UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Form 10-K

x	Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2008 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 x

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 x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes   x   No 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.   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See the definitions of “accelerated filer and 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 x	
Non-Accelerated Filer o	Smaller Reporting Company o	
(Do not check if 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 x

As of June 30, 2008, the aggregate market value of the registrant's voting Common Stock held by non-affiliates of the registrant was $186,392,551 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, 2009 was 8,417,504 excluding 75,358 common stock equivalent shares.

DOCUMENTS INCORPORATED BY REFERENCE

Document	 	Part of Form 10-K Into Which Document is Incorporated	
 	 	 	
Definitive Proxy Statement, dated March 31, 2009, for Annual Meeting of Shareholders to be held on May 13, 2009.	 	Part III	

 

Table of Contents

 	 	INDEX TO ANNUAL REPORT ON FORM 10-K Year Ended December 31, 2008	 	 	
Part I	 	 	 	Page Number	
Item 1.	 	Business	 	4	
Item 1A.	 	Risk Factors	 	9	
Item 1B.	 	Unresolved Staff Comments	 	13	
Item 2.	 	Properties	 	13	
Item 3.	 	Legal Proceedings	 	14	
Item 4.	 	Submissions of Matters to a Vote of Security Holders	 	14	
 	 	 	 	 	
Part II	 	 	 	 	
Item 5.	 	Market for the Company’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	 	15	
Item 6.	 	Selected Financial Data	 	16	
Item 7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	17	
Item 7A.	 	Quantitative and Qualitative Disclosure about Market Risk	 	30	
Item 8.	 	Financial Statements and Supplementary Data	 	30	
Item 9.	 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	 	30	
Item 9A.	 	Controls and Procedures	 	30	
Item 9B.	 	Other Information	 	30	
 	 	 	 	 	
Part III	 	 	 	 	
Item 10.	 	Directors, Executive Officers and Corporate Governance	 	31	
Item 11.	 	Executive Compensation	 	31	
Item 12.	 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	 	31	
Item 13.	 	Certain Relationships and Related Transactions, and Director Independence	 	31	
Item 14.	 	Principal Accountant Fees and Services	 	31	
 	 	 	 	 	
Part IV	 	 	 	 	
Item 15.	 	Exhibits and Financial Statement Schedules	 	32	
 	 	Signatures	 	33	

Table of Contents

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 2008, approximately 93% 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, 2008, Connecticut Water supplied water to 87,361 customers in 54 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, 2008.  In 2008, these unregulated companies, together with real estate transactions within Connecticut Water, contributed the remaining 7% 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 shareholders 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 of charge through the “INVESTOR INFORMATION” menu 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 (SEC). The following documents are also available through the “CORPORATE GOVERNANCE” section of our website:

·  	Employee Code of Conduct	
·  	Audit Committee Charter	
·  	Board of Directors Code of Conduct	
·  	Compensation Committee Charter	
·  	Corporate Governance Committee Charter	
·  	Amended and Restated Bylaws of Connecticut Water Service, Inc.	
·  	2008 Annual Meeting of Shareholders (Annual Report and Proxy)	
 
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.

 

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Our Regulated Business

On July 23, 2008, the Company announced that it had reached a definitive purchase agreement with Ellington Acres Company (Ellington Acres) to purchase all of Ellington Acres’ outstanding stock for approximately $1.5 million.  Ellington Acres is a regulated water company serving approximately 750 customers in Ellington and Somers, Connecticut, situated between two systems in the Company’s Northern Region that the Company had planned to interconnect.  The Company will be able to interconnect the two systems in the Northern Region with Ellington Acres, saving ratepayers of both Connecticut Water and Ellington Acres significant capital expenditures.  The Department of Utility Control (DPUC) approved the acquisition in December 2008 and the Company completed the transaction on January 16, 2009.  The Company expects the integration to be materially complete in the second quarter of 2009.  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.

On January 16, 2008, Connecticut Water and NEWUS acquired 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) for $3.5 million, 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 operations of Birmingham have been fully integrated as of December 31, 2008.

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 in 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 through December 31, 2007 and $4.8 million through March 31, 2008. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision.  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 $4.8 million, the filing includes requested recovery and a return on a $15.5 million of additional capital investments made in 2007.  On March 28, 2008 an 11.95% increase was approved.  The approved rates became effective on April 1, 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’ incremental 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.

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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 $58.2 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.  The Company expects to spend approximately $1.2 million in 2009 on Safe Water Drinking Act projects, primarily to bring newly acquired systems up to the Company’s standards.  The Company believes that 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 March 28, 2008, the DPUC approved an increase of revenues for Connecticut Water effective April 1, 2008.  Connecticut Water’s allowed return on equity and return on rate base are 10.125% and 8.07%, respectively.

On October 10, 2008, the Company filed its Infrastructure Assessment Report (IAR) under the Water Infrastructure and Conservation Adjustment (WICA) Act which was passed into law in 2007.  WICA allows the Company to add a surcharge to customers’ bills, subject to an expedited review and approval by the DPUC, to reflect the costs of replacement of certain types of aging utility plant.  The purpose of the IAR is to clearly define the criteria for determining the priority of future replacement projects.  The first public hearing on the Company’s IAR took place on January 16, 2009.  The Company expects a decision from the DPUC on its IAR in the first quarter of 2009.  The Company does not expect to file for a surcharge under the WICA mechanism until the second quarter of 2009.  Approximately 90 days after the surcharge filing, customers would begin to see an increase in their bills.

Our Water Systems

Our water infrastructure consists of 60 noncontiguous water systems in the State of Connecticut.  Our system, in total, consists of approximately 1,500 miles of water main and reservoir storage capacity of 7.0 billion gallons. The safe, dependable yield from our 201 active wells and 18 reservoirs is approximately 50   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, 2008, Connecticut Water’s 87,361 customers consumed approximately 6.9 billion gallons of water generating $61,270,000 in revenue.  We supply water, and in most cases, fire protection to all or portions of 54 towns in Connecticut.

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The following table breaks down the above total figures by customer class as of December 31, 2008, 2007 and 2006:

 	 	2008	 	 	2007	 	 	2006	 	
Customers:	 	 	 	 	 	 	 	 	 	
Residential	 	 	78,254	 	 	 	75,579	 	 	 	74,253	 	
Commercial	 	 	5,646	 	 	 	5,532	 	 	 	5,485	 	
Industrial	 	 	425	 	 	 	426	 	 	 	429	 	
Public Authority	 	 	606	 	 	 	602	 	 	 	587	 	
Fire Protection	 	 	1,648	 	 	 	1,599	 	 	 	1,562	 	
Other (including non-metered accounts)	 	 	782	 	 	 	680	 	 	 	931	 	
Total	 	 	87,361	 	 	 	84,418	 	 	 	83,247	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Water Revenues (in thousands):	 	 	 	 	 	 	 	 	 	 	 	 	
Residential	 	$	37,963	 	 	$	38,354	 	 	$	29,067	 	
Commercial	 	 	7,150	 	 	 	6,762	 	 	 	5,652	 	
Industrial	 	 	1,822	 	 	 	1,764	 	 	 	1,589	 	
Public Authority	 	 	2,027	 	 	 	1,924	 	 	 	1,507	 	
Fire Protection	 	 	10,606	 	 	 	9,482	 	 	 	8,708	 	
Other (including non-metered accounts)	 	 	1,702	 	 	 	740	 	 	 	422	 	
Total	 	$	61,270	 	 	$	59,026	 	 	$	46,945	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Customer Water Consumption (millions of gallons):	 	 	 	 	 	 	 	 	 	 	 	 	
Residential	 	 	4,954	 	 	 	5,186	 	 	 	4,933	 	
Commercial	 	 	1,180	 	 	 	1,259	 	 	 	1,198	 	
Industrial	 	 	396	 	 	 	423	 	 	 	424	 	
Public Authority	 	 	365	 	 	 	389	 	 	 	363	 	
Total	 	 	6,895	 	 	 	7,257	 	 	 	6,918	 	

Connecticut Water owns various small, discrete parcels of land that are no longer required for water supply purposes. At December 31, 2008, this land totaled approximately 490 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, 2008, we employed a total of 226 persons, an increase of 20 employees over December 31, 2007.  Eight of these employees were added as a result of the Birmingham acquisition.  Our employees are not covered by collective bargaining agreements.

 

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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 2008, the Company did not engage in any land transactions.  Currently, the Company plans to complete one land transaction during 2009, additional information can be found on page 24 of this Form 10-K.

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 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:

 	 	Income (Loss) from Real Estate Transactions from Continuing Operations	 	
 	 	Regulated	 	 	Unregulated	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	
2008	 	$	(160,000	)	 	$ 	--	 	 	$	(160,000	)	
2007	 	$	199,000	 	 	$	(32,000	)	 	$	167,000	 	
2006	 	$	1,083,000	 	 	$	980,000	 	 	$	2,063,000	 	

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.

Linebacker ® is an optional service line protection program offered by the Company to eligible residential and commercial customers through NEWUS covering the cost of repairs for leaking or broken water service lines which provide the drinking water to a customer’s home or business.  For customers who enroll in this program, the Company will repair or replace a leaking or broken water service line, curb box, curb box cover, meter pit, meter pit cover, meter pit valve plus in-home water main shut off valve before the meter.  The program does not cover non-standard items such as pressure reducing valves, booster pumps, and lawn and/or fire sprinkler protection systems.  The Linebacker ® program costs $70 per year for residential customers and $96 per year for commercial customers.  The program has no deductible or limits on number or cost of leaks repaired each year.  As of December 31, 2008 and 2007, the Company had 21,670 and 21,375 customers enrolled in its Linebacker ® protection program, respectively.

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 still a relatively small portion of our overall business, has grown significantly over the past five years and now provides approximately 8% of our overall net income in 2008.  Net income generated by this segment of our business was $790,000, $651,000 and $515,000 for the years 2008, 2007 and 2006, respectively.

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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.”

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 2007 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 our future rate increase requests are dependent on the terms of our rate case decision on January 16, 2007 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, known as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects completed and in service for the benefit of the customers.  The Company has filed its IAR and expects a ruling from the DPUC on its IAR in the first quarter of 2009.  The Company does not expect to file for a surcharge under the WICA mechanism until the second quarter of 2009.  Approximately 90 days after the surcharge filing, customers would begin to see an increase in their bills.  For more information related to WICA, please refer to the “Executive Overview” found in Item 7 of this Form 10-K.
 
If we are unable to pay the principal and interest on our indebtedness as it comes due, or we default under certain other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and financial condition could be adversely affected.

Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future performance.  Our performance is affected by many factors, some of which are beyond our control.  We believe that our cash generated from operations, and, if necessary, borrowing under our existing and planned credit facilities, will be sufficient to enable us to make our debt payments as they become due.  If, however, we do not generate sufficient cash, we may be required to refinance our obligations or sell additional equity, which may be on terms that are not favorable to the Company as current terms.

No assurance can be given that any refinancing or sale of equity will be possible when needed or that we will be able to negotiate acceptable terms.  In addition, our failure to comply with certain provisions contained in our trust indentures and loan agreements relating to our outstanding indebtedness could lead to a default on these documents, which could result in an acceleration of our indebtedness.

Credit market volatility may affect our ability to refinance our existing debt, borrow funds under our existing lines of credit or incur additional debt.

The credit markets have been experiencing extreme volatility and disruption for more than 12 months.  In recent months, the volatility and disruption have reached unprecedented levels.  In many cases, the markets have limited credit capacity for certain issuers, and lenders have requested shorter terms.  The market for new debt financing is limited and in some cases not available at all.  In addition, the markets have increased the uncertainty that lenders will be able to comply with their previous commitments.  If current levels of market disruption and volatility continue or worsen, we may not be able to refinance our existing debt when it comes due, draw upon our existing lines of credit or incur additional debt, which may require us to seek other funding sources to meet our liquidity needs or to fund our capital expenditures budget.  We cannot assure you that we will be able to obtain debt or other financing on reasonable terms, or at all.

Failure to maintain our existing credit ratings could affect our cost of funds and related margins and liquidity position.

Since 2003, Standard & Poor's Ratings Services has rated our outstanding debt and has given credit ratings to us and our subsidiary The Connecticut Water Company.  Their evaluations are based on a number of factors, which include financial strength as well as transparency with rating agencies and timeliness of financial reporting.  On August 26, 2008, Standard & Poor's Ratings Services raised the senior unsecured rating on Connecticut Water Service to 'A' from 'A-' and affirmed the 'A' rating of The Connecticut Water Company, our subsidiary, both with an outlook of "stable".  In light of the difficulties in the financial services industry and the difficult financial markets, however, there can be no assurance that we will be able to maintain our current strong credit ratings.  Failure to do so could adversely affect our cost of funds and related margins and liquidity position.

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Market disruptions caused by the worldwide financial crisis could affect our ability to meet our liquidity needs at reasonable cost and our ability to meet long-term commitments, which could adversely affect our financial condition and results of operations.
 
We rely on our revolving credit facility and the capital markets to satisfy our liquidity needs. Further disruptions in the credit markets or further deterioration of the banking industry’s financial condition, may discourage or prevent lenders from meeting their existing lending commitments, extending the terms of such commitments or agreeing to new commitments. Market disruptions may also limit our ability to issue debt securities in the capital markets.  The Company has received approval from its Board of Directors to increase its line of credit to $40 million from its current $21 million.  The Company expects to secure access to increased lines of credit by the end of the second quarter of 2009.

Our inability to comply with debt covenants under our credit facilities could result in prepayment obligations.

We are obligated to comply with debt covenants under some of our loan and debt agreements. Failure to comply with covenants under our credit facilities could result in an event of default, which if not cured or waived, could result in us being required to repay or finance these borrowings before their due date, could limit future borrowings, and result in cross default issues and increase borrowing costs.  The covenants are normal and customary in bank and loan agreements.  The Company was in compliance with the covenants at December 31, 2008.

Market conditions may unfavorably impact the value of our benefit plan assets and liabilities which then could require significant additional funding.

The performance of the capital markets affects the values of the assets that are held in trust to satisfy future obligations under the Company’s pension and postretirement benefit plans and could significantly impact our results of operations and financial position.  As detailed in the Notes to Consolidated Financial Statements, the Company has significant obligations in these areas and the Company holds significant assets in these trusts. These assets are subject to market fluctuations, which may affect investment returns, which may fall below the Company’s projected return rates. A decline in the market value of the pension and postretirement benefit plan assets, as was experienced in 2008, will increase the funding requirements under the Company’s pension and postretirement benefit plans if the actual asset returns do not recover these declines in value. Additionally, the Company’s pension and postretirement benefit plan liabilities are sensitive to changes in interest rates. As interest rates decrease, the liabilities increase, potentially increasing benefit expense and funding requirements. Further, changes in demographics, including increased numbers of retirements or changes in life expectancy assumptions may also increase the funding requirements of the obligations related to the pension and other postretirement benefit plans. Also, future increases in pension and other postretirement costs as a result of reduced plan assets may not be fully recoverable from our customers, and our the results of operations and financial position of the Company could be negatively affected.

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.

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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, or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.  In 2008, the Company’s Northern region experienced approximately double the rainfall when compared to 2007, reducing per customer residential consumption.

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 for the last several years, 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 regulatory changes or 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.  Changes in regulatory requirements could affect our ability to utilize existing supplies and/or secure new sources, as required.  Insufficient supplies or an interruption in our water supply could have a material adverse effect on our financial condition and results of operations.  Although not occurring in 2008, 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 and operate 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 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 two acquisitions since the beginning of 2008 through the filing of this report on Form 10-K on March 13, 2009. The acquisitions of Birmingham’s Eastern Division and Ellington Acres water systems have increased the Company’s customer base by approximately 3,000 customers. Following these acquisitions, The Connecticut Water Company now serves more than 88,000 customers, or a population of over 300,000 people, in more than 54 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.	

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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 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.

The accuracy of our judgments and estimates about financial and accounting matters will impact our operating results and financial condition.

We make certain estimates and judgments in preparing our financial statements regarding, among others:
·  	the number of years to depreciate certain assets;	
·  	amounts to set aside for uncollectible accounts receivable, inventory obsolesces and uninsured losses;	
·  	our legal exposure and the appropriate accrual for claims, including medical and workers’ compensation claims;	
·  	future costs for pensions and other post-retirement benefits, and;	
·  	possible tax allowances.	

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The quality and accuracy of those estimates and judgments will have an impact on our operating results and financial condition.

In addition, we must estimate unbilled revenues and costs at the end of each accounting period.  If our estimates are not accurate, we will be required to make an adjustment in a future period.

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, 2008 was solely owned by Connecticut Water.  Connecticut Water’s net utility plant balance as of December 31, 2008 was $299,233,000, over $21 million more than the balance of net utility plant as of December 31, 2007, due primarily to normal plant additions, the acquisition of Birmingham and construction spending related to WICA.

Sources of water supply owned, maintained, and operated by Connecticut Water include eighteen reservoirs and eighty-seven well fields.  In addition, Connecticut Water has agreements with various neighboring water utilities to provide water, at negotiated rates, to our water systems.  Collectively, these sources have the capacity to deliver approximately forty-eight 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 forty-six small, non-interconnected satellite and consecutive water systems that, combined have the ability to deliver about two 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 2008, the Company entered into a purchased water agreement with the Avon Water Company to purchase up to one million gallons of water per day, which purchases are planned to supplement the Company’s Collinsville System.  Activation of the interconnection is expected to occur in 2009 on an as needed basis.

Connecticut Water owns and operates 20 water filtration facilities, having a combined treatment capacity of approximately 29.54 million gallons per day.

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

System	 	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	 	 	10.31	 	
Naugatuck System	 	 	6.91	 	
Northern Western System	 	 	16.37	 	
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	 	 	48.42	 	

As of December 31, 2008, the transmission and distribution systems of Connecticut Water consisted of approximately 1,500 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.

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 2008 and 2007 are listed as follows:

 	 	Price	 	 	Dividends	 	
Period	 	High	 	 	Low	 	 	Paid	 	
2008	 	 	 	 	 	 	 	 	 	
First Quarter	 	$	25.48	 	 	$	23.00	 	 	$	.2175	 	
Second Quarter	 	 	24.98	 	 	 	21.82	 	 	 	.2175	 	
Third Quarter	 	 	28.95	 	 	 	22.28	 	 	 	.2225	 	
Fourth Quarter	 	 	28.71	 	 	 	19.26	 	 	 	.2225	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
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	 	

As of March 1, 2009, there were approximately 4,000 holders of record of our common stock.

We presently intend to pay quarterly cash dividends in 2009 on March 16, June 15, September 15 and December 15, subject to our earnings and financial condition, regulatory requirements and other factors our Board of Directors may deem relevant.

The Company’s Annual Meeting of Shareholders is scheduled for May 13, 2009 in Westbrook, Connecticut.

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, 2008, 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 2003 – 2008 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.

 	 	2003	 	 	2004	 	 	2005	 	 	2006	 	 	2007	 	 	2008	 	
Connecticut Water Service, Inc.	 	 	$100.00	 	 	 	$98.82	 	 	 	$94.53	 	 	 	$91.04	 	 	 	$97.77	 	 	 	$101.43	 	
Standard & Poor’s 500 Index	 	 	100.00	 	 	 	110.88	 	 	 	116.33	 	 	 	134.70	 	 	 	142.10	 	 	 	89.53	 	
Standard & Poor’s 500 Utilities Index	 	 	100.00	 	 	 	124.28	 	 	 	145.21	 	 	 	175.69	 	 	 	209.73	 	 	 	148.95	 	

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

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ITEM 6. SELECTED FINANCIAL INFORMATION	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SUPPLEMENTAL INFORMATION (Unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SELECTED FINANCIAL DATA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Years Ended December 31, (thousands of dollars except per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
amounts and where otherwise indicated)	 	2008	 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	
CONSOLIDATED STATEMENTS OF INCOME	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Revenues	 	$	61,270	 	 	$	59,026	 	 	$	46,945	 	 	$	47,453	 	 	$	46,008	 	
Operating Expenses	 	$	47,874	 	 	$	46,324	 	 	$	39,962	 	 	$	37,486	 	 	$	35,487	 	
Other Utility Income, Net of Taxes	 	$	579	 	 	$	552	 	 	$	542	 	 	$	571	 	 	$	520	 	
Total Utility Operating Income	 	$	13,975	 	 	$	13,254	 	 	$	7,525	 	 	$	10,538	 	 	$	11,041	 	
Interest and Debt Expense	 	$	5,198	 	 	$	4,411	 	 	$	4,461	 	 	$	3,583	 	 	$	3,451	 	
Income from Continuing Operations	 	$	9,424	 	 	$	8,781	 	 	$	6,708	 	 	$	7,166	 	 	$	9,163	 	
Cash Common Stock Dividends Paid	 	$	7,373	 	 	$	7,146	 	 	$	7,014	 	 	$	6,773	 	 	$	6,641	 	
Dividend Payout Ratio from Continuing Operations	 	 	78	%	 	 	81	%	 	 	105	%	 	 	95	%	 	 	72	%	
Weighted Average Common Shares Outstanding	 	 	8,377,428	 	 	 	8,270,494	 	 	 	8,187,801	 	 	 	8,094,346	 	 	 	7,999,318	 	
Basic Earnings Per Common Share from Continuing Operations	 	$	1.12	 	 	$	1.06	 	 	$	0.81	 	 	$	0.89	 	 	$	1.15	 	
Number of Shares Outstanding at Year End	 	 	8,463,269	 	 	 	8,376,842	 	 	 	8,270,394	 	 	 	8,169,627	 	 	 	8,035,199	 	
ROE on Year End Common Equity	 	 	9.1	%	 	 	8.8	%	 	 	7.0	%	 	 	7.6	%	 	 	10.4	%	
Declared Common Dividends Per Share	 	$	0.880	 	 	$	0.865	 	 	$	0.855	 	 	$	0.845	 	 	$	0.835	 	

CONSOLIDATED BALANCE SHEET	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common Stockholders' Equity	 	$	103,476	 	 	$	100,098	 	 	$	95,938	 	 	$	94,076	 	 	$	87,865	 	
Long-Term Debt (Consolidated, Excluding Current Maturities)	 	 	92,227	 	 	 	92,285	 	 	 	77,347	 	 	 	77,404	 	 	 	66,399	 	
Preferred Stock	 	 	772	 	 	 	772	 	 	 	772	 	 	 	847	 	 	 	847	 	
Total Capitalization	 	$	196,475	 	 	$	193,155	 	 	$	174,057	 	 	$	172,327	 	 	$	155,111	 	
Stockholders' Equity (Includes Preferred Stock)	 	 	53	%	 	 	52	%	 	 	56	%	 	 	55	%	 	 	57	%	
Long-Term Debt	 	 	47	%	 	 	48	%	 	 	44	%	 	 	45	%	 	 	43	%	
Net Utility Plant	 	$	299,233	 	 	$	277,662	 	 	$	263,187	 	 	$	247,703	 	 	$	241,776	 	
Total Assets	 	$	372,431	 	 	$	360,813	 	 	$	328,140	 	 	$	306,035	 	 	$	290,940	 	
Book Value - Per Common Share	 	$	12.23	 	 	$	11.95	 	 	$	11.60	 	 	$	11.52	 	 	$	10.94	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
OPERATING REVENUES BY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REVENUE CLASS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential	 	$	37,963	 	 	$	38,354	 	 	$	29,067	 	 	$	29,980	 	 	$	28,974	 	
Commercial	 	 	7,150	 	 	 	6,762	 	 	 	5,652	 	 	 	5,619	 	 	 	5,479	 	
Industrial	 	 	1,822	 	 	 	1,764	 	 	 	1,589	 	 	 	1,538	 	 	 	1,635	 	
Public Authority	 	 	2,027	 	 	 	1,924	 	 	 	1,507	 	 	 	1,625	 	 	 	1,430	 	
Fire Protection	 	 	10,606	 	 	 	9,482	 	 	 	8,708	 	 	 	8,267	 	 	 	8,087	 	
Other (Including Non-Metered Accounts)	 	 	1,702	 	 	 	740	 	 	 	422	 	 	 	424	 	 	 	403	 	
Total Operating Revenues	 	$	61,270	 	 	$	59,026	 	 	$	46,945	 	 	$	47,453	 	 	$	46,008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of Customers (Average)	 	 	87,028	 	 	 	84,023	 	 	 	82,552	 	 	 	81,211	 	 	 	87,259	 	
Billed Consumption (Millions of Gallons)	 	 	6,895	 	 	 	7,257	 	 	 	6,918	 	 	 	7,276	 	 	 	7,801	 	
Number of Employees	 	 	226	 	 	 	206	 	 	 	200	 	 	 	191	 	 	 	193	 	

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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 2008, approximately 93% of the Company earnings from continuing operations were attributable to the water activities of its largest subsidiary, Connecticut Water, a regulated water utility with 87,361 customers throughout 54 Connecticut towns, as of December 31, 2008.  The rates charged for service by Connecticut Water are subject to review and approval by the Connecticut Department of Public Utility Control (DPUC).

In the mid 1990’s, Connecticut Water made a conscious decision to minimize its reliance on rate increase requests to drive its financial performance.  Instead, it relied upon unregulated operations and cost containment to grow the earnings of the Company without seeking higher rates.  After a successful extended period of meeting these objectives, it became clear in 2006 that a rate increase was needed to continue to provide shareholder value through increased earnings.  The Company decided to return to the more traditional model of recurring rate increase filings to efficiently collect its cost of both annual expenses and its investment in the infrastructure of the regulated business.  In 2006, the Connecticut Water communicated to its customers, regulators and shareholders that it expected to seek rate relief on a more recurring basis for amounts less than the 30% that was requested in the 2006 filing.  Currently, the Company is precluded from increasing its customers’ base rates prior to January 1, 2010.  The Company has not determined when it will file for its next general rate increase.

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 surcharge to customers’ bills, subject to an expedited review and approval by the DPUC and no more than twice a year, to reflect the replacement of certain types of aging utility plant; principally water mains, meters, service lines and water conservation related investments.  The Company, however, does not expect to be able to file for a surcharge under the WICA mechanism until the second quarter of 2009.

The passage of the WICA legislation will help augment the Company’s current strategy of seeking to collect its costs of operating the regulated utility on a timely basis through a mechanism even more efficient than a general rate filing with the DPUC.  The use of WICA will help to eliminate the regulatory lag from the time the Company invests in infrastructure replacement, or certain qualified new, plant and when it can begin to recover that investment in the rates charged to customers.  In October 2008, the Company filed with the DPUC its Infrastructure Assessment Report (IAR) required under the WICA legislation.  The purpose of the IAR is to clearly define the criteria for determining the priority of future replacement projects.  The first public hearing on the Company’s IAR was held on January 16, 2008.  The Company expects a ruling on its IAR from the DPUC in the first quarter of 2009, after which the Company would be eligible to file for its first surcharge under WICA.  Approximately 90 days after the surcharge filing, customers would begin to see an increase in their bills.

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The Company has and will continue to focus on minimizing operating costs that are passed along to its customers without sacrificing the quality service it values and the customers demand.  At the same time, the Company will continue to employ its current strategy of timely collection of appropriate costs and a fair rate of return for its shareholders through appropriate rates for its regulated water service.

Following our successful acquisition and integration of the water utility assets of Eastern Connecticut Regional Water Company (Eastern), which added over 2,300 customers, the Company announced on July 23, 2008 that it had reached a definitive purchase agreement with Ellington Acres Company (Ellington Acres) to purchase all of Ellington Acres’ outstanding stock for approximately $1.5 million.  Ellington Acres is a regulated water company serving approximately 750 customers in Ellington and Somers, Connecticut, situated between two systems in the Company’s Northern Region that the Company had planned to interconnect.  The Company will be able to interconnect the two systems in the Northern Region with Ellington Acres, saving ratepayers of both Connecticut Water and Ellington Acres significant capital expenditures.  The DPUC approved the acquisition in December 2008 and the Company completed the transaction on January 16, 2009.

In 2009 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 2008, Connecticut Water added 89 private well owners 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.

While the Company plans to file timely 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 $500,000 in annual 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.

In 2008, the Company entered into negotiations with the town of Windsor Locks, Connecticut to sell a conservation easement on a well field property no longer needed as a source of supply for $2.16 million. Windsor Locks was awarded a grant from the Connecticut Department of Environmental Protection to assist in purchasing the conservation easement in order to permanently protect the approximate 200-acre property from development and guarantee public access to the land for passive recreation.  The Purchase and Sale Agreement between the Company and the Town has not been executed as of the date of this filing.  The Company expects to file an application with the DPUC and will submit the draft agreement and the form of Conservation Easement to the DPUC in March 2009.  DPUC approval is expected in the second half of 2009.  Subject to successful receipt of DPUC approval, and of final authorization for the town to proceed with the transaction, the Company expects the transaction to be completed in 2009.  If the transaction closes, the Company estimates that it will generate approximately $1.0 million in net income in the Real Estate segment.  The Company currently has no other specific plans for land transactions in 2009 and beyond.

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’s ability to recover its increased expenses and/or investment in utility plant is dependent on the 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.

Connecticut Water is also subject to environmental and water quality regulations, which are continually modified and refined to ensure the safety of the Company’s water sources and, ultimately, the public’s health.  Costs to comply with environmental and water quality regulations are substantial.  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.  While there can be no guarantee that all expenditures related to increased regulation will be recoverable in rate proceedings, the Company believes that the regulatory environment in Connecticut would allow prudent expenditures to be recovered in rates.  To date, the Company has never had any costs associated with water quality and environmental spending refused in a general rate proceeding.  The Company believes that it is in compliance with current regulations, but the regulations are subject to change at any time.  During 2008, the Company incurred approximately $0.6 million in capital expenditures on Safe Drinking Water Act projects.  The Company expects to spend approximately $1.2 million on Safe Water Drinking Act projects in 2009, primarily to bring newly acquired systems up to the Company’s standards.

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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 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.

Employee 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 2008 and 2007 pension and postretirement expense was calculated using assumed discount rates of 6.30% and 5.75%, respectively. In 2009, our pension and postretirement expense will be calculated using an assumed discount rate of 6.25% and 6.20%, respectively.  The following table shows how much a one percent change in our assumed discount rate would have changed our reported 2008 pension and postretirement expense:

 	 	Increase (Decrease) in Pension Expense	 	 	Increase (Decrease) in Postretirement Expense	 	
1% Increase in the discount rate	 	$	(317,000	)	 	$	(210,000	)	
1% Decrease in the discount rate	 	$	366,000	 	 	$	254,000	 	

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 2009 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 and appropriate regulatory treatment on recovery of infrastructure improvement, and the completion of the Windsor Locks land sale, 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 was approved by the DPUC in March 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” and Item 1A – Risk Factors.

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FINANCIAL CONDITION
Liquidity and Capital Resources

The Company has three variable rate bonds with principle values totaling $22.05 million. They are secured by irrevocable direct pay letters of credit issued by a financial institution.  These bonds are currently remarketed on a weekly basis.  On October 7, 2008, the Company was notified that there was a combined remarketing failure of $2.6 million on two of these bonds.  We believe the increased volatility of the credit markets that began in September 2008 was the primary cause.

As a result of the remarketing failure, the remarketing agent drew upon the letters of credit issued by the financial institution in the amount of $2.6 million.  These loan amounts were subject to interest rates at 5.09%, which were 100 basis points over the one month LIBOR rate.  In addition, the letters of credit are reduced by the amounts of these loans, until such time as the bonds can be successfully remarketed.  As of December 31, 2008 these bonds have been, and continue to be, successfully remarketed.

The Company currently maintains an aggregate of $21 million in lines of credit with three banks.  During 2007, the Company increased these lines because of expected increased construction spending and recently completed acquisitions.  The largest line, representing $12 million of our total available line of credit, was renewed and increased in the fourth quarter of 2007 and is due upon demand from the bank.  The two other lines of credit, of which one renewed in the second quarter of 2008, the other in the third quarter of 2007, have terms of 12 and 24 months, respectively.  Interim Bank Loans Payable at December 31, 2008 was approximately $12.1 million and represents the outstanding balance on these lines of credit.  Interest expense charged on interim bank loans will fluctuate based on market interest rates.  The weighted average interest rate on the $12.1 million aggregate balance outstanding at December 31, 2008 was 1.96%.  After defining the Company’s expected 2009 capital expenditures, discussed below, the Company determined that additional access to short term capital arrangements may be needed.  In November 2008, the Company was authorized by the Board of Directors to increase the available lines of credit to $40 million.  The Company expects to finalize the increased lines in the second quarter of 2009.

Standard and Poor’s recently affirmed their 'A' corporate credit rating on the Company with a stable outlook.  The affirmation of the corporate credit rating follows their annual review of the Company and incorporates their expectation of adequate and timely rate relief and maintenance of our current financial risk profile.  The stable outlook reflects improving regulation and timely rate relief in Connecticut.

The Company offers a dividend reinvestment plan (DRIP) to all registered shareholders, whereby shareholders can elect to have cash dividends directly reinvested into additional shares of the Company’s common stock.  During the years ended December 31, 2008 and 2007, shareholders reinvested $1,281,000 and $1,313,000, respectively, as part of the DRIP.

From 1999 through 2003, the Company issued stock options to certain employees of the Company.  No stock options have been issued by the Company since 2003.  During the year ended December 31, 2008, 11,775 options were exercised resulting in approximately $218,000 in proceeds to the Company.  For the same period in 2007, the Company received approximately $809,000 in proceeds from exercised stock options.

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 2009.

 	 	Gross Construction Expenditures	 	 	Construction Funded by Developers & Others	 	 	Construction Funded by Company	 	
2008	 	$	20,737,000	 	 	$	860,000	 	 	$	19,877,000	 	
2007	 	$	19,841,000	 	 	$	1,092,000	 	 	$	18,749,000	 	
2006	 	$	17,792,000	 	 	$	1,593,000	 	 	$	16,199,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2009 (Projected)	 	$	31,400,000	 	 	$	5,000,000	 	 	$	26,400,000	 	

During 2008, the Company incurred approximately $20.7 million of construction expenditures, including approximately $900,000 funded by developers and others.  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.

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The Board of Directors has approved a $26.4 million construction budget for 2009, net of amounts to be financed by customer advances and contributions in aid of construction.  The Company is increasing its construction budget in 2009 and beyond primarily in response to the WICA legislation discussed above.  The Company will use a combination of its internally generated funds, borrowing under its available lines of credit and, depending on capital market conditions, a long term debt issuance.  The Company anticipates utilization of private activity bonds issued through the Connecticut Development Authority (CDA), for long term debt issuance in 2009 and beyond, as approved by the Board of Directors.

In December 2007, Connecticut Water borrowed $15 million through the issuance of Water Facilities Revenue Bonds by the CDA 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 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 paid J.P. Morgan, the counterparty, a fixed interest rate of 3.73% on the notional amount for a period of five years, which expired on March 3, 2009.  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 was to manage the Company’s exposure to fluctuations in prevailing interest rates.  The Company notes that J.P. Morgan has maintained an investment grade rating by the three major credit rating agencies.  We are evaluating whether or not to enter into a new interest rate swap agreement on our variable rate bonds.

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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, 2008:

Payments due by Periods	 	
(in thousands)	 	

Contractual Obligations	 	
 
Total	 	 	Less than 1 Year	 	 	
Years 2 and 3	 	 	
Years 4 and 5	 	 	More than 5 years	 	
Long-Term Debt (LTD)	 	$	92,235	 	 	$	8	 	 	$	16	 	 	$	18	 	 	$	92,193	 	
Interest on LTD	 	 	96,633	 	 	 	4,182	 	 	 	8,362	 	 	 	8,361	 	 	 	75,728	 	
Operating Lease Obligations	 	 	731	 	 	 	309	 	 	 	347	 	 	 	75	 	 	 	--	 	
Purchase Obligations (1) (2)	 	 	100,006	 	 	 	1,192	 	 	 	2,103	 	 	 	2,180	 	 	 	94,531	 	
Long-Term Compensation Agreement (3)	 	 	47,735	 	 	 	4,461	 	 	 	6,685	 	 	 	6,690	 	 	 	29,899	 	
Total (4) (5)	 	$	337,340	 	 	$	10,152	 	 	$	17,513	 	 	$	17,324	 	 	$	292,351	 	

(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 April 24, 2006 and will remain in effect for a minimum of fifty (50) years from that date.  Connecticut Water has agreed to purchase a maximum of one million (1,000,000) gallons of water per day year from RWA.  The Company is required to pay $75,000 per year for access to this water.
(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 2009 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 2008 Results from Continuing Operations

Income from Continuing Operations for 2008 was $9,424,000, or $1.12 per basic share, an increase of $643,000, or $0.06 per basic share, compared to 2007.  The increase in earnings was due to higher net income in our Water Activities and Services and Rentals segments partially offset by decreases in net income in our Real Estate segment.  Changes in net income for our segments were as follows:

Business Segment	 	2008 Net Income (Loss)	 	 	2007 Net Income	 	 	Increase (Decrease)	 	
Water Activities	 	$	8,794,000	 	 	$	7,963,000	 	 	$	831,000	 	
Real Estate	 	 	(160,000	)	 	 	167,000	 	 	 	(327,000	)	
Services and Rentals	 	 	790,000	 	 	 	651,000	 	 	 	139,000	 	
Total	 	$	9,424,000	 	 	$	8,781,000	 	 	$	643,000	 	

Water Activities

The increase in net income from Water Activities in 2008, over 2007 results was $831,000, or $0.09 per share. A breakdown of the components of this increase was as follows:

 	 	2008	 	 	2007	 	 	Increase (Decrease)	 	
Operating Revenues	 	$	61,270,000	 	 	$	59,026,000	 	 	$	2,244,000	 	
Operation and Maintenance	 	 	31,877,000	 	 	 	29,864,000	 	 	 	2,013,000	 	
Depreciation	 	 	6,438,000	 	 	 	6,525,000	 	 	 	(87,000	)	
Income Taxes	 	 	3,518,000	 	 	 	4,195,000	 	 	 	(677,000	)	
Taxes Other than Income Taxes	 	 	6,041,000	 	 	 	5,740,000	 	 	 	301,000	 	
Other Utility Income	 	 	579,000	 	 	 	552,000	 	 	 	27,000	 	
Other (Deductions) Income	 	 	(143,000	)	 	 	(972,000	)	 	 	829,000	 	
Interest and Debt Expense (net of AFUDC)	 	 	5,038,000	 	 	 	4,319,000	 	 	 	719,000	 	
Total Income from Water Activities	 	$	8,794,000	 	 	$	7,963,000	 	 	$	831,000	 	

The 3.8% increase in Operating Revenues was primarily due to the January 2008 acquisition of Eastern and the second phase of the 2006 rate case, partially offset by a decrease in consumption among all customer classes, due primarily to unfavorable weather conditions in 2008.  Significant rainfall in 2008 reduced residential demand for water.  This was a stark contrast to 2007 when extremely dry weather was experienced in much of our service territory.  Specific details are as follows:
-  	The Eastern acquisition added approximately $1.7 million in new revenues from both the additional customers served and the make whole payments received from the RWA.	
-  	The second phase of the 2006 rate case, which became effective April 1, 2008, contributed approximately $2.0 million in additional revenues over 2007 levels.	
-  	The weather impact was most notable in the Company’s northern service area, which is the Company’s largest service area, where there were 96 days during the period May 1, 2008 through October 31, 2008 with at least a trace of rain, totaling 34.8 inches of rain in the aggregate, compared to 17.4 inches during the same period in 2007.  The change in weather conditions between years resulted in an approximate $1.5 million revenue disparity between years.  The impact of the unfavorable weather can be seen in Operating Revenues from residential customers.  Despite increasing the customer count in this class of customer by over 2,600 additional customers (or 3.5%), consumption decreased by approximately 232 million gallons (or -4.5%).  In fact, despite a decrease in consumption across all customer classes, only the residential class saw a decrease in Operating Revenues.	

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The $2,013,000, or 6.7%, increase in Operation and Maintenance (O&M) expense was due to the following changes in expenses:

Components of O&M	 	2008	 	 	2007	 	 	Increase (Decrease)	 	
Labor	 	$	11,935,000	 	 	$	10,842,000	 	 	$	1,093,000	 	
Medical expense	 	 	1,477,000	 	 	 	1,097,000	 	 	 	380,000	 	
Water treatment (including chemicals)	 	 	2,051,000	 	 	 	1,754,000	 	 	 	297,000	 	
Utility costs	 	 	3,534,000	 	 	 	3,282,000	 	 	 	252,000	 	
Vehicle	 	 	1,442,000	 	 	 	1,214,000	 	 	 	228,000	 	
Customer	 	 	826,000	 	 	 	709,000	 	 	 	117,000	 	
Outside services	 	 	1,556,000	 	 	 	1,480,000	 	 	 	76,000	 	
Other employee benefit costs	 	 	269,000	 	 	 	206,000	 	 	 	63,000	 	
Purchased water	 	 	993,000	 	 	 	1,291,000	 	 	 	(298,000	)	
Pension costs	 	 	1,258,000	 	 	 	1,465,000	 	 	 	(207,000	)	
Post-retirement medical costs	 	 	1,565,000	 	 	 	1,759,000	 	 	 	(194,000	)	
Other	 	 	4,971,000	 	 	 	4,765,000	 	 	 	206,000	 	
Total O&M Expense	 	$	31,877,000	 	 	$	29,864,000	 	 	$	2,013,000	 	

The Company saw an increase in its labor expense driven primarily by the addition of twenty additional employees hired, primarily due to the acquisition of the assets of Birmingham Utilities’ Eastern Division and due to annual wage increases.  Medical expenses increased primarily due to an increase in medical and dental claims filed by employees, partially offset by an increase in the amount contributed by employees.  Water treatment costs increased primarily due to the rising cost of chemicals during the year.  The Company saw an increase in utility costs primarily due to increased communication charges and an increase in electric costs.  The largest driver of increased vehicle costs during 2008 was an increase in gasoline costs.  Additionally, during 2007, the Company made the decision to purchase a majority of its vehicles rather than to lease them; this has caused the maintenance and repairs costs and depreciation on vehicles to increase during 2008 as the Company now typically keeps the vehicles in service longer than when they were leased, partially offset by a decrease in lease expense.  The Company saw an increase in its customer costs due to increases in customer communications, including increased postage costs, and to an increase in uncollectible accounts.  The increase in outside services used by the Company were primarily related to increased legal fees during 2008 and to a consultant hired to assist the Company in defining its information technology needs.  The increase in other employee benefits relates primarily to increases to executive compensation, including stock-based compensation, employee training and workers’ compensation insurance, offset by decreases in fringe benefits.  Purchased water costs decreased compared to 2007 levels due to a renegotiated rate with a neighboring water utility.  Pension expense decreased due to an increase in discount rates.  Post-retirement medical expense decreased due to lower claim history when comparing 2008 data to 2007.

Despite a higher utility plant in service balance and a large amount of capital projects during 2008, the Company saw a decrease in Depreciation expense of $87,000, or 1.3%.  The main driver of the decrease is the amortization of the acquisition adjustment, as allowed by the DPUC, related to the acquisition of Eastern.

The decrease in Income Tax expense associated with the Water Activities segment of $677,000 was due primarily to a lower effective income tax rate in 2008 when compared to 2007 as a result of the establishment of a deferred tax asset related to unused state tax credits.

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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 increasing property balances, as well as increased asset balances due to acquisitions.

The increase in Other Utility Operating Income was due to higher revenues generated from antenna sites on our utility property leased to telecommunication companies and the sale of timber cleared from Company owned land.

The decrease in Other Income was primarily due to lower executive employee benefit costs in 2008 than during the same period in 2007, due primarily to the retirement of a former executive during 2007.

Interest and Debt Expense increased due to the $15 million bond issuance in December 2007 and higher interest on interim bank loans payable.

Real Estate

While the Company did not complete any real estate transactions in 2008, an adjustment to the valuation allowances recorded in earlier years negatively impacted net income in 2008 by $160,000.  Through land donations and discount land sales in previous years, the Company earned tax credits to use in future years.  The Company is limited by time and the amount of taxable income when using these credits.  Each year, the Company assesses its ability to use these credits going forward and makes adjustments to its valuation allowances, accordingly.

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 Company does expect a land transaction with the Town of Windsor Locks, Connecticut during 2009.  For additional information on the planned 2009 transaction, see page 24 of this Form 10-K.

Income from this business segment is largely dependent on the tax deductions received on donations and, or, 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 2009, and beyond, to generate income for this segment of our business.

Services and Rentals

Net income generated from the Services and Rental segment increased in 2008 by $139,000, over 2007 levels, with a $0.01 increase to basic earnings per share. The increased net income was primarily due to the acquisition of operation and maintenance contracts related to the acquisition of the unregulated assets of Birmingham H2O Services, Inc. and an increase in profit from Linebacker ® customers.

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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:

Business Segment	 	2007 Net Income	 	 	2006 Net Income	 	 	Increase (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:

 	 	2007	 	 	2006	 	 	Increase (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 O&M expense was due to the following changes in expenses:

Components of O&M	 	2007	 	 	2006	 	 	Increase (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 O&M 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 gasoline 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.

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.

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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.

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 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.

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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 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.

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 through December 31, 2007 and $4.8 million through March 31, 2008. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision.  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 $4.8 million, the filing includes requested recovery of the costs associated with $15.5 million of additional capital investments made in 2007.  On March 28, 2008 an 11.95% rate increase was approved.  The approved rates became effective on April 1, 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 file for a surcharge under the WICA mechanism until the second quarter of 2009, approximately 90 days after the surcharge filing; customers would begin to see an increase in their bills.

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.

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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.

The Company made no land dispositions during the fiscal year ended December 31, 2008.  However, during 2008, the Company entered into negotiations with the town of Windsor Locks, Connecticut to sell a conservation easement on a well field property no longer needed as a source of supply for $2.16 million.  The Company plans to file an application with the DPUC in March 2009 and approval is expected in the second half of 2009.  Subject to successful receipt of DPUC approval, and of final authorization for the town to proceed with the transaction, the Company expects the transaction to be completed in 2009.  If the transaction closes, the Company estimates that it will generate approximately $1.0 million in net income in the Real Estate segment.  The Company currently has no other specific plans for land transactions in 2009 and beyond.  After the completion of the Windsor Locks land sale, the Company will have approximately 290 acres available for future land transactions.

19 Perry Street Litigation – Connecticut Water’s Unionville division has for many years operated a well field located at 19 Perry Street, Farmington, Connecticut, pursuant to a 99-year lease entered into in 1975 with the property owner.  This well field provides approximately half of the daily water supply requirements to the customers of the Unionville division.  In 2004, the original property owner ceased business operations.  The property is now owned by 19 Perry Street, LLC, which obtained the property through a foreclosure proceeding.  In June 2007, the new owner commenced a lawsuit in Hartford Superior Court (Housing Section), asserting that Connecticut Water is in unlawful possession of the property under several theories, including that the lease is invalid and that Connecticut Water has failed to pay rent when due.  A trial before a judge was held in November 2007, and a decision was issued on April 30, 2008.  In its decision, the Court ruled that the lease is valid.  However, in deciding the parties’ contentions regarding the proper form and amount of rental payments due, the Court ruled that Connecticut Water was in breach of its obligation to pay rent on the property and therefore entered an order of eviction.

On May 5, 2008, Connecticut Water filed a timely appeal of the decision in the Connecticut Appellate Court.  This appeal stays the eviction order until the Appellate Court rules on Connecticut Water’s claims that the trial court erred.  At this time, the outcome of the appeal is uncertain.  On August 5, 2008, Connecticut Water was served with a related lawsuit in which 19 Perry Street, LLC seeks the payment of back rent with respect to the property.  As of February 23, 2009, the lawsuit for back rent has been stayed pending the resolution of the appeal related to the eviction case.  The Company intends to maintain its use of the property to provide water to customers of its Unionville division while the appeal is pending.  In addition, Connecticut Water will consider all other options with respect to its well field use of the property, including the outright purchase of the property or the exercise of Connecticut Water’s right to take the property by initiating eminent domain proceedings under applicable law.

Capital Expenditures – The Company has received approval from its Board of Directors to spend $26.4 million on capital expenditures in 2009, in part due to increased spending in order to take advantage of the WICA legislation.

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, compliance with environmental and water quality regulations, and the outcome of litigation matters, including the Unionville division well field dispute.  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, including the January 2009 acquisition of Ellington Acres.  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.

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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, 2008, the Company had no exposure to derivative financial instruments or financial instruments with significant credit risk or off-balance-sheet risks.  In addition, the Company is not subject in any material respect to any currency or other commodity risk.

The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company's exposure to interest fluctuations is managed at the Company and subsidiary operations levels through the use of a combination of fixed rate long-term debt (and variable rate borrowings) under financing arrangements entered into by the Company and its subsidiaries and the use of the interest rate swap agreement discussed below. The Company has $21,000,000 current lines of credit with three banks, under which interim bank loans payable at December 31, 2008 were $12,074,000.  The Company was authorized by the Board of Directors to increase the available lines of credit to approximately $40 million.  The Company expects to finalize the increased lines in the second quarter of 2009.

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 was to manage the Company’s exposure to fluctuations in prevailing interest rates.  The interest rate swap expired on March 3, 2009.  The Company is evaluating whether or not to enter into a new interest rate swap agreement on our variable rate bonds.  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.

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, 2008, 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 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, 2008.  The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 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 significant 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

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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, 2009.  Certain information concerning the executive officers of the Company is included as Item 10 of this report.

ITEM 10 .  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

Name	 	Age in 2009*	 	Office	 	Period Held or Prior Position	 	Term of Office Expires	
E. W. Thornburg	 	48	 	Chairman, President, and Chief Executive Officer
 	 	Held position since March 2006
 	 	2009 Annual Meeting	
D. C. Benoit	 	52	 	Vice President – Finance, Chief Financial Officer and Treasurer	 	Held current position or other executive position with the Company since April 1996
 	 	2009 Annual Meeting	
T. P. O’Neill	 	54	 	Vice President – Service Delivery
 	 	Held current position or other engineering position with the Company since February 1980
 	 	2009 Annual Meeting	
M. P. Westbrook	 	50	 	Vice President – Customer and Regulatory Affairs	 	Held current position or other management position with the Company since September 1988
 	 	2009 Annual Meeting	
T. R. Marston	 	56	 	Vice President – Business Development	 	Held current position or other position with the Company since June 1974
 	 	2009 Annual Meeting	
D. J. Meaney	 	48	 	Corporate Secretary	 	Held current position or other communications position with the Company since August 1994
 	 	2009 Annual Meeting	
K. A. Johnson	 	42	 	Vice President –  Human Resources	 	Held current position or other human resources position with the Company since May 2007	 	2009 Annual Meeting	

* - Age shown is as of filing date of March 13, 2009.

For further information regarding the executive officers see the Company’s Proxy Statement dated March 31, 2009.

ITEM 11.   EXECUTIVE COMPENSATION

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

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

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

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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 Pubic Accounting Firm	 	F-2	
 	 	 	 	 	 	 	
 	 	 	 	Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006	 	F-3	
 	 	 	 	 	 	 	
 	 	 	 	Consolidated Statements of Comprehensive Income for the years ended December 31, 2008, 2007 and 2006	 	F-3	
 	 	 	 	 	 	 	
 	 	 	 	Consolidated Balance Sheets at December 31, 2008 and 2007	 	F-4	
 	 	 	 	 	 	 	
 	 	 	 	Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006	 	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, 2008, 2007 and 2006	 	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.	 	 	
 	 	 	 	 	 	 	
(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.	 	 	

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

 	 	Page	
Index to Consolidated Financial Statements and Schedule	 	F-1	
 	 	 	
Report of Independent Registered Pubic Accounting Firm	 	F-2	
 	 	 	
Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006	 	F-3	
 	 	 	
Consolidated Statements of Comprehensive Income for the years ended December 31, 2008, 2007 and 2006	 	F-3	
 	 	 	
Consolidated Balance Sheets at December 31, 2008 and 2007	 	F-4	
 	 	 	
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006	 	F-5	
 	 	 	
Notes to Consolidated Financial Statements	 	F-6	
 	 	 	
Schedule II – Valuation Accounts	 	S-1	

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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, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 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, 2008, 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.

 

 
/s/  PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 13, 2009

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Connecticut Water Service, Inc. and Subsidiaries

 	 	 	 	 	 	 	 	 	 	 	
CONSOLIDATED STATEMENTS OF INCOME	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
For the Years Ended December 31, (in thousands, except per share data)	 	2008	 	 	2007	 	 	2006	 	
 	 	 	 	 	 	 	 	 	 	 	
Operating Revenues	 	$	61,270	 	 	$	59,026	 	 	$	46,945	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	 	 	 	 	
   Operation and Maintenance	 	 	31,877	 	 	 	29,864	 	 	 	26,451	 	
   Depreciation	 	 	6,438	 	 	 	6,525	 	 	 	5,881	 	
   Income Taxes	 	 	3,518	 	 	 	4,195	 	 	 	2,055	 	
   Taxes Other Than Income Taxes	 	 	6,041	 	 	 	5,740	 	 	 	5,575	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
       Total Operating Expenses	 	 	47,874	 	 	 	46,324	 	 	 	39,962	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Revenues	 	 	13,396	 	 	 	12,702	 	 	 	6,983	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Utility Income, Net of Taxes	 	 	579	 	 	 	552	 	 	 	542	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Utility Operating Income	 	 	13,975	 	 	 	13,254	 	 	 	7,525	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Income (Deductions), Net of Taxes	 	 	 	 	 	 	 	 	 	 	 	 	
   Gain (Loss) on Real Estate Transactions	 	 	(160	)	 	 	167	 	 	 	2,063	 	
   Non-Water Sales Earnings	 	 	790	 	 	 	651	 	 	 	515	 	
   Allowance for Funds Used During Construction	 	 	160	 	 	 	92	 	 	 	458	 	
   Other	 	 	(143	)	 	 	(972	)	 	 	608	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
       Total Other Income (Deductions), Net of Taxes	 	 	647	 	 	 	(62	)	 	 	3,644	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and Debt Expenses	 	 	 	 	 	 	 	 	 	 	 	 	
   Interest on Long-Term Debt	 	 	4,241	 	 	 	3,500	 	 	 	3,526	 	
   Other Interest Charges	 	 	560	 	 	 	537	 	 	 	514	 	
   Amortization of Debt Expense	 	 	397	 	 	 	374	 	 	 	421	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
       Total Interest and Debt Expenses	 	 	5,198	 	 	 	4,411	 	 	 	4,461	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from Continuing Operations	 	 	9,424	 	 	 	8,781	 	 	 	6,708	 	
Discontinued Operations, Net of Tax of $(244) in 2006	 	 	--	 	 	 	--	 	 	 	243	 	
Net Income	 	 	9,424	 	 	 	8,781	 	 	 	6,951	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred Stock Dividend Requirement	 	 	38	 	 	 	38	 	 	 	38	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Net Income Applicable to Common Stock	 	$	9,386	 	 	$	8,743	 	 	$	6,913	 	

Weighted Average Common Shares Outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
   Basic	 	 	8,377	 	 	 	8,270	 	 	 	8,188	 	
   Diluted	 	 	8,430	 	 	 	8,333	 	 	 	8,237	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings Per Common Share:	 	 	 	 	 	 	 	 	 	 	 	 	
   Basic - Continuing Operations	 	$	1.12	 	 	$	1.06	 	 	$	0.81	 	
   Basic - Discontinued Operations	 	 	--	 	 	 	--	 	 	 	0.03	 	
   Basic - Net Income Applicable to Common Stock	 	$	1.12	 	 	$	1.06	 	 	$	0.84	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
   Diluted - Continuing Operations	 	$	1.11	 	 	$	1.05	 	 	$	0.81	 	
   Diluted - Discontinued Operations	 	 	--	 	 	 	--	 	 	 	0.03	 	
   Diluted - Net Income Applicable to Common Stock	 	$	1.11	 	 	$	1.05	 	 	$	0.84	 	

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
For the Years Ended December 31, (in thousands)	 	2008	 	 	2007	 	 	2006	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income Applicable to Common Stock	 	$	9,386	 	 	$	8,743	 	 	$	6,913	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Comprehensive Income, net of tax	 	 	 	 	 	 	 	 	 	 	 	 	
   Qualified cash flow hedging instrument net of tax benefit	 	 	 	 	 	 	 	 	 	 	 	 	
      of $(52), $(148), and $(22) in 2008, 2007, and 2006, respectively	 	 	(81	)	 	 	(222	)	 	 	(45	)	
   Adjustment to pension and post-retirement benefits other than pension,	 	 	 	 	 	 	 	 	 	 	 	 	
      net of tax (benefit) expense of $(189) and $56 in 2008 and 2007, respectively	 	 	(296	)	 	 	143	 	 	 	--	 	
   Unrealized loss on investments, net of tax benefit of $(162)	 	 	(254	)	 	 	--	 	 	 	--	 	

Comprehensive Income	 	$	8,755	 	 	$	8,664	 	 	$	6,868	 	

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

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS	 	 	 	 	 	 	 	

December 31, (in thousands, except share amounts)	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	
Utility Plant	 	 	$	410,471	 	 	$	384,421	 	
Construction Work in Progress	 	 	 	4,577	 	 	 	1,407	 	
 	 	 	 	415,048	 	 	 	385,828	 	
Accumulated Provision for Depreciation	 	 	 	(115,815	)	 	 	(108,166	)	
Net Utility Plant	 	 	 	299,233	 	 	 	277,662	 	
Other Property and Investments	 	 	 	6,034	 	 	 	6,652	 	
Cash and Cash Equivalents	 	 	 	684	 	 	 	337	 	
Restricted Cash	 	 	 	--	 	 	 	8,220	 	
Accounts Receivable (Less Allowance, 2008 - $376; 2007 - $352)	 	 	 	6,653	 	 	 	6,507	 	
Accrued Unbilled Revenues	 	 	 	5,372	 	 	 	4,545	 	
Materials and Supplies, at Average Cost	 	 	 	1,095	 	 	 	987	 	
Prepayments and Other Current Assets	 	 	 	1,976	 	 	 	2,375	 	
Total Current Assets	 	 	 	15,780	 	 	 	22,971	 	
Unamortized Debt Issuance Expense	 	 	 	7,318	 	 	 	7,685	 	
Unrecovered Income Taxes	 	 	 	22,856	 	 	 	30,278	 	
Pension Benefits	 	 	 	8,911	 	 	 	--	 	
Post-Retirement Benefits Other Than Pension	 	 	 	2,570	 	 	 	6,410	 	
Goodwill	 	 	 	3,608	 	 	 	3,608	 	
Deferred Charges and Other Costs	 	 	 	6,121	 	 	 	5,547	 	
Total Regulatory and Other Long-Term Assets	 	 	 	51,384	 	 	 	53,528	 	
Total Assets	 	 	$	372,431	 	 	$	360,813	 	
 	 	 	 	 	 	 	 	 	 	
CAPITALIZATION AND LIABILITIES	 	 	 	 	 	 	 	 	 	
Common Stockholders' Equity:	 	 	 	 	 	 	 	 	 	
Common Stock Without Par Value:	 	 	 	 	 	 	 	 	 	
Authorized - 25,000,000 Shares - Issued and Outstanding:	 	 	 	 	 	 	 	 	 	
 	2008 - 8,463,269; 2007 - 8,376,842	 	 	$	64,804	 	 	$	62,808	 	
Retained Earnings	 	 	 	39,285	 	 	 	37,272	 	
Accumulated Other Comprehensive Income	 	 	 	(613	)	 	 	18	 	
Common Stockholders' Equity	 	 	 	103,476	 	 	 	100,098	 	
Preferred Stock	 	 	 	772	 	 	 	772	 	
Long-Term Debt	 	 	 	92,227	 	 	 	92,285	 	
Total Capitalization	 	 	 	196,475	 	 	 	193,155	 	
Interim Bank Loans Payable	 	 	 	12,074	 	 	 	6,459	 	
Current Portion of Long-Term Debt	 	 	 	8	 	 	 	7	 	
Accounts Payable and Accrued Expenses	 	 	 	5,700	 	 	 	5,984	 	
Accrued Taxes	 	 	 	--	 	 	 	1,316	 	
Accrued Interest	 	 	 	870	 	 	 	810	 	
Other Current Liabilities	 	 	 	418	 	 	 	337	 	
Total Current Liabilities	 	 	 	19,070	 	 	 	14,913	 	
Advances for Construction	 	 	 	38,928	 	 	 	34,583	 	
Contributions in Aid of Construction	 	 	 	49,420	 	 	 	47,865	 	
Deferred Federal and State Income Taxes	 	 	 	30,472	 	 	 	28,616	 	
Unfunded Future Income Taxes	 	 	 	18,128	 	 	 	25,404	 	
Long-Term Compensation Arrangements	 	 	 	18,331	 	 	 	14,717	 	
Unamortized Investment Tax Credits	 	 	 	1,497	 	 	 	1,560	 	
Other Long-Term Liabilities	 	 	 	110	 	 	 	 	 	
Commitments and Contingencies	 	 	 	 	 	 	 	 	 	
Total Capitalization and Liabilities	 	 	$	372,431	 	 	$	360,813	 	

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

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
For the Years Ended December 31,  (in thousands)	 	2008	 	 	2007	 	 	2006	 	
 	 	 	 	 	 	 	 	 	 	 	
Operating Activities:	 	 	 	 	 	 	 	 	 	 	
  Net Income	 	$	9,424	 	 	$	8,781	 	 	$	6,951	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
  Adjustments to Reconcile Net Income to Net Cash	 	 	 	 	 	 	 	 	 	 	 	 	
    Provided by Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
        Deferred Revenues	 	 	(777	)	 	 	(3,823	)	 	 	--	 	
        Gain on Sale of BARLACO Assets Sold	 	 	--	 	 	 	--	 	 	 	(980	)	
        Earnings from Discontinued Operations	 	 	--	 	 	 	--	 	 	 	(243	)	
        Allowance for Funds Used During Construction	 	 	(123	)	 	 	(131	)	 	 	(491	)	
        Depreciation (including $642 in 2008, $338 in 2007,	 	 	 	 	 	 	 	 	 	 	 	 	
            and $396 in 2006 charged to other accounts)	 	 	7,080	 	 	 	7,173	 	 	 	6,277	 	
        Change in Assets and Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
            Decrease (Increase) in Accounts Receivable and Accrued Unbilled Revenues	 	 	(974	)	 	 	(1,513	)	 	 	268	 	
            Decrease (Increase) in Other Current Assets	 	 	204	 	 	 	(129	)	 	 	(805	)	
            (Increase) Decrease in Other Non-Current Items, net	 	 	(146	)	 	 	2,072	 	 	 	(549	)	
            (Decrease) Increase in Accounts Payable, Accrued	 	 	 	 	 	 	 	 	 	 	 	 	
                 Expenses and Other Current Liabilities	 	 	(879	)	 	 	1,258	 	 	 	690	 	
            Increase (Decrease) in Deferred Income Taxes and	 	 	 	 	 	 	 	 	 	 	 	 	
                 Investment Tax Credits, Net	 	 	1,878	 	 	 	1,893	 	 	 	(1,492	)	
               Total Adjustments	 	 	6,263	 	 	 	6,800	 	 	 	2,675	 	
               Net Cash and Cash Equivalents Provided by Continuing Operations	 	 	15,687	 	 	 	15,581	 	 	 	9,626	 	
               Net Cash and Cash Equivalents Provided by Discontinued Operations	 	 	--	 	 	 	--	 	 	 	243	 	
               Net Cash and Cash Equivalents Provided by Operating Activities	 	 	15,687	 	 	 	15,581	 	 	 	9,869	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
    Company Financed Additions to Utility Plant	 	 	(19,877	)	 	 	(18,749	)	 	 	(16,199	)	
    Advances from Others for Construction	 	 	(737	)	 	 	(961	)	 	 	(1,102	)	
     Net Additions to Utility Plant Used in Continuing Operations	 	 	(20,614	)	 	 	(19,710	)	 	 	(17,301	)	
     Purchase of Eastern and H20 Services Assets	 	 	(3,500	)	 	 	--	 	 	 	--	 	
     Release of Restricted Cash	 	 	8,393	 	 	 	--	 	 	 	2,686	 	
     Proceeds from Sale of BARLACO Assets Sold (Net of $35 in Transaction Costs)	 	 	--	 	 	 	--	 	 	 	965	 	
     Sale (Purchase) of Short Term Investments	 	 	--	 	 	 	--	 	 	 	6,922	 	
               Net Cash and Cash Equivalents Used in Investing Activities in Continuing Operations	 	 	(15,721	)	 	 	(19,710	)	 	 	(6,728	)	
               Net Cash and Cash Equivalents Used in Investing Activities in Discontinued Operations	 	 	--	 	 	 	--	 	 	 	--	 	
               Net Cash Used in Investing Activities	 	 	(15,721	)	 	 	(19,710	)	 	 	(6,728	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
  Proceeds from Interim Bank Loans	 	 	12,074	 	 	 	6,459	 	 	 	5,250	 	
  Repayment of Interim Bank Loans	 	 	(6,459	)	 	 	(5,250	)	 	 	(4,750	)	
  Repayment of Long-Term Debt Including Current Portion	 	 	(57	)	 	 	(62	)	 	 	(2,381	)	
  Proceeds from Issuance of Long-Term Debt	 	 	--	 	 	 	6,482	 	 	 	--	 	
  Proceeds from Issuance of Common Stock	 	 	1,281	 	 	 	1,238	 	 	 	1,401	 	
  Proceeds from Exercise of Stock Options	 	 	218	 	 	 	809	 	 	 	284	 	
  Redemption of Preferred Stock	 	 	--	 	 	 	--	 	 	 	(75	)	
  Costs Incurred to Issue Long-Term Debt and Common Stock	 	 	(2	)	 	 	(367	)	 	 	(4	)	
  Advances from Others for Construction	 	 	737	 	 	 	961	 	 	 	1,102	 	
  Cash Dividends Paid	 	 	(7,411	)	 	 	(7,181	)	 	 	(7,030	)	
          Net Cash and Cash Equivalents Provided by (Used in)	 	 	 	 	 	 	 	 	 	 	 	 	
               Financing Activities in Continuing Operations	 	 	381	 	 	 	3,089	 	 	 	(6,203	)	
          Net Cash and Cash Equivalents Used in Financing Activities in Discontinued Operations	 	 	--	 	 	 	--	 	 	 	--	 	
          Net Cash and Cash Equivalents Provided by (Used in) Financing Activites	 	 	381	 	 	 	3,089	 	 	 	(6,203	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Increase (Decrease) in Cash and Cash Equivalents	 	 	347	 	 	 	(1,040	)	 	 	(3,062	)	
Cash and Cash Equivalents at Beginning of Year	 	 	337	 	 	 	1,377	 	 	 	4,439	 	
Cash and Cash Equivalents at End of Year	 	$	684	 	 	$	337	 	 	$	1,377	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-Cash Investing and Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
      Non-Cash Contributed Utility Plant (see Note 1 for details)	 	$	4,089	 	 	$	2,116	 	 	$	3,295	 	
      Short-term Investment of Bond Proceeds Held in Trust	 	$	--	 	 	$	8,220	 	 	$	--	 	
Supplemental Disclosures of Cash Flow Information:	 	 	 	 	 	 	 	 	 	 	 	 	
  Cash Paid for Continuing Operations During the Year for:	 	 	 	 	 	 	 	 	 	 	 	 	
    Interest	 	$	4,876	 	 	$	4,398	 	 	$	4,159	 	
    State and Federal Income Taxes	 	$	3,273	 	 	$	2,096	 	 	$	1,176	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
  Cash Paid for Discontinued Operations During the Year for:	 	 	 	 	 	 	 	 	 	 	 	 	
    Interest	 	$	--	 	 	$	--	 	 	$	--	 	
    State and Federal Income Taxes	 	$	--	 	 	$	--	 	 	$	73	 	

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

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Table of Contents
Connecticut Water Service, Inc. and Subsidiaries

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 87,361 customers in 54 towns throughout Connecticut as of December 31, 2008.  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 Linebacker â program, emergency drinking water, pool water and contract operations.  Its earnings are included in the Non-Water Sales Earnings category of 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.

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 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.

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:

(in thousands)	 	December 31	 	
 	 	2008	 	 	2007	 	
Assets:	 	 	 	 	 	 	
Postretirement benefits	 	$	11,481	 	 	$	6,136	 	
Unrecovered income taxes and other	 	 	18,128	 	 	 	25,404	 	
Deferred revenue (included in deferred charges)	 	 	4,600	 	 	 	3,823	 	
Other (included in deferred charges)	 	 	1,363	 	 	 	1,806	 	
Total regulatory assets	 	$	35,572	 	 	$	37,169	 	
 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	
Investment Tax Credits	 	$	1,497	 	 	$	1,560	 	
Unfunded future income taxes and other	 	 	18,128	 	 	 	25,404	 	
Total regulatory liabilities	 	$	19,625	 	 	$	26,964	 	

Postretirement benefits include pension and other postretirement benefit costs.  The costs include actuarially determined  pension and post-retirement benefits 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.

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Connecticut Water Service, Inc. and Subsidiaries
 
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 offset 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 2008 or 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 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)	 	2008	 	 	2007	 	 	2006	 	
Additions to Utility Plant:	 	 	 	 	 	 	 	 	 	
Company Financed	 	$	19,877	 	 	$	18,749	 	 	$	16,199	 	
Allowance for Funds Used During Construction	 	 	123	 	 	 	131	 	 	 	491	 	
Subtotal – Utility Plant Increase to Rate Base	 	 	20,000	 	 	 	18,880	 	 	 	16,690	 	
Advances from Others for Construction	 	 	737	 	 	 	961	 	 	 	1,102	 	
Net Additions to Utility Plant	 	$	20,737	 	 	$	19,841	 	 	$	17,792	 	

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 2.2% for 2008, and 2.0% 2007 and 2006, respectively.

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Connecticut Water Service, Inc. and Subsidiaries
 
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 the majority of deferred income tax assets will be realized in the future.  The majority of 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, 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 DPUC.

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).

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, 2008, 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, 2008, 2007, and 2006.

Years ended December 31,	 	2008	 	 	2007	 	 	2006	 	
Numerator (in thousands)	 	 	 	 	 	 	 	 	 	
Basic Income from Continuing Operations	 	$	9,424	 	 	$	8,781	 	 	$	6,708	 	
Diluted Income from Continuing Operations	 	$	9,424	 	 	$	8,781	 	 	$	6,708	 	
Denominator (in thousands)	 	 	 	 	 	 	 	 	 	 	 	 	
Basic Weighted Average Shares Outstanding	 	 	8,377	 	 	 	8,270	 	 	 	8,188	 	
Dilutive Effect of Stock Awards	 	 	53	 	 	 	63	 	 	 	49	 	
Diluted Weighted Average Shares Outstanding	 	 	8,430	 	 	 	8,333	 	 	 	8,237	 	
Earnings per Share	 	 	 	 	 	 	 	 	 	 	 	 	
Basic Earnings per Share from Continuing Operations	 	$	1.12	 	 	$	1.06	 	 	$	0.81	 	
Dilutive Effect of Stock Awards	 	 	0.01	 	 	 	0.01	 	 	 	--	 	
Diluted Earnings per Share from Continuing Operations	 	$	1.11	 	 	$	1.05	 	 	$	0.81	 	

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Connecticut Water Service, Inc. and Subsidiaries
 
RECLASSIFICATIONS AND REVISIONS – Certain reclassifications have been made to conform previously reported data to the current presentation.

NEW ACCOUNTING PRONOUNCEMENTS – In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (SFAS 157).  SFAS 157 provides a single definition of fair value, a framework for measuring fair value, and requires additional disclosure about the use of fair value to measure assets and liabilities.  SFAS 157 is effective for fiscal years beginning after November 15, 2007; as such we partially adopted SFAS 157 in the first quarter of 2008.  In February 2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157”, (FSP No. 157-2), which delays the effective date of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008.  We have not applied the provisions of SFAS 157 to our non-financial assets and non-financial liabilities in accordance with FSP No. 157-2.  FSP No. 157-2 is effective for the Company beginning January 1, 2009.  See Note 7 for additional disclosures regarding fair value.

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).  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently.  SFAS 159 was effective for fiscal years beginning after November 15, 2007.  The Company did not elect the fair value option for any of its existing financial instruments and has not yet determined whether or not to elect this option for financial instruments it may acquire in the future.

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 acquiring company shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquired company 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 does not expect that the adoption of SFAS 141(R) will have a material effect on its financial position and results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Non-controlling 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 non-controlling interests, in a subsidiary and the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008.  The Company does not expect that the adoption of SFAS 160 will have a material effect on its financial position and results of operations.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS 161).  SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities.  Under SFAS 161, entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008.  The Company is currently assessing the impact of SFAS 161.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162).  SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in preparation of financial statements presented in conformity with generally accepted accounting principles (GAAP).  SFAS 162 directs the hierarchy to the entity, rather than the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  SFAS 162 is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of GAAP from the auditing standards.  The Company does not expect SFAS 162 to have a material impact on its financial condition or results of operations.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1 (EITF 03-6-1), “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.”  EITF 03-6-1 states that unvested awards of share-based payments with rights to receive dividends or dividend equivalents are considered participating securities for purposes of calculating earnings per share.  As a result, these participating securities will be included in the weighted average number of shares outstanding as disclosed on the face of the income statement.  EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years.  All prior period earnings per share data presented in financial reports after the effective date shall be adjusted retrospectively to conform to the provisions of EITF 03-6-1.  Early application is not permitted.  The Company does not expect EITF 03-6-1 to have a material impact on its reported earnings per share.

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Connecticut Water Service, Inc. and Subsidiaries
 
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 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 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 years ended December 31, 2008 and 2007.  The Net Income from Discontinued Operations for the year ended December 31, 2006, would have been presented in the 2006 financial statements, as follows:

(in thousands)	 	Year ended
December 31, 2006	 	
Water Activities:	 	 	 	
Operating Revenues	 	$	--	 	
Income Taxes	 	 	(244	)	
Net Income from Water Activities	 	 	243	 	
 	 	 	 	 	
Services and Rentals:	 	 	 	 	
Revenues	 	$	--	 	
Income Taxes	 	 	(12	)	
Net Income from Services and Rentals	 	 	--	 	
 	 	 	 	 	
Total Net Income from Discontinued Operations	 	$	243	 	

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 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, 2008 and 2006.  Additionally, there were no accruals relating to interest or penalties as of December 31, 2008 and 2007.  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)	 	2008	 	 	2007	 	 	2006	 	
Federal Classified as Operating Expense from Continuing Operations	 	$	3,631	 	 	$	3,834	 	 	$	2,080	 	
Federal Classified as Other Utility Income from Continuing Operations	 	 	267	 	 	 	238	 	 	 	232	 	
Federal Classified as Other Income from Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	
Land Sales	 	 	--	 	 	 	61	 	 	 	287	 	
Land Donations	 	 	178	 	 	 	83	 	 	 	(892	)	
Non-Water Sales	 	 	360	 	 	 	332	 	 	 	264	 	
Other	 	 	(195	)	 	 	(529	)	 	 	(981	)	
Total Federal Income Tax Expense from Continuing Operations	 	 	4,241	 	 	 	4,019	 	 	 	990	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
State Classified as Operating Expense from Continuing Operations	 	 	(113	)	 	 	361	 	 	 	(26	)	
State Classified as Other Utility Income from Continuing Operations	 	 	64	 	 	 	57	 	 	 	68	 	
State Classified as Other Income from Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	
Land Sales	 	 	--	 	 	 	14	 	 	 	89	 	
Land Donations	 	 	(19)	 	 	 	(199	)	 	 	(902	)	
Non-Water Sales	 	 	90	 	 	 	79	 	 	 	79	 	
Other	 	 	(23)	 	 	 	(101	)	 	 	(191	)	
Total State Income Tax Expense from Continuing Operations	 	 	(1	)	 	 	211	 	 	 	(883	)	
Total Income Tax Expense from Continuing Operations	 	$	4,240	 	 	$	4,230	 	 	$	107	 	

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

(in thousands)	 	2008	 	 	2007	 	 	2006	 	
Current from Continuing Operations	 	 	 	 	 	 	 	 	 	
Federal	 	$	1,906	 	 	$	1,938	 	 	$	1,165	 	
State	 	 	110	 	 	 	158	 	 	 	221	 	
Total Current from Continuing Operations	 	 	2,016	 	 	 	2,096	 	 	 	1,386	 	
Deferred Income Taxes from Continuing Operations, Net	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	 	 	 	 	 	 	 	 	 	 	 	
Investment Tax Credit	 	 	(63	)	 	 	(63	)	 	 	(63	)	
Deferred Revenue	 	 	264	 	 	 	1,202	 	 	 	--	 	
Land Donations	 	 	187	 	 	 	260	 	 	 	(501	)	
Depreciation	 	 	1,583	 	 	 	1,206	 	 	 	1,173	 	
Other	 	 	364	 	 	 	(524	)	 	 	(784	)	
Total Federal from Continuing Operations	 	 	2,335	 	 	 	2,081	 	 	 	(175	)	
State	 	 	 	 	 	 	 	 	 	 	 	 	
Land Donations	 	 	85	 	 	 	(108	)	 	 	(134	)	
Other	 	 	(196	)	 	 	161	 	 	 	(970	)	
Total State from Continuing Operations	 	 	(111	)	 	 	53	 	 	 	(1,104	)	
Total Deferred Income Taxes from Continuing Operations	 	 	2,224	 	 	 	2,134	 	 	 	(1,279	)	
Total from Continuing Operations	 	$	4,240	 	 	$	4,230	 	 	$	107	 	

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

(in thousands)	 	2008	 	 	2007	 	
Unrecovered Income Taxes	 	$	(22,856	)	 	$	(30,278	)	
Deferred Federal and State Income Taxes	 	 	30,472	 	 	 	28,616	 	
Unfunded Future Income Taxes	 	 	18,128	 	 	 	25,404	 	
Unamortized Investment Tax Credit	 	 	1,497	 	 	 	1,560	 	
Other	 	 	(142	)	 	 	(80	)	
Net Deferred Income Tax Liability	 	$	27,099	 	 	$	25,222	 	

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

(in thousands)	 	2008	 	 	2007	 	
Charitable Contribution Carryforward (1)	 	$	(2,705	)	 	$	(2,977	)	
Valuation Allowance	 	 	2,064	 	 	 	1,888	 	
Tax Credit Carryforward (2)	 	 	(1,624	)	 	 	(1,436	)	
Prepaid Income Taxes on CIAC	 	 	(120	)	 	 	(209	)	
Prepaid FIT on Services	 	 	(112	)	 	 	(174	)	
Other Comprehensive Income	 	 	(432	)	 	 	(29	)	
Accelerated Depreciation	 	 	28,438	 	 	 	26,975	 	
Net of AFUDC and Capitalized Interest	 	 	234	 	 	 	211	 	
Unamortized Investment Tax Credit	 	 	1,497	 	 	 	1,560	 	
Other	 	 	(141	)	 	 	(587	)	
Net Deferred Income Tax Liability	 	$	27,099	 	 	$	25,222	 	

(1)  	2008 charitable contribution carryover expires beginning in 2009 and ending in 2012.	
(2)  	State tax credit carry-forwards expire beginning 2017 and ending in 2020.	

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

(in thousands)	 	2008	 	 	2007	 	 	2006	 	
Pre-Tax Income	 	 	 	 	 	 	 	 	 	
Income From Continuing Operations	 	$	9,424	 	 	$	8,781	 	 	$	6,708	 	
Income Taxes	 	 	4,240	 	 	 	4,230	 	 	 	107	 	
Total Pre-Tax Income From Continuing Operations	 	$	13,664	 	 	$	13,011	 	 	$	6,815	 	

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:

 	 	2008	 	 	2007	 	 	2006	 	
Federal Statutory Tax Rate	 	 	34.0	%	 	 	34.0	%	 	 	34.0	%	
Tax Effect Differences:	 	 	 	 	 	 	 	 	 	 	 	 	
State Income Taxes Net of Federal Benefit	 	 	--	 	 	 	1.1	%	 	 	(0.1	%)	
Reversal of Regulatory Liability	 	 	--	 	 	 	--	 	 	 	(14.4	%)	
Adjustment to Taxes Due to Closed IRS Examination	 	 	--	 	 	 	--	 	 	 	(14.3	%)	
Depreciation	 	 	1.6	%	 	 	1.7	%	 	 	2.6	%	
Charitable Contributions – Land Donation (Net of Valuation Allowance)	 	 	1.5	%	 	 	0.4	%	 	 	(7.7	%)	
Pension Costs	 	 	(5.1	%)	 	 	(5.3	%)	 	 	7.7	%	
Allowance for Funds Used During Construction	 	 	(0.3	%)	 	 	(0.3	%)	 	 	(2.9	%)	
Change in Estimate of Prior Year Income Tax Expense	 	 	(0.5	%)	 	 	0.2	%	 	 	0.6	%	
Rate Case Expense	 	 	0.6	%	 	 	0.6	%	 	 	(3.6	%)	
Other	 	 	(0.7	%)	 	 	0.1	%	 	 	(0.3	%)	
Effective Income Tax Rate for Continuing Operations	 	 	31.1	%	 	 	32.5	%	 	 	1.6	%	

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Connecticut Water Service, Inc. and Subsidiaries
 
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, 2006 through December 31, 2008, appears below:

(in thousands, except share data)	 	Shares	 	 	Issuance Amount	 	 	Expense	 	 	Total	 	
Balance, January 1, 2006	 	 	8,169,627	 	 	$	59,604	 	 	$	(1,599	)	 	$	58,005	 	
Stock and equivalents issued through Performance Stock Program, Net of Forfeitures	 	 	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	 	 	8,376,842	 	 	$	64,414	 	 	$	(1,606	)	 	$	62,808	 	
Stock and equivalents issued through Performance Stock Program, Net of Forfeitures	 	 	22,046	 	 	 	465	 	 	 	--	 	 	 	465	 	
Dividend Reinvestment Plan	 	 	52,606	 	 	 	1,287	 	 	 	--	 	 	 	1,287	 	
Stock Options Exercised and Expensed	 	 	11,775	 	 	 	246	 	 	 	(2	)	 	 	244	 	
Balance, December 31, 2008 (1)	 	 	8,463,269	 	 	$	66,412	 	 	$	(1,608	)	 	$	64,804	 	

(1)  	Includes 37,281 restricted shares and 49,199 common stock equivalent shares issued through the Performance Stock Programs through December 31, 2008.	

The Company may not pay any dividends on its common stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of Preferred Stock of the Company have been paid or set aside for payment.  All such Preferred Stock dividends have been paid.

NOTE 6:  RETAINED EARNINGS

The summary of the changes in Retained Earnings for the period January 1, 2006 through December 31, 2008, appears below:

(in thousands, except per share data)	 	2008	 	 	2007	 	 	2006	 	
Balance, beginning of year	 	$	37,272	 	 	$	35,676	 	 	$	35,777	 	
Net Income	 	 	9,424	 	 	 	8,781	 	 	 	6,951	 	
Sub-total	 	 	46,696	 	 	 	44,457	 	 	 	42,728	 	
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:	 	 	 	 	 	 	 	 	 	 	 	 	
2008 $0.880 per Common Share	 	 	7,373	 	 	 	--	 	 	 	--	 	
2007 $0.865 per Common Share	 	 	--	 	 	 	7,147	 	 	 	--	 	
2006 $0.855 per Common Share	 	 	--	 	 	 	--	 	 	 	7,014	 	
Total Dividends Declared	 	 	7,411	 	 	 	7,185	 	 	 	7,052	 	
Balance, end of year	 	$	39,285	 	 	$	37,272	 	 	$	35,676	 	

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NOTE 7:  FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company partially adopted SFAS 157 as of January 1, 2008, which among other things requires enhanced disclosures for assets and liabilities that are measured and reported at fair value and establishes a framework for measuring fair value.  SFAS 157 applies to accounting pronouncements that already require or permit fair value measures and does not require any new fair value measurements.

SFAS 157 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs).  The hierarchy consists of three broad levels, as follows:

 	Level 1 –	Quoted market prices in active markets for identical assets or liabilities	
 	Level 2 –	Inputs other than Level 1 that are either directly or indirectly observable	
 	Level 3 –	Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the Company believes market participants would use.	

The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2008:

(in thousands)	 	Level 1	 	 	Level 2	 	 	Level 3	 	
Assets:	 	 	 	 	 	 	 	 	 	
Investments	 	$	1,288	 	 	$	--	 	 	$	--	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Rate Swap	 	$	--	 	 	$	88	 	 	$	--	 	

In February 2008, the FASB issued FSP No. 157-2 which allows companies to elect a one-year deferral of adoption of SFAS 157 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis.  The Company has elected the deferral option permitted by FSP No. 157-2 for its non-recurring non-financial assets and non-financial liabilities.  Non-recurring non-financial assets and non-financial liabilities for which the Company has not applied the provisions of SFAS 157 include those measured at fair value in goodwill and long-lived assets for impairment testing.  FSP No. 157-2 is effective for the Company beginning January 1, 2009.

The following methods and assumptions were used to estimate the fair value of each of the following financial instruments, which are not reported at market value on the financial statements.

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 used the remainder of 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, 2008 and 2007, the estimated fair value of the Company's long-term debt was $77,228,000 and $91,109,000, respectively, as compared to the carrying amounts of $92,227,000 and $92,285,000, 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 is included in the Company’s Consolidated Balance sheet in "Other Current Liabilities" at December 31, 2008 was approximately $88,000 and in "Deferred Charges and Other Costs" at December 31, 2007 was approximately $45,000.  Changes in the fair value of this derivative instrument are recorded in “Other Comprehensive Income” in Common Stockholders’ Equity.  The interest rate swap agreement expired on March 3, 2009.

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NOTE 8:  LONG-TERM DEBT

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

(in thousands)	 	2008	 	 	2007	 	
The Connecticut Water Company:	 	 	 	 	 	 	
Unsecured Water Facilities Revenue Bonds	 	 	 	 	 	 	
 	5.05	%	1998 Series A, Due 2028	 	$	9,635	 	 	$	9,640	 	
 	5.125	%	1998 Series B, Due 2028	 	 	7,615	 	 	 	7,635	 	
 	4.40	%	2003A Series, Due 2020	 	 	8,000	 	 	 	8,000	 	
 	5.00	%	2003C Series, Due 2022	 	 	14,915	 	 	 	14,915	 	
                      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	 	 	14,935	 	 	 	14,960	 	
 	5.00	%	2007 A Series, Due 2037	 	 	15,000	 	 	 	15,000	 	
Total The Connecticut Water Company	 	 	92,150	 	 	 	92,200	 	
Chester Realty:	 	 	 	 	 	 	 	 	
Secured	 	 	 	 	 	 	 	 	
 	6.39	%	NewAlliance Bank, Due 2017	 	 	85	 	 	 	92	 	
Total Chester Realty	 	 	85	 	 	 	92	 	
Total Connecticut Water Service, Inc.	 	 	92,235	 	 	 	92,292	 	
Less Current Portion	 	 	(8	)	 	 	(7	)	
Total Long-Term Debt	 	$	92,227	 	 	$	92,285	 	

The Company’s principal payments required for years 2009 – 2013 are as follows:

(in thousands)	 	 	 	
2009	 	$	8	 	
2010	 	 	8	 	
2011	 	 	8	 	
2012	 	 	9	 	
2013	 	 	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.

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.  The interest rate swap agreement expired on March 3, 2009.  See Note 7.

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 2003 Series C, September 1, 2008 Unsecured Water Facility Revenue Bonds of Connecticut Water may be initially called for redemption on 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 was in compliance with the covenants at December 31, 2008.

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NOTE 9:  PREFERRED STOCK

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

(in thousands, except share data)	 	2008	 	 	2007	 	
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 24,999	 	 	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 at December 31, 2008 and 2007, respectively.  During 2007, the Company increased these lines because of expected increased construction spending and recently completed acquisitions.  The largest line was renewed and increased in the fourth quarter of 2007 and does not have an expiration date.  The two other lines of credit, of which one renewed in the second quarter of 2008, the other in the third quarter of 2007, have terms of 12 and 24 months, respectively.  As of December 31, 2008 and 2007, the outstanding borrowings from bank lines of credit were $12,074,000 and $6,459,000 respectively.  In November 2008, the Company was authorized by the Board of Directors to increase the available lines of credit to approximately $40 million.

At December 31, 2008 and 2007, the weighted average interest rates on these short-term borrowings outstanding were 1.96% and 5.47%, respectively.

NOTE 11:  UTILITY PLANT AND CONSTRUCTION PROGRAM

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

(in thousands)	 	2008	 	 	2007	 	
Land	 	$	9,917	 	 	$	9,507	 	
Source of supply	 	 	27,605	 	 	 	25,876	 	
Pumping	 	 	27,646	 	 	 	24,999	 	
Water treatment	 	 	54,643	 	 	 	52,919	 	
Transmission and distribution	 	 	268,927	 	 	 	246,676	 	
General	 	 	28,921	 	 	 	25,235	 	
Held for future use	 	 	419	 	 	 	429	 	
Acquisition Adjustment	 	 	(7,607	)	 	 	(1,220	)	
Total	 	$	410,471	 	 	$	384,421	 	

The amounts of depreciable utility plant at December 31, 2008 and 2007 included in total utility plant were $360,440,000 and $336,204,000, 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)	 	2008	 	 	2007	 	 	2006	 	
Municipal Property Taxes	 	$	5,129	 	 	$	4,903	 	 	$	4,743	 	
Payroll Taxes	 	 	912	 	 	 	837	 	 	 	832	 	
Total Taxes Other than Income Taxes	 	$	6,041	 	 	$	5,740	 	 	$	5,575	 	

NOTE 13:  LONG-TERM COMPENSATION ARRANGEMENTS

The Company has accrued for the following long-term compensation arrangements as of December 31, 2008 and 2007:

(in thousands)	 	2008	 	 	2007	 	
Defined Benefit Pension Plan	 	$	9,624	 	 	$	2,199	 	
Post Retirement Benefit Other than Pension	 	 	3,347	 	 	 	6,464	 	
Supplemental Executive Retirement Plan	 	 	3,723	 	 	 	4,055	 	
Deferred Compensation	 	 	1,342	 	 	 	1,325	 	
Other Long-Term Compensation	 	 	295	 	 	 	674	 	
Total Long-Term Compensation Arrangements	 	$	18,331	 	 	$	14,717	 	

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.

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, 2008 and 2007 were:

 	 	2008	 	 	2007	 	
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.  In December 2008 the Company’s Pension Committee determined to delay a rebalancing of the assets due to the unusual volatility in market conditions.

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%.

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PENSION
Defined Benefit Plan – The Company and certain of its subsidiaries have a noncontributory defined benefit pension plan 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 $3,500,000 was made in 2008 for the 2007 plan year.  The Company expects to make a contribution of approximately $3,300,000 in 2009 for the 2008 plan year.

The Company has amended its pension plan to exclude employees hired after January 1, 2009.

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)	 	2008	 	 	2007	 	
Change in benefit obligation:	 	 	 	 	 	 	
Benefit obligation, beginning of year	 	$	30,365	 	 	$	31,539	 	
Service cost	 	 	1,259	 	 	 	1,277	 	
Interest cost	 	 	1,906	 	 	 	1,789	 	
Actuarial loss (gain)	 	 	410	 	 	 	(2,415	)	
Benefits paid	 	 	(1,054	)	 	 	(1,825	)	
Benefit obligation, end of year	 	$	32,886	 	 	$	30,365	 	
 	 	 	 	 	 	 	 	 	
Change in plan assets:	 	 	 	 	 	 	 	 	
Fair value, beginning of year	 	$	28,166	 	 	$	28,015	 	
Actual return on plan assets	 	 	(7,350	)	 	 	1,931	 	
Employer contributions	 	 	3,500	 	 	 	45	 	
Benefits paid	 	 	(1,054	)	 	 	(1,825	)	
Fair value, end of year	 	$	23,262	 	 	$	28,166	 	
 	 	 	 	 	 	 	 	 	
Funded Status	 	$	(9,624	)	 	$	(2,199	)	
 	 	 	 	 	 	 	 	 	
Amount Recognized in Consolidated Balance Sheets Consisted of:	 	 	 	 	 	 	 	 	
Non-current asset	 	$	--	 	 	$	--	 	
Current liability	 	 	--	 	 	 	--	 	
Non-current liability	 	 	(9,624	)	 	 	(2,199	)	
Net amount recognized	 	$	(9,624	)	 	$	(2,199	)	

The accumulated benefit obligation for all defined benefit pension plans was approximately $26,291,000 and $23,934,000 at December 31, 2008 and 2007, respectively.

Weighted-average assumptions used to determine benefit obligations at December 31:	 	2008	 	 	2007	 	
Discount rate	 	 	6.25	%	 	 	6.30	%	
Rate of compensation increase	 	 	4.50	%	 	 	4.50	%	
Weighted-average assumptions used to determine net periodic cost for years ended December 31:	 	 	 	 	 	 	 	 	
Discount rate	 	 	6.30	%	 	 	5.75	%	
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 and uses a spot yield curve in order to mimic expected benefit payments.  The Company based its discount rate on a single point on this spot yield curve that approximated the present value of the plan.

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The following table shows the components of periodic benefit costs:

Pension Benefits (in thousands)	 	2008	 	 	2007	 	 	2006	 	
Components of net periodic benefit costs:	 	 	 	 	 	 	 	 	 	
Service cost	 	$	1,259	 	 	$	1,277	 	 	$	1,228	 	
Interest cost	 	 	1,906	 	 	 	1,789	 	 	 	1,681	 	
Expected return on plan assets	 	 	(2,120	)	 	 	(2,017	)	 	 	(1,836	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	
Net transition obligation	 	 	2	 	 	 	2	 	 	 	2	 	
Net loss	 	 	69	 	 	 	69	 	 	 	75	 	
Prior service cost	 	 	142	 	 	 	345	 	 	 	491	 	
Net Periodic Pension Benefit Costs	 	$	1,258	 	 	$	1,465	 	 	$	1,641	 	

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

Pension Benefits (in thousands)	 	2008	 	 	2007	 	
Change in net loss (gain)	 	$	9,880	 	 	$	(2,329	)	
Amortization of transition obligation	 	 	(2	)	 	 	(2	)	
Amortization of net loss	 	 	(69	)	 	 	(69	)	
Amortization of prior service cost	 	 	(142	)	 	 	(345	)	
Total recognized to Regulatory Asset (Liability)	 	$	9,667	 	 	$	(2,745	)	

Amounts Recognized as a Regulatory Asset (Liability) at December 31:	 	2008	 	 	2007	 	
Transition obligation	 	$	6	 	 	$	9	 	
Prior service cost	 	 	516	 	 	 	585	 	
Net (gain) loss	 	 	8,984	 	 	 	(754	)	
Total Recognized as a Regulatory Asset (Liability)	 	$	9,506	 	 	$	(160	)	

Estimated Net Periodic Benefit Cost Amortizations for the periods January 1 - December 31:	 	2009	 	
Amortization of transition obligation	 	$	2	 	
Amortization of prior service cost	 	 	69	 	
Amortization of net loss	 	 	380	 	
Total Estimated Net Periodic Benefit Cost Amortizations	 	$	451	 	

Plan Assets
The Company’s pension plan weighted-average asset allocations at December 31, 2008, and 2007 by asset category were as follows:

 	 	2008	 	 	2007	 	
Equity	 	 	58	%	 	 	64	%	
Fixed Income	 	 	42	%	 	 	36	%	
Total	 	 	100	%	 	 	100	%	

During the last part of 2008, the Company’s investments in equity securities had lost value in relation to the overall holdings in the pension plan.  Due to market uncertainty and volatility, the Company has not rebalanced the pension plan assets to more closely align with the stated target allocation.

The Plan’s expected future benefit payments are:

(in thousands)	 	 	 	
2009	 	$	1,443	 	
2010	 	 	1,924	 	
2011	 	 	1,482	 	
2012	 	 	2,713	 	
2013	 	 	1,982	 	
Years 2014 – 2018	 	 	16,465	 	

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Connecticut Water Service, Inc. and Subsidiaries
 
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 2008 and 2007 was $841,600 and $1,758,600, 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.

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.  The tables below do not include Barnstable Water’s PBOP.  Barnstable Water’s PBOP had a Benefit Obligation of $53,000 and $54,000 at December 31, 2008 and 2007, respectively.  Additionally, this plan did not hold any assets as of December 31, 2008 and 2007.  Barnstable Water’s PBOP did not have any net periodic benefit costs.

The Company has amended its PBOP to exclude employees hired after January 1, 2009.  In addition, effective April 1, 2009, the Company will no longer provide prescription drug coverage for its retirees age 65 and over.  Those retirees, who are entitled to Medicare coverage, will continue to receive the current non-prescription medical coverage.

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

PBOP Benefits (in thousands)	 	2008	 	 	2007	 	
Change in benefit obligation:	 	 	 	 	 	 	
Benefit obligation, beginning of year	 	$	12,316	 	 	$	10,283	 	
Service cost	 	 	632	 	 	 	651	 	
Interest cost	 	 	657	 	 	 	610	 	
Plan participant contributions	 	 	144	 	 	 	138	 	
Plan amendments	 	 	(3,088	)	 	 	--	 	
Actuarial (gain) loss	 	 	(2,249	)	 	 	1,083	 	
Benefits paid	 	 	(423	)	 	 	(449	)	
Benefit obligation, end of year	 	$	7,989	 	 	$	12,316	 	
 	 	 	 	 	 	 	 	 	
Change in plan assets:	 	 	 	 	 	 	 	 	
Fair value, beginning of year	 	$	5,906	 	 	$	4,260	 	
Actual return on plan assets	 	 	(1,774	)	 	 	198	 	
Employer contributions	 	 	842	 	 	 	1,759	 	
Participants’ contributions	 	 	143	 	 	 	138	 	
Benefits paid	 	 	(423	)	 	 	(449	)	
Fair value, end of year	 	$	4,694	 	 	$	5,906	 	
 	 	 	 	 	 	 	 	 	
Funded Status	 	$	(3,295	)	 	$	(6,410	) 	
 	 	 	 	 	 	 	 	 	
Amount Recognized in Consolidated Balance Sheets Consisted of:	 	 	 	 	 	 	 	 	
Non-current asset	 	$	--	 	 	$	--	 	
Current liability	 	 	--	 	 	 	--	 	
Non-current liability	 	 	(3,295	) 	 	 	(6,410	) 	
Net amount recognized	 	$	(3,295	) 	 	$	(6,410	) 	

Weighted-average assumptions used to determine benefit obligations at December 31:	 	2008	 	 	2007	 	
Discount rate	 	 	6.20	%	 	 	6.30	%	
Rate of compensation increase	 	 	4.50	%	 	 	4.50	%	
Weighted-average assumptions used to determine net periodic cost for years ended December 31:	 	 	 	 	 	 	 	 	
Discount rate	 	 	6.30	%	 	 	5.75	%	
Expected long-term return on plan assets	 	 	5.00	%	 	 	5.00	%	
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.

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The following table shows the components of periodic benefit costs:

PBOP Benefits (in thousands)	 	2008	 	 	2007	 	 	2006	 	
Components of net periodic benefit costs:	 	 	 	 	 	 	 	 	 	
Service cost	 	$	632	 	 	$	651	 	 	$	599	 	
Interest cost	 	 	657	 	 	 	610	 	 	 	485	 	
Expected return on plan assets	 	 	(271	)	 	 	(189	)	 	 	(178	)	
Other	 	 	225	 	 	 	225	 	 	 	--	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	
Net transition obligation	 	 	120	 	 	 	120	 	 	 	120	 	
Recognized net loss	 	 	202	 	 	 	342	 	 	 	273	 	
Net Periodic Post Retirement Benefit Costs	 	$	1,565	 	 	$	1,759	 	 	$	1,299	 	

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

PBOP Benefits (in thousands)	 	2008	 	 	2007	 	
Change in prior service (credit)	 	$	(3,088	)	 	$	--	 	
Change in net (gain) loss	 	 	(203	)	 	 	1,074	 	
Amortization of transition obligation	 	 	(120	)	 	 	(120	)	
Amortization of net loss	 	 	(203	)	 	 	(342	)	
Total recognized to Regulatory (Liability) Asset	 	$	(3,614	)	 	$	612	 	

Amounts Recognized as a Regulatory Asset at December 31:	 	2008	 	 	2007	 	
Transition obligation	 	$	--	 	 	$	602	 	
Prior service cost	 	 	(2,606	)	 	 	--	 	
Net (gain) loss	 	 	3,205	 	 	 	3,611	 	
Total Recognized as a Regulatory Asset	 	$	599	 	 	$	4,213	 	

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

Estimate Benefit Cost Amortizations for the periods January 1 - December 31:	 	2009	 	
Amortization of transition obligation	 	$	--	 	
Amortization of prior service cost	 	 	(406	)	
Amortization of net loss (gain)	 	 	208	 	
Total Estimated Net Periodic Benefit Cost Amortizations	 	$	(198	)	

Assumed health care cost trend rates at December 31:	 	2008	 	 	2007	 	
 	 	Medical	 	 	Dental	 	 	Medical	 	 	Dental	 	
Health care cost trend rate assumed for next year (1)	 	 	10.0	%	 	 	10.0	%	 	 	10.0	%	 	 	10.0	%	
Rate to which the cost trend rate is assumed to decline	 	 	5.0	%	 	 	5.0	%	 	 	5.0	%	 	 	5.0	%	
Year that the rate reaches the ultimate trend rate	 	2018	 	 	2018	 	 	2017	 	 	2017	 	

(1) – Zero percent trend rate from 2008 to 2009.

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:

(in thousands)	 	1 Percentage-Point	 	
 	 	Increase	 	 	Decrease	 	
Effect on total of service and interest cost components	 	$	219	 	 	$	(178	)	
Effect on post-retirement benefit obligation	 	$	868	 	 	$	(731	)	

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Connecticut Water Service, Inc. and Subsidiaries
 
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, 2008 and 2007 by asset category were as follows:

 	 	2008	 	 	2007	 	
Equity	 	 	56	%	 	 	44	%	
Fixed Income	 	 	44	%	 	 	56	%	
Total	 	 	100	%	 	 	100	%	

During the last part of 2008, the Company’s investments in equity securities had lost value in relation to the overall holdings in the PBOP.  Due to market uncertainty and volatility, the Company has not rebalanced the PBOP assets to more closely align with the stated target allocation.  In December 2008, the Company’s Pension Committee determined to delay a rebalancing of the assets due to the unusual volatility in market conditions.  The Company anticipates a return to its investment strategy in 2009.  In 2007, the Company made its annual contribution in late December, 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 $841,600 to its other post-retirement benefit plan in 2008 for plan year 2008.  The Company expects to make a contribution of approximately $820,000 in 2009 for plan year 2009.

Expected future benefit payments are:

(in thousands)	 	 	 	
2009	 	$	368	 	
2010	 	 	380	 	
2011	 	 	407	 	
2012	 	 	454	 	
2013	 	 	474	 	
Years 2014 – 2018	 	 	3,121	 	

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, 2008 and 2007, the actuarial present values of the projected benefit obligation of these contracts were $3,188,000 and $3,109,000, respectively.  Expense associated with these contracts was approximately $48,000 for 2008, $1,363,000 for 2007, and $503,000 for 2006 and is reflected in Other Income (Deductions) in the Statements of Income.  The 2007 SERP expense included costs associated with the retirement of a former executive.

Included in Other Property and Investments at December 31, 2008 and 2007 is $2,987,000 and $3,742,000 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 50% 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 2008, 2007 and 2006 was $231,000, $213,000, and $186,000, 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 2008, 2007 or 2006.

Effective January 1, 2009, the Company changed its 401(k) plan to meet the requirements of a special IRS safe harbor.  Under the provisions of this safe harbor plan, the Company’s 50% matching contribution has been eliminated.  Also, the Company will make an automatic contribution of 3% of compensation for all eligible employees, even if the employee does not make their own contributions.  For employees hired after January 1, 2009 and ineligible to participate in the Company’s pension plan, the Company will contribute an additional 1.5% of compensation.

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Connecticut Water Service, Inc. and Subsidiaries
 
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.  Options begin to become exercisable one year from the date of grant. Vesting periods range from one to five years.  The maximum term ranges from five to ten years.

The 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, 2008, there were 595,538 shares available for grant.  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.
 
Under the original Plans (1994 PSP) there were 700,000 shares authorized and 221,660 shares available for payment of dividend equivalents on shares already awarded under the 1994 PSP as performance shares at December 31, 2008.
 
Under the 2004 PSP and 1994 PSP (collectively, the PSPs), 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 PSPs were $714,000, $542,000 and $702,000, for 2008, 2007 and 2006, respectively.
 
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.

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.

No stock options were awarded or issued during 2008, 2007 or 2006.
 
For the Years Ended December 31:	 	2008	 	 	2007	 	 	2006	 	
 	 	Shares	 	 	Weighted Average Exercise Price	 	 	Shares	 	 	Weighted Average Exercise Price	 	 	Shares	 	 	Weighted Average Exercise Price	 	
Options:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding, beginning of year	 	 	106,661	 	 	$	24.74	 	 	 	180,853	 	 	$	24.62	 	 	 	202,271	 	 	$	24.04	 	
Granted	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	
Forfeited	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	
Terminated	 	 	--	 	 	 	--	 	 	 	(36,286	)	 	 	27.71	 	 	 	(4,456	)	 	 	27.95	 	
Exercised	 	 	(11,775	)	 	 	18.47	 	 	 	(37,906	)	 	 	21.33	 	 	 	(16,962	)	 	 	16.76	 	
Outstanding, end of year	 	 	94,886	 	 	$	25.52	 	 	 	106,661	 	 	$	24.74	 	 	 	180,853	 	 	$	24.62	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable, end of year	 	 	94,886	 	 	$	25.52	 	 	 	106,661	 	 	$	24.74	 	 	 	171,840	 	 	$	24.39	 	

The intrinsic value of options exercised during the year ended December 31, 2008 was $85,000.  The following table summarizes the price ranges of the options outstanding and options exercisable as of December 31, 2008:
 
 	 	 	Options Outstanding and Exercisable	 	
 	 	 	Shares	 	 	Weighted Average Remaining Contractual Life (years)	 	 	Weighted Average Exercise Price	 	
Range of prices:	 	 	 	 	 	 	 	 	 	 	
$ 18.00 - $20.99	 	 	 	14,074	 	 	 	1.9	 	 	$	20.42	 	
$ 21.00 - $23.99	 	 	 	17,498	 	 	 	0.9	 	 	 	22.33	 	
$ 24.00 - $26.99	 	 	 	22,535	 	 	 	3.9	 	 	 	25.78	 	
$ 27.00 - $29.99	 	 	 	40,779	 	 	 	3.9	 	 	 	28.51	 	
 	 	 	 	 	94,886	 	 	 	3.1	 	 	$	25.52	 	
 
The intrinsic value of exercisable options as of December 31, 2008 was approximately $60,000.  The average remaining contractual term of exercisable options as of December 31, 2008 was approximately 3.1 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:

For the years ended December 31,	 	2008	 	 	2007	 	
 	 	Number of Shares	 	 	Grant Date Weighted Average Fair Value	 	 	Number of Shares	 	 	Grant Date Weighted Average Fair Value	 	
Non-vested at beginning of year	 	 	15,993	 	 	$	25.17	 	 	 	26,495	 	 	$	25.20	 	
Granted	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	
Vested	 	 	(3,773	)	 	 	25.18	 	 	 	(8,458	)	 	 	25.24	 	
Forfeited	 	 	--	 	 	 	--	 	 	 	(2,044	)	 	 	25.24	 	
Non-vested at end of year	 	 	12,220	 	 	$	25.18	 	 	 	15,993	 	 	$	25.17	 	

There were no vested restricted stock shares as of December 31, 2006.  The shares began vesting during 2007.  There were no forfeitures during 2008.  There were 2,044 forfeitures of non-performance–based restricted stock for the year ended December 31, 2007.

Total stock-based compensation recorded in the statement of income related to the non-performance-based restricted stock awards was $95,000, $48,000 and $187,000 during the years ended December 31, 2008, 2007 and 2006, respectively, including accelerated vesting for an approved retirement in 2006.  The Compensation Committee of the Board of Directors may approve retirement of key employees that trigger accelerating vesting.

As of December 31, 2008, $282,000 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:

For the years ended December 31,	 	2008	 	 	2007	 	
 	 	Number of Shares	 	 	Grant Date Weighted Average Fair Value	 	 	Number of Shares	 	 	Grant Date Weighted Average Fair Value	 	
Non-vested at beginning of year	 	 	22,703	 	 	$	24.45	 	 	 	18,059	 	 	$	25.90	 	
Granted	 	 	17,108	 	 	 	23.92	 	 	 	13,186	 	 	 	22.38	 	
Vested	 	 	(5,126	)	 	 	22.88	 	 	 	(7,666	)	 	 	24.26	 	
Forfeited	 	 	(2,241	)	 	 	24.26	 	 	 	(876	)	 	 	24.93	 	
Non-vested at end of year	 	 	32,444	 	 	$	24.43	 	 	 	22,703	 	 	$	24.45	 	

Total stock based compensation recorded in the Consolidated Statements of Income related to performance-based restricted stock awards was $619,000, $494,000, and $515,000 for the year ended December 31, 2008, 2007, and 2006, respectively.

The Company is estimating a forfeiture rate of 30%.  Upon meeting specific performance targets, 27,200 shares, reduced for actual performance targets achieved in 2008, will begin vesting in the first quarter of 2010 and the remaining earned shares will vest over three years.  The cost is being recognized ratably over the vesting period.  The aggregate intrinsic value of performance-based restricted stock as of December 31, 2008 was $381,000.

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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.

Financial data for reportable segments is as follows:

(in thousands)	 	Revenues	 	 	Depreciation	 	 	Other Operating Expenses	 	 	Other Income (Deductions)	 	 	Interest Expense (net of AFUDC)	 	 	Income Taxes	 	 	Income (Loss) from Continuing Operations	 	
For the year ended December 31, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Water Activities	 	$	62,288	 	 	$	6,438	 	 	$	38,027	 	 	$	(326	)	 	$	5,075	 	 	$	3,628	 	 	$	8,794	 	
Real Estate Transactions	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	 	 	--	 	 	 	160	 	 	 	(160	)	
Services and Rentals	 	 	4,855	 	 	 	23	 	 	 	3,596	 	 	 	--	 	 	 	(6	)	 	 	452	 	 	 	790	 	
Total	 	$	67,143	 	 	$	6,461	 	 	$	41,623	 	 	$	(326	)	 	$	5,069	 	 	$	4,240	 	 	$	9,424	 	
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	 	

The Revenues shown in Water Activities above consist of revenues from water customers of $61,270,000, $59,026,000 and $46,945,000 in the years 2008, 2007 and 2006, respectively.  Additionally, there were revenues associated with utility plant leased to others of $1,018,000, $999,000 and $982,000 in the years 2008, 2007 and 2006, respectively.

The table below shows assets by segment:

At December 31 (in thousands):	 	2008	 	 	2007	 	
Total Plant and Other Investments:	 	 	 	 	 	 	
Water	 	$	304,591	 	 	$	283,641	 	
Non-Water	 	 	676	 	 	 	673	 	
Total Plant and Other Investments	 	 	305,267	 	 	 	284,314	 	
 	 	 	 	 	 	 	 	 	
Other Assets:	 	 	 	 	 	 	 	 	
Water	 	 	64,734	 	 	 	73,421	 	
Non-Water	 	 	2,430	 	 	 	3,078	 	
Total Other Assets	 	 	67,164	 	 	 	76,499	 	
Total Assets	 	$	372,431	 	 	$	360,813	 	

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Connecticut Water Service, Inc. and Subsidiaries
 
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 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.

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 through December 31, 2007 and $4.8 million through March 31, 2008. The Company recognized that increase through recording deferred revenues and a corresponding regulatory asset, as required by the decision.  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 $4.8 million, the filing includes requested recovery of the costs associated with $15.5 million of additional capital investments made in 2007.  On March 28, 2008 an 11.95% increase was approved.  The approved rates became effective on April 1, 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 file for a surcharge under the WICA mechanism until the second quarter of 2009, approximately 90 days after the surcharge filing; customers would begin to see an increase in their bills.

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 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.

The Company made no land dispositions during the fiscal year ended December 31, 2008.  However, during 2008, the Company entered into negotiations with the town of Windsor Locks, Connecticut to sell a conservation easement on a well field property no longer needed as a source of supply for $2.16 million.  The Company plans to file an application with the DPUC in March 2009 and approval is expected in the second half of 2009.  Subject to successful receipt of DPUC approval, and of final authorization for the town to proceed with the transaction, the Company expects the transaction to be completed in 2009.  If the transaction closes, the Company estimates that it will generate approximately $1.0 million in net income in the Real Estate segment.  The Company currently has no other specific plans for land transactions in 2009 and beyond.

19 Perry Street Litigation – Connecticut Water’s Unionville division has for many years operated a well field located at 19 Perry Street, Farmington, Connecticut, pursuant to a 99-year lease entered into in 1975 with the property owner.  This well field provides approximately half of the daily water supply requirements to the customers of the Unionville division.  In 2004, the original property owner ceased business operations.  The property is now owned by 19 Perry Street, LLC, which obtained the property through a foreclosure proceeding.  In June 2007, the new owner commenced a lawsuit in Hartford Superior Court (Housing Section), asserting that Connecticut Water is in unlawful possession of the property under several theories, including that the lease is invalid and that Connecticut Water has failed to pay rent when due.  A trial before a judge was held in November 2007, and a decision was issued on April 30, 2008.  In its decision, the Court ruled that the lease is valid.  However, in deciding the parties’ contentions regarding the proper form and amount of rental payments due, the Court ruled that Connecticut Water was in breach of its obligation to pay rent on the property and therefore entered an order of eviction.

On May 5, 2008, Connecticut Water filed a timely appeal of the decision in the Connecticut Appellate Court.  This appeal stays the eviction order until the Appellate Court rules on Connecticut Water’s claims that the trial court erred.  At this time, the outcome of the appeal is uncertain.  On August 5, 2008, Connecticut Water was served with a related lawsuit in which 19 Perry Street, LLC seeks the payment of back rent with respect to the property.  As of February 23, 2009, the lawsuit for back rent has been stayed pending the resolution of the appeal related to the eviction case.  The Company intends to maintain its use of the property to provide water to customers of its Unionville division while the appeal is pending.  In addition, Connecticut Water will consider all other options with respect to its well field use of the property, including the outright purchase of the property or the exercise of Connecticut Water’s right to take the property by initiating eminent domain proceedings under applicable law.

Capital Expenditures – The Company has received approval from its Board of Directors to spend $26.4 million on capital expenditures in 2009, in part due to increased spending in order to take advantage of the WICA legislation.

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Table of Contents
Connecticut Water Service, Inc. and Subsidiaries
 
NOTE 17:  SUBSEQUENT EVENTS

ACQUISITIONS – On July 23, 2008, the Company announced that it had reached a definitive purchase agreement with Ellington Acres Company (Ellington Acres) to purchase all of Ellington Acres’ outstanding stock for approximately $1.5 million.  Ellington Acres is a regulated water company serving approximately 750 customers in Ellington, Connecticut, situated between two systems in the Company’s Northern Region that the Company had planned to interconnect.  The Company will be able to interconnect the two systems in the Northern Region with Ellington Acres, saving ratepayers of both Connecticut Water and Ellington Acres significant capital expenditures.  The DPUC approved the acquisition in December 2008 and the Company completed the transaction on January 16, 2009.

NOTE 18:  QUARTERLY FINANCIAL DATA (Unaudited)

Selected quarterly financial data for the years ended December 31, 2008 and 2007 appears below:

(in thousands, except for per share data)

 	 	First Quarter	 	 	Second Quarter	 	 	Third Quarter	 	 	Fourth Quarter	 	
 	 	2008	 	 	2007	 	 	2008	 	 	2007	 	 	2008	 	 	2007	 	 	2008	 	 	2007	 	
Operating Revenues	 	$	13,569	 	 	$	13,162	 	 	$	16,020	 	 	$	14,446	 	 	$	17,040	 	 	$	16,951	 	 	$	14,641	 	 	$	14,467	 	
Total Utility Operating Income	 	 	2,812	 	 	 	2,412	 	 	 	3,982	 	 	 	2,969	 	 	 	3,994	 	 	 	5,021	 	 	 	3,187	 	 	 	2,852	 	
Income from Continuing Operations	 	 	1,705	 	 	 	1,475	 	 	 	2,951	 	 	 	1,862	 	 	 	2,835	 	 	 	3,899	 	 	 	1,933	 	 	 	1,545	 	
Net Income	 	 	1,705	 	 	 	1,475	 	 	 	2,951	 	 	 	1,862	 	 	 	2,835	 	 	 	3,899	 	 	 	1,933	 	 	 	1,545	 	
Basic Earnings per Common Share – Continuing Operations	 	 	0.20	 	 	 	0.18	 	 	 	0.35	 	 	 	0.22	 	 	 	0.34	 	 	 	0.47	 	 	 	0.23	 	 	 	0.19	 	
Basic Earnings per Common Share	 	 	0.20	 	 	 	0.18	 	 	 	0.35	 	 	 	0.22	 	 	 	0.34	 	 	 	0.47	 	 	 	0.23	 	 	 	0.19	 	

F - 24

Table of Contents

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 Amended and Restated 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).	
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).	
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).	
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).  (Exhibit 4.33 to Form 10-K for the year ended 12/31/07)	
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).  (Exhibit 4.34 to Form 10-K for the year ended 12/31/07)	
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).  (Exhibit 4.35 to Form 10-K for the year ended 12/31/07)	
10.1	Pension Plan Fiduciary Liability Insurance for The Connecticut Water Company Employees' Retirement Plan and Trust, 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).	
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).	
10.4f*	Nonstandardized Adoption Agreement Prototype Cash or Deferred Profit-Sharing Plan.	
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.  (Exhibit 10.5h to Form 10-K for the year ended 12/31/07).	
10.5i	Ninth Amendment, effective August 9, 2006, to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997.  (Exhibit 10.5i to Form 10-K for the year ended 12/31/07).	
10.5j	Tenth Amendment, effective January 1, 2008, to the amended and restated Connecticut Water Company Employees’ Retirement plan effective January 1, 1997.  (Exhibit 10.1 to Form 8-K dated 1/13/09).	
10.5k	Eleventh Amendment, effective January 1, 2009, to the amended and restated Connecticut Water Company Employees’ Retirement Plan effective January 1, 1997.  (Exhibit 10.2 to Form 8-K dated 1/13/09).	
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, as amended and restated as of August 19, 2008.  (Exhibit 4 to Form S-3, Registration Statement No. 333-153910, filed on October 8, 2008).	
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).	
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).	
10.16c	Final Decision of the Connecticut DPUC, Docket No. 06-07-08, dated March 28, 2008. (Exhibit 99.1 to Form 8-K dated 4/3/08).	
10.17	Connecticut Water Service, Inc. and Subsidiaries Employee Code of Conduct, January 24, 2008.	
10.18	Stock Purchase Agreement between The Connecticut Water Company and Ellington Acres Company and the shareholders of Ellington Acres Company, dated as of July 21, 2008 (Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2008).	
10.19*	Form of Amended Restated Employment Agreement with the Company’s executive officers, including:
a)  Peter J. Bancroft
b)  David C. Benoit
c)  Thomas R. Marston
d)  Terrance P. O’Neill
e)  Eric W. Thornburg
f)  Maureen P. Westbrook	
10.20*	Form of Amended Restated Employment Agreement with the Company’s executive officers, including:
a)  Kristen A. Johnson
b)  Daniel J. Meaney
c)  Nicholas A. Rinaldi	
10.21*	Form of Amended and Restated Supplemental Executive Retirement Agreement with the Company’s executive officers, 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 Deferred Compensation Agreement with the Company’s executive officers (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	
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.	
Note:	Exhibits 10.1 through 10.5k, 10.13 through 10.15g, and 10.19 through 10.22 set forth each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.	

* = filed herewith

E - 1

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SIGNA TURES

 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	
March 13, 2009	By   /s/   Eric W. Thornburg
Eric W. Thornburg
Chairman, 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
 	 	Chairman, President, and Chief Executive Officer (Principal Executive Officer)	 	March 13, 2009	
/s/   David C. Benoit
David C. Benoit
 	 	Vice President – Finance, Chief Financial Officer and Treasurer (Principal Financial Officer)	 	March 13, 2009	
/s/   Nicholas A. Rinaldi
Nicholas A. Rinaldi	 	Controller (Principal Accounting Officer)	 	March 13, 2009	

33

Table of Contents

Signature	 	Title	 	Date	
/s/   Mary Ann Hanley
Mary Ann Hanley
 	 	Director	 	March 11, 2009	
/s/   Heather Hunt
Heather Hunt
 	 	Director	 	March 11, 2009	
/s/   Mark G. Kachur
Mark G. Kachur
 	 	Director	 	March 11, 2009	
/s/   David A. Lentini
David A. Lentini
 	 	Director	 	March 11, 2009	
/s/   Arthur C. Reeds
Arthur C. Reeds
 	 	Director	 	March 11, 2009	
/s/   Lisa J. Thibdaue
Lisa J. Thibdaue
 	 	Director	 	March 11, 2009	
/s/   Carol P. Wallace
Carol P. Wallace
 	 	Director	 	March 11, 2009	
/s/   Donald B. Wilbur
Donald B. Wilbur
 	 	Director	 	March 11, 2009	

34

Table of Contents

CONNECTICUT WATER SERVICE, INC. and SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

(in thousands)
Description	 	Balance Beginning of Year	 	 	Additions Charged to Income	 	 	Deductions From Reserves (1)	 	 	Balance End of Year	 	
Allowance for Uncollectible Accounts	 	 	 	 	 	 	 	 	 	 	 	 	
Year Ended December 31, 2008	 	$	352	 	 	$	286	 	 	$	262	 	 	$	376	 	
Year Ended December 31, 2007	 	$	285	 	 	$	265	 	 	$	198	 	 	$	352	 	
Year Ended December 31, 2006	 	$	256	 	 	$	225	 	 	$	196	 	 	$	285	 	

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

S - 1

Table of Contents

NONSTANDARDIZED ADOPTION AGREEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN

Sponsored by

Wachovia Bank, National Association

The Employer named below hereby establishes a Cash or Deferred Profit-Sharing Plan for eligible Employees as provided in this Adoption Agreement and the accompanying Basic Plan Document #01.

I.            EMPLOYER INFORMATION

 	If more than one Employer is adopting the Plan, complete this section based on the lead Employer.  Additional Employers who are members of the same controlled group or affiliated service group may adopt this Plan by completing and executing a Participation Agreement that, once executed, will become part of this Adoption Agreement.	

 A.            Name And Address :

Connecticut Water Company
93 West Main Street
Clinton, CT 06413-1600

 B.            Telephone Number:   860-669-8630

 C.            Employer’s Tax ID Number:   06-0713930

 	D.	Form Of Business:	

[   ]           1.           Sole Proprietor                                           [   ]           5.           Limited Liability Company

[   ]           2.           Partnership                                [   ]           6.           Limited Liability Partnership

[ x ]           3.           Corporation                                [   ]           7.                                                       

[   ]           4.           S Corporation

 E.            Is The Employer Part Of A Controlled Group?                                                                                      [ x ]  YES                      [   ]  NO
Part Of An Affiliated Service Group?                                                                                      [   ]  YES                      [ x ]  NO

 F.            Name Of Plan:   Savings Plan of the Connecticut Water Company

 G.            Three Digit Plan Number:   003

H.            Employer’s Tax Year End: December 31

I.            Employer’s Business Code:   221300

II.            EFFECTIVE DATE

A.  	New Plan:	

 	This is a new Plan having an Effective Date of __________________________ .  The Effective Date may be no earlier than the Plan Year beginning after December 31, 2001 or if later, the first day of the Plan Year in which it is adopted.	

B.  	Amended and Restated Plans:	

This is an amendment and/or restatement of an existing Plan.  The initial Effective Date of the Plan was January 1, 1985 .  The Effective Date of this amendment and/or restatement is January 1, 2009 .  The Effective Date of the restated Plan may be no earlier than for Plan Years beginning after December 31, 2001.

C.  	Amended or Restated Plans for EGTRRA :	

This is an amendment and/or restatement of an existing Plan to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-17 (EGTRRA)]. The initial Effective Date of the Plan was January 1, 1985.  Except as provided for in the Plan, the Effective Date of this amendment and/or restatement is January 1, 2009. (The restatement date should be no earlier than the first day of the current Plan Year.  The Plan contains appropriate retroactive Effective Dates with respect to provisions of EGTRRA.)

Except to the extent permitted under Code Section 411(d)(6) and the Regulations issued thereunder, an Employer cannot reduce, eliminate or make subject to Employer discretion any Code Section 411(d)(6) protected benefit.  Where this Plan document is being adopted to amend another plan that contains a protected benefit not provided for in the Basic Plan Document #01, the Employer may complete Schedule A as an addendum to this Adoption Agreement.  Schedule A describes such protected benefits and shall become part of this Plan.  If a prior plan document contains a plan feature not provided for in the Basic Plan Document #01, the Employer may attach Schedule B describing such feature.  Provisions listed on Schedule B may not be covered by the IRS Opinion Letter issued with respect to the Basic Plan Document #01.

 D.            Effective Date for Elective Deferrals:

If different from above, the Elective Deferral provisions shall be effective __________________________ .

E.   Effective Date for Safe Harbor 401(k) Contributions:

If different from above, this provision shall be effective January 1, 2009 . This provision must be adopted prior to the first day of the Plan Year and remain in effect for an entire twelve (12) month period.

F.   Effective Date for Roth Elective Deferrals:

If different from above, Roth Elective Deferral provisions shall be effective __________________________ .  The Effective Date of this provision cannot be earlier than January 1, 2006.

 	G.	Frozen Plan:	

This Plan was frozen effective __________________________ .  For any period following this Effective Date, neither the Employer nor any Participant may contribute to this Plan, and no otherwise eligible Employee shall become a Participant in this Plan. All existing account balances will become fully vested as of the date specified above.

III.            DEFINITIONS

 	A.	“Compensation”	

 	Select the definition of Compensation, the Compensation Computation Period, any Compensation Dollar Limitation and Exclusions from Compensation for each contribution type from the options listed below.  Enter the letter of the option selected on the lines provided below.  Leave the line blank if no election needs to be made. The Compensation Computation Period must be the same as the Limitation Year defined at Section III(E).	

Employer
Contribution Type	 
Compensation
Definition	 Compensation
 Computation
 Period	 
Compensation
Dollar Limitation	Exclusions
From Compensation	
All Contributions	d	a	$	b, c, d, g, j	
Elective Deferrals (including Roth Elective Deferrals, if applicable)	 	 	$	 	

Employer
Contribution Type	Compensation
Definition	 Compensation
 Computation
 Period	Compensation
Dollar Limitation	Exclusions
From Compensation	
Voluntary After-tax	 	 	$	 	
Required After-tax	 	 	$	 	
Matching Contribution
(Formula 1)	 	 	$	 	
Matching Contribution
(Formula 2)	 	 	$	 	
Non-Elective Contribution
(Formula 1)	 	 	$	 	
Non-Elective Contribution
(Formula 2)	 	 	$	 	
Safe Harbor Contribution	 	 	N/A	N/A	
QNEC	 	 	$	 	
QMAC	 	 	$	 	
ADP/ACP Tests	 	 	N/A	N/A	

1.           Compensation Definition:

 	a.	Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions excluded.	

 	b.	Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions included [Plan defaults to this election].	

c.  	Code Section 6041/6051 - Income reportable on Form W-2, with all pre-tax contributions excluded.	

 	d.	Code Section 6041/6051 - Income reportable on Form W-2, with all pre-tax contributions included.	

 	e.	Code Section 415 - All income received for services performed for the Employer, with all pre-tax contributions excluded.	

 	f.	Code Section 415 - All income received for services performed for the Employer, with all pre-tax contributions included.	

The selection of any of the above definitions of Compensation meets the Code Section 414(s) definition of Compensation.  The Code Section 415 definition shall always apply with respect to sole proprietors and partners.

 	[   ]	2.	Deemed Compensation from permitted waiver of group health coverage under a Cafeteria Plan Arrangement:   The Employer elects to include deemed Code Section 125 Compensation not available to a Participant in cash in lieu of group health coverage in the Plan’s definition of Compensation.	

 	3.	Compensation Computation Period:	

 	a.	Compensation paid during a Plan Year while a Participant [Plan defaults to this          election].	

b.           Compensation paid during the entire Plan Year.

c.           Compensation paid during the Employer's fiscal year.

d.  	Compensation paid during the calendar year.	

 	4.	Compensation Dollar Limitation: The dollar limitation section does not need to be completed unless Compensation of less than the Code Section 401(a)(17) limit of $200,000 is to be used. When an integrated allocation formula in Section VI is selected, Compensation cannot be limited to an amount less than the maximum amount under Code Section 401(a)(17).	

5.           Exclusions from Compensation (non-integrated plans only) :

 	a.	There will be no exclusions from Compensation under the Plan [Plan defaults to this safe harbor election].	

 	b.	Overtime	

c.           Bonuses

d.           Commissions

e.  	Exclusion applies only to Participants who are Highly Compensated Employees [safe harbor].	

f.  	Holiday and vacation pay	

g.  	Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation, and welfare benefits [safe harbor].	

h.  	Post-severance payments, as described in paragraph 1.17(c)(6) of Basic Plan Document #01. (This exclusion may apply no earlier than the 2005 Limitation Year.)	

i.  	Compensation in excess of $ __________________________ for Highly Compensated Employees [safe harbor].	

j.  	Other:   Employer's cost for any public or private employee benefit plan	

Any exclusion of Compensation except (a), (e), (g), (h) and (i) must satisfy the requirements of Section 1.401(a)(4) of the Income Tax Regulations and Code Section 414(s) and the Regulations thereunder.  These exclusions do not fall under the “safe harbor” modifications to Compensation and therefore must be tested to determine if the modified definition of Compensation satisfies Code Section 414(s).

 	B.	“Disability”	

 	[ x ]	1.	As defined in the Basic Plan Document #01 [Plan defaults to this election].	

 	[   ]	2.	As defined in the Employer’s Disability Insurance Plan.	

 	[   ]	3.	An individual will be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration.  An individual shall not be considered to be disabled unless he or she furnishes proof of the existence thereof in such form and manner as the Secretary of the Treasury may prescribe.	

 	C.	“Highly Compensated Employees – Top-Paid Group Election”	

 	1.	Top-Paid Group Election:   In determining who is a Highly Compensated Employee, the Employer may make the Top-Paid Group election.  The effect of this election is that an Employee (who is not a 5% owner at any time during the determination year or the look-back year) who earned more than $95,000, as indexed for the look-back year, is a Highly Compensated Employee if the Employee was in the Top-Paid Group for the look-back year.  This election is applicable for the Plan Year in which this Plan is effective.	

[ x ]           a.           The Employer does not make the Top-Paid Group election.

 	[   ]	b.	The Employer makes the Top-Paid Group election [Plan defaults to this election].	

 	[   ]	2.	Calendar Year Data Election:   If the Plan Year is not the calendar year, the prior year computation period for purposes of determining if an Employee earned more than $95,000, as indexed, is the calendar year beginning in the prior Plan Year.  This election is applicable for the Plan Year in which this Plan is effective.	

 	D.	“Hours Of Service”	

Hours shall be determined by the method selected below. The method selected shall be applied to all Employees:

 	[   ]	1.	Not applicable.  A Year of Service (Period of Service) is defined using the Elapsed Time method.	

 	[ x ]	2.	On the basis of actual hours for which an Employee is paid or entitled to payment [Plan defaults to this election].	

 	[   ]	3.	On the basis of days worked.  An Employee shall be credited with ten (10) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the day.	

 	[   ]	4.	On the basis of weeks worked.  An Employee shall be credited with forty-five (45) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the week.	

 	[   ]	5.	On the basis of semi-monthly payroll periods.  An Employee shall be credited with ninety-five (95) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the semi-monthly payroll period.	

 	[   ]	6.	On the basis of months worked.  An Employee shall be credited with one-hundred-ninety (190) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the month.	

 	E.	“Integration Level”	

 	[ x ]	1.	Not applicable. Either the Plan's allocation formula is not integrated with Social Security or there are no Non-Elective Employer Contributions being made to the Plan [Plan defaults to this election].	

 	[   ]	2.	The Taxable Wage Base.	

 	[   ]	3.	________ % (not more than 100%) of the Taxable Wage Base.	

 	[   ]	4.	$ ________ , provided that such amount is not in excess of the amount determined under paragraph (E)(2) above.	

 	[   ]	5.	One dollar over 80% of the Taxable Wage Base.	

 	[   ]	6.	20% of the Taxable Wage Base.	

 F.            “Limitation Year”

 	Unless elected otherwise below, the Limitation Year shall be the Plan Year.	

 	The twelve (12) consecutive month period commencing on January 1 and ending on December 31 .	

If applicable, there will be a short Limitation Year commencing on ___________________________ and ending on ___________________________ .  Thereafter, the Limitation Year shall end on the date specified above.

G.	“Net Profit”	

 	[ x ]	1.	Not applicable.  Employer contributions to the Plan are not conditioned on profits [Plan defaults to this election].	

 	[   ]	2.	Net Profits are required for making Employer contributions and are defined as follows:	

 	[   ]	a.	As defined in the Basic Plan Document #01.	

 	[   ]	b.	Net Profits will be defined in a uniform and nondiscriminatory manner which will not result in a deprivation of an eligible Participant of any Employer  Contribution.	

 	c.	Net Profits are required for the following types of contributions:	

 [   ]           i.           Employer Matching Contributions (Formula 1).

 [   ]           ii.           Employer Matching Contributions (Formula 2).

 	[   ]	iii.	Employer QNEC and QMAC Contributions.	

 [   ]           iv.           Non-Elective Employer Contributions (Formula 1).

[   ]           v.           Non-Elective Employer Contributions (Formula 2).

Elective Deferrals, Top-Heavy minimums (if required), and Safe Harbor Contributions (if applicable) must be contributed regardless of profits.

 	H.	“Plan Year”	

 	The 12-consecutive month period commencing on January 1 and ending on December 31 .	

If applicable, there will be a short Plan Year commencing on ___________________________ and ending on ___________________________ .  Thereafter, the Plan Year shall end on the date specified above.

 I.            “QDRO Payment Date”

 	[ x ]	1.	The date the QDRO is determined to be qualified [Plan defaults to this election].	

 	[   ]	2.	The statutory age fifty (50) requirement applies for purposes of making distribution to an alternate payee under the provisions of a QDRO.	

 	J.	“Qualified Joint and Survivor Annuity”	

 	[ x ]	1.	Not applicable.  The Plan is not subject to Qualified Joint and Survivor Annuity rules. The safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 apply.  The normal form of payment is a lump sum.  No annuities are offered under the Plan [Plan defaults to this election].	

 	[   ]	2.	The normal form of payment is a lump sum.  The Plan does provide for annuities as an optional form of payment at Section XVI(D) of the Adoption Agreement. The Plan’s Joint and Survivor Annuity rules are avoided and the safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 will apply, unless the Participant elects to receive his or her distribution in the form of an annuity.  If this option is selected, Section III(K) below must also be completed.	

 	[   ]	3.	The Joint and Survivor Annuity rules are applicable and the survivor annuity will be ________ % (50%, 66-2/3%, 75% or 100%) of the annuity payable during the lives of the Participant and his or her Spouse.  If no selection is specified, 50% shall be deemed elected.	

K.  	“Qualified Pre-Retirement Survivor Annuity”	

 Do not complete this section if paragraph (J)(1) was elected.

 	[   ]	1.	The Qualified Pre-Retirement Survivor Annuity shall be 100% of the Participant’s Vested Account Balance in the Plan as of the date of the Participant’s death.	

 	[   ]	2.	The Qualified Pre-Retirement Survivor Annuity shall be 50% of the Participant’s Vested Account Balance in the Plan as of the date of the Participant’s death.	

If this provision applies but no selection is made, the Qualified Pre-Retirement Survivor Annuity shall be 50%.

L.            “Valuation of Plan Assets”

 	The assets of the Plan shall be valued on the last day of the Plan Year and on the following Valuation Date(s):	

[   ]           1.           There are no other mandatory Valuation Dates.

[ x ]           2.           The Valuation Dates are applicable for the contribution type specified below:

Contribution Type Valuation Date	 
Valuation Date	
All Contributions	a	
Elective Deferrals (including Roth Elective Deferrals, if applicable)	 	
Voluntary After-tax Contributions	 	
Required After-tax Contributions	 	
Deemed IRA Contribution	 	
Matching Contributions (Formula 1)	 	
Matching Contributions (Formula 2)	 	
Non-Elective Contributions (Formula 1)	 	
Non-Elective Contributions (Formula 2)	 	
Safe Harbor Contributions	 	
QNEC	 	
QMAC	 	

 a.           Daily valued.

 b.           The last day of each month.

 c.           The last day of each quarter in the Plan Year.

 d.           The last day of each semi-annual period in the Plan Year.

 	e.	Other:   	.	
(Note: Date must be at least once during the Plan Year.)

IV.            ELIGIBILITY REQUIREMENTS

Complete the following using the eligibility requirements as specified for each contribution type. To become a Participant in the Plan, the Employee must satisfy the following eligibility requirements.

 
Contribution Type	 
Minimum
Age	 
Service
Requirement	 
Class
Exclusions	Eligibility
Computation
Period	 
 
Entry Date	
 
All Contributions	1	3	6, 10	 	5	
 
Elective Deferrals (including Roth Elective Deferrals, if applicable)	 	 	 	 	 	
 
Voluntary After-tax Contributions	 	 	 	 	 	
 
Required After-tax Contributions	 	 	 	 	 	
 
Matching Contributions
(Formula 1)	 	 	 	 	 	
Matching Contributions
(Formula 2)	 	 	 	 	 	
Non-Elective Contributions (Formula 1)	 	 	 	 	 	
Non-Elective Contributions (Formula 2)	 	 	 	 	 	
Safe Harbor Contributions*	 	 	 	 	 	
 
QNECs	 	 	 	 	 	
 
QMACs	 	 	 	 	 	

 	* If any age or Service requirement selected is more restrictive than that which is imposed on any Employee contribution, that group of Employees will be subject to the ADP and/or ACP testing as prescribed under applicable IRS Regulations	

 A.            Age:

 1.           No age requirement.

 	2.	Insert the applicable age in the chart above.  The age may not be more than twenty-one (21).	

B.  	Service:	

The maximum Service requirement for Elective Deferrals is one (1) year.  For all other contributions, the maximum is two (2) years.  If a Service requirement greater than one (1) year is selected, Participants must be 100% vested in that contribution.

 	1.	No Service requirement.	

 	2.	Completion of _______ Days of Service. [No more than 730 Days of Service may be required; if more than 365 days are entered here, Participants must be 100% vested upon entering the Plan.]	

 	3.	Completion of 6 months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]	

 	4.	Completion of _______ months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]	

 	5.	One (1) Year of Service or Period of Service.	

 	6.	Two (2) Years of Service or Periods of Service.	

 	7.	One (1) Expected Year of Service.  An Employee whose position is required as a condition of employment to work a Year of Service may enter after six (6) months of actual Service.	

 	8.	One (1) Expected Year of Service.  An Employee whose position is required as a condition of employment to work a Year of Service may enter after __________ months of actual Service [must be twelve (12) months or less].	

 	9.	One (1) Expected Year of Service.  An Employee whose position is required as a condition of employment to work a Year of Service may enter after __________ months of actual Service [must be twelve (12) months or less].	

 	10.	Completion of ___________ Hours of Service (1,000 hours or less) within the ___________ month(s) time period [the monthly period must be a pro-ration of twelve (12) months or less] following an Employee's commencement of employment.  An Employee who is otherwise eligible who meets the statutory one (1) Year of Service requirement and any age requirement if applicable, shall participate in the Plan not later than the earlier of the first day of the first Plan Year after the Employee has met the statutory requirements or six (6) months after the day such requirements are met.	

11.           Completion of ___________ Hours of Service (may not be more than 1,000 Hours).

 	C.	Method for Measuring Service Eligibility Period ( do not enter this method in the table above ):	

 	A Year of Service for eligibility purposes is defined as follows (choose one) :	

 	[   ]	1.	Not applicable.	

 	[ x ]	2.	Hours of Service method.  A Year of Service will be credited upon completion of 1000 Hours of Service.  A Year of Service for eligibility purposes may not be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law.  If left blank, the Plan will use 1,000 hours.	

 	[   ]	3.	Elapsed Time method	

 	D.	Employee Class Exclusions:	

The exclusion of any classification may cause the Plan to fail the ratio percentage test under Code Section 410(b)(1)(A) or (B) which may require the Plan to be tested under the average benefits test of Code Section 410(b)(1)(C).

1.  	Employees included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee Representatives, if benefits were the subject of good faith bargaining and if two percent or less of the Employees are covered pursuant to the agreement are professionals as defined in Regulations Section 1.410(b)-9, unless participation in this Plan is specifically provided for in the collective bargaining agreement.  For this purpose, the term “employee representative” does not include any organization more than half of whose members are owners, officers, or executives of the Employer.	

 	2.	Employees who are non-resident aliens [within the meaning of Code Section 7701(b)(1)(B)] who receive no Earned Income [within the meaning of Code Section 911(d)(2)] from the Employer which constitutes income from sources within the United States [within the meaning of Code Section 861(a)(3)].	

 	3.	Employees compensated on an hourly basis.	

 	4.	Employees compensated on a salaried basis.	

 	5.	Employees compensated on a commission basis.	

 	6.	Leased Employees.	

 	7.	Highly Compensated Employees.	

 	8.	Key Employees.	

 	9.	Employees of any member of the controlled and/or affiliated service group Employer whose Employer does not affirmatively adopt this Plan.	

 	10.	The Plan shall exclude from participation any nondiscriminatory classification of Employees determined as follows (any exclusion must pass coverage and nondiscrimination testing):	

Those Employees of a Related Employer that has not executed a Related Employer Participation Agreement.

 	E.	Eligibility Computation Period:	

 	The initial eligibility computation period shall commence on the date on which an Employee first performs an Hour of Service and end with the first anniversary thereof.  Each subsequent computation period shall commence on:	

 	1.	Not applicable.  The Plan has a Service requirement of less than one (1) year or uses the Elapsed Time method to determine eligibility.	

 	2.	The anniversary of the Employee’s employment commencement date and each subsequent twelve (12) consecutive month period thereafter.	

 	3.	The first day of the Plan Year which commences prior to the first anniversary date of the Employee’s employment commencement date and each subsequent Plan Year thereafter.	

 	F.	Entry Date:	

 	1.	The Employee’s date of hire.	

 	2.	The first day of the month coinciding with or next following the date on which an Employee meets the eligibility requirements.	

 	3.	The first day of the payroll period coinciding with or next following the date on which an Employee meets the eligibility requirements, or as soon as administratively feasible thereafter.	

 	4.	When the Days of Service method is selected at Section IV(B)(2), the Entry Date shall be the day the Employee meets the eligibility requirements, or as soon as administratively feasible thereafter.	

 	5.	The earlier of the first day of the Plan Year, or the first day of the fourth, seventh or tenth month of the Plan Year coinciding with or next following the date on which an Employee meets the eligibility requirements.	

 	6.	The earlier of the first day of the Plan Year or the first day of the seventh month of the Plan Year coinciding with or next following the date on which an Employee meets the eligibility requirements.	

 	7.	The first day of the Plan Year following the date on which the Employee meets the eligibility requirements.  If this election is made, the Service waiting period cannot be greater than one-half year and the minimum age requirement may not be greater than age twenty and one-half (20½).	

 	8.	The first day of the Plan Year nearest the date on which an Employee meets the eligibility requirements.   This option can only be selected for Employer related contributions.	

 	9.	The first day of the Plan Year during which the Employee meets the eligibility requirements.   This option can only be selected for Employer related contributions.	

 	10.	Other: ________________________ .	
This option may not require an entry date more than two (2) months following the date on which an Employee meets the eligibility requirements.

 	G.	Employees on Effective Date:	

If option (1) is selected, options (2) and (3) should not be selected.  Options (2) and (3) can be selected or just option (2) or (3).

 	[ x ]	1.	All Employees will be required to satisfy both the age and Service requirements specified above.	

 	[   ]	2.	Employees employed on the Plan’s Effective Date do not have to satisfy the age requirement specified above.	

 	[   ]	3.	Employees employed on the Plan's Effective Date do not have to satisfy the Service requirement specified above.	

 	H.	Special Waiver of Eligibility Requirements:	

 	The age and/or Service eligibility requirements specified above shall be waived for the eligible Employees specified below who are employed on the specified date for the contribution type(s) specified.  This waiver applies to either the age or Service requirement or both as elected below.	

Waiver Date	Waiver of Age
Requirement	Waiver of Service
Requirement	 
Contribution Type	
 	 	 	All Contributions	
 	 	 	Elective Deferrals (including Roth Elective Deferrals, if applicable)	
 	 	 	Matching Contribution (Formula 1)	
 	 	 	Matching Contribution (Formula 2)	
 	 	 	Non-Elective Contribution (Formula 1)	
 	 	 	Non-Elective Contribution (Formula 2)	
 	 	 	Safe Harbor Contribution	
 	 	 	QNEC	
 	 	 	QMAC	

The waiver above applies to:

[   ]           1.           All eligible Employees employed on the specified date.

[   ]           2.           The indicated class of Employees employed on the specified date.

Note:  Any selection here may cause the Plan to be discriminatory in operation and therefore would have to be tested for nondiscrimination.

V.	RETIREMENT AGES	

A.  	Normal Retirement:	

Select option (1) or (2) and either (3)(a) or (3)(b).

 	[ x ]	1.	Normal Retirement Age shall be age 65 [not to exceed sixty-five (65)].	

 	[   ]	2.	Normal Retirement Age shall be the later of attaining age ________ [not to exceed age sixty-five (65)] or the ________ (not to exceed the fifth) anniversary of the first day of the first Plan Year in which the Participant commenced participation in the Plan.	

 	3.	The Normal Retirement Date shall be:	

 	[ x ]	a.	as of the date the Participant attains Normal Retirement Age [Plan defaults to this election].	

 	[   ]	b.	the first day of the month next following the Participant’s attainment of Normal Retirement Age.	

 B.            Early Retirement:

 [   ]           1.           Not applicable.

 	[ x ]	2.	The Plan shall have an Early Retirement Age of 55 [not less than age fifty-five (55)] and completion of 0 Years of Service.	

 	3.	The Early Retirement Date shall be:	

 	[ x ]	a.	as of the date the Participant attains Early Retirement Age [Plan defaults to this election].	

 	[   ]	b.	the first day of the month next following the Participant’s attainment of Early Retirement Age.	

VI.            CONTRIBUTIONS TO THE PLAN

The Employer shall make contributions to the Plan in accordance with the formula or formulas selected below.  The Employer’s contribution shall be subject to the limitations contained in Articles III and X of the Basic Plan Document #01.  For this purpose, a contribution for a Plan Year shall be limited by Compensation earned in the Limitation Year that ends with or within such Plan Year. For Limitation Years beginning on or after January 1, 2002, except to the extent permitted under paragraph 4.6(h) of the Basic Plan Document #01 and under Code Section 414(v), the Annual Addition that may be contributed or allocated to a Participant’s account under the Plan for any Limitation Year beginning after December 31, 2001 shall not exceed the lesser of (a) $40,000, as adjusted for increases in the cost-of-living under Code Section 415(d), or (b) 100% of the Participant’s Compensation within the meaning of Code Section 415(c)(3), for the Limitation Year.

A.  	Elective Deferrals:	

1.           Participants shall be permitted to make Elective Deferrals:

 	[   ]	a.	in any amount up to ____________ % (may be no more than 100%) of Compensation.	

 	[ x ]	b.	in any amount from a minimum of 1 % (may be no less than 1%) to a maximum of 50 % (may be no more than 100%) of their Compensation not to exceed $ __________   [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   x ]	c.	in a flat dollar amount from a minimum of $500 (may be no less than $500) to a maximum of $ _____________ , [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] not to exceed ______ % (no more than 100%) of their Compensation.	

 	[   ]	d.	in any amount up to the maximum percentage of Compensation and dollar amount permissible under Code Section 402(g) and 414(v) not to exceed the limits of Code Section 401(k), 404 and 415.	

 	[   ]	e.	Highly Compensated Employees may defer any amount up to ____% (may be no more than 100%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[ x ]	f.	Catch-up Contributions may be made by eligible Participants.	

 	2.	Participants shall be permitted to terminate their Elective Deferrals (including Roth Elective Deferrals, if any) at any time upon proper and timely notice to the Employer.  Modifications and reinstatement of Participants’ Elective Deferrals will become effective as soon as administratively feasible on a prospective basis as provided for below:	

Modifications	Reinstatement	Method	

 	[   ]	[   ]	On a daily basis.	
 	[ x ]	[ x ]	On the first day of each quarter.	
 	[   ]	[   ]	On the first day of the next month.	
 	[   ]	[   ]	The beginning of the next payroll period.	
 	[   ]	[   ]	On the first day of the next semi-annual period.	
 	[   ]	n/a	Upon _____ days notice to the Plan Administrator.	
 	n/a	[   ]	Upon _____ days notice to the Plan Administrator.	

[   ]	B.	Roth Elective Deferrals:	

If Participants are permitted to make Elective Deferrals, they shall also be permitted to make Roth Elective Deferrals.  Roth Elective Deferrals may be treated as Catch-Up Contributions.

 	C.	Bonus Option:	

 	[ x ]	1.	Not applicable. The Plan’s definition of Compensation excludes bonuses from deferrable Compensation for both Elective Deferrals and Roth Elective Deferrals.	

 	[   ]	2.	Not applicable.  Participants are not permitted to make a separate deferral election and the Participant’s deferral amount elected on their Salary Deferral Agreement will also apply to any bonus received by the Participant for any Plan Year.	

 	[   ]	3.	The Employer permits a Participant to amend his or her deferral election to defer to the Plan an amount not to exceed __________ % (may be no more than 100%) or $ _________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] of any bonus received by the Participant for any Plan Year.	

 	[   ]	D.	Automatic Enrollment:	

The Employer elects the automatic enrollment provisions for Elective Deferrals as follows. Automatic enrollment in Roth Elective Deferrals is not permitted under the Plan.  The automatic enrollment provisions apply to all eligible Employees.  Employees and Participants shall have the right to amend the stated automatic Elective Deferral percentage or receive cash in lieu of deferral into the Plan.

 1.            RESERVED

 	[   ]	2.	Automatic Deferrals:	

 	a.	New Employees:   Employees who have not met the eligibility requirements shall have Elective Deferrals withheld in the amount of ________ % (not more than 10%) of Compensation or $ ________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] upon entering the Plan.	

 	[   ]	i.	On an annual basis the Elective Deferral limit under the Plan shall be increased up to a maximum amount determined by the Employer.	

 	[   ]	ii.	After _____ Years of Service, the amount specified above shall increase to ____ % (no more than 10%) or $ ______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   ]	This requirement is effective for Employees hired on or after ______________________.	

 	[   ]	b.	Current Employees:   Employees who are eligible to participate but not deferring shall have Elective Deferrals withheld in the amount of ______ % (not more than 10%) of Compensation or $ _________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   ]	i.	On an annual basis the Elective Deferral limit under the Plan shall be increased up to a maximum amount determined by the Employer.	

 	[   ]	ii.	After _____ Years of Service, the amount specified above shall increase to _____% (no more than 10%) or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   ]	c.	Current Participants:   Current Participants who are deferring at a percentage less than the amount selected herein shall have Elective Deferrals withheld in the amount of   ________ % (not more than 10%) of Compensation or $ ________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   ]	i.	On an annual basis the Elective Deferral limit under the Plan shall be increased up to a maximum amount determined by the Employer.	

 	[   ]	ii.	After _____ Years of Service, the amount specified above shall increase to _____% (no more than 10%) or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

Employees and Participants shall have the right to amend the stated automatic Elective Deferral provisions or receive cash in lieu of deferral into the Plan.  For purposes of this provision, Employees returning an election form indicating a “zero” deferral amount shall be deemed “Current Participants”.

E.  	Voluntary After-tax Contributions:	

If the Employer wishes to reserve the right to recharacterize Elective Deferrals as Voluntary After-tax Contributions in order to pass the ADP/ACP Test, this section must be completed.

 	[ x ]	1.	The Plan does not permit Voluntary After-tax Contributions.	

 	[   ]	2.	Participants may make Voluntary After-tax Contributions   in any amount from a minimum of ________ % (may not be less than 1%) to a maximum of ______ % (may be no more than 100%) of their Compensation or a flat dollar amount from a minimum of $ ____________ (may not be less than $1,000) to a maximum of $ ______________   [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   ]	3.	Participants may make Voluntary After-tax Contributions in any amount up to the maximum permitted by law.	

 	[   ]	4.	The maximum combined limit of Elective Deferrals, Roth Elective Deferrals, and Voluntary After-tax Contributions will not exceed ______% (may be no more than 100%) of Compensation or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	F.	Required After-tax Contributions (for Thrift Savings Plans only) :	

 	[ x ]	1.	The Plan does not permit Required After-tax Contributions.	

 	[   ]	2.	Participants shall be required to make Required After-tax Contributions as follows:	

 [   ]           a.            ________ % (may be no more than 100%) of Compensation.

 	[   ]	b.	A percentage determined by the Employee.	

 	[   ]	c.	A flat dollar amount of $________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	[   ]	d.	The maximum combined limit of Elective Deferrals, Roth Elective Deferrals and Required After-tax Contributions will not exceed ______% (may be no more than 100%) of Compensation or $_______  [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	G.	Rollover Contributions:	

 	[   ]	1.	The Plan does not accept Rollover Contributions.	

 	[ x ]	2.	Rollover Contributions may be made:	

 	[   ]	a.	after meeting the eligibility requirements for participation in the Plan.	

 	[ x ]	b.	prior to meeting the eligibility requirements for participation in the Plan.	

 	3.	The Plan will accept a Participant Rollover Contribution of an Eligible Rollover Distribution from ( check only those that apply ):	

 	[ x ]	a.	A Qualified Plan described in Code Section 401(a) or 403(a).	

 	[ x ]	b.	An annuity contract described in Code Section 403(b).	

 	[   ]	c.	An eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.	

 	[   ]	d.	An Individual Retirement Account (which was not used as a conduit from a Qualified Plan) or Annuity described in Code Section 408(a) or 408(b) that is eligible to be rolled over and would otherwise be includable in gross income.	

 	4.	The Plan will accept a Direct Rollover of an Eligible Rollover Distribution from (check only those that apply):	

 	[ x ]	a.	A Qualified Plan described in Code Section 401(a) or 403(a), excluding Voluntary After-tax Contributions.	

 	[   ]	b.	A Qualified Plan described in Code Section 401(a) or 403(a), including Voluntary After-tax Contributions.	

 	[ x ]	c.	An annuity contract described in Code Section 403(b), excluding Voluntary After-tax Contributions.	

 	[   ]	d.	An annuity contract described in Code Section 403(b), including Voluntary After-tax Contributions.	

 	[   ]	e.	An eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.	

 	[   ]	f.	A Roth Elective Deferral Account if it is a Direct Rollover from another Roth Elective Deferral Account under a Qualified Plan described in Code Section 402A(e)(1) and only to the extent the rollover is permitted under Code Section 402(c).	

 	H.	Deemed IRA Contributions/Reserved:	

[ x ]           1.           The Plan does not accept any Deemed IRA contributions.

 	[   ]	2.	Deemed IRA contributions may be made to this Plan for Plan Years beginning ___________ (may be no earlier than January 1, 2003):	

 	[   ]	a.	In accordance with the Traditional IRA rules as described in the Basic Plan Document #01.  An Individual must meet the eligibility requirements for participation in the Plan in order to make a “Deemed IRA” contribution.	

 	[   ]	b.	In accordance with the Roth IRA rules as described in the Basic Plan Document #01.  An Individual must meet the eligibility requirements for participation in the Plan in order to make a “Deemed IRA” contribution.	

[ x ]	I.	Safe Harbor Plan Provisions:	

If the Safe Harbor Plan provisions are elected, the nondiscrimination tests at Article XI of the Basic Plan Document #01 are not applicable.  Safe Harbor Contributions made are subject to the withdrawal restrictions of Code Section 401(k)(2)(B) and Treasury Regulation Section 1.401(k)-1(d); such contributions (and earnings thereon) must not be distributable earlier than severance from employment, death, Disability, an event described in Code Section 401(k)(10), or in the case of a profit-sharing or stock bonus plan, the attainment of age 59½. Safe Harbor Contributions are NOT available for Hardship withdrawals.

The ACP Test Safe Harbor is automatically satisfied if the only Matching Contribution to the Plan is either a Basic Matching Contribution or an Enhanced Matching Contribution that does not provide a match on Elective Deferrals in excess of 6% of Compensation. For Plans that allow Voluntary or Required After-tax Contributions, the ACP Test is applicable with regard to such contributions.

Employees eligible to make Elective Deferrals to this Plan must be eligible to receive the Safe Harbor Contribution in the Plan listed below, to the extent required by applicable IRS Regulations.

The Employer elects to comply with the Safe Harbor Cash or Deferred Arrangement provisions of Article XI of the Basic Plan Document #01 and elects one of the following contribution formulas:

1.            Safe Harbor Tests:

 	[   ]	a.	Only the ADP Test Safe Harbor provisions are applicable.  A formula in paragraphs (3), (4) or (5) below has been selected and the ADP Safe Harbor has been satisfied.	

 	[   ]	b.	Only the ACP Test Safe Harbor provisions are applicable.   No additional Matching Contributions would be needed in order to satisfy the ACP Safe Harbor if the Plans satisfies the Basic or Enhanced Match.	

 	 	[ x ]	c.	Both the ADP and ACP Test Safe Harbor provisions are applicable.  If both ADP and ACP provisions are applicable:	

 	[ x ]	i.	No additional Matching Contributions will be made in any Plan Year in which the Safe Harbor provisions are used.	

 	[   ]	ii.	The Employer may make Matching Contributions in addition to any Safe Harbor Matching Contributions elected below.  [Complete provisions in Section VI(J) regarding Matching Contributions that will be made in addition to those Safe Harbor Matching Contributions made below.]	

Safe Harbor Contributions cannot be subject to an Hours of Service or employment on the last day of the Plan Year requirement.

 	[   ]	2.	Designation of Alternate Plan to Receive Safe Harbor Contribution:   If the Safe Harbor Contribution as elected below is not being made to this Plan, the name of the other plan that will receive the Safe Harbor Contribution is:	.	

 	[   ]	3.	Basic Matching Contribution Formula:   Matching Contributions will be made on behalf of Participants in an amount equal to 100% of the amount of the Eligible Participant’s Elective Deferrals that do not exceed 3% of the Participant’s Compensation and 50% of the amount of the Participant’s Elective Deferrals that exceed 3% of the Participant’s Compensation but that do not exceed 5% of the Participant’s Compensation.	

 	[   ]	4.	Enhanced Matching Contribution Formula:   Matching Contributions will be made in an amount equal to the sum of:	

 	a.	_________ % of the Participant’s Elective Deferrals that do not exceed _________ % of the Participant’s Compensation [insert a number that is three (3) or greater but not greater than six (6); if a number greater than six (6) is inserted or if left blank, this will not qualify as an Enhanced Matching Contribution Formula and the ADP test will apply], plus	

 	[   ]	b.	_________ % of the Participant’s Elective Deferrals that exceed _________ % of the Participant’s Compensation but do not exceed _________ % of the Participant’s Compensation [insert a number that is three (3) or greater but not greater than six (6) in the second blank.  Both blanks should be completed so that at any rate of Elective Deferrals, the Matching Contribution is at least equal to the Matching Contribution receivable if the Employer were making a Basic Matching Contribution.  The rate of match cannot increase as Elective Deferrals increase.  If a number greater than six (6) is inserted or if left blank, this will not qualify as an Enhanced Matching Contribution Formula and the ACP Test will apply.]	

If an additional discretionary Matching Contribution is made, the dollar amount of that contribution may not exceed 4% of eligible Plan Compensation.

 	[ x ]	5.	Guaranteed Non-Elective Contribution Formula:   The Employer shall make a Non-Elective Contribution equal to 3 % (not less than 3%) of the Compensation of each Eligible Participant.	

 	[   ]	6.	Flexible Non-Elective Contribution Formula:   This provision provides the Employer with the ability to amend the Plan to comply with the Safe Harbor provisions during the Plan Year.  To provide such option, the Employer must amend the Plan and indicate on Schedule C that the Safe Harbor Non-Elective Contribution (not less than 3%) will be made for the specified Plan Year.  Such election must comply with all the applicable notice requirements.	

Additional non-Safe Harbor Contributions may be made to the Plan pursuant to Section VI(J) hereof.  Any additional contributions may be subject to nondiscrimination testing.

 	7.	Limitations on Safe Harbor Matching Contributions:   If a Safe Harbor Matching Contribution is made to the Plan:	

 	[   ]	a.	The Employer elects to match Safe Harbor Matching Contributions on an annual basis.	

 	[   ]	b.	The Employer elects to match actual Elective Deferrals made:	

 	[   ]	i.	on a payroll basis [Plan defaults to this election].	

 	[   ]	ii.	on a monthly basis.	

 	[   ]	iii.	on a Plan Year quarterly basis.	

 	[   ]	iv.	The Employer elects to true up Safe Harbor Matching Contributions made to the Plan on the above basis.	

If one of the Matching Contribution calculation periods at paragraph (7)(b) above is selected, Matching Contributions must be deposited to the Plan not later than the last day of the calendar quarter next following the quarter to which they relate.

 	[   ]	c.	The Employer will only contribute the Safe Harbor Contribution to Non-Highly Compensated Employees.	

[   ]	J.	Matching Employer Contribution:	

Do not complete this section of the Adoption Agreement if the Plan only offers a Safe Harbor Contribution. A Plan that offers both a Safe Harbor Contribution as well as an additional Employer Contribution that is specified below, must complete both Sections VI(I) and VI(J) of this Adoption Agreement.

Select the Matching Contribution Formula, Computation Period and special Limitations for each contribution type from the options listed below.  Enter the letter of the option(s) selected on the lines provided.  Leave the line blank if no election is required.

 	[   ]	The Matching Contribution(s) selected below will be deemed an additional discretionary ACP Test Safe Harbor Matching Contribution in accordance with the selection made at Section VI(I).  The allocation of any additional Matching Contribution made by the Employer will not exceed 4% of eligible Compensation.	

 	[   ]	The Matching Contribution(s) selected below will be deemed a discretionary contribution that will be subject to nondiscrimination testing.	

 
Type of
Contribution	 
Matching Contribution (Formula 1)	 
Matching
Computation Period	 

Limitations	 
Matching Contribution (Formula 2)	 
Matching
Computation
Period	 

Limitations	
Elective Deferrals (including Roth Elective Deferrals, if applicable)	 	 	 	 	 	 	
Voluntary After-tax	 	 	 	 	 	 	
Required
After-tax	 	 	 	 	 	 	
403(b) Deferrals	 	 	 	 	 	 	

 	If any election is made with respect to “403(b) Deferrals” above, and if this Plan is used to fund any Employer Contributions, Employer Contributions will be based on the Elective Deferrals made to an existing 403(b) plan sponsored by the Employer.	

 	Name of corresponding 403(b) plan, as applicable:   	

If the Matching Contribution formula selected by the Employer is 100% vested and may not be distributed to the Participant before the earlier of the date the Participant has a severance from employment, retires, becomes disabled, attains 59½, or dies, it may be treated as a Qualified Matching Contribution.

Matching Contribution Formulas may be subject to a minimum or maximum dollar or percentage limit.

 1.            Matching Contribution Formulas:

 	Matching Contribution Formulas for Elective Deferrals and Roth Elective Deferrals :	

a.  	Percentage of Deferral Match :  The Employer shall contribute to each eligible Participant's account an amount equal to _________ % (no more than 500%) of the Participant's Elective Deferrals up to a maximum of _________ % (no more than the Annual Addition limit for the Plan Year) of Compensation or $ _________   [no more than the Annual Addition limit for the Plan Year].	

b.  	Uniform Dollar Match :  The Employer shall contribute to each eligible Participant’s account $ ________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least ________ % (no more than 100%) of Compensation or $ __________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].  The Employer’s contribution will be made up to a maximum of _____ % (no more than the Annual Addition limit for the Plan Year) of Compensation.	

 	c.	Discretionary Match:   The Employer shall have the right to make a Discretionary Matching Contribution.  The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants.  Such contribution shall be in the amount specified and allocated as follows:	

 	d.	Tiered Match :  The Employer shall contribute to each eligible Participant's account an amount equal to:	

________ % of the first ________ % (no more than 500%) of the Participant's Compensation contributed, and

 	________ % of the next ________ % (no more than 400%) of the Participant's Compensation contributed, and	

 	________ % of the next ________ % (no more than 300%) of the Participant's Compensation contributed.	

The Employer’s contribution will be made up to the [   ] greater of (may be no more than 500%) [   ] lesser of (may be no less than 1%) _________ % of Compensation, or $ __________   (no more than the Annual Addition limit for the Plan Year).

 	The percentages specified above may not increase as the rate of Elective Deferrals or Employee Contributions increase.  This formula must meet Code Section 401(a)(4) and the ACP Test.	

 	e.	Percentage of Compensation Match:   The Employer shall contribute to each eligible Participant’s account ________ % (no less than 1%) of Compensation if the eligible Participant contributes at least ________ % (no more than 100%)  of Compensation.	

The Employer’s contribution will be made up to the [   ] greater of (may be no more than 500%) [   ] lesser of  (may be no less than 1%) _________ % of Compensation or $ __________   (no more than the Annual Addition limit for the Plan Year).

This formula must meet Code Section 401(a)(4) and the ACP Test.

 	f.	Proportionate Compensation Match:   The Employer shall contribute to each eligible Participant who defers at least ________ % (may be no more than 100%) of Compensation, an amount determined by multiplying such Employer Matching Contribution by a fraction, the numerator of which is the Participant's Compensation and the denominator of which is the Compensation of all Participants eligible to receive such an allocation.	

The Employer’s contribution will be made up to the [   ] greater of (may be no more than 500%) [   ] lesser of  (may be no less than 1%) _________ % of Compensation or $ __________   (no more than the Annual Addition limit for the Plan Year).

This formula must meet Code Section 401(a)(4) and the ACP Test.

 	[   ]	g.	Catch-Up Contributions:   The Employer elects to match Catch-Up Contributions under the same formula or formulas as elected above.	

 	In the event that an Excess Contribution is recharacterized as a Catch-up Contribution, any Matching Contribution made thereon may remain in the Plan if the Matching Contribution Formula is not otherwise exceeded.	

 	Additional Matching Contribution Formulas for Voluntary After-tax Contributions:	

 	h.	Percentage of Deferral Match : The Employer shall contribute to each eligible Participant's account an amount equal to ______ % (no less than 1%) of the Participant's Contribution up to a maximum of ______ % (may be no more than 500%) of Compensation or $ __________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	i.	Uniform Dollar Match: The Employer shall contribute to each eligible Participant’s account $ ________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least ________ % (may be no more than 100%) of Compensation or $ ________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].  The Employer’s contribution will be made up to the maximum of _____ % (may be no more than 500%) of Compensation.	

 	j.	Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants.  Such contribution shall be in the amount specified and allocated as follows:	

 	Additional Matching Contribution Formulas for Required After-tax Contributions:	

 	k.	Percentage of Deferral Match : The Employer shall contribute to each eligible Participant's account an amount equal to ________ % no less than 1%) of the Participant's Contribution up to a maximum of ________ % (may be no more than 500%) of Compensation or $ __________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	l.	Uniform Dollar Match: The Employer shall contribute to each eligible Participant’s account $ ________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least _______ % (may be no more than 100%) of Compensation or $ __________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].  The Employer’s contribution will be made up to the maximum of ______ % (may be no more than 500%) of Compensation.	

 	m.	Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution.  The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants.  Such contribution shall be in the amount specified and allocated as follows:	

 	Additional Matching Contribution Formulas for 403(b) Deferrals:	

 	n.	Percentage of Deferral Match : The Employer shall contribute to each eligible Participant's account an amount equal to ________ % (no less than 1%) of the Participant's deferral up to a maximum of ________ % (may be no more than 500%) of Compensation or $ __________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].	

 	o.	Uniform Dollar Match: The Employer shall contribute to each eligible Participant's account $ ________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least ______ % (may be no more than 100%) of Compensation or $ ___________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].  The Employer’s contribution will be made up to the maximum of ______ % (may be no more than 500%) of Compensation.	

 	p.	Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants.  Such contribution shall be in the amount specified and allocated as follows:	

 	2.	Matching Contribution Computation Period: The Compensation   or any dollar limitation imposed in calculating the Matching Contribution will be based on the period selected below. Matching Contributions will be calculated on the following basis:	

a.  	Payroll Based                                                      e.           Monthly	
 b.           Weekly                                                      f.           Quarterly
 c.           Bi-weekly                                           g.           Semi-annually
 d.           Semi-monthly                                                      h.           Annually

The calculation of Matching Contributions based on the Computation Period selected above has no applicability as to when the Employer remits Matching Contributions to the Trust.

3.  	Limitations on Matching Formulas:	

a.  	Contributions to Participants who are not Highly Compensated Employees: Contribution of the Employer’s Matching Contribution will be made only to eligible Participants who are Non-Highly Compensated Employees.	

 	b.	Deferrals withdrawn prior to the end of the Matching Computation Period:   Matching Contributions (whether or not Qualified) will not be made on Employee contributions withdrawn prior to the end of the [   ] Matching Computation Period, or [   ] Plan Year.	

 	[   ]	If elected, this requirement shall apply in the event of a withdrawal occurring as the result of a termination of employment for reasons of retirement, Disability or death.	

 	c.	Maximum Plan Limit for Matching Contributions: In no event will Matching Contributions exceed ______ % (no more than 500%) of Compensation, or $ _______ (no more than the Annual Addition limit for the Plan Year).	

 	[   ]	If elected, this limitation applies to the total of all Elective Deferrals, Roth Elective Deferrals, Catch-Up Contributions, Voluntary After-tax Contributions,  Required After-tax Contributions and 403(b) Deferrals made to the Plan for the Plan Year.	

 	d.	True Up of Matching Contributions:   The Employer elects to true up Matching Contributions made to the Plan.	

[ x ]	K.	Non-Elective Employer Contributions:	

The Employer shall have the right to make a discretionary contribution.  If a discretionary contribution is made, the Employer’s contribution for the Plan Year shall be allocated to the accounts of eligible Participants as follows (enter the number of the allocation method being used by the Plan) :

Type of Contribution	Allocation Method	
Non-Elective Formula 1	3	
Non-Elective Formula 2	 	

 	1.	Pro-Rata Formula:   The Employer’s contribution for the Plan Year shall be allocated to each eligible Participant on a pro-rata basis based on the Compensation of the Participant to the total Compensation of all Participants.	

 	2.	Uniform Percentage Formula: The Employer’s contribution shall be allocated to each eligible Participant as a uniform percentage of the Employer’s Net Profit.	

 	3.	Percentage of Compensation Formula: The Employer’s contribution shall be 1.5 % of each Participant's Compensation allocated on a pro-rata basis based on the Compensation of the Participant to the total Compensation of all Participants.   Applicable to newly eligible employees hired on or after January 1, 2009.	

 	4.	Hours of Service Formula:   The Employer’s contribution shall be a discretionary amount	allocated in the same dollar amount to each eligible Participant based on each Hour of	Service performed or each day that the Participant is entitled to Compensation.	

 	5.	Uniform Dollar Amount Formula:   The Employer shall contribute and allocate to the account of each eligible Participant an equal dollar amount.	

 	6.	Excess Integrated Contribution Formula:   The Employer’s contribution shall be allocated   as an amount taking into consideration amounts contributed to Social Security using the four-step Excess Integrated Allocation Formula as described in the Basic Plan Document #01; the Integration Level is defined at Section III(E) of this Adoption Agreement.	

 	7.	Base Integrated Contribution Formula:   The Employer’s contribution shall be allocated   as an amount taking into consideration amounts contributed to Social Security using the two-step Base Integrated Allocation Formula as described in the Basic Plan Document #01; Employer Contributions shall be allocated as follows: _____ % of each eligible Participant's Compensation, plus _____ % of Compensation in excess of the Integration Level defined at Section III(E) hereof.  If the Integration Level selected in Section III(E) is other than the Taxable Wage Base, the maximum disparity rate will be adjusted as follows: (a) if the Integration Level selected is greater than zero (0) but not more than the greater of $10,000 or 20% of the Taxable Wage Base, the maximum disparity rate will be 5.7%; (b) if the Integration Level selected is more than the greater of $10,000 or 20% but not more than 80% of the Taxable Wage Base, the maximum disparity rate will be 4.3%; (c) if the Integration Level selected is more than 80% of the Taxable Wage Base, but not more than any amount more than 80% of the Taxable Wage Base, but less than 100% of the Taxable Wage Base, the maximum disparity rate will be 5.4%.	

Only one Plan maintained by the Employer may be integrated with Social Security.  Any Plan utilizing a Safe Harbor formula as provided in Section VI(I) of this Adoption Agreement may not apply the Safe Harbor Contributions to the integrated allocation formula.

 	8.	Uniform Points Contribution Formula: The allocation for each eligible Participant will be determined by a uniform points method. Each eligible Participant’s allocation shall bear the same relationship to the Employer contribution as the Participant’s total points bears to all points awarded.  The Employer must grant points for at least age or Service.  Each eligible Participant will receive _____ points for each of the following:	

 	[   ]	a.	_____ year(s) of age.	

 	[   ]	b.	_____ Year(s) of Service determined:	

 	[   ]	i.	In the same manner as determined for eligibility.	

 	[   ]	ii.	In the same manner as determined for vesting.	

 	[   ]	iii.	Points will not be awarded with respect to Year(s) of Service in excess of _____ .	

 [   ]           c.           $ _________ (not to exceed $200) of Compensation.

 	The contribution formulas must satisfy the design-based safe harbors described in the Regulations under Code Section 401(a)(4).	

 	L.	Qualified Matching (QMAC) and Qualified Non-Elective (QNEC) Employer Contribution Formulas:	

 	[   ]	1.	QMAC Contribution Formula:   The Employer may contribute to each eligible Participant’s Qualified Matching Contribution account an amount equal to (select one or more of the following) :	

 	[   ]           a.	$ _________ or ______ % of the Participant’s Elective Deferrals (including Roth Elective Deferrals, if applicable).	

 	[   ]           b.	$ _________ or ______ % of the Participant’s Elective Deferrals (including Roth                                                                                                                                                        Elective Deferrals, if applicable) not to exceed ______ % of Compensation.	

 	[   ]	c.	$ _________ or ______ % of the Participant's Voluntary After-tax Contributions.	

 	[   ]	d.	$ _________ or ______ % of the Participant’s Required After-tax Contributions.	

 	[   ]	2.	Discretionary QMAC Contribution Formula:   The Employer shall have the right to make a discretionary QMAC contribution.  The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants.  Such contribution shall be in the amount specified and allocated as follows:	
 	This part of the Employer's contribution shall be fully vested when made.	

 	[   ]	3.	QNEC Contribution Formula: The Employer may contribute to each eligible Participant’s Qualified Non-Elective Contribution account an amount equal to (select one or more of the following):	

 	[   ]	a.	_____ % of Compensation of all eligible Participants. This part of the Employer’s contributions shall be fully vested when made.	

 	[   ]	b.	$ __________ not to exceed ___ % of Compensation. This part of the Employer’s contribution shall be fully vested when made and subject to the limitations specified in the Basic Plan Document #01.	

 	[   ]	4.	Discretionary Percentage QNEC Contribution Formula:   The Employer shall have the right to make a discretionary QNEC contribution which shall be allocated to each eligible Participant’s account in proportion to his or her Compensation as a percentage of the Compensation of all eligible Participants.  This part of the Employer's contribution shall be fully vested when made.  This contribution will be made to:	

 [   ]           a.           All eligible Participants.

 	[   ]	b.	Only eligible Participants who are Non-Highly Compensated Employees.	

 	[   ]	5.	Discretionary Uniform Dollar QNEC Contribution Formula: The Employer shall have the right to make a discretionary QNEC contribution which shall be allocated to each eligible Participant’s account in a uniform dollar amount to be determined by the Employer and allocated in a nondiscriminatory manner.  This part of the Employer’s contribution shall be fully vested when made. This contribution will be made to:	

 [ ]           a.           All eligible Participants.

 	[   ]	b.	Only eligible Participants who are Non-Highly Compensated Employees.	

 	[   ]	6.	Corrective QNEC Contribution Formula:   The Employer shall have the right to make a QNEC contribution in the amount necessary to pass the ADP/ACP Test or the maximum permitted under Code Section 415. This contribution will be allocated to some or all Non-Highly Compensated Participants designated by the Plan Administrator. The allocation will be the lesser of the amount required to pass the ADP/ACP Test, or the maximum permitted under Code Section 415. This part of the Employer's contribution shall be fully vested when made.	

 	[   ]	7.	Qualified Matching Contributions (QMAC):	

 	[   ]	a.	For purposes of the ADP and ACP Tests, all Matching Contributions made to the Plan will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage.  All Matching Contributions must be fully vested when made.	

 	[   ]	b.	For purposes of the ADP and ACP Tests, only Matching Contributions made to the Plan that are needed to meet the Actual Deferral Percentage or Actual Contribution Percentage Test will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage.   All such Matching Contributions used must be fully vested when made.	

 [   ]           8.            Qualified Non-Elective Contributions (QNEC):

 	[   ]	a.	For purposes of the ADP and  ACP Tests, all Non-Elective Contributions made to the Plan will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage.   All Non-Elective Contributions must be fully vested when made.	

 	[   ]	b.	For purposes of the ADP and ACP Tests, only the Non-Elective Contributions made to the Plan that are needed to meet the Actual Deferral Percentage or Actual Contribution Percentage Test will  be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage.   All such Non-Elective Contributions used must be fully vested when made.	

[ x ]           M.            Additional Adopting Employers:

 	[ x ]	1.	All participating Employers’ contributions and forfeitures, if applicable, attributable to each specific contribution source made by such Employer shall be pooled together and allocated uniformly among all eligible Participants.	

 	[   ]	2.	Each participating Employer’s contribution and forfeitures, if applicable, attributable to each specific contribution source made by such Employer shall be allocated only to eligible Participants of the participating Employer.	

Where contributions and forfeitures are to be allocated to eligible Participants by participating Employers, each such Employer must maintain data demonstrating that the allocations by group satisfy the nondiscrimination rules under Code Section 401(a)(4).

VII.            ALLOCATIONS TO PARTICIPANTS

A.            Allocation Accrual Requirements:

No Hours of Service or last day requirement may be imposed on any Employer contribution that is subject to the Safe Harbor Plan rules.

 	[ x ]	1.	There are no allocation requirements for Participants to receive any contribution made to the Plan; however, a Participant must have received Compensation from the Employer to be entitled to an allocation of contributions.	

 	[   ]	2.	Employer contributions will be allocated to all Participants employed on the last day of the Plan Year regardless of hours worked.	

 	[   ]	3.	The Plan is using the Elapsed Time method; contributions will be allocated to all Participants who have completed _____ [not more than twelve (12)] months of Service regardless of the hours credited.  If left blank, the Plan will use twelve (12) months.	

 	[   ]	4.	Employer contributions for a Plan Year will be allocated to all Participants upon completion of the hours and/or employment requirements below.	

 	a.	A Year of Service for allocation accrual purposes cannot be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law. If left blank, the Plan will use 1,000 hours.  Enter whole digit numbers only.	

Contribution Type	          Hours	
All contributions	 	
Matching Contribution (Formula 1)	 	
Matching Contribution (Formula 2)	 	
Non-Elective Contribution (Formula 1)	 	
Non-Elective Contribution (Formula 2)	 	
QNEC	 	
QMAC	 	

 	b.	Participants must be employed on the last day of each quarter of the Plan Year in order to receive the following contribution(s):	

 	[   ]	All contributions	
 	[   ]	Matching Contribution (Formula 1)	
 	[   ]	Matching Contribution (Formula 2)	
 	[   ]	Non-Elective Contribution (Formula 1)	
 	[   ]	Non-Elective Contribution (Formula 2)	
 	[   ]	QNEC	
 	[   ]	QMAC	

Note: Use of this subsection (b) requires that no more than one (1) Hour of Service be required in subsection (a) above for the contribution types selected.

 	c.	Participants must be employed on the last day of the Plan Year in order to receive the following contribution(s):	

 	[   ]	All contributions	
 	[   ]	Matching Contribution (Formula 1)	
 	[   ]	Matching Contribution (Formula 2)	
 	[   ]	Non-Elective Contribution (Formula 1)	
 	[   ]	Non-Elective Contribution (Formula 2)	
 	[   ]	QNEC	
 	[   ]	QMAC	

 	[   ]	d.	Participants must complete the Hours of Service indicated above or be employed on the last day of the Plan Year to receive the Employer Contribution(s) selected above.	

 	5.	Employer Contributions for a Plan Year will be allocated to terminated Participants who have met the following allocation accrual requirements (check all applicable boxes) :	

 All               Match                Match    Non-Elective Non-Elective
               Contributions    Formula 1    Formula 2      Formula 1       Formula 2     QNEC     QMAC

 a.        The Hours of Service or Period of
 Service requirement above will be
 waived if termination is due to:

i.      Retirement                           [   ]                               [   ]               [   ]               [   ]              [   ]        [ ]                 [   ]
ii.      Disability                            [   ]                               [   ]               [   ]               [   ]              [   ]        [   ]                 [   ]
iii.      Death                           [   ]                               [   ]               [   ]               [   ]              [   ]        [   ]                 [   ]
iv.  	Other (must be non-	
 Discriminatory in
 operation):
                               [   ]                               [   ]               [   ]               [   ]              [   ]        [   ]                 [   ]

 	b.	The last day of employment	
 	requirement above will be	
 	waived if termination is due to:	

i.      Retirement                           [ ]                               [   ]               [   ]               [   ]              [   ]        [   ]                 [   ]
ii.      Disability                           [   ]                               [   ]               [   ]               [   ]              [   ]        [   ]                 [   ]
iii.      Death                           [   ]                               [   ]               [   ]               [   ]              [   ]        [   ]                 [   ]
iv.  	Other (must be non-	
 Discriminatory in
 operation):
                              [   ]                               [   ]               [ ]               [   ]              [   ]        [   ]                 [   ]

[   ]	B.	Contributions to Disabled Participants:	

 	The Employer will make contributions on behalf of a Participant who is permanently and totally disabled. These contributions will be based on the Compensation each such Participant would have received for the Limitation Year if the Participant had been paid at the rate of Compensation paid immediately before becoming permanently and totally disabled.  Such imputed Compensation for the disabled Participant may be taken into account only if the Participant is not a Highly Compensated Employee.  These contributions will be 100% vested when made.	

VIII.	DISPOSITION OF FORFEITURES	

 A.            Forfeiture Allocation Alternatives:

[ x ]	1.	Not applicable; all contributions are fully vested.	

 	[   ]	2.	Select one or more methods in which forfeitures associated with the contribution type will be allocated ( number each item in order of use ):	

 	Employer Contribution Type	

 All Non-Safe Harbor                                           All Other
Disposition Method	Matching Contributions	Contributions	

 	a.	Restoration of Participant’s forfeitures.	 	 	 	 	 	 	

 	b.	Used to offset Plan expenses.	      _ _________	______________	

 	c.	Used to reduce the Employer’s	
Non-Elective Contribution.	 	 	 	 	 	 	

d.      Used to reduce the Employer’s
Matching Contribution.	 	 	 	 	 	 	

 	e.	Added to the Employer’s contribution	
 	(other than Matching Contributions or	
Base Integration Formula) under the Plan.	 	 	 	 	 	 	

 f.      Added to the Employer’s Matching
 	Contribution under the Plan (these	
       contributions will be subject to ACP Testing).	___	_________           ____ _________	

 	g.	Allocate to all Participants	
 	eligible to share in the allocations	
 	in the same proportion that each	
 	Participant’s Compensation for the	
 	year bears to the Compensation of all	
other Participant’s for such year.	N/A	 	 	 	 	 	

 h.      Allocate to all NHCEs eligible to share
in the allocations in proportion to each such
Participant’s Compensation for the year.	N/A	 	 	 	 	 	

 i.      Allocate to all NHCEs eligible to share in the
 allocations in proportion to each such
Participant’s Elective Deferrals for the year.	 	 	 	 	N/A	 	

 j.      Allocate to all Participants eligible to share in
 the allocations in the same proportion that
 each Participant’s Elective Deferrals for the year
 bears to the Elective Deferrals of all Participants
for such year.	 	 	N/A	 	 	 	

Participants eligible to share in the allocation of other Employer contributions under Section VI shall be eligible to share in the allocation of forfeitures.  The selection of (i) or (j) may require that the Plan be tested for nondiscrimination using a general test described in Regulations Section 1.410(b).

 B.            Timing of Allocation of Forfeitures:

 	If no timely distribution or deemed distribution [pursuant to paragraph 6.5(c) of the Basic Plan Document #01] has been made to a former Participant, non-vested portions shall be forfeited at the end of the Plan Year during which the former Participant incurs his or her fifth consecutive one (1) year Break in Service or Period of Severance for Plans that use the Elapsed Time Method.	

 	If a former Participant has received the full amount of his or her Vested Account Balance, the non-vested portion of his or her account shall be forfeited and be disposed of:	

 	[   ]	1.	during the Plan Year following the Plan Year in which the forfeiture arose.	

 	[   ]	2.	as of any Valuation or Allocation Date during the Plan Year (or as soon as administratively feasible following the close of the Plan Year) in which the former Participant receives full payment of his or her vested benefit.	

 	[   ]	3.	as of the end of the Plan Year during which the former Participant receives full payment of his or her vested benefit.	

 	[   ]	4.	as of the earlier of the first day of the Plan Year, or the first day of the seventh month of the Plan Year following the date on which the former Participant has received full payment of his or her vested benefit.	

 	[   ]	5.	as of the next Valuation or Allocation Date following the date on which the former Participant receives full payment of his or her vested benefit.	

IX.	MULTIPLE PLANS MAINTAINED BY THE EMPLOYER AND TOP-HEAVY CONTRIBUTIONS	

[ x ]	A.	Plans Maintained By The Employer:	

The Employer does maintain another Plan [including a Welfare Benefit Fund or an individual medical account as defined in Code Section 415(l)(2)], under which amounts are treated as Annual Additions and has completed the proper sections below.  If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer, other than a Master or Prototype Plan [option (1) below shall automatically apply if the other plan is a Master or Prototype Plan]:

[ x ]          1.	The provisions of Article X of the Basic Plan Document #01 will apply as if the other plan were   a Master or Prototype Plan.	

 	[   ]	2.	The Employer has specified below the method under which the plans will limit total Annual  Additions to the Maximum Permissible Amount, and will properly reduce any Excess Amounts in a manner that precludes Employer discretion:	

 B.            Top-Heavy Provisions:

 	In the event the Plan is or becomes Top-Heavy, the minimum contribution or benefit required under Code Section 416 and paragraph 14.3 of the Basic Plan Document #01 relating to Top-Heavy Plans shall be satisfied in the elected manner:	

 	[ x ]	1.	The minimum contribution will be satisfied by this Plan.	

 	[   ]	2.	The minimum contribution will be satisfied by (name of other Qualified Plan):   __ ______	

 	Minimum contribution or benefit to be provided (specify interest rates and mortality table, if applicable):	

 	3.	For any Plan Year during which the Plan is Top-Heavy, the sum of the contributions (excluding Elective Deferrals) allocated to non-Key Employees shall not be less than the amount required under the Basic Plan Document #01.  Top-Heavy minimums will be allocated to:	

 [ x ]           a.           all eligible Participants [Plan defaults to this election].

[ ]	b.	only eligible non-Key Employees who are Participants.	

 	[   ]	4.	Matching Contributions shall not  be included when satisfying Top-Heavy minimum contributions.	

X.            NONDISCRIMINATION TESTING

A Plan may use different testing methods for the ADP and ACP Tests provided the Plan does not permit recharacterization of Excess Contributions, Elective Deferrals to be used in the ACP Test, or Qualified Matching Contributions to be used in the ADP Test.

If no election is made, the Plan will use the Current Year testing method for both the ADP and ACP Tests.

A.  	Testing Elections:	

 	[ x ]	1.	The Plan is not subject to ADP or ACP testing.  The Plan does not offer Voluntary After-tax  or Required After-tax Contributions and it either meets the Safe Harbor provisions of Section VI(I) of this Adoption Agreement, or it does not benefit any Highly Compensated Employees.	

 	[   ]	2.	This Plan is using the Current Year testing method for purposes of the ADP Test.	

 	[   ]	3.	This Plan is using the Current Year testing method for purposes of the ACP Test.	

 	[   ]	4.	This Plan is using the Prior Year testing method for purposes of the ADP Test.	

 	[   ]	5.	This Plan is using the Prior Year testing method for purposes of the ACP Test.	

B.            Testing Elections for the First Plan Year:

 	Complete only when Prior Year testing method election is made and the Employer is not using the “deemed 3%” rule.	

 	[   ]	1.	If this is not a successor Plan, then for the first Plan Year this Plan permits any Participant to make Elective Deferrals, the ADP used in the ADP Test for Participants who are Non-Highly Compensated Employees shall be such first Plan Year’s ADP.	

 	[   ]	2.	If this is not a successor Plan, then for the first Plan Year this Plan permits (a) any Participant to make Employee contributions, (b) provides for Matching Contributions or (c) both, the ACP used in the ACP Test for Participants who are Non-Highly Compensated Employees shall be such first Plan Year’s ACP.	

[   ]	C.	Recharacterization:	

Elective Deferrals may be recharacterized as Voluntary After-tax Contributions to the extent so provided by this Plan, to satisfy the ADP Test.  The Employer must have elected to permit Voluntary After-tax Contributions in the Plan for this election to be operable.

[   ]           D.            Forfeitures of Vested Excess Aggregate Contributions Resulting from ADP Test Failure:

 	Forfeitures of Excess Aggregate Contributions resulting from failure of the ADP Test and the inability to distribute corresponding Matching Contributions will be allocated to the Matching Contribution accounts of Non-Highly Compensated Employees instead of being used to reduce Employer Contributions for the Plan Year in which the failure occurred.	

XI.	VESTING	

Participants shall always have a fully vested and nonforfeitable interest in their Employee contributions (including Elective Deferrals, Catch-Up Contributions, Roth Elective Deferrals, Deemed IRA Contributions, Required After-tax Contributions, and Voluntary After-tax Contributions), Qualified Matching Contributions (“QMACs”), Qualified Non-Elective Contributions (“QNECs”) or Safe Harbor Contributions, and their investment earnings.

Each Participant shall acquire a vested and nonforfeitable percentage in his or her account balance attributable to Employer contributions and their earnings under the schedule(s) selected below.

A.   Vesting Computation Period:

 A Year of Service for vesting will be determined on the basis of the (choose one):

[ x ]	1.	Not applicable.  All contributions are fully vested.	

[   ]	2.	Elapsed Time method.	

 	[   ]	3.	Hours of Service method.  A Year of Service will be credited upon completion of __________ Hours of Service.  A Year of Service for vesting purposes will not be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law.  [If left blank, the Plan will use 1,000 hours.]	

The computation period for purposes of determining Years of Service and Breaks in Service for purposes of computing a Participant's nonforfeitable right to his or her account balance derived from Employer contributions:

 	[   ]	a.	shall commence on the date on which an Employee first performs an Hour of Service for the Employer and each subsequent twelve (12) consecutive month period shall commence on the anniversary thereof.	

 	[   ]	b.	shall commence on the first day of the Plan Year during which an Employee first performs an Hour of Service for the Employer and each subsequent twelve (12) consecutive month period shall commence on the anniversary thereof.	

A Participant shall receive credit for a Year of Service if he or she completes the number of hours specified above at any time during the twelve (12) consecutive month computation period.  A Year of Service may be earned prior to the end of the twelve (12) consecutive month computation period and the Participant need not be employed at the end of the twelve (12) consecutive month computation period to receive credit for a Year of Service.

 B.            Vesting Schedules:

The Employer must select either the two-twenty vesting schedule option [(B)(4)] or the three-year cliff vesting schedule [(B)(3)] to apply in any Plan Year in which the Plan is Top-Heavy.   The percentages selected for option (B)(5) may not be less for any year than the percentages shown at option (B)(4).   Any switch to a Top-Heavy schedule will remain in effect even if the Plan later falls out of Top-Heavy status unless the Employer executes an amendment to this Adoption Agreement.  If a Participant has at least three (3) Years of Service for vesting purposes at the time of the amendment, the Plan must provide that Participant the option of remaining on the vesting schedule in effect prior to such amendment.

Select the appropriate schedule for each contribution type and complete the blank vesting percentages from the list below and insert the option number in the vesting schedule chart below.  Employer Contributions that are not Safe Harbor Contributions may only choose option (3) or (4) or a schedule where amounts vest faster than at option (4).

Years of Service                                                         
 1              2              3              4              5              6

 1.           Full and immediate Vesting

 2.            ___%                     100%

 3.            ___%                       ___%                      100%

 4.            ___%                        20%             40%               60%                     80%                 100%

 5.            ___%                  ___%                  ___%                       ___%               ___%              100%

Vesting Schedule Chart                                                                  Employer Contribution Type

1                         All Employer Contributions
                           Matching Contribution (Formula 1)
                           Matching Contribution (Formula 2)
                           Match on Voluntary After-tax Contributions
                           Match on Required After-tax Contributions
                           Match on 403(b) Deferrals
1                         Non-Elective Contribution (Formula 1)
1                         Non-Elective Contribution (Formula 2)
1                         Top-Heavy Minimum Contribution

If a different Vesting Schedule than that entered above applies to Employer Contributions made prior to the first day of the Plan’s 2007 Plan Year, it should be entered in Schedule B of this Adoption Agreement.

 C.            Service Disregarded for Vesting:

 	[ x ]	1.	Not applicable.  All Service is recognized.	

 	[   ]	2.	Service prior to the Effective Date of this Plan or a predecessor plan is disregarded when computing a Participant's vested and nonforfeitable interest.	

 	[   ]            3.	Service prior to a Participant having attained age eighteen (18) is disregarded when computing a Participant's vested and nonforfeitable interest.	

[   ]	D.	Full Vesting of Employer Contributions for Current Participants:	

 	Notwithstanding the elections above, all Employer contributions made to a Participant’s account shall be 100% fully vested if the Participant is employed on the Effective Date of the Plan (or such other date as entered herein): _________________ .  The operation of this provision may not result in the discrimination in favor of Highly Compensated Employees.	

XII.  	SERVICE WITH PREDECESSOR ORGANIZATION	

This option only applies in the situation where the Employer does not or did not maintain the plan of a Predecessor Organization.

[   ]	A.	Not applicable.  The Employer does not maintain the plan of a Predecessor Organization.	

[   ]	B.	The Plan will recognize Service with all Predecessor Organizations.	

[ x ]	C.	Service with the following organization(s) will be recognized for the Plan purpose indicated:	

 Allocation
Eligibility                    Accrual                 Vesting

The Gallup Water Service, Inc.	[ x ]	[   ]	[ x ]	
The Barnstable Water Company	[ x ]	[   ]	[ x ]	
The Crystal Water Company	[ x ]	[   ]	[ x ]	
 	[   ]	[   ]	[   ]	
 	[   ]	[   ]	[   ]	
 Attach additional pages as necessary.

 	[   ]	D.	The Plan shall recognize _____ Years of Service with the Employer(s) named in Section XII(C) above.	

XIII.	IN-SERVICE WITHDRAWALS	

Distribution restrictions apply in the case of Elective Deferrals (including Roth Elective Deferrals, if applicable), Safe Harbor Contributions, Qualified Matching Contributions and Qualified   Non-Elective Contributions, including the withdrawal restrictions prior to attainment of age 59½.

If the Participant could withdraw his or her account in the past, this right may not be taken away.

 A.            In-Service Withdrawals:

 [   ]           1.           In-service withdrawals are not permitted in the Plan.

 	[ x ]	2.	In-service withdrawals are permitted in the Plan.  Participants may withdraw the following contribution types after meeting the following requirements (select one or more of the following options) :	

 Withdrawal Restrictions
Contribution Types                                                          A           B           C           D           E           F           G           H       

a.      All Contributions                                                   n/a         n/a         n/a         [   ]         [   ]          n/a         n/a         n/a

b.      Elective Deferrals                                                   [   ]         n/a         n/a         [   ]         [ x ]          n/a         n/a         n/a

c.      Roth Elective Deferrals                                           [   ]         n/a         n/a         [   ]         [   ]         n/a         n/a         n/a

d.      Voluntary After-tax Contributions                                                           [   ]         [   ]         [   ]         [   ]         [   ]         n/a         n/a                 n/a

e.      Required After-tax Contributions                                                           [   ]         [   ]         [   ]         [   ]         [   ]          n/a         n/a                 n/a

f.      Rollover                           Contributions                                [   ]         [ x ]         [   ]         [   ]         [   ]         n/a         n/a                 n/a

g.      Vested Matching (Formula 1)                                                   [   ]         n/a         [   ]         [   ]         [   ]          [   ]         [   ]         [   ]

h.      Vested Matching (Formula 2)                                                   [   ]         n/a         [   ]         [   ]         [   ]          [   ]         [   ]         [   ]

i.      Vested Non-Elective (Formula 1)                                                           [   ]         n/a         [   ]         [   ]         [   ]          [   ]         [   ]                 [   ]

j.      Vested Non-Elective (Formula 2)                                                           [   ]         n/a         [   ]         [   ]         [   ]          [   ]         [   ]                 [   ]

k.      Safe Harbor Matching                                           [   ]         n/a         n/a         [   ]         [   ]         n/a         n/a         n/a

l.      Safe Harbor Non-Elective                                                   [   ]         n/a         n/a         [   ]         [   ]         n/a         n/a         n/a

m.      Qualified Non-Elective                                           [   ]         n/a         n/a         [   ]         [   ]         n/a         n/a         n/a

n.      Qualified Matching                                           [   ]         n/a         n/a         [   ]         [   ]          n/a         n/a         n/a

Withdrawal Restriction Key

 A.           Not available for in-service withdrawals.

 B.           Available for in-service withdrawals without restrictions.

 	C.	Participants having completed five (5) years of Plan participation may elect to withdraw all or any part of their Vested Account Balance.	

 	D.	Participants may withdraw all or any part of their Account Balance after having attained the Plan’s Normal Retirement Age (Normal Retirement Age cannot be less than age 59½ for in-service withdrawal of Elective Deferrals, Roth Elective Deferrals, Safe Harbor Contributions, QMACs or QNECs).	

 	E.	Participants may withdraw all or any part of their Vested Account Balance after having attained age 59.5 (not less than age 59½).	

 	F.	Participants may elect to withdraw all or any part of their Vested Account Balance which has been credited to their account for a period in excess of two (2) years.	

 	G.	Available for withdrawal only if the Participant is 100% vested  (an election at (C), (D), (E) or (F) must also be made).	

H.  	All requirements selected in (C) through (G) above must be satisfied prior to a distribution being made from the Plan.	

 [ x ]           3.           In-service withdrawals may be made to Participants who have attained age 70½.

 B.            Hardship Withdrawals:

Prior to age 59½, a Participant may withdraw balances attributable to Elective Deferrals (including Roth Elective Deferrals, if applicable) for reason of Hardship only.  Safe Harbor Contributions, Qualified Matching Contributions, and Qualified Non-Elective Contributions are not available for Hardship distributions.

 	[   ]	1.	Hardship withdrawals are not permitted in the Plan.	

 	[ x ]	2.	Hardship withdrawals are permitted in the Plan and will be taken from the Participant’s account as follows (select one or more of these options):	

 	[ x ]	a.	Participants may withdraw Elective Deferrals.	

 	[   ]            b.	Participants may withdraw Elective Deferrals and any earnings credited as of December 31, 1988 (or if later, the end of the last Plan Year ending before July 1, 1989).	

 	[   ]	c.	Participants may withdraw Roth Elective Deferrals.	

 	[   ]	d.	Participants may withdraw Rollover Contributions plus their earnings.	

 	[   ]	e.	Participants may withdraw vested Non-Elective Contributions (Formula 1) plus their earnings.	

 	[   ]	f.	Participants may withdraw vested Non-Elective Contributions (Formula 2) plus their earnings.	

 	[   ]	g.	Participants may withdraw fully vested Non-Elective Contributions (Formula 1) plus their earnings.	

 	[   ]	h.	Participants may withdraw fully vested Non-Elective Contributions (Formula 2) plus their earnings.	

 	[   ]	i.	Participants may withdraw vested Employer Matching Contributions (Formula 1) plus their earnings.	

 	[   ]	j.	Participants may withdraw vested Employer Matching Contributions (Formula 2) plus their earnings.	

 	[   ]	k.	Participants may withdraw Qualified Matching Contributions and Qualified Non-Elective Contributions plus their earnings, and the earnings on Elective Deferrals which have been credited to the Participant’s account as of December 31, 1988 (or if later, the end of the last Plan Year ending before July 1, 1989).	

XIV.	LOAN PROVISIONS	

[   ]	A.	Participant loans are not available from the Plan.	

[ x ]	B.	Participant loans are permitted in accordance with the Employer’s established loan procedures.	

 	[   ]	C.	Loan payments will be suspended under the Plan as permitted under Code Section 414(u) in compliance with the Uniformed Services Employment and Reemployment Rights Act of 1994.	

XV.	INVESTMENT MANAGEMENT	

 A.            Investment Management Responsibility:

 	[   ]	1.	The Employer shall appoint a discretionary Trustee to manage the assets of the Plan.	

 	[   ]	2.	The Employer shall retain investment management responsibility and/or authority.  Unless otherwise appointed, the Trustee shall act in a nondiscretionary capacity.	

 	[ x ]	3.	The party designated below shall be responsible for the investment of the Participant’s account. By selecting a box, the Employer is making a designation as to who will have authority to issue investment directives with respect to the specified contribution type (check all applicable boxes ):	

Trustee                                          Employer Participant

.	a.	All Contributions	n/a	n/a	[ x ]	

 	b.	Elective Deferrals/Roth Elective Deferrals	[   ]	[   ]	[   ]	

 	c.	Voluntary After-tax Contributions	         [   ]	       [   ]	  [   ]	

 	d.	Required After-tax Contributions	[   ]	[   ]	[   ]	

 	e.	Safe Harbor Contributions	[   ]	[   ]	[   ]	

 	f.	Matching Contributions (Formula 1)	[   ]	[   ]	[   ]	

 	g.	Matching Contributions (Formula 2)	[   ]	[   ]	[   ]	

 	h.	QMACs	[   ]	[   ]	[   ]	

 	i.	QNECs	[   ]	[   ]	[   ]	

 	j.	Non-Elective Contributions (Formula 1)	[   ]	[   ]	[   ]	

 	k.	Non-Elective Contributions (Formula 2)	[   ]	[   ]	[   ]	

 	l.	Rollover Contributions	[   ]	[   ]	[   ]	

 	m.	Deemed IRA Contributions	[   ]	[   ]	[   ]	

 	To the extent that Participant self-direction was previously permitted, the Employer shall have the right to either make the assets part of the general fund, or leave them as self-directed subject to the provisions of the Basic Plan Document #01.	

B.  	Limitations on Participant Directed Investments:	

 	[ x ]	1.	Participants are permitted to invest among only those investment alternatives made available by the Employer under the Plan.	

 	[   ]	2.	Participants are permitted to invest in any investment alternative permitted under the Basic Plan Document #01	

[   ]	C.	Insurance:	

 The Plan permits life insurance as an investment alternative.

XVI.	DISTRIBUTION OPTIONS	

 	A.	Timing of Distributions [both (1) and (2) must be completed] :	

 	1.	Distributions payable as a result of termination for reasons other than death, Disability or retirement shall be paid c [select from the list at (A)(3) below] .	

 	2.	Distributions payable as a result of termination for death, Disability or retirement shall be paid c [select from the list at (A)(3) below].	

 	3.	Distribution Options:	

 	a.	As soon as administratively feasible on or after the Valuation Date following the date on which a distribution is requested or is otherwise payable.	

 	b.	As soon as administratively feasible following the close of the Plan Year during which a distribution is requested or is otherwise payable.	

 	c.	As soon as administratively feasible following the date on which a distribution is requested or is otherwise payable. (This option is recommended for daily valuation plans.)	

 	d.	As soon as administratively feasible after the close of the Plan Year during which the Participant incurs ___________ [cannot be more than five (5)] consecutive one (1) year Breaks in Service.	

 	e.	Only after the Participant has attained the Plan's Normal Retirement Age or Early Retirement Age, if applicable.	

 B.            Required Beginning Date:

 	The Required Beginning Date of a Participant with respect to the Plan is (select one from below):	

 	[   ]            1.	The April 1   of the calendar year following the calendar year in which the Participant attains age 70½	

 	[   ]            2.	The April 1 of the calendar year following the calendar year in which the Participant attains age 70½ except that distributions to a Participant (other than a 5% owner) with respect to benefits accrued after the later of the adoption of this Plan or Effective Date of the amendment of this Plan must commence no later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70½ or the calendar year in which the Participant retires.	

[ x ]            3.	The later of the April 1 of the calendar year following the calendar year in which the Participant attains age 70½ or retires except that distributions to a 5% owner must commence by the April 1 of the calendar year following the calendar year in which the Participant attains age 70½.	

 	Option (3) may only be elected if (i) it corresponds to an amendment previously made to the Plan pursuant to Regulations Section 1.411(d)-4, Q&A-10(b), or (ii) it does not eliminate an age 70½ distribution option as described in the preceding Regulations because either (A) the Plan is a new Plan or (B) Section XIII(A)(3) is checked or the Plan already offers a pre-retirement distribution at least as generous as Section XIII(A)(3).	

C.  	Minimum Distribution Requirements:	

 	[   ]          1.	Election to Apply Five (5) Year Rule to Distributions to Designated Beneficiaries:   If the Participant dies before distributions begin and there is a Designated Beneficiary, distribution to the Designated Beneficiary is not required to begin by the date specified in the Basic Plan Document #01 but the Participant’s entire interest will be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.	

 	[   ]          2.	Election to Allow Participants or Beneficiaries to Elect Five (5) Year Rule:   Participants or Beneficiaries may elect on an individual basis whether the five (5) year rule or the life expectancy rule described in the Basic Plan Document #01 applies to distributions after the death of a Participant who has a Designated Beneficiary.  The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under the Plan, or by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, surviving Spouse’s) death.  If neither the Participant nor Beneficiary makes an election under this paragraph, distributions will be made in accordance with Article VII of the Basic Plan Document #01 and, if applicable, the elections in Section XVI(C)(1) above.	

 D.            Forms of Payment (select all that apply) :

 	The normal form of payment is determined at Section III(J) of this Adoption Agreement.  If option (1) or no selection is made in Section III(J), then options (4), (5) and (6) in this section cannot be selected.	

 	[ x ]	1.	Lump sum.	

 	[ x ]	2.	Installment payments.	

 	[   ]	3.	Partial payments; the minimum amount will be $ ___________ .	

 	[   ]	4.	Life annuity.	

 	[   ]            5.	Term certain annuity with payments guaranteed for ________ years [not to  exceed twenty (20)].	

 	[   ]	6.	Joint and [   ] 50%, [   ] 66-2/3%, [   ] 75% or [   ] 100% survivor annuity.	

 E.            Type of Payment (select all that apply) :

 	[ x ]	1.	Cash.	

 	[ x ]	2.	Employer securities.	

 	[   ]	3.	Other marketable securities.	

 [   ]           4.           Other:                                                                                                               (fill in
                                           the blank with the type of other in-kind distributions allowed under the Plan).

 F.            Application of Involuntary Cash-out Provisions:

 	[   ]	1.	The Plan shall not make involuntary cash-outs to any terminated vested Participant.        Distributions will only be made with the consent of the Participant.	

 	[ x ]	2.	The Plan shall make involuntary cash-outs to a terminated vested Participant as follows:	

 	[   ]            a.	The Plan shall make involuntary cash-out distributions of Vested Account Balances of less than $200.  Distribution of amounts $200 or greater shall only be made with the consent of the Participant.	

 	[ x ]            b.	The Plan shall make involuntary cash-out distributions of Vested Account   Balances of $1,000 or less.  Distribution of amounts greater than $1,000 shall only be made with the consent of the Participant.	

 	3.	When determining the value of the Participant’s nonforfeitable account balance for purposes of the Plan’s involuntary cash-out rules, the Plan elects to:	

 	[   ]           a.	exclude Rollover Contributions.	

 	[ x ]	b.	include Rollover Contributions.	

If no selection is made, the Plan will exclude Rollover Contributions when determining the value of the Participant’s nonforfeitable account balance for involuntary cash-out purposes. Rollover Contributions, if any, will always be included when determining whether the $1,000 threshold has been exceeded.

 	G.	Automatic Rollovers:	

 	Do not complete if a selection has been made at Section XVI(F)(1) or (2) above.	

 	[   ]            1.	The Plan shall make automatic rollovers of Vested Account Balances that are greater than $1,000 but are not more than $5,000 in accordance with the provisions of Article VI of the Basic Plan Document #01.	

 	[   ]	2.	The Plan shall make automatic rollovers of Vested Account Balances that are not more than $5,000 in accordance with the provisions of Article VI of the Basic Plan Document #01.	

H.            Distribution Upon Severance from Employment:

 	[   ]	1.	Not applicable.	

 	[ x ]          2.	Distribution upon severance from employment as described in the Basic Plan Document #01 shall apply for distributions after December 31, 2001 regardless of when the severance from employment occurred.	

 	[   ]	3.	Distribution upon severance from employment as described in the Basic Plan Document #01 shall apply for distributions after ___________________ (no earlier than December 31, 2001) for severance from employment occurring after December 31, 2001 (enter the Effective Date if different than the Effective Date above).	

XVII.            SPONSOR INFORMATION AND ACCEPTANCE

 	This Plan may not be used and shall not be deemed to be a Prototype Plan unless an authorized representative of the Sponsor has acknowledged the use of the Plan.  Such acknowledgment that the Employer is using the Plan does not represent that the Adoption Agreement (as completed) and Basic Plan Document #01 have been reviewed by a representative of the Sponsor or constitute a qualified retirement plan.	

 	Acknowledged and accepted by the Sponsor this __________ day of ________________, __________.	

Name:	Elizabeth H. Festa	

 	Title:	Vice President	

 	Signature:	 	 	

 	Questions concerning the language contained in and qualification of the Prototype should be addressed to:	
Elizabeth H. Festa

(Position): Vice President	(Phone Number):	203-736-3053	

In the event that the Sponsor amends, discontinues or abandons this Prototype Plan, notification will be provided to the Employer's address provided on the first page of this Adoption Agreement.

XVIII.            SIGNATURES

Completion of this Adoption Agreement requires consideration of complex tax and legal issues.  The Employer should consult with or should obtain the advice of its legal counsel and/or tax advisor before executing this Adoption Agreement.  By executing this Adoption Agreement, the Employer acknowledges that it is a legal document with significant tax and legal ramifications.  The Employer understands that its failure to properly complete or amend this Adoption Agreement may result in failure of the Plan to qualify or in disqualification of the Plan.  Neither the Sponsor nor any of its agents or affiliates assumes any responsibility for the completion and operation of the Plan established under this Adoption Agreement and Basic Plan Document #01.

 	A.	Employer:	

 	This Adoption Agreement and the corresponding provisions of Basic Plan Document #01 are adopted by the Employer this__________ day of _____________________, ___________.	

Executed on behalf of the Employer by:	Kristen A Johnson	

 	Title:	Vice President, Human Resources	

 	Signature:	 	 	

Employer's Reliance : The adopting Employer may rely on an Opinion Letter issued by the Internal Revenue Service as evidence that the Plan is qualified under Code Section 401 except to the extent provided in Revenue Procedure 2005-16. The Employer may not rely on the Opinion Letter in certain other circumstances or with respect to certain qualification requirements, which are specified in the Opinion Letter issued with respect to the Plan and in Revenue Procedure 2005-16. In order to have reliance in such circumstances or with respect to such qualification requirements, application for a determination letter must be made to Employee Plans Determinations of the Internal Revenue Service.  This Adoption Agreement may only be used in conjunction with Basic Plan Document #01.

401(k) NS AA #010

 

B.            Trust Agreement/Custodial Agreement:

 [   ]           Plan assets will be invested in group annuity contracts and the terms of the contract(s) will apply.

 	[ x ]	Plan assets are held in a tax qualified Trust.  The Trust provisions used will be as contained in the Basic Plan Document #01.	

 	[   ]	Plan assets are held in a tax qualified Trust.  The Trust provisions used will be as contained in the accompanying pre-approved executed Trust Agreement between the Employer and the Trustee attached hereto.	

 	[   ]	Plan assets are being held in a Custodial Account arrangement.  The Custodial Account provisions used will be as contained in the Basic Plan Document #01.	

 	[   ]	Plan assets are being held in a Custodial Account arrangement.  The Custodial Account provisions used will be as contained in the accompanying pre-approved executed Custodial Account Agreement between the Employer and the Custodian attached hereto.	

 	C.	Trustee:	

 	[   ]	The Trustee appointed shall act in the capacity of a non-discretionary directed Trustee.	

 	[ x ]	The Trustee appointed shall act in the capacity of a discretionary Trustee.	

 	Name and address of Trustee:	

Wachovia Bank, NA
1525 West W. T. Harris Blvd
Charlotte, NC   28662

 	The Employer's Plan as contained herein is accepted by the Trustee this ____________ day of ____________________, ___________.	

 	Accepted on behalf of the Trustee by:	Elizabeth H. Festa	

 	Title:	Vice President	

 	Signature:	 	 	

 	Accepted on behalf of the Trustee by:	 	 	

 	Title:	 	 	

 	Signature:	 	 	

 	Accepted on behalf of the Trustee by:	 	 	

Title:	 	_________	 	

Signature:	_____	 	

 	 	

401(k) NS AA #010

 

 	D.	Custodian:	

 	Name and address of Custodian:	

 	The Employer's Plan as contained herein is accepted by the Custodian this __________ day of ________________, __________.	

 	Accepted on behalf of the Custodian by:	

 	Title:	 	 	

Signature:	_____	 	

401(k) NS AA #010

 

PARTICIPATION AGREEMENT

Each Participating Employer must execute a separate Participation Agreement. If not applicable, do not complete this Participation Agreement.

By executing this Participation Agreement, the undersigned Employer elects to become a Participating Employer in the Plan and accompanying Adoption Agreement as if the Participating Employer were a signatory to the Adoption Agreement.  The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Prototype Plan as made by the signatory sponsoring Employer in Section XVIII(A) of the Adoption Agreement. Further, the Participating Employer hereby appoints the signatory sponsoring Employer as its attorney in fact for the purpose of adopting on its behalf of all future amendments whether required or voluntary and any applicable corresponding documents (e.g., Loan Policy, QDRO procedures, Trust Agreement).  This includes the adoption of all future Model Amendments to this Prototype Plan which are required by the U.S. Department of the Treasury or the Internal Revenue Service as a result of a modification or amendment of applicable Federal laws or regulations that become effective subsequent to the execution of this Participation Agreement.

A.            PARTICIPATING EMPLOYER:

 	Name and address of any Participating Employer.	

Connecticut Water Service
c/o 93 West Main Street
Clinton, CT 06413

 Phone Number:   (860) 669-8630                                                       Tax ID Number:                                    06-0739839                                            

B.            EFFECTIVE DATE:

 The Effective Date of the Plan for the Participating Employer is:    .

[   ]           This is an adoption of a new plan by the Participating Employer.

[ x ]	This is an adoption of an amendment and/or restatement of a plan currently maintained by the Participating Employer identified as follows:	

 Name of Plan:   Savings Plan of the Connecticut Water Company

 Original Effective Date:    January 1, 1985

C.            SIGNATURES:

Executed on behalf of the Participating Employer by: Daniel J. Meaney

 	Title:	Corporate Secretary/Director of Corporate Communications	

Signature:                                                                 

Executed on behalf of the Signatory Sponsoring
Employer by:                                                                       Kristen A Johnson

Title:                                                                 Vice President, Human Resources

Signature:                                                                 

Executed on behalf of the Trustee by:                                                                       Elizabeth H. Festa

Title:                                                                 Vice President

Signature:                                                                 

 
401(k) NS AA #010

 

 	SCHEDULE A	

PROTECTED BENEFITS

This Schedule describes Code Section 411(d)(6) protected benefits included in the adopting Employer’s prior plan document that are not available in this Prototype Defined Contribution Plan, Basic Plan Document #01.  Complete as applicable.

1.            Plan Provision:

Effective Date:                                                                                                            

2.            Plan Provision:

Effective Date:                                                                                                            

3.            Plan Provision:

Effective Date:                                                                                                            

 	4.	Plan Provision:	

Effective Date:                                                                                                            

5.            Plan Provision:

Effective Date:                                                                                                            

401(k) NS AA #010

 

 	SCHEDULE B	

PRIOR PLAN PROVISIONS

This Schedule should be used by the adopting Employer if a prior plan contains provisions not found in this Prototype Defined Contribution Plan, Basic Plan Document #01, or where the Employer wishes to document transactions or historical provisions of the Employer’s Plan.

1.  	Plan Provision:	

Effective Date:                                                                                                            

2.  	Plan Provision:	

Effective Date:                                                                                                            

3.  	Plan Provision:	

Effective Date:                                                                                                            

4.  	Plan Provision:	

Effective Date:                                                                                                            

5.  	Plan Provision:	

Effective Date:	 	 	

401(k) NS AA #010

 

SCHEDULE C

SAFE HARBOR ELECTIONS FOR FLEXIBLE NON-ELECTIVE CONTRIBUTION

The following elections are made with regard to the Plan’s Safe Harbor status pursuant to Section VII herein.  For Plan Years indicated below, the Plan hereby invokes a Safe Harbor status in accordance with IRS Notices 98-52 and 2000-3.

For all Plan Years in which this Safe Harbor election is being made, the limitations and restrictions found in Section VII herein apply.

1.  	For the Plan Year beginning _____ and ending _____ , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3.  The Safe Harbor Contribution will be an amount equal to _____ % (not less than 3%) of Compensation.  This election is made on this _____ day of _____ , _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).	

2.  	For the Plan Year beginning _____ and ending _____ , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3.  The Safe Harbor Contribution will be an amount equal to _____% (not less than 3%) of Compensation.  This election is made on this _____ day of _____ , _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).	

3.  	For the Plan Year beginning _____ and ending _____ , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3.  The Safe Harbor Contribution will be an amount equal to _____ % (not less than 3%) of Compensation.  This election is made on this _____ day of _____ , _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).	

4.  	For the Plan Year beginning _____ and ending _____ , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3.  The Safe Harbor Contribution will be an amount equal to _____ % (not less than 3%) of Compensation.  This election is made on this _____ day of _____ , _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).	

5.  	For the Plan Year beginning _____ and ending _____ , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3.  The Safe Harbor Contribution will be an amount equal to _____ % (not less than 3%) of Compensation.  This election is made on this _____ day of _____ , _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).	

401(k) NS AA #010

 

SCHEDULE D

COLLECTIVE AND COMMINGLED FUNDS

The Trustee is authorized to invest all or any part of the Fund in the following Collective and Commingled Funds as provided for in the Basic Plan Document #01:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

401(k) NS AA #010

 

 	SCHEDULE E	
 	MISCELLANEOUS ADMINISTRATIVE ELECTIONS	

The following elections are made with regard to the administration of the Plan:

 	[   ]	1.	ERISA Section 404(c):   The Employer intends to be covered by the fiduciary liability provisions with respect to Participant-directed investments under ERISA Section 404(c).  Under the terms of this Plan, Participants (or their Beneficiaries) have a reasonable opportunity to give instructions to the Plan Administrator in accordance with the policy set by the Plan Administrator (whether written, oral, or in electronic form) regarding the choice of investment of their account balance. The Plan Administrator is obligated to comply with the Participant’s or Beneficiary’s investment instructions unless complying with such instructions would result in a prohibited transaction under the Code, ERISA or the Department of Labor, violate the Plan document, or jeopardize the Plan’s tax-qualified status.	

 	[ x ]	2.	Fees:   Listed below are the charges your account will incur as a condition of the receipt of a benefit under the Plan, depending upon the transaction involved.	

 	[ x ]	a.	Participants have the ability to take a loan from the Plan.  [ x ] There will be a loan set-up fee of $ 80.00 paid from the account prior to obtaining a loan from the Plan.  [  ] $_____ will be charged on an annual basis until the loan is paid in full.  [ x ] The loan set-up charge is deducted from the Participant’s account.  All other costs of administering the Plan will be paid by the Employer or from Plan assets.	

 	[   ]	b.	The costs of administering the Plan are shared between Participants and the Employer.	

 	[   ]	c.	A service fee equal to $___ / ___% of a Participant’s account balance will be charged per [  ] Plan quarter [  ] Plan Year.	

 	[   ]	d.	All costs of administering the Plan will be paid by the Employer or from Plan assets.	

 	[   ]	e.	In order to maintain a self-directed brokerage option, Participants will be charged an initial fee of  $_______ [  ] and annual fee of $_________.	

 	[   ]	f.	To obtain a Hardship distribution, Participants will incur a charge of $_________.	

 	[   ]	g.	Qualified Domestic Relations Order (QDRO) presented to the Plan for payment will be charged $_______ to the Participant’s/Alternate Payee’s account for processing.	

 	 [   ]	h.	Other:	

 	[   ]	3.	Automatic Rollover Of Distributions:   If a Plan Participant does not elect to take a distribution and include it in income or have the distribution rolled over to either a qualified retirement plan or an Individual Retirement Account (“IRA”), the Plan is required to make a Direct Rollover of the distribution to an IRA.  The Employer as Plan Sponsor has the authority to execute the documents necessary to establish the IRA account, and once established, the Trustee/Issuer of the IRA will provide the Participant with a Disclosure Statement detailing the terms and conditions as well as any fees imposed on the IRA, including the procedures regarding the seven (7) day revocation period.  The Plan has selected the following IRA Trustee/Issuer:	

Name:                              

Address:                      

Phone:                             

The initial IRA setup fee shall be: 

The initial IRA setup fee shall be paid by: 

The IRA Provider’s annual fee shall be:   

The IRA funds shall be invested in:

 
401(k) NS AA #010

 

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated this _____ day of December, 2008, is made by and between The Connecticut Water Company, a Connecticut corporation having its principal place of business in Clinton, Connecticut, ("Company"), Connecticut Water Service, Inc., a Connecticut corporation and holder of all of the outstanding capital stock of Company ("Parent") and __________, a resident of  __________ ("Employee").

WITNESSETH:

WHEREAS, Company and Parent desire to reward Employee for Employee's valuable, dedicated service to Company and Parent should Employee's service be terminated under circumstances hereinafter described; and

 WHEREAS, Employee, Company and Parent entered into an amended and restated Employment Agreement dated January 24, 2008; and

 WHEREAS, the parties wish to amend the Agreement to comply with Section 409A of the Internal Revenue Code of 1986, as amended and regulations issued thereunder (collectively the “Code”); and

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

NOW, THEREFORE, to assure Company and Parent of Employee's continued dedication and the availability of Employee's advice and counsel in the event of any such proposal, to induce Employee to remain in the employ of Company and Parent and to reward Employee for Employee's valuable dedicated service to Company and Parent should Employee's service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy of which each party acknowledges, effective January 1, 2009, Company, Parent and Employee agree as follows:

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

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

 

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

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

(d)   "Effective Date" shall be the date on which a Change-in-Control occurs.  Anything in this Agreement to the contrary notwithstanding, if Employee's employment is terminated prior to the date on which a Change-in-Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps

 

reasonably calculated to effect a Change-in-Control or (ii) otherwise arose in connection with or anticipation of a Change-in-Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination.

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

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

2.  	Employment.	

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

(b)   At any time during the Term, the Board of Directors of Company and Parent may, by written notice to Employee, advise Employee of their desire to modify or amend any of the terms or provisions of this Agreement or to delete or add any terms or provisions.  Any such notice ("Notice") shall describe the proposed modifications in reasonable detail.  In the event a Notice shall be given to Employee, then Company, Parent and Employee agree to discuss the proposed modification(s) and to attempt in good faith to reach agreement with respect thereto and to reduce such agreement to writing in an amendment to be executed by all the parties ("Amendment").  If a Notice is given hereunder and an Amendment shall not have been executed on or before the sixtieth (60th) day following the date on which Notice is given, then the Term shall thereupon be automatically converted to a fixed period ending three (3) years after the expiration of such sixty (60) days.

3.  	Duties of Employment.	

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

 

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

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

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

 (b) In addition, Company shall pay to Employee an annual award under the Company’s Performance Stock Program (or other bonus program in effect at the time the Effective Date occurs) payable in cash or other form of compensation, for which he would have been eligible in accordance with the Company's practice or plan in effect at that time for annual bonuses for said employee for the year preceding the fiscal year in which the Effective Date occurs.

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

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

 

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

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

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

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

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

(g)  Stay-on Bonus :  (i)  If Employee is employed on a date on which the Board of Directors of Company or Parent approves a transaction described in clause (iii) of Paragraph 1(b) and the shareholders of Company or Parent, as applicable subsequently approve such transaction, provided that such transaction qualifies as a “Change in Control” within the meaning of Section 409A of the Code and regulations issued thereunder, Employee shall receive a lump sum equal to the base salary of Employee, at the rate in effect immediately prior to such date, plus an amount equal to the target percentage of the midpoint of Employee’s salary grade under the Company’s Officers Incentive Program for the year in which such date occurs; provided Employee is employed on the fifth (5 th ) day following the closing of such transaction.

 

Payment hereunder shall be made on the fifth (5 th ) business day following the closing of such a transaction.  (ii)  If the Employee separates from service from the Company following such approval by the applicable Board of Directors of a transaction described in subparagraph (i) of this Paragraph (g) (provided that such transaction qualifies as a “Change in Control” within the meaning of Section 409A of the Code and regulations issued thereunder), and prior to the fifth (5 th ) day following the closing of such transaction for any reason other than for Cause, or Employee’s death, or Employee’s attainment of age sixty-five (65), or if Employee’s employment is terminated during such period by reason of Employee’s Disability, or if Employee shall voluntarily terminate Employee’s employment during such period for Good Reason, then, in addition to the amounts payable to Employee pursuant to Section 7, Employee shall be paid a lump sum equal to the base salary of Employee, at the rate in effect immediately prior to the date of termination, plus an amount equal to the target percentage of the midpoint of Employee’s salary grade under the Company’s Officers Incentive Program for the year in which termination occurs.  If the Employee is a “specified employee,” as that term is defined under Section 409A of the Code at the time he incurs a separation from service, prior to payment under (ii), payment under (ii) shall be made on the later of the first day of the seventh (7 th ) month following the Employee’s termination of Employment, or on the fifth (5 th ) business day following the closing of such transaction.  If the Employee is not a specified employee, payment under (ii) shall be made on the fifth (5 th ) business day following the closing of such transaction.

6.  	End of Term and Notice of Termination.	

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

(i)  	Termination of Employee's employment by Company for Cause.	

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

(iii)  	The death of Employee.	

(iv)  	Employee's attainment of age sixty-five (65).	

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

(b) Notice of Termination .  Any termination by Company for Cause or by Employee for Good Reason or on account of Employee's Disability shall be communicated by notice to the other party hereto given in accordance with Section 15 of this Agreement.  For purposes of this Agreement, a "notice" means a written notice which (i) indicates the specific

 

termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated and (iii) if the date of termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice).

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

(d) Termination of Employment .  In order for the Employee to be considered to have terminated employment with the Company, the Employee must have incurred a separation from service from the Company (and all related companies) within the meaning of Section 409A of the Code, and regulations promulgated thereunder, and the term termination of employment and the like as used in this Agreement shall be construed to mean separation from service as so defined under Section 409A of the Code.

7.  	Payment Upon Termination.	

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

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

(c)   In the event of the death of Employee during the Term, then, in addition to the Accrued Obligations and any other benefits which may be payable by Company in respect of the death of Employee, the base salary then payable hereunder shall continue to be paid at the then current rate for a period of six (6) months after such death to such beneficiary as shall have been designated in writing by Employee, or if no effective designation exists, then to the estate of Employee.  Such payment shall be made on the first (1 st ) and fifteenth (15 th ) of each month, beginning on the first day of the first month following Employee’s death.

 

(d)   If Employee's employment is terminated by reason of Employee's attainment of age sixty-five (65), the obligations of Company under this Agreement shall cease and Employee shall forfeit all right to receive any compensation or other benefits under this Agreement except the Accrued Obligations.

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

(i)   An amount in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below to be determined by a nationally recognized independent certified public accounting firm selected and retained by Company to be the reasonable value of said covenants as of the date of termination of Employee’s employment, but in no event shall such amount be greater than the aggregate value of the benefits provided in subparagraphs (e)(ii), (iii), (iv), (v) and (viii) hereinbelow.  The benefits otherwise payable to Executive pursuant to said subparagraphs shall be offset by the amount, if any, payable to Executive in respect of the covenants by Employee set forth in Paragraphs 8 and 9 below.  Said amount paid in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below shall be paid in accordance with subparagraphs (e)(ii), (iii), (iv), (v) and (viii) below, and this subparagraph (i) shall not alter the time or form of payment of such amounts.

(ii)   An amount equal to three (3) times the base salary of Employee, at the rate in effect immediately prior to the date of termination, plus an amount equal to three (3) times the target percentage of the midpoint of Employee's salary grade under the Company's Officers Incentive Program for the year in which termination occurs if the employee is a participant in such plan at the time of the Change-in-Control.  Such amount so determined shall be divided into thirty-six (36) equal amounts.  If the Employee is not a “specified employee” as defined under Section 409A of the Code at the time of termination, payment of such equal amounts shall be made on the first day of each month, commencing with the first day of the first month following termination.  If the Employee is a “specified employee” as that term is defined under Section 409A of the Code on the date of termination, seven (7) such equal amounts shall be paid to the Employee on the date which is the first day of the seventh (7 th ) month following the date of termination of employment, and the twenty-nine (29) remaining equal amounts shall be payable on the first day of each month subsequent to the date of the first payment (one payment per month) until the payments are completed.  Payments shall be treated as supplemental wage payments under applicable Treasury Regulations subject to federal tax withholding at the flat percentage rate applicable thereto.

(iii)   An amount equal to the aggregate amounts that Company would have contributed on behalf of Employee under Company's qualified defined contribution retirement plan(s), if any such plan(s) shall be in effect (other than amounts attributable to Employee's before-tax contributions to such plan(s)) plus estimated earnings thereon had

 

Employee continued in the employ of Company for the three (3)-year period commencing on the date of termination and made contributions under said plan(s) equal to the maximum amount that the Employee could have contributed under the terms of such plan(s) for the plan year immediately preceding Employee's termination, to be payable in a lump sum to Employee on the second anniversary of the Employee’s termination of employment, provided that Employee shall not have breached said non-competition provisions.

(iv)   An amount equal to the additional Interest Equivalent which would have been earned under any deferred compensation agreement between Company and Employee, if any such agreement shall be in effect, had Employee continued in the employ of Company for the three (3)-year period commencing on the date of termination, received compensation at least equal to that specified in Paragraph 4 of this Agreement during such time, and deferred pursuant to said deferred compensation agreement the amount of compensation specified therein; such amount to be payable in a lump sum to Employee on the second anniversary of the Employee’s termination of employment, provided that Employee shall not have breached said non-competition provisions.

(v)   Additional retirement benefits equal to the additional annual pension benefits that would have been payable to Employee under Company's qualified defined benefit retirement plan (the "Plan") and under any nonqualified supplemental Employee retirement plan covering Employee (the "Supplemental Plan"), if any such Plan or Supplemental Plan shall be in effect, if Employee had been continued in the employ of Company for the three (3)-year period commencing on the date of termination and had received compensation at least equal to that specified in Paragraph 4(a) of this Agreement during such time and had been fully vested in the benefits payable under any such Plan and Supplemental Plan.  The discounted present value of such additional benefits, shall be payable to Employee in a lump sum, as calculated by the independent actuary for the Plan using the assumptions specified in the Plan, on the second anniversary of the Employee’s termination of employment, provided that Employee shall not have breached said non-competition provisions.

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

(vii)   If Employee's employment is terminated by reason of Employee's Disability, Employee shall be entitled to receive, in addition to the other benefits provided under this Paragraph 7(e), disability benefits payable in accordance with any bona fide disability plan maintained by Company or Parent, to the extent Employee qualifies for benefits under the terms of such bona fide disability plan.

(viii)   A lump sum cash payment equal to three (3) times the sum of the average of the annual contributions, payments, credits or allocations made by the Company on behalf of the Employee for coverage under all life, health, disability and similar welfare benefit plans and programs and other perquisites maintained by the Company during the three (3) calendar year period preceding his termination of employment.  Such payment shall be made on

 

the first day of the seventh (7 th ) month following the Employee’s termination of employment, if the Employee is a “specified employee” as defined under Section 409A of the Code on the date of termination.  If the Employee is not a specified employee on the date of termination, payment shall be made on the first day of the month following the Employee’s termination of employment.

(ix)   Company shall reimburse Employee for the amount of any reasonable legal or accounting fees and expenses incurred by Employee to obtain or enforce any right or benefit provided to Employee by Company hereunder or as confirmed or acknowledged hereunder, provided that no such reimbursement shall be made earlier than seven (7) months following the Employee’s termination, if the Employee is a “specified employee” as that term is defined under Section 409A of the Code on the date of termination, and in no event shall any reimbursement be made any later than December 31 of the calendar year following the year in which the expense is incurred by the Employee.

(x)   Company shall provide the Employee with reasonable outplacement services from a firm selected by the Company for a period of one (1) year commencing on the date of termination, or until Employee accepts other employment, if earlier.

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

 

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

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

(b)   Employee hereby acknowledges that Employee's services are unique and extraordinary, and are not readily replaceable, and hereby expressly agrees that Company and Parent, in enforcing the covenants contained in Paragraphs 8 and 9 herein, in addition to any other remedies provided for herein or otherwise available at law, shall be entitled in any court of equity having jurisdiction to an injunction restraining Employee in the event of a breach, actual or threatened, of the agreements and covenants contained in these Paragraphs.

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

10.  	No Obligation to Mitigate.   So long as Employee shall not be in breach of any provision of Paragraph 8 or 9, Employee shall have no duty to mitigate damages in the event of a termination and if Employee voluntarily obtains other employment (including self-employment),	

 

any compensation or profits received or accrued, directly or indirectly, from such other employment shall not reduce or otherwise affect the obligations of Company and Parent to make payments hereunder.

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

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

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

14.  	Additional Benefits.   In addition to the other benefits payable to Employee pursuant to this Agreement, in the event that any payment or benefit received or to be received by Employee under this Agreement (a “Payment”) is subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor to such Section, as determined by a nationally recognized independent certified public accounting firm selected by the Company (the “Tax Advisor”), then the Company shall make an additional payment to Employee in a lump sum equal to all federal, state and local taxes imposed on the Employee as a result of payments made under this Agreement, including the amount of additional taxes imposed upon the service provider due to the Company’s payment of the initial taxes on such compensation.  Such payment shall be made no later than the end of the calendar year following the calendar year in which the Employee remits the related taxes and in the case of a “specified employee,” as that term is defined under Section 409A of the Code on the date of termination, shall not be made sooner than the first day of the seventh month following termination of employment.  The determination of the Tax Advisor as provided herein shall be completed not later than forty-five (45) days following Employee’s date of termination of employment, and such determination shall be communicated in writing to Company, with a copy to Employee within said forty-five (45) day period.  The determination of the Tax Advisor as provided herein shall be deemed conclusive and binding on Company and Employee.  Company shall pay the fees and other costs of the Tax Advisor hereunder.	

 

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

16.  	Successors and Binding Agreement.	

(a) Company and Parent will require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company and/or Parent, as the case may be, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Company and Parent are required to perform it.  Failure of Company and Parent to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement.  As used in this Agreement, "Company" and "Parent" shall include any successor to Company's and/or Parent's, as the case may be, business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

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

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

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

19.  	Amendment.   This Agreement may be modified or amended only by an instrument in writing executed by the parties hereto.	

20.  	Construction.   This Agreement shall supersede and replace all prior agreements and understandings between the parties hereto on the subject-matter covered hereby.  This Agreement shall be governed and construed under the laws of the State of Connecticut.  Words of the masculine gender mean and include correlative words of the feminine gender.  Paragraph	

 

headings are for convenience only and shall not be considered a part of the terms and provisions of the Agreement.

21.  	Deferred Compensation.   This Agreement has been prepared with reference to Section 409A of the Internal Revenue Code and shall be interpreted and administered in a manner consistent with Section 409A.	

22.  	Assignment Prohibited.   Benefits hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Employee, Employee’s beneficiary, or estate, and any attempt to anticipate, alienate, transfer, assign or attach the same shall be void.  The Employee, Employee’s beneficiary or estate shall only have a contractual right to benefits hereunder and shall have the status of general unsecured creditors.	

* * * * * * *

IN WITNESS WHEREOF, Company and Parent have caused this Agreement to be executed by an authorized officer, and Employee has hereunto set Employee's hand.

 The Connecticut Water Company

December      , 2008                                                      By                                                                
Date

 Connecticut Water Service, Inc.

December      , 2008                                                      By                                                                
Date

December      , 2008                                                      
Date

 

 

ATTACHMENT A
RELEASE

We advise you to consult an attorney before you sign this Release.  You have until the date which is seven (7) days after the Release is signed and returned to ________________ ("Company") to change your mind and revoke your Release.  Your Release shall not become effective or enforceable until after that date.

In consideration for the benefits provided under your Employment Agreement dated ________________ with Company and ________________ ("Parent"), and more specifically enumerated in Exhibit 1 hereto, by your signature below you agree to accept such benefits and not to make any claims of any kind against Company, its past and present and future parent corporations, subsidiaries, divisions, subdivisions, affiliates and related companies or their successors and assigns, including without limitation Parent, or any and all past, present and future Directors, officers, fiduciaries or employees of any of the foregoing (all parties referred to in the foregoing are hereinafter referred to as the "Releasees") before any agency, court or other forum, and you agree to release the Releasees from all claims, known or unknown, arising in any way from any actions taken by the Releasees up to the date of this Release, including, without limiting the foregoing, any claim for wrongful discharge or breach of contract or any claims arising under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, Connecticut's Fair Employment Practices Act or any other federal, state or local statute or regulation and any claim for attorneys' fees, expenses or costs of litigation.

THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE YOU WILL HAVE WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASEES BASED ON ANY ACTIONS TAKEN BY THE RELEASEES UP TO THE DATE OF THIS RELEASE.

By signing this Release, you further agree as follows:

1.   You have read this Release carefully and fully understand its terms;

2.   You have had at least twenty-one (21) days to consider the terms of the Release;

3.   You have seven (7) days from the date you sign this Release to revoke it by written notification to Company.  After this seven (7) day period, this Release is final and binding and may not be revoked;

4.   You have been advised to seek legal counsel and have had an opportunity to do so;

 

5.   You would not otherwise be entitled to the benefits provided under your Employment Agreement with Company and Parent had you not agreed to waive any right you have to bring a lawsuit or legal claim against the Releasees; and

6.   Your agreement to the terms set forth above is voluntary.

Name:	 	 	 	
Signature:	 	Date:	 	
Received by:	 	Date:	 	

 

EXHIBIT 1

1.

2.

3.

4.

5.

etc.

NOTE: THIS EXHIBIT IS TO BE COMPLETED AT THE TIME OF TERMINATION TO REFLECT ALL BENEFITS AND PAYMENTS MADE UNDER THE EMPLOYMENT AGREEMENT.

Acknowledged and Agreed:

THE CONNECTICUT WATER COMPANY	 	EMPLOYEE	
By	 	 	 	
   Its	 	 	 	
CONNECTICUT WATER SERVICE, INC.	 	 	
By	 	 	 	
   Its	 	 	 	

 

 

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated this _____ day of December, 2008, is made by and between The Connecticut Water Company, a Connecticut corporation having its principal place of business in Clinton, Connecticut, ("Company"), Connecticut Water Service, Inc., a Connecticut corporation and holder of all of the outstanding capital stock of Company ("Parent") and __________, a resident of __________, ("Employee").

WITNESSETH:

WHEREAS, Company and Parent desire to reward Employee for Employee's valuable, dedicated service to Company and Parent should Employee's service be terminated under circumstances hereinafter described; and

 WHEREAS, Employee, Company and Parent entered into an amended and restated Employment Agreement dated January 24, 2008; and

 WHEREAS, the parties wish to amend the Agreement to comply with Section 409A of the Internal Revenue Code of 1986, as amended and regulations issued thereunder (collectively the “Code”); and

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

NOW, THEREFORE, to assure Company and Parent of Employee's continued dedication and the availability of Employee's advice and counsel in the event of any such proposal, to induce Employee to remain in the employ of Company and Parent and to reward Employee for Employee's valuable dedicated service to Company and Parent should Employee's service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy of which each party acknowledges, effective January 1, 2009, Company, Parent and Employee agree as follows:

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

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

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

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

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

(e)   "Good Reason" shall mean the occurrence of any action which (i) removes or changes Employee's title or reduces Employee's job responsibilities or base salary; (ii) results in a significant worsening of Employee's work conditions; or (iii) moves Employee's place of employment to a location that increases Employee's commute by more than thirty (30) miles over the length of Employee's commute from Employee's place of principal residence at the time the move is requested.  For purposes of this subparagraph (e), any good faith determination by Employee that any such action has occurred shall be conclusive.

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

2.  	Employment.	

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

(b)   At any time during the Term, the Board of Directors of Company and Parent may, by written notice to Employee, advise Employee of their desire to modify or amend any of the terms or provisions of this Agreement or to delete or add any terms or provisions.  Any such notice ("Notice") shall describe the proposed modifications in reasonable detail.  In the event a Notice shall be given to Employee, then Company, Parent and Employee agree to discuss the proposed modification(s) and to attempt in good faith to reach agreement with respect thereto and to reduce such agreement to writing in an amendment to be executed by all the parties ("Amendment").  If a Notice is given hereunder and an Amendment shall not have been executed on or before the sixtieth (60th) day following the date on which Notice is given, then the Term shall thereupon be automatically converted to a fixed period ending three (3) years after the expiration of such sixty (60) days.

 3.            Duties of Employment.

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

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

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

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

 (b) In addition, Company shall pay to Employee an annual award under the Company’s Performance Stock Program (or other bonus program in effect at the time the Effective Date occurs) payable in cash or other form of compensation, for which he would have been eligible in accordance with the Company's practice or plan in effect at that time for annual bonuses for said employee for the year preceding the fiscal year in which the Effective Date occurs.

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

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

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

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

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

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

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

6.            End of Term and Notice of Termination .

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

  (i)   Termination of Employee's employment by Company for Cause.

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

  (iii)   The death of Employee.

  (iv)   Employee's attainment of age sixty-five (65).
 
(v)  	Full compliance by Company with the provisions of Paragraph 7(e) below, if Employee's employment shall have been terminated by Company during the Term for any reason other than Cause, or if Employee's employment shall have been terminated by reason of Employee's Disability, or if Employee shall have voluntarily terminated Employee's employment during the Term for Good Reason.	

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

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

(d)  Termination of Employment .  In order for the Employee to be considered to have terminated employment with the Company, the Employee must have incurred a separation from service from the Company (and all related companies) within the meaning of Section 409A of the Code, and regulations promulgated thereunder, and the term termination of employment and the like as used in this Agreement shall be construed to mean separation from service as so defined under Section 409A of the Code.

 7.            Payment Upon Termination .

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

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

(c)   In the event of the death of Employee during the Term, then, in addition to the Accrued Obligations and any other benefits which may be payable by Company in respect of the death of Employee, the base salary then payable hereunder shall continue to be paid at the then current rate for a period of six (6) months after such death to such beneficiary as shall have been designated in writing by Employee, or if no effective designation exists, then to the estate of Employee.  Such payment shall be made on the first (1 st ) and fifteenth (15 th ) of each month, beginning on the first day of the first month following Employee’s death.

(d)   If Employee's employment is terminated by reason of Employee's attainment of age sixty-five (65), the obligations of Company under this Agreement shall cease and Employee shall forfeit all right to receive any compensation or other benefits under this Agreement except the Accrued Obligations.

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

(i)   An amount in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below to be determined by a nationally recognized independent certified public accounting firm selected and retained by Company to be the reasonable value of said covenants as of the date of termination of Employee’s employment, but in no event shall such amount be greater than the aggregate value of the benefits provided in subparagraphs (e)(ii), (iii), (iv), (v) and (viii) hereinbelow.  The benefits otherwise payable to Executive pursuant to said subparagraphs shall be offset by the amount, if any, payable to Executive in respect of the covenants by Employee set forth in Paragraphs 8 and 9 below.  Said amount paid in consideration of the covenants by Executive set forth in Paragraphs 8 and 9 below shall be paid in accordance with subparagraphs (e)(ii), (iii), (iv), (v) and (viii) below, and this subparagraph (i) shall not alter the time or form of payment of such amounts.

(ii)   An amount equal to three (3) times the base salary of Employee, at the rate in effect immediately prior to the date of termination, plus an amount equal to three (3) times the target percentage of the midpoint of Employee's salary grade under the Company's Officers Incentive Program for the year in which termination occurs if the employee is a participant in such plan at the time of the Change-in-Control.  Such amount so determined shall be divided into thirty-six (36) equal amounts.  If the Employee is not a “specified employee” as defined under Section 409A of the Code at the time of termination, payment of such equal amounts shall be made on the first day of each month, commencing with the first day of the first
month following termination.  If the Employee is a “specified employee” as that term is defined under Section 409A of the Code on the date of termination, seven (7) such equal amounts shall be paid to the Employee on the date which is the first day of the seventh (7 th ) month following the date of termination of employment, and the twenty-nine (29) remaining equal amounts shall be payable on the first day of each month subsequent to the date of the first payment (one payment per month) until the payments are completed.  Payments shall be treated as supplemental wage payments under applicable Treasury Regulations subject to federal tax withholding at the flat percentage rate applicable thereto.

(iii)   An amount equal to the aggregate amounts that Company would have contributed on behalf of Employee under Company's qualified defined contribution retirement plan(s), if any such plan(s) shall be in effect (other than amounts attributable to Employee's before-tax contributions to such plan(s)) plus estimated earnings thereon had Employee continued in the employ of Company for the three (3)-year period commencing on the date of termination and made contributions under said plan(s) equal to the maximum amount that the Employee could have contributed under the terms of such plan(s) for the plan year immediately preceding Employee's termination, to be payable in a lump sum to Employee on the second anniversary of the Employee’s termination of employment, provided that Employee shall not have breached said non-competition provisions.

(iv)   An amount equal to the additional Interest Equivalent which would have been earned under any deferred compensation agreement between Company and Employee, if any such agreement shall be in effect, had Employee continued in the employ of Company for the three (3)-year period commencing on the date of termination, received compensation at least equal to that specified in Paragraph 4 of this Agreement during such time, and deferred pursuant to said deferred compensation agreement the amount of compensation specified therein; such amount to be payable in a lump sum to Employee on the second anniversary of the Employee’s termination of employment, provided that Employee shall not have breached said non-competition provisions.

(v)   Additional retirement benefits equal to the additional annual pension benefits that would have been payable to Employee under Company's qualified defined benefit retirement plan (the "Plan") and under any nonqualified supplemental Employee retirement plan covering Employee (the "Supplemental Plan"), if any such Plan or Supplemental Plan shall be in effect, if Employee had been continued in the employ of Company for the three (3)-year period commencing on the date of termination and had received compensation at least equal to that specified in Paragraph 4(a) of this Agreement during such time and had been fully vested in the benefits payable under any such Plan and Supplemental Plan.  The discounted present value of such additional benefits, shall be payable to Employee in a lump sum, as calculated by the independent actuary for the Plan using the assumptions specified in the Plan, on the second anniversary of the Employee’s termination of employment, provided that Employee shall not have breached said non-competition provisions.

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

(vii)   If Employee's employment is terminated by reason of Employee's Disability, Employee shall be entitled to receive, in addition to the other benefits provided under this Paragraph 7(e), disability benefits payable in accordance with any bona fide disability plan maintained by Company or Parent, to the extent Employee qualifies for benefits under the terms of such bona fide disability plan.

(viii)   A lump sum cash payment equal to three (3) times the sum of the average of the annual contributions, payments, credits or allocations made by the Company on behalf of the Employee for coverage under all life, health, disability and similar welfare benefit plans and programs and other perquisites maintained by the Company during the three (3) calendar year period preceding his termination of employment.  Such payment shall be made on the first day of the seventh (7 th ) month following the Employee’s termination of employment, if the Employee is a “specified employee” as defined under Section 409A of the Code on the date of termination.  If the Employee is not a specified employee on the date of termination, payment shall be made on the first day of the month following the Employee’s termination of employment.

(ix)   Company shall reimburse Employee for the amount of any reasonable legal or accounting fees and expenses incurred by Employee to obtain or enforce any right or benefit provided to Employee by Company hereunder or as confirmed or acknowledged hereunder, provided that no such reimbursement shall be made earlier than seven (7) months following the Employee’s termination, if the Employee is a “specified employee” as that term is defined under Section 409A of the Code on the date of termination, and in no event shall any reimbursement be made any later than December 31 of the calendar year following the year in which the expense is incurred by the Employee.

(x)   Company shall provide the Employee with reasonable outplacement services from a firm selected by the Company for a period of one (1) year commencing on the date of termination, or until Employee accepts other employment, if earlier.

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

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

(b)   Employee hereby acknowledges that Employee's services are unique and extraordinary, and are not readily replaceable, and hereby expressly agrees that Company and Parent, in enforcing the covenants contained in Paragraphs 8 and 9 herein, in addition to any other remedies provided for herein or otherwise available at law, shall be entitled in any court of equity having jurisdiction to an injunction restraining Employee in the event of a breach, actual or threatened, of the agreements and covenants contained in these Paragraphs.

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

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

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

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

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

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

15.   Successors and Binding Agreement .

(a) Company and Parent will require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company and/or Parent, as the case may be, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Company and Parent are required to perform it.  Failure of Company and Parent to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement.  As used in this Agreement, "Company" and "Parent" shall include any successor to Company's and/or Parent's, as the case may be, business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
 
(b) This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If Employee dies while any amount is still payable hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there is no such designee, to Employee's estate.

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

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

18.   Amendment .  This Agreement may be modified or amended only by an instrument in writing executed by the parties hereto.

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

20.   Deferred Compensation .  This Agreement has been prepared with reference to Section 409A of the Internal Revenue Code and shall be interpreted and administered in a manner consistent with Section 409A.

21.   Assignment Prohibited .  Benefits hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Employee, the Employee’s beneficiary, or estate, and any attempt to anticipate, alienate, transfer, assign or attach the same shall be void.  The Employee, the Employee’s beneficiary or estate shall only have a contractual right to benefits hereunder and shall have the status of general unsecured creditors.

* * * * * *

IN WITNESS WHEREOF, Company and Parent have caused this Agreement to be executed by an authorized officer, and Employee has hereunto set Employee's hand.

 The Connecticut Water Company

December      , 2008                                                      By                                                                
          Date
 Connecticut Water Service, Inc.

December      , 2008                                                      By                                                                
          Date

December      , 2008                                                      
          Date

ATTACHMENT A
RELEASE

We advise you to consult an attorney before you sign this Release.  You have until the date which is seven (7) days after the Release is signed and returned to ________________ ("Company") to change your mind and revoke your Release.  Your Release shall not become effective or enforceable until after that date.

In consideration for the benefits provided under your Employment Agreement dated ________________ with Company and ________________ ("Parent"), and more specifically enumerated in Exhibit 1 hereto, by your signature below you agree to accept such benefits and not to make any claims of any kind against Company, its past and present and future parent corporations, subsidiaries, divisions, subdivisions, affiliates and related companies or their successors and assigns, including without limitation Parent, or any and all past, present and future Directors, officers, fiduciaries or employees of any of the foregoing (all parties referred to in the foregoing are hereinafter referred to as the "Releasees") before any agency, court or other forum, and you agree to release the Releasees from all claims, known or unknown, arising in any way from any actions taken by the Releasees up to the date of this Release, including, without limiting the foregoing, any claim for wrongful discharge or breach of contract or any claims arising under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, Connecticut's Fair Employment Practices Act or any other federal, state or local statute or regulation and any claim for attorneys' fees, expenses or costs of litigation.

THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE YOU WILL HAVE WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE RELEASEES BASED ON ANY ACTIONS TAKEN BY THE RELEASEES UP TO THE DATE OF THIS RELEASE.

By signing this Release, you further agree as follows:

1.   You have read this Release carefully and fully understand its terms;

2.   You have had at least twenty-one (21) days to consider the terms of the Release;

3.   You have seven (7) days from the date you sign this Release to revoke it by written notification to Company.  After this seven (7) day period, this Release is final and binding and may not be revoked;

4.   You have been advised to seek legal counsel and have had an opportunity to do so;

5.   You would not otherwise be entitled to the benefits provided under your Employment Agreement with Company and Parent had you not agreed to waive any right you have to bring a lawsuit or legal claim against the Releasees; and

6.   Your agreement to the terms set forth above is voluntary.

Name:	 	 	 	
Signature:	 	Date:	 	
Received by:	 	Date:	 	

EXHIBIT 1

1.

2.

3.

4.

5.

etc.

NOTE: THIS EXHIBIT IS TO BE COMPLETED AT THE TIME OF TERMINATION TO REFLECT ALL BENEFITS AND PAYMENTS MADE UNDER THE EMPLOYMENT AGREEMENT.

Acknowledged and Agreed:

THE CONNECTICUT WATER COMPANY	 	EMPLOYEE	
By	 	 	 	
   Its	 	 	 	
CONNECTICUT WATER SERVICE, INC.	 	 	
By	 	 	 	
   Its	 	 	 	

AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

This Agreement, made this _____ day of _________, 2008 by and between THE CONNECTICUT WATER COMPANY (hereinafter referred to as the "Employer") and [___________________] (hereinafter referred to as the "Employee").

WITNESSETH THAT:

WHEREAS, the Employee has and is expected to continue to render valuable services to the Employer, and

WHEREAS, the Employer desires to ensure that it will have the benefit of the Employee's services until [he] reaches retirement, and

WHEREAS, the Employer wishes to assist the Employee in providing for the financial requirements of the Employee in the event of [his] retirement, disability or death; and

 WHEREAS, the Employer and the Employee entered into an amended and restated Supplemental Executive Retirement Agreement dated [______________]; and

 WHEREAS, the parties wish to amend and restate the Supplemental Retirement Agreement to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and regulations issued thereunder (collectively “Section 409A”);

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree to enter into this Amended and Restated Supplemental Executive Retirement Agreement, effective January 1, 2009, as follows:

1.            SUPPLEMENTAL RETIREMENT BENEFIT

a.            Normal or Deferred Retirement .  If, upon or after the Employee's attainment of age 65, the Employee shall separate from service and [he] shall be eligible to receive a benefit under The Connecticut Water Company Employees’ Retirement Plan (hereinafter referred to as the “Retirement Plan”), the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for [his] life of (a) 60% of the Employee's Average Earnings reduced by (b) the annual benefit payable to the Employee under the Retirement Plan in the form of a single life annuity for the life of the Employee (whether or not the benefit under the Retirement Plan is actually paid in such form), commencing at the same time as of which benefits commence hereunder (whether or not the benefit under the Retirement Plan commences at such time), [and further reduced by the annual benefit payable to Employee under any qualified defined benefit plan maintained by ____________________ in the form of a single life annuity on the life the Employee (whether or not the benefit under such plan is actually paid in such form) commencing at the same time as of which benefits commence hereunder (whether or not the benefit under such plan commences at such time).]

 

 

Such benefit will be payable in accordance with Section 2 below.  The date as of which benefits commence hereunder is the first day of the month following the Employee’s separation from service, even though actual payment may be delayed in accordance with Section 2 hereof.

b.            Early Retirement .  If, upon or after the Employee's attainment of age 55 and prior to attainment of age 65, the Employee shall separate from service and [he] shall be eligible to receive a benefit under the Retirement Plan, the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for [his] life of (a) 60% of the Employee's Average Earnings reduced by (b) the annual benefit payable to the Employee under the Retirement Plan in the form of a single life annuity for the life of the Employee (whether or not the benefit under the Retirement Plan is actually paid in such form) commencing at age 65 (whether or not the benefit under the Retirement Plan commences at such time) [and further reduced by (c) the annual benefit payable to Employee under any qualified defined benefit plan maintained by ______________________ in the form of a single life annuity for the life of the Employee (whether or not the benefit payable under such plan is actually payable in such form) commencing at age 65 (whether or not the benefit under such plan commences at such time).]  If such benefit shall commence to be paid prior to the Employee's attainment of age 62, such benefit shall be reduced by 4% for each complete year by which the date of benefit commencement precedes [his] attainment of age 62.  Such benefit shall be paid in accordance with Section 2 below.

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

In determining Average Earnings, if the Employee retires under this Agreement on or after attainment of age 62, Annual Earnings shall also include the value of all of the following:  (1) Cash Units, (2) Restricted Stock, and (3) Performance Shares awarded to a Participant under the Connecticut Water Service, Inc. Performance Stock Program (the “Program”) for any year in which such awards are made.  Notwithstanding the foregoing, in no event shall awards which are long-term awards or PARSAs under the Program be taken into account in determining Average Earnings.  The value of such awards (other than long-term awards or PARSAs) shall be included within Annual Earnings in the year in which such amounts are finally determined and actually awarded.  Such amounts, if credited to a Performance Share Account, shall not be counted a second time when payment is made from such Account.

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

 

 

The Employee will not be deemed to have retired unless [he] has experienced a separation from service as defined in Section 409A of the Code.

d.            Disability Benefit .  If the Employee shall incur a separation from service due to a disability, the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for [his] life calculated in the manner set forth in b. above; provided, however, that the reduction factor pursuant to b. above shall be .72 if the Employee’s benefit commencement date precedes age 62 by more than 7 complete years.  The Employee will not be deemed to have terminated employment unless [he] has experienced a separation from service as defined in Section 409A of the Code.  Such benefit shall be paid in accordance with Section 2 below.  Notwithstanding the foregoing in this 1d, “disability” shall be determined by the Compensation Committee, and the Employee will be considered to be disabled if the Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months.

e.            Absence of Other Benefits .  No benefits shall be paid to the Employee pursuant to this Agreement other than as provided in a. through d. above.

2.            TERMS AND CONDITIONS OF BENEFIT .  The annual lifetime benefit calculated in accordance with Section 1 hereof shall be paid in monthly installments on the first day of each month.  Such installments paid pursuant to 1.a, 1.b or 1.d shall be calculated as if they were to commence to be paid on the first day of the first month following the Employee’s separation from service.  However, if the Employee is a “specified employee” as that term is defined under Section 409A, at the time of separation from service, actual payment will commence on the first day of the seventh (7 th ) month following the date of the Employee’s separation from service, and the first payment shall include all payments that would have been made had payments commenced on the first day of the month following the Employee’s separation from service, so that the first installment made pursuant to 1.a., 1.b. or 1.d, if the Employee is a specified employee, shall be equal to seven (7) such installments.  If the Employee is not a “specified employee” at the time of separation from service, payment of monthly installments shall commence on the first day of the first month following the Employee’s separation from service.

If the Employee is a specified employee at the time of separation and should die after separation, but prior to the first day of the seventh (7 th ) month following separation from service, a lump sum equal to the amount the Employee would have received had [he] commenced receiving benefits immediately upon the first day of the month following separation from service and ending on the date of death shall be paid to the Employee’s estate; and the Employee’s surviving spouse, if any, shall receive any 50% survivor annuity payments for the period from the Employee’s date of death to the first day of the seventh (7 th ) month following separation from service.  Any payments made pursuant to the preceding sentence shall be made on the first day of the seventh (7 th ) month following separation from service.

The form in which the benefit hereunder shall be paid is, if the Employee is unmarried at the time of separation from service, an annuity for the life of the Employee only and, if the

 

 

Employee is married at the time of separation from service, an annuity for the life of the Employee with the provision that after the Employee's death, 50% of the annual benefit that was payable to the Employee shall be continued to the Employee's surviving spouse for life (a "Joint and Survivor Annuity").  The benefit payable as a Joint and Survivor Annuity shall be calculated by applying to the benefit calculated in accordance with Section 1.a., l.b. or 1.d. hereof, as appropriate, the factors for the 50% contingent annuity option set forth in the Retirement Plan.  The Joint and Survivor Annuity shall be actuarially equivalent to the life annuity form of payment.

Monthly installments of benefits shall be paid on the first day of the month and shall cease to be paid as of the first day of the month following the date of the Employee's death, unless a Joint and Survivor Annuity is then in effect, in which event the installments shall continue to be paid on the first day of the month and shall cease as of the first day of the month following the death of the Employee's surviving spouse.  A Joint and Survivor Annuity shall be deemed to be in effect if the Employee is married at the time of separation from service, regardless of whether the Employee dies prior to actual commencement of benefits.

3.            DEATH BENEFIT .  If the Employee has attained age 55 while in service with the Employer and dies thereafter, while in the service of the Employer, and if the Employee's spouse or other beneficiary is entitled to a death benefit under the Retirement Plan, said spouse or other beneficiary shall be entitled to receive a death benefit pursuant to this Plan.  However, if the Employee is survived by [his] spouse, such spouse shall be deemed to be entitled to receive a spousal pre-retirement death benefit under the Retirement Plan even if a waiver of such spousal pre-retirement death benefit is in effect under such Plan.  The amount of said death benefit shall be determined as if the Employee had retired on the day prior to [his] death with either a Joint and Survivor Annuity in effect, if [his] spouse survives [him], or a five years certain and life annuity (as described in the Retirement Plan) in effect, if [he] has no spouse or [his] spouse does not survive [him].  However, rather than being paid in the form of a survivor annuity or in installments for the five-year period, payment of the present value of the death benefit shall be made in a lump sum on the first day of the first month following the Employee’s death.  The actuarial assumptions to be utilized in computing the present value thereof shall be the interest rate and mortality assumptions then being utilized under the Retirement Plan in computing lump sum payments.

No other death benefits shall be payable in the event of the Employee's death while in the service of the Employer.

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

5.            ABSENCE OF FUNDING .  Benefits payable pursuant to this Agreement shall not be funded, and the Employer shall not be required to segregate or earmark any of its assets

 

 

for the benefit of the Employee, [his] spouse, [his] beneficiary or [his] estate.  Such benefits shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Employee, [his] spouse, [his] beneficiary or [his] estate, and any attempt to anticipate, alienate, transfer, assign or attach these benefits shall be void.  The Employee, [his] spouse, [his] beneficiary or [his] estate shall have only a contractual right against the Employer for the benefits hereunder and shall have the status of general unsecured creditors.  Notwithstanding the foregoing, in order to pay benefits pursuant to this Agreement, the Employer may establish a grantor trust (hereinafter the “Trust”) within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended.  Some or all of the assets of the Trust may be dedicated to providing benefits to the Employee, [his] spouse, [his] beneficiary or [his] estate pursuant to this Agreement, but, nevertheless, all assets of the Trust shall at all times remain subject to the claims of the Employer’s general creditors in the event of the Employer’s bankruptcy or insolvency.

4.   MISCELLANEOUS .

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

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

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

d.           This Agreement has been prepared with reference to Section 409A of the Internal Revenue Code and should be interpreted and administered in a manner consistent with Section 409A.

e.           This Amendment and Restatement is effective as of January 1, 2009.

 

 

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

 The Connecticut Water Company

December      , 2008                                                      By                                                                
          Date

December      , 2008                                                      By                                                                
          Date

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	
The Ellington Acres Company	Connecticut	

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-153910) and on Form S-8 (Nos. 333-94525, 333-51702, 333-88554, and 333-117494) of Connecticut Water Service, Inc. of our report dated March 13, 2009 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 13, 2009

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
Chief Executive Officer
March 13, 2009

 

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 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/   David C. Benoit
David C. Benoit
Chief Financial Officer
March 13, 2009

 

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, 2008 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 13, 2009

 

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, 2008 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 13, 2009