertion that the owner of the Bonds is a Substantial User or Related Person), an appeal may be taken by the owner of the Bonds at the option of either the owner of the Bonds or the Borrower. In either case all expenses of the appeal including reasonable counsel fees and expenses shall be paid by the party taking such appeal, and the owner of the Bonds and the Borrower shall cooperate and consult with each other in all matters pertaining to any such appeal, except that no owner of the Bonds shall be required to disclose or furnish any non-publicly disclosed information, including, without limitation, financial information and tax returns.

     (D) Not later than 180 days following a Determination of Taxability, the Borrower shall pay to the Trustee an amount sufficient, when added to the amount then in the Debt Service Fund and available for such purpose, to retire and redeem all Bonds then Outstanding, in accordance with Section 2.4 of the Indenture.

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     (E) The obligation of the Borrower to make the payments provided for in this Section shall be absolute and unconditional, and the failure of the Authority or the Trustee to execute or deliver or cause to be executed or delivered any documents or to take any action required under this Agreement or otherwise shall not relieve the Borrower of its obligation under this Section. Notwithstanding any other provision of this Agreement or the Indenture, the Borrower’s obligations under this Section shall survive the termination of this Agreement and the Indenture.

     (F) The occurrence of a Determination of Taxability shall not be an Event of Default hereunder but shall require only the performance of the obligations of the Borrower stated in this Section, the breach of which shall constitute an Event of Default as provided in Section 7.1 hereof.

     Section 6.4. Public Purpose Covenants. (A) The Borrower covenants that it will operate the Project for the purposes and in a manner consistent with its application for assistance to the Authority. The Borrower further covenants and agrees that it will, throughout the term of this Agreement, (1) comply with all applicable laws, regulations, ordinances, rules, and orders relating to the Project as provided in the Financing Documents, (2) maintain the Project in accordance with the Financing Documents, (3) not cause or permit the Project to become or remain a public nuisance, (4) not allow any change in the nature of the occupancy, use or operation of the Project which is substantially inconsistent with the Borrower’s application for assistance to the Authority, except that the Borrower may, after notice to the Authority, permit any such change which does not disqualify the Project as authorized projects under the Act as in effect on the date hereof, and (5) except as permitted hereunder, not sell, assign, convey, further lease, sublease or otherwise dispose of title to the Project without the prior written consent of the Authority. Nothing in this Section is intended to require the Borrower to operate the Project in such manner as, in the good faith judgment of the Borrower, shall materially and adversely impair the use and operation of the Project.

     (B) A breach of any covenant contained in this Section shall constitute an Event of Default but, in order to relieve the Authority of the consequences of unanticipated failure of consideration, shall permit only the exercise by the Authority of the remedies provided in Section 7.3 hereof.

     Section 6.5. Further Assurances and Corrective Instruments. The Authority and the Borrower agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Project Realty or Project Equipment or for carrying out the intention of or facilitating the performance of this Agreement.

     Section 6.6. Covenant by Borrower as to Compliance with Indenture. The Borrower covenants and agrees that it will comply with the provisions of the Indenture with respect to the Borrower and that the Trustee and the Bondholders shall have the power and authority provided in the Indenture. The Borrower further agrees to aid in the furnishing to the Authority or the Trustee of opinions that may be required under the Indenture. The Borrower covenants and agrees that the Trustee shall be entitled to and shall have all the rights, including the right to enforce against the Borrower the provisions of the Financing Documents, pertaining to the Trustee notwithstanding the fact that the Trustee is not a party to the Financing Documents.

     Section 6.7. Assignment of Agreement or Note. (A)  The Borrower may not assign its rights, interests or obligations hereunder or under the Note except as may be permitted pursuant to Section 6.1(B) hereof.

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     (B) The Authority agrees that it will not assign or transfer any of the Financing Documents or the revenues and other receipts, funds and monies to be received thereunder during the Term except to the Trustee as provided in this Agreement and the Indenture.

     Section 6.8. Inspection. The Authority and its duly authorized agents shall have (1) the right at all reasonable times, and upon notice sufficient to permit the Borrower to take actions necessary to comply with any security regulations then in effect at the Project, to enter upon and to examine and inspect the Project Realty and the Project Equipment and (2) such rights of access thereto as may be reasonably necessary for the proper maintenance and repair thereof in the event of failure by the Borrower to perform its obligations under this Agreement. The Authority and the Trustee shall also be permitted, at all reasonable times, to examine the books and records of the Borrower with respect to the Project Realty and the Project Equipment.

     Section 6.9. Default Notification. Upon becoming aware of any condition or event which constitutes, or with the giving of notice or the passage of time would constitute, an Event of Default, the Borrower shall deliver to the Authority and the Trustee a notice stating the existence and nature thereof and specifying the corrective steps, if any, the Borrower is taking with respect thereto.

     Section 6.10. Covenant Against Discrimination. (A)  The Borrower in the performance of this Agreement will not discriminate or permit discrimination against any person or group of persons on the grounds of race, color, religion, national origin, age, sex, sexual orientation, marital status, physical or learning disability, political beliefs, mental retardation or history of mental disorder in any manner prohibited by the laws of the United States or of the State.

     (B) The Borrower will comply with the provisions of the resolution adopted by the Authority on June 14, 1977, as amended, and the policy of the Authority implemented pursuant thereto concerning the promotion of equal employment opportunity through affirmative action plans. The resolution requires that all borrowers receiving financial assistance from the Authority adopt and implement an affirmative action plan prior to the closing of the loan. The plan shall be updated annually as long as the Bonds remain Outstanding.

     Section 6.11. Covenant to Provide Disclosure. The Borrower hereby covenants and agrees that it will execute, comply with and carry out all of the provisions of the Disclosure Agreement. Notwithstanding any other provision of this Agreement, failure of the Borrower to comply with the provisions of the Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee may, subject to the provisions of Article IX of the Indenture (and, at the request of the underwriter for the Bonds or the Holders of at least 25% aggregate principal amount in Outstanding Bonds, shall), or any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Borrower to comply with its obligations under this Section 6.11. For purposes of this Section, “Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

     Section 6.12. Negative Pledge. During the term of this Agreement, except for Permitted Encumbrances, the Borrower will not permit, create, assume or suffer to be created or to exist any mortgage, lien, security interest, or encumbrance of any kind upon, or pledge of, any of the Borrower’s properties of any character, including real, personal, tangible and intangible properties and revenues, now owned or hereafter acquired, to secure any indebtedness without providing that the Bonds have the same security.

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ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

     Section 7.1. Events of Default. Any one or more of the following shall constitute an “Event of Default” hereunder:

     (1) Any material representation or warranty made by the Borrower in the Financing Documents or any certificate, statement, data or information furnished in writing to the Authority or the Trustee by the Borrower in connection with the closing of the Bonds or included by the Borrower in its application to the Authority for assistance proves at any time to have been incorrect in any material respect when made.

     (2) Failure by the Borrower to pay any interest, principal or premium, if any, that has become due and payable with respect to the Bonds.

     (3) Failure by the Borrower to pay any amount, other than principal, interest or premium with respect to the Bonds, that has become due and payable with respect to the Bonds or any other amount due and payable pursuant to the Financing Documents and the continuance of such failure for more than thirty (30) days.

     (4) Failure by the Borrower to comply with the default notification provisions of Section 6.9 hereof.

     (5) The occurrence of an “Event of Default” under Section 8.1(A) of the Indenture.

     (6) Failure by the Borrower to observe or perform any covenant, condition or agreement hereunder or under the Financing Documents (other than the Disclosure Agreement) (except those referred to above and except as provided in Section 6.3(F) hereof with respect to the occurrence of a Determination of Taxability which, in and of itself, shall not constitute an Event of Default hereunder but shall require only the performance of the obligations of the Borrower stated in Section 6.3(F) hereof, the breach of which shall constitute an Event of Default hereunder) and (a) continuance of such failure for a period of sixty (60) days after receipt by the Borrower of written notice specifying the nature of such failure or (b) if by reason of the nature of such failure the same cannot be remedied within the sixty-day period, the Borrower fails to proceed with reasonable diligence after receipt of the notice to cure the failure.

     (7) The Borrower shall (a) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, (b) admit in writing its inability to pay its debts generally as they become due, (c) make a general assignment for the benefit of creditors, (d) be adjudicated a bankrupt or insolvent, or (e) commence a voluntary case under the federal bankruptcy laws of the United States of America or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding; or corporate action shall be taken by it for the purpose of effecting any of the foregoing; or if without the application, approval or consent of the Borrower, a proceeding shall be instituted in any court of competent jurisdiction, seeking in respect of the Borrower an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Borrower or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the

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Borrower in good faith, the same shall continue undismissed, or pending and unstayed, for any period of 75 consecutive days.

     (8) Failure by the Borrower to make when due any payment of principal or interest required under the provisions of any loan agreement (after the expiration of any applicable grace periods) to which the Authority and the Borrower are parties.

     Section 7.2. Remedies on Default. (A)  Except as provided in Section 6.4(B) hereof, whenever any Event of Default shall have occurred, the Trustee, or the Authority where so provided herein, may take any one or more of the following actions:

     (1) The Trustee, as and to the extent provided in Article VIII of the Indenture, may cause all amounts payable under the Financing Documents to be immediately due and payable without notice or demand of any kind, whereupon the same shall become immediately due and payable.

     (2) The Authority, without the consent of the Trustee or any Bondholder, may proceed to enforce the obligations of the Borrower to the Authority under this Agreement.

     (3) The Trustee may take whatever action at law or in equity it may have to collect the amounts then due and thereafter to become due, or to enforce the performance or observance of the obligations, agreements, and covenants of the Borrower under the Financing Documents.

     (4) The Trustee may exercise any and all rights it may have under the Financing Documents.

     (B) In the event that any Event of Default or any proceeding taken by the Authority (or by the Trustee on behalf of the Authority) thereon shall be waived or determined adversely to the Authority, then the Event of Default shall be annulled and the Authority and the Borrower shall be restored to their former rights hereunder, but no such waiver or determination shall extend to any subsequent or other default or impair any right consequent thereon.

     Section 7.3. Remedies on Public Purpose Default. (A) If the Borrower shall default in the performance of any of the covenants contained in Section 6.4 hereof, and in the event that such default shall also constitute an Event of Default under Section 7.1 hereof, such Event of Default shall continue for thirty (30) days without the Trustee or Bondholders instituting the remedial steps provided for in subsection 7.2(A)(1) hereof or subsection 8.1(B) of the Indenture, then, in either case, the Authority may send a notice to the Trustee calling for the acceleration of all of the Borrower’s obligations under the Financing Documents and for the redemption of all of the Bonds then Outstanding. Any such notice shall set forth in reasonable detail the default by the Borrower giving rise thereto and shall specify the date upon which (1) notice of Bond redemption is to be given by the Trustee (which shall be not less than one hundred twenty days from the date of the Authority’s determination notice) and (2) the redemption of the Bonds is to occur (which shall be at least thirty (30) days after notice of redemption is given by the Trustee). Within thirty (30) days following receipt of the notice, the Trustee shall forward a copy thereof to the Borrower and each registered Bondholder, together with a copy of Sections 6.4 and 7.3 of this Agreement.

     (B) If, within sixty (60) days after the mailing of notice by the Trustee to the Borrower and the Bondholders, the Trustee receives no objection (as hereinbelow provided) to such redemption, the Trustee shall give such notice and effect the acceleration of the Borrower’s obligations and the redemption of all Outstanding Bonds in accordance with the Authority’s notice and pursuant to Section

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2.4(F) of the Indenture. If, however, the Borrower or any Bondholder disputes the existence of such Event of Default, the Borrower or such Bondholder shall mail a notice to the Authority and the Trustee containing a statement of such person’s belief with respect to the claimed default. The receipt of such notice by the Trustee shall serve to suspend the proceedings for redemption of Bonds initiated by the Authority’s notice of default.

     (C) If upon receipt of such notice from the Borrower or any Bondholder, the Authority determines to affirm its earlier determination, either the Borrower or any Bondholder shall have the right to bring an action in any court of competent jurisdiction to enjoin the proceedings for the redemption of such Bonds, and during the pendency of any such action the redemption proceedings shall be suspended. Neither the Authority, the Borrower nor any Bondholder shall be responsible for any costs, fees, expenses, or reasonable counsel fees incurred by any other party in connection with any such action, other than the Trustee (whose costs, fees and expenses shall be paid by the Borrower). In the event the Authority is successful in such a proceeding, and a final judgment is rendered which is not appealable or appealed within sixty (60) days thereafter finding the Borrower in default under Section 6.4 hereof, the Trustee shall, promptly upon receipt of notice from the Authority of the entry of the decision, give notice of the redemption of all Outstanding Bonds under Section 6.3 of the Indenture, and redeem all such Bonds upon the date fixed for redemption in the notice (which shall be no more than thirty-five (35) days after the notice is given). In the event the Borrower or such Bondholders are successful in such a proceeding, and a final judgment is rendered which is not appealable or appealed within sixty (60) days thereafter finding the Borrower not to be in default under Section 6.4 hereof, all proceedings for the redemption of Bonds commenced under this Section shall be terminated. No such judgment, however, shall prejudice the exercise of the Authority’s rights under this Section upon the occurrence of such subsequent failure of performance under Section 6.4 hereof.

     (D) Within fifteen (15) days of the date the Trustee gives notice of any redemption of Bonds pursuant to Section 7.3(B) above and subject to the last sentence of Section 7.3(B) above, the Borrower shall pay as a final loan payment a sum sufficient, together with other funds on deposit with the Trustee and available for such purpose, to redeem all Bonds then Outstanding under the Indenture at 100% of the principal amount thereof plus accrued interest to the redemption date. The Borrower shall also pay or provide for all reasonable and necessary fees and expenses of the Trustee and any Paying Agent accrued and to accrue through the date of redemption of all such Bonds.

     (E) Nothing contained in this Section shall be deemed to prevent the Authority or the Borrower from seeking equitable relief if it asserts or disputes, as the case may be, the existence of an event of a public purpose default.

     Section 7.4. No Duty to Mitigate Damages. Unless otherwise required by law, neither the Authority, the Trustee nor any Bondholder shall be obligated to do any act whatsoever or exercise any diligence whatsoever to mitigate the damages to the Borrower if an Event of Default shall occur.

     Section 7.5. Remedies Cumulative. No remedy herein conferred upon or reserved to the Authority or the Trustee is intended to be exclusive of any other available remedy or remedies but each and every such remedy shall be cumulative and shall be in addition to every remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. Delay or omission to exercise any right or power accruing upon any default or failure by the Authority or the Trustee to insist upon the strict performance of any of the covenants and agreements herein set forth or to exercise any rights or remedies upon default by the Borrower hereunder shall not impair any such right or power or be considered or taken as a waiver or relinquishment for the future of the right to insist upon and to enforce, by injunction or other appropriate legal or equitable remedy, strict compliance by the Borrower with all of

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the covenants and conditions hereof, or of the right to exercise any such rights or remedies, if such default by the Borrower be continued or repeated.

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ARTICLE VIII

PREPAYMENT PROVISIONS

     Section 8.1. Optional Prepayment. (A)  The Borrower shall have, and is hereby granted, the option to prepay its loan obligation at any time, and from time to time, on or after December 1, 2012 and to cause the corresponding optional redemption of the Bonds pursuant to Section 2.4(A) of the Indenture at such times, in such amounts, and with such premium, if any, for such optional redemption as set forth in the form of the Bond, by delivering a written notice to the Trustee in accordance with Section 8.2 hereof, with a copy to the Authority, setting forth the amount to be prepaid, the amount of Bonds requested to be redeemed with the proceeds of such prepayment, and the date on which such Bonds are to be redeemed. Such prepayment must be sufficient to provide monies for the payment of interest and Redemption Price in accordance with the terms of the Bonds requested to be redeemed with such prepayment and all other amounts then due under the Financing Documents. In the event of any complete prepayment of its loan obligation, the Borrower shall, at the time of such prepayment, also pay or provide for the payment of all reasonable or necessary fees and expenses of the Authority, the Trustee and the Paying Agent accrued and to accrue through the final payment of all the Bonds. Any such prepayments shall be applied to the redemption of Bonds in the manner provided in Section 6.2 of the Indenture, and credited against payments due hereunder in the same manner.

     (B) The Borrower shall have, and is hereby granted, the option to prepay its loan obligation in full at any time without premium if any of the following events shall have occurred, as evidenced in each case by the filing with the Trustee of a certificate of an Authorized Representative of the Borrower to the effect that one of such events has occurred and is continuing, and describing the same:

     (1) The Project shall have been damaged or destroyed to such extent that (a) the Project cannot be reasonably restored within a period of six (6) months from the date of such damage or destruction to the condition thereof immediately preceding such damage or destruction, or (b) the Borrower is thereby prevented or likely to be prevented from carrying on its normal operation of the Project for a period of six (6) months from the date of such damage or destruction.

     (2) Title to or the temporary use of all or substantially all of the Project shall have been taken or condemned by a competent authority, which taking or condemnation results or is likely to result in the Borrower being thereby prevented or likely to be prevented from carrying on its normal operation of the Project for a period of six (6) months.

     (3) A change in the Constitution of the State or of the United States of America or legislative or executive action (whether local, state, or federal) or a final decree, judgment or order of any court or administrative body (whether local, state, or federal) that causes this Agreement to become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed herein or, imposes unreasonable burdens or excessive liabilities upon the Borrower with respect to the Project or the operation thereof.

     (4) The operation of any of the Project shall have been enjoined or shall otherwise have been prohibited by any order, decree, rule or regulation of any court or of any local, state, or federal regulatory body, administrative agency or other governmental body for a period of not less than six months.

     (5) Changes in the economic availability of raw materials, operating supplies or facilities necessary for the operation of the Project or technological or other changes shall have occurred which the Borrower cannot reasonably overcome or control and which in the

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Borrower’s reasonable judgment renders the Project unsuitable or uneconomic for the purposes herein specified or any tax shall be levied upon payments due under the Note in an amount which the Borrower in its reasonable judgment believes imposes an unreasonable burden upon the Borrower.

In any such case the final loan payment shall be a sum sufficient, together with other funds deposited with Trustee and available for such purpose, to redeem all Bonds then Outstanding under the Indenture at the redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date and all other amounts then due under the Financing Documents, and the Borrower shall also pay or provide for all reasonable or necessary fees and expenses of the Authority, the Trustee and Paying Agent accrued and to accrue through final payment for the Bonds. The Borrower shall deliver a written notice to the Trustee, with a copy to the Authority, requesting the redemption of the Bonds under the Indenture, which notice shall have attached thereto the applicable certificate of the Authorized Representative of the Borrower.

     In addition, the Borrower may prepay all or a portion of its loan obligation in order to preserve the tax-exempt status of interest on the Bonds in accordance with the provisions of Section 2.4(G) of the Indenture.

     Section 8.2. Notices of Prepayment. To exercise any options granted in this Article, or to consummate the acceleration of the loan payments as set forth in this Article, the written notice to the Trustee shall be signed by an Authorized Representative of the Borrower and shall specify therein the date of prepayment, which date shall be not less than thirty-five days nor more than ninety days from the date the notice is mailed. A duplicate copy of any written notice hereunder shall also be filed with the Authority by the Borrower.

     Section 8.3. Mandatory Prepayment on Taxability and Receipt of Request for Redemption of a Deceased Holder’s Bonds. The Borrower shall pay or cause the prepayment of all or a portion of its loan obligation, as circumstances and the provisions of Section 2.4 of the Indenture shall warrant, following (i) a Determination of Taxability in the manner provided in Section 6.3 of this Agreement, and (ii) receipt by the Trustee of a request for redemption of a deceased owners’ Bonds in accordance with Section 2.4(D) of the Indenture.

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ARTICLE IX

GENERAL

     Section 9.1. Indenture. (A) Monies received from the sale of the Bonds and all loan payments made by the Borrower and all other monies received by the Authority or the Trustee under the Financing Documents shall be applied solely and exclusively in the manner and for the purposes expressed and specified in the Indenture and in the Bonds and as provided in this Agreement.

     (B) The Borrower shall have and may exercise all the rights, powers and authority given the Borrower in the Indenture and in the Bonds, and the Indenture and the Bonds shall not be modified, altered or amended in any manner which adversely affects such rights, powers and authority or otherwise adversely affects the Borrower without the prior written consent of the Borrower.

     Section 9.2. Benefit of and Enforcement by Bondholders. The Authority and the Borrower agree that this Agreement is executed in part to induce the purchase by others of the Bonds and for the further securing of the Bonds, and accordingly that all covenants and agreements on the part of the Authority and the Borrower as to the amounts payable with respect to the Bonds hereunder are hereby declared to be for the benefit of the holders from time to time of the Bonds and may be enforced as provided in the Indenture on behalf of the Bondholders by the Trustee.

     Section 9.3. Force Majeure. In case by reason of force majeure either party hereto shall be rendered unable wholly or in part to carry out its obligations under this Agreement, then except as otherwise expressly provided in this Agreement, if such party shall give notice and full particulars of such force majeure in writing to the other party within a reasonable time after occurrence of the event or cause relied on, the obligations of the party giving such notice, other than the obligation of the Borrower to make the payments required under the terms hereof or of the Note, so far as they are affected by such force majeure, shall be suspended during the continuance of the inability then claimed which shall include a reasonable time for the removal of the effect thereof, but for no longer period, and such parties shall endeavor to remove or overcome such inability with all reasonable dispatch. The term “force majeure”, as employed herein, means acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, orders of any kind of the Government of the United States, of the State or any civil or military authority, insurrections, riots, epidemics, landslides, lightning, earthquakes, volcanoes, fires, hurricanes, tornadoes, storms, floods, washouts, droughts, arrests, restraining of government and people, civil disturbances, explosions, partial or entire failure of utilities, shortages of labor, material, supplies or transportation, or any other similar or different cause not reasonably within the control of the party claiming such inability. It is understood and agreed that the settlement of existing or impending strikes, lockouts or other industrial disturbances shall be entirely within the discretion of the party having the difficulty and that the above requirements that any force majeure shall be reasonably beyond the control of the party and shall be remedied with all reasonable dispatch shall be deemed to be fulfilled even though such existing or impending strikes, lockouts and other industrial disturbances may not be settled and could have been settled by acceding to the demands of the opposing person or persons.

     Section 9.4. Amendments. This Agreement may be amended only with the concurring written consent of the Trustee and, if required by the Indenture, of the owners of the Bonds given in accordance with the provisions of the Indenture.

     Section 9.5. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or when mailed by registered or certified mail, postage prepaid, addressed as follows: if to the Authority, at 999 West Street, Rocky Hill, Connecticut 06067, Attention: Program Manager — Loan Administration; if to the Borrower, 93 West Main Street, Clinton, Connecticut 06413 Attention: Vice President-Finance; if to the Paying Agent,

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Goodwin Square, 225 Asylum Street, Hartford, Connecticut 06103, Attention: Corporate Trust Department; and if to the Trustee, Goodwin Square, 225 Asylum Street, Hartford, Connecticut 06103, Attention: Corporate Trust Administration. A duplicate copy of each notice, certificate or other communication given hereunder by either the Authority or the Borrower to the other shall also be given to the Trustee. The Authority, the Borrower, the Paying Agent and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.

     Section 9.6. Prior Agreements Superseded. This Agreement, together with all agreements executed by the parties concurrently herewith or in conjunction with the sale of the Bonds, shall completely and fully supersede all other prior understandings or agreements, both written and oral, between the Authority and the Borrower relating to the lending of money and the Project, including those contained in any commitment letter executed in anticipation of the issuance of the Bonds but excluding agreements entered into in connection with the financing of the Project with other bonds previously issued by the Authority.

     Section 9.7. Execution of Counterparts. This Agreement may be executed simultaneously in several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument.

     Section 9.8. Time. All references to times of day in this Agreement are references to New York City time.

     Section 9.9. Separability of Invalid Provisions. In case any one or more of the provisions contained in this Agreement or in the Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.

     Section 9.10. Third Party Beneficiaries. The Authority and the Borrower agree that the Trustee and the Paying Agent shall be third party beneficiaries of this Agreement to the extent that any of the provisions hereof relate to or provide rights to the Trustee or the Paying Agent.

     Section 9.11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut, without reference to its choice of law principles.

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     IN WITNESS WHEREOF, the Authority has caused this Agreement to be executed in its corporate name by a duly Authorized Representative, and the Borrower has caused this Agreement to be executed in its corporate name by its duly authorized officer all as of the date first above written.

CONNECTICUT DEVELOPMENT AUTHORITY
By	/s/ Karin A. Lawrence
Name: Karin A. Lawrence
Authorized Representative
THE CONNECTICUT WATER COMPANY
By	/s/ David C. Benoit
Name: David C. Benoit
Title: Vice President — Finance and
Chief Financial Officer

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APPENDIX A

THE CONNECTICUT WATER COMPANY

FORM OF
PROMISSORY NOTE
2007A SERIES

No. 1 $15,000,000

     The Connecticut Water Company, a corporation organized and existing under the laws of the State of Connecticut (the “Borrower”), for value received, hereby promises to pay to the order of the Connecticut Development Authority (the “Authority”), the principal sum of $15,000,000.00 together with interest on the unpaid principal balance thereof from the date hereof until fully and finally paid, on the applicable Interest Payment Dates together with all taxes levied or assessed on this Note or the debt evidenced hereby against the holder hereof. This Note shall bear interest at the rate of interest borne by the Bonds referred to below.

     This Note has been executed under and pursuant to a Loan Agreement, dated as of December 1, 2007, between the Authority and the Borrower (the “Agreement”). This Note is issued to evidence the obligation of the Borrower under the Agreement to repay the loan made by the Authority from the proceeds of its $15,000,000 Water Facilities Revenue Bonds (The Connecticut Water Company Project - 2007A Series) (the “Bonds”), together with interest thereon and all other amounts, fees, penalties, premiums, adjustments, expenses, reasonable counsel fees and other payments of any kind required to be paid by the Borrower under the Agreement. The Agreement includes provision for mandatory and optional prepayment of this Note as a whole or in part. Advances made pursuant to Section 6.2 of the Agreement shall bear interest at the rate specified in accordance therewith.

     The Agreement and this Note (hereinafter, together with the Tax Regulatory Agreement, collectively referred to as the “Financing Documents”) have been assigned to U.S. Bank National Association (the “Trustee”) acting pursuant to an Indenture of Trust, dated as of December 1, 2007 (the “Indenture”), between the Authority and the Trustee. Such assignment is made as security for the payment of the Bonds issued by the Authority pursuant to the Indenture.

     As provided in the Agreement and subject to the provisions thereof, payments hereon are to be made at the corporate trust office of U.S. Bank National Association in Hartford, Connecticut, or at the office designated for such payment by any successor trustee in an amount which, together with other moneys available therefor pursuant to the Indenture, will equal the amount payable as principal or Redemption Price, if any, of and interest on the Bonds outstanding under the Indenture on each such due date.

     The Borrower shall make payments on this Note on the dates and in the amounts specified herein and in the Agreement and in addition shall make such other payments as are required pursuant to the Financing Documents, the Indenture and the Bonds. Upon the occurrence of an Event of Default, as defined in any of the Financing Documents, the principal of and interest on this Note may be declared immediately due and payable as provided in the Agreement. Upon any such declaration the Borrower shall pay all cost, disbursements, expenses and reasonable counsel fees of the Authority and the Trustee in seeking to enforce their rights under any of the Financing Documents.

A-1

     THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER HEREOF MAY DESIRE TO USE. The Borrower further (1) waives diligence, demand, presentment for payment, notice of nonpayment, protest and notice of protest, notice of any renewals or extension of this Note, and all rights under any statute of limitations, (2) agrees that the time for payment of this Note may be changed and extended in accordance with the provisions of the Indenture, and (3) consents to the release of all or any part of the security for the payment thereof at the discretion of the Trustee or the release of any party liable for this obligation without affecting the liability of the other parties hereto. Any delay on the part of the Authority or the Trustee in exercising any right hereunder shall not operate as a waiver of any such right, and any waiver granted with respect to one default shall not operate as a waiver in the event of any subsequent default.

     IN WITNESS WHEREOF, The Connecticut Water Company has caused this Note to be executed in its corporate name by its duly authorized officer, dated December ___, 2007.

THE CONNECTICUT WATER COMPANY
By:
	Name:
	Authorized Representative

A-2

AUTHORITY ENDORSEMENT

     Pay to the order of U.S. Bank National Association, as Trustee, without recourse.

CONNECTICUT DEVELOPMENT AUTHORITY
By:
	Name:
	Authorized Representative

A-3

APPENDIX B

DESCRIPTION OF PROJECT REALTY

     NONE.

APPENDIX C

DESCRIPTION OF PROJECT EQUIPMENT

     The Project Equipment shall consist of various improvements to certain of the Borrower’s water systems each of which collects, treats, stores, transmits and distributes water for residential, commercial, industrial and fire protection services in certain cities, towns and communities within Connecticut. The Borrower’s systems are operationally separate and are organized into regions. Those systems affected by the improvements and the regions to which they are allocated are as follows:

     (1) Shoreline Region, consisting of the Guilford System, the Chester System, the Point O’ Woods System and the Sound View System; (2) the Naugatuck Region, consisting of the Central System, the Collinsville System, the Unionville System and the Terryville System; (3) the Northern Region, consisting of the Western System and the Stafford System; and (4) the Eastern Region, consisting of the Crystal System, the Gallup System and the Plainfield System.

Description	Location
Shoreline Region
MacKenzie Water Treatment Plant, replace low lift pumps.	12 Kelseytown Bridge Road, Clinton, CT
Clean and Line Kelseytown unlined cast iron transmission main.	Kelseytown Bridge Road to Iron Works Road pump station, at intersection with Glenwood Road, Clinton.
Killingworth Reservoir Aeration	105 Deep River Road., (Rte 80), Killingworth, CT
Sound View Metering, Phase II – Install meter pits and meters for previously flat-rate customers in White Sands Beach and Sound View Beach Associations.	Springfield Rd., New Britain Rd., Meriden Rd., Seaside Ln., Cottage Rd., Old Shore Rd., Hartford Ave., Portland Ave., Swan Ave., Old Lyme, CT
Sound View Clearwell #2	Storage Tank Located at Hartung Well Field, off Cross Lane Approximately 500 Feet From Intersection with Shore Road , Old Lyme, CT
Point O’Woods Main Replacement	Connecticut Road., Ridgewood Road, Massachusetts Road, Old Lyme, CT.
Glenwood Rd., Clean and line 2300 LF of 14” cast iron water main.	Glenwood Road, Clinton, from Iron Works Road to Cream Pot Road.
Customer and Financial Information System software upgrade and replacement, corporate office.	93 West Main Street, Clinton, CT
Emergency Water Service Pneumatic Tank, deployed to various locations as needed.	93 West Main Street, Clinton, CT
UPS Replacement, Corporate Office	93 West Main Street, Clinton, CT
Five Fields Well Pump Replacement	99 Five Field Road, Madison, CT

Description	Location
Copse Road Water Main Replacement	Copse Road, Madison from Route 1 to Fort Path Road
AS400, File Server, Network Replacement, Corporate Office	93 West Main Street, Clinton, CT
Goose Hill Road Supply Main	From Williams Water Treatment Plant, 73 Goose Hill Road, Chester, CT to intersection of King’s Highway.
Hilltop Drive Measurement Line Replacement	Hilltop Drive, Madison, CT from Liberty St to cul-de-sac.
SCADA Server Upgrades – Hardware and Software	Company wide, offices and water treatment facilities
Lee Company Tank, Westbrook	Spencer Plains Road, Westbrook
Naugatuck Region
Prospect – Indian Fields Water Main	From Route 68 down Straitsville Rd to Salem Rd/May Street to Maple Hill Road to intersection with Arbor Avenue in Naugatuk. Connecticut
Canal Street Water Main Relocation	On Canal St., from Meridien St to Route 72 and from Allen Street to Tunnel Road, Plymouth, CT
Hunter’s Mountain Pump Station Control Valves	160 Hunter’s Mountain Road, Naugatuck, CT
Route 4 at New Stop & Shop	Route 4, 1823 Farmington Avenue, Unionville
Route 4 at Fulling Brook, DOT Bridge Replacement	Farmington Avenue (Rte. 4) at Fulling Brook Bridge Crossing, Farmington, CT
Highlands Area Water Main Replacement	On Briarwood Rd. from Knollwood Rd to end at cul-de-sac, On Arwood Rd. from Briarwood Rd to end at cul-de-sac, Farmington, CT
Cemetery Road PS VFD Replacement	8 Cemetery Road, Canton
Northern Region
Shaker Road Pump Station	246 Shaker Road, Enfield, CT
Hunt Water Treatment Plant – Replace Electrical System	4 Mahoney Road, East Windsor, CT
Suffield and North Streets – Water Main Replacement	North Street – Between Rt 159, Suffield St from North St to Poplar St., Windsor Locks, CT
Route 159 Water Main Replacement, Phase II	North Main Street from Olive Street, Windsor Locks to Harvey Lane, Suffield, CT
Thompsonville Well #9 – New Source of Supply	40 Booth Road, Enfield, CT
Wells & Rice Road Water Main Extension	Wells Road from Winkler Road to Rice Road, continuing on Rice Road to North Road, East Windsor

A-2

Description	Location
Rockville High Service Water Main	Upper Butcher Road and Middle Butcher Road, from Snipsic Street to Ellington Avenue, Rockville, CT
Avery Heights Water Association Metering	Benedict Dr., Spruce Ln., Pine Tree Ln., High View Rd., Manor Ln., Avery St., Pond Ln., Peach Tree Ln., Kelly Rd., Goodhill Rd., Raymond Rd., South Windsor, CT
Suffield Booster Motor Replacement	624 Mapleton Street, Suffield, CT
Hale & East Street Water Main Replacement	From Grove Street to East Street on Hale Street and from Hale Street to Rte. 30 (Hartford Tpke.) on East Street, Vernon, CT
Center Road Water Main Replacement	Center Road, Vernon, CT from Hartford Turnpike to Regan Road
Prospect Street Reconstruction	From West Main Street to Church Street on Prospect St, Stafford, CT
Eastern Region
Brooklyn Well Chlorination	At End of Quebec Street, Brooklyn, CT
Cemetery Road Water Main Extension to Pond View Apt. Complex and Hill Dale water system	Extension from Intersection with Route 14A down Cemetery Road with tie- ins to Pine and Forest Streets, Plainfield, CT
Plainfield Center Water Main Replacements, Phase II	Third Street Extension Loop, going West on Third Street Ext from Second Street, continuing North on Third Street Ext towards Railroad Avenue (Rte. 14A), continuing East on Third Street Ext, then South on Third Street Ext to meet starting point of loop West of Second Street, Plainfield, CT
Gallup Well #1 Standby Power System	19 Fourth Street, Plainfield, CT
High Service Water Main, Eliminate Dow Road Pump Station	Pipe in Easement from First Street to Community Avenue, Plainfield
Wauregan Water Main Replacements	South Chestnut from First to Front Streets, South Walnut from Brooklyn Rd, 320’ south, North Walnut from Brooklyn Rd to North Cross Streets. Wauregan section of Plainfield, CT

A-3

EX-4.35

Exhibit 4.35

[EXECUTION COPY]

CONNECTICUT DEVELOPMENT AUTHORITY

to

U.S. BANK NATIONAL ASSOCIATION,
as Trustee

INDENTURE OF TRUST

Dated as of December 1, 2007

Connecticut Development Authority
$15,000,000 Water Facilities Revenue Bonds
(The Connecticut Water Company Project — 2007A Series)

TABLE OF CONTENTS

	Page
Parties and Preambles		1
Form of Bond		4
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions		15
Section 1.2. Interpretation		21
ARTICLE II
AUTHORIZATION, TERMS AND ISSUANCE OF BONDS
Section 2.1. Authorization for Indenture		23
Section 2.2. Authorization and Obligation of Bonds		23
Section 2.3. Issuance and Terms of the Bonds		23
Section 2.4. Redemption of Bonds		26
Section 2.5. Execution and Authentication of Bonds		30
Section 2.6. Delivery of Bonds		30
Section 2.7. No Additional Bonds		31
ARTICLE III
GENERAL TERMS AND PROVISIONS OF BONDS
Section 3.1. Date of Bonds		32
Section 3.2. Form and Denominations		32
Section 3.3. Legends		32
Section 3.4. Medium of Payment		32
Section 3.5. Bond Details		32
Section 3.6. Interchangeability, Transfer and Registry		32
Section 3.7. Bonds Mutilated, Destroyed, Stolen or Lost		33
Section 3.8. Cancellation and Destruction of Bonds		33
Section 3.9. Requirements With Respect To Transfers		33
Section 3.10. Registrar		34
ARTICLE IV
APPLICATION OF BOND PROCEEDS AND OTHER AMOUNTS
Section 4.1. Accrued Interest		35
Section 4.2. Bond Proceeds		35
Section 4.3. Borrower Contribution		35
ARTICLE V
CUSTODY AND INVESTMENT OF FUNDS
Section 5.1. Creation of Funds		36
Section 5.2. Project Fund		36
Section 5.3. Debt Service Fund		38
Section 5.4. Rebate Fund		40
Section 5.5. Renewal Fund		40
Section 5.6. Investment of Funds and Accounts		40
Section 5.7. Non-presentment of Bonds		41
ARTICLE VI
REDEMPTION OF BONDS
Section 6.1. Privilege of Redemption and Redemption Price		41

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	Page
Section 6.2. Selection of Bonds to be Redeemed		41
Section 6.3. Notice of Redemption		41
Section 6.4. Payment of Redeemed Bonds		42
Section 6.5. Notice to Authority and Borrower of Deceased Bondholder Redemption		42
Section 6.6. Cancellation of Redeemed Bonds		42
ARTICLE VII
PARTICULAR COVENANTS
Section 7.1. No Pecuniary Liability on Authority or Officers		44
Section 7.2. Payment of Principal, Redemption Price, if any, and Interest		44
Section 7.3. Performance of Covenants		44
Section 7.4. Further Assurances		44
Section 7.5. Inspection of Project Books		44
Section 7.6. Rights under Financing Documents		45
Section 7.7. Creation of Liens, Indebtedness		45
Section 7.8. Recording and Filing		45
ARTICLE VIII
REMEDIES OF BONDHOLDERS
Section 8.1. Events of Default; Acceleration of Due Dates		46
Section 8.2. Enforcement of Remedies		46
Section 8.3. Application of Revenue and Other Moneys After Default		47
Section 8.4. Actions by Trustee		48
Section 8.5. Majority Bondholders Control Proceedings		48
Section 8.6. Individual Bondholder Action Restricted		48
Section 8.7. Effect of Discontinuance of Proceedings		49
Section 8.8. Remedies Not Exclusive		49
Section 8.9. Delay or Omission Upon Default		49
Section 8.10. Notice of Default		49
Section 8.11. Waivers of Default		49
ARTICLE IX
TRUSTEE AND PAYING AGENTS
Section 9.1. Appointment and Acceptance of Duties		51
Section 9.2. Indemnity		51
Section 9.3. Responsibilities of Trustee		51
Section 9.4. Compensation		52
Section 9.5. Evidence on Which Trustee May Act		52
Section 9.6. Evidence of Signatures of Owners of the Bonds and Ownership of Bonds		53
Section 9.7. Trustee and any Paying Agent, May Deal in Bonds and With Borrower		53
Section 9.8. Resignation or Removal of Trustee		53
Section 9.9. Successor Trustee		54
Section 9.10. Appointment and Responsibilities of Paying Agent		55
Section 9.11. Resignation or Removal of Paying Agent; Successors		55
Section 9.12. Monies Held for Particular Bonds		56
Section 9.13. Continuation Statements		56
Section 9.14. Obligation to Report Defaults		56
Section 9.15. Payments Due on non-Business Day		56
Section 9.16. Appointment of Co-Trustee		56
Section 9.17. Project Description		57
ARTICLE X
AMENDMENTS OF INDENTURE
Section 10.1. Limitation on Modifications		58

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	Page
Section 10.2. Supplemental Indentures Without Consent of Owners of the Bonds		58
Section 10.3. Supplemental Indentures With Consent of Owners of the Bonds		58
Section 10.4. Supplemental Indenture Part of the Indenture		59
ARTICLE XI
AMENDMENTS OF FINANCING DOCUMENTS
Section 11.1. Rights of Borrower		61
Section 11.2. Amendments of Financing Documents Not Requiring Consent of Owners of the Bonds		61
Section 11.3. Amendments of Financing Documents Requiring Consent of Owners of the Bonds		61
ARTICLE XII
DISCHARGE OF INDENTURE
Section 12.1. Defeasance		62
ARTICLE XIII
GENERAL PROVISIONS
Section 13.1. Notices		63
Section 13.2. Covenant Against Discrimination		63
Section 13.3. Parties Interested Herein		63
Section 13.4. Effective Date; Counterparts		63
Section 13.5. Date for Identification Purposes Only		63
Section 13.6. Separability of Invalid Provisions		63
APPENDICES
Appendix A — Form of Requisition
Appendix B — Form of Redemption Request

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     THIS INDENTURE OF TRUST, made and dated as of December 1, 2007, by and between the CONNECTICUT DEVELOPMENT AUTHORITY, a body corporate and politic constituting a public instrumentality and political subdivision of the State of Connecticut, and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized, existing and authorized to accept and execute trusts of the character herein set out under and by virtue of the laws of the United States of America, with a corporate trust office located in Hartford, Connecticut, as Trustee,

WITNESSETH THAT:

     WHEREAS, the State Commerce Act, constituting Connecticut General Statutes, Sections 32-1a through 32-23zz, as amended (the “Act”), declares that there is a continuing need in the State (1) for industrial development and activity to provide and maintain employment and tax revenues and to control, abate and prevent pollution to protect the public health and safety, (2) for the development of recreation facilities to promote tourism, provide and maintain employment and tax revenues, and promote the public welfare, (3) for the development of commercial and retail sales and service facilities in urban areas to provide and maintain construction and permanent employment and tax revenues, to improve conditions of deteriorated physical development, slow economic growth and eroded financial health of the public and private sectors in urban areas and to revitalize the economy of urban areas, and (4) for assistance to public service businesses providing transportation and utility services in the State, and that the availability of financial assistance and suitable facilities are important inducements to industrial and commercial enterprises to remain or locate in the State and to provide industrial, recreation, urban and public service projects; and

     WHEREAS, the Act provides that (1) the term “project” as used therein means any facility, plant, works, system, building, structure, utility, fixture or other real property improvement located in the State, and the land on which it is located or which is reasonably necessary in connection therewith, which is of a nature or which is to be used or occupied by any person for purposes which would constitute it as an economic development project, recreation project, urban project, public service project or health care project, and any real property improvement reasonably related thereto, and (2) a project may also include or consist exclusively of machinery, equipment or fixtures; and

     WHEREAS, the Act provides that the Authority shall have power to determine the location and character of, and extend credit or make loans to any person for the planning, designing, acquiring, improving and equipping of, a project which may be secured by loan, lease or sale agreements, contracts and other instruments, upon such terms and conditions as the Authority shall determine to be reasonable, to require the inclusion in any contract, loan agreement or other instrument of such provisions for the construction, use, operation, maintenance and financing of the project as the Authority may deem necessary or desirable, to issue its bonds for such purposes, subject to the approval of the Treasurer of the State, and, as security for the payment of the principal or redemption price, if any, of and interest on any such bonds, to pledge or assign such a loan, lease or sale agreement and the revenues and receipts derived by the Authority from such a project; and

     WHEREAS, by resolution adopted on April 18, 2007, in furtherance of the purposes of the Act, the Authority has accepted the application of The Connecticut Water Company (the “Borrower”) for assistance in the financing of various capital projects located in the State of Connecticut; and

     WHEREAS, the Borrower currently owns certain existing facilities within certain municipalities in the State and at this time requests assistance in the design, acquisition, installation, improvement and construction of certain facilities consisting of water treatment and storage facilities, transmission and distribution mains, service lines, meters, hydrants and pumping equipment for the purpose of supplying safe potable water to the general public within the Borrower’s service area; and

     WHEREAS, the Authority has by a further resolution adopted on October 17, 2007 authorized the issuance of not to exceed $15,000,000 principal amount of its Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series) for the purpose of providing funds for the Project; and

     WHEREAS, the Authority has determined that the issuance, sale and delivery of the Bonds, as hereinafter provided, is needed to finance the cost of the Project, and concurrently herewith the Authority and the Borrower have entered into a Loan Agreement, dated as of December 1, 2007, providing for a loan by the Authority to the Borrower for such purpose in an aggregate amount equal to the principal amount of the Bonds; and

     WHEREAS, the Connecticut Department of Public Utility Control (the “DPUC”) has approved the issuance of the Note; and

     WHEREAS, the Bonds shall be special obligations of the Authority, payable solely out of the revenues and other receipts, funds or monies derived by the Authority under the Agreement or the Indenture and from any amounts otherwise available under this Indenture for the payment of the Bonds; and

     WHEREAS, the Bonds are to be originally issued as fully registered bonds and such Bonds and the Trustee’s certificate of authentication to be endorsed thereon shall be in substantially the following form, with appropriate variations, omissions and insertions as permitted or required by this Indenture, to wit:

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[FORM OF BOND]

No. AR- $15,000,000

NEITHER THE STATE OF CONNECTICUT NOR ANY MUNICIPALITY THEREOF IS OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE OF CONNECTICUT NOR ANY MUNICIPALITY THEREOF IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL, PREMIUM, IF ANY, OF OR INTEREST ON THIS BOND.

CONNECTICUT DEVELOPMENT AUTHORITY
WATER FACILITIES REVENUE BOND
(THE CONNECTICUT WATER COMPANY PROJECT — 2007A SERIES)

BOND DATE: December 21, 2007

MATURITY DATE: December 1, 2037

INTEREST PAYMENT DATES: June 1 and December 1

INTEREST RATE: 5.00%

REGISTERED OWNER: CEDE & CO.

PRINCIPAL AMOUNT: $15,000,000.00***

CUSIP NUMBER: 207900 CC3

     CONNECTICUT DEVELOPMENT AUTHORITY (the “Authority”), a body corporate and politic constituting a public instrumentality and political subdivision of the State of Connecticut (the “State”), for value received, hereby promises to pay to the REGISTERED OWNER or registered assigns, on the MATURITY DATE, solely from the sources and in the manner hereinafter provided, upon presentation and surrender hereof, in lawful money of the United States of America, the PRINCIPAL AMOUNT and in like manner to pay interest on the unpaid principal balance thereof until the Authority’s obligation with respect to the payment of such sum shall be discharged. Interest shall be payable (computed on the basis of a 360-day year consisting of twelve 30-day months) from the most recent INTEREST PAYMENT DATE, to which interest has been paid or duly provided for or, if no interest has been paid, from the DATE OF THIS BOND at the INTEREST RATE per annum, payable semi-annually on the INTEREST PAYMENT DATES until the date on which this bond becomes due, whether at maturity or by acceleration or redemption. From and after that date, any unpaid principal will bear interest at the same rate until paid or duly provided for.

     Payment of Principal and Interest. The principal and premium, if any, of this Bond is payable to the REGISTERED OWNER hereof but only upon presentation and surrender of this bond at the corporate trust office of U.S. Bank National Association, as Paying Agent (with its successors, the “Paying Agent”). Interest is payable by check or draft mailed by the Paying Agent to the REGISTERED OWNER of this bond (or of one or more predecessor or successor Bonds (as defined below)), determined as of the close of business on the applicable record date, at its address as shown on the registration books maintained by the Paying Agent. If any payment, redemption or maturity date for principal, premium or interest shall not be a Business Day then the payment thereof may be made on the next succeeding Business Day with the same force and effect as if made on the specified payment date and no interest shall accrue for the

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period after the specified payment date. Payment shall be in any coin or currency of the United States of America, which, on the respective dates of payment thereof, is legal tender for the payment of public and private debts.

     The record date for payment of interest is the fifteenth day of the month immediately preceding each INTEREST PAYMENT DATE, provided that, with respect to overdue interest or interest payable on redemption of this bond other than on an INTEREST PAYMENT DATE or interest on any overdue amount, the Trustee (as defined below) may establish a special record date. The special record date may be not more than thirty (30) days before the date set for payment. The Paying Agent will mail notice of a special record date to the registered owners of the Bonds (the “Bondholders”) at least ten (10) days before the special record date. The Paying Agent will promptly certify to the Authority and the Trustee that it has mailed such notice to all Bondholders, and such certificate will be conclusive evidence that such notice was given in the manner required hereby.

     Authorization and Purpose. This bond is one of an authorized issue of Bonds of the Authority in the aggregate principal amount of $15,000,000 designated: Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series) (the “Bonds”) which are issued for the purpose of providing The Connecticut Water Company (the “Borrower”), a corporation organized and existing under the laws of the State of Connecticut, with funds for the purpose of financing various capital improvements constituting a portion of the Borrower’s existing water system (the “Project”), and paying necessary expenses incidental thereto. The Bonds are issued pursuant to the State Commerce Act, constituting Connecticut General Statutes, Sections 32-1a through 32-23zz, as amended, a resolution adopted by the Authority on October 17, 2007 and an Indenture of Trust, dated as of December 1, 2007 (which Indenture as from time to time amended and supplemented is herein referred to as the “Indenture”), duly executed and delivered by the Authority to U.S. Bank National Association, as trustee (with its successors, the “Trustee”), and are equally and ratably secured by and entitled to the protection of the Indenture, which is on file in the office of the Trustee.

     Pledge and Security. Pursuant to the Indenture, the Authority has assigned to the Trustee all of its right, title and interest in and to a Loan Agreement, dated as of December 1, 2007, as it may be amended or supplemented from time to time (the “Agreement”), between the Authority and the Borrower, and the Note evidencing the Borrower’s obligations under the Agreement (except for certain enforcement and indemnification rights which are reserved in the Indenture), including all rights to receive loan payments sufficient to pay the principal and premium if any, of and interest and all other amounts due on the Bonds as the same become due, to be made by the Borrower pursuant to the Agreement. The Agreement sets forth the terms and conditions under which the Authority will provide for the financing of the Project and under which the Borrower will use and occupy the Project and the Borrower will make loan payments to the Authority in such amounts as are necessary to pay the principal of, premium if any, and interest on the Bonds. Reference is hereby made to the Indenture for the definition of any capitalized word or term used but not defined herein and for a description of the property pledged, assigned and otherwise available for the payment of the Bonds, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Authority, the Trustee and the owners of the Bonds, and the terms upon which the Bonds are issued and secured, and the holders of the Bonds are deemed to assent to the provisions of the Indenture by the acceptance of this bond.

     Event of Default. In case any Event of Default occurs and is continuing, the principal amount of this bond together with accrued interest may be declared due and payable in the manner and with the effect provided in the Indenture.

     General Optional Redemption. The Bonds are subject to redemption prior to maturity from time to time pursuant to the Indenture at the option of the Authority, which option shall be exercised at the

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direction of the Borrower, as a whole or in part on any date on or after December 1, 2012, at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the redemption date.

     Extraordinary Optional Redemption. In addition, at the option of the Authority, which option shall be exercised upon the giving of notice by the Borrower of its election to redeem Bonds following completion of the Project in accordance with the Indenture or its intention to prepay amounts due under the Agreement, the Bonds are subject to redemption prior to maturity at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the date of redemption (a) in part, on any date, to the extent that excess Bond proceeds are transferred to the Redemption Account from the Project Fund in accordance with Section 5.2(F) of the Indenture, or (b) as a whole, on any date, if any one or more of the events of casualty to or condemnation of the Project or change in law or certain economic events affecting the Project specified in subsection 8.1(B) of the Agreement shall have occurred, as evidenced in each case by the filing of a certificate of an Authorized Representative of the Borrower.

     Mandatory Taxability Redemption. In the event of a Determination of Taxability, the Bonds shall be redeemed on any day selected by the Borrower that is not more than 180 days after the occurrence of such Determination of Taxability as provided in the Indenture, at the Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the date of redemption. Redemption under this paragraph shall be in whole unless not less than forty-five (45) days prior to the redemption date the Borrower delivers to the Trustee an opinion of Bond Counsel reasonably satisfactory to the Trustee to the effect that a redemption of less than all of the Bonds will preserve the tax-exempt status of interest on the remaining Bonds outstanding subsequent to such redemption.

     Redemption (or Purchase) by the Borrower in the Event of Death of a Beneficial Owner. Unless the Bonds have been declared due and payable prior to their maturity by reason of an Event of Default, the Representative (as hereinafter defined) of a deceased Beneficial Owner (as hereinafter defined) who has owned (or whose estate has owned) the Bonds for a period of at least six months prior to any request for redemption, has the right after December 1, 2009, to request redemption prior to stated maturity of all or part of such deceased Beneficial Owner’s interest in the Bonds, and the Borrower will redeem (or will cause the Authority to redeem) the same subject to the limitations that the Borrower will not be obligated to redeem (or cause to be redeemed), during the period from December 1, 2009, through and including December 1, 2010, (the “Initial Period”), and during any twelve-month period which ends on and includes each December 1 thereafter (each such twelve-month period being hereinafter referred to as a “Subsequent Period”), (i) on behalf of a deceased Beneficial Owner any interest in the Bonds which exceeds $25,000 principal amount (the “Individual Limitation”) or (ii) interests in the Bonds exceeding $300,000 in aggregate principal amount (the “Annual Limitation”). A request for redemption may be initiated by the Representative of a deceased Beneficial Owner at any time and in any principal amount.

     The Borrower may, at its option, redeem (or cause to be redeemed) interests of any deceased Beneficial Owner in the Bonds during the Initial Period or any Subsequent Period in excess of the Individual Limitation. Any such redemption, to the extent that it exceeds the Individual Limitation for any deceased Beneficial Owner, shall not be included in the computation of the Annual Limitation for such Initial Period or such Subsequent Period, as the case may be, or for any succeeding Subsequent Period. The Borrower may, at its option, redeem (or cause to be redeemed) interests of deceased Beneficial Owners in the Bonds, during the Initial Period or any Subsequent Period in an aggregate principal amount exceeding the Annual Limitation. Any such redemption, to the extent it exceeds the Annual Limitation shall not reduce the Annual Limitation for any Subsequent Period. Upon any determination by the Borrower to redeem (or cause to be redeemed) Bonds in excess of the Individual Limitation or the Annual Limitation, Bonds so redeemed shall be redeemed in the order of the receipt of Redemption Requests (as hereinafter defined) by the Trustee.

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     A request for redemption of an interest in the Bonds may be initiated by the personal representative or other person authorized to represent the estate of the deceased Beneficial Owner or by a surviving joint tenant(s) or tenant(s) by the entirety or the trustee of a trust (each, a “Representative”). The Representative shall deliver a request to the Participant (hereinafter defined) through whom the deceased Beneficial Owner owned such interest, in form satisfactory to the Participant, together with evidence of the death of the Beneficial Owner, evidence of the authority of the Representative satisfactory to the Participant, such waivers, notices or certificates as may be required under applicable state or federal law and such other evidence of the right to such redemption as the Participant shall require. The request shall specify the principal amount of the interest in the Bonds to be redeemed. The Participant shall thereupon deliver to the Depository a request for redemption substantially in the form attached as Appendix B to the Indenture (a “Redemption Request”). The Depository will, on receipt thereof, forward the same to the Trustee. The Trustee shall maintain records with respect to Redemption Requests received by it including date of receipt, the name of the Participant filing the Redemption Request and the status of each such Redemption Request with respect to the Individual Limitation or the Annual Limitation. The Trustee will immediately forward a copy of each Redemption Request it receives, together with the information regarding the eligibility thereof with respect to the Individual Limitation or the Annual Limitation with the Borrower. The Depository, the Authority, the Borrower and the Trustee may conclusively assume, without independent investigation, that the statements contained in each Redemption Request are true and correct and shall have no responsibility for reviewing any documents submitted to the Participant by the Representative or for determining whether the applicable decedent is in fact the Beneficial Owner of the interest in the Bonds to be redeemed or is in fact deceased and whether the Representative is duly authorized to request redemption on behalf of the applicable Beneficial Owner.

     Subject to the Individual Limitation and the Annual Limitation, the Borrower will, upon receipt of a Redemption Request, redeem (or cause to be redeemed) the interest of such deceased Beneficial Owner in the Bonds on the next interest payment date occurring not less than 30 days following receipt by the Borrower of the Redemption Request from the Trustee. If Redemption Requests exceed the aggregate principal amount of interests in Bonds required to be redeemed during the Initial Period or during any Subsequent Period, then such excess Redemption Requests will be applied in the order received by the Trustee to successive Subsequent Periods, regardless of the number of Subsequent Periods required to redeem such interests. The Borrower may, at any time, notify the Trustee that it will redeem (or cause to be redeemed), on the next interest payment date occurring not less than 30 days thereafter, all or any such lesser amount of Bonds for which Redemption Requests have been received but which are not then eligible for redemption by reason of the Individual Limitation or the Annual Limitation. Any Bonds so redeemed shall be redeemed in the order of receipt of Redemption Requests by the Trustee.

     The price to be paid by the Borrower for the Bonds to be redeemed pursuant to a Redemption Request is 100% of the principal amount thereof plus accrued but unpaid interest to the date of payment. Subject to arrangements with the Depository, payment for interests in the Bonds which are to be redeemed shall be made to the Depository upon presentation of Bonds to the Trustee for redemption in the aggregate principal amount specified in the Redemption Requests submitted to the Trustee by the Depository which are to be fulfilled in connection with such payment. The principal amount of any Bonds acquired or redeemed by or at the direction of the Borrower other than by redemption at the option of any Representative of a deceased Beneficial Owner pursuant to this section shall not be included in the computation of either the Individual Limitation and the Annual Limitation for the Initial Period or for any Subsequent Period.

     For purposes of this section, a “Beneficial Owner” means the Person who has the right to sell, transfer or otherwise dispose of an interest in a Bond and the right to receive the proceeds therefrom, as well as the interest and principal payable to the holder thereof. In general, a determination of beneficial

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ownership in the Bonds will be subject to the rules, regulations and procedures governing the Depository and institutions that have accounts with the Depository or a nominee thereof (“Participants”).

     For purposes of this section, an interest in a Bond held in tenancy by the entirety, joint tenancy or by tenants in common will be deemed to be held by a single Beneficial Owner and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a Beneficial Owner. The death of a person who, during his lifetime, was entitled to substantially all of the rights of a Beneficial Owner of an interest in the Bonds will be deemed the death of the Beneficial Owner, regardless of the recordation of such interest on the records of the Participant, if such rights can be established to the satisfaction of the Participant. Such interests shall be deemed to exist in typical cases of nominee ownership, ownership under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, community property or other similar joint ownership arrangements, including individual retirement accounts or Keogh [H.R. 10] plans maintained solely by or for the decedent or by or for the decedent and any spouse, and trust and certain other arrangements where the decedent has the right to receive all or a portion of the income and such person has substantially all of the rights of a Beneficial Owner during such person’s lifetime.

     In the case of a Redemption Request which is presented on behalf of a deceased Beneficial Owner and which has not been fulfilled at the time the Borrower gives notice of its election to redeem the Bonds, the Bonds which are the subject of such pending Redemption Request shall be redeemed prior to any other Bonds.

     Any Redemption Request may be withdrawn by the person(s) presenting the same upon delivery of a written request for such withdrawal given by the Participant on behalf of such person to the Depository and by the Depository to the Trustee not less than 60 days prior to the interest payment date on which such Bonds are eligible for redemption.

     The Borrower may, at its option, purchase any Bonds for which Redemption Requests have been received in lieu of redeeming (or causing the redemption of) such Bonds. Any Bonds so purchased by the Borrower shall either be reoffered for sale and sold within 180 days after the date of purchase or presented to the Trustee for redemption and cancellation. The Trustee shall have no duty to monitor or enforce the Borrower’s obligations under this paragraph.

     During such time or times as the Bonds are not represented by a Global Security and are issued in definitive form, all references in this Section to Participants and the Depository, including the Depository’s governing rules, regulations and procedures shall be deemed deleted, all determinations which under this section the Participants are required to make shall be made by the Borrower (including, without limitation, determining whether the applicable decedent is in fact the Beneficial Owner of the interest in the Bonds to be redeemed or is in fact deceased and whether the Representative is duly authorized to request redemption on behalf of the applicable Beneficial Owner), all Redemption Requests, to be effective, shall be delivered by the Representative to the Trustee, with a copy to the Borrower, and shall be in the form of a Redemption Request (with appropriate changes to reflect the fact that such Redemption Request is being executed by a Representative) and, in addition to all documents that are otherwise required to accompany a Redemption Request, shall be accompanied by the Bond that is the subject of such request.

     Optional Public Purpose Redemption. If the Borrower fails to perform its obligations under Section 6.4 of the Agreement, the Bonds shall be subject to redemption prior to maturity as a whole on any date at the option of the Authority in accordance with Section 7.3 of the Agreement, at the redemption price equal to 100% of the principal amount thereof plus accrued interest to the date of redemption.

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     Extraordinary Optional Redemption Without Premium to Preserve Tax Exempt Status of the Bonds. The Bonds shall be subject to extraordinary optional redemption by the Authority, at the direction of the Borrower, in whole or in part on any date at a Redemption Price equal to 100% of the unpaid principal amount thereof, together with accrued interest to the date of redemption, and without premium, if the Borrower shall have delivered to the Trustee and the Authority an opinion of Bond Counsel addressed to the Trustee and the Authority substantially to the effect that (i) a failure so to redeem the Bonds (or the relevant portion thereof) may adversely affect the exclusion of interest on the Bonds from the gross income of the holders pursuant to Section 103 of the Code, and (ii) redemption of Bonds in the amount set forth in such opinion (but in no smaller amount than that set forth in such opinion) would permit the continuance of any exclusion so afforded under Section 103 of the Code.

     Selection of Bonds to be Redeemed. If less than all of the Outstanding Bonds are to be called for redemption, the Bonds (or portions thereof) to be redeemed shall be selected as provided in the Indenture.

     Notice of Redemption. In the event this bond is selected for redemption, notice (which notice may state that it is subject to the receipt of the redemption moneys by the Trustee on or before the date fixed for redemption and which notice shall be of no effect unless such moneys are so received on or before such date) will be mailed no more than forty-five (45) days nor less than thirty (30) days prior to the redemption date to the REGISTERED OWNER at its address shown on the registration books maintained by the Paying Agent. Failure to mail notice to the owner of any other Bond or any defect in the notice to such an owner shall not affect the redemption of this bond.

     If this bond is of a denomination in excess of five thousand dollars ($5,000), portions of the principal amount in the amount of five thousand dollars ($5,000) or any multiple thereof may be redeemed. If less than all of the principal amount is to be redeemed, upon surrender of this bond to the Paying Agent, there will be issued to the REGISTERED OWNER, without charge, a new Bond or Bonds, at the option of the REGISTERED OWNER, for the unredeemed principal amount.

     Notice of redemption having been duly mailed, and moneys for the redemption having been deposited with the Paying Agent, this bond, or the portion called for redemption, will become due and payable on the redemption date at the applicable redemption price from and after the date fixed for redemption, interest on this bond (or such portion) will no longer accrue.

     Transfer of Bonds. This bond is transferable by the REGISTERED OWNER, in person or by its attorney duly authorized in writing, at the office of the Paying Agent, upon surrender of this bond to the Paying Agent for cancellation. Upon the transfer, a new Bond or Bonds in authorized denominations of the same aggregate principal amount will be issued to the transferee at the same office. This bond may also be exchanged at the office of the Paying Agent for a new Bond or Bonds in authorized denominations of the same aggregate principal amount without transfer to a new registered owner. Exchanges and transfers will be without expense to the owner except for applicable taxes, fees or other governmental charges, if any, and a sum sufficient to pay the cost of preparing and delivering each new Bond issued upon such transfer. The Paying Agent will not be required to make an exchange or transfer of this bond (a) during the fifteen (15) days preceding any date fixed for selection for redemption if this bond (or any portion thereof) is eligible to be selected for redemption or (b) if this bond is selected, called or being called for redemption in whole or in part, except in the case of a bond to be redeemed in part, the portion not to be redeemed.

     Amendment of Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Authority and the rights of the owners of the Bonds at any time by the Authority with the consent of the owners of not less than 51% in aggregate principal amount of the Bonds at the time outstanding thereunder. Any such consent shall be

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conclusive and binding upon each such owner and upon all future owners of each Bond and of any such Bond issued upon the transfer thereof, whether or not notation of such consent is made thereon. The Indenture also permits the amendment thereof by the Authority but without the consent of the owners of the Bonds for certain specified purposes.

     Limitation on Bondholder Enforcement Rights. The owner of this bond shall have no right to enforce the provisions of the Indenture, to institute action to enforce the provisions and covenants thereof or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided in the Indenture.

     Special Obligations of the Authority. This bond and the issue of which it forms a part are special obligations of the Authority, payable solely out of the revenues or other receipts, funds or moneys of the Authority pledged under the Indenture and from any amounts otherwise available under the Indenture for the payment of the Bonds. Neither the State nor any municipality thereof shall be obligated to pay the principal or redemption price, if any, of or interest on this bond and neither the faith and credit nor taxing power of the State or any municipality thereof is pledged to such payment. The Bonds do not now and shall never constitute a debt or liability of the State or any municipality thereof or bonds issued or guaranteed by either of them within the meaning of any constitutional or statutory limitation.

     Estoppel Clause. This bond is issued pursuant to and in full compliance with the Constitution and laws of the State. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the issuance of this bond do exist, have happened and have been performed in due time, form and manner as required by law and that the issuance of this bond and of the issue of which it forms a part, together with all other obligations of the Authority, do not exceed or violate any constitutional or statutory limitation.

     NEITHER THE AUTHORITY, THE TRUSTEE NOR ANY PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY SUCCESSOR SECURITIES DEPOSITORY, ANY PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) THE PAYMENT BY DTC OR ANY SUCCESSOR SECURITIES DEPOSITORY OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS; (III) THE SELECTION BY DTC OR ANY SUCCESSOR SECURITIES DEPOSITORY OR ANY DIRECT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; (IV) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC OR ANY SUCCESSOR SECURITIES DEPOSITORY AS BONDHOLDER; OR (V) THE DELIVERY TO ANY PARTICIPANT, OR INDIRECT PARTICIPANT, BENEFICIAL OWNER OR OTHER PERSON OTHER THAN DTC OR ANY SUCCESSOR SECURITIES DEPOSITORY OF ANY NOTICE WITH RESPECT TO THE BONDS, INCLUDING BUT NOT LIMITED TO, ANY NOTICE OF REDEMPTION.

     No Personal Liability. Neither the officers, directors or employees of the Authority or the Trustee nor any person executing this bond shall be liable personally or be subject to any personal liability or accountability by reason of the issuance hereof.

     Authentication. This bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee or the Paying Agent.

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     Authorized Denomination. The Bonds are issuable only in fully registered form in denominations of $5,000 or any multiple thereof.

     Persons Deemed Owners. The Authority, the Trustee, the Paying Agent and the Borrower may treat the REGISTERED OWNER as the absolute owner of this bond for all purposes, notwithstanding any notice to the contrary.

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     IN WITNESS WHEREOF, the CONNECTICUT DEVELOPMENT AUTHORITY has caused this Bond to be executed in its name by the manual or facsimile signature of its Authorized Representative.

CONNECTICUT DEVELOPMENT AUTHORITY
By	Authorized Representative

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[FORM OF CERTIFICATE OF AUTHENTICATION]

CERTIFICATE OF AUTHENTICATION

     This bond is one of the Bonds of the issue described in the within mentioned Indenture.

Date of Registration:

U.S. BANK NATIONAL ASSOCIATION, Trustee
By	Authorized Signature	[,or
U.S. BANK NATIONAL ASSOCIATION, Paying Agent
By	Authorized Signature]

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[FORM OF ASSIGNMENT]

ASSIGNMENT

     For value received the undersigned sells, assigns and transfers this bond to

(Name and Address of Assignee)

Social Security or Other Identifying Number of Assignee

and irrevocably appoints                                          attorney-in-fact to transfer it on the books kept for registration of the bond, with full power of substitution.

NOTE: The signature to this assignment must correspond with the name as written on the face of the bond without alteration or enlargement or other change and must be guaranteed by a Participant in a Recognized Signature Guaranty Medallion Program.

Dated:

Signature Guaranteed:

Participant in a Recognized

Signature Guaranty Medallion Program

By:
	Authorized Signature

[END OF FORM OF BOND]

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     WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the Authority according to the import thereof, and to constitute this Indenture a valid pledge of revenues to the payment of the principal or Redemption Price, if any, of and interest on the Bonds and all other amounts due in connection therewith and a valid assignment of the rights of the Authority (except as stated below) under the Agreement and the Note have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution and issuance of the Bonds subject to the terms hereof, have in all respects been duly authorized;

     NOW, THEREFORE, KNOW ALL PERSONS BY THESE PRESENTS:

GRANTING CLAUSES

     That the Authority in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds by the holders and owners thereof, and of the sum of One Dollar, lawful money of the United States of America, to it duly paid by the Trustee at or before the execution and delivery of these presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, Redemption Price, if any, and interest on the Bonds according to their tenor and effect and all other amounts due in connection therewith and the performance and observance by the Authority of all the covenants expressed or implied herein and in the Bonds, does hereby grant, bargain, sell, convey, pledge and assign unto, and grant a security interest in and to the Trustee, and unto its respective successors in trust, and to their respective assigns, forever, for the securing of the performance of the obligations of the Authority hereinafter set forth, the following:

I.

     The Agreement and the Note (except to the extent to which any such document provides for the indemnification or the payment of expenses of the Authority, rights of the Authority to inspect the Projects, receive notices and grant approvals), including all extensions and renewals of the term thereof, if any, together with all right, title and interest of the Authority therein, including, but without limiting the generality of the foregoing, the present and continuing right to claim, collect and receive any of the moneys, income, revenues, issues, profits and other amounts payable or receivable thereunder, to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which the Authority is or may become entitled to do under the Agreement and the Note, but reserving, however, to the Authority rights of the Authority under Sections 6.2, 6.4, 7.2(A)(2) and 7.3 of the Agreement upon the conditions therein set forth;

II.

     All Funds and Accounts (except the Rebate Fund) and moneys therein; and

III.

     All moneys and securities from time to time held by the Trustee or the Paying Agent under the terms of this Indenture (except moneys and securities in the Rebate Fund) and any and all other real or personal property of every name and nature concurrently herewith or from time to time hereafter by delivery or by writing of any nature conveyed, mortgaged, pledged, assigned or transferred as and for additional security hereunder by the Authority or by anyone in its behalf, or with its written consent, to

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the Trustee or the Paying Agent, which are hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof;

     TO HAVE AND TO HOLD all and singular the trust estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors and assigns in trust forever to its and their own proper use and behoof but:

     IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future holders and owners of the Bonds from time to time issued and to be issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any of the other Bonds;

     PROVIDED, HOWEVER, that if the Authority, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, Redemption Price, if any, and interest on, the Bonds due or to become due thereon, and all other amounts due thereunder, at the times and in the manner mentioned in the Bonds according to their tenor, and shall cause the payments to be made on the Bonds as required under Article VII hereof, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of this Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions of the Agreement, the Note and this Indenture, then upon the final payment thereof this Indenture and the rights hereby granted shall cease, determine and be void; otherwise this Indenture to be and remain in full force and effect.

     THIS INDENTURE OF TRUST FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all of the property, rights and interests, including, without limitation the loan payments and other amounts hereby assigned and pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Authority has agreed and covenanted, and does hereby agree and covenant with the Trustee and with the respective holders and owners of the Bonds as follows:

ARTICLE I
DEFINITIONS AND INTERPRETATION

     Section 1.1. Definitions. As used in this Indenture:

     “Account” or “Accounts” shall mean the Account or Accounts established pursuant to Article V herein below.

     “Act” means the State Commerce Act, constituting Connecticut General Statutes, Sections 32-la through 32-23zz, as amended.

     “Agreement” means the Loan Agreement of even date herewith between the Authority and the Borrower, and any amendments and supplements thereto.

     “Authority” means the Connecticut Development Authority, a body corporate and politic constituting a public instrumentality and political subdivision of the State of Connecticut duly organized and existing under the laws of the State, and any body, board, authority, agency or other political subdivision or instrumentality of the State which shall hereafter succeed to the powers, duties and functions thereof.

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     “Authorized Investments” means any of the following:

1)	United States government obligations, United States agency obligations, United States postal service obligations, repurchase agreements or certificates of deposit to which specifically identified United States government, agency or postal service obligations are pledged as collateral;
2)	certificates of deposit of any of the fifteen largest domestically chartered banks or trust companies in the United States;
3)	commercial paper having the highest rating by a nationally recognized securities rating service;
4)	tax-exempt securities not subject to the alternative minimum tax and which have the highest rating by a nationally recognized securities rating service;
5)	savings accounts with banks or savings and loan associations the accounts of which are federally insured;
6)	bank acceptances which are eligible collateral for borrowing from Federal Reserve Banks;
7)	certificates of deposit of the Trustee (but only to the extent such certificates of deposit do not exceed 10% of the amounts held in all Funds and Accounts hereunder);
8)	guaranteed investment contracts and/or investment agreements, acceptable to the Authority, authorized by applicable State law for the investment of proceeds of obligations issued by the State and participation certificates in the short term investment fund created and existing under Section 3-27a, Connecticut General Statutes, as amended, and any State administered pool investment fund in which the Authority is statutorily permitted or required to invest; and
9)	Mutual funds and money market funds of or available to the Trustee (including any proprietary money market fund of the Trustee for which the Trustee or an affiliate of the Trustee serves as investment advisor or provides other services and receives reasonable compensation thereof) that are rated at least AAA or AAAm, as applicable, by S&P or Aaa by Moody’s and invest only in other Authorized Investments.

     “Authorized Representative” means, in the case of the Authority, the Chairman or Vice Chairman, the President, the Executive Vice President, Deputy Director or any Senior Vice President or any Vice President thereof and, in the case of the Borrower, the Chairman, the President and Chief Executive Officer, the Vice President-Finance, Chief Financial Officer and Treasurer, and any Vice President, Assistant Treasurer or Secretary thereof and, when used with reference to the performance of any act, the discharge of any duty or the execution of any certificate or other document, any officer, employee or other person authorized to perform such act, discharge such duty or execute such certificate or other document.

     “Beneficial Owner” shall have the meaning specified in Section 2.3(F) hereof. If any person claims to the Trustee to be a Beneficial Owner, for purposes of Sections 2.4(C), such person shall prove such claim to the satisfaction of the Trustee with such documentation and signature guaranties as the Trustee may request and shall be responsible for and pay any costs associated with such claim.

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     “Bonds” means the $15,000,000 Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series) authorized and issued pursuant to Section 2.3 hereof.

     “Bond Counsel” means Winston & Strawn LLP or such other nationally recognized bond counsel selected by the Authority and reasonably satisfactory to the Borrower and Trustee.

     “Bondholder”, “holder” or “owner” or words of similar import when used with reference to Bonds, shall unless otherwise specified, mean any person who shall be the registered owner of any Outstanding Bond.

     “Borrower” means (i) The Connecticut Water Company, a corporation organized and existing under the laws of the State of Connecticut, and its successors and assigns and (ii) any surviving, resulting or transferee corporation as provided in Section 6.1 of the Agreement.

     “Business Day” means any day (i) that is not a Saturday or Sunday, (ii) that is a day on which banks located in Hartford, Connecticut and New York, New York are not required or authorized to remain closed, (iii) that is a day on which banking institutions in the cities in which the principal offices of the Trustee and the Paying Agent are located and are not required or authorized to remain closed and (iv) that is a day on which the New York Stock Exchange, Inc. is not closed.

     “Cede & Co.” means the nominee for The Depository Trust Company (DTC) who shall act as securities depository for the Bonds.

     “Code” means the Internal Revenue Code of 1986, as amended and regulations promulgated thereunder.

     “Completion Date” means the date of completion of the Project as specified and established in accordance with Article IV of the Agreement.

     “Computation Period” means each period from the date of issuance through the date on which a determination of the Rebatable Arbitrage is made or required to be made pursuant to Section 8.3 of the Tax Regulatory Agreement.

     “Debt Service Fund” means the special trust fund so designated, established pursuant to Section 5.1 hereof.

     “Default” means any event or condition which will, with the lapse of time, or the giving of notice, or both, become an Event of Default.

     “DTC” or “The Depository Trust Company” shall mean the limited-purpose trust company organized under the laws of the State of New York which shall act as securities depository for the Bonds, and any successor thereto.

     “Depository” means DTC or any other depository holding the Bonds for purpose of a book-entry system.

     “Determination of Taxability” means with respect to the Bonds, (1) a ruling by the Internal Revenue Service, (2) the receipt by the owner of any of the Bonds from the Internal Revenue Service of a notice of assessment and demand for payment (provided the Borrower has been afforded the opportunity to participate at its own expense in all appeals and proceedings to which such owner of any Bonds is a party relating to such assessment and demand for payment) and the expiration of the appeal period

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provided therein if no appeal is taken or, if an appeal is taken by such owner of any Bonds as provided in Section 6.3 of the Agreement within the applicable appeal period which has the effect of staying the demand for payment, a final unappealable decision by a court of competent jurisdiction, or (3) the admission in writing by the Borrower, in any case to the effect that the interest on the Bonds is includable in the gross income for federal income tax purposes (other than for purposes of alternative minimum tax or foreign branch profits tax) of an owner or former owner thereof, other than for a period during which such owner or former owner is or was a “substantial user” of the Project financed by such Bonds or a “related person” as such terms are defined in the Code. For purposes of this definition only, the term owner means the Beneficial Owner of the Bonds so long as the Book-Entry Only System is in effect.

     “Disclosure Agreement” means the agreement by and between the Borrower and U.S. Bank National Association, as dissemination agent, dated the date of the initial delivery of the Bonds and providing for the provision of certain information subsequent to the issuance of the Bonds.

     “Event of Bankruptcy” means the filing of a petition in bankruptcy or the commencement of a proceeding under the United States Bankruptcy Code or any other applicable law concerning insolvency, reorganization or bankruptcy by or against the Authority, the Borrower, or any guarantor of the Bonds, as debtor.

     “Event of Default” has the meaning given such term in Section 8.1 hereof.

     “Federal Securities” means any direct and general obligations of, or any obligations whose full and timely payment is unconditionally guaranteed by, the United States of America.

     “Financing Documents” means (1), when used with respect to the Borrower, means the Agreement, the Tax Regulatory Agreement, the Note, the Disclosure Agreement and the general certificate of the Borrower delivered in connection with the issuance of the Bonds, and (2) when used with respect to the Authority, means any of the foregoing documents and agreements to which the Authority is a direct party. The Financing Documents do not include any documents or agreements to which the Borrower is not a direct party, including the Bonds or the Indenture.

     “Fitch” means Fitch Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, at the direction of the Borrower, by notice to the Trustee and the Borrower.

     “Fund” or “Funds” shall mean the Fund or Funds established pursuant to Article V herein below.

     “Indenture” means this Indenture as from time to time amended or supplemented by Supplemental Indentures in accordance with Article X hereof.

     “Indirect Participant” shall have the meaning set forth in Section 2.3(F) hereof.

     “Interest Payment Date” shall mean each date on which interest is payable on the Bonds as provided in the form of the Bonds.

     “Loan Payments” means the amounts required to be paid by the Borrower in repayment of the loan made to the Borrower by the Authority pursuant to the provisions of the Agreement and the Note, including all amounts realized by the Trustee thereunder in accordance with Article VIII hereof.

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     “Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, at the direction of the Borrower, by notice to the Trustee and the Borrower.

     “Note” means the promissory note of the Borrower to the Authority, dated the date of initial delivery of the Bonds in the form attached as Appendix A to the Agreement, and any amendments or supplements made in conformity with the Agreement and this Indenture.

     “Outstanding”, when used with reference to a Bond or Bonds, as of any particular date, means all Bonds which have been authenticated and delivered hereunder, except:

(1)	Any Bonds cancelled by the Trustee because of payment or redemption prior to maturity or surrendered to the Trustee for cancellation;
(2)	any Bond (or portion of a Bond) paid or redeemed or for the payment or redemption of which there has been separately set aside and held in the Debt Service Fund either:

(a)	moneys in an amount sufficient to effect payment of the principal or applicable Redemption Price thereof, together with accrued interest on such Bond to the payment or redemption date, which payment or redemption date shall be, specified in irrevocable instructions given to the Trustee to apply such moneys to such payment on the date so specified; or
(b)	obligations of the kind described in subsection 12.1(B) hereof in such principal amounts, of such maturities, bearing such interest and otherwise having such terms and qualifications as shall be necessary to provide moneys in an amount sufficient to effect payment of the principal or applicable Redemption Price of such Bond, together with accrued interest on such Bond to the payment or redemption date, which payment or redemption date shall be specified in irrevocable instructions given to the Trustee to apply such obligations to such payment on the date so specified; or
(c)	any combination of (a) and (b) above;

(3)	Bonds in exchange for or in lieu of which other Bonds shall have been authenticated and delivered under Article III hereof; and
(4)	any Bond deemed to have been paid as provided in Section 12.1 hereof.

     “Participant” means one of the entities that deposits securities, directly or indirectly, in the Book-Entry Only System.

     “Paying Agent” means any paying agent for the Bonds appointed pursuant to Section 9.10 hereof (and may include the Trustee), and its successor or successors and any other corporation which may at any time be substituted in its place in accordance herewith.

     “Principal and Interest Account” means the special trust account of the Debt Service Fund so designated, established pursuant to Section 5.3 hereof.

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     “Project” means the Borrower’s interest in the Project Realty and other interests in the real property, and in all Project Equipment wherever located and whether now owned or hereafter acquired, acquired or financed in whole or in part with the proceeds of the Bonds, and any additions and accessions thereto, substitutions therefor and replacements, improvements, extensions and restorations thereof, described in appendices to the Agreement, as amended from time to time in accordance with the Agreement.

     “Project Costs” mean all costs and expenses of the Project for which the Trustee is permitted to make payment as provided in subsection 5.2(B) hereof.

     “Project Equipment” means all personal property, goods, leasehold improvements, machinery, equipment, furnishings, furniture, fixtures, tools and attachments wherever located and whether now owned or hereafter acquired, financed in whole or in part with the proceeds of the Bonds, and any additions and accessions thereto, substitutions therefor and replacements thereof, including without limitation the Project Equipment described in appendices to the Agreement, as amended from time to time in accordance herewith.

     “Project Fund” means the special trust fund so designated, established pursuant to Section 5.1 and Section 5.2 hereof.

     “Project Realty” means the realty and other interests in the real property financed in whole or in part from the proceeds of the Bonds, together with all replacements, improvements, extensions, substitutions, restorations and additions thereto which are made pursuant hereto including without limitation the Project Realty described in appendices to the Agreement, as amended from time to time in accordance herewith.

     “Redemption Account” means the special trust account of the Debt Service Fund so designated, established pursuant to Section 5.3 hereof.

     “Redemption Price” means, when used with respect to a Bond or a portion thereof, the principal amount of such Bond or portion thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to this Indenture.

     “Renewal Fund” means the special trust fund so designated, established pursuant to Section 5.1 hereof.

     “Representation Letter” has the meaning given such term in Section 2.3(F) hereof.

     “Revenues” means (a) the Loan Payments, (b) all amounts paid to the Trustee with respect to the principal of, redemption premium, if any, or interest on, the Bonds (1) by the Borrower as required under the Agreement, and (2) upon deposit in the Debt Service Fund from the proceeds of the Bonds and (c) investment income with respect to any moneys held by the Trustee in the Project Fund, the Debt Service Fund and the Renewal Fund. The term “Revenues” does not include any moneys or investments or investment income in the Rebate Fund.

     “S&P” means Standard & Poor’s Ratings Services, a division of McGraw Hill, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation or division shall be dissolved, eliminated, reorganized, or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, at the direction of the Borrower, by notice to the Trustee and the Borrower.

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     “State” means the State of Connecticut.

     “Supplemental Indenture” means any indenture supplemental hereto or amendatory hereof, adopted by the Authority in accordance with Article X hereof.

     “Tax Incidence Date” means the date as of which interest on the Bonds becomes or became includable in the gross income of the recipient thereof (other than the Borrower or another substantial user or related person) for federal income tax purposes for any cause, as determined by a Determination of Taxability.

     “Tax Regulatory Agreement” means the Tax Regulatory Agreement, dated as of the date of initial issuance and delivery of the Bonds, among the Authority, the Borrower and the Trustee, and any amendments and supplements thereto.

     “Term”, when used with reference to the Agreement, means the term of the Agreement determined as provided in Article III thereof.

     “Trustee” means U.S. Bank National Association, and its successor or successors hereafter appointed in the manner provided in this Indenture.

     Section 1.2. Interpretation. (A) In this Indenture:

     (1) Any capitalized word or term used but not defined herein shall have the meaning ascribed to such word or term in the Agreement or the Tax Regulatory Agreement, as the case may be.

     (2) The terms “hereby”, “hereof”, “hereto”, “herein”, “hereunder” and any similar terms, as used in this Indenture, refer to this Indenture, and the term “hereafter” means after, and the term “heretofore” means before, the date of execution of this Indenture.

     (3) Words of the masculine gender mean and include correlative words of the feminine and neuter genders and words importing the singular number mean and include the plural number and vice versa.

     (4) Words importing persons include firms, associations, partnerships (including limited partnerships), limited liability companies, trusts, corporations and other legal entities, including public bodies, as well as natural persons.

     (5) Any headings preceding the texts of the several Articles and Sections of this Indenture, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this Indenture, nor shall they affect its meaning, construction or effect.

     (6) All approvals, consents and acceptances required to be given or made by any person or party hereunder shall be at the sole discretion of the party whose approval, consent or acceptance is required.

     (7) This Indenture shall be governed by and construed in accordance with the applicable laws of the State.

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     (B) Whenever the Authority is named or referred to, it shall be deemed to include its successors and assigns whether so expressed or not. All of the covenants, stipulations, obligations, and agreements by or on behalf of, and other provisions for the benefit of, the Authority contained in this Indenture shall bind and inure to the benefit of such successors and assigns and shall bind and inure to the benefit of any officer, board, commission, authority, agency or instrumentality to whom or to which there shall be transferred by or in accordance with law any right, power or duty of the Authority, or of its successors or assigns, the possession of which is necessary or appropriate in order to comply with any such covenants, stipulations, obligations, agreements or other provisions hereof.

     (C) If any one or more of the covenants or agreements provided herein on the part of the Authority, the Trustee or any Paying Agent to be performed should be contrary to law, then such covenant or covenants or agreement or agreements, shall be deemed separable from the remaining covenants and agreements hereof, and shall in no way affect the validity of the other provisions of this Indenture or of the Bonds.

     (D) All approvals, consents and actions of the Trustee under this Indenture, the Bonds and the Financing Documents may be given or withheld or taken or not taken in accordance with the direction of the owners of not less than 51% of the principal amount of the Outstanding Bonds.

     (E) If the Paying Agent shall be removed and the duties and obligations of such Paying Agent discharged pursuant to Section 9.10 hereof, then each and every such duty and obligation to be performed by such Paying Agent set forth herein and in the Financing Documents shall be performed to the same extent and in the same manner by the Trustee, and each and every reference herein and in the Financing Documents to the Paying Agent shall refer to and shall be deemed to refer to the Trustee unless a successor Paying Agent shall have been appointed.

     (F) For purposes hereof the Trustee shall not be deemed to have knowledge or actual knowledge of any fact or the occurrence of any event unless and until an officer of the Trustee’s corporate trust administration department has written notice thereof.

     (G) In the event of any solicitation of consents from and voting by owners of the Bonds, the Trustee shall establish a record date for such purposes and give DTC notice of such record date not less than fifteen calendar days in advance of such record date to the extent possible.

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ARTICLE II
AUTHORIZATION, TERMS AND ISSUANCE OF BONDS

     Section 2.1. Authorization for Indenture. This Indenture is made and entered into by virtue of and pursuant to the provisions of the Act. The Authority has ascertained and hereby determines and declares that the execution and delivery of this Indenture is necessary to carry out the powers and duties expressly provided by the Act, that each and every act, matter, thing or course of conduct as to which provision is made herein is necessary or convenient in order to carry out and effectuate the purposes of the Authority in accordance with the Act and to carry out powers expressly given thereby, and that each and every covenant or agreement herein contained and made is necessary, useful or convenient in order to better secure the Bonds and necessary, useful or convenient to carry out and effectuate its corporate purposes under the Act.

     Section 2.2. Authorization and Obligation of Bonds. (A) Bonds of the Authority issued hereunder, each to be entitled Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series), shall be subject to the terms, conditions and limitations established herein. No Bonds may be authenticated and delivered except in accordance with this Article.

     (B) All Bonds shall be entitled to the benefit of the continuing pledge and lien created by this Indenture to secure the full and final payment of the principal or Redemption Price, if any, thereof and the interest thereon and all other amounts due under the Financing Documents. The Bonds shall be special obligations of the Authority, payable solely out of the revenues or other receipts, funds or moneys pledged therefor pursuant to this Indenture and from any amounts otherwise available under this Indenture for the payment of the Bonds. Neither the State nor any municipality thereof shall be obligated to pay the principal or Redemption Price, if any, of or the interest on the Bonds and neither the faith and credit nor the taxing power of the State or any municipality thereof is pledged to pay such principal, Redemption Price or interest. The Bonds shall never constitute a debt or liability of the State or any municipality thereof or bonds issued or guaranteed by the State or any municipality thereof within the meaning of any constitutional or statutory limitation.

     Section 2.3. Issuance and Terms of the Bonds. (A) There shall be issued under and secured by this Indenture a series of Bonds to be designated Water Facilities Revenue Bonds (The Connecticut Water Company Project — 2007A Series) in the principal amount of $15,000,000. The Bonds shall be issuable in fully registered form without coupons and shall be dated as provided in Section 3.1 hereof.

     (B) The Bonds shall mature on December 1, 2037 and bear interest at the per annum rate of 5.00% payable on June 1, 2008 and on each December 1 and June 1 thereafter until maturity or prior redemption.

     (C) Interest on the Bonds shall be computed on the basis of a 360-day year consisting of twelve (12) 30-day months.

     (D) The Bonds shall be numbered from one upward in consecutive numerical order. Bonds issued in exchange shall be numbered in such manner as the Trustee and the Paying Agent in their discretion shall determine.

     (E) The principal or Redemption Price, if any, of the Bonds as they respectively become due shall be payable upon presentation and surrender of the Bonds at the corporate trust office of the Trustee in Hartford, Connecticut, or at the office designated for such payment of any successor Paying Agent. Payment of each installment of interest on the Bonds shall be made to the registered owners thereof who shall appear on the registration books of the Authority maintained by the Trustee at the close of business

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on the fifteenth day of the calendar month next preceding such Interest Payment Date, by check or draft mailed to each such registered owner at his address as it appears on such registration books. Alternatively, payment shall be made as otherwise agreed in writing by the Bondholder and the Trustee and, at the written request to the Trustee of and at the expense of any holder of at least $1,000,000 in Bonds, such payment may be made by wire transfer or other reasonable method to an account or place designated by such registered owner.

     (F) Book-Entry Only System for the Bonds

     (1) The Depository Trust Company (“DTC”), New York, New York shall act as securities depository for the Bonds. One fully registered bond in the aggregate principal amount of the Bonds shall be registered in the name of Cede & Co., as nominee for DTC. Notwithstanding any provision herein to the contrary, the provisions of this Section 2.3(F) and the Representation Letter (as defined below) shall apply with respect to any Bond registered to Cede & Co. or any other nominee of DTC, New York, New York, while the Book-Entry Only System (meaning the system of registration described in paragraph (2) of this Section 2.3(F)) is in effect. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants (“Participants”) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants (“Direct Participants”) include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission.

     (2) The Bonds in or to be in the Book-Entry Only System shall be issued in the form of a separate single authenticated fully registered Bond in substantially the form provided for in this Indenture (a “Global Security”). Any legend required to be on the Bonds by DTC may be added by the Trustee or Paying Agent. On the date of original delivery thereof, the Bonds shall be registered in the registry books of the Paying Agent in the name of Cede & Co., as nominee of The Depository Trust Company as agent for the Authority in maintaining the Book-Entry Only System.

     WITH RESPECT TO BONDS REGISTERED IN THE REGISTRY BOOKS KEPT BY THE PAYING AGENT IN THE NAME OF CEDE & CO., AS NOMINEE OF DTC, THE AUTHORITY, THE PAYING AGENT, THE BORROWER AND THE TRUSTEE SHALL HAVE NO RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANT (WHICH MEANS SECURITIES BROKERS AND DEALERS, BANKS, TRUST COMPANIES, CLEARING CORPORATIONS AND VARIOUS OTHER ENTITIES, SOME OF WHOM OR THEIR REPRESENTATIVES OWN DTC) OR TO ANY BENEFICIAL OWNER (WHICH MEANS, WHEN USED WITH REFERENCE TO THE BOOK-ENTRY ONLY SYSTEM, THE PERSON WHO IS CONSIDERED THE BENEFICIAL OWNER OF THE BONDS PURSUANT TO THE ARRANGEMENTS FOR BOOK ENTRY DETERMINATION OF OWNERSHIP APPLICABLE TO DTC) WITH RESPECT TO THE FOLLOWING: (A) THE ACCURACY OF THE RECORDS OF DTC, CEDE & CO. OR ANY PARTICIPANT WITH RESPECT TO ANY OWNERSHIP INTEREST IN THE BONDS, (B) THE DELIVERY TO OR FROM ANY PARTICIPANT, ANY BENEFICIAL OWNER OR ANY OTHER

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PERSON, OTHER THAN DTC, OF ANY NOTICE WITH RESPECT TO THE OTHER PERSON, OTHER THAN DTC, OF ANY NOTICE WITH RESPECT TO THE BONDS, INCLUDING ANY NOTICE OF REDEMPTION (WHETHER MANDATORY OR OPTIONAL), OR (C) THE PAYMENT TO ANY PARTICIPANT, ANY BENEFICIAL OWNER OR ANY OTHER PERSON, OTHER THAN DTC, OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS.

     The Paying Agent shall pay all principal of and premium, if any, and interest on the Bonds only to or upon the order of DTC, and all such payments shall be valid and effective fully to satisfy and discharge the Authority’s obligations with respect to the principal of and premium, if any, and interest on Bonds to the extent of the sum or sums so paid. No person other than DTC shall be entitled to receive an authenticated Bond evidencing the obligation of the Authority to make payments of principal and premium, if any, and interest pursuant to this Indenture. Upon delivery by DTC to the Paying Agent of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the words “Cede & Co.” in this Indenture shall refer to such new nominee of DTC.

     The Authority, the Borrower, the Trustee and the Paying Agent shall be entitled to treat the registered owner of a Bond (initially, DTC or its nominee) as the absolute owner thereof for all purposes of this Indenture and any applicable laws, notwithstanding any notice to the contrary received by any of them. So long as all Bonds are registered in the name of DTC or its nominee or any qualified successor, the Borrower and the Paying Agent shall cooperate with DTC or its nominee or any qualified successor in effecting payment of the principal of, redemption premium, if any, and interest on the Bonds by arranging for payment in such manner that funds for such payments are properly identified and are made to DTC when due.

     (3) Upon receipt by the Trustee or the Paying Agent of written notice from DTC to the effect that DTC is unable or unwilling to discharge its responsibilities, the Authority shall issue and the Paying Agent shall transfer and exchange Bonds as requested by DTC in appropriate amounts and in authorized denominations, and whenever DTC requests the Authority, the Paying Agent and the Trustee to do so, the Trustee, the Paying Agent and the Authority will, at the expense of the Borrower, cooperate with DTC in taking appropriate action after reasonable notice (A) to arrange for a substitute bond depository willing and able upon reasonable and customary terms to maintain custody of the Bonds or (B) to make available for transfer and exchange Bonds registered in whatever name or names and in whatever authorized denominations as DTC shall designate.

     (4) In such event, the Borrower shall so notify DTC, the Paying Agent and the Trustee, whereupon DTC will notify the Participants of the availability through DTC of Bond certificates. In such event, the Authority shall issue and the Paying Agent shall transfer and exchange Bond certificates as requested by DTC in appropriate amounts and in authorized denominations. Whenever DTC requests the Paying Agent to do so, the Paying Agent will cooperate with DTC in taking appropriate action after reasonable notice to make available for transfer and exchange Bonds registered in whatever name or names and in whatever authorized denominations as DTC shall designate.

     (5) The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

     (6) Notwithstanding any other provisions of this Indenture to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to the principal of, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be

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made and given, respectively, to DTC as provided in the Blanket Letter of Representation, dated March 29, 1995, from the Authority to DTC (the “Representation Letter”).

     (7) Notwithstanding any other provisions of this Indenture to the contrary, so long as any of the Bonds outstanding are held in the Book-Entry Only System, if less than all of such Bonds are to be redeemed upon any redemption of Bonds hereunder, the particular Bonds or portions of Bonds to be converted or redeemed shall be selected by DTC in such manner as DTC may determine.

     Notwithstanding any provision herein to the contrary, the Trustee and the Paying Agent may comply with the provisions of the Letter of Representation or similar document required by DTC or any successor securities depository in order to maintain the Book-Entry Only System for the Bonds.

     Section 2.4. Redemption of Bonds. (A) General Optional Redemption. At the option of the Authority, which option shall be exercised upon the giving of written notice by the Borrower of its intention to prepay amounts due under the Agreement pursuant to subsection 8.1(A) thereof and the Note, the Bonds shall be subject to redemption prior to maturity from time to time upon not less than 30 days’ notice in writing, as a whole or in part on any date on or after December 1, 2012, at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the date of redemption.

     (B) Extraordinary Optional Redemption. In addition, at the option of the Authority, which option shall be exercised upon the giving of written notice by the Borrower of its election to redeem Bonds following completion of Project pursuant to Section 5.2(F) hereof or its intention to prepay amounts due under the Agreement pursuant to Section 8.1(B) thereof, the Outstanding Bonds shall be subject to redemption prior to maturity at the redemption price of 100% of the principal amount thereof plus accrued interest to the date of redemption (a) in part, on any date, to the extent excess Bond proceeds are transferred to the Redemption Account from the Project Fund in accordance with Section 5.2(F) of the Indenture, or (b) as a whole, on any date, if any one or more of the events of casualty to or condemnation of the Project, change in law, or certain economic events specified in Section 8.1(B) of the Agreement shall have occurred, as evidenced in each case by the filing with the Trustee of a certificate of an Authorized Representative of the Borrower.

     (C) Mandatory Taxability Redemption. In the event of a Determination of Taxability, the Bonds shall be redeemed in the manner and as provided in this Indenture, at the redemption price equal to 100% of the principal amount thereof plus accrued interest to the date of redemption on any day selected by the Borrower, that is not more than 180 days after such Determination of Taxability. In the case of any redemption pursuant to this subsection, the Authority or the Borrower or any Bondholder shall deliver to the Trustee a certificate of an Authorized Representative specifying the event giving rise to such inclusion in the gross income of the recipient thereof and the dates which are the Tax Incidence Date and the date of the Determination of Taxability. Such certificate shall be delivered at least ten days before notice of redemption is required to be given. Redemption under this paragraph shall be in whole unless not less than forty-five (45) days prior to the redemption date the Borrower delivers to the Trustee an opinion of Bond Counsel reasonably satisfactory to the Trustee to the effect that a redemption of less than all of the Bonds will preserve the tax-exempt status of interest on the remaining Bonds outstanding subsequent to such redemption.

     For purposes of this Subsection C only, the owner of a Bond means the Beneficial Owner of said Bond so long as the Book-Entry Only System shall be in effect.

     (D) Redemption (or Purchase) by the Borrower in the Event of Death of a Beneficial Owner. Unless the Bonds have been declared due and payable prior to their maturity by reason of an Event of Default, the Representative (as hereinafter

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defined) of a deceased Beneficial Owner (as hereinafter defined) who has owned (or whose estate has owned) the Bonds for a period of at least six months prior to any request for redemption, has the right after December 1, 2009, to request redemption prior to stated maturity of all or part of interest in the Bonds, and the Borrower will redeem (or will cause the Authority to redeem) the same subject to the limitations that the Borrower will not be obligated to redeem (or cause to be redeemed), during the period from December 1, 2009, through and including December 1, 2010, (the “Initial Period”), and during any twelve-month period which ends on and includes each December 1 thereafter (each such twelve-month period being hereinafter referred to as a “Subsequent Period”), (i) on behalf of a deceased Beneficial Owner any interest in the Bonds which exceeds $25,000 principal amount (the “Individual Limitation”) or (ii) interests in the Bonds exceeding $300,000 in aggregate principal amount (the “Annual Limitation”). A request for redemption may be initiated by the Representative of a deceased Beneficial Owner at any time and in any principal amount.

     The Borrower may, at its option, redeem (or cause to be redeemed) interests of any deceased Beneficial Owner in the Bonds during the Initial Period or any Subsequent Period in excess of the Individual Limitation. Any such redemption, to the extent that it exceeds the Individual Limitation for any deceased Beneficial Owner, shall not be included in the computation of the Annual Limitation for such Initial Period or such Subsequent Period, as the case may be, or for any succeeding Subsequent Period. The Borrower may, at its option, redeem (or cause to be redeemed) interests of deceased Beneficial Owners in the Bonds, during the Initial Period or any Subsequent Period in an aggregate principal amount exceeding the Annual Limitation. Any such redemption, to the extent it exceeds the Annual Limitation shall not reduce the Annual Limitation for any Subsequent Period. Upon any determination by the Borrower to redeem (or cause to be redeemed) Bonds in excess of the Individual Limitation or the Annual Limitation, Bonds so redeemed shall be redeemed in the order of the receipt of Redemption Requests (as hereinafter defined) by the Trustee.

     A request for redemption of an interest in the Bonds may be initiated by the personal representative or other person authorized to represent the estate of the deceased Beneficial Owner or by a surviving joint tenant(s) or tenant(s) by the entirety or the trustee of a trust (each, a “Representative”). The Representative shall deliver a request to the Participant (hereinafter defined) through whom the deceased Beneficial Owner owned such interest, in form satisfactory to the Participant, together with evidence of the death of the Beneficial Owner, evidence of the authority of the Representative satisfactory to the Participant, such waivers, notices or certificates as may be required under applicable state or federal law and such other evidence of the right to such redemption as the Participant shall require. The request shall specify the principal amount of the interest in the Bonds to be redeemed. The Participant shall thereupon deliver to the Depository a request for redemption substantially in the form attached as Appendix B to this Indenture (a “Redemption Request”). The Depository will, on receipt thereof, forward the same to the Trustee. The Trustee shall maintain records with respect to Redemption Requests received by it including date of receipt, the name of the Participant filing the Redemption Request and the status of each such Redemption Request with respect to the Individual Limitation or the Annual Limitation. The Trustee will immediately forward each Redemption Request it receives, together with the information regarding the eligibility thereof with respect to the Individual Limitation or the Annual Limitation with the Borrower. The Depository, the Authority, the Borrower and the Trustee may conclusively assume, without independent investigation, that the statements contained in each Redemption Request are true and correct and shall have no responsibility for reviewing any documents submitted to the Participant by the Representative or for determining whether the applicable decedent is in fact the Beneficial Owner of the interest in the Bonds to be redeemed or is in fact deceased and whether the Representative is duly authorized to request redemption on behalf of the applicable Beneficial Owner.

     Subject to the Individual Limitation and the Annual Limitation, the Borrower will, after the death of any Beneficial Owner, redeem (or cause to be redeemed) the interest of such Beneficial Owner in the Bonds on the next interest payment date occurring not less than 30 days following receipt by the

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Borrower of the Redemption Request from the Trustee. If Redemption Requests exceed the aggregate principal amount of interests in Bonds required to be redeemed during the Initial Period or during any Subsequent Period, then such excess Redemption Requests will be applied in the order received by the Trustee to successive Subsequent Periods, regardless of the number of Subsequent Periods required to redeem such interests. The Borrower may, at any time, notify the Trustee that it will redeem (or cause to be redeemed), on the next interest payment date occurring not less than 30 days thereafter, all or any such lesser amount of Bonds for which Redemption Requests have been received but which are not then eligible for redemption by reason of the Individual Limitation or the Annual Limitation. Any Bonds so redeemed shall be redeemed in the order of receipt of Redemption Requests by the Trustee.

     The price to be paid by the Borrower for the Bonds to be redeemed pursuant to a Redemption Request is 100% of the principal amount thereof plus accrued but unpaid interest to the date of payment. Subject to arrangements with the Depository, payment for interests in the Bonds which are to be redeemed shall be made to the Depository upon presentation of Bonds to the Trustee for redemption in the aggregate principal amount specified in the Redemption Requests submitted to the Trustee by the Depository which are to be fulfilled in connection with such payment. The principal amount of any Bonds acquired or redeemed by or at the direction of the Borrower other than by redemption at the option of any Representative of a deceased Beneficial Owner pursuant to this section shall not be included in the computation of either the Individual Limitation and the Annual Limitation for the Initial Period or for any Subsequent Period.

     For purposes of this section, a “Beneficial Owner” means the Person who has the right to sell, transfer or otherwise dispose of an interest in a Bond and the right to receive the proceeds therefrom, as well as the interest and principal payable to the holder thereof. In general, a determination of beneficial ownership in the Bonds will be subject to the rules, regulations and procedures governing the Depository and institutions that have accounts with the Depository or a nominee thereof (“Participants”).

     For purposes of this section, an interest in a Bond held in tenancy by the entirety, joint tenancy or by tenants in common will be deemed to be held by a single Beneficial Owner and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a Beneficial Owner. The death of a person who, during his lifetime, was entitled to substantially all of the rights of a Beneficial Owner of an interest in the Bonds will be deemed the death of the Beneficial Owner, regardless of the recordation of such interest on the records of the Participant, if such rights can be established to the satisfaction of the Participant. Such interests shall be deemed to exist in typical cases of nominee ownership, ownership under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, community property or other similar joint ownership arrangements, including individual retirement accounts or Keogh [H.R. 10] plans maintained solely by or for the decedent or by or for the decedent and any spouse, and trust and certain other arrangements where the decedent has the right to receive all or a portion of the income and such person has substantially all of the rights of a Beneficial Owner during such person’s lifetime.

     In the case of a redemption request which is presented on behalf of a deceased Beneficial Owner and which has not been fulfilled at the time the Borrower gives notice of its election to redeem the Bonds, the Bonds which are the subject of such pending redemption request shall be redeemed prior to any other Bonds.

     Any Redemption Request may be withdrawn by the person(s) presenting the same upon delivery of a written request for such withdrawal given by the Participant on behalf of such person to the Depository and by the Depository to the Trustee not less than 60 days prior to the interest payment date on which such Bonds are eligible for redemption.

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     The Borrower may, at its option, purchase any Bonds for which Redemption Requests have been received in lieu of redeeming (or causing the redemption of) such Bonds. Any Bonds so purchased by the Borrower shall either be reoffered for sale and sold within 180 days after the date of purchase or presented to the Trustee for redemption and cancellation. The Trustee shall have no duty to monitor or enforce the Borrower’s obligations under this paragraph.

     During such time or times as the Bonds are not represented by a Global Security (as such term is defined in Section 2.3(F) hereof) and are issued in definitive form, all references in this Section to Participants and the Depository, including the Depository’s governing rules, regulations and procedures shall be deemed deleted, all determinations which under this section the Participants are required to make shall be made by the Borrower (including, without limitation, determining whether the applicable decedent is in fact the Beneficial Owner of the interest in the Bonds to be redeemed or is in fact deceased and whether the Representative is duly authorized to request redemption on behalf of the applicable Beneficial Owner), all Redemption Requests, to be effective, shall be delivered by the Representative to the Trustee, with a copy to the Borrower, and shall be in the form of a Redemption Request (with appropriate changes to reflect the fact that such Redemption Request is being executed by a Representative) and, in addition to all documents that are otherwise required to accompany a Redemption Request, shall be accompanied by the Bond that is the subject of such request.

     (E) [Reserved].

     (F) Optional Public Purpose Redemption. If the Borrower fails to perform its obligations under Section 6.4 of the Agreement, the Bonds shall be subject to redemption prior to maturity as a whole on any date at the option of the Authority in accordance with Section 7.3 of the Agreement, at the redemption price equal to 100% of the principal amount thereof plus accrued interest to the date of redemption.

     (G) Extraordinary Optional Redemption Without Premium to Preserve Tax Exempt Status of the Bonds. The Bonds shall be subject to extraordinary optional redemption by the Authority, at the direction of the Borrower, in whole or in part on any date at a Redemption Price equal to 100% of the unpaid principal amount thereof, together with accrued interest to the date of redemption, and without premium, if the Borrower shall have delivered to the Trustee and the Authority an opinion of Bond Counsel addressed to the Trustee and the Authority substantially to the effect that (i) a failure so to redeem the Bonds (or the relevant portion thereof) may adversely affect the exclusion of interest on the Bonds from the gross income of the holders pursuant to Section 103 of the Code, and (ii) redemption of Bonds in the amount set forth in such opinion (but in no smaller amount than that set forth in such opinion) would permit the continuance of any exclusion so afforded under Section 103 of the Code.

     (H) Upon any redemption of Bonds there shall also be due and payable, concurrently with the payment of the Redemption Price, interest accrued on the Bonds and all other amounts then due under the Financing Documents.

     (I) Redemption of Bonds permitted or required by this Article II shall be made as follows, and the Trustee shall give the notice of redemption referred to in Section 6.3 hereof in respect of each such redemption:

     (1)Redemption shall be made pursuant to the general optional redemption provisions of Section 2.4(A) in such principal amounts as the Borrower shall request in a written notice to the Trustee in accordance with Section 8.2 of the Agreement.

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     (2) Redemption shall be made pursuant to the extraordinary optional redemption provisions of Section 2.4(B) at such date as the Borrower shall request in a written notice to the Authority and Trustee in accordance with Section 5.2(F) hereof or Section 8.2 of the Agreement, as the case may be, to which shall be attached the certificates referred to in Section 5.2(F) hereof and Section 8.1(B) thereof.

     (3) Redemption shall be made pursuant to the mandatory taxability redemption provisions of Section 2.4(C) at the earliest possible date following receipt of the certificate prescribed in Section 2.4(C) hereof and of the payments made by the Borrower prescribed in Section 6.3 of the Agreement, without the necessity of any instructions or further act of the Authority or the Borrower.

     (4) Redemption shall be made pursuant to the provisions of Section 2.4(D) in accordance with said Section and with Article VI of this Indenture.

     (5) [Reserved].

     (6) Redemption shall be made pursuant to the provisions of Section 2.4(F) in accordance with Section 7.3 of the Agreement.

     (7) Redemption shall be made pursuant to the provisions of Section 2.4(G) at the earliest possible date following the delivery to the Trustee and the Authority of the opinion of Bond Counsel described in Section 2.4(G) hereof, without the necessity of any instructions or further act of the Authority or the Borrower.

     Section 2.5. Execution and Authentication of Bonds. (A) After their authorization as provided in this Article, Bonds may be executed by or on behalf of the Authority and delivered to the Trustee or the Paying Agent for authentication. Each Bond shall be executed in the name of the Authority by the manual or facsimile signature of any one or more Authorized Representatives of the Authority.

     (B) In case any officer who shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated and delivered by the Trustee or the Paying Agent, such Bonds may nevertheless be authenticated and delivered as herein provided as if the person who so signed such Bonds had not ceased to be such officer. Any Bond may be signed on behalf of the Authority by any person who, on the date of such act, shall hold the proper office, notwithstanding that at the date of such Bond such person may not have held such office.

     (C) The Bonds shall each bear thereon a certificate of authentication, in the form set forth in the recitals to this Indenture, executed manually by the Trustee or the Paying Agent. Only such Bonds as shall bear thereon such certificate of authentication shall be entitled to any right or benefit under this Indenture and no Bond shall be valid or obligatory for any purpose until such certificate of authentication shall have been duly executed by the Trustee or the Paying Agent. Such certificate of the Trustee or the Paying Agent upon any Bond executed on behalf of the Authority shall be conclusive evidence that the Bond so authenticated has been duly authenticated and delivered under this Indenture and that the holder thereof is entitled to the benefits hereof.

     Section 2.6. Delivery of Bonds. The Bonds shall be executed in the form and manner set forth herein and shall be deposited with the Trustee and thereupon shall be authenticated by the Trustee or the Paying Agent. Upon payment to the Trustee of the proceeds of sale thereof, such Bonds shall be delivered by the Trustee or the Paying Agent to or upon the order of the purchasers thereof, but only upon receipt by the Trustee of:

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     (1) A certified copy of the Authority’s resolution authorizing the issuance of the Bonds and, the execution and delivery of this Indenture and the Financing Documents;

     (2) Original executed counterparts of the Financing Documents other than the Note, and the originally executed Note;

     (3) A request and authorization to the Trustee or the Paying Agent on behalf of the Authority to authenticate and deliver the Bonds to the purchasers therein identified upon payment to the Trustee, for the account of the Authority, of a sum specified in such request and authorization, plus any accrued interest on the Bonds to the date of such delivery. The proceeds of such payment shall be paid over to the Trustee and deposited in the Project Fund and Debt Service Fund pursuant to Article IV hereof; and

     (4) A written opinion by Bond Counsel to the effect that the issuance of such Bonds has been duly authorized and that all conditions precedent to the delivery thereof set forth in this Indenture have been fulfilled.

     Section 2.7. No Additional Bonds. No Additional Bonds on a parity with the Bonds may be issued under this Indenture.

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ARTICLE III
GENERAL TERMS AND PROVISIONS OF BONDS

     Section 3.1. Date of Bonds. The Bonds shall be dated and bear interest from their date of delivery, except in the case of Bonds delivered in any exchange or transfer hereunder on or subsequent to the first Interest Payment Date of the Bond for which it is exchanged or transferred, which shall bear interest from the Interest Payment Date next preceding the date of such delivery, unless, as shown by the records of the Trustee, interest on the Bond surrendered in exchange for such Bond shall be in default, in which case such Bond shall bear interest from the date to which interest has been paid in full on the Bond so surrendered.

     Section 3.2. Form and Denominations. Bonds shall be issued in fully registered form, without coupons, in denominations of $5,000 or any multiple thereof. Subject to the provisions of Section 3.3 hereof, the Bonds shall be in substantially the form set forth in the recitals to this Indenture, with such variations, omissions and insertions as are permitted or required by this Indenture.

     Section 3.3. Legends. Each Bond shall contain on the face thereof a statement to the effect that neither the State nor any municipality thereof shall be obligated to pay the principal of the Bond or interest thereon and neither the faith and credit nor taxing power of the State or any municipality thereof is pledged to such payment. The Bonds may, in addition, contain or have endorsed thereon such provisions, specifications and descriptive words not inconsistent with the provisions of this Indenture as may be necessary or desirable to comply with custom or otherwise as may be determined by the Authority prior to the delivery thereof.

     Section 3.4. Medium of Payment. The principal or Redemption Price, if any, of and interest on the Bonds shall be payable in any coin or currency of the United States of America which, on the respective dates of payment thereof, is legal tender for the payment of public and private debts. Such payment may be made as provided in Section 2.3 hereof.

     Section 3.5. Bond Details. Subject to the provisions hereof, the Bonds shall be dated, shall mature in such years and such amounts, shall bear interest at such rate or rates per annum, shall be subject to redemption on such terms and conditions and shall be payable as to principal or Redemption Price, if any, and interest at such place or places as shall be specified in this Indenture.

     Section 3.6. Interchangeability, Transfer and Registry. (A) Each Bond shall be transferable only upon compliance with the restrictions on transfer set forth on such Bond and only upon the books of the Authority, which shall be kept for the purpose at the principal office of the Paying Agent, by the registered owner thereof in person or by his attorney duly authorized in writing, upon presentation thereof together with a written instrument of transfer satisfactory to the Paying Agent duly executed by the registered owner or his duly authorized attorney. Upon the transfer of any Bond, the Paying Agent shall prepare and issue in the name of the transferee one or more new Bonds in authorized denominations of the same aggregate principal amount as the surrendered Bond.

     (B) Any Bond, upon surrender thereof at the office of the Paying Agent with a written instrument of transfer satisfactory to the Paying Agent, duly executed by the registered owner or his attorney duly authorized in writing, may be exchanged at the office of the Paying Agent for a new Bond or Bonds in authorized denominations of the same aggregate principal amount without transfer to a new registered owner. No transfer will be effective unless represented by such surrender and reissue.

     (C) Except as otherwise specifically provided herein, the Authority, the Borrower, the Trustee, and any Paying Agent may deem and treat the person in whose name any Bond shall be

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registered as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal and Redemption Price, if any, of and interest on such Bond and for all other purposes, and all payments made to any such registered owner or upon his order shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid, and neither the Authority, the Borrower, the Trustee nor any Paying Agent, nor any agent of the foregoing, shall be affected by any notice to the contrary.

     (D) The Paying Agent shall not be required to exchange or transfer (a) any Bond during the fifteen (15) day period preceding any Interest Payment Date or the date fixed for selection of Bonds for redemption, or (b) any Bonds selected, called or being called for redemption in whole or in part except, in the case of any Bond to be redeemed in part, the portion thereof not so to be redeemed.

     Section 3.7. Bonds Mutilated, Destroyed, Stolen or Lost. In case any Bond shall become mutilated or be destroyed, stolen or lost, the Authority shall execute and thereupon the Trustee or the Paying Agent shall authenticate and deliver, a new Bond of the same principal amount as the Bond so mutilated, destroyed, stolen or lost, in exchange and substitution for such mutilated Bond, upon surrender and cancellation of such mutilated Bond or in lieu of and substitution for the Bond destroyed, stolen or lost, upon filing with the Trustee of evidence satisfactory to the Authority, the Trustee and the Paying Agent that such Bond has been destroyed, stolen or lost and proof of ownership thereof, and upon furnishing the Authority, the Trustee and the Paying Agent with indemnity satisfactory to them and complying with such other reasonable requirements as the Authority and the Trustee and the Paying Agent may prescribe and paying such expenses as the Authority, the Trustee and the Paying Agent may incur. All Bonds so surrendered to the Trustee shall be cancelled by it. Any such new Bonds issued pursuant to this Section in substitution for Bonds alleged to be destroyed, stolen or lost shall constitute original additional contractual obligations on the part of the Authority, whether or not the Bonds so alleged to be destroyed, stolen or lost be at any time enforceable by anyone, and shall be equally secured by and entitled to equal and proportionate benefits with all other Bonds issued hereunder in any moneys or securities held by the Authority, the Trustee or the Paying Agent for the benefit of the owners of the Bonds.

     Section 3.8. Cancellation and Destruction of Bonds. All Bonds paid or redeemed in full, either at or before maturity, shall be delivered to the Paying Agent when such payment or redemption is made, and such Bonds together with all Bonds purchased by the Paying Agent, together with all Bonds surrendered in any exchange or transfers, shall thereupon be promptly cancelled. All Bonds acquired and owned by the Borrower and delivered to the Paying Agent for cancellation shall be deemed paid and shall be promptly cancelled. Bonds so cancelled shall be cremated or otherwise destroyed by the Paying Agent, who shall execute a certificate of cremation or destruction in duplicate under signature of one of its authorized officers describing the Bonds so cremated or otherwise destroyed, and one executed certificate shall be filed with the Authority and the other executed certificate shall be retained by the Paying Agent. The Paying Agent shall provide written notice to Moody’s, if the Bonds are then rated by Moody’s and to S&P, if the Bonds are then rated by S&P, of the final payment or redemption of any of the Bonds, either at or before maturity, upon cancellation of any such Bonds.

     Section 3.9. Requirements With Respect To Transfers. In all cases in which the privilege of transferring Bonds is exercised, the Authority shall execute and the Trustee or the Paying Agent shall authenticate and deliver Bonds in accordance with the provisions of this Indenture. All Bonds surrendered in any such transfer shall forthwith be cancelled by the Trustee or the Paying Agent. For every such transfer of Bonds, the Authority, the Trustee or the Paying Agent may, as a condition precedent to the privilege of making such transfer, make a charge sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such transfer and may charge a sum

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sufficient to pay the cost of preparing and delivering each new Bond issued upon such transfer, which sum or sums shall be paid by the person requesting such transfer.

     Section 3.10. Registrar. The Trustee shall also be Registrar for the Bonds, and shall maintain a register showing the names of all registered owners of Bonds, Bond numbers and amounts, and other information appropriate to the discharge of its duties hereunder. The Trustee shall make available to the Borrower for its inspection during normal business hours the registration books for the Bonds, as may be requested by the Borrower in connection with any purchase or tender offer by it with respect to the Bonds.

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ARTICLE IV
APPLICATION OF BOND PROCEEDS AND OTHER AMOUNTS

     Section 4.1. Accrued Interest. Simultaneously with the delivery of any Bonds by the Trustee, the amount received as accrued interest thereon, if any, shall be deposited in the Principal and Interest Account of the Debt Service Fund.

     Section 4.2. Bond Proceeds. The proceeds of sale and delivery of any Bonds, together with any premium received on account of the sale thereof (but excluding any accrued interest on the Bonds), shall, simultaneously with the delivery thereof by the Trustee, be deposited as follows:

(A)	$14,700,000.00 will be deposited in the Project Account of the Project Fund; and
(B)	$300,000.00 will be deposited in the Costs of Issuance Account of the Project Fund.

     Section 4.3. Borrower Contribution. A contribution of the Borrower in the amount of $312,375.00 (which shall be applied to the payment of certain costs and expenses incurred in connection with the issuance, execution and sale of the Bonds for which the Borrower is responsible, including compensation and expenses of the Trustee, bond insurance premium, legal, accounting and consulting expenses and fees, costs of printing and engraving, underwriting expenses and recording and filing fees) shall simultaneously with the delivery of the Bonds be deposited by the Trustee in the Costs of Issuance Account of the Project Fund. Notwithstanding anything to the contrary contained in this Indenture, such contribution shall not be subject to the lien of this Indenture and any portion of such contribution not disbursed for the payment of costs and expenses incurred in connection with the issuance, execution and sale of the Bonds within sixty (60) days of the date of issuance of the Bonds (including investment earnings, if any attributable thereto) shall be returned to the Borrower.

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ARTICLE V
CUSTODY AND INVESTMENT OF FUNDS

     Section 5.1. Creation of Funds. (A) The Authority hereby establishes and creates the following special trust Funds and Accounts within such Funds:

     (1) Project Fund

      (a) Project Account

      (b) Costs of Issuance Account

     (2) Debt Service Fund

      (a) Principal and Interest Account

      (b) Redemption Account

     (3) Rebate Fund

     (4) Renewal Fund

     (B) The Rebate Fund shall be held by the Trustee free and clear of any lien, charge or pledge created by this Indenture. All of the Funds and Accounts created hereunder shall be held by the Trustee, including one or more depositories in trust for the Trustee. All moneys and investments deposited with the Trustee or any Paying Agent shall be held in trust and applied only in accordance with this Indenture and shall be trust funds for the purposes of this Indenture.

     (C) The Trustee, in its sole discretion, may establish accounts and subaccounts within the Funds established pursuant to Section 5.1(A) for its internal administrative or accounting purposes in order to facilitate the performance of its duties and obligations hereunder.

     Section 5.2. Project Fund. (A) The Trustee shall establish two separate accounts within the Project Fund to be respectively designated “Project Account” and “Costs of Issuance Account”. There shall be deposited in the various Accounts of the Project Fund any and all amounts required to be deposited therein pursuant to Sections 4.2 and 4.3 hereof or otherwise required to be deposited therein pursuant to the Agreement or this Indenture.

     (B) The Trustee shall apply the amounts in the various Accounts of the Project Fund, at the direction of the Borrower, to pay the costs of the Project and the costs of issuance of the Bonds including, but not limited to:

(1) The costs of title insurance, surveys, legal fees and recording and other closing expenses;

(2) Obligations incurred for labor and materials;

(3) All costs of contract bonds and of insurance of all kinds that may be required or necessary during the course of construction of the Project;

(4) All costs of engineering services, including the costs of test borings, surveys, estimates, plans and specifications and preliminary investigation therefor and for supervising construction, as well as for the performance of all other duties required by or

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consequent upon the proper construction of, and alterations, additions and improvements to, the Project;

(5) All expenses incurred in connection with the issuance, execution and sale of the Bonds, including compensation and expenses of the Trustee, the Authority’s issuance fee, Bond Counsel fees, and expenses, underwriting discount, legal, accounting and consulting expenses and fees, costs of printing and engraving, and recording and filing fees;

(6) All costs which the Borrower shall be required to pay, under the terms of any contract or contracts, for the acquisition, construction, installation or equipping of the Project, including any amounts required to reimburse the Borrower for advances or payments made for any of the above items or for any other costs incurred and for work done which are properly chargeable to the Project;

(7) Interest due and payable on the Bonds from the date of issuance to the Completion Date of the Project;

(8) Any other costs and expenses relating to the Project.

     (C) The Trustee is hereby authorized and directed to issue its checks or to effect wire transfers for each disbursement from the various Accounts of the Project Fund (excepting any fees payable to the Trustee as to which no further authority is required) upon a requisition submitted to the Trustee and signed by an Authorized Representative of the Borrower in substantially the form attached hereto as Appendix A. Such requisition shall state with respect to each payment to be made: (1) the Account within the Project Fund from which such disbursement is to be made, (2) the requisition number, (3) the name and address of the person, firm or corporation to whom payment is due, or to whom a reimbursable advance, if any, has been made, (4) the amount to be paid, (5) that each obligation mentioned therein has been properly incurred within the provisions of the Agreement, is a proper charge against the Project Fund, is unpaid or unreimbursed, and has not been the basis of any previous withdrawal, (6) that the requisition and the use of proceeds set forth therein are consistent in all material respects with the Tax Regulatory Agreement with respect to the Bonds, and (7) unless the Trustee has received the certificate described in subsection 5.2(F) hereof, 95% or more of the amount requisitioned is to be applied to costs (a) paid or incurred after the date which is sixty (60) days prior to the adoption of the Authority’s inducement resolution for the Project, (b) for the acquisition, construction or reconstruction of land or property of a character subject to the allowance for depreciation provided in Section 167 of the Internal Revenue Code of 1986, as amended, and (c) which are chargeable to the capital account of the Project or would be so chargeable either with an election by the Borrower or but for the election of the Borrower to deduct the amount of the item.

     Notwithstanding anything to the contrary contained herein, any portion of the contribution of the Borrower made pursuant to Section 4.3 hereof remaining on deposit in the Costs of Issuance Account of the Project Fund sixty (60) days following the date of issuance of the Bonds (including investment earnings, if any, attributable thereto) shall be returned to the Borrower.

     (D) In making any such payment from the various Accounts of the Project Fund, the Trustee may rely on such requisitions and proof delivered to it and the Trustee shall be relieved of all liability with respect to making such payments in accordance with the foregoing.

     (E) The Trustee shall hold in the Project Fund an amount equal to 5% of the net proceeds of the Bonds ($750,000) until the Trustee has received, with respect to the Bonds, a certified statement of

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Project Costs together with the Borrower’s certificate to the effect that Project Costs in an amount equal to 95% or more of the proceeds of the Bonds (as defined in the Agreement) have been paid or incurred for the acquisition, construction or reconstruction of land or depreciable property under the Internal Revenue Code of 1986, as amended, and have been or could be capitalized by the Borrower for Federal income tax purposes. Such documents may be delivered upon issuance of the Bonds and may anticipate the use of the final amounts to be requisitioned permitted by subsections 5.2(E) and (F) hereof. Upon the receipt of such documents, the Trustee shall apply the balance in the Project Fund to or at the direction of the Borrower in accordance with such documents. The Borrower shall notify the Trustee of any inability to deliver such documents, and in that event the Trustee shall upon the receipt of such notification transfer the balance in the Project Fund to the Redemption Account of the Debt Service Fund.

          (F) The completion of the Project shall be evidenced by the filing with the Authority and the Trustee of a certificate of an Authorized Representative of the Borrower in accordance with Article IV of the Agreement, stating the date of such completion and the amount, if any, required in its opinion for the payment of any remaining part of the costs of the Project. Upon the filing of such certificate, the balance in the Project Fund in excess of the amount, if any, stated in such certificate, shall be applied by the Trustee in accordance with the written order of any Authorized Representative of the Borrower in one or more of the following ways:

(1) Deposited in the Redemption Account of the Debt Service Fund; or

(2) Used in any other manner which preserves the exemption of interest on the Bonds from federal income taxation, provided there is delivered to the Trustee an opinion of Bond Counsel to the effect that the use of such moneys is permitted by law and will not adversely affect the exemption from federal income taxation of interest on the Bonds. The Trustee may rely on such opinion in any disbursement of funds pursuant to this subsection 5.2(F)(2).

Thereafter, upon payment of all the costs and expenses incident to the Project, any balance in the Project Fund shall be deposited in the Redemption Account of the Debt Service Fund.

          (G) Promptly following June 30 in each year, until there is no balance remaining in the Project Fund, the Trustee shall deliver a report to the Authority setting forth the amounts remaining in the Project Fund as of such date and a schedule of the securities in which such amounts are invested.

          (H) In the event the Borrower shall be required to or shall elect to cause the Bonds to be redeemed in full pursuant to Article VIII of the Agreement, the balance in the Project Fund which is not required to pay incurred Project Costs shall be deposited in the Redemption Account of the Debt Service Fund.

          Section 5.3. Debt Service Fund. (A) The Trustee shall establish two separate accounts within the Debt Service Fund to be respectively designated “Principal and Interest Account” and “Redemption Account”.

          (B) The Trustee shall promptly deposit the following receipts in the Debt Service Fund:

     (1) Any amount required pursuant to Section 4.1 hereof to be deposited from the proceeds of the Bonds, which shall be credited to the Principal and Interest Account.

     (2) All amounts received by the Trustee pursuant to Section 3.1 of the Agreement, which shall be credited to the Principal and Interest Account, in the manner set forth in this Indenture and

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the Agreement, and applied together with amounts available in the Principal and Interest Account, to pay (i) the interest due on the Outstanding Bonds on the Interest Payment Date next succeeding such payment and (ii) the principal, if any, of the Outstanding Bonds due (otherwise than by call for redemption) on such Interest Payment Date.

     (3) Excess or remaining amounts in the Project Fund required to be deposited in the Redemption Account of the Debt Service Fund pursuant to subsections 5.2(E) and 5.2(F) hereof, which shall be credited to the Redemption Account.

     (4) Any other amounts required to be paid to the Debt Service Fund for payment of principal and interest due on the Bonds, which shall be credited to the Principal and Interest Account.

     (5) Prepayments under the Agreement received by the Trustee pursuant to Article VIII thereof, which shall be credited to the Redemption Account.

     (6) All other receipts when and if required by the Financing Documents or any subsequent agreement or by this Indenture to be paid into the Debt Service Fund, which shall be credited to the Principal and Interest Account or the Redemption Account, as appropriate.

     (7) Any amounts constituting income or interest earned and gains realized in excess of losses suffered by any Fund and Account hereunder, excluding the Project Fund, which shall be credited to the Principal and Interest Account in accordance with Section 5.6(B) hereof. Income or interest earned and gains realized in excess of losses suffered by the Project Fund shall be retained in the Project Fund prior to the Completion Date of the Project, and transferred to the Principal and Interest Account of the Debt Service Fund subsequent to the Completion Date.

          (C) There shall be paid from the Principal and Interest Account to the respective Paying Agents on each Interest Payment Date for the Bonds the amounts required for the payment of the principal and interest due on the Bonds on such date. Such amounts shall be applied by the Paying Agents to the payment of principal and interest on the Bonds when due. All other amounts payable on the Bonds from the Principal and Interest Account shall be paid to the respective Paying Agents upon receipt, and shall immediately be paid by such Paying Agents to the Bondholders.

          (D) Amounts in the Redemption Account shall be applied, as promptly as practicable, by the Trustee at the direction of the Borrower to the purchase of Bonds at prices not exceeding the optional Redemption Price thereof applicable on the next redemption date plus accrued interest and all other amounts then due under the Financing Documents in connection with such redemption. Such redemption date shall be the earliest date upon which Bonds are subject to redemption from such amounts. Any amount in the Redemption Account not so applied to the purchase of Bonds by forty-five days prior to the next date on which the Bonds are so redeemable shall be applied to the redemption of Bonds on such redemption date; provided that if such amount aggregates less than $10,000, it need not be then applied to such redemption. Amounts in the Redemption Account to be applied to the redemption of Bonds shall be paid to the respective Paying Agents on or before the redemption date and applied by them on such redemption date to the payment of the Redemption Price of the Bonds being redeemed plus interest on such Bonds accrued to the redemption date and all other amounts then due under the Financing Documents in connection with such redemption.

          (E) Any amounts remaining in the Debt Service Fund after payment in full of the Bonds, the fees, charges and expenses of the Trustee and the Paying Agents and all other amounts required to be paid hereunder or under the Financing Documents shall be paid to the Borrower upon the expiration or sooner termination of the Term of the Agreement.

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     Section 5.4. Rebate Fund. (A) There shall be credited to the Rebate Fund all amounts required to be credited thereto from interest earnings or net gain on disposition of investments pursuant to this Article V.

     (B) On the first Business Day following each Computation Period (as defined in the Tax Regulatory Agreement), upon direction in writing from the Borrower, pursuant to the Tax Regulatory Agreement, the Trustee shall withdraw from the Funds and Accounts and deposit to the Rebate Fund an amount such that the amount held in the Rebate Fund after such deposit is equal to the Rebatable Arbitrage (as defined in the Tax Regulatory Agreement) calculated as of the last day of the Computation Period; provided, however, that the Trustee may transfer monies from any Fund or Account only to the extent such transfer does not result in an Event of Default hereunder. In the event of any deficiency, the balance required shall be provided by the Borrower pursuant to Section 8.3 of the Tax Regulatory Agreement. Computations of the amounts on deposit in each Fund and Account and of the Rebatable Arbitrage shall be furnished to the Trustee by the Borrower in accordance with Section 8.3 of the Tax Regulatory Agreement. Any amounts on deposit in the Rebate Fund in excess of the Rebatable Arbitrage shall be deposited to the Debt Service Fund.

     (C) The Trustee, upon receipt of written instructions from an Authorized Representative of the Borrower in accordance with Section 8.3 of the Tax Regulatory Agreement, shall pay to the United States out of amounts in the Rebate Fund (1) not later than 30 days after the end of each five-year period following the date of issuance of the Bonds, an amount such that, together with amounts previously paid, the total amount paid to the United States is equal to 90% of the Rebatable Arbitrage calculated as of the end of the most recent Computation Period, and (2) not later than 30 days after the date on which all of the Bonds have been paid or redeemed, 100% of the Rebatable Arbitrage as of the end of the final Computation Period.

     (D) In transferring any funds to the Rebate Fund and making any payments to the United States from the Rebate Fund, the Trustee may rely on the written directions and computations provided it by the Borrower and the Trustee shall be relieved of all liability with respect to the making of such transfers and payments in accordance with the foregoing.

     Section 5.5. Renewal Fund. (A) There shall be paid into the Renewal Fund all amounts to be deposited therein pursuant to Section 5.3 of the Agreement, and such amounts shall be applied as provided therein.

     (B) Any surplus remaining in the Renewal Fund after the completion of any payments for the replacement, repair, reconstruction, alteration, relocation or restoration, of the Project with respect to any event of damage, destruction or condemnation shall be transferred to the Redemption Account of the Debt Service Fund, but the excess, if any, of such amount as will be sufficient to discharge and satisfy this Indenture and pay all Bonds as provided in Section 12.1 hereof shall be paid over to the Borrower free and clear of any pledge or lien hereunder.

     Section 5.6. Investment of Funds and Accounts. (A) Except as otherwise provided in this Indenture, amounts in the Funds and Accounts held hereunder shall, if and to the extent then permitted by law, be invested in Authorized Investments. Investments authorized under this Section shall be made by the Trustee at the written request of an Authorized Representative of the Borrower, and may be made by the Trustee through its own bond department. Any investment hereunder shall be made in accordance with the Tax Regulatory Agreement, including particularly the terms and conditions of Article VII thereof relating to arbitrage. Such investments shall mature in such amounts and at such times as may be necessary to provide funds when needed to make payments from such Funds and Accounts, and any such

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investments shall, subject to the provisions hereof, at all times be deemed to be a part of the Fund and Account, from which the investment was made.

     (B) Except as provided in the following sentence, the income or interest earned and gains realized in excess of losses suffered by any Fund and Account held hereunder from the date of delivery of the Bonds shall be credited to the Principal and Interest Account of the Debt Service Fund (except income or interest earned and gains realized in excess of losses suffered by the Rebate Fund, which shall be credited to the Rebate Fund). Income or interest earned and gains realized in excess of losses suffered by the Project Fund shall be retained therein prior to the Completion Date of the Project and transferred to the Principal and Interest Account of the Debt Service Fund subsequent to the Completion Date.

     (C) Prior to each Interest Payment Date on the Bonds, the Trustee shall notify the Borrower of the amount of any net investment income or gain received and collected subsequent to the preceding interest payment date and the amount then available in the Debt Service Fund.

     Section 5.7. Non-presentment of Bonds. In the event any Bond shall not be presented for payment when the remaining principal thereof becomes due, either at final maturity, or at the date fixed for redemption thereof, or otherwise, and funds sufficient to pay any such Bond shall have been made available to the Trustee for the benefit of the holder or holders thereof, all liability of the Authority to the holder thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds, without liability for interest thereon, for the benefit of the holder of such Bond, who shall thereafter be restricted exclusively to such funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, such Bond. Funds remaining with the Trustee as above unclaimed for six years shall be paid to the Borrower.

ARTICLE VI
REDEMPTION OF BONDS

     Section 6.1. Privilege of Redemption and Redemption Price. Bonds or portions thereof subject to redemption prior to maturity shall be redeemable, upon mailed notice as provided in this Article, at the times, at the Redemption Prices and upon such terms, in addition to and consistent with the terms contained in this Article, as shall be specified in Section 2.4 hereof and in such Bonds.

     Section 6.2. Selection of Bonds to be Redeemed. So long as the Bonds are in book-entry form, when Bonds are called, allocation shall be made by DTC or any successor securities depository and not by the Authority or the Trustee. In the event of redemption of less than all the Outstanding Bonds of like maturity, the Trustee shall select by lot, using such method of selection as it shall deem proper in its discretion, the principal amount of such Bonds to be redeemed. For purposes of this Section, Bonds or portions of Bonds which have theretofore been selected by lot for redemption shall not be deemed Outstanding. In the event that the book-entry system is discontinued, if less than all of the Bonds are to be redeemed at the option of the Borrower, the Bonds or portion thereof to be redeemed shall be selected by the Borrower.

     Section 6.3. Notice of Redemption. Except with respect to deceased Bondholder redemptions as described in Section 2.4(D) hereof (the notice provisions relating to which are set forth in the Form of Bond contained in the recitals to this Indenture), when redemption is required or permitted by this Indenture, upon written notification of the Trustee by the Borrower of such redemption not less than seven (7) days prior to the date on which the Trustee must give notice to Holders as provided in this Section or the Letter of Representation among the Authority, the Trustee and DTC (if the book entry system is still in effect), the Trustee shall give notice of such redemption in the name of the Authority,

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specifying the subsection of Section 2.4 hereof under which the redemption is to be made, the numbers and amounts of the Bonds or portions thereof to be redeemed, the redemption date and the place or places where amounts due upon such redemption will be payable. Such notice shall further state that on such date there shall become due and payable upon each Bond or portion thereof to be redeemed the Redemption Price thereof together with interest accrued to the redemption date and all other amounts then due under the Financing Documents, and that from and after such date interest thereon shall cease to accrue and be payable. Alternatively, at the option of the Authority, such notice may state that it is subject to the receipt of the redemption moneys by the Trustee on or before the date fixed for redemption and which notice shall be of no effect unless such moneys are so received on or before such date. Notice of redemption shall be given by the Trustee in the name and on behalf of the Authority by mailing a copy of each such notice to the registered owner of each Bond by first-class mail postage prepaid, addressed to him at his last known address as it appears upon the bond register, no more than forty-five (45) nor less than thirty (30) days prior to the date fixed for redemption. Such notice shall be effective when mailed and any failure to receive such notice shall not affect the validity of the proceedings for redemption. In the event of a postal strike, the Trustee shall give notice by other appropriate means selected by the Trustee in its discretion.

     Section 6.4. Payment of Redeemed Bonds. (A) Notice having been given in the manner provided in Section 6.3 hereof, the Bonds or portions thereof so called for redemption shall become due and payable on the redemption dates so designated at the Redemption Price, plus interest accrued to the redemption date and all other amounts then due under the Financing Documents. If, on the redemption date, monies for the redemption of all the Bonds or portions thereof to be redeemed, together with interest to the redemption date, and all other amounts then due under the Financing Documents, shall be held by the Paying Agent so as to be available therefor on such date and if notice of redemption shall have been given as aforesaid, then, from and after the redemption date, interest on the Bonds or portions thereof so called for redemption shall cease to accrue and become payable. If such monies shall not be so available on the redemption date, such Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for redemption.

     (B) Payment of the Redemption Price together with interest and all other amounts then due to the Bondholders under the Financing Documents shall be made to or upon the order of the registered owner, only upon presentation of the Bond for cancellation or notation as provided in Section 6.6 hereof.

     Section 6.5. Notice to Authority and Borrower of Deceased Bondholder Redemption. Not later than ten Business Days after receipt of a request for redemption pursuant to Section 2.4(D) hereof by the Trustee, the Trustee shall give notice to the Authority and the Borrower specifying the amount of Bonds requested to be redeemed, the amount of Bonds eligible for redemption, the date on which such Bonds eligible for redemption shall be redeemed and the amount of funds required to be deposited in the Redemption Account.

     Section 6.6. Cancellation of Redeemed Bonds. (A) All Bonds redeemed in full under the provisions of this Article shall forthwith be cancelled and destroyed by the Trustee and a certificate of destruction furnished to the Authority, and no Bonds shall be executed, authenticated, issued or delivered in exchange or substitution therefor or for or in respect of any paid portion of a fully registered Bond. In the event that a portion only of a Bond shall be so called for redemption, then, at the option of the registered owner thereof if such owner is a securities depository, such Bond may be either submitted to the Trustee for notation thereon of the payment of the portion of the principal thereof called for redemption or surrendered for redemption. If so surrendered, one or more new Bonds shall be issued for the unredeemed portion hereof.

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     (B) If there shall be called for redemption less than all of a Bond, the Authority shall execute and the Trustee shall authenticate and deliver, upon the surrender of such Bond, without charge to the owner thereof, for the unredeemed balance of the principal amount of the Bond so surrendered, Bonds in any of the authorized denominations.

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ARTICLE VII
PARTICULAR COVENANTS

     Section 7.1. No Pecuniary Liability on Authority or Officers. (A) No covenant or agreement contained in this Indenture or in the Bonds or any obligations herein or therein imposed upon the Authority or the breach thereof, shall constitute or give rise to a charge upon its general credit, or impose upon the Authority a pecuniary liability except as set forth herein. In making the agreements, provisions and covenants set forth in this Indenture, the Authority has not obligated itself except with respect to the application of the Revenues as hereinabove provided.

     (B) All covenants, stipulations, promises, agreements and obligations of the Authority contained herein shall be deemed to be covenants, stipulations, promises, agreements and obligations of the Authority and not of any member, officer, agent or employee thereof in his individual capacity. No recourse shall be had for the payment of the principal or Redemption Price, if any, of or interest on the Bonds, for the performance of any obligation hereunder, or for any claim based thereon or hereunder against any such member, officer, agent or employee or against any natural person executing the Bonds. No such member, officer, agent, employee or natural person is or shall become personally liable for any such payment, performance or other claim, and in no event shall any monetary or deficiency judgment be sought or secured against any such member, officer, agent, employee or other natural person.

     Section 7.2. Payment of Principal, Redemption Price, if any, and Interest. The Authority covenants that it will promptly pay, solely from the Revenues or other monies derived in connection with the Project or otherwise available hereunder, the principal or Redemption Price, if any, of and interest on every Bond issued under this Indenture, together with all other amounts due under the Financing Documents, at the place, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof.

     Section 7.3. Performance of Covenants. The Authority covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder and in all of its proceedings pertaining thereto. The Authority covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds authorized hereby and to execute this Indenture, to create, accept and assign the liens in the property described herein and created hereby, to grant the security interest herein provided, to assign the Financing Documents and to pledge the revenues and other amounts hereby pledged in the manner and to the extent herein set forth; that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken, and that the Bonds in the hands of the holders and owners thereof are and will be valid and enforceable obligations according to their terms and the terms of this Indenture, except to the extent that such enforceability may be limited by bankruptcy or insolvency or other laws affecting creditors’ rights generally or by general principles of equity.

     Section 7.4. Further Assurances. The Authority and the Trustee each covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the other may reasonably require for the better assuring, transferring, conveying pledging, assigning and confirming unto the Trustee all and singular the property and rights assigned hereby and the amounts pledged hereby to the payment of the principal or Redemption Price, if any, of and interest on the Bonds and all other amounts due under the Financing Documents.

     Section 7.5. Inspection of Project Books. The Authority covenants and agrees that all books and documents in its possession relating to the Project and the revenues derived from the Project shall at

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all times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate.

     Section 7.6. Rights under Financing Documents. The Financing Documents, originals or duly executed counterparts of which have been filed with the Trustee, set forth the covenants and obligations of the Authority and the Borrower, including provisions that subsequent to the issuance of Bonds and prior to their payment in full or provision for payment thereof in accordance with the provisions hereof, the Financing Documents may not be effectively amended, changed, modified, altered or terminated without the written consents provided for therein, and reference is hereby made to the same for a detailed statement of the covenants and obligations of the Borrower thereunder. Subject to the provisions of Article IX hereof and to the extent explicitly set forth herein and in the Loan Agreement, the Trustee agrees to enforce all covenants and obligations of the Borrower under the Financing Documents and it is agreed that the Trustee may and is hereby granted the right to enforce all rights of the Authority and all obligations of the Borrower under and pursuant to the Financing Documents. Nothing in this Section shall permit any reduction in the payments required to be made by the Borrower under or pursuant to the Financing Documents or any alteration in the terms of payment thereof. All covenants and agreements on the part of the Authority shall, except as otherwise specifically provided herein, be for the benefit of the holders from time to time of the Bonds and may be enforced in the manner provided by Article VIII hereof on behalf of such holders by the Trustee.

     Section 7.7. Creation of Liens, Indebtedness. The Authority shall not create or suffer to be created any lien or charge upon or pledge of the Revenues, except the lien, charge and pledge created by this Indenture and the Bonds. The Authority shall not incur any indebtedness or issue any evidence of indebtedness, other than the Bonds herein authorized, secured by a lien on or pledge of such Revenues.

     Section 7.8. Recording and Filing. The Authority covenants that it will cause the Financing Documents, this Indenture and all supplements thereto and hereto, as well as such other security agreements, financing statements, and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve and protect the security of the holders and owners of the Bonds and the rights of the Trustee hereunder.

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ARTICLE VIII
REMEDIES OF BONDHOLDERS

     Section 8.1. Events of Default; Acceleration of Due Dates. (A) Each of the following events is hereby defined as and shall constitute an “Event of Default”:

     (1) Failure to duly and punctually pay (a) the interest or (b) any installment of the principal or Redemption Price of any Bond, whether at the stated maturity thereof or upon proceedings for redemption thereof (excluding redemptions for which a conditional notice has been given in accordance with Section 6.3 of this Indenture in which case the failure to pay the Redemption Price of any Bonds shall not constitute an Event of Default under this Section 8.1(1) unless monies are on deposit with the Trustee and available to pay the Redemption Price on the redemption date).

     (2) Failure to duly and punctually pay any amount, other than the amounts specified in (1) above, due under the Financing Documents and the continuance of such failure for more than thirty (30) days.

     (3) Failure to perform or observe any other of the covenants, agreements or conditions on the part of the Authority in this Indenture or in the Bonds contained and not otherwise a default hereunder and the continuance thereof for a period of sixty (60) days after written notice given by the Trustee or by the owners of not less than 51% of the principal amount of Bonds then Outstanding.

     (4) The occurrence of an “Event of Default” under any of the Financing Documents (other than the Disclosure Agreement).

     (B) Subject to Section 6.4(B) of the Loan Agreement, upon the happening and continuance of any Event of Default specified in subsection 8.1(A) hereof (unless the principal of all the Bonds shall have already become due and payable), the Trustee may, and upon request in writing from the owners of not less than 51% in principal amount of the Bonds then Outstanding, shall, declare the principal of all the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon such declaration the same shall become and be immediately due and payable, anything in this Indenture or in any of the Bonds contained to the contrary notwithstanding.

     (C) The right of the Trustee or of the owners of not less than 51% in principal amount of the Outstanding Bonds to make any declaration authorized under subsection 8.1(B) hereof with respect to any failure under subsection 8.1(A)(1) hereof, however, is subject to the condition that if, at any time before such declaration, all overdue installments of interest upon the Bonds and the principal of all Bonds which shall have matured by their terms, together with the reasonable and proper charges, expenses and liabilities of the Trustee, shall either be paid by or for account of the Authority or provision satisfactory to the Trustee shall be made for such payment, and all other events of default cured and waived as provided in Section 8.11 then in every such case any such default and its consequences shall ipso facto be deemed to be annulled, but no such annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon.

     Section 8.2. Enforcement of Remedies. (A) Upon the happening and continuance of any Event of Default, then and in every case, but subject to the provisions of Section 9.2 hereof and Section 6.4(B) of the Loan Agreement, the Trustee may proceed, and upon the written request of the owners of not less than 51% in the principal amount of the Bonds Outstanding shall proceed, to protect and enforce its rights and the rights of the Bondholders under the Act, the Bonds, the Financing Documents and this Indenture,

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and under any agreement executed in connection with the foregoing, forthwith by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, whether for the specific performance of any covenant or agreement contained in this Indenture or the Financing Documents or in aid of the execution of any power granted therein or in the Act or for the enforcement of any legal or equitable rights or remedies as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights or to perform any of its duties under this Indenture.

     (B) [Reserved]

     (C) In the enforcement of any right or remedy under this Indenture or under the Act, the Trustee shall be entitled to sue for, enforce payment on and receive any or all amounts then or during any default becoming, and any time remaining, due from the Authority for principal, Redemption Price, interest or otherwise under any of the provisions of the Financing Documents, this Indenture or of the Bonds, and unpaid, and, to the extent permitted by law, with interest on overdue payments at the applicable rate or rates of interest specified in the Bonds, together with any and all costs and expenses of collection and of all proceedings under the Financing Documents, this Indenture and under the Bonds, without prejudice to any other right or remedy of the Trustee or of the Bondholders, and to recover and enforce judgment or decree against the Authority, but solely as provided in the Financing Documents, this Indenture and in the Bonds, for any portion of such amounts remaining unpaid, with interest, to the extent permitted by law, costs and expenses, and to collect in any manner provided by law, the moneys adjudged or decreed to be payable.

     (D) Regardless of the happening of an Event of Default, the Trustee, if requested in writing by the owners of not less than 51% in principal amount of the Bonds then Outstanding, and furnished with security and indemnity to its satisfaction, shall institute and maintain such suits and proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the security under this Indenture by any acts which may be unlawful or in violation of this Indenture or of any resolution authorizing Bonds, and such suits and proceedings as the Trustee may be advised shall be necessary or expedient to preserve or protect its interests and the interests of the Bondholders; but no such request shall be otherwise than in accordance with the provisions of law and of the Indenture or be unduly prejudicial to the interests of the holders of Bonds not making such request.

     Section 8.3. Application of Revenue and Other Moneys After Default. (A) All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the fees, expenses, liabilities and advances incurred or made by the Trustee and any Paying Agent, shall be deposited in the applicable account of the Debt Service Fund and all moneys so deposited in such Fund and available for payment of the Bonds shall be applied as follows:

     (1) Unless the principal of all of the Bonds shall have become or have been declared due and payable:

FIRST To the payment of all amounts due under the Financing Documents, exclusive of unpaid principal and interest on the Note;

SECOND To the payment to the persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or preference; and

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THIRD To the payment to the persons entitled thereto of the unpaid principal or Redemption Price, if any, of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in order of maturity, from the respective dates upon which they become due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, then to the payment ratably, according to the amount of principal or Redemption Price due on such date, to the persons entitled thereto without any discrimination or preference.

     (2) If the principal of all the Bonds shall have become or have been declared due and payable, to the payment of all amounts due under the Financing Documents, then to the payment of the principal and interest (at the rate or rates expressed thereon) then due and unpaid upon the Bonds without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference.

     (B) Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date upon which such application shall be made. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the owner of any Bonds until such Bonds shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

     (C) Whenever all Bonds and interest thereon and all other amounts due under the Financing Documents have been paid under the provisions of this Section and all fees, expenses and charges of the Trustee and Paying Agents have been paid, any balance remaining in the Debt Service Fund shall be paid to or upon the order of the Borrower.

     Section 8.4. Actions by Trustee. All rights of action under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceedings instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any owners of the Bonds, and any recovery of judgment, subject to the provisions of Section 8.3 hereof, shall be for the benefit of the holders of the Outstanding Bonds.

     Section 8.5. Majority Bondholders Control Proceedings. The holders of at least 51% in aggregate principal amount of Bonds then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, or for any other proceedings hereunder; but such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture.

     Section 8.6. Individual Bondholder Action Restricted. (A) No owner of the Bonds shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of any provision of this Indenture or the execution of any trust under this Indenture or for any remedy under this Indenture, unless such owners shall have previously given to the Trustee written notice of the happening of an “Event of Default”, as provided in this Article, and the owners of at least 51% in principal amount of the Bonds then Outstanding shall have filed a written request with the Trustee, and shall have offered it reasonable opportunity, either to exercise the powers granted in this Indenture or by the Act or by the

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laws of the State or to institute such action, suit or proceeding in its own name, and unless such owners shall have offered to the Trustee adequate security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall have refused to comply with such request for a period of sixty days after receipt by it of such notice, request and offer of indemnity, it being understood and intended that no owner of any Bond shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the pledge created by this Indenture, or to enforce any right under this Indenture, except in the manner herein provided; and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the manner provided in this Indenture and for the equal benefit of all owners of the Outstanding Bonds.

     (B) Nothing herein or in the Bonds contained shall affect or impair the right of any owner of the Bonds to payment of the principal or Redemption Price, if any, of and interest on any Bond or other amounts due under the Financing Documents at and after the maturity thereof, or the obligation of the Authority to pay the principal or Redemption Price, if applicable, of and interest on each of the Bonds or other amounts due under the Financing Documents to the respective owners thereof at the time, place, from the source and in the manner herein and in such Bonds expressed.

     Section 8.7. Effect of Discontinuance of Proceedings. In case any proceeding taken by the Trustee on account of any Event of Default shall have been dismissed, discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the Authority, the Trustee, and the owners of the Bonds shall be restored, respectively, to their former positions and rights hereunder, and all rights, remedies, powers and duties of the Trustee shall continue as though no such proceedings had been taken.

     Section 8.8. Remedies Not Exclusive. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee or to the owners of the Bonds is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or by statute.

     Section 8.9. Delay or Omission Upon Default. No delay or omission of the Trustee or of the owners of any Bond to exercise any right or power arising upon any Event of Default shall impair any right or power or shall be construed to be a waiver of any such default or any acquiescence therein; and every power and remedy given by this Article to the Trustee and the owner of any Bond, respectively, may be exercised from time to time and as often as may be deemed expedient by the Trustee or by the owner of the Bonds.

     Section 8.10. Notice of Default. The Trustee shall immediately mail (upon the Trustee’s actual knowledge thereof), to each owner of the Bonds, written notice of an Event of Default under Section 8.1(A)(1) hereof of which it has actual knowledge. The Trustee shall promptly mail (within thirty (30) days of the Trustee’s actual knowledge thereof), to each owner of the Bonds, written notice of the occurrence of any Event of Default under Sections 8.1(A)(2), 8.1(A)(3) and 8.1(A)(4) hereof of which it has actual knowledge. Actual knowledge means the actual knowledge of an officer in the Trustee’s corporate trust administration department. The Trustee shall not, however, be subject to any liability to any owner of the Bonds by reason of its failure to mail any notice required by this Section. The Trustee shall not be required to monitor the compliance by the Authority with the terms of this Indenture, or the Borrower with the terms of the Agreement, except as aforesaid.

     Section 8.11. Waivers of Default. The Trustee shall waive any Event of Default hereunder and its consequences upon the written request of the owners of 51% in aggregate principal amount of the Bonds then Outstanding; except that there shall not be waived without the consent of the owners of all the Bonds Outstanding (a) any default in the payment of the principal of and Redemption Price on any

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Outstanding Bonds at the date of maturity specified therein or (b) any default in the payment when due of the interest on any such Bonds unless, prior to such waiver, all arrears of interest, at the rate borne by the Bonds on overdue installments of interest, to the extent permitted by law, in respect of which such default shall have occurred or all arrears of payments of principal due on the Bonds when due, as the case may be, and all expenses of the Trustee and any Paying Agent in connection with such default shall have been paid or provided for, and in case of any such waiver, or in case any proceeding taken by the Trustee on account of any such default shall have been dismissed, discontinued or abandoned or determined adversely, then and in every such case the Authority, the Trustee and the owners of the Bonds shall be restored to their former positions and rights hereunder respectively, but no such waiver, dismissal, discontinuance, abandonment or determination shall extend to any subsequent or other default, or impair any right consequent thereon.

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ARTICLE IX
TRUSTEE AND PAYING AGENTS

     Section 9.1. Appointment and Acceptance of Duties. (A) U.S. Bank National Association is hereby appointed as Trustee. The Trustee shall signify its acceptance of the duties and obligations of the Trustee by executing this Indenture. All provisions of this Article shall be construed as extending to and including all the rights, duties and obligations imposed upon the Trustee under the Agreement and the other Financing Documents as fully for all intents and purposes as if this Article were contained in the Agreement and the other Financing Documents.

     (B) The Trustee is hereby appointed as Paying Agent for the Bonds. The Authority may also from time to time appoint one or more other Paying Agents in the manner and subject to the conditions set forth in Section 9.10 hereof for the appointment of a successor Paying Agent. Each Paying Agent shall signify its acceptance of the duties and obligations imposed upon it by this Indenture by executing and delivering to the Authority and to the Trustee a written acceptance thereof. The principal offices of the Paying Agents are designated as the respective offices or agencies of the Authority for the payment of the interest on and principal or Redemption Price of the Bonds, except that interest on all registered Bonds and the principal and Redemption Price of all registered Bonds shall be payable at the corporate trust office of the Trustee located in Hartford, Connecticut.

     Section 9.2. Indemnity. The Trustee shall be under no obligation to institute any suit, or to take any remedial proceeding under this Indenture, or to enter any appearance in or in any way defend any suit in which it may be made defendant, or to take any steps in the execution of the trusts hereby created or in the enforcement of any rights and powers hereunder, until it shall be indemnified and provided with adequate security to its satisfaction against any and all reasonable costs and expenses, outlays, and counsel fees and other disbursements, and against all liability not due to its willful misconduct, gross negligence or bad faith.

     The Trustee shall be indemnified for and held harmless against any loss, liability or expense incurred without gross negligence or bad faith on its part arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that payment of such funds or adequate indemnity against such risk or liability is not assured to it.

     Section 9.3. Responsibilities of Trustee. (A) The Trustee shall have no responsibility in respect of the validity or sufficiency of this Indenture or the security provided hereunder or the due execution hereof by the Authority, or in respect of the title or the value of the Project, or in respect of the validity of any Bonds authenticated and delivered by the Trustee in accordance with this Indenture or to see to the recording or filing of the Indenture or any financing statement (except the filing of continuation statements as provided in Section 9.13 hereof) or any other document or instrument whatsoever. The recitals, statements and representations contained herein and in the Bonds shall be taken and construed as made by and on the part of the Authority and not by the Trustee, and the Trustee does not assume any responsibility for the correctness of the same; except that the Trustee shall be responsible for its representation contained in its certificate on the Bonds. The obligation hereunder to pay or reimburse the Trustee for expenses, advances, reimbursements and to indemnify and hold harmless the Trustee pursuant to Section 9.2 hereof shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of all obligations under this Indenture.

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     (B) The Trustee shall not be liable or responsible because of the failure of the Authority to perform any act required of it by this Indenture or the Financing Documents or because of the loss of any monies arising through the insolvency or the act or default or omission of any depositary other than itself in which such monies shall have been deposited. The Trustee shall not be responsible for the application of any of the proceeds of the Bonds or any other monies deposited with it and paid out, invested, withdrawn or transferred in accordance herewith or for any loss resulting from any such investment. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own willful misconduct, gross negligence or bad faith. The immunities and exemptions from liability of the Trustee shall extend to its directors, officers, employees and agents.

     (C) The Trustee, prior to the occurrence of an Event of Default and subsequent to an Event of Default that has been cured, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred of which the Trustee has actual knowledge (as defined in Section 8.10 hereinabove) and which has not been cured the Trustee, subject to Section 9.2 hereof, shall exercise such of the rights and powers vested in it hereby and use the same degree of care and skill in their exercise, as a prudent person would exercise under the circumstances in the conduct of his own affairs; provided, that if in the opinion of the Trustee such action might involve expense or liability, it shall not be obligated to take such action (other than the payment of any Bonds when due from funds held under this Indenture for the payment thereof or the acceleration of any Bonds pursuant to Section 8.1(B) hereof), unless it is furnished with indemnity and security to its satisfaction therefor.

     (D) The Trustee shall in all instances act in good faith in incurring costs, expenses and legal fees in connection with the transactions contemplated by this Indenture and the Agreement.

     (E) The Trustee shall not be liable or responsible for the failure of the Borrower to effect or maintain insurance on the Project as provided in the Financing Documents nor shall it be responsible for any loss by reason of want or insufficiency in insurance or by reason of the failure of any insurer in which the insurance is carried to pay the full amount of any loss against which it may have insured the Authority, the Borrower, the Trustee or any other person.

     Section 9.4. Compensation. The Trustee and Paying Agents shall be entitled to receive and collect from the Borrower as provided in the Financing Documents payment for reasonable fees for services rendered hereunder and all advances, counsel fees and expenses and other expenses reasonably and necessarily made or incurred by the Trustee or Paying Agents in connection therewith.

     Section 9.5. Evidence on Which Trustee May Act. (A) In case at any time it shall be necessary or desirable for the Trustee to make any investigation concerning any fact preparatory to taking or not taking any action, or doing or not doing anything, as such Trustee, and in any case in which this Indenture or the Financing Documents provide for permitting or taking any action, it may rely upon any certificate required or permitted to be filed with it under the provisions hereof or of the Financing Documents, and any such certificate shall be evidence of such fact or protect it in any action that it may or may not take, or in respect of anything it may or may not do, in good faith, by reason of the supposed existence of such fact.

     (B) The Trustee shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably and in accordance with the terms of this Indenture or the Financing Documents, upon any resolution, order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond or other paper or document which it shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper board or person, or to have been prepared and furnished pursuant to any of the provisions of this Indenture or the Financing Documents, or

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upon the written opinion of any attorney (who may be an attorney for the Authority or the Borrower), engineer, appraiser, or accountant reasonably believed by the Trustee to be qualified in relation to the subject matter. The Trustee is not required to investigate the qualifications of any such expert.

     Section 9.6. Evidence of Signatures of Owners of the Bonds and Ownership of Bonds. (A) Any request, consent, revocation of consent or other instrument which this Indenture may require or permit to be signed and executed by the owners of the Bonds may be in one or more instruments of similar tenor, and shall be signed or executed by such owners of the Bonds in person or by their attorneys appointed in writing. Proof of (i) the execution of any such instrument, or of any instrument appointing any such attorney, or (ii) the holding by any person of the Bonds shall be sufficient for any purpose of this Indenture (except as otherwise herein expressly provided) if made in the following manner, or in any other manner satisfactory to the Trustee, which may nevertheless in its discretion require further or other proof in cases where it deems the same desirable:

     (1) The fact and date of the execution by any owner of the Bonds or his attorney of such instruments may be proved by a guarantee of the signature thereon by an officer of a bank or trust company or by the certificate of any notary public or other officer authorized to take acknowledgments of deeds, that the person signing such request or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Where such execution is by an officer of a corporation or a member of an association, a limited liability company or a partnership, on behalf of such corporation, association, limited liability company or partnership, such signature guarantee, certificate or affidavit shall be accompanied by sufficient proof of his authority.

     (2) The ownership of registered Bonds and the amount, numbers and other identification, and date of owning the same shall be proved by the registry books.

     (B) Except as otherwise provided in Section 10.3 hereof with respect to revocation of a consent, any request or consent by the owner of any Bond shall bind all future owners of such Bond in respect of anything done or suffered to be done by the Authority or the Trustee or any Paying Agent in accordance therewith.

     Section 9.7. Trustee and any Paying Agent, May Deal in Bonds and With Borrower. Any national banking association, bank or trust company acting as a Trustee, or Paying Agent, and its directors, officers, employees or agents, may in good faith buy, sell, own, hold and deal in any of the Bonds and may join in any action which any owner of the Bonds may be entitled to take and may otherwise deal with the Borrower with like effect as if such association, bank or trust company were not such Trustee or Paying Agent.

     Section 9.8. Resignation or Removal of Trustee. (A) The Trustee may resign and thereby become discharged from the trusts created under this Indenture by notice in writing to be given to the Authority and the Borrower and by notice mailed, postage prepaid to the owners of the Bonds not less than sixty (60) days before such resignation is to take effect, but such resignation shall not take effect until the appointment of a successor Trustee pursuant to Section 9.9 hereof and such successor Trustee shall accept such trust.

     (B) The Trustee may be removed at any time thirty (30) days after an instrument or concurrent instruments in writing, is filed with the Trustee and signed by the owners of not less than a majority in principal amount of the Bonds then Outstanding or their attorneys-in-fact duly authorized, but such removal shall not take effect until the appointment of a successor Trustee pursuant to Section 9.9

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hereof and such successor Trustee shall accept such trust. The Trustee shall promptly give notice of such filing to the Authority.

     Section 9.9. Successor Trustee. (A) If at any time the Trustee shall resign, or shall be removed, be dissolved or otherwise become incapable of acting or shall be adjudged a bankrupt or insolvent, or if a receiver, liquidator or conservator thereof, or of its property, shall be appointed, or if any public officer shall take charge or control of the Trustee or of its property or affairs, the position of Trustee shall thereupon become vacant. If the position of Trustee shall become vacant for any of the foregoing reasons or for any other reason, the Authority shall appoint a successor Trustee to fill such vacancy. If the Authority fails to act prior to the date of resignation of any Trustee or within fifteen days after the position of Trustee becomes vacant, the Trustee may appoint a temporary successor Trustee. The Authority may thereafter appoint a successor Trustee to succeed such temporary Trustee. Within forty-five (45) days after such appointment, the successor Trustee shall cause notice of such appointment to be mailed, postage prepaid, to the Borrower and all owners of the Bonds.

     (B) At any time within one year after such vacancy shall have occurred, the owners of a majority in principal amount of the Bonds then Outstanding, by an instrument or concurrent instruments in writing, signed by such owners of the Bonds or their attorneys-in-fact thereunto duly authorized and filed with the Authority, may appoint a successor Trustee, which shall, immediately and without further act, supersede any Trustee theretofore appointed. If no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Section, the owner of any Bond then Outstanding or any retiring Trustee may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee. In either event, within thirty (30) days after such appointment, the successor Trustee shall cause notice of such appointment to be marked, postage prepaid, to the Borrower.

     (C) Any Trustee appointed under this Section shall be a national banking association or a bank or trust company duly organized under the laws of the State or under the laws of any state of the United States authorized to exercise corporate trust powers. At the time of its appointment, any successor Trustee shall have a capital stock and surplus aggregating not less than $100,000,000.

     (D) Every successor Trustee shall execute, acknowledge and deliver to its predecessor, and also to the Authority, an instrument in writing accepting such appointment, and thereupon such successor Trustee, without any further act, deed, or conveyance, shall become fully vested with all monies, estates, properties, rights, immunities, powers and trusts, and subject to all the duties and obligations of its predecessor, with like effect as if originally named as such Trustee; but such predecessor shall, nevertheless, on the written request of its successor or of the Authority, and upon payment of the compensation, expenses, charges and other disbursements of such predecessor which are due and payable pursuant to Section 9.4 hereof, execute and deliver an instrument transferring to such successor Trustee all the estate, properties, rights, immunities, powers and trusts of such predecessor, except any indemnification rights. Every predecessor Trustee shall also deliver all property and monies held by it under the Indenture to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such Trustee, the estate, properties, rights, immunities, powers and trusts vested or intended to be vested in the predecessor Trustee any such instrument in writing shall, on request, be executed, acknowledged and delivered by the Authority. Any successor Trustee shall promptly notify the Paying Agents of its appointment as Trustee.

     (E) Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be a national banking association or a bank or trust company

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duly organized under the laws of any state of the United States, shall have a capital stock and surplus aggregating not less than $100,000,000, and shall be authorized by law to perform all the duties imposed upon it by the Indenture, shall be the successor to such Trustee, both in its capacity as Trustee and in its capacity as Paying Agent if the Trustee is serving as Paying Agent, without the execution or filing of any paper or the performance of any further act.

     (F) Any Trustee which becomes incapable of acting as Trustee shall pay over, assign and deliver to its successor any monies, funds or investments held by it in the manner provided in Section 9.9(D) and shall render an accounting to the Authority.

     Section 9.10. Appointment and Responsibilities of Paying Agent. The initial Paying Agent shall be U.S. Bank National Association. The Paying Agent shall be entitled to the advice of counsel (who may be counsel for any party) and shall not be liable for any action taken in good faith in reliance on such advice. The Paying Agent may rely conclusively on any telephone or written notice, certificate or other document furnished to it under this Indenture and reasonably believed by it to be genuine. The Paying Agent shall not be liable for any action taken or omitted to be taken by it in good faith and reasonably believed by it to be within the discretion or power conferred upon it, or taken by it pursuant to any direction or instruction by which it is governed under this Indenture or omitted to be taken by it by reason of the lack of direction or instruction required for such action, or be responsible for the consequences of any error of judgment reasonably made by it. When any payment or other action by the Paying Agent is called for by this Indenture, it may defer such action pending receipt of such evidence, if any, as it may reasonably require in support thereof. A permissive right or power to act shall not be construed as a requirement to act. The Paying Agent shall not in any event be liable for the application or misapplication of funds, or for other acts or defaults, by any person, firm or corporation except by the Paying Agent’s respective directors, officers, agents and employees. For the purposes of this Indenture matters shall not be considered to be known to the Paying Agent unless they are known to an officer in its corporate trust administration division. The Paying Agent shall not require indemnification prior to making any payment when due of principal, premium or interest on any Bond to be made by the Paying Agent to any Bondholder, except and unless such drawing or payment is prohibited by or violates applicable law or any outstanding or pending court or governmental order or decree.

     Section 9.11. Resignation or Removal of Paying Agent; Successors. (A) Any Paying Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least sixty days’ written notice to the Authority, the Trustee and the Borrower. Any successor Paying Agent shall be appointed by the Authority, at the direction of the Borrower, with the approval of the Trustee, and shall be a bank or trust company duly organized under the laws of any state of the United States or a national banking association, having a capital stock and surplus aggregating at least $100,000,000, and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by this Indenture. The Paying Agent may be removed at any time by the Authority at the direction of the Borrower by a written instrument filed with the Trustee and the Paying Agent. The Paying Agent may, but need not be, the same person as the Trustee.

     (B) If the position of Paying Agent shall become vacant for any reason, or if any bankruptcy, insolvency or similar proceeding shall be commenced by or against the Paying Agent, the Authority shall appoint a successor Paying Agent designated by the Borrower to fill the vacancy. A written acceptance of office shall be filed by the successor Paying Agent. The Trustee shall give notice of the appointment of a successor Paying Agent in writing to each Bondholder. The Trustee will promptly certify to the Borrower that it has mailed such notice to all Bondholders, and such certificate will be conclusive evidence that such notice was given in the manner required hereby.

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     (C) Any corporation, association, limited liability company partnership or firm which succeeds to the business of the Paying Agent as a whole or substantially as a whole, whether by sale, merger, consolidation or otherwise, shall thereby become vested with all the property, rights and powers of the Paying Agent under this Indenture and shall be subject to all the duties and obligations of the Paying Agent under this Indenture.

     The Paying Agent shall send or cause to be sent notice to Bondholders of a change of address for the delivery of Bonds or notice or the payment of principal of Bonds.

     Section 9.12. Monies Held for Particular Bonds. The amounts held by the Trustee or Paying Agents for the payment of the interest, principal or Redemption Price due on any date with respect to particular Bonds, on and after such date and pending such payment, shall be set aside on its books and held in trust by it for the owners of the Bonds entitled thereto. Such funds shall be invested in Federal Securities at the direction of the Borrower for the account of the Borrower or shall otherwise remain uninvested.

     Section 9.13. Continuation Statements. The Trustee shall cause all continuation statements necessary to preserve and protect the security interest of the Trustee in the collateral pledged by the Authority in the granting clauses hereof to be filed in the applicable State offices so as to continue the perfected status thereof pursuant to the Uniform Commercial Code of the State.

     Section 9.14. Obligation to Report Defaults. In accordance with the provisions of Section 8.10 hereof, upon an officer in the Trustee’s corporate trust administration department becoming aware of any condition or event which constitutes, or with the giving of notice or the passage of time would constitute, an Event of Default under the Financing Documents or this Indenture, the Trustee shall deliver to the Authority a written notice stating the existence thereof and the action it proposes to take with respect thereto. Becoming aware means the actual knowledge of an officer in the Trustee’s corporate trust department.

     Section 9.15. Payments Due on non-Business Day. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of any Bonds shall, in the city of payment, be a day other than a Business Day, then payment of such amount shall be made as provided in the forms of the Bonds.

     Section 9.16. Appointment of Co-Trustee. (A) It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement, and in particular in case of the enforcement of either on default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate trustee or co-Trustee. The following provisions of this Section are adapted to these ends.

     (B) In the event that the Trustee appoints an additional individual or institution as a separate trustee or co-Trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate trustee or co-Trustee but only to the extent necessary to enable such separate trustee or co-Trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate trustee or co-Trustee shall run to and be enforceable by either of them.

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     (C) Should any instrument in writing from the Authority be required by the separate trustee or co-Trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Authority. In case any separate trustee or co-Trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-Trustee.

     Section 9.17. Project Description. The Trustee shall maintain in current form as an Appendix to the Agreement a list of the property constituting the Project Realty and the Project Equipment and, on the basis of the descriptions furnished by the Borrower pursuant to the Agreement, shall amend the list in writing to reflect changes in the Project Realty and the Project Equipment.

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ARTICLE X
AMENDMENTS OF INDENTURE

     Section 10.1. Limitation on Modifications. This Indenture shall not be modified or amended in any respect except as provided in and in accordance with and subject to the provisions of this Article.

     Section 10.2. Supplemental Indentures Without Consent of Owners of the Bonds. (A) Subject to paragraph (C) of this Section 10.2, the Authority may, from time to time and at any time, adopt Supplemental Indentures without notice to or consent of the owners of the Bonds for any of the following purposes:

     (1) To cure any formal defect, omission or ambiguity in this Indenture or in any description of property subject to the lien hereof, if such action is not adverse to the interests of the owners of the Bonds.

     (2) To grant to or confer upon the Trustee for the benefit of the owners of the Bonds any additional rights, remedies, powers, authority or security which may lawfully be granted or conferred and which are not contrary to or inconsistent with this Indenture as theretofore in effect.

     (3) To add to the covenants and agreements of the Authority in this Indenture other covenants and agreements to be observed by the Authority which are not contrary to or inconsistent with this Indenture as theretofore in effect.

     (4) To add to the limitations and restrictions in this Indenture other limitations and restrictions to be observed by the Authority which are not contrary to or inconsistent with this Indenture as theretofore in effect.

     (5) To confirm, as further assurance, any pledge under, and the subjection to any lien or pledge created or to be created by, this Indenture, of Revenues or other income from or in connection with the Project or of any other monies, securities or funds, or to subject to the lien or pledge of this Indenture additional revenues, properties or collateral.

     (6) To make any other changes which do not materially adversely affect the interest of owners of the Bonds, as evidenced to the Trustee by an opinion of Bond Counsel.

     (7) To enable the Authority and the Borrower to receive or maintain a rating on the Bonds from S&P and/or Moody’s; provided, however, that nothing in this Section 10.2(7) shall limit or restrict the rights of Bondholders to consent to modifications, alterations or amendments to this Indenture as provided in Section 10.3 hereof.

     (B) Before the Authority shall adopt any Supplemental Indenture pursuant to this Section, there shall have been filed with the Trustee an opinion of Bond Counsel satisfactory to the Trustee stating that such Supplemental Indenture is authorized or permitted by this Indenture and the Act, complies with the terms of this Indenture, and that upon enactment it will be valid and binding upon the Authority in accordance with its terms.

     Section 10.3. Supplemental Indentures With Consent of Owners of the Bonds. (A) Subject to the terms and provisions contained in this Article, the owners of not less than 51% in aggregate principal amount of the Bonds then Outstanding (or in the event that the proposed change does not affect all owners of Bonds, the owners of not less than 51% of the Bonds so affected), shall have the right from time to time, to consent to and approve the adoption by the Authority of any Supplemental Indenture as

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shall be deemed necessary or desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained herein. Nothing herein contained shall permit, or be construed as permitting, without the consent of all of the owners of the Bonds affected thereby (i) a change in the terms of redemption or maturity of the principal of or the interest on any Outstanding Bond, or a reduction in the principal amount or redemption price of any Outstanding Bond or the rate of interest thereon, without the consent of the owner of such Bond, (ii) the creation of a lien upon or pledge of Revenues other than the lien or pledge created by this Indenture, (iii) a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (iv) a reduction in the aggregate principal amount of the Bonds required for consent to such Supplemental Indenture.

     (B) If at any time the Authority shall determine to adopt any Supplemental Indenture for any of the purposes of this Section, it shall cause notice of the proposed Supplemental Indenture to be mailed, postage prepaid, to all owners of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture, and shall state that a copy thereof is on file at the offices of the Trustee for inspection by all owners of the Bonds.

     (C) Within one year after the date of such notice, the Authority may adopt such Supplemental Indenture in substantially the form described in such notice only if there shall have first been filed with the Authority (i) the written consent of the owners of not less than 51% in aggregate principal amount of the Bonds then Outstanding so affected, and (ii) an opinion of counsel satisfactory to the Trustee stating that such Supplemental Indenture is authorized or permitted by this Indenture and complies with its terms, and that upon adoption it will be valid and binding upon the Authority in accordance with its terms. Each valid consent of a Bondholder shall be effective only if accompanied by proof of the owning, at the date of such consent, of the Bonds with respect to which such consent is given. A certificate or certificates by the Trustee that it has examined such proof and that such proof is sufficient in accordance with this Indenture shall be conclusive that the consents have been given by the owners of the Bonds described in such certificate or certificates. Any such consent shall be binding upon the owner of the Bonds giving such consent and upon any subsequent owner of such Bonds and of any Bonds issued in exchange therefor (whether or not such subsequent owner thereof has notice thereof), unless such consent is revoked in writing by the owner of such Bonds giving such consent or a subsequent owner thereof by filing such revocation with the Trustee prior to the adoption of such Supplemental Indenture.

     (D) If the owners of not less than the percentage of Bonds required by this Section shall have consented to and approved the execution thereof as herein provided, no owner of any Bond shall have any right to object to the enactment of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the adoption thereof, or to enjoin or restrain the Authority from adopting the same or from taking any action pursuant to the provisions thereof.

     (E) Upon the adoption of any Supplemental Indenture pursuant to the provisions of this Section, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee, the Paying Agent and all owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under this Indenture, subject in all respects to such modifications and amendments.

     Section 10.4. Supplemental Indenture Part of the Indenture. Any Supplemental Indenture adopted in accordance with the provisions of this Article shall thereafter form a part of this Indenture and all the terms and conditions contained in any such Supplemental Indenture as to any provisions authorized to be contained therein shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. The Trustee shall execute any Supplemental Indenture adopted in accordance with the provisions of Sections 10.2 or 10.3 hereof; provided, however, that the Trustee may, but shall not be

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obligated to, enter into any such instrument which adversely affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

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ARTICLE XI
AMENDMENTS OF FINANCING DOCUMENTS

     Section 11.1. Rights of Borrower. Anything herein to the contrary notwithstanding, any Supplemental Indenture under Article X hereof which affects in any manner any rights, powers, authority, duties or obligations of the Borrower under the Financing Documents or of any subsequent user of the Project or requires a revision of the Financing Documents or subsequent agreement with respect to the Project shall not become effective unless and until the Borrower or such subsequent user, as the case may be, shall have given its written consent signed by its duly Authorized Representative to such Supplemental Indenture.

     Section 11.2. Amendments of Financing Documents Not Requiring Consent of Owners of the Bonds. The Authority and the Trustee may, without the consent of or notice to the owners of the Bonds, consent to any amendment, change or modification of the Financing Documents for the purpose of (i) curing any ambiguity or formal defect therein or which, in the judgment of the Trustee will not materially prejudice the Trustee or the owners of the Bonds or (ii) to make any other changes which do not materially adversely affect the interests of the owners of the Bonds, as evidenced to the Trustee by an opinion of counsel. The Trustee shall have no liability to any owner of the Bonds or any other person for any action taken by it in good faith pursuant to this Section.

     Section 11.3. Amendments of Financing Documents Requiring Consent of Owners of the Bonds. Except as provided in Section 11.2 hereof, the Authority and the Trustee shall not consent to any amendment, change or modification of the Financing Documents, including the substitution of an assignee for the Borrower and the release of the Borrower from the obligations of the Financing Documents, without mailing of notice and the written approval or consent of the owners of not less than 51% in aggregate principal amount of the Bonds at the time Outstanding and so affected given and procured as in Section 10.3 hereof provided. If at any time the Borrower or a subsequent user of the Project shall request the consent of the Trustee to any such proposed amendment, change or modification, the Trustee shall cause notice of such proposed amendment, change or modification to be mailed in the same manner as is provided in Article X hereof with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the principal office of the Trustee for inspection by the owners of the Bonds.

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ARTICLE XII
DISCHARGE OF INDENTURE

     Section 12.1. Defeasance. (A) If the Authority shall pay or cause to be paid, or there shall otherwise be paid, to the owners of all Bonds the principal or Redemption Price, if applicable, interest and all other amounts due or to become due thereon or in respect thereof, and all other amounts due or to become due under the Financing Documents, at the times and in the manner stipulated therein and in this Indenture, and if all the fees, expenses and advances of the Trustee and all Paying Agents have been paid, then the pledge of any revenues or receipts from or in connection with the Financing Documents or the Project under this Indenture and the estate and rights hereby granted, and all covenants, agreements and other obligations of the Authority to the owners of the Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied and such Bonds shall thereupon cease to be entitled to any lien, benefit or security hereunder, except as to moneys or securities held by the Trustee or the Paying Agents as provided below in this subsection. At the time of such cessation, termination discharge and satisfaction, (1) the Trustee shall cancel and discharge the lien of this Indenture and execute and deliver to the Borrower all such instruments as may be appropriate to satisfy such lien and to evidence such discharge and satisfaction, and (2) the Trustee, the Authority and the Paying Agents shall pay over or deliver to the Borrower or on its order all moneys or securities held by them pursuant to the Indenture which are not required (a) for the payment of principal or Redemption Price, if applicable, or interest on Bonds not theretofore surrendered for such payment or redemption, or (b) for the payment of all such other amounts due or to become due under the Financing Documents.

     (B) Bonds or interest installments for the payment or redemption of which moneys (or Federal Securities, the principal of and interest on which when due, together with the moneys, if any, set aside at the same time, will provide funds sufficient for such payment or redemption) shall then be set aside and held in trust by the Trustee or Paying Agents, whether at or prior to the maturity or the redemption date of such Bonds, shall be deemed to have been paid within the meaning and with the effect expressed in subsection (A) of this Section, if (a) in case any such Bonds are to be redeemed prior to maturity, all action necessary to redeem such Bonds shall have been taken and notice of such redemption shall have been duly given or provision satisfactory to the Trustee shall have been made for the giving of such notice, and (b) if the maturity or redemption date of any such Bond shall not then have arrived, (i) provision shall have been made by deposit with the Trustee or other methods satisfactory to the Trustee for the payment to the owners of any such Bonds upon surrender thereof, whether or not prior to the maturity or redemption date thereof, of the full amount to which they would be entitled by way of principal or Redemption Price and interest and all other amounts then due under the Financing Documents to the date of such maturity or redemption, and (ii) provision satisfactory to the Trustee shall have been made for the mailing of a notice to the owners of such Bonds that such moneys are so available for such payment.

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ARTICLE XIII
GENERAL PROVISIONS

     Section 13.1. Notices. (A) Any notice, request, demand, communication, direction or other paper shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, or sent by telegram, addressed as follows: if to the Authority, at 999 West Street, Rocky Hill, Connecticut 06067, Attention: Program Manager — Loan Administration; if to the Borrower, 93 Main Street, Clinton, Connecticut 06413, Attention: Vice President-Finance, and if to the Trustee, Goodwin Square, 225 Asylum Street, Hartford, Connecticut 06103, Attention: Corporate Trust Administration. A duplicate copy of each notice required to be given hereunder by the Trustee to either the Authority or the Borrower, shall also be given to the other. Any notice party may designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.

     (B) Notice hereunder may be waived prospectively or retrospectively by the person entitled to such notice, but no waiver shall affect any notice requirement as to other persons.

     (C) Notwithstanding anything to the contrary contained herein, all notices, requests, demands, communications or directions to the Trustee shall be given in writing.

     Section 13.2. Covenant Against Discrimination. The Trustee agrees and warrants that in the performance of this Indenture it will not discriminate against any person or group of persons on the grounds of race, color, religion, national origin, age, sex, sexual orientation, marital status, physical or learning disability, political beliefs, mental retardation, or history of mental disorder in any manner prohibited by the laws of the United States or of the State.

     Section 13.3. Parties Interested Herein. Except as otherwise specifically provided herein, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the Authority, the Trustee, the Borrower, the Paying Agent and the registered owners of the Bonds, any right, remedy or claim under or by reason of this Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Authority, the Trustee, the Borrower, the Paying Agent and the registered owners of the Bonds.

     Section 13.4. Effective Date; Counterparts. This Indenture shall become effective on delivery. It may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

     Section 13.5. Date for Identification Purposes Only. The date of this Indenture shall be for identification purposes only and shall not be construed to imply that this Indenture was executed on such date.

     Section 13.6. Separability of Invalid Provisions. In case any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, but this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.

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     IN WITNESS WHEREOF, the Connecticut Development Authority has caused these presents to be signed in its name and behalf by an Authorized Representative, and to evidence its acceptance of the trusts hereby created, U.S. Bank National Association, has caused these presents to be signed in its name and behalf by its duly authorized officer, as of the date first above written.

CONNECTICUT DEVELOPMENT AUTHORITY
By	/s/ Karin A. Lawrence      Name: Karin A. Lawrence
	Authorized Representative
U.S. BANK NATIONAL ASSOCIATION
By	/s/ Cauna M. Silva        Name: Cauna M. Silva
	Title: Vice President

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APPENDIX A TO INDENTURE

REQUISITION

     The Connecticut Water Company (the “Borrower”) hereby requests U.S. Bank National Association, as trustee (the “Trustee”) under the Indenture of Trust, dated December 1, 2007, between U.S. Bank National Association and the Connecticut Development Authority (the “Indenture”), to withdraw $                     from the                      Account of the Project Fund established under the Indenture for purposes permitted by Section 5.2 thereof. In connection with this withdrawal, the Borrower states as follows:

     1. The number of this requisition is                     .

     2. Payments aggregating                      are due to the following persons in the following amounts for expenditures incurred in connection with the Project:

Person Address Amount Item

Attached hereto are invoices evidencing each such amount due and the person to whom such amount is payable.

     3. Payment is due to the Borrower in the total amount of $                     in reimbursement for amounts paid by the Borrower in connection with the Project:

Amount Item

Attached hereto are receipts or other evidences of payment showing payment of each such amount and the person to whom payment was made.

     4. Each amount set forth in paragraphs 2 and 3 hereof has been properly paid or incurred within the provisions of the Agreement and the Indenture, is a proper charge against the Project Fund, is unpaid or unreimbursed, and has not been the basis for any previous withdrawal.

     5. This requisition and the use of proceeds set forth herein are consistent in all material respects with the Tax Regulatory Agreement.

     6. Ninety-five percent or more of the amount requisitioned is to be applied to costs (a) paid or incurred not more than sixty (60) days prior to the adoption of the Authority’s inducement resolution for the Project on April 18, 2007, (b) for the acquisition, construction or reconstruction of land or property of a character subject to the allowance for depreciation provided in Section 167 of the Internal Revenue Code of 1986, as amended, and (c) which are chargeable to the capital account of the Project or would be so chargeable either with an election by the Borrower or but for the election of the Borrower to deduct the amount of the item.

     Capitalized terms used in this requisition are used as defined in the Indenture.

A-1

     I am an Authorized Representative of the Borrower under the Agreement.

THE CONNECTICUT WATER COMPANY

By:

Name:

Title:

A-2

APPENDIX B TO INDENTURE

FORM OF REDEMPTION REQUEST
$                    
CONNECTICUT DEVELOPMENT AUTHORITY
WATER FACILITIES REFUNDING REVENUE BONDS
(THE CONNECTICUT WATER COMPANY PROJECT – 2007A SERIES)

due December 1, 2037
(the “Bonds”)

CUSIP NO.                     

     The undersigned,                      (the “Participant”), does hereby certify, pursuant to the provisions of that certain Indenture of Trust, dated as of December 1, 2007 (the “Indenture”), made by the Connecticut Development Authority (the “Authority”) and U.S. Bank National Association, as Trustee (the “Trustee”), to The Depository Trust Company (the “Depository”), The Connecticut Water Company (the “Borrower”), the Authority and the Trustee that:

     1. [Name of deceased Beneficial Owner] is deceased.

     2. [Name of deceased Beneficial Owner] had a $                     interest in the above referenced Bonds.

     3. [Name of Representative] is [Beneficial Owner’s personal representative/other person authorized to represent the estate of the Beneficial Owner/surviving joint tenant/surviving tenant by the entirety/trustee of a trust] of [Name of deceased Beneficial Owner] and has delivered to the undersigned a request for redemption in form satisfactory to the undersigned, requesting that $                     principal amount of said Bonds be redeemed pursuant to said Indenture. The documents accompanying such request, all of which are in proper form, are in all respects satisfactory to the undersigned and the [Name of Representative] is a Representative and is entitled to have the Bonds to which this Request relates redeemed.

     4. The Participant holds the interest in the Bonds with respect to which this Request for Redemption is being made on behalf of [Name of deceased Beneficial Owner].

     5. The Participant hereby certifies that it will indemnify and hold harmless the Depository, the Trustee, the Authority and the Borrower (including their respective officers, directors, agents, attorneys and employees), against all damages, loss, cost, expense (including reasonable attorneys’ and accountants’ fees and expenses), obligations, claims or liability (collectively, the “Damages”) incurred by the indemnified party or parties as a result of or in connection with the redemption of Bonds to which this Request relates. The Participant will, at the request of the Borrower, forward to the Borrower, a copy of the documents submitted by [Name of Representative] in support of the request for redemption.

B-1

     IN WITNESS WHEREOF, the undersigned has executed this redemption request as of                     ,                     .

[PARTICIPANT NAME]

By:

Name:

Title:

B-2

EX-10.5.H

Exhibit 10.5h

EIGHTH 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 10.5 of the Plan is amended to read as follows, effective March 28, 2005:

     “Anything in the Plan contrary notwithstanding, effective as of March 28, 2005, the Committee shall pay benefits to a Participant who retires or otherwise terminates employment with the Employer in a lump sum that is the Actuarial Equivalent of a Participant’s Retirement Income; provided, however, that the lump sum value of such Retirement Income does not exceed $1,000.”

     2. Section 2.36 of APPENDIX D, set forth in the Fourth Amendment, is amended by the addition of the following, immediately after the last paragraph:

“Notwithstanding the foregoing, any individual who is an Employee (of Barnstable Water Company) through the termination of the Interim Management Agreement that the Town of Barnstable and Barnstable Water Company have or will enter into pursuant to section 4.11 of the Asset Purchase Agreement among the Town of Barnstable,” Connecticut Water Service, Inc., the Barnstable Holding Company, the Barnstable, Water Company, and BARLACO, Inc., dated March 10, 2005, relating to the operation of the Barnstable Water Company’s former assets, shall be deemed to have a Year of Benefit Service for the Plan Year in which the termination of such interim Management Agreement occurs, even if such Employee does not complete 1,000 or more Hours of Service for that Plan Year, subject nevertheless to the maximum specified to Section 5. l(iii).”

     3. Section 2.37 of APPENDIX D, set forth in the Fourth Amendment, is amended by the addition of the following, immediately after the last paragraph:

“Notwithstanding the foregoing, any individual who is an Employee (of Barnstable Water Company) through the termination of the interim Management Agreement that the Town of Barnstable and Barnstable Water Company have or will enter into pursuant to section 4.11 of the Asset Purchase Agreement among the Town of Barnstable, Connecticut Water Service, Inc., the Barnstable Holding Company, the Barnstable Water Company, and BARLACO, Inc., dated March 10, 2005, relating to the operation of the Barnstable Water Company’s former assets, shall be deemed to have a Year of Vesting Service for the Plan Year in which the termination of such interim

CERTIFICATE

     The undersigned hereby certifies that The Connecticut Water Company Employees’ Retirement Plan, as amended and restated effective as of January 1,1997, except as otherwise provided therein, was duly amended by the Pension Trust Committee of the Board of Directors of The Connecticut Water Company by an Eighth Amendment on May 11, 2005, and the Plan, as so amended, is in full force and effect.

May 11, 2005	/s/ Michele G. Diacri
Date	Michele G. Diacri
	Corporate Secretary
	Title

EX-10.5.I

Exhibit 10.5i

NINTH AMENDMENT TO
THE CONNECTICUT WATER COMPANY
EMPLOYEES’ RETIREMENT PLAN
(as amended and restated as of January 1,1997, except as otherwise provided therein)

1. Paragraph (c) of Section 4.4 is amended to read as follows:

     “(c) A benefit payable in a form other than a straight life annuity must be adjusted to an actuarial equivalent straight life annuity before applying the limitations of this Section 4.4. The actuarially equivalent single life annuity is equal to the greater of the annuity benefit computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for adjusting benefits in the same form, and the annuity benefit computed using a 5 percent interest rate assumption and the applicable mortality table referenced in Exhibit I of the Plan. In determining the actuarially equivalent straight life annuity for a benefit form other than a nondecreasing annuity payable for a period of not less than the life of the Participant (or, in the case of a qualified pre-retirement survivor annuity, the life of the surviving spouse), or decreases during the life of the Participant merely because of (a) the death of the survivor annuitant (but only if the reduction is not below 50% of the annual benefit payable before the death of the survivor annuitant), or (b) the cessation or reduction of Social Security supplements or qualified disability payments, “the Applicable Interest Rate,” as defined in Exhibit I of the Plan, will be substituted for “a 5 percent interest rate assumption” in the preceding sentence. Effective for distributions with Benefit Commencement Dates occurring in the Plan Years beginning January 1,2004 and January I, 2005, “a five and one-half percent (5 1/2%) interest rate assumption” shall be substituted for '''the Applicable Interest Rate,’ as defined in Exhibit I of the Plan” in the preceding sentence. No actuarial adjustment to the benefit is required for (1) the value of a qualified joint and survivor annuity, (2) benefits that are not directly related to retirement benefits (such as the qualified disability benefit, pre-retirement death benefits, and post-retirement medical benefits), or (3) the value of post-retirement cost-of-living increases made in accordance with Federal Income Tax Regulations. The annual benefit does not include any benefits attributable to employee contributions or rollover contributions, or the assets transferred from a qualified plan that was not maintained by the Employer.”

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

- 

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 Ninth Amendment on August 9, 2006, and the Plan, as so amended, is in full force and effect.

Date August 9, 2006	/s/ David C. Benoit
	David C. Benoit
	Title Vice President, Finance and CFO

-2

EX-21

Exhibit 21

CONNECTICUT WATER SERVICE, INC.

SUBSIDIARIES

     Following is a list of the subsidiaries of Connecticut Water Service, Inc., each of which, unless otherwise indicated, is wholly owned by the company either directly or through another subsidiary.

Name	State of Incorporation
Registrant:
Connecticut Water Service, Inc.	Connecticut
Subsidiaries:
The Connecticut Water Company	Connecticut
Chester Realty, Inc.	Connecticut
New England Water Utility Services, Inc.	Connecticut
The Barnstable Holding Company	Connecticut

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 17, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers, LLP

Stamford, Connecticut
March 17, 2008

EX-31.1

Exhibit 31.1

Rule 13a-14 Certification
Form 10-K

CERTIFICATIONS

I, Eric W. Thornburg, 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/ Eric W. Thornburg

Eric W. Thornburg

March 17, 2008

EX-31.2

Exhibit 31.2

Rule 13a-14 Certification
Form 10-K

CERTIFICATIONS

I, David C. Benoit, 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

March 17, 2008

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, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric W. Thornburg, 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/ Eric W. Thornburg

Eric W. Thornburg

Chief Executive Officer

March 17, 2008

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, 2007 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 17, 2008