<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) Annual Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
DECEMBER 31, 1996 or
( ) Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to .
Commission File Number 0-8084
CONNECTICUT WATER SERVICE, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0739839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
93 WEST MAIN STREET, CLINTON, CT 06413
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (860) 669-8636 Securities
registered pursuant to Section 12 (b) of the Act:
Title of each Class Name of each exchange on which registered
NONE NOT APPLICABLE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
<PAGE> 2
Page 2
The aggregate market value of the registrant's voting Common Stock,
computed on the price of such stock at the close of business on February 28,
1997 is $87,376,000.
3,012,981
Number of shares of Common Stock outstanding, February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Document is Incorporated
-------- ------------------------
Definitive Proxy Statement, dated Part III
March 19, 1997, for Annual Meeting of
Shareholders to be held on April 25, 1997.
<PAGE> 3
Page 3
PART I
ITEM 1. BUSINESS
a. GENERAL DEVELOPMENT OF BUSINESS
The Registrant, Connecticut Water Service, Inc. (the Company), is the
parent company of The Connecticut Water Company (CWC) which supplies water for
residential, commercial, industrial and municipal purposes in various areas in
the State of Connecticut through three operating regions. The Company and CWC
represent the second largest investor-owned water system in Connecticut in terms
of operating revenue and utility plant investment.
The Company was organized in 1956 under the General Statutes of
Connecticut as Suburban Water Service, Inc. and has been engaged in the business
of acquiring and operating water companies through controlling stock ownership.
In addition to operating its core business, CWC offers related services on a
contract basis to other water utilities, communities, and businesses. These
services range from one-time contracts for a particular service to long-term
assignments for system operations and management. In 1975, the Company changed
its name to Connecticut Water Service, Inc. after acquiring all of the
outstanding Common Stock of CWC. CWC's First Mortgage Bonds are held primarily
by institutional investors. The Company is a non-operating company whose income
is derived from the earnings on the Common Stock of CWC.
The profitability of the operations of the water utility industry
generally and of CWC (and hence the Company) is largely dependent on the
timeliness and adequacy of the rates allowed by utility regulatory commissions.
In addition, profitability is dependent on numerous factors over which CWC has
little or no control, such as the quantity of rainfall and temperature in a
given period of time, industrial demand, prevailing rates of interest for short
and long-term borrowings, energy rates, and compliance with environmental and
water quality regulations. In addition, inflation and other factors beyond the
Company's or CWC's control impact the cost of construction, materials and
employee costs. See "Business - Financing", "Business - Rates", and "Business
- -Regulation".
b. GENERAL DESCRIPTION OF BUSINESS
The Company, a Connecticut corporation, owns all of the outstanding
Common Stock of CWC. Substantially all of the Company's revenues and net income
are attributable to the sale and distribution of water by the operating regions
of CWC. See "Business - Consolidated Operating Statistics".
CWC is specially chartered by the General Assembly of the State of
Connecticut as a public service company, and the rates and operations of CWC are
regulated by the Connecticut Department of Public Utility Control (DPUC). The
Company is specifically prohibited from engaging in business or activities which
are not regulated by the DPUC. See "Business - Rates" and "Business Regulation".
<PAGE> 4
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CWC has one subsidiary organized in 1969 to assist in the acquisition
of real estate. The assets and operations of this subsidiary are not
significant.
CWC supplies water and, in most instances, provides fire protection
through three separate operating regions in all or portions of 32 towns in
Connecticut. The service areas have an estimated total population of
approximately 216,000 based on DPUC population estimates of 3.5 people per
average household. During the twelve months ended December 31, 1996,
approximately 64% of the Company's consolidated operating revenues were received
from residential customers, 12% from commercial customers, 5% from industrial
customers, 3% from public authority customers, and 16% from public fire
protection and other customers.
Each of the operating regions serves a separate franchise area. Rates
are the same for all regions. The systems of the three operating regions are not
physically interconnected.
The following table sets forth the percentage of the Company's utility
plant in service at each of CWC's operating regions as of December 31, 1996:
<TABLE>
<CAPTION>
Utility Plant
Regions Dollars Percent
------- ------- -------
<S> <C> <C>
Northern $89,268,000 46%
Shoreline 54,655,000 28%
Naugatuck 49,124,000 26%
------------ ----
$193,047,000 100%
============ ====
</TABLE>
At December 31, 1996, 61,813 customers were served by CWC. At that
date, all customers were metered except fire protection customers and 380
customers of the Sound View Water System, acquired in 1995. The Company requires
all applicants for new service, other than fire protection, to be metered.
The Company's principal office is located at 93 West Main Street,
Clinton, Connecticut 06413 and its telephone number is 860-669-8636.
The business of CWC is subject to seasonal fluctuations. The demand for
water during the warmer months is generally greater than during the cooler
months due primarily to additional requirements for water in connection with
cooling systems, private and public swimming pools and lawn sprinklers.
Throughout the year, and particularly during the warmer months, demand will vary
with rainfall and temperature levels.
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WATER SUPPLY
The estimated minimum dependable yields of sources of water supply for
each of the operating regions' transmission and distribution systems, as set
forth under "Business - CWC Production Facilities as of December 31, 1996" are
in excess of present average daily consumption. Except for requests for
voluntary conservation in the summers of 1988 and, in the Shoreline Region only,
1995, no restrictions on water use have been required in over 25 years.
Water is secured from both surface and subsurface supplies and supplied
through interconnections with other water systems. In 1996, surface sources
provided approximately 57% of the supply, well supplies provided approximately
41%, and interconnections with other systems supplied 2%. Studies are made
periodically to determine the supply and distribution needs of the regions. A
major study, covering a fifty year planning period required of all water
companies supplying 1,000 or more persons, was completed in 1987 and submitted
to the Connecticut Department of Public Health (DPH) for approval. An updated
plan must be prepared every five years or as requested by the DPH. Updated plans
for each of CWC's water systems have been prepared and approved by DPH.
See "Business - Construction Program", "Business - Rates" and "Business
- - Regulation".
OPERATING REGIONS
NORTHERN
The Northern Region is composed of eight separate systems, not
interconnected, as listed below:
<TABLE>
<CAPTION>
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/96
------ ---------------------------------- -----------
<S> <C> <C>
Western (including Suffield, Windsor Locks, East
the former Tolland Granby, Enfield, East Windsor, South
Aqueduct System) Windsor, Vernon, Ellington, Tolland 28,471
Somers Somers 411
Crescent Lake Enfield 158
Stafford Springs Stafford 1,034
Lakewood/Lakeview Coventry 179
Nathan Hale Coventry 39
Llynwood Bolton, Vernon 76
Reservoir Heights Vernon 22
------
30,390
======
</TABLE>
The territory served is primarily residential and commercial with some
industry.
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CWC has entered into an agreement with the State of Connecticut,
Department of Transportation, pursuant to which CWC operates and maintains, as
part of its Western System, the State's water distribution system for Bradley
International Airport located in Windsor Locks, Suffield and East Granby,
Connecticut.
The Western System has three emergency standby interconnections with
the water system of the Metropolitan District Commission (MDC) (a public water
and sewer authority presently serving the City of Hartford and portions of
surrounding towns), one in South Windsor and two in Windsor Locks. The Western
System also has an emergency interconnection with the water system of the
Hazardville Water Company in Enfield. During 1995 an interconnection was
completed between the Somers System and the water system of the Hazardville
Water Company in Somers to provide water to the Hazardville Water Company.
See "Business - Franchises" with respect to proposals that the MDC
expand its operations into the Northern Region and that MDC take over CWC's
operations in South Windsor.
SHORELINE
The Shoreline Region is composed of four separate systems, not
interconnected, as listed below:
<TABLE>
<CAPTION>
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/96
------ ---------------------------------- -----------
<S> <C> <C>
Guilford Guilford, Old Saybrook, Westbrook,
Clinton, Madison 15,665
Chester Chester, Deep River, Essex 2,315
Chester Village West Chester 11
Sound View Old Lyme 380
------
18,371
======
</TABLE>
The territory served is primarily residential with some commercial and
industry. In 1996 CWC successfully negotiated the purchase of three small water
companies, all in southeastern Connecticut. CWC expects these acquisitions to be
approved by the DPUC in 1997. These systems will increase revenue approximately
$200,000 and increase the customer base by 525.
NAUGATUCK
The Naugatuck Region is composed of four separate systems, not
interconnected, as listed below:
<TABLE>
<CAPTION>
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/96
------ ---------------------------------- -----------
<S> <C> <C>
Central Naugatuck, City of Waterbury, Beacon
Falls, Bethany, Prospect 8,688
Terryville Plymouth, Thomaston 1,950
Thomaston Thomaston 1,186
Collinsville Canton, Avon, Burlington 1,228
------
13,052
======
</TABLE>
The territory served is residential and industrial including a
municipality which represented approximately 7.4% of the region's 1996 revenues.
Water for the Collinsville System is supplied under an agreement with
the MDC from treatment facilities drawing from a large surface water reservoir
owned by the MDC. See "Item 2. Properties" for a description of this agreement.
<PAGE> 7
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Consolidated Operating Statistics
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Customers (Average)
Residential Metered 55,784 55,107 54,464 53,988 53,509
Commercial Metered 3,953 3,906 3,827 3,797 3,790
Industrial Metered 365 368 364 366 323
Public Authorities Metered 472 470 467 466 429
Fire Protection and Other 1,023 993 960 941 915
------- ------- ------- ------- -------
Total 61,597 60,844 60,082 59,558 58,966
======= ======= ======= ======= =======
Production (Millions of Gallons)
Residential Metered Sales 3,862 3,988 3,874 3,915 3,734
Commercial Metered Sales 904 934 908 918 921
Industrial Metered Sales 441 446 460 438 507
Public Authorities Metered Sales 220 227 179 179 169
------- ------- ------- ------- -------
Total Metered Consumption 5,427 5,595 5,421 5,450 5,331
Fire Protection, Company Use
and Unaccounted For 612 777 808 756 692
------- ------- ------- ------- -------
Total 6,039 6,372 6,229 6,206 6,023
======= ======= ======= ======= =======
Operating Revenues (Thousands of Dollars)
Residential Metered $24,669 $25,345 $24,488 $24,574 $23,541
Commercial Metered 4,716 4,852 4,696 4,745 4,729
Industrial Metered 1,861 1,868 1,922 1,851 2,100
Public Authorities Metered 1,050 1,090 893 903 856
Fire Protection and Other 6,296 6,195 6,130 6,058 5,964
------- ------- ------- ------- -------
Total $38,592 $39,350 $38,129 $38,131 $37,190
======= ======= ======= ======= =======
Average Revenue per 1,000 Gallons
Residential Metered $ 6.39 $ 6.36 $ 6.32 $ 6.28 $ 6.30
Commercial Metered $ 5.22 $ 5.19 $ 5.17 $ 5.17 $ 5.13
Industrial Metered $ 4.22 $ 4.19 $ 4.18 $ 4.23 $ 4.14
Public Authorities Metered $ 4.77 $ 4.80 $ 4.99 $ 5.04 $ 5.07
Miles of Distribution Mains
(End of Period) 980 970 955 950 945
</TABLE>
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CONSTRUCTION PROGRAM
The projected capital expenditures of CWC are established annually by
management and are reviewed and revised from time to time to the extent
necessary to meet changing conditions, including adequacy of rate relief,
customer demand, revised construction schedules, water quality requirements,
pollution control requirements and inflation.
The Company currently estimates that CWC's 1997-1999 construction
program, excluding plant financed by customer advances and contributions in aid
of construction and amounts representing an allowance for funds used during
construction (AFUDC), will aggregate approximately $20,830,000 which includes
routine improvements to the water system of approximately $4,250,000 each year,
approximately $900,000 for clean-up of the Reynolds Bridge Well Field (see "Item
3. Legal Proceedings"), and $5,425,000 for construction costs of an interim
alternative to construction of a new Rockville Water Treatment Plant (RWTP),
which has been delayed indefinitely. Said alternative involves modifications to
the existing RWTP and distribution system. The new RWTP will be constructed when
required by increased demand or increased Safe Drinking Water Act (SDWA)
requirements.
The $20,830,000 construction expenditures for 1997 through 1999,
mentioned above, include approximately $6,000,000 for all known costs of studies
and construction of facilities to comply with existing SDWA regulations.
Construction expenditures which may be required in the future to comply with
Federal and State regulations, which have not yet been issued but which are
required under the SDWA, are excluded.
FINANCING
The Company and CWC expect to finance a significant portion of the
anticipated $20,830,000 construction expenditures through 1999 with net funds
generated from operations (net cash provided by operating activities less
dividends paid). Net funds generated from operations were $5,436,000,
$6,070,000, and $6,220,000 for the years 1996, 1995 and 1994, respectively (see
Consolidated Statements of Cash Flows for additional information). Construction
and other expenditures in excess of net funds generated from operations are
expected to be financed through short-term interim bank loans which may be
refinanced through the sale of Preferred Stock and/or long or medium-term
unsecured debt by CWC and/or the Company, and/or the sale of First Mortgage
Bonds by CWC and of Common Stock by the Company when financial market conditions
are considered favorable by management. CWC expects to receive the proceeds of
any such financings by the Company in the form of advances or capital
contributions.
<PAGE> 9
Page 9
The Company and CWC currently have lines of credit aggregating
$12,000,000, consisting of conventional lines of credit with four banks, which
management considers adequate at this time. As of December 31, 1996, the Company
had approximately $5,800,000 of borrowings outstanding under these lines of
credit.
Because of changes in the Federal tax laws, the amount of new
tax-exempt debt which may be issued by, or under the authority of, the State of
Connecticut is limited. CWC has not received a tax exempt allocation since 1988.
Although CWC has been able to refund all of its approximately $42,000,000 of
existing tax-exempt borrowings with tax-exempt refunding borrowings since 1990,
it is uncertain whether future tax-exempt allocations from the State will be
available to CWC or the Company. The unavailability of tax-exempt financings
will require the Company and/or CWC to issue traditional taxable debt securities
and will increase the cost of long-term debt financing. During the period 1979
through 1988 approximately $43,000,000 of tax-exempt long-term debt was issued
by CWC to finance construction expenditures.
The Company has no legal restrictions on the issuance of its debt. The
ability of CWC to issue additional long or medium-term secured debt to finance
future construction expenditures depends in part on meeting the applicable
provisions of CWC's First Mortgage Indenture with respect to the coverage of
earnings over interest requirements. These provisions require, for the issuance
of additional First Mortgage Bonds, minimum earnings coverage before income
taxes of two times pro forma annual interest charges on such mortgage debt. The
interest coverage under this formula at year end has been: 1996 - 4.28 times
interest charges, 1995 - 4.29 times, 1994 - 4.12 times, 1993 - 4.17 times, and
1992 - 3.97 times.
CWC's coverage of interest charges on all long-term debt at year end
has been: 1996 - 4.28 times interest charges, 1995 - 4.29 times, 1994 - 4.12
times, 1993 - 4.17 times, and 1992 - 3.56 times.
<PAGE> 10
Page 10
CWC'S TIMES COVERAGE OF ANNUAL INTEREST
ON LONG-TERM INDEBTEDNESS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Utility Operating Income (a) $ 10,161 $ 10,053 $ 9,690 $ 10,018 $ 10,066
Federal and State Income Tax 4,812 4,950 4,756 4,673 4,050
State Income Tax -
Capitalization (b) (157) (150) (150) (140) (140)
-------- -------- -------- -------- --------
Net Operating Earnings $ 14,816 $ 14,853 $ 14,296 $ 14,551 $ 13,976
======== ======== ======== ======== ========
Annual Interest on First
Mortgage Bonds (c) $ 3,458 $ 3,460 $ 3,468 $ 3,492 $ 3,524
======== ======== ======== ======== ========
Times Interest Coverage (d) 4.28 4.29 4.12 4.17 3.97
======== ======== ======== ======== ========
Annual Interest on Unsecured
Promissory Notes (c) -- -- -- -- 404
-------- -------- -------- -------- --------
Annual Interest on Long-Term
Debt $ 3,458 $ 3,460 $ 3,468 $ 3,492 $ 3,928
======== ======== ======== ======== ========
Times Interest Coverage (e) 4.28 4.29 4.12 4.17 3.56
======== ======== ======== ======== ========
</TABLE>
(a) Connecticut Water Service, Inc.'s utility operating income for the
years 1996 to 1992 is $10,128, $10,022, $9,655, $9,983, and $10,033,
respectively.
(b) Amount of minimum State income tax based on the capitalization method.
(c) Includes interest on current portion payable.
(d) Net Operating Earnings divided by Annual Interest on First Mortgage
Bonds per provisions of CWC's First Mortgage Indenture.
(e) Net Operating Earnings divided by Annual Interest on Long-Term Debt per
provisions of CWC's First Mortgage Indenture.
During 1980 and 1981 the interest costs of long-term debt increased
more rapidly than earnings so that the coverage requirements prevented CWC from
effecting a planned issue of Bonds in mid 1981. Similar circumstances may in the
future prevent the issue of, or require a reduction in the amount of, bonds CWC
otherwise would have issued or will issue. As a consequence, the Company may be
required to meet an increased portion of its financing needs through sales of
unsecured funded debt or of additional shares of Common Stock. Sales of Common
Stock would result in a dilution of the voting power and relative equity
interests of the holders of Common Stock then outstanding.
<PAGE> 11
Page 11
During the past five years CWC has sold the following issues of
long-term debt:
- During August, 1992, CWC issued a $15,000,000, 5.875%, Series R,
First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding
Bonds maturing in 2022, the proceeds of which refunded CWC's 8%, $15,000,000,
Promissory Note.
- During June, 1993, CWC issued a $5,000,000, 5.75%, Series T, First
Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2028, the proceeds of which refunded CWC's 8.1%, $5,000,000,
Promissory Note.
- During September, 1993, CWC issued a $4,550,000, 5.30%, Series U,
First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding
Bonds maturing in 2028, the proceeds of which refunded CWC's 7.25%, $5,000,000,
Series M, First Mortgage Bond.
- During October, 1993, CWC issued a $8,000,000, 6.65%, Series S, First
Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2020. The proceeds from this transaction were used to refund CWC's
8.375% (plus 1% Letter of Credit fee), Series N, $8,000,000, First Mortgage
Bond.
- On January 4, 1994, CWC issued a $4,050,000, 6.94%, Series V, First
Mortgage Bond, maturing in 2029, the proceeds of which refunded CWC's 9.375%,
Series L and 8.5%, Series O, First Mortgage Bonds. During March, 1994, an
additional $8,000,000, 6.94% Series V, First Mortgage Bond was issued. The
proceeds of this transaction were used to redeem CWC's $5,000,000, 10%, Series
P, First Mortgage Bonds as well as all 30,000 shares of CWC's $100 par, 9.5%
Preferred Stock.
The Company has no restriction with respect to the issuance of
additional shares of its Preferred Stock.
<PAGE> 12
Page 12
CWC'S TIMES COVERAGE OF ANNUAL INTEREST AND
ANNUAL PREFERRED STOCK DIVIDENDS
IN ACCORDANCE WITH ARTICLES OF GENERAL PREFERENCE
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Utility Operating Income $10,161 $10,053 $ 9,690 $10,018 $10,066
Other Income (a) 161 243 155 193 187
------- ------- ------- ------- -------
Gross Earnings Available for
Coverage $10,322 $10,296 $ 9,845 $10,211 $10,253
======= ======= ======= ======= =======
Annual Interest on Funded
Debt (b) $ 3,458 $ 3,460 $ 3,468 $ 3,492 $ 3,928
Annual Dividend on Preferred
Stock (c) -- -- 2 288 294
------- ------- ------- ------- -------
Total Charges $ 3,458 $ 3,460 $ 3,470 $ 3,780 $ 4,222
======= ======= ======= ======= =======
Times Interest Coverage 2.98 2.97 2.83 2.70 2.43
======= ======= ======= ======= =======
</TABLE>
(a) Other income, as defined by the Articles of General Preference,
includes merchandising and jobbing income, interest and dividend income
and miscellaneous rental income less applicable taxes.
(b) Includes interest on current portion payable.
(c) Includes dividends on currently redeemable shares.
The Company's issuance of Common Stock over the past five years are as
detailed below. The $7,350,000 net proceeds from these sales were invested in
CWC in the form of capital contributions.
- The Company issued 1,769 shares of Common Stock during 1993, 2,468 shares
during 1994, 2,022 shares during 1995, and 3,505 shares during 1996, pursuant to
the Company's Employee Savings 401- K Match Plan.
- The Company issued 2,338 shares of Common Stock during 1992, 3,074 shares
during 1993, 4,061 shares during 1994, 6,369 shares during 1995, and 4,907
shares during 1996, pursuant to the Company's Performance Stock Program.
- The Company issued 37,868 shares of Common Stock during 1992, 33,803 during
1993, 74,053 during 1994, 87,807 during 1995, and 36,914 shares during 1996,
pursuant to its Dividend Reinvestment and Common Stock Purchase Plan (DRIP).
There are currently no legal limits on the amount of short-term
borrowings which may be incurred by the Company or CWC. Should construction
expenditures exceed management's current expectations, the Company will continue
to be dependent upon its ability to issue and sell additional amounts of Common
Stock, mortgage bonds of CWC and (either through the Company or CWC) Preferred
Stock and long or medium-term debt to limit short-term borrowing to appropriate
levels. However, the availability of these methods of financing cannot be
assured. The Company believes that the sale of such additional securities will
continue to depend primarily on the adequacy and timeliness of regulatory action
on future rate applications of CWC, on general conditions in securities markets
and on favorable market appraisal of the securities of the Company and CWC,
including the Company's Common Stock.
<PAGE> 13
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RATES
The rates of CWC have been established under the jurisdiction of, and
approved by, the DPUC. It is the Company's policy to seek rate relief as
necessary to enable CWC to achieve an adequate rate of return.
CWC has not applied for a rate increase during the last six years.
CWC's last rate increase was requested in 1990, became effective March
25, 1991, and was based upon an allowed rate of return of 12.7% on Common Stock
equity and 10.74% on rate base.
In 1979, the DPUC approved a surcharge to be applied to rates charged
by water utilities in order to provide a current cash return on the major
portion of a water utility's Construction Work In Progress (CWIP) applicable to
facilities required by SDWA facilities. CWC has consistently been allowed to
collect such a surcharge. CWC expects to apply for the application of similar
surcharges with respect to any major future construction projects which may be
required by the SDWA. There is no assurance that any future surcharges will be
permitted.
Under certain circumstances the DPUC, in consultation with the DPH, can
order a water company with good managerial and technical resources to acquire
the water system of another company to assure the availability and potability of
water for customers of the company to be acquired. In 1989 the DPUC promulgated
regulations permitting the DPUC to approve a surcharge to be applied to rates
charged by water utilities in order to cover the costs incurred to acquire the
other system and to make improvements as required. CWC expects to apply for the
application of such a surcharge with respect to any mandated water system
acquisition. Although there is no assurance that any other such surcharge will
be permitted such a surcharge was permitted in 1995 when the DPUC and DPH
ordered CWC to acquire the assets and facilities of the Sound View Water Company
in Old Lyme.
In 1993 the DPUC approved regulations which would permit a water
company to apply for a limited rate adjustment to compensate for the effect of
changes in certain costs. These costs include rate changes related to the cost
of purchased water, energy, and taxes. CWC expects to apply for the application
of this type of adjustment in the future when appropriate. There is no assurance
that any such rate adjustment will be permitted.
See also "Franchises and Competition" below for a discussion of 1994
Connecticut legislation dealing with the competitiveness of water rates.
<PAGE> 14
Page 14
FRANCHISES AND COMPETITION
MDC's water rates are substantially lower than those of CWC, primarily
because MDC is a tax-exempt entity, generally serving a denser population with
older facilities. Legislation was proposed in the Connecticut General Assembly
in 1987 which was intended to have the effect of permitting MDC to purchase the
water company operations of CWC in South Windsor, a town which is presently
served by both MDC and CWC. The Company opposed this legislation vigorously. The
Connecticut General Assembly established a Task Force to report on various
issues relating to towns served by both a privately-owned water company and a
publicly-owned water company. The Task Force voted not to recommend legislation
which would authorize such towns to hold referenda on consolidation and empower
towns to force an investor-owned water company to sell its water system within
that town to a governmentally-owned entity. It is not clear at this time whether
such a proposal or similar legislation may be re-introduced and adopted by the
Connecticut General Assembly. Further, even if such legislation were adopted,
the amount of the compensation to be received by CWC for its assets in South
Windsor, or the disposition of any such compensation, cannot be determined at
this time. It is also possible that any legislation in this area could be
written in a manner which would permit a similar acquisition of CWC's water
operations in towns other than South Windsor. The Company has opposed, and will
continue to oppose vigorously, any such proposed legislation.
Legislation was passed in 1994 by the Connecticut General Assembly that
required the DPUC to adopt regulations regarding whether the rates that have
been charged by a water company for a period of five consecutive years are so
excessive in comparison to the rates charged by other water companies providing
the same or similar service as to inhibit the economic development of the area
serviced by the water company or impose an unreasonable cost to the customers of
such company. If the DPUC makes such a finding and also concludes that the water
company is unable or unwilling to provide service at a reasonable cost to
customers, it may order the provision of such service or revoke the franchise
held by such company. In 1995, the DPUC adopted regulations that require a
petition on a form provided by the DPUC to be signed by 50% of the residents of
a town or other political subdivision served by the company, or by 500 customers
of the company, before the DPUC would hold a hearing thereon. CWC believes that,
in light of the tax and other advantages of governmentally-owned entities which
are not available to the Company, its rates are not excessive and would
vigorously oppose any such petition.
<PAGE> 15
Page 15
In 1976, the Connecticut General Assembly created a study commission to
evaluate the feasibility of expanding the water supply services of the MDC to
include the towns of East Granby, East Windsor, Enfield, Somers, Suffield and
Windsor Locks. These towns are in the service areas of and are served in part by
CWC's Northern Region. On February 1, 1978, the study commission reported to the
Governor and the General Assembly that the expansion was feasible and
recommended that the General Assembly authorize the towns of East Granby,
Suffield and Windsor Locks to take immediate steps to acquire water services
from the MDC. It further recommended that the enabling legislation provide a
mechanism for the towns of Enfield, East Windsor and Somers, after adequate
technical, financial and institutional studies, to take the steps necessary to
acquire water services from the MDC. The study commission made no recommendation
in its report with respect to the method of implementation of any MDC expansion
and did not discuss CWC's status or that of its water facilities should MDC
provide such service. The General Assembly has not taken any action on the
report. In 1990, CWC agreed, pursuant to the Connecticut Plan (see "Business -
Regulation") that MDC would have the exclusive right to serve that part of East
Granby which is not adjacent to Bradley International Airport and which is not
presently being served by CWC. Legislation passed in the 1994 General Assembly
provided a mechanism for water utility customers to petition to the DPUC to
determine if the rates of the public service company are comparably excessive in
consideration of the economic development in the area within which the company
is located and in comparison to other similar companies. To date there have not
been any such petitions filed with the DPUC pertaining to CWC. Legislation that
would have had the effect of enabling the DPUC to order a transfer to MDC of
CWC's service territory in South Windsor was introduced in the 1996 General
Assembly but did not pass. The Company has opposed, and will continue to oppose,
vigorously any extension of MDC water operations within its service areas and
any effort to permit the takeover by any municipal or other authority of any
significant portion of CWC's service areas.
It is not possible at this time to assess the likelihood of any
legislation being enacted to implement these or similar recommendations or the
impact of any such legislation on CWC and the Company, but such impact could be
substantial. There can be no assurance that the Connecticut General Assembly
will not take action to authorize such a takeover. As of December 31, 1996,
CWC's Northern Region, which includes customers in the towns mentioned above,
represented 46% of the Company's consolidated utility plant.
In common with most water companies in Connecticut, CWC derives its
rights and franchises to operate from special acts of the Connecticut General
Assembly, which are subject to alteration, amendment or repeal by the General
Assembly and which do not grant exclusive rights to CWC in its service areas.
Subject to such power of alteration, amendment or repeal by the
Connecticut General Assembly and subject to certain approvals, permits and
consents of public authority and others prescribed by statute and by its
charter, CWC has, with minor exceptions, valid franchises free from burdensome
restrictions and unlimited as to time, and is authorized to sell potable water
in the towns (or parts thereof) in which water is now being supplied by CWC.
<PAGE> 16
Page 16
In addition to the right to sell water as set forth above, the
franchises of CWC include rights and powers to erect and maintain certain
facilities on public highways and grounds, all subject to such consents and
approvals of public authority and others as may be required by law. Under the
Connecticut General Statutes, CWC, upon payment of compensation, may (subject to
the various requirements described under "Business - Regulation") take and use
such lands, springs, streams or ponds, or such rights or interests therein as
the Connecticut Superior Court, upon application, may determine is necessary to
enable CWC to supply potable water for public or domestic use in its franchise
areas.
CWC faces competition, presently not material, from a few private water
systems operated within, or adjacent to, its franchise areas and from municipal
and public authority systems whose service areas in some cases overlap portions
of CWC's franchise areas. At the present time, except as noted above, there are
no publicly owned utilities, cooperatives or other private utility companies
competing with CWC in the areas now served, although within certain areas there
are wells owned by individuals or private industries.
See also "Business - Regulation" for a description of the so-called
Connecticut Plan which is intended, among other things, to eliminate competition
among water systems.
<PAGE> 17
Page 17
REGULATION
DEPARTMENT OF PUBLIC UTILITY CONTROL (DPUC)
CWC is subject to regulation by the DPUC, which has jurisdiction over
rates, standards of service, accounting procedures, issuance of securities,
disposition of utility properties and related matters. The DPUC consists of five
Commissioners, appointed by the Governor of Connecticut with the advice and
consent of both houses of the Connecticut legislature.
The DPUC is required by law to institute management audits, to be
conducted periodically, of companies such as CWC. Such audits might result in
the DPUC ordering implementation of new management practices or procedures. The
DPUC has not conducted any such audit of CWC.
The Company, which is not an operating utility company, is not a
"public service company" within the meaning of the Connecticut General Statutes
and is not generally subject to regulation by the DPUC. DPUC approval is
necessary, however, before the Company may acquire or exercise control over any
public service company. In connection with the affiliation with CWC, the Company
amended its Certificate of Incorporation to prohibit the Company and any
subsidiary of the Company from engaging, unless approved by the DPUC, in any
business or activity which is not subject to regulation by the DPUC. The Company
has no present intention of engaging, either directly or through any subsidiary,
in any business or activity which is not subject to regulation by the DPUC. The
Company is currently providing management and/or operating services to other
water supply or waste water systems through CWC. If the Company were to
determine it appropriate to provide any of these services through a new
subsidiary of the Company, DPUC approval would be required.
DEPARTMENT OF ENVIRONMENTAL PROTECTION (DEP)
While the construction of dams, reservoirs and other facilities
necessary to the impounding, storage and withdrawal of water in connection with
public water supplies is a permitted use under the Connecticut Inland Wetlands
and Water Courses Act, CWC is required, pursuant to other statutory provisions,
to obtain permits from the Connecticut Commissioner of Environmental Protection
(Commissioner) for the location, construction or alteration of any dam or
reservoir and to secure the approval of the Commissioner for the diversion and
use of water from any river or underground source for public use. Various
criteria must be satisfied under the respective statutes and regulations of the
Connecticut Department of Environmental Protection (DEP) in order to obtain such
permits or approvals and the Commissioner has the power to impose such
conditions as he deems reasonably necessary in connection with such permits or
approvals in order to assure compliance with such statutes. CWC has obtained,
and complied with the terms of, all such requisite permits or approvals.
<PAGE> 18
Page 18
Legislation was adopted in 1982 conferring upon the DEP authority to
require a permit for any new diversion of water, including both surface and
ground water, within the State of Connecticut. Any water diversion which might
be effected by CWC in the future would require compliance by CWC with a lengthy
permit application process and approval by the Commissioner. CWC has several
potential well sites which are subject to this legislation and the DEP
regulations thereunder. Such legislation requires the registration with the
Commissioner of all diversions of water maintained prior to July 1, 1982. All of
CWC diversions have been registered. Although the legislation provides that
registered diversions are not subject to the permit requirement, DEP regulations
adopted in March, 1990 are being used by DEP, on a case by case basis, to
require compliance with the permit application process before some registered
diversions can be used as a source of water supply. It is not possible at this
time to fully assess the impact of DEP's application of this legislation and the
DEP regulations on CWC and its operations, but such impact may be substantial,
particularly on sources held for future use.
The Federal Clean Water Act requires permits for discharges of
effluents into navigable waters and requires that all discharges of pollutants
comply with federally approved state water quality standards. The DEP has
adopted, and the federal government has approved, water quality standards of
receiving waters. A joint Federal and State permit system has been established
to ensure that applicable effluent limitations and water quality standards are
met in connection with the construction and operation of facilities which affect
or discharge into state or interstate waters. CWC has received all such
requisite permits. A new general permit and permit renewal program for water
treatment waste water discharges was adopted by DEP in 1995. Although the new
program has some stricter monitoring and reporting requirements, CWC is in
compliance with the new program and the additional costs, while increased from
the period before the program was adopted, are not substantial.
In 1984, all CWC's dams were registered with DEP as required under
Public Act 83-38. DEP is required to investigate and periodically inspect most
registered dams to ensure they are safely maintained. CWC was also subject to
the requirements of the National Dam Inspection Act which required the United
States Army Corps of Engineers to inspect certain dams. These inspections were
completed in 1981 and the Army Corps' participation ended. Six of said dams have
been inspected and, although certain modifications and further studies have been
required, no material problems with respect to these dams have been reported.
While the Company recognizes that a certain degree of risk is attached to CWC's
ownership of dams in connection with its water collection system, the Company
believes that all of CWC's dams are well maintained and are structurally stable.
CWC has completed any necessary modifications to all but one of the six dams.
CWC believes that the future cost of such compliance at that dam will be less
than $2,000,000. These costs are considered in CWC's projected capital
expenditures (see "Construction Program".)
<PAGE> 19
Page 19
The DEP has promulgated regulations requiring that certain minimum
flows be maintained in various waterways within the State of Connecticut.
Pursuant to said regulations, CWC is exempt from compliance at certain of its
facilities. However, DEP is considering making changes in the regulations. The
Company cannot predict either the substance of those changes or their impact on
the Company. However, it is possible that such changes could reduce the safe
yield of CWC's sources. The cost to CWC to restore the lost safe yield is not
now determinable but could be substantial.
DEPARTMENT OF PUBLIC HEALTH (DPH)
CWC is also subject to regulation by the Connecticut DPH with respect
to water quality matters. Plans for new water supply systems or enlargement of
existing water supply systems also must be submitted to the DPH for approval.
In 1985 the Connecticut General Assembly enacted comprehensive
legislation (the so-called Connecticut Plan) designed to maximize the efficient
and effective development of the state's public water supply systems. This
legislation authorized DPH to administer procedures designed to coordinate the
comprehensive planning of public water systems. The legislation mandates the
establishment of public water supply management areas, with each such area
having a water utility coordinating committee comprised of representatives of
the various public water systems and regional planning agencies in the area.
Each such committee is required to establish exclusive service areas for each
public water system in the area, after taking into consideration a number of
factors including existing water service areas, land use plans, etc., optimum
utilization of existing water supplies and existing franchise rights of water
companies. DPH is authorized to resolve any disagreements among members of the
respective committees. This legislation is intended not only to promote
cooperation among various water suppliers in each management area, but also to
provide (through DPH's role) for the centralized planning of water supply. In
implementing this legislation, DPH has created seven water supply management
areas and is in the process of implementing the creation of the appropriate
water utility coordinating committees. The operations of CWC, which cover many
areas of the state, fall within five of the seven management areas. CWC is
actively involved with the planning process in two of these management areas at
this time. The remaining three areas of the Company's interest are expected to
begin the planning process within the next several years. It is not possible at
this time to predict the impact on the Company of the above described
legislation, regulations and procedures, but the Company was an active
participant in moving for the adoption of this scheme, and is presently hopeful
that such centralized and cooperative planning will have a beneficial impact on
its future water supply and water supply operations.
<PAGE> 20
Page 20
SAFE DRINKING WATER ACT (SDWA)
CWC is subject to regulation of water quality under the SDWA. The SDWA
provides for the establishment of uniform minimum national quality standards by
the Federal Environmental Protection Agency (EPA), as well as governmental
authority to specify the type of treatment process to be used for public
drinking water. The EPA regulations, pursuant to the SDWA, set limits, among
other things, on certain organic and inorganic chemical contaminants,
pesticides, turbidity, microbiological contaminants, and radioactivity. The DPH
has adopted regulations which are in some cases more stringent than the Federal
regulations.
1986 Amendments -
The 1986 SDWA amendments dictate that 83 new primary drinking water standards be
established within three years of enactment. These new standards supersede the
22 interim standards which EPA established between 1977 and 1986. In addition to
the 83 primary standards, the SDWA amendments require that EPA publish a list
every three years of an additional 25 contaminants which it intends to regulate
in drinking water.
Although unable to meet the three year timetable required by the SDWA
amendments, EPA has actively developed the 83 drinking water standards in six
phases. Phase I, volatile organic chemicals, was promulgated in 1987 and initial
and continued monitoring of sources has taken place. Phase II, which contains 26
synthetic organic chemicals including pesticides and seven inorganic chemicals,
was promulgated in 1991 with initial monitoring for systems serving more than
500 people beginning in 1993. Phase IIB, the aldicarbs and derivatives, was
promulgated in 1992 but implementation is currently delayed by court order. Lead
and copper, which were originally included in Phase II, were promulgated in 1991
and monitoring for large systems (serving more than 50,000 people) and medium
systems (serving 3,301 to 50,000 people) began in 1992, small system monitoring
(serving 3,300 people or less) began in July, 1993. Phase III, radionuclides,
including radon, has been proposed but promulgation has been delayed by law and
is now expected to be delayed for several more years. Phase IV, the Surface
Water Treatment Rule, was promulgated in 1989 and became effective June 29,
1993. Phase V, other synthetic organic chemicals and inorganic chemicals, was
promulgated in 1992 and monitoring was implemented at the same time as Phase II.
Phase VIA, disinfectants and disinfection by-products, is EPA's first list of 25
additional compounds to be regulated. Phase VIA was scheduled for promulgation
in 1996. Phase VIB, additional organic and inorganic compounds, is no longer
required.
<PAGE> 21
Page 21
1996 Amendments -
In 1996 the Safe Drinking Water Act was reauthorized by Congress and
signed into law. Several of the schedules for implementation of various
regulations have been changed. The new law eliminated the requirement to
regulate 25 new contaminants every three years and replaced it with a
requirement that the EPA consider five new contaminants for regulation every
five years. Accordingly, Phase VIB, Organic and Inorganic chemicals, will not be
scheduled for regulation, although some contaminants included in Phase VIB will
be considered for regulation in future years.
EPA's Phase VIA, Disinfectant and Disinfection Byproducts, which was
proposed in 1994 to be implemented in two stages, is presently scheduled to be
promulgated by November 1998 for Stage 1. The Interim Enhanced Surface Water
Treatment Role is expected to be promulgated at the same time. Stage II of
Disinfectant and Disinfectant Byproducts and the final ESWTR will not be
promulgated until at least 2002.
Radionuclides, formerly Phase II, are expected to be promulgated in
late 2000 or early 2001. The Ground Water Disinfection Rule can be issued at any
time after August 6, 1999, but not later than the promulgation of the Stage II
D/DBP rule. Arsenic must be proposed by January 2000 and promulgated by January
2001. Aldicarb and derivatives, formerly Phase 11B, may be withdrawn and
reproposed. Finally, a decision to regulate sulfate must be made by 2001. If the
decision is to regulate, the final rule must be complete by 2005.
The 1996 law also requires that the EPA, in proposing any new drinking
water regulations, show that such regulations will improve public health. In
addition, such regulations must be subjected to a cost-benefit analysis.
The SDWA amendments also require EPA to establish criteria and rules
which provide for filtration of surface water supplies and disinfection of all
public water supplies. The Surface Water Treatment Rule mandates filtration for
surface supplies which do not meet stringent requirements and establishes
performance criteria for the operation of filtration plants. This rule also
establishes guidelines which may redefine some public water supplies which have
traditionally been considered groundwater as surface supplies subject to the
provisions of the rule. The Company has tested its groundwater supplies.
Determination by the State as to which groundwater supplies are considered to be
under the direct influence of surface water, and therefore subject to the
Surface Water Treatment Rule, has been completed. CWC has no groundwater
supplies so determined to be under the direct influence of surface water.
Connecticut has adopted the Surface Water Treatment Rule into its regulations
and does not allow for exceptions to the filtration requirement. The draft
Ground Water Disinfection Rule was published in 1992 and is not expected to be
proposed for several more years. This rule may require disinfection and
increased disinfection contact time to be added to groundwater supplies.
<PAGE> 22
Page 22
Through December 31, 1996, the Company has expended approximately
$41,970,000 in constructing facilities and conducting aquifer mapping necessary
to comply with the requirements of the SDWA. CWC believes that it is in
substantial compliance with regulations promulgated by the EPA and DPH, as
currently applied, although portions of the costs involved in modifying the RWTP
are required to enable CWC to continue to meet SDWA requirements. Connecticut's
aquifer protection legislation not only requires aquifer mapping, but also
requires DEP, in consultation with DPH and DPUC, to prepare guidelines for
acquisition by water companies of lands surrounding public water supply
wellfields. The extent to which those guidelines, not yet prepared, might lead
to regulations requiring the Company to purchase additional land around its
wellfields is not known at this time. The Company anticipates spending an
additional $1,750,000 on required aquifer mapping. Although the Company cannot
predict either the substance of the regulations required by the 1996 SDWA
amendments which have not yet been promulgated or their impact on CWC, the
primary impact on CWC is expected to be in the area of increased monitoring and
reporting although it is possible that such regulations may require
modifications to existing filtration facilities. Construction of new facilities
may be required for certain groundwater sources. It is possible that costs of
compliance by CWC could be substantial.
DISPOSITION OF PROPERTY
Connecticut law presently imposes the following restrictions upon the
disposition of property owned by water companies: (a) no property may be sold or
otherwise transferred without the prior approval of the DPUC; (b) the sale,
transfer and change in the use of watershed land (lands draining into a public
water supply) and certain non-watershed lands which are contiguous to reservoirs
and their tributaries are subject to regulation by the DPH; (c) when a water
company intends to transfer or dispose of an interest in any present, potential
or abandoned water supply source, other water companies which might reasonably
be expected to utilize the source are given the opportunity through the DPH to
seek to acquire such source; (d) subject to such acquisition opportunities by
other water companies as to water supply sources, when a water company intends
to transfer or dispose of an interest in three or more contiguous acres of its
unimproved real property, the municipality in which such property is located,
the State of Connecticut and private, nonprofit land-holding organizations have
prior options to acquire such interest in the context of priorities based on
intended use, with open space use being favored; (e) if the municipality or the
State chooses to exercise its option, and the purchase price cannot be
established by agreement, the acquisition may be accomplished by eminent domain
(f) the proceeds from the sale of water company land must generally be
reinvested in utility improvements or land necessary to protect water supply
sources; and (g) land may be sold only if consistent with the utility's water
supply plan. Legislation enacted in 1988 provides that the DPUC use an
accounting treatment which equitably allocates between the utility's ratepayers
and its stockholders the economic benefits of the net proceeds from the sales of
land which has ever been in the utility's rate base. Although CWC has plans to
sell various, relatively small, discrete parcels of land over the next several
years, CWC has no significant amounts of excess land which it presently expects
to sell or otherwise dispose of.
<PAGE> 23
Page 23
GENERAL
Federal and State regulations and controls concerning water quality,
pollution and the effluent from treatment facilities are still in the process of
being developed and it is not possible to predict the scope or enforceability of
regulations or standards which may be established in the future, or the cost and
affect of existing and potential regulations and legislation upon any of the
existing and proposed facilities and operations of CWC. Further, recent and
possible future developments with respect to the identification and measurement
of various elements in water supplies and concern with respect to the impact of
one or more of such elements on public health may in the future require CWC to
replace or modify all or portions of its various water supplies, to develop
replacement supplies and/or to implement new treatment techniques. In addition,
CWC anticipates that threatened and actual contamination of its water sources
will become an increasing problem in the future. CWC has expended and will in
the future be required to expend substantial amounts to prevent or remove said
contamination or to develop alternative water supplies. See "Legal Proceedings"
for a discussion of a recent contamination problem. Any of the aforesaid
developments may significantly increase CWC's operating costs and capital
requirements. Since the DPUC's rate setting methodology permits a utility to
recover through rates prudently incurred expenses and investments in plant,
based upon past DPUC practice, the Company expects that such expenditures and
costs should ultimately be recoverable through rates for water service.
EMPLOYEES
As of December 31, 1996, CWC employed 162 full-time and part-time
employees. The Company has no employees other than its officers, who are also
officers of CWC and whose compensation is paid by CWC. All full-time employees
of CWC who meet specified age and length of service requirements participate in
an Employee's Retirement Plan which is a non-contributory trusteed pension plan
and provides for a monthly income for employees at retirement. None of the
employees is covered by a collective bargaining agreement. Management believes
that its relationship with its employees is satisfactory.
In the first quarter of 1997 CWC offered an early retirement plan to
its employees who will be 55 or older as of July 1, 1997. This offer covers 18
current employees who must notify the company of their decision to accept or
reject the offer by May 7, 1997. CWC does not know at this time the number of
employees that will choose to accept this offer.
<PAGE> 24
Page 24
ITEM 2. PROPERTIES
The properties of CWC 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. CWC owns its principal
properties in fee, except that the Collinsville System's principal source of
water supply is a water supply contract with the MDC. (See below for description
of this contract.) The Company believes that CWC's 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 owned by CWC in fee and
land occupied under easements, most of which are perpetual and valid and
sufficient for the purpose for which they are held. Although it is impractical
to investigate the validity of the title to some of the easements held by CWC
for distribution mains or to clear title in the cases where such distribution
easement titles have been found defective, any such irregularities or defects in
title which may exist do not materially impair the use of such properties in the
business of CWC. Substantially all of CWC's property is subject to the lien of
its Mortgage Indenture to secure CWC's First Mortgage Bonds.
CWC owns ten water filtration treatment plants. Information about these
facilities is contained in the following table.
<TABLE>
<CAPTION>
Year Treatment Capacity
Placed in (in million
Filtration Plant Operation Region gallons per day)
---------------- --------- ------ ----------------
<S> <C> <C> <C>
Guilford Well 1965 Shoreline 0.70
Rockville 1970 Northern 5.00
Westbrook Well 1975 Shoreline 0.23
Hunt Well Field 1976 Northern 2.50
MacKenzie 1980 Shoreline 4.00
Williams 1981 Shoreline 1.00
Stafford Springs 1984 Northern 1.00
Reynolds Bridge 1986 Naugatuck 1.00
Stewart 1989 Naugatuck 6.00
O'Bready Well 1994 Northern 0.50
</TABLE>
<PAGE> 25
Page 25
CWC has an agreement with the MDC, to provide, among other things, the
operation and maintenance by MDC of a filtration plant (completed in 1990) to
supply treated water for substantially all of CWC's Collinsville System, with a
capacity of 650,000 gallons per day, and the provision by MDC to CWC's
Collinsville System of up to 650,000 gallons per day of water from this plant
meeting all applicable Federal and State requirements. CWC has paid 40% of the
cost of construction of this plant and pays MDC an appropriate rate for water
used by CWC in excess of 400,000 gallons per day.
As of December 31, 1996, the transmission and distribution systems of
CWC consisted of approximately 980 miles of main, of which approximately 40
miles have been laid in the past five years. On that date, approximately 75% of
CWC's mains were eight-inch diameter or larger. Substantially all new main
installations are cement-lined ductile iron pipe of eight-inch diameter or
larger. Approximately 100 miles of the Company's pipelines are asbestos cement.
From January 1, 1992 through December 31, 1996, CWC added $36,643,000
of gross plant additions (including plant financed by customer advances and
contributions in aid of construction, allowance for funds used during
construction and expenditures by CWC reimbursed by any other sources), and
retired or sold property having a book value of $2,137,000, resulting in net
additions during the period of $34,506,000.
<PAGE> 26
Page 26
CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Total Dependable Greatest 1996
Storage Yield (1) Avg. Daily Avg. Daily
Capacity (thousands Delivery Delivery
(thousands of gallons (thousands (thousands
of gallons) per day) of gallons) of gallons)
---------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Northern Region:
Western System
Enfield-East Windsor System Wells 7,200
Suffield System Wells 200
South Windsor Wells 720
Ellsworth Wells 100
Lake Shenipsit 5,050,000 11,200
Talcottville Well 300
Vernon Wells 690
Windsor Locks Wells 300
Tolland Aqueduct Wells (16) 42
-----------------
20,752 9,026 (2) 8,028
----------------- ------------ ----------
Somers System Wells 390 120 (7) 114
----------------- ------------ ----------
Crescent Lake System (4) -- 32 (7) 32
----------------- ------------ ----------
Reservoir Heights (6) -- 5 (7) 4
----------------- ------------ ----------
Stafford Springs System
#4 Reservoir 51,000 ]
#3 Reservoir 15,000 ] 700
#2 Reservoir 60,000 ]
-----------------
700 629 (8) 480
----------------- ------------ ----------
Llynwood System Wells 30 13 (3) 9
----------------- ------------ ----------
Lakewood/Lakeview System Wells 49 30 (5) 24
----------------- ------------ ----------
Nathan Hale System Wells 20 9 (8) 5
----------------- ------------ ----------
Shoreline Region:
Guilford System
Killingworth & Kelseytown Reservoirs 273,000 2,300
Wells 4,540
-----------------
6,840 3,676 (9) 3,240
----------------- ------------- -----------
Chester System
Upper and Lower Reservoirs 176,000 ]
Turkey Hill Reservoir - Haddam 149,000 ] 1,200
Wilcox Reservoir - Chester 65,000 ]
Deuse Pond - Chester 4,800 ]
Well 190
-----------------
1,390 900 (10) 590
----------------- ------------ ----------
Chester Village West Wells 30 13 (17) 13
----------------- ------------ ----------
Sound View System Wells 124 42 (17) 42
----------------- ------------ ----------
</TABLE>
<PAGE> 27
Page 27
CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Total Dependable Greatest 1996
Storage Yield (1) Avg. Daily Avg. Daily
Capacity (thousands Delivery Delivery
(thousands of gallons (thousands (thousands
of gallons) per day) of gallons) of gallons)
------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Naugatuck Region:
Central System
Long Hill Reservoir 506,000 ]
Twitchell Reservoir 1,000 ]
Candee Reservoirs (11) 7,000 ] 3,600
W. H. Moody Reservoir 335,000 ]
Straitsville Reservoir 7,000 ]
Mulberry Reservoir 50,000 ]
Beacon Valley Brook Supply -- ]
Meshaddock Brook Supply 300
Wells 1,000
-------
4,900 4,970 (13) 2,753
------- ------ -------
Terryville System
Harwinton Ave. Reservoir (11) 14,800 50
Wells 910
-------
960 498 (2) 478
------- ------ -------
Thomaston System
Thomaston Reservoir (11) 93,000 310
Wells 0
Waterbury Interconnection (12) 864
-------
1,174 852 (14) 347
------- ------ -------
Collinsville System
Water Acquired by Contract (15) 650
Reservoir (distribution) 100
-------
650 391 (3) 354
------- ------ -------
</TABLE>
(1) Dependable yield is the maximum continuous rate of withdrawal available
from a source of supply without seriously depleting the source.
Dependable yield is based on long-term (99% dry year) rainfall records,
storage capacity and watershed area.
(2) Occurred in 1988.
(3) Occurred in 1989.
(4) Supplied by water purchased from the Town of East Longmeadow,
Massachusetts.
(5) Occurred in 1994.
(6) Supplied by water purchased from the Town of Manchester.
(7) Occurred in 1995
(8) Occurred in 1990.
(9) Occurred in 1987.
(10) Occurred in 1969.
(11) Reservoir held in reserve and used for emergencies only.
(12) Generally used for emergencies. However, see "Item 3. Legal
Proceedings" for a discussion of the contamination of the Thomaston
Wells. CWC presently uses the Waterbury emergency water connection to
purchase substantially all of its water supply requirements for the
Thomaston System from the Waterbury Municipal Water Department.
(13) Occurred in 1964.
(14) Occurred in 1966.
(15) The Collinsville System has a right to up to 650,000 gallons per day
through agreement with MDC. The source is Nepaug Reservoir with a
storage capacity of 9.5 billion gallons. See "Item 2. Properties" for a
description of this agreement.
(16) Connected to Northern Region, Western System on August 9, 1995.
(17) Occurred in 1996.
<PAGE> 28
Page 28
ITEM 3. LEGAL PROCEEDINGS
During the latter part of 1992 it was discovered that the CWC's Reynolds Bridge
well field in Thomaston, Connecticut, was contaminated with methyl tertiary
butyl ether ("MTBE"), a gasoline additive. At this time CWC and a responsible
party are implementing an appropriate remediation program to clean up the well
site. In 1994 legal action was initiated against the two parties deemed
responsible for such contamination in order to obtain recovery of CWC's
investigation, clean-up and water treatment and supply costs. The lawsuit is
still in the discovery stage. The magnitude of such costs is presently estimated
to be $5,400,000, or more, of which approximately $2,350,000 has been incurred
at December 31, 1996, and $300,000 is expected to be incurred in 1997. The
clean-up process may take ten years or more to complete. The Company has
reflected the total estimated clean-up costs as a deferred asset in the
accompanying consolidated balance sheets representing costs which management
believes will be recoverable from third parties or future rates. A related
liability has been recorded representing expected future clean-up costs. CWC is
presently purchasing water from a public water supply system to provide service
to its customers at normal levels. Based upon existing DPUC precedent, the
Company and its legal counsel presently believe that any such costs which are
not recovered from third parties should be allowed to be recovered through rates
charged for water service and that the ultimate resolution of this matter will
not have a material impact on the results of operations or financial condition
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 29
Page 29
ITEM 4.1 EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Period Held or Term of Office
Name Age Office Prior Position Expires
------ --- -------- -------------- --------
<S> <C> <C> <C> <C>
M. T. Chiaraluce 54 President and Held position of 1997 Annual
Chief Executive President since Meeting
Officer January, 1992 and
Chief Executive
Officer position
with the Company
since July, 1992
W. F. Guillaume 64 Vice President - Held current 1997 Annual
Engineering and position or other Meeting
Planning executive position
with the Company
since April, 1970
D. C. Benoit 39 Vice President - Held current 1997 Annual
Finance, position or other Meeting
Accounting and executive position
Treasurer with the Company
since April, 1996
J. R. McQueen 54 Vice President - Held current 1997 Annual
Customer Service position or other Meeting
and Government management or
Affairs engineering
position with the
Company since
October, 1965
K. W. Kells 53 Vice President - Held current 1997 Annual
Design and position or other Meeting
Construction engineering
position with the
Company since June,
1970
V. F. Susco, Jr. 45 Vice President - Held current 1997 Annual
Administration position or Meeting
and Secretary engineering
position with the
Company since May,
1978
T. P. O'Neill 43 Vice President - Held current 1997 Annual
Operations position or other Meeting
engineering
position with the
Company since
February, 1980
P. J. Bancroft 47 Assistant Held current 1997 Annual
Treasurer and position or other Meeting
Controller accounting position
with the Company
since October, 1979
</TABLE>
There are no family relationships between any of the Directors and
Executive Officers of the Company.
<PAGE> 30
Page 30
Part II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market
under the symbol CTWS and is included in the NASDAQ National Market System. The
following table sets forth, for the periods indicated, the high and low last
sale prices of the Company's Common Stock in the over-the-counter market and the
dividends paid by the Company during the two most recent calendar years. The
quotations represent actual sales prices, but the sales reflected may be
inter-dealer transactions which do not reflect retail mark-up, mark-down or
commission. NASDAQ is the source of the quotations for all periods. Since its
affiliation with CWC in 1975, the Company has paid quarterly cash dividends on
its Common Stock.
<TABLE>
<CAPTION>
Price
------------------ Dividends
Period High Low Paid
------ ---- --- ----
<S> <C> <C> <C>
1996:
First Quarter $28.25 $26.25 $ .42
Second Quarter 27.00 25.00 .42
Third Quarter 29.50 24.75 .43
Fourth Quarter 30.50 28.50 .43
1995:
First Quarter 24.75 22.75 .42
Second Quarter 25.75 23.75 .42
Third Quarter 27.00 24.75 .42
Fourth Quarter 28.25 26.00 .42
</TABLE>
As of March 1, 1997 there were approximately 5,600 holders of record of
the Company's Common Stock.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors from funds legally available therefor.
Future dividends of the Company will be dependent upon timely and adequate rate
relief, consolidated and parent company net income, availability of cash to the
Company and CWC, the financial condition of the Company and CWC, the ability of
the Company and CWC to sell their securities, the requirements of the
construction program of CWC and other conditions existing at the time.
The Company is not permitted to pay any dividends on its Common Stock
unless full cumulative dividends to the last preceding dividend date for all
outstanding shares of Cumulative Preferred Stock of the Company have been paid
or set aside for payment.
<PAGE> 31
Page 31
The income of the Company is derived mainly from earnings on its equity
investment in CWC. At December 31, 1996, the retained earnings of CWC aggregated
$12,339,000. As a result of dividend restrictions contained in CWC's mortgage
indenture and Preferred Stock provisions, the amount of cash dividends payable
on CWC's common equity capital out of CWC's retained earnings was limited to
$12,089,000.
The Company has a Dividend Reinvestment and Common Stock Purchase Plan.
Under the plan, customers and employees of CWC and holders of Common Stock who
elect to participate may automatically reinvest all or specified percentages of
their dividends in additional shares of Common Stock and may also make optional
cash payments of up to $1,000 per month to purchase additional shares of Common
Stock. The Company may issue authorized but unissued shares of Common Stock to
meet the requirements of the plan, or buy the shares on the open market at its
discretion. 1,500,000 shares have been registered with the Securities and
Exchange Commission for that purpose. Under the plan, approximately 780,000
shares had been issued by the Company as of December 31, 1996.
The Company has a Performance Stock Program that provides for an
aggregate maximum of up to 50,000 shares of Common Stock of the Company to be
issued as awards of restricted stock to eligible employees of CWC, conditioned
on the attainment of performance goals established by the Salary Committee.
Under the plan approximately 20,750 shares, 6,350 of which are restricted, had
been issued by the Company as of December 31, 1996.
The Company has an Employee Savings 401-K Match Plan. Under the Plan
approximately 9,750 shares of Common Stock had been issued by the Company as of
December 31, 1996.
<PAGE> 32
Page 32
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
SUPPLEMENTAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Thousands of dollars except where indicated)
Years Ended December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
Operating Revenues $ 38,592 $ 39,350 $ 38,129 $ 38,131 $ 37,190
Operating Expenses $ 28,464 $ 29,328 $ 28,474 $ 28,148 $ 27,157
Operating Income $ 10,128 $ 10,022 $ 9,655 $ 9,983 $ 10,033
Interest and Debt Expense $ 3,967 $ 3,946 $ 3,940 $ 4,338 $ 4,872
Net Income Applicable to Common Stock $ 6,565 $ 6,325 $ 5,842 $ 5,529 $ 5,111
Weighted Average Common Shares Outstanding 2,997,337 2,918,417 2,812,456 2,769,347 2,728,573
Earnings Per Average Common Share $ 2.19 $ 2.17 $ 2.08 $ 2.00 $ 1.87
Number of Shares Outstanding at Year End 3,012,083 2,966,757 2,870,559 2,789,977 2,751,331
ROE on Year End Common Equity 12.1% 12.2% 12.2% 12.2% 11.8%
Cash Dividends Paid Per Common Share $ 1.70 $ 1.68 $ 1.65 $ 1.64 $ 1.61
Dividend Payout Ratio 77.6% 77.4% 79.3% 82.0% 86.1%
BALANCE SHEET
Common Stockholders' Equity $ 54,395 $ 51,788 $ 47,983 $ 45,160 $ 43,138
Long-Term Debt $ 54,430 $ 54,460 $ 54,600 $ 51,600 $ 51,600
Preferred Stock (Consolidated, Excluding Current Maturities) $ 772 $ 772 $ 772 $ 3,748 $ 3,772
- ----------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 109,597 $ 107,020 $ 103,355 $ 100,508 $ 98,510
Stockholders' Equity (Includes Preferred Stock) 50% 49% 47% 49% 48%
Long-Term Debt 50% 51% 53% 51% 52%
Net Utility Plant $ 153,898 $ 146,536 $ 140,784 $ 137,568 $ 135,697
Book Value - Per Common Share $ 18.06 $ 17.46 $ 16.72 $ 16.19 $ 15.68
</TABLE>
* 1987 includes $1,004 net income, $.48 per average common share, related to
cumulative effect of Change in Method of Accounting for unbilled revenues.
<TABLE>
<CAPTION>
OPERATING DATA
(Thousands of dollars) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE CLASS
Residential $ 24,669 $ 25,345 $ 24,488 $ 24,574 $ 23,541
Commercial 4,640 4,852 4,696 4,745 4,729
Industrial 1,861 1,868 1,922 1,851 2,100
Public Authority 1,050 1,090 893 903 856
Fire Protection 6,227 6,129 6,021 5,967 5,881
Other 145 66 109 91 83
- ----------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 38,592 $ 39,350 $ 38,129 $ 38,131 $ 37,190
============================================================================================================================
Number of Customers (Average) 61,597 60,844 60,082 59,558 58,966
Billed Consumption (Millions of Gallons) 5,427 5,595 5,421 5,450 5,331
Number of Employees 162 163 164 168 179
</TABLE>
<PAGE> 33
Page 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto.
LIQUIDITY AND CAPITAL RESOURCES - During the first two quarters of 1996 the
Dividend Reinvestment and Common Stock Purchase Plan (DRIP) provided over
$900,000 of new equity capital, increasing the common stock equity component of
the Company's capitalization to 50%, up from 48% in 1995. To assist the Company
in maintaining a 50/50 Equity to Debt ratio, the Company modified its DRIP to
give the Company increased financial flexibility through the option of being
able to provide DRIP shares through open market purchases and negotiated
transactions, in addition to the previous method of issuing new shares. To meet
the DRIP requirements in the second half of 1996 the Company chose to purchase
shares on the open market. These purchases allowed the Company to maintain the
50/50 Equity to Debt ratio, and have been financed with short-term debt, a less
expensive form of financing than issuance of equity for the Company at this
time.
Utility plant additions were financed through cash provided by operating
activities, funds received from others, funds provided by the DRIP, and through
interim bank borrowings. Seasonal cash requirements were provided through
interim bank borrowings.
Interim bank loans payable at year end were $5,795,000, approximately $3,000,000
higher than the same time the prior year. This increase is due to the changes to
the DRIP, as well as the decrease in cash flows from operations stemming
primarily from the extreme weather differences between 1996 and 1995. Management
considers the current $12,000,000 line of credit with four banks adequate to
finance expected short-term borrowing requirements that may arise from
operations during 1997. Interest expense charged on interim bank loans will
fluctuate subject to financial market conditions experienced during the year.
1996 was the fourth consecutive year that interest coverage, the ratio of
utility operating income plus Federal and State income taxes to annualized
interest expense on outstanding long-term debt, exceeded 4.0 times coverage.
The Board of Directors has approved a $11,400,000 construction budget for 1997.
Funds provided by operating activities, given normal weather patterns and
related operating revenue billings and contributions from developers and others,
are expected to finance approximately 70% of this construction program. Refer to
Note 10, Utility Plant and Construction Program, in Notes to Consolidated
Financial Statements for additional discussion of the Subsidiary's future
construction program. The remainder of the construction program is expected to
be financed through interim bank loans.
<PAGE> 34
Page 34
REGULATORY MATTERS AND INFLATION - The Subsidiary's last rate increase was
effective March 25, 1991. That rate decision included a 12.7% allowed return on
common equity and a 10.74% allowed return on rate base. Future economic and
financial market conditions, coupled with governmental regulations and fiscal
policy, plus other factors which are unpredictable and often beyond the control
of the Subsidiary, will influence when the Subsidiary requests a revised
schedule of rates from the DPUC. Construction expenditures mandated to comply
with the amendments to the Safe Drinking Water Act (SDWA) will, when and if
required, also affect water rates charged to customers.
The Company, like all other businesses, is affected by inflation, most notably
by the continually increasing costs required to maintain, improve, and expand
its service capability. The cumulative effect of inflation results in
significantly higher facility replacement costs which must be recovered from
future cash flow. The ability of the Subsidiary to recover this increased
investment in facilities is dependent upon future revenue increases which are
subject to approval by the Connecticut Department of Public Utility Control
(DPUC).
Management does not presently plan to petition the DPUC for an increase in
permanent rates in 1997.
OUTLOOK FOR 1997 - The Company's profitability is primarily attributable to the
sale and distribution of water, the amount of which is dependent on seasonal
weather fluctuations, particularly during the summer months when water demand
will vary with rainfall and temperature levels.
Through December 31, 1996, the Company has expended approximately $2,350,000 in
its effort to remediate the Reynolds Bridge Well Field (RBWF) contaminated with
MTBE, a gasoline additive. These costs have been deferred. Additional
expenditures of approximately $300,000 related to this remediation effort are
expected to be incurred in 1997, and will also be deferred as management expects
that these costs and future related costs will be recovered from the responsible
parties, or through rates charged to customers. Refer to Note 9, Recoverable
Clean-Up Costs, for additional discussion of RBWF clean-up costs.
RESULTS OF OPERATIONS -
1996 COMPARED WITH 1995
Net income applicable to common stock for 1996 increased from that of 1995 by
$240,000, or $0.02 per average common share, on an increased number of common
shares outstanding due primarily to the following:
- - Operating income increased $106,000 as a result of a $758,000 decrease
in operating revenues offset by a $864,000 decrease in operating
expense.
<PAGE> 35
Page 35
- - The 1.9% decrease in operating revenues is primarily due to the extreme
differences in the 1996 and 1995 summer weather. The 1996 summer was
wet and cool causing customer water usage to decline, as opposed to the
1995 summer that was extraordinarily hot and dry.
- - The 2.9% decrease in operating expenses is primarily due to
the following:
- a reduction in operation expense due to lower production,
treatment, and distribution expenses associated with the
decline in the volume of water sold
- a reduction in administrative expenses and a postponement
of non-critical maintenance expenses in response to the
decline in revenues due to the wet and cool summer
- a greater percentage of the Subsidiary's overall labor
activity being directed to capital-related projects
- a lower effective tax rate in 1996 primarily associated
with the flow-through adjustment related to pension costs
- - Other income increased $155,000 due primarily to increased AFUDC on the
Subsidiary's continuing investment in utility plant.
1995 COMPARED WITH 1994
1995 net income applicable to common stock increased from that of 1994 by
$483,000, or $.09 per average common share, on an increased number of average
common shares due primarily to the following:
- - Operating revenues increased by 3.2%, or $1,221,000, primarily due to
the higher residential, commercial, and public authority consumption in
1995 reflecting the hot and dry summer.
- - Operating expenses increased by 3.0% primarily due to the
following:
- increased gross earnings and income taxes related to the
higher revenues and taxable income
- increased operation costs due to higher production,
treatment, and distribution expenses associated with the
higher volume of water sold
- Increased depreciation expense relating to increased
plant in service
- increased maintenance expense
- increased employee fringe benefit costs
- - Other income increased $122,000 due primarily to a reduction in
preferred stock dividends accomplished by the refinancing of the 9.5%
Series Cumulative Preferred Stock of the Subsidiary in March, 1994.
<PAGE> 36
Page 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Connecticut Water Service, Inc.:
We have audited the accompanying consolidated balance sheets of Connecticut
Water Service, Inc. (a Connecticut corporation) and Subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Connecticut Water
Service, Inc. and Subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 14, 1997
<PAGE> 37
Page 37
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
(In thousands except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues $ 38,592 $ 39,350 $ 38,129
- ----------------------------------------------------------------------------------------------
Operating Expenses
Operation 12,964 13,404 12,929
Maintenance 1,664 2,026 1,970
Depreciation 3,315 3,158 3,086
Federal Income Taxes 3,878 3,925 3,769
Connecticut Corporation Business Taxes 934 1,025 987
Taxes Other Than Income Taxes 5,709 5,790 5,733
- ----------------------------------------------------------------------------------------------
Total Operating Expenses 28,464 29,328 28,474
- ----------------------------------------------------------------------------------------------
Utility Operating Income 10,128 10,022 9,655
- ----------------------------------------------------------------------------------------------
Other Income (Deductions)
Interest 179 156 100
Allowance for Funds Used During Construction 337 52 89
Preferred Stock Dividends of Subsidiary -- -- (73)
Other (53) 112 23
Taxes on Other Income (21) (33) 26
- ----------------------------------------------------------------------------------------------
Total Other Income (Deductions) 442 287 165
- ----------------------------------------------------------------------------------------------
Interest and Debt Expenses
Interest on Long-Term Debt 3,460 3,462 3,457
Other Interest Charges 319 296 295
Amortization of Debt Expense 188 188 188
- ----------------------------------------------------------------------------------------------
Total Interest and Debt Expenses 3,967 3,946 3,940
- ----------------------------------------------------------------------------------------------
Net Income Before Preferred Dividends 6,603 6,363 5,880
Preferred Stock Dividend Requirement 38 38 38
- ----------------------------------------------------------------------------------------------
Net Income Applicable to Common Stockholders $ 6,565 $ 6,325 $ 5,842
==============================================================================================
Weighted Average Common Shares Outstanding 2,997 2,918 2,812
==============================================================================================
Earnings Per Average Common Share $ 2.19 $ 2.17 $ 2.08
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 38
Page 38
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, (Thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Income Before Preferred Dividends of Parent $ 6,603 $ 6,363 $ 5,880
- ------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation (including $105 in 1996, $124 in 1995,
and $150 in 1994 charged to other accounts) 3,420 3,282 3,236
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable and
Accrued Unbilled Revenues 235 (403) (176)
(Increase) Decrease in Other Current Assets (32) 811 (579)
(Increase) Decrease in Other Non-Current Items (612) (442) (870)
Increase (Decrease) in Accounts Payable, Accrued
Expenses and Other Current Liabilities (97) 391 2,324
Increase (Decrease) in Deferred Income Taxes and
Investment Tax Credits, Net 1,051 1,003 1,080
- ------------------------------------------------------------------------------------------------------------
Total Adjustments 3,965 4,642 5,015
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 10,568 11,005 10,895
- ------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross Additions to Utility Plant (including
Allowance For Funds Used During Construction of
$337 in 1996, $52 in 1995 and $89 in 1994) (10,971) (9,198) (6,514)
- ------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from Interim Bank Loans 5,795 2,646 2,700
Repayment of Interim Bank Loans (2,646) (2,700) (3,950)
Proceeds from Issuance of Long-Term Debt -- -- 12,050
Reduction of Long-Term Debt Including Current Portion (30) (140) (9,050)
Proceeds from Issuance of Common Stock 1,136 2,410 1,908
Retirement of Preferred Stock -- (30) (3,030)
Charges Related to Redemption of
9.5% Series Preferred Stock -- -- (257)
Advances, Contributions and Funds from
Others for Construction, Net 1,191 1,081 594
Costs Incurred to Issue Long-Term Debt, Preferred Stock,
and Common Stock -- (33) (697)
Cash Dividends Paid (5,132) (4,935) (4,675)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 314 (1,701) (4,407)
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (89) 106 (26)
Cash at Beginning of Year 124 18 44
- ------------------------------------------------------------------------------------------------------------
Cash at End of Year $ 35 $ 124 $ 18
============================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (Net of Amounts Capitalized) $ 3,773 $ 3,759 $ 3,698
State and Federal Income Taxes $ 3,715 $ 4,635 $ 3,480
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 39
Page 39
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (Thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Utility Plant
Utility Plant $ 195,223 $ 186,907
Construction Work in Progress 8,940 6,399
Utility Plant Acquisition Adjustments (1,206) (1,206)
- -------------------------------------------------------------------------------------------------
202,957 192,100
Accumulated Provision for Depreciation (49,059) (45,564)
- -------------------------------------------------------------------------------------------------
Net Utility Plant 153,898 146,536
- -------------------------------------------------------------------------------------------------
Investments
Unconsolidated Subsidiary at Underlying Equity 38 35
Other 1,252 1,061
- -------------------------------------------------------------------------------------------------
Total Investments 1,290 1,096
- -------------------------------------------------------------------------------------------------
Current Assets
Cash 35 124
Accounts Receivable (Less Allowance, 1996 - $140; 1995 - $164) 3,736 3,987
Accrued Unbilled Revenues 2,830 2,814
Materials and Supplies, at Average Cost 628 588
Prepayments and Other Current Assets 108 116
- -------------------------------------------------------------------------------------------------
Total Current Assets 7,337 7,629
- -------------------------------------------------------------------------------------------------
Deferred Charges
Unamortized Debt Issuance Expense 5,212 5,399
Costs Recoverable Through Future Rates:
Income Taxes 9,000 9,000
Postretirement Benefits Other Than Pension 1,036 932
Recoverable Clean-Up Costs 5,400 4,500
Prepaid Income Taxes on Contributions in Aid of Construction 528 530
Other Costs 939 837
- -------------------------------------------------------------------------------------------------
Total Deferred Charges 22,115 21,198
- -------------------------------------------------------------------------------------------------
Total Assets $ 184,640 $ 176,459
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 40
Page 40
<TABLE>
<CAPTION>
December 31, (Thousands of dollars) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stockholders' Equity:
Common Stock $ 42,456 $ 41,320
Retained Earnings 11,939 10,468
Preferred Stock 772 772
Long-Term Debt 54,430 54,460
- ----------------------------------------------------------------------------------
Total Capitalization 109,597 107,020
- ----------------------------------------------------------------------------------
Current Liabilities
Interim Bank Loans Payable 5,795 2,646
Accounts Payable 4,375 4,609
Accrued Taxes 1,536 1,530
Accrued Interest 1,255 1,249
Current Portion of Accrued Clean-Up Costs 300 450
Other 1,951 1,826
- ----------------------------------------------------------------------------------
Total Current Liabilities 15,212 12,310
- ----------------------------------------------------------------------------------
Accrued Clean-Up Costs 2,757 2,212
- ----------------------------------------------------------------------------------
Advances for Construction 13,600 12,610
- ----------------------------------------------------------------------------------
Contributions in Aid of Construction 18,563 18,551
- ----------------------------------------------------------------------------------
Deferred Federal Income Taxes 12,717 11,608
- ----------------------------------------------------------------------------------
Unfunded Future Income Taxes 9,000 9,000
- ----------------------------------------------------------------------------------
Unfunded Postretirement Benefits Other Than Pensions 1,036 932
- ----------------------------------------------------------------------------------
Unamortized Investment Tax Credits 2,158 2,216
- ----------------------------------------------------------------------------------
Total Capitalization and Liabilities $184,640 $176,459
==================================================================================
</TABLE>
<PAGE> 41
Page 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - Connecticut Water Service, Inc. (the Company) is the parent
company of The Connecticut Water Company (the Subsidiary). Intercompany accounts
and transactions have been eliminated in the accompanying consolidated financial
statements.
PUBLIC UTILITY REGULATION - The Subsidiary 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 generally accepted accounting principles
which includes the provisions of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation," (FAS 71). FAS
71 requires a cost-based, rate-regulated enterprise such as the Subsidiary to
reflect the impact of regulatory decisions in its financial statements. The
DPUC, through the rate regulation process, can create regulatory assets that
result when costs are allowed for ratemaking purposes in a period other than the
period in which the costs would be charged to expense by an unregulated
enterprise.
In accordance with FAS 71, the Subsidiary has recorded regulatory assets or
liabilities as appropriate primarily related to income taxes and postretirement
benefits costs. The specific amounts related to these items are disclosed in the
consolidated balance sheets.
The Subsidiary continues to be subject to cost-of-service based rate regulation
by the DPUC. Based upon current regulation and recent regulatory decisions, the
Company believes that its use of regulatory accounting is appropriate and in
accordance with the provisions of FAS 71.
FAS 121, which became effective for 1996, establishes accounting standards for
the impairment of long-lived assets. FAS 121 also requires that regulatory
assets which are no longer probable of recovery through future revenues be
charged to earnings. The adoption of FAS 121 did not have an impact on the
financial position or results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
<PAGE> 42
Page 42
REVENUES - The Subsidiary accrues an estimate for the amount of revenues
relating to sales unbilled at the end of each quarter. Generally, all customers
are billed quarterly, except larger commercial and industrial customers, and
public fire protection customers, who are billed monthly. Substantially all
customers, except fire protection customers, are metered. Public fire protection
charges are based on the length and diameter of the water main and number of
hydrants in service. Private fire protection charges are based on the diameter
of the connection to the water main.
UTILITY PLANT - Utility plant is stated at original cost of such property when
first devoted to public service. The difference between the original cost and
the cost to the Subsidiary is charged or credited to utility plant acquisition
adjustments. Utility plant accounts are charged with the cost of improvements
and replacements of property including an allowance for funds used during
construction. Retired or disposed of depreciable plant is charged to accumulated
provision for depreciation together with any costs applicable to retirement,
less any salvage received. Maintenance of utility plant is charged to expense.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION - Allowance for funds used during
construction (AFUDC) generally represents the cost of funds used to finance the
construction of the Subsidiary's utility plant. Generally, utility plant under
construction is not recognized as part of the Subsidiary's rate base for
ratemaking purposes until facilities are placed into service, and accordingly,
the Subsidiary charges AFUDC 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 acquisitions of failing water systems not to degrade the
Subsidiary's earnings, the Subsidiary has requested that the DPUC allow it to
record AFUDC on its investments in these systems. The 1995 DPUC decision which
approved the Subsidiary's acquisition of the Sound View Water System allowed the
Subsidiary to capitalize financing costs, amounting to $155,000 in 1996, until
its next general rate proceeding.
The Subsidiary's allowed rate of return on rate base is used to calculate AFUDC.
DEPRECIATION - Depreciation is computed on a straight line basis at various
rates, approved by the DPUC, estimated to be sufficient to provide for the
recovery of the investment in utility plant over its useful life. Water
treatment facilities are depreciated using a 2.5% composite rate, while most
other utility plant is depreciated at a composite rate of 1.6%. The depreciation
rates, based on the average balance of depreciable property, were 1.9% for 1996,
1995 and 1994.
<PAGE> 43
Page 43
CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION -
Under the terms of construction contracts with real estate developers and
others, the Subsidiary receives advances for the costs of new main
installations. Refunds are made, without interest, as services are connected to
the main, over periods not exceeding fifteen years and not in excess of the
original advance. Unrefunded balances, at the end of the contract period, are
credited to contributions in aid of construction (CIAC) and are no longer
refundable.
INCOME TAXES - The Company provided deferred taxes for all temporary book-tax
differences using the liability method. Under the liability method, deferred
income taxes are recognized at currently enacted income tax rates to reflect the
tax effect of temporary differences between the financial reporting and tax
bases of assets and liabilities. Such temporary differences are the result of
provisions in the income tax law that either require or permit certain items to
be reported on the income tax return in a different period than they are
reported in the financial statements. To the extent such income taxes increase
or decrease future rates, an offsetting regulatory asset and liability have been
recorded in the accompanying consolidated balance sheets.
The Company believes that all deferred income tax assets will be realized in the
future. Approximately $1,000,000, of the December 31, 1996 and 1995 unfunded
future income taxes is related to deferred Federal income taxes. The remaining
balance of the unfunded future income taxes is related to deferred State income
taxes.
Deferred Federal income taxes consists primarily of amounts that have been
provided for accelerated depreciation subsequent to 1981, as required by Federal
income tax regulations. Deferred taxes have also been provided for temporary
differences in the recognition of certain expenses for tax and financial
statement purposes as allowed by DPUC ratemaking policies.
Connecticut Corporation Business Taxes have been reflected primarily using the
flow-through method of accounting for temporary differences in accordance with
required DPUC ratemaking policies.
MUNICIPAL TAXES - Municipal taxes are expensed over the 12 month period
beginning on July 1 following the lien date, corresponding with the period in
which the municipal services are provided.
OTHER DEFERRED COSTS - In accordance with DPUC ratemaking procedures, costs
which benefit future periods, such as tank painting, are expensed over the
periods they benefit.
UNAMORTIZED DEBT ISSUANCE EXPENSE - The issuance costs of long-term debt,
including the remaining balance of issuance costs on long-term debt issues that
have been refinanced prior to maturity and related call premiums, are amortized
over the respective lives of the outstanding debt, as approved by the DPUC.
<PAGE> 44
Page 44
NOTE 2: INCOME TAX EXPENSE
Income Tax Expense is comprised of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Classified as Operating Expense $ 3,878 $ 3,925 $ 3,769
Federal Classified as Other Income 30 (13) (39)
- -----------------------------------------------------------------------------------------------------------
Total Federal Income Tax Expense 3,908 3,912 3,730
- -----------------------------------------------------------------------------------------------------------
State Classified as Operating Expense 934 1,025 987
State Classified as Other Income (27) 10 --
- -----------------------------------------------------------------------------------------------------------
Total State Income Tax Expense 907 1,035 987
- -----------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 4,815 $ 4,947 $ 4,717
===========================================================================================================
</TABLE>
The components of the Federal and State income tax provisions are:
<TABLE>
<S> <C> <C> <C>
Current:
Federal $ 2,833 $ 2,880 $ 2,563
State 907 1,035 987
- -----------------------------------------------------------------------------------------------------------
Total Current 3,740 3, 915 3,550
- -----------------------------------------------------------------------------------------------------------
Deferred Income Taxes, Net:
Federal
Investment Tax Credit (59) (59) (59)
Capitalized Interest 38 24 24
Depreciation 1,071 1,037 1,115
Advances and CIAC 25 30 87
- -----------------------------------------------------------------------------------------------------------
Total Deferred Income Taxes, Net 1,075 1,032 1,167
- -----------------------------------------------------------------------------------------------------------
Total $ 4,815 $ 4,947 $ 4,717
===========================================================================================================
The calculation of Pre-Tax Income is as follows:
Pre-Tax Income
Net Income Before Preferred Dividends of Parent $ 6,603 $ 6,363 $ 5,880
Income Taxes 4,815 4,947 4,717
Preferred Dividends of Subsidiary -- -- 73
- -----------------------------------------------------------------------------------------------------------
Total Pre-Tax Income $11,418 $11,310 $10,670
===========================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Statutory Income Tax Rate 34.0% 34.0% 34.0%
Tax Effect of Differences:
State Income Taxes Net of Federal Benefit 5.3% 6.0% 6.1%
Depreciation 1.5% 1.5% 1.5%
Pension Costs .6% 1.0% 1.4%
Debt Issuance Expense .2% .2% (.2%)
Other .6% 1.0% 1.4%
- -----------------------------------------------------------------------------------------------------------
Effective Income Tax Rate 42.2% 43.7% 44.2%
===========================================================================================================
</TABLE>
<PAGE> 45
Page 45
NOTE 3: COMMON STOCK
The Company has 7,500,000 authorized shares of common stock, no par value. A
summary of the changes in the common stock accounts for the period January 1,
1994 through December 31, 1996, appears below:
<TABLE>
<CAPTION>
Issuance
(Thousands of dollars except share amounts) Shares Amount Expense Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 2,789,977 $38,218 $(1,150) $37,068
Stock issued through Dividend Reinvestment Plan 74,053 1,728 (33) 1,695
Stock issued through Performance Stock Program 4,061 120 -- 120
Stock issued to Employee Savings 401-K Match Plan 2,468 60 -- 60
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 2,870,559 40,126 (1,183) 38,943
Stock issued through Dividend Reinvestment Plan 87,807 2,199 (33) 2,166
Stock issued through Performance Stock Program 6,369 160 -- 160
Stock issued to Employee Savings 401-K Match Plan 2,022 51 -- 51
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 2,966,757 42,536 (1,216) 41,320
Stock issued through Dividend Reinvestment Plan 36,914 940 -- 940
Stock issued through Performance Stock Program 4,907 100 -- 100
Stock issued to Employee Savings 401-K Match Plan 3,505 96 -- 96
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 (1) 3,012,083 $43,672 $(1,216) $42,456
===========================================================================================================================
</TABLE>
(1) Includes 6,346 restricted shares issued through the Performance Stock
Program.
In 1988 the Board of Directors authorized a dividend distribution of one right
to purchase Common Stock (Right) for each outstanding share of Common Stock.
Each Right entitles the registered holder under certain circumstances to
purchase from the Company one share of Common Stock (or substitute equity or
debt securities) at an exercise price (subject to antidilution adjustments) of
$50 per share, or under other circumstances, common stock or other securities or
assets of an acquiring entity or of the Company.
The Rights are not currently exercisable or separately transferable apart from
the Common Stock. The Rights can be redeemed by the Board of Directors under
certain circumstances at a price of $.01 per Right. The agreement pursuant to
which the Rights were issued may be amended by the Board of Directors under
certain circumstances. The Rights expire on October 11, 1998.
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.
<PAGE> 46
Page 46
NOTE 4: ANALYSIS OF RETAINED EARNINGS
The summary of the changes in Retained Earnings for the period January 1, 1994
through December 31, 1996, appears below:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $10,468 $ 9,040 $ 8,092
Income Before Preferred Stock Dividends
of Company 6,603 6,363 5,880
- -------------------------------------------------------------------------------------------------------
17,071 15,403 13,972
- -------------------------------------------------------------------------------------------------------
Charges Related to Redemption of Subsidiary's
9.5% Series Preferred Stock -- -- 257
- -------------------------------------------------------------------------------------------------------
Dividends Declared:
Cumulative Preferred, Series A, $.80 Per Share 12 12 12
Cumulative Preferred, Series $.90, $.90 Per Share 26 26 26
Common Stock:
1996 $1.70 Per Share 5,094 -- --
1995 $1.68 Per Share -- 4,897 --
1994 $1.65 Per Share -- -- 4,637
- -------------------------------------------------------------------------------------------------------
5,132 4,935 4,675
- -------------------------------------------------------------------------------------------------------
Balance at End of Year $11,939 $10,468 $ 9,040
=======================================================================================================
</TABLE>
NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each of the following financial instruments.
CASH - The carrying amount approximates fair value.
FIRST MORTGAGE BONDS - 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, 1996 and 1995, the estimated fair value of the Company's long-term debt was
$55,800,000 and $58,400,000, respectively, as compared to the carrying amounts
of $54,430,000 and $54,460,000, 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.
NOTE 6: LONG-TERM DEBT
Long-Term Debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
The Connecticut Water Company First Mortgage Bonds:
6.9% Series Q, Due 2021 $10,000 $10,000
5.875% Series R, Due 2022 14,830 14,860
6.65% Series S, Due 2020 8,000 8,000
5.75% Series T, Due 2028 5,000 5,000
5.3% Series U, Due 2028 4,550 4,550
6.94% Series V, Due 2029 12,050 12,050
- -------------------------------------------------------------------------------------
Total Long-Term Debt $54,430 $54,460
=====================================================================================
</TABLE>
<PAGE> 47
Page 47
Substantially all utility plant is pledged as collateral for the Subsidiary's
long-term debt.
There are no mandatory sinking fund payments required on the outstanding First
Mortgage Bonds at December 31, 1996. However, the Series Q and R First Mortgage
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.
Outstanding bonds may be initially called for redemption by the Company at the
following dates and prices - Series Q - August 1, 1996 and Series R, September
1, 1997 at 103%; Series S, December 15, 2003 at 102%; Series T, July 1, 2003 and
Series U, September 1, 2003 at 100% plus accrued interest to the date of
redemption; Series V, January 1, 2004 at 103.5%.
NOTE 7: PREFERRED STOCK
Preferred Stock at December 31, consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Series A Voting, $20 Par Value; Authorized
Issued and Outstanding 15,000 Shares $300 $300
Cumulative Series $.90 Non-Voting, $16 Par Value;
Authorized 50,000 Shares, Issued and Outstanding
29,499 Shares 472 472
- ---------------------------------------------------------------------------------
Total $772 $772
=================================================================================
</TABLE>
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. No shares of the preference stock
have been issued.
NOTE 8: BANK LINES OF CREDIT
A $12,000,000 line of credit is provided by four banks. Bank commitment fees of
approximately $15,000, $12,000, and $14,000 were paid in 1996, 1995, and 1994,
respectively, on the lines of credit.
At December 31, 1996 and 1995, the weighted average interest rates on short-term
borrowings outstanding were 5.85% and 6.02%, respectively.
<PAGE> 48
Page 48
NOTE 9: RECOVERABLE CLEAN-UP COSTS
During the latter part of 1992 it was discovered that the Subsidiary's Reynolds
Bridge well field in Thomaston, Connecticut, was contaminated with methyl
tertiary butyl ether (MTBE), a gasoline additive. At this time the Subsidiary
and a responsible party are implementing an appropriate remediation program to
clean up the well site. In 1994, legal action was initiated by the Company
against the two parties deemed responsible for such contamination in order to
obtain recovery of the Subsidiary's investigation, clean-up and water treatment
and supply costs. The lawsuit is still in the discovery stage. The magnitude of
such costs is presently estimated to be $5,400,000, or more, of which
approximately $2,350,000 has been incurred at December 31, 1996 and $300,000 is
expected to be incurred in 1997. The clean-up process may take ten years or more
to complete. The Company has reflected the total estimated clean-up costs as a
deferred asset in the accompanying consolidated balance sheets representing
costs which management believes will be recoverable from third parties or
through future rates. A related liability has been recorded representing
expected future clean-up costs. The Subsidiary is presently purchasing water
from a public water supply system to provide service to its customers at normal
levels. The Company and its legal counsel presently believe that any such costs
which are not recovered from third parties should be allowed to be recovered
through rates charged for water service and that the ultimate resolution of this
matter will not have a material impact on the results of operations or financial
condition of the Company.
NOTE 10: UTILITY PLANT AND CONSTRUCTION PROGRAM
The components of utility plant and equipment at December 31, are as follows:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Source of Supply $ 15,710 $ 15,197
Pumping 11,080 10,351
Water Treatment 35,548 35,023
Transmission and Distribution 120,244 114,901
General (including intangible) 10,465 9,259
Held for Future Use 2,176 2,176
- ------------------------------------------------------------------
Total $195,223 $186,907
==================================================================
</TABLE>
The amounts of depreciable plant at December 31, 1996 and 1995, included in
total plant were $180,101,000 and $172,819,000, respectively.
The Subsidiary is engaged in a continuous construction program. The Subsidiary's
estimated annual capital expenditures, net of amounts financed by customer
advances and contributions in aid of construction, are expected to be
$10,400,000 during 1997, $5,500,000 during 1998, and $6,500,000 in 1999. These
projections include costs of refurbishing the Rockville Water Treatment Plant of
$4,550,000 in 1997 and $1,425,000 in 1998. The projections also include $535,000
in 1997 to make improvements to the Sound View Water System that the Subsidiary
acquired in 1995. During the period 2000 to 2001, construction expenditures for
routine improvements to the water distribution system are expected to be
approximately $5,000,000 each year.
<PAGE> 49
Page 49
NOTE 11: TAXES OTHER THAN INCOME TAXES
Taxes Other than Income Taxes consist of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Property Taxes $3,284 $3,284 $3,331
Payroll Taxes 495 539 496
Connecticut Gross Earnings Tax 1,930 1,967 1,906
- ------------------------------------------------------------------------------
Total $5,709 $5,790 $5,733
==============================================================================
</TABLE>
NOTE 12: PENSION AND OTHER EMPLOYEE BENEFITS
PENSION - The Subsidiary has a trusteed, non-contributory defined benefit
retirement plan (the Pension Plan) which covers all employees who have completed
one year of service. Benefits under the Pension Plan are based on credited years
of service and "average earnings", as defined in the Pension Plan. The
Subsidiary's policy is to fund accrued pension costs as permitted by Federal
income tax regulations. Fundings of $153,000 and $396,000 were made for 1996 and
1995 respectively.
The table below sets forth the Pension Plan's funded status and amounts
recognized in the Company's year end Balance Sheets.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ 7,243 $ 7,811
Accumulated Benefit Obligation 7,500 8,146
Projected Benefit Obligation 9,414 11,029
Pension Plan Assets at Fair Value, Primarily
Equity Securities and U.S. Bonds 12,681 10,866
Projected Benefit Obligation (9,414) (11,029)
- ---------------------------------------------------------------------------------------
Pension Plan Assets in Excess of (Under) Projected
Benefit Obligation 3,267 (163)
Add (Deduct):
Unrecognized Net Gain From Past Experience
Different From That Assumed and Effects
of Changes in Assumptions (4,465) (1,209)
Unrecognized Net Transition Asset at January 1,
1986 Being Recognized Over 15 Years (162) (194)
Unrecognized Prior Service Cost 282 315
- ---------------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost as of December 31 $ (1,078) $ (1,251)
=======================================================================================
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Period $ 463 $ 383 $ 469
Interest Cost on Projected Benefit Obligation 737 668 631
Actual Return on Pension Plan Assets (1,718) (2,493) 144
Deferred Investment Gain (Loss) 958 1,801 (813)
Amortization of:
Unrecognized Net Transition Asset (32) (32) (32)
Unrecognized Net (Gain) Loss 32 (114) 14
Unrecognized Prior Service Cost (64) 32 32
- -------------------------------------------------------------------------------------------------
Net Periodic Pension Cost $ 376 $ 245 $ 445
=================================================================================================
</TABLE>
<PAGE> 50
Page 50
The actuarial present value of the projected benefit obligation was determined
based on the following assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average Discount Rate 7.75% 7.25% 7.75%
Rate of Increase in Future Compensation Levels 4.5% 5.3% 5.3%
The Long-Term Expected Rate of Return on Plan Assets
Used in the Determination of Pension Costs 8.0% 8.0% 8.0%
</TABLE>
The weighted average discount rate assumption is based on the return provided by
high quality fixed income investments at year end. This rate of return
assumption will likely change annually. The wage rate assumption and the rate of
return on plan assets are more long-term assumptions which may be revised to
reflect changes in economic conditions.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - The Subsidiary provides additional
pension benefits to senior management through a supplemental executive
retirement plan. At December 31, 1996 the actuarial present value of the
projected benefit obligation was $533,000. Expense associated with this plan was
$115,000 for 1996, $181,000 for 1995, and $72,000 for 1994.
POSTRETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing
pension benefits, the Subsidiary provides certain medical, dental and life
insurance benefits to retired employees partially funded by a 501(c)(9)
Voluntary Employee Beneficiary Association Trust (VEBA) that has been approved
by the DPUC. Substantially all of the Subsidiary's employees may become eligible
for these benefits if they retire from the Company on or after age 55 with 10
years of service with the Subsidiary. The contributions for calendar years 1996,
1995, and 1994 were $265,000, $250,000, and $250,000, respectively.
A deferred regulatory asset has been recorded to reflect the amount which
represents the future operating revenues expected to be collected in customer
rates when the associated liabilities become payable, including appropriate
income and gross earnings taxes. The Company believes that the deferred asset
recorded from the adoption of this statement will be recovered in the future
through the ratemaking process as the DPUC has issued decisions for other water
companies authorizing such rate recovery and has allowed the recording of a
regulatory asset for the portion of the costs to be recovered through future
rates.
The Company has elected to recognize the transition obligation on a delayed
basis over a period equal to the plan participants' 21.6 years of average future
service.
<PAGE> 51
Page 51
The table below sets forth the PBOP plans' funded status and unfunded amounts
recognized in the Company's 1996 and 1995 year end Balance Sheets.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation (APBO):
Current Retirees $(1,928) $(2,453)
Active Employees Fully Eligible for Benefits (704) (616)
Other Active Employees (565) (790)
- ----------------------------------------------------------------------------------------
Total (3,197) (3,859)
Fair Value of Assets 1,290 1,092
- ----------------------------------------------------------------------------------------
APBO in Excess of Fair Value of Assets (1,907) (2,767)
- ----------------------------------------------------------------------------------------
Unrecognized Amounts:
Transition Obligation 2,638 2,803
Net Loss (Gain) (1,767) (968)
- ----------------------------------------------------------------------------------------
Total 871 1,835
- ----------------------------------------------------------------------------------------
Unfunded PBOP at December 31 $ 1,036 $ 932
========================================================================================
</TABLE>
Net periodic PBOP costs include the following components:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost - Benefits Attributed to Service
During the Period $ 175 $ 150 $ 158
Interest Cost 235 249 209
Actual Return on Assets (133) (182) (9)
Amortization of Transition Obligation 165 165 165
Amortization of Losses (Gains) (133) (97) (128)
Deferral of Asset (Loss) Gain During the Year 87 140 (29)
- --------------------------------------------------------------------------------------------
Net Periodic PBOP Costs $ 396 $ 425 $ 366
============================================================================================
</TABLE>
The actuarial present value of the projected benefit obligation was determined
based on the following assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average Discount Rate 7.75% 7.25% 7.75%
Expected Long-Term After Tax Return on PBOP Assets 5.0% 5.0% 5.0%
</TABLE>
In determining the accumulated postretirement benefit obligation, two sets of
medical cost trend rates were used; for retired employees prior to age 65 and
for retirees age 65 and over. Health care cost trends of 9% and 8%,
respectively, were assumed for 1996, grading down over the years to 5.5% in 1999
and after.
Health care cost trend rates have a significant effect on the accumulated
postretirement benefit obligation and net periodic cost. A one-percentage-point
increase in the assumed health care cost trend rates would increase the
accumulated postretirement benefit obligation at December 31, 1996 by $384,000
and would increase the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $62,000.
Accordingly, subsequent changes would increase or decrease the regulatory assets
and liabilities discussed above.
<PAGE> 52
Page 52
SAVINGS PLAN - The Subsidiary maintains an employee savings plan which allows
participants to contribute from 1% to 10% of pre-tax compensation. The
Subsidiary matches either 25 or 50 cents for each dollar contributed by the
employee up to 3% of the employees' compensation depending on the Company's
earnings per average common share (EPS). If EPS in the prior year exceeds 110%
of dividends paid per common share, the applicable percentage is 50%; otherwise,
the match is 25%. The Subsidiary's contribution charged to expense in 1996, 1995
and 1994 was $78,000, $71,000 and $60,000, respectively, in each case based on a
50% match.
PERFORMANCE STOCK PROGRAM - The Company has a Performance Stock Program whereby
restricted shares of Common Stock may be awarded annually to Officers of the
Subsidiary. When the goals established by the Compensation Committee have been
attained, the restrictions on the stock are removed. Amounts charged to expense
pursuant to this plan were $100,000, $160,000 and $120,000 for 1996, 1995 and
1994, respectively.
NOTE 13: QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1996 and 1995
appears below:
<TABLE>
<CAPTION>
Net Income Earnings
Utility Applicable to Per Average
Operating Revenues Operating Income Common Stock Common Share
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Thousands of dollars
except per share amounts) 1996 1995 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
First Quarter $ 9,087 $ 8,819 $ 2,070 $ 2,085 $1,178 $1,137 $ 0.40 $ 0.39
Second Quarter 9,276 9,179 2,085 2,089 1,215 1,167 0.41 0.40
Third Quarter 10,981 12,221 3,425 3,798 2,533 2,910 0.84 0.99
Fourth Quarter 9,248 9,131 2,548 2,050 1,639 1,111 0.54 0.39
- --------------------------------------------------------------------------------------------------------------------------
Year $38,592 $39,350 $10,128 $10,022 $6,565 $6,325 $ 2.19 $ 2.17
==========================================================================================================================
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 53
Page 53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information called for by
Items 10, (except for information concerning the executive officers of the
Company) 11, 12, and 13 is hereby incorporated by reference from the Company's
definitive proxy statement filed by EDGAR on or about March 19, 1997.
Information concerning the executive officers of the Company is included as Item
4.1 of this report.
<PAGE> 54
Page 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(A) Documents filed as part of this report:
(1) Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page Number
in this Report
--------------
<S> <C>
Report to Independent Auditors ............... 36
Consolidated Statements of Income -
December 31, 1996, 1995 and 1994 .... 37
Consolidated Statements of Cash Flows -
December 31, 1996, 1995 and 1994 .... 38
Consolidated Balance Sheets -
December 31, 1996 and 1995 .......... 39-40
Notes to Consolidated Financial Statements ... 41-52
</TABLE>
(2) Financial Statement Schedules for the years ended December 31,
1996, 1995 and 1994:
Report of Independent Public Accountants on Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules provided for in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because of the absence of conditions under which they are required or
because the required information is set forth in the financial
statements or notes thereto.
(3) Exhibits:
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.
<PAGE> 55
Page 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation of Connecticut Water
Service, Inc. amended and restated September 15,
1988.(Exhibit 3.1 to Form 10-K for year ended December
31, 1989)
3.2 Certificate Amending Certificate of Incorporation of
Connecticut Water Service, Inc. creating $25 par value
Preferred Stock dated September 5, 1989. (Exhibit 3.1a
to Form 10-K for year ended December 31, 1989)
3.3 By-Laws, as amended, of Connecticut Water Service, Inc.
as amended January 18, 1995. (Exhibit 3.3 to Form 10-K
for year ended December 31, 1994)
3.4 Charter of The Connecticut Water Company and amendments
thereto (Certificate of Incorporation) through November
13, 1960. (Exhibit 3.2 to Registration Statement
No. 2-61843)
3.5 Articles of General Preferences, Voting Powers,
Restrictions and Qualifications of the Preferred Stock of
The Connecticut Water Company. (Exhibit 3.3 to
Registration Statement No. 2-61843)
3.6 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company effective May 4, 1970
increasing authorized Preferred Stock. (Exhibit 3.4 to
Registration Statement No. 2-61843)
3.7 Resolutions of stockholders of The Connecticut Water
Company adopted November 14, 1960 creating Preferred
Stock, 5 7/8% Series. (Exhibit 3.5 to Registration
Statement No. 2-61843)
3.8 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated May 8, 1965 creating
Preferred Stock, 4 3/4% Series. (Exhibit 3.6 to
Registration Statement No. 2-61843)
3.9 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated June 20, 1968 creating
Preferred Stock, 7% Series. (Exhibit 3.6 to
Registration Statement No. 2-61843)
3.10 Purchase Agreement dated May 20 1968 with respect to sale
of Preferred Stock, 7% Series, including Common Stock
dividend restriction in Section 6(e) thereof of The
Connecticut Water Company (Exhibit 3.8 to Registration
Statement No. 2-61843)
3.11 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated April 10, 1975. (Exhibit
3.9 to Registration Statement No. 2-54353)
</TABLE>
<PAGE> 56
Page 56
<TABLE>
<S> <C>
3.12 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated December 22, 1980,
creating Preferred Stock, 12 1/2% Series. (Exhibit 2(k)
to Form 10-K for the year ended December 31, 1980)
3.13 Purchase Agreement dated December 1, 1980 with respect to
sale of Preferred Stock, 12 1/2% Series. (Exhibit 2(1)
to Form 10-K for the year ended December 31, 1980)
3.14 Resolution of The Connecticut Water Company Board of
Directors creating Preferred Stock, 9 1/2% Series dated
March 30, 1989. (Exhibit 3.13 to Form 10-K for year
ended December 31, 1989)
3.15 Purchase Agreement with respect to sale of Preferred
Stock, 9 1/2% Series dated March 1, 1989. (Exhibit 3.14
to Form 10-K for year ended December 31, 1989)
3.16 Certificate Amending Certificate of Incorporation by
Action of Board of Directors and Shareholders of The
Connecticut Water Company to reduce Director's Liability
dated November, 1989. (Exhibit 3.15 to Form 10-K for
year ended December 31, 1989)
4.1 Indenture of Mortgage and Deed of Trust from The
Connecticut Water Company to The Connecticut Bank and
Trust Company, Trustee, dated as of June 1, 1956.
(Exhibit 4.3(a) to Registration Statement No. 2-61843)
4.2 Supplemental Indentures thereto dated as of
</TABLE>
<TABLE>
<S> <C>
(i) February 1, 1958 (Exhibit 4.3(b) (i) to
Registration Statement No. 2-61843)
(ii) September 1, 1962 (Exhibit 4.3(b) (ii) to
Registration Statement No. 2-61843)
(iii) January 1, 1966 (Exhibit 4.3(b) (iii) to
Registration Statement No. 2-61843)
(iv) July 1, 1966 (Exhibit 4.3(b) (iv) to Registration
Statement No. 2-61843)
(v) January 1, 1971 (Exhibit 4.3(b) (v) to
Registration Statement No. 2-61843)
(vi) September 1, 1974 (Exhibit 4.3(b) (vi) to
Registration Statement No. 2-61843)
(vii) December 1, 1974 (Exhibit 4.3(b) (vii) to
Registration Statement No. 2-61843)
(viii) January 1, 1976 (Exhibit 4(b) to Form 10-K for
the year ended 12/31/76)
(ix) January 1, 1977 (Exhibit 4(b) to Form 10-K for
the year ended 12/31/76)
(x) September 1, 1978 (Exhibit 2.12(b) (x) to
Registration Statement No. 2-66855)
(xi) December 1, 1978 (Exhibit 2.12(b) (xi) to
Registration Statement No. 2-66855)
(xii) June 1, 1979 (Exhibit 2.12(b) (xii) to
Registration Statement No. 2-66855)
(xiii) December 1, 1983 (Exhibit 4.2 (xiii) to Form 10-K
for the year ended 12/31/83)
(xiv) January 1, 1987 (Exhibit 4.2 (xiv) to Form 10-K
for the year ended 12/31/86)
</TABLE>
<PAGE> 57
Page 57
<TABLE>
<S> <C>
(xv) May 1, 1989 (Exhibit 4.2 (xv) to Form 10-K for
year ended 12/31/89)
(xvi) June 1, 1991 (Exhibit 4.2 (xvi) to Form 10-K for
year ended 12/31/91)
(xvii) August 1, 1992 (Exhibit 4.2 (xvii) to Form 10-K
for year ended 12/31/92)
(xviii) October 1, 1993 (Exhibit 4.2 (xviii) to Form 10-K
for year ended 12/31/93)
(xix) June 1, 1993 (Exhibit 4.2 (xix) to Form 10-K for
year ended 12/31/93)
(xx) September 1, 1993 (Exhibit 4.2 (xx) to Form 10-K
for year ended 12/31/93)
(xxi) December 1, 1993 (Exhibit 4.2 (xxi) to Form 10-K
for year ended 12/31/93)
(xxii) March 1, 1994 (Exhibit 4.2 (xxii) to Form 10-K
for year ended 12/31/94)
</TABLE>
<TABLE>
<S> <C>
4.3 Loan Agreement dated as of October 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.3 to Form 10-K for year ended
December 31, 1993)
4.4 Loan Agreement dated as of June 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.4 to Form 10-K for year ended
December 31, 1993)
4.5 Loan Agreement dated as of September 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.5 to Form 10-K for year ended
December 31, 1993)
4.6 Loan Agreement dated as of June 1, 1991, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.10 to Form 10-K for year ended
December 31, 1991)
4.7 Loan Agreement dated as of August 1, 1992 between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.10 to Form 10-K for the year
ended December 31, 1992)
4.8 Bond Purchase Agreement dated as of December 1, 1993.
(Exhibit 4.8 to Form 10-K for year ended December 31,
1993)
10.1 Pension Plan Fiduciary Liability Insurance for The
Connecticut Water Company Employees' Retirement Plan and
Trust, The Connecticut Water Company Tax Credit Employee
Stock Ownership Plan, as Amended and Restated, Savings
Plan of The Connecticut Water Company and The Connecticut
Water Company VEBA Trust Fund. (Exhibit 10.1 to
Registration Statement No. 2-74938)
</TABLE>
<PAGE> 58
Page 58
<TABLE>
<C> <S>
10.2 Directors and Officers Liability and Corporation
Reimbursement Insurance. (Exhibit 10.2 to Registration
Statement No. 2-74938)
10.3 Directors Deferred Compensation Plan, effective as of
January 1, 1980, as amended as of March 20, 1981.
(Exhibit 10.3 to Registration Statement No. 2-74938)
10.4 The Connecticut Water Company Deferred Compensation
Agreement dated December 1, 1984. (Exhibit 10.4 to Form
10-K for the year ended December 31, 1984)
10.5 The Connecticut Water Company Deferred Compensation
Agreement dated January 1, 1989. (Exhibit 10.5 to Form
10-K for the year ended December 31, 1988)
10.6 The Connecticut Water Company Supplemental Executive
Retirement Agreement with William C. Stewart. (Exhibit
10.6a to Form 10-K for year ended December 31, 1991
10.7 The Connecticut Water Company Supplemental Executive
Retirement Agreement with Marshall T. Chiaraluce.
(Exhibit 10.6b to Form 10-K for year ended December 31,
1991)
10.8 The Connecticut Water Company Supplemental Executive
Retirement Agreement - standard form for other officers.
(Exhibit 10.6c to Form 10-K for year ended December 31,
1991)
10.9* Savings Plan of The Connecticut Water Company, amended and
restated effective as of January 1, 1996.
10.10* The Connecticut Water Company Employees' Retirement Plan as
amended and restated as of September 1, 1996.
10.11 Water Supply Agreement dated June 13, 1994, between The
Connecticut Water Company and the Hazardville Water
Company. (Exhibit 10.15 to Form 10-K for year ended
December 31, 1994)
10.12 November 4, 1994 Amendment to Agreement dated
December 11, 1957 between The Connecticut Water Company
(successor to the Thomaston Water Company) and the City
of Waterbury. (Exhibit 10.16 to Form 10-K for year ended
December 31, 1994)
10.13 Contract between The Connecticut Water Company and The
Rockville Water and Aqueduct Company dated as of
January 1, 1976. (Exhibit 9(b) to Form 10-K for the year
ended December 31, 1975)
10.14 Agreement dated August 13, 1986 between The Connecticut
Water Co. and the Metropolitan District. (Exhibit 10.14
to Form 10-K for the year ended December 31, 1986)
</TABLE>
<PAGE> 59
Page 59
<TABLE>
<S> <C>
10.15 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)
10.16 Plan of Merger dated December 18, 1978 of Broad Brook
Water Company, The Collinsville Water Company, The
Rockville Water and Aqueduct Company, The Terryville
Water Company and The Thomaston Water Company with and
into The Connecticut Water Company. (Exhibit 13 to Form
10-K for the year ended December 31, 1978)
10.17 Bond Exchange Agreements between Connecticut Water
Service, Inc., The Connecticut Water Company Bankers Life
Company and Connecticut Mutual Life Insurance Company
dated October 23, 1978. (Exhibit 14 to Form 10-K for the
year ended December 31, 1978)
10.18 Dividend Reinvestment and Common Stock Purchase Plan as
amended. (Registration Statement No. 33-53211 as
amended)
10.19 Contract for Supplying Bradley International Airport.
(Exhibit 10.21 to Form 10-K for the year ended
December 31, 1984)
10.20 Report of South Windsor Task Force. (Exhibit 10.23 to
Form 10-K for the year ended December 31, 1987)
10.21 Trust Agreement for The Connecticut Water Company Welfare
Benefits Plan (VEBA) dated January 1, 1989. (Exhibit
10.21 to Form 10-K for year ended December 31, 1989)
10.22 Performance Stock Program. (Registration Statement No.
33-49058.)
24.1 * Consent of Arthur Andersen LLP
27.0 * Financial Data Schedule
</TABLE>
- ----------
Note: Exhibits 10.1 through 10.10, 10.21 and 10.22 set forth
each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
Form-10K.
(b) No reports on Form 8-K were filed during the last
quarter of 1996.
<PAGE> 60
Page 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONNECTICUT WATER SERVICE, INC.
Registrant
By /s/ Marshall T. Chiaraluce
----------------------------
Marshall T. Chiaraluce
President 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Marshall T. Chiaraluce
- ---------------------------
Marshall T. Chiaraluce Director and March 19, 1997
(Principal Executive Officer) President and
Chief Executive
Officer
/s/ David C. Benoit
- ------------------------------
David C. Benoit Vice President - March 18, 1997
(Principal Financial and Finance,
Accounting Officer) Accounting, and
Treasurer
/s/ William F. Guillaume
- ------------------------------
William F. Guillaume Director and Vice
President - March 19, 1997
Engineering and
Planning
</TABLE>
<PAGE> 61
Page 61
<TABLE>
<S> <C> <C>
/s/ Francis E. Baker, Jr. Director March 12, 1997
- --------------------
Francis E. Baker, Jr.
/s/ Harold E. Bigler, Jr. Director March 12, 1997
- ---------------------
Harold E. Bigler, Jr.
/s/Astrid T. Hanzalek Director March 13, 1997
- ---------------------
Astrid T. Hanzalek
/s/ Frederick E. Hennick Director March 10, 1997
- ---------------------
Frederick E. Hennick
/s/ Marcia L. Hincks Director March 13, 1997
- ---------------------
Marcia L. Hincks
/s/ William C. Lichtenfels Director March 10, 1997
- ---------------------
William C. Lichtenfels
/s/ Rudolph E. Luginbuhl Director March 8, 1997
- ---------------------
Rudolph E. Luginbuhl
/s/ Harvey G Moger Director March 21, 1997
- ---------------------
Harvey G. Moger
/s/ Robert F. Neal Director March 8, 1997
- ---------------------
Robert F. Neal
/s/ Warren C. Packard Director March 15, 1997
- ---------------------
Warren C. Packard
/s/ Donald B. Wilbur Director March 11, 1997
- ---------------------
Donald B. Wilbur
</TABLE>
<PAGE> 62
SCHEDULES
<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited, in accordance with generally accepted auditing standards, the
financial statements of Connecticut Water Service, Inc. included in this Form
10-K, and have issued our report thereon dated February 14, 1997. Our audit was
made for the purpose of forming an opinion on those statements taken as a whole.
The schedule listed in the accompanying index to financial statements and
schedule is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 14, 1997
<PAGE> 64
CONNECTICUT WATER SERVICE, INC. and SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Additions Deductions Balance
Beginning Charged to From End of
Description of Year Income Reserves (1) Year
------------- --------- --------- ------------ -----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Allowance for Uncollectible Accounts
Year Ended December 31, 1996 $164 $128 $152 $140
==== ==== ==== ====
Year Ended December 31, 1995 $149 $137 $122 $164
==== ==== ==== ====
Year Ended December 31, 1994 $166 $115 $132 $149
==== ==== ==== ====
</TABLE>
(1) Amounts charged off as uncollectible after deducting recoveries
<PAGE> 65
EXHIBITS
TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR
ENDED DECEMBER 31, 1996
10.9 Savings Plan of The Connecticut Water Company
10.10 The Connecticut Water Company Employees' Retirement Plan
24.1 Consent of Arthur Andersen LLP
27.0 Financial Data Schedule
<PAGE> 1
Exhibit 10.9
SAVINGS PLAN OF
THE CONNECTICUT WATER COMPANY
Amended and Restated as of January 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I Name of Plan
ARTICLE II Definitions
ARTICLE III Administration
ARTICLE IV Participation
ARTICLE V Contributions by Employees
ARTICLE VI Contributions by the Employer
ARTICLE VII Investment of Contributions
ARTICLE VIII Allocation of Contributions
ARTICLE IX Vesting
ARTICLE X Payment of Benefits
ARTICLE XI Withdrawals from Accounts
ARTICLE XII Loans to Participants
ARTICLE XIII Termination of Plan
ARTICLE XIV Amendment of Plan
ARTICLE XV Claims Procedure
ARTICLE XVI The Trustee
ARTICLE XVII Miscellaneous Provisions
ARTICLE XVIII Top-Heavy Plan Provisions
</TABLE>
<PAGE> 3
SAVINGS PLAN OF THE CONNECTICUT WATER COMPANY
WHEREAS, The Connecticut Water Company heretofore established a savings
plan for its employees effective January 1, 1985;
WHEREAS; under the terms of the Plan, the Employer has the ability to
amend the Plan;
WHEREAS, the Plan, which has been amended from time to time, was
restated in its entirety effective as of January 1, 1989, and October 1, 1995;
NOW, THEREFORE, the following plan is hereby adopted by The Connecticut
Water Company to be effective January 1, 1996, except as otherwise indicated
herein:
<PAGE> 4
ARTICLE I
NAME OF PLAN
1.1 The name of this Savings Plan, as amended from time to time, shall
be the "Savings Plan of The Connecticut Water Company" (hereinafter the "Plan").
<PAGE> 5
ARTICLE II
DEFINITIONS
When used herein, each of the following terms shall have the
corresponding meaning set forth below unless a different meaning is plainly
required by the context in which a term is used:
2.1 "Account" shall mean collectively the Participant's Employee Salary
Deferral Contribution Account, Rollover Account, Additional Employee
Contribution Account, and Employer Contribution Account, whether or not such
accounts have actually been combined into one account.
2.2 "Accrued Balance" shall mean the balance of a Participant's
Account.
2.3 "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all regulations issued pursuant thereto.
2.4 "Additional Employee Contribution" shall mean any contribution by
an Employee to the Trust Fund as provided for in Section 5.2 hereof.
<PAGE> 6
2.5 "Additional Employee Contribution Account" shall mean the account
of a Participant as provided for in Section 8.2 hereof.
2.6 "Administrator" shall mean the person or persons designated by the
Committee, pursuant to Section 3.5 hereof, as the Administrator of the Plan,
within the meaning of Section 3(16)(A) of the Act.
2.7 "Affiliated Company" shall mean any company which is included
within a "controlled group of corporations" within which the Company is also
included, as determined under Section 1563 of the Code without regard to
subsections (a)(4) and (e)(3)(c) of said Section 1563. Notwithstanding the
foregoing, with respect to the benefit limitations set forth in Paragraphs 8.5
and 8.6 of this Plan, such determination under Section 1563 shall be made
assuming the phrase "more than 50 percent" were substituted for the phrase "at
least 80 percent" each place it appears in Section 1563(a)(1).
2.8 "Beneficiary" shall mean a Participant's surviving spouse, if any,
or any other person designated by a Participant who is entitled to receive any
benefits payable hereunder upon the Participant's death pursuant to Section 10.5
hereof, or the executor or administrator of the Participant's estate if there is
no surviving spouse and if no other Beneficiary shall have been effectively
designated by the Participant.
2.9 "Board" shall mean the Board of Directors of the Company.
II-2
<PAGE> 7
2.10 "1-Year Break in Service" shall mean the failure of an Employee of
the Employer to complete more than 500 Hours of Service in a Plan Year. For
purposes of this Section 2.10 only, an Employee who is absent from work will be
credited with an Hour of Service either during the Plan Year in which such
absence commences, or, if the Employee would not have incurred a 1-Year Break in
Service in such Plan Year without regard to this sentence, during the following
Plan Year, for each hour, based on the Employer's standard work week and work
day as in effect from time to time, during which such Employee is absent from
work by reason of (1) the pregnancy of the Employee, (2) the birth of a child of
the Employee, (3) the placement of a child with the Employee in connection with
the Employee's adoption of such child, or (4) the need for caring for a child
referred to in clause (2) or (3) immediately following such birth or placement,
but only if the Participant has furnished to the Committee such timely
information as may be reasonably required to establish that the absence from
work is for one or more reasons described in clauses (1) through (4).
2.11 "Calendar Quarter" shall mean each calendar quarter beginning on
the first day of January, April, July or October in each calendar year.
2.12 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and all regulations issued pursuant thereto.
II-3
<PAGE> 8
2.13 "Code Section 415 Compensation" shall mean the Participant's wages
and salaries for personal services actually rendered in the course of employment
with the Employer maintaining the Plan paid or accrued during the Plan Year.
"Code Section 415 Compensation" shall exclude (a)(1) contributions made
by the Employer to a plan of deferred compensation to the extent that, before
the application of the Code Section 415 limitations to the Plan, the
contributions are not includable in the gross income of the Employee for the
taxable year in which contributed, (2) contributions made by the Employer to a
plan of deferred compensation to the extent that all or a portion of such
contributions are recharacterized as an Additional Employee Contribution, (3)
Employer contributions made on behalf of an Employee to a simplified employee
pension plan described in Code Section 408(k) to the extent such contributions
are excludable from the Employee's gross income, (4) any distributions from a
plan of deferred compensation regardless of whether such amounts are includable
in the gross income of the Employee when distributed except any amounts received
by an Employee pursuant to an unfunded non- qualified plan to the extent such
amounts are includable in the gross income of the Employee; (b) amounts realized
from the exercise of a non-qualified stock option or when restricted stock (or
property) held by an Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture; (c) amounts realized from the sale,
exchange or other disposition of stock acquired under a qualified stock option;
and (d) other amounts which receive special tax benefits, such as premiums for
group term life insurance (but only
II-4
<PAGE> 9
to the extent that the premiums are not includable in the gross income of the
Employee), or contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract described in
Code Section 403(b) (whether or not the contributions are excludable from the
gross income of the Employee). Code Section 415 Compensation shall be limited to
$150,000 (unless adjusted as permitted under Code Section 401(a)(17)).
2.14 "Committee" shall mean the Committee appointed to manage and
administer the Plan in accordance with Section 3.1 hereof.
2.15 "Company" shall mean The Connecticut Water Company, any
corporation or business that is merged with the Company, or any successor
corporation or business organization that assumes the obligations of the Plan
with respect to its Employees.
2.16 "Company Stock" shall mean common stock of Connecticut Water
Service, Inc.
2.17 "Company Stock Fund" shall mean that portion of the Trust Fund
invested exclusively in Company Stock, as provided for in Article VII hereof;
provided, however, that (i) short term cash investments shall be permitted to
the extent that whole shares of Company Stock cannot be purchased, (ii) cash
dividends received shall be reinvested in Company Stock and (iii) any other
rights or non-cash distributions (other than dividends in the form of Company
Stock) shall be sold and the proceeds invested in Company Stock.
II-5
<PAGE> 10
2.18 "Compensation" shall mean all compensation paid by the Employer to
or for the benefit of an Employee during a Plan Year, excluding, under rules
uniformly applicable to all Employees similarly situated, reimbursements or
other expense allowances, fringe benefits (cash and noncash), moving expenses,
deferred compensation and the Employer's cost for any public or private employee
benefit plan, including the Plan; provided, however, that, unless otherwise
specifically stated herein, Compensation shall include amounts deferred under
any salary deferral agreement pursuant to Section 5.1 hereof and under any
cafeteria plan pursuant to Section 125 of the Code maintained by the Employer.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not exceed
the OBRA '93 annual Compensation limit. The OBRA '93 annual Compensation limit
is $150,000, as adjusted by the Commissioner for increases in the cost of living
in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12. Any reference in this Plan to the limitation
under Section 401(a)(17) of the Code shall mean the OBRA '93 annual Compensation
limit set forth in this provision.
II-6
<PAGE> 11
2.19 "Early Retirement Date" shall mean the date on which a Participant
retires prior to his Normal Retirement Date and after his attainment of age
fifty-five (55).
2.20 "Employee" shall mean any person who is regularly engaged in
rendering personal services to the Employer other than as an independent
contractor.
2.21 "Employee Loan Fund" shall mean that portion of the Trust Fund
invested exclusively in personal notes executed by Participants as provided for
in Section 7.4 hereof.
2.22 "Employee Salary Deferral Contributions" shall mean the
contributions made by the Employer to the Trust Fund as provided for in Sections
5.1, 6.1, and 6.2(c) hereof.
2.23 "Employee Salary Deferral Contribution Account" shall mean the
account of a Participant as provided for in Section 8.2 hereof.
2.24 "Employer" shall mean the Company and any Participating Company.
2.25 "Employer Contributions" shall mean the contributions, if any,
made by the Employer to the Trust Fund as provided for in Sections 6.2(a) and
(b) hereof.
2.26 "Employer Contribution Account" shall mean the account of a
Participant as provided for in Section 8.2 hereof.
II-7
<PAGE> 12
2.27 "Entry Date" shall mean the January 1 and July 1 of each Plan
Year.
2.28 "Family Member" shall mean with respect to an affected
Participant, such Participant's spouse, such Participant's lineal descendants
and ascendents and their spouses, all as described in Code Section 414(q)(6)(B).
2.29 "Fiduciary" shall mean any person (1) who exercises any
discretionary authority or control respecting management of the Plan or any
authority or discretionary control respecting management or disposition of
assets held under the Plan; (2) who renders investment advice for a fee or other
compensation, direct or indirect, as to assets held under the Plan or has any
authority or responsibility to do so; or (3) who has any discretionary authority
or discretionary responsibility in the administration of the Plan, within the
meaning of Section 4975(e) (3) of the Code.
2.30 "414(s) Compensation" shall mean with respect to any Employee his
compensation deferred under any salary deferral agreement pursuant to Section
5.1 plus Employee Salary Deferral Contributions attributable to deferred
compensation recharacterized as Additional Employee Contributions pursuant to
Section 8.8 plus Code Section 415 Compensation paid during a Plan Year. The
amount of 414(s) Compensation with respect to any Employee shall include 414(s)
Compensation during the twelve month period ending on the last day of the Plan
Year.
II-8
<PAGE> 13
414(s) Compensation in excess of $150,000 shall be disregarded. Such
amount shall be adjusted as permitted under Code Section 401(a)(17).
2.31 "Highly Compensated Employee" means an Employee who performed
services for the Employer during the determination year and is in one or more of
the following groups:
(a) Employees who at any time during the determination year or
look-back year were five percent owners of the Employer. Five
percent owner means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than five
percent of the outstanding stock of the Employer or stock
possessing more than five percent of the total combined voting
power of all stock of the Employer. In determining percentage
ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o) shall
be treated as separate employers.
(b) Employees who received Code Section 415 Compensation during
the look-back year from the Employer in excess of $75,000.
(c) Employees who received Code Section 415 Compensation during
the look-back year from the Employer in excess of $50,000 and
were in the top paid group of Employees for the Plan Year.
II-9
<PAGE> 14
(d) Employees who during the look-back year were officers of the
Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received Code Section
415 Compensation during the look-back year from the Employer
greater than 50 percent of the limit in effect under Code
Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 Employees;
or (ii) the greater of 3 employees or 10 percent of all
employees. If the Employer does not have at least one officer
whose annual Compensation is in excess of 50 percent of the
Code Section 415(b)(1)(A) limit, then the highest paid officer
of the Employer will be treated as a Highly Compensated
Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest Compensation during the determination year
and are also described in (b), (c) or (d) above when these
paragraphs are modified to substitute "determination year" for
"look-back year."
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period. The "top paid group" of Employees shall mean the top 20
percent of Employees who performed services for the Employer during the
applicable year, ranked according to the amount of Code Section 415 Compensation
received from the Employer during such year.
II-10
<PAGE> 15
For purposes of this Section, the determination of Code Section 415
Compensation shall be based only on Code Section 415 Compensation which is
actually paid and shall be made without regard to Code Sections 125, 402(a)(8),
402(h)(1)(B) and 403(b). Additionally, the dollar threshold amounts specified in
(b) and (c) above shall be adjusted at such time and in such manner as is
provided in Treasury Regulations. In the case of such an adjustment, the dollar
limits which shall be applied are those for the calendar year in which the
determination year or look-back year begins.
In determining who is a Highly Compensated Employee, all Affiliated
Companies shall be taken into account as a single employer and leased employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such leased employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. In addition, highly compensated former employees shall be treated as
Highly Compensated Employees without regard to whether they performed services
during the determination year.
2.32 "Highly Compensated Participant" shall mean any Highly Compensated
Employee who is eligible to participate in the Plan.
2.33 "Hour of Service" shall mean (1) each hour for which an Employee
is directly or indirectly paid, or entitled to payment, by the Employer for the
performance of duties (to be credited to the Employee as of the time that the
duties were performed); (2) each hour for
II-11
<PAGE> 16
which an Employee is directly or indirectly paid, or entitled to payment, by the
Employer for reasons other than the performance of duties, such as vacation or
holidays (to be credited in accordance with Labor Department Regulation Section
2530.200b-2(c) or any successor regulation); (3) each hour for which back pay,
irrespective of mitigation of damages, has been either awarded or agreed to by
the Employer (to be credited to the Employee as of the time to which the award
or agreement pertains rather than the time that the award, agreement or payment
is made). The same hour shall not be credited under more than one of the above
clauses. In determining Hours of Service for the purpose of clause (2) above,
the provisions of Labor Department Regulation Section 2530.200b-2(b) or any
successor regulation shall be applicable. Hours of Service shall also include
each hour, based on the Employee's standard work week and work day as in effect
from time to time, during which an Employee is absent from work:
(a) temporarily, on account of illness or with the consent of the
Employer for a period not to exceed six months. In the event
of any absence approved by the Employer and exceeding six
months, the Committee shall establish uniform rules for the
inclusion or exclusion of any hour as an Hour of Service on
account of such absence in excess of six months; or
(b) on account of service in the armed forces of the United
States, provided that the Employee returns to work within the
period during which his reemployment
II-12
<PAGE> 17
rights are guaranteed by applicable Federal law following his
or her discharge or severance from such service.
2.34 "Investment Fund" shall mean a fund selected by the Committee in
which all or a portion of the Trust Fund may be invested, as provided in Article
VII hereof.
2.35 "Non-Highly Compensated Participant" shall mean any Participant
who is neither a Highly Compensated Employee nor a Family Member.
2.36 "Normal Retirement Date" shall mean the first day of the month
coinciding with or next following the date on which the Participant attains age
sixty-five (65).
2.37 "Participant" shall mean an Employee who is eligible to
participate in the Plan under the terms of Article IV hereof and who has taken
all the steps required by said Article IV to participate in the Plan.
2.38 "Participating Company" shall mean any Affiliated Company which is
designated by the Board as a Participating Company under the Plan and whose
designation as such has become effective and has continued in effect. The
designation shall become effective only when it shall have been accepted by the
Board of Directors of the Participating Company. A
II-13
<PAGE> 18
Participating Company may revoke its acceptance of such designation at any time,
but until such acceptance has been revoked all of the provisions of the Plan and
amendments thereto shall apply to the Employees (and their Beneficiaries) of the
Participating Company. In the event the designation of a Participating Company
as such is revoked by the Board of Directors of the Participating Company, the
Plan will be deemed terminated only as to such Participating Company in
accordance with Article XIII.
2.39 "Plan" shall mean this plan: the Savings Plan of The Connecticut
Water Company.
2.40 "Plan Year" shall mean each calendar year ending on December 31.
2.41 "Retirement Plan" shall mean The Connecticut Water Company
Employees' Retirement Plan, as amended from time to time.
2.42 "Rollover Account" shall mean the account of a Participant as
provided for in Section 8.2 hereof.
2.43 "Termination Date" shall mean the date on which the Participant
ceases to be an Employee.
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<PAGE> 19
2.44 "Total Disability" shall mean that disability which qualifies an
Employee to be considered a totally and permanently disabled Employee for
purposes of the Employer's long- term disability insurance benefits, as amended
from time to time.
2.45 "Trust" shall mean the trust created by the trust agreement, as
amended from time to time, entered into by the Employer and the Trustee for the
purpose of holding the Trust Fund.
2.46 "Trustee" shall mean the person or persons who may at any time be
acting as trustee or trustees of the Trust.
2.47 "Trust Fund" shall mean all funds received by the Trustee from the
Employer or any Participant, pursuant to the terms hereof, together with all
income, profits and increments thereon, and less any expenses, losses and
payments therefrom.
2.48 "Valuation Date" shall mean the last day of each Calendar Quarter.
2.49 "Year of Eligibility Service" shall mean (1) the period of 12
consecutive months beginning on an Employee's date of employment by the Employer
and (2) any Plan Year following the Plan Year which includes the date described
in clause (1) (including Plan Years before the effective date of the Plan),
provided, however, that an Employee shall not be
II-15
<PAGE> 20
credited with a Year of Eligibility Service with respect to a 12-month period or
Plan Year in which he completes less than 1,000 Hours of Service.
Neither the gender nor the number (singular or plural) of any word
shall be construed to exclude another gender or number when a different gender
or number would be appropriate.
II-16
<PAGE> 21
ARTICLE III
ADMINISTRATION
3.1 Committee. The Committee established pursuant to Article XI of the
Retirement Plan shall also act as the Committee hereunder. The Board shall
certify to the Trustee the names and specimen signatures of the members of the
Committee.
3.2 Named Fiduciary. The Committee is hereby designated the Named
Fiduciary of the Plan, within the meaning of Section 402(a) of ERISA, and
subject to the provisions hereof, shall have the authority to control and manage
the operation and administration of the Plan.
3.3 Powers of Committee. The Committee shall have all powers necessary
to determine in its sole discretion all questions concerning the administration
of the Plan, including without limitation questions of eligibility of Employees,
funding policy, and the amount of any benefits payable hereunder. In addition,
the Committee shall have full authority to interpret and apply the provisions
hereof, including without limitation authority to correct any defects or
omissions or reconcile any inconsistencies herein, in such a manner and to such
an extent as it shall deem necessary or desirable to effectuate the Plan. The
Committee may make such rules and regulations for the administration of the Plan
and the interpretation and application of the provisions hereof, as it deems
necessary or desirable. Subject to the provisions of Article XV hereof, any
determination by the Committee within
<PAGE> 22
the scope of its authority and any action taken thereon in good faith shall be
conclusive and binding on all persons. Although the investment and management of
assets of the Plan shall be the responsibility of the Trustee, subject to
investment elections of Participants pursuant to Article VII hereof, the
Committee shall be responsible for the selection of Investment Funds.
3.4 Delegation of Duties. The Committee shall have authority in its
sole discretion to designate or appoint, from time to time (1) persons to render
advice to it with regard to any responsibility it has under the Plan, (2)
persons to carry out specified fiduciary responsibilities for the operation and
administration of the Plan, other than any responsibility to manage or control
the assets of the Plan provided for in the trust agreement creating the Trust
Fund, and (3) persons to act as investment managers to manage (including the
power to acquire and dispose of) any assets of the Plan. Any such person shall
serve at the pleasure of the Committee and may resign by delivering written
notice to the Committee. The Committee may delegate any of its powers and duties
to any person referred to in clause (2) above, subject to the limitation
contained therein. Any appointment under clause (3) above shall be made and
acknowledged in writing.
3.5 Administrator. The Committee shall designate an Administrator of
the Plan. In addition to carrying out any duties required of the Administrator
by applicable provisions of ERISA, the Administrator shall prepare and file, or
cause to be prepared and filed, such reports, descriptions, summaries, and
financial and other statements with respect to the Plan
III-2
<PAGE> 23
as may be necessary or desirable, within the time prescribed therefor, and
furnish such reports, descriptions, summaries, and statements to Participants
and Beneficiaries as may be necessary or desirable, within the time specified
therefor. Any delegation of duties to the Administrator by the Committee shall
be made and acknowledged in writing. The Administrator shall serve at the
pleasure of the Committee and may resign by delivering written notice to the
Committee. If at any time there shall be a vacancy in the position of
Administrator, the Committee shall serve as Administrator until said position
has been filled as herein provided.
3.6 Agent for Service. The Administrator shall be the agent for service
of legal process in connection with any claim or proceeding relating to the
Plan.
3.7 Action by Majority. Any action which the Committee is authorized or
required to take may be taken by a majority of the members of the Committee then
holding office. The action of such majority of the members of the Committee,
expressed by a vote at a meeting, or in writing without a meeting, shall
constitute the action of the Committee, and shall have the same effect for all
purposes as if assented to by all the members of the Committee then holding
office.
3.8 Action by Single Member. The Committee may from time to time
authorize any one or more of its members to execute any document on behalf of
the Committee. The
III-3
<PAGE> 24
Committee shall certify to the Trustee the name of any such member authorized to
act for it in its relationship with the Trustee and the extent and duration of
such authorization.
3.9 Member's Own Participation. A member of the Committee who is also a
Participant shall not vote on the exercise of any rights or options or on any
other matter with respect to his rights as a Participant; provided, however,
that this prohibition shall not be construed as preventing such member from
voting on matters which affect all Participants.
3.10 Records. The Committee shall keep such records of its proceedings
and acts as may in its discretion be necessary or desirable for the proper
administration of the Plan. The Committee shall make available to each
Participant or Beneficiary, for examination at its principal office or in such
other place as the Committee may in its sole discretion decide is necessary or
desirable to make available all pertinent records to such Participant or
Beneficiary, such of its records as may pertain to such Participant or
Beneficiary, and such Participant or Beneficiary shall have the right to examine
the same during normal business hours. The Employer may at any time inspect the
records of the Committee or have the same inspected by any agent or Employee and
may at any time demand an accounting from the Committee.
3.11 Compensation; Agents. The members of the Committee shall serve
without compensation for services as such, but any member of the Committee who
does not receive a salary from the Employer shall be paid such reasonable
compensation for attending meetings
III-4
<PAGE> 25
of the Committee as may be voted by the Board, in its sole discretion. All
expenses properly attributable to the operation and administration of the Plan,
including fees paid to agents, advisors, counsel, investment managers, and other
persons designated or appointed by the Committee to assist it, shall be paid as
provided in Section 3.14 hereof.
3.12 Bonding; Liability of Committee. The Committee, or the
Administrator, if so directed by the Committee, shall ensure that each Fiduciary
of the Plan, including each member of the Committee, is bonded in accordance
with applicable laws, rules, and regulations, including without limitation
Section 412 of ERISA. The Employer shall indemnify and hold harmless each member
of the Committee, the Administrator and any other Fiduciary with respect to the
Plan, if he is, or was at the time of the acts or failure to act in question, a
director, officer or Employee of the Employer, from any liability, claim,
demand, suit or action of any type, including without limitation reasonable
attorneys' fees arising from any action or failure to act, provided that such
person acted in good faith, in a manner he reasonably believed to be in the best
interests of the Employer or of the Participants and Beneficiaries of the Plan
and consistent with the provisions of the Plan and, with respect to any criminal
action or proceeding, that he had no reasonable cause to believe his conduct was
unlawful.
3.13 Fiduciary Responsibility. Any Fiduciary with respect to the Plan
shall discharge his duties solely in the interest of the Participants and
Beneficiaries for the exclusive purpose of providing benefits to Participants
and Beneficiaries and defraying
III-5
<PAGE> 26
reasonable expenses of administering the Plan. In addition, any Fiduciary with
respect to the Plan shall discharge his duties with the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
3.14 Expenses. The Employer shall pay all the administrative expenses
of the Plan and all fees and retainers of the Plan's Trustee, auditors, and
counsel so long as the Plan remains in effect, except that any expenses directly
relating to the investments of the Trust Fund, such as taxes, brokerage
commissions and registration charges, shall be paid by the Employer unless the
Administrator shall direct the Trustee to pay such expenses from the Trust Fund.
In the event of the failure of the Employer to pay such fees and retainers, the
Trustee shall have the right to charge such amounts against the Trust Fund.
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<PAGE> 27
ARTICLE IV
PARTICIPATION
4.1 Eligibility Requirements. Every Employee of the Employer shall be
eligible to participate in the Plan as of the Entry Date coinciding with or next
following his completion of one (1) Year of Eligibility Service.
4.2 Entry. The Committee shall notify each Employee of his eligibility
to participate in the Plan upon meeting the requirements of Section 4.1 or 4.3
hereof, and shall provide him an opportunity to become a Participant. An
Employee who desires to become a Participant shall file with the Committee an
election to participate, shall execute a salary deferral agreement, as provided
for in Section 5.1 hereof, which shall authorize payroll deductions of his
Employee Salary Deferral Contributions, and shall make an election of Investment
Funds as provided for in Section 7.2 hereof. An election to participate
hereunder filed with the Committee shall be effective as of the Entry Date on
which the Employee first becomes eligible to participate hereunder; provided,
however, that any such election filed less than 15 days prior to such Entry Date
shall be effective on the next following Entry Date. Notwithstanding the
foregoing, for purposes of an Employee's eligibility to share in Employer
Contributions pursuant to Section 6.2(b) hereof and Employee Salary Deferral
Contributions pursuant to Section 6.2(c) hereof, if any, the Employee shall
become a Participant in the Plan as of the applicable Entry Date under Section
4.1 hereof, and no election to participate shall
<PAGE> 28
be required.
4.3 Termination of Participation; Reentry. If an Employee who is a
Participant or is eligible to participate in the Plan shall terminate his
employment or incur one or more 1-Year Breaks in Service, he shall cease to be a
Participant or be eligible to participate in the Plan. Any such person shall
again become a Participant or be eligible to participate in the Plan as of his
date of re-employment in the case of an Employee who terminated his employment
or as of the first day of the next Plan Year in which he does not incur a 1-Year
Break in Service in the case of an Employee who did not terminate his
employment. In addition, if an Employee who is a Participant in the Plan
withdraws the entire Accrued Balance in his Account pursuant to Section 11.1
hereof, he shall thereupon cease to be a Participant in the Plan. Such an
Employee may again become a Participant in the Plan on the next Entry Date by
filing a new election to participate with the Committee at least 15 days prior
to such Entry Date; provided, however, that the restrictions on deferrals of
salary provided in Section 11.1 shall, where appropriate, apply.
IV-2
<PAGE> 29
ARTICLE V
CONTRIBUTIONS BY EMPLOYEES
5.1 Salary Deferral Agreements. Each Participant may elect, in any Plan
Year, to enter into a written salary deferral agreement with the Employer which
shall be applicable to all payroll periods within such Plan Year. The terms of
any such salary deferral agreement shall provide that the Participant agrees to
defer a portion of his salary from the Employer in an amount equal to either (i)
any percentage not less than one percent (1%) nor more than ten percent (10%) of
his Compensation or (ii) a specified dollar amount not less than one percent
(1%) nor more than ten percent (10%) of his Compensation. The total Employee
Salary Deferral Contributions made under this Plan, and any other plans the
Employer may have, shall not exceed $7,000 for the calendar year. This dollar
limitation shall be adjusted annually pursuant to the method provided in Code
Section 415(d) in accordance with Treasury Regulations. In consideration of such
agreement, the Employer shall make an Employee Salary Deferral Contribution to
the Participant's Employee Salary Deferral Contribution Account on behalf of the
Participant for such Plan Year in an amount equal to the total amount of the
Participant's Compensation from the Employer which was deferred during the Plan
Year pursuant to the salary deferral agreement.
<PAGE> 30
All Employee Salary Deferral Contributions shall be 100% vested and
non-forfeitable at all times. If a Participant enters into a salary deferral
agreement with the Employer for a given Plan Year, his Compensation for such
Plan Year for all purposes under this Plan, except as otherwise expressly
provided herein, shall be equal to his Compensation before application of the
salary deferral agreement. For purposes of any other plan or benefits
arrangement of the Employer, including the Retirement Plan, his Compensation
shall be equal to his Compensation before application of the salary deferral
agreement.
Salary deferral agreements shall be governed by the following rules:
(a) A salary deferral agreement shall apply to each payroll period
during which an effective salary deferral agreement is on file
with the Employer.
(b) A salary deferral agreement may be amended by a Participant
only once during any Calendar Quarter unless the Committee,
pursuant to uniform and nondiscriminatory rules applicable to
all Participants, determines that good cause exists to permit
a Participant to amend such agreement more frequently.
(c) Salary deferral agreements and amendments to salary deferral
agreements shall be effective as of, and shall not apply to
any payroll period preceding, the payroll period next
following the 15th day after the salary deferral agreement
V-2
<PAGE> 31
or amendment to the salary deferral agreement is executed by
the Participant and the Employer.
(d) Notwithstanding the foregoing, the Employer may reduce the
amount subject to its salary deferral agreement with any
Participant at any time if the Employer determines that
reduction is necessary to ensure that annual additions for any
Plan Year will not exceed the limitations of Section 8.5 and
8.6 hereof or to ensure that the anti-discrimination
requirements of Section 401(k) of the Code, and all applicable
regulations thereunder, are met for such Plan Year. At any
time that the Employer makes such reduction, the Participant
shall have the option of electing to have the excess
percentage contributed to the Plan as his Additional Employee
Contributions.
(e) Except as provided above, a salary deferral agreement
applicable to any given Plan Year, once made, may not be
revoked or amended by the Participant or the Employer.
(f) If a Participant's Employee Salary Deferral Contributions
under this Plan, together with any salary deferrals under
another qualified cash or deferred arrangement (as defined in
Code Section 401(k)), a simplified employee pension (as
defined in Code Section 408(k)), a salary reduction agreement
(within the meaning of Code Section 3121(a)(5)(D)), or a trust
described in
V-3
<PAGE> 32
Code Section 501(c)(18), cumulatively exceed the limitation
imposed by Code Section 402(g) (as adjusted annually in
accordance with the method provided in Code Section 415(d))
for such Participant's taxable year, the Participant may, not
later than March 1 following the close of his taxable year,
notify the Committee in writing of such excess and request
that his Employee Salary Deferral Contribution under this Plan
be reduced by an amount specified by the Participant. In such
event, the Committee may direct the Trustee to distribute such
excess amount (and any income allocable to such excess amount)
to the Participant not later than the first April 15th
following the close of the Participant's taxable year. Any
distribution of less than the entire amount of the excess
Employee Salary Deferral Contribution and income shall be
treated as a pro rata distribution of excess Employee Salary
Deferral Contribution and income. The amount distributed shall
not exceed the Employee Salary Deferral Contribution under the
Plan for the taxable year. Any distribution on or before the
last day of the Participant's taxable year must satisfy each
of the following conditions:
(1) the Participant must designate the distribution as an
excess Employee Salary Deferral Contribution;
(2) the distribution must be made after the date on which
the Plan received the excess Employee Salary Deferral
Contribution; and
V-4
<PAGE> 33
(3) the Plan must designate the distribution as a
distribution of an excess Employee Salary Deferral
Contribution.
(g) Notwithstanding Section 5.1(f) above, a Participant's Employee
Salary Deferral Contributions shall be reduced, but not below
zero, by any distribution and/or recharacterization of excess
contributions pursuant to Section 8.8(a) for the Plan Year
beginning with or within the taxable year of the Participant.
5.2 Additional Employee Contributions. Subject to the provisions of
Sections 8.9 and 8.10, a Participant may from time to time, in addition to the
amount contributed pursuant to Section 5.1 hereof, contribute to the Plan as his
Additional Employee Contributions such amount as he may determine to be
desirable; provided, however, that such amount shall not, when added to the
total contributions made by a Participant under this Section 5.2 for all prior
Plan Years during which he has been a Participant in the Plan, exceed ten
percent (10%) of his aggregate Compensation for all years during which he has
been a Participant in the Plan. Such Additional Employee Contributions shall be
made by deductions from the payroll of the Participant in semi- monthly
installments which may be rounded to the nearest whole dollar and which shall be
paid by the Employer to the Trustee as soon as practicable. If permitted by the
Committee, Additional Employee Contributions may also be made in a single sum
payment by the Participant directly to the Plan or by a combination of payroll
deductions and single sum payments. Additional Employee Contributions shall not
be eligible for matching Employer Contributions by the Employer, if any, as
provided for in Section
V-5
<PAGE> 34
6.2(a) hereof. An amount equal to a Participant's Additional Employee
Contributions shall be allocated to his Account. Any Additional Employee
Contributions in excess of the limitation imposed by this Section 5.2 shall be
returned to the Participant.
5.3 Rollovers. A Participant may, with the consent of the Committee,
which shall be granted or withheld in a uniform and nondiscriminatory manner,
rollover to the Trust Fund in cash or in kind, within sixty (60) days of his
receipt thereof, all or any portion of the amount distributed to him within one
taxable year of the Participant as a rollover amount, as defined in Section
402(a)(5), 403(a)(4), or 408(d)(3) of the Code, to the extent permitted by the
Code; provided, however, that no such rollover amount may include any amounts
representing the Participant's contributions. The Committee may require such
information or documentation with respect to any such rollover contribution
hereunder as it deems necessary or desirable.
V-6
<PAGE> 35
ARTICLE VI
CONTRIBUTIONS BY THE EMPLOYER
6.1 Employee Salary Deferral Contributions. For each Plan Year, the
Employer, in addition to any amount it may contribute pursuant to Section 6.2
hereof, shall contribute an amount equal to the total amount of contributions
agreed to be made by it pursuant to salary deferral agreements under Section 5.1
hereof entered into between the Employer and Participants for such Plan Year.
Contributions made by the Employer for a given Plan Year pursuant to salary
deferral agreements under Section 5.1 hereof shall be placed in the Trust Fund
no later than the earlier of (a) 30 days following the end of the Plan Year or
(b) the date the Employer files its federal income tax return for its taxable
year with or within which such Plan Year ends.
6.2 Other Types of Contributions by the Employer. The Employer shall
not make any contributions to the Trust Fund other than as provided in Sections
6.1, 6.2(a) and 8.10(g) for a Plan Year, unless the Board adopts a resolution
prior to or during such Plan Year to the effect that Section 6.2(b) and/or
Section 6.2(c) shall be applicable for such Plan Year. In the event that such a
resolution is adopted by the Board, Employer Contributions may be made to the
Trust Fund in accordance with Section 6.2(b) and/or Section 6.2(c) for such Plan
Year.
(a) The Employer shall contribute to the Trust Fund with respect
to a Plan Year, as an Employer Contribution, an amount equal
to the Applicable Percentage
<PAGE> 36
(determined as hereinafter provided) of each Participant's
Employee Salary Deferral Contribution made pursuant to Section
5.1 hereof not exceeding three percent (3%) of Compensation.
Such Employer Contributions shall be paid to the Trustee in
the form of shares of Company Stock and cash determined as
follows: (i) as of the last business day of each Calendar
Quarter, the amount of the Employer Contribution with respect
to Employee Salary Deferral Contributions made since the last
business day of the preceding Calendar Quarter shall be
determined, and such amount shall be expressed in the form of
whole shares of Company Stock based on the average of bid and
asked prices per share on the last business day of the
Calendar Quarter and cash; (ii) the number of whole shares
determined in (i) and the amount of cash representing any
fractional share shall be contributed to the Company Stock
Fund as soon as practicable following the end of the Calendar
Quarter and such contributions shall be allocated to each
Participant's Employer Contribution Account. For purposes of
this Section 6.2(a), the Applicable Percentage for a Plan Year
shall be determined as follows: (i) if "earnings per average
common share" with respect to Company Stock, as reported for
the prior Plan Year, exceed one hundred and ten percent (110%)
of "dividends paid per common share" with respect to Company
Stock, as reported for the prior Plan Year, the Applicable
Percentage shall be fifty percent (50%); and (ii) if "earnings
per average common share" with respect to Company Stock, as
reported for the prior Plan Year, do not exceed one hundred
and ten percent (110%) of "dividends paid per
VI-2
<PAGE> 37
common share" with respect to Company Stock, as reported for
the prior Plan Year, the Applicable Percentage shall be
twenty-five percent (25%).
(b) In addition to the contribution provided under subsection (a)
hereof, the Employer may, but shall not be obligated to,
contribute to the Trust Fund, within the time prescribed by
law for filing of the income tax return for the Company's
fiscal year, including any extensions thereof, such amount as
the Board shall determine by resolution adopted before the end
of such time. A portion of such Employer Contribution shall be
allocated to the Employer Contribution Account of each
Employee who was a Participant for all or a part of the Plan
Year on the basis of the percentage that each Participant's
Compensation earned while a Participant in the Plan Year is to
the total aggregate Compensation of all Participants earned
while Participants in the Plan Year. Notwithstanding any other
provisions of this Plan, a Participant shall share in
allocations with respect to a Plan Year pursuant to this
subsection (b) only if the Participant has completed one
thousand (1,000) or more Hours of Service in such Plan Year.
(c) In addition to the contribution provided under subsection (a)
hereof, the Employer may, but shall not be obligated to,
contribute to the Trust Fund an amount equal to such
percentage as the Board shall determine of a Participant's
Compensation for the Plan Year with respect to which such
contribution is
VI-3
<PAGE> 38
made. Such contributions shall be treated for all purposes of
this Plan, with the exception of subsection (a) hereof, as
Employee Salary Deferral Contributions and shall be allocated
to a Participant's Employee Salary Deferral Contribution
Account. These contributions shall be paid to the Trustee
within the time prescribed by law for filing of the income tax
return for the Employer's fiscal year, including extensions
thereof.
6.3 Earnings Limitation. The Employer's contributions pursuant to
Sections 6.1 and 6.2 hereof shall be made out of the Employer's current or
accumulated earnings (as shown by its books and accounts for general corporate
purposes in accordance with accepted accounting practices), and may only be made
if and to the extent such current or accumulated earnings are adequate for such
purposes.
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<PAGE> 39
ARTICLE VII
INVESTMENT OF CONTRIBUTIONS
7.1 Investment Funds. The trust agreement creating the Trust shall
provide for the establishment of one or more separate Investment Funds in which
the assets of the Trust, excluding amounts described in Section 7.4 (Company
Stock Fund) and Section 7.5 (Employee Loan Fund), shall be invested.
7.2 Allocation of Contributions to Investment Funds. Once each Calendar
Quarter, a Participant may elect how contributions to his Account, excluding
Employer Contributions made in accordance with Section 6.2(a) hereof, shall be
allocated among the available Investment Funds. Allocations to Investment Funds
shall be in 10% increments. Such elections shall be made at such time, in such
manner and in such form as the Committee may prescribe through uniform and
nondiscriminatory rules. In the absence of an investment election by a
Participant, contributions shall be invested in that Investment Fund which
invests in short-term, fixed income investments such as bank certificates of
deposit, commercial paper, and treasury bills.
7.3 Transfers of Investments. Effective as of January 1, April 1, July
1 and October 1 of each Plan Year, a Participant may elect to transfer amounts
among the available Investment Funds. Such elections shall be made at such time,
in such manner and in such form as the Committee may prescribe through uniform
and nondiscriminatory rules. The
<PAGE> 40
minimum amount transferable out of any one Investment Fund shall be ten percent
(10%) of the total value of the Participant's Account, or, if less, the entire
amount invested in such Investment Fund. In no event shall amounts invested in
the Company Stock Fund be available for transfer to any Investment Fund pursuant
to this Section, except in the case of the cash proceeds of a tender offer for
Company Stock, nor shall amounts invested in any Investment Fund be available
for transfer to the Company Stock Fund.
7.4 Company Stock Fund. All Employer Contributions made in accordance
with Section 6.2(a) hereof, together with earnings thereon, shall at all times
be invested in the Company Stock Fund.
7.5 Employee Loan Fund. The trust agreement creating the Trust shall
provide for the establishment of an Employee Loan Fund which shall be invested
exclusively in personal notes executed by Participants pursuant to Section 12.1
hereof.
7.6 Valuations. As of each Valuation Date, and as of any other date
fixed by the Committee, the Trust Fund, each of the Investment Funds and the
Company Stock Fund, shall be valued on the basis of current market value in
accordance with the provisions of the Trust Agreement. For purposes of
allocating accruals pursuant to Section 8.3 hereof, the Trust Fund, each of the
Investment Funds and the Company Stock Fund shall be valued as of a Valuation
Date as if each contribution to the Trust Fund was made at the end of the
Calendar Quarter ending on such Valuation Date in which such contribution was
made.
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<PAGE> 41
ARTICLE VIII
ALLOCATION OF CONTRIBUTIONS
8.1 Notice to Committee. As of each Entry Date, the Employer shall
deliver to the Committee a list of all Employees who entered the Plan after the
last preceding Entry Date together with the Entry Date for each such Employee, a
statement of the amount of Compensation paid to each such Employee, and the
amount of contributions by or on behalf of each such Employee. As of such Entry
Date, the Employer shall also notify the Committee in writing of all changes in
the list of Participants, and shall notify said Committee of the amount of
Compensation paid to, and the amount of contributions by or on behalf of, each
Participant.
8.2 Accounts. The Committee shall open the following accounts on behalf
of each Participant:
(a) Employee Salary Deferral Contribution Account. The Committee
shall credit to each Participant's Employee Salary Deferral
Contribution Account all Employee Salary Deferral
Contributions pursuant to Sections 5.1, 6.1, and 6.2(c)
hereof, including accruals thereon pursuant to Section 8.3
hereof, made on behalf of the Participant.
<PAGE> 42
(b) Employer Contribution Account. The Committee shall credit to
each Participant's Employer Contribution Account all Employer
Contributions, if any, pursuant to Sections 6.2(a) and (b)
hereof, including accruals thereon pursuant to Section 8.3
hereof, made on behalf of the Participant.
(c) Additional Employee Contribution Account. The Committee shall
credit to each Participant's Additional Employee Contribution
Account his contributions to the Trust Fund pursuant to
Section 5.2 hereof, including accruals thereon pursuant to
Section 8.3 hereof.
(d) Rollover Account. The Committee shall credit to each
Participant's Rollover Account his contributions to the Trust
Fund pursuant to Section 5.3 hereof, including accruals
thereon pursuant to Section 8.3 hereof.
For the purposes of allocating earnings and losses, all contributions
shall be treated as being paid in the manner and at the time described in
Section 7.6 hereof.
8.3 Allocation of Accruals. As of each Valuation Date, as provided in
Section 7.6 hereof, the Trustee shall determine the values of each of the
Investment Funds and of the Company Stock Fund and the amount of the accruals to
each such fund since the preceding Valuation Date, which accruals shall consist
of any earnings therefrom, any increase in market value thereof, and other
accretions thereon, less losses, decreases in market value,
VIII-2
<PAGE> 43
expenses, and other proper deductions. The Trustee shall also determine
the value of each Participant's interest in the Employee Loan Fund and the
amount of accruals to such interest since the preceding Valuation Date, which
accruals shall consist of any earnings therefrom, any increase in market value
thereof, and other accretions thereon, less losses, decreases in market value,
expenses, and other proper deductions. The Trustee shall notify the Committee of
the foregoing amounts within a reasonable time after their determination. The
Committee shall allocate net accruals in each of the Investment Funds and in the
Company Stock Fund to each Participant's Account, as of the Valuation Date, on
the basis of the percentage that the amount of each Participant's Account
invested in each Investment Fund and in the Company Stock Fund on the Valuation
Date, prior to the allocation of any contributions made since the last preceding
Valuation Date, is of the total amount of all Participants' Accounts invested in
each Investment Fund and in the Company Stock Fund on the Valuation Date, prior
to the allocation of any contributions made since the last preceding Valuation
Date. For purposes of determining the value of a Participant's interest in the
Employee Loan Fund, only notes executed by the Participant shall be taken into
account.
8.4 Notice to Participants. Within a reasonable time after the end of
each Plan Year, the Committee shall notify each Participant of (1) the amount
credited to his Account under Section 8.2 hereof since the last Plan Year; (2)
the amount credited to his Account under Section 8.3 hereof since the last Plan
Year; and (3) the total amount credited to his Account since the last Plan Year.
VIII-3
<PAGE> 44
8.5 Limitation. Anything herein to the contrary notwithstanding, in no
event shall the sum of annual additions to a Participant's Account in any Plan
Year, when combined with the annual additions to such Participant's Account
under any other defined contribution plan maintained by the Employer,
attributable to (1) contributions of the Employer (including Employer
Contributions and Employee Salary Deferral Contributions), (2) forfeitures, and
(3) Additional Employee Contributions, be greater than the lesser of (1) $30,000
(which amount shall be subject to an annual cost of living adjustment as
provided under Section 415 of the Code) or (2) twenty-five percent (25%) of all
the Participant's Code Section 415 Compensation from the Employer. Any excess
amount hereunder (i) to the extent of Additional Employee Contributions in such
Plan Year shall be returned to the Participant; (ii) to the extent of Employee
Salary Deferral Contributions pursuant to Sections 5.1 and 6.1 hereof shall be
treated as provided in the preceding clause (i); and (iii) to the extent of
matching Employer Contributions pursuant to Section 6.2(a) hereof, Employer
Contributions pursuant to Section 6.2(b) hereof and Employee Salary Deferral
Contributions pursuant to Section 6.2(c) hereof shall be treated as Employer
Contributions and shall reduce the amount that the Employer would otherwise
contribute to the Trust Fund as matching Employer Contributions pursuant to
Section 6.2(a) hereof, Employer Contributions pursuant to Section 6.2(b) hereof
and Employee Salary Deferral Contributions pursuant to Section 6.2(c) hereof,
respectively.
8.6 Additional Limitation - Members of Retirement Plan. In the case of
any Participant who is entitled to benefits due to Employer contributions under
the Retirement
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<PAGE> 45
Plan, in addition to the limitations imposed by Section 8.5 hereof, the sum of
the defined benefit plan fraction and the defined contribution plan fraction for
any year may not exceed 1.0. The defined benefit plan fraction for any year is a
fraction (a) the numerator of which is the projected annual benefit of the
Participant under the Retirement Plan (determined as of the close of the Plan
Year), and (b) the denominator of which is the lesser of: (1) the product of
1.25 multiplied by the maximum dollar limitation in effect under Section
415(b)(1)(A) of the Code for such year, or (2) the product of 1.4 multiplied by
the amount which may be taken into account under Section 415(b)(l)(B) of the
Code for such Participant for such year. The defined contribution plan fraction
for any year is a fraction (a) the numerator of which is the sum of the annual
additions to the Participant's Account as of the close of the Plan Year and (b)
the denominator of which is the sum of the lesser of the following amounts
determined for such year and each prior year of service with the Employer: (1)
the product of 1.25 multiplied by the dollar limitation in effect under Section
415(c)(1)(A) of the Code for such year (determined without regard to Section
415(c)(6) of the Code), or (2) the product of 1.4 multiplied by the amount which
may be taken into account under Section 415(c)(l)(B) of the Code for such
Participant for such year.
In the event that said annual additions to a Participant's Account
should exceed the aforesaid limitation, the Committee shall have the right to
accomplish the aforementioned compliance by reducing or limiting benefits under
this Plan or under the Retirement Plan, and may vary the extent to which the
reduction or limitation will be applied to either, provided that any such
reduction or limitation shall be made in a nondiscriminatory manner.
VIII-5
<PAGE> 46
8.7 Actual Deferral Percentage Tests.
(a) The annual allocation derived from Employee Salary Deferral
Contributions to Employee Salary Deferral Contribution
Accounts shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than
the "Actual Deferral Percentage" of the Non- Highly
Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for
the Highly Compensated Participant group over the
"Actual Deferral Percentage" for the Non-Highly
Compensated Participant group shall not be more than
two percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual
Deferral Percentage" for the Non-Highly Compensated
Participant group multiplied by 2. The provisions of
Code Section 401(k)(3) and Treasury Regulations
Section 1.401(k)-1(b) are incorporated herein by
reference. However, in order to prevent the multiple
use of the alternative method described in this
paragraph in Code Section 401(m)(9)(A), any Highly
Compensated Participant
VIII-6
<PAGE> 47
eligible to make elective deferrals pursuant to
Section 5.1 and to make Employee contributions or to
receive matching contributions under this Plan or
under any other plan maintained by the Employer or an
Affiliated Company shall have his actual contribution
ratio reduced pursuant to Treasury Regulations
Section 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant
group and Non-Highly Compensated Participant group for a Plan
Year, the average of the ratios, calculated separately for
each Participant in such group, of the amount of Employee
Salary Deferral Contributions allocated to each Employee
Salary Deferral Contribution Account for such Plan Year (and
contributed to the Plan within 12 months following the end of
the Plan Year) to such Participant's 414(s) Compensation for
such Plan Year. The actual deferral ratio for each Participant
and the "Actual Deferral Percentage" for each group shall be
calculated to the nearest one-hundredth of one percent.
Employee Salary Deferral Contributions allocated to each
Non-Highly Compensated Employee Salary Deferral Contribution
Account shall be reduced by excess Employee Salary Deferral
Contributions to the extent such excess amounts are made under
this Plan or any other plan maintained by the Employer.
VIII-7
<PAGE> 48
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Employee who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because
such Participant is either a "five percent owner" of the
Employer or one of the ten (10) Highly Compensated Employees
paid the greatest Code Section 415 Compensation during the
Plan Year, the following rules shall apply:
(1) The combined actual deferral ratio for the family
group (which shall be treated as one Highly
Compensated Participant) shall be determined by
aggregating Employee Salary Deferral Contributions
and 414(s) Compensation of all eligible Family
Members (including Highly Compensated Participants).
However, in applying the $150,000 limit to 414(s)
Compensation, Family Members shall include only the
affected Employee's spouse and any lineal descendants
who have not attained age 19 before the close of the
Plan Year.
(2) The Employee Salary Deferral Contributions and 414(s)
Compensation of all Family Members shall be
disregarded for purposes of determining the "Actual
Deferral Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into
account in paragraph (1) above.
VIII-8
<PAGE> 49
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all
Participants who are members of those family groups
that include the Participant are aggregated as one
family group in accordance with paragraphs (1) and
(2) above.
(d) For the purposes of Sections 8.7(a) and 8.8, a Highly
Compensated Participant and a Non-Highly Compensated
Participant shall include any Employee eligible to make a
deferral election pursuant to Section 5.1, whether or not such
deferral election was made or amended pursuant to Section 5.1.
(e) For the purposes of this Section, if two or more plans (other
than an employee stock ownership plan as defined in Code
Section 4975(e)(7)) which include cash or deferred
arrangements are considered one plan for the purposes of Code
Section 401(a)(4) or 410(b) (other than the average benefits
test under Code Section 410(b)(2)(A)(ii)), the cash or
deferred arrangements included in such plans shall be treated
as one arrangement.
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two (2) or more cash or
deferred arrangements of the Employer or an Affiliated
Company, all such cash or deferred arrangements shall be
treated as one (1) cash or deferred arrangement for the
purpose of determining the deferral percentage with respect to
such Highly Compensated
VIII-9
<PAGE> 50
Participant. However, if the cash or deferred arrangements
have different Plan Years, this paragraph shall be applied by
treating all cash or deferred arrangements ending with or
within the same calendar year as a single arrangement.
8.8 Adjustment to Actual Deferral Percentage Tests. In the event that
the initial allocations of the Employee Salary Deferral Contributions do not
satisfy one of the tests set forth in Section 8.7(a), the Committee shall adjust
excess contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following
the end of each Plan Year, the Highly Compensated Participant
having the highest actual deferral ratio shall have his
portion of excess contributions distributed to him and/or at
his election recharacterized as an Additional Employee
Contribution pursuant to Section 5.2, until one of the tests
set forth in Section 8.7(a) is satisfied, or until his actual
deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the second highest actual
deferral ratio. This process shall continue until one of the
tests set forth in Section 8.7(a) is satisfied. For each
Highly Compensated Participant, the amount of excess
contributions is equal to the Employee Salary Deferral
Contributions on behalf of such Highly Compensated Participant
(determined prior to the application of this paragraph) minus
the amount determined by multiplying the Highly
VIII-10
<PAGE> 51
Compensated Participant's actual deferral ratio (determined
after application of this paragraph) by his 414(s)
Compensation. However, in determining the amount of excess
contributions to be distributed and/or recharacterized with
respect to an affected Highly Compensated Participant as
determined herein, such amount shall be reduced by any excess
Employee Salary Deferral Contribution previously distributed
to such affected Highly Compensated Participant for his
taxable year ending with or within such Plan Year.
(1) With respect to the distribution of excess
contributions pursuant to (a) above, such
distribution:
(i) may be postponed but not later than the
close of the succeeding Plan Year;
(ii) shall be made first from unmatched Employee
Salary Deferral Contributions and,
thereafter, simultaneously from Employee
Salary Deferral Contributions which are
matched and matching Employer Contributions
which relate to such Employee Salary
Deferral Contributions;
(iii) shall be adjusted for income; and
VIII-11
<PAGE> 52
(iv) shall be designated by the Employer as a
distribution of excess contributions (and
income).
(2) With respect to the recharacterization of excess
contributions pursuant to (a) above, such
recharacterized amounts:
(i) shall be deemed to have occurred on the date
on which the last of those Highly
Compensated Participants with excess
contributions to be recharacterized is
notified of the recharacterization and the
tax consequences of such recharacterization;
(ii) shall not exceed the amount of Employee
Salary Deferral Contributions on behalf of
any Highly Compensated Participant for any
Plan Year;
(iii) shall be treated as Additional Employee
Contributions for purposes of Code Section
401(a)(4) and Treasury Regulations Section
1.401(k)-1(b). However, for purposes of
Sections 18.3 and 18.11(a) recharacterized
excess contributions continue to be treated
as Employer contributions that are Employee
Salary Deferral Contributions. Excess
contributions recharacterized as
VIII-12
<PAGE> 53
Additional Employee Contributions shall
continue to be nonforfeitable and subject to
the rules of Section 11.1(d);
(iv) are not permitted if the amount
recharacterized plus Additional Employee
Contributions actually made by such Highly
Compensated Participant exceed the maximum
amount of Additional Employee Contributions
(determined prior to application of Section
8.9) that such Highly Compensated
Participant is permitted to make under the
Plan in the absence of recharacterization;
(v) shall be treated as Employer contributions
for purposes of Section 8.5; and
(vi) shall be adjusted for income.
(3) Any distribution and/or recharacterization of less
than the entire amount of excess contributions shall
be treated as a pro rata distribution and/or
recharacterization of excess contributions and
income.
(b) If the determination and correction of excess contributions of
a Highly Compensated Participant whose actual deferral ratio
is determined under the
VIII-13
<PAGE> 54
family aggregation rules, then the actual deferral ratio shall
be reduced as required herein and the excess contributions for
the family unit shall be allocated among the Family Members in
proportion to the Employee Salary Deferral Contributions of
each Family Member that were combined to determine the group
actual deferral ratio.
8.9 Actual Contribution Percentage Tests.
(a) The "Actual Contribution Percentage" for the Highly
Compensated Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant
group plus 2 percentage points. However, to prevent
the multiple use of the alternative method described
in this paragraph and in Code Section 401(m)(9)(A),
any Highly Compensated Participant eligible to make
salary deferrals pursuant to Section 5.1 or any other
cash or deferred arrangement maintained by the
Employer or an Affiliated Company and to make
Additional Employee Contributions
VIII-14
<PAGE> 55
or to receive matching contributions under this Plan
or under any other plan maintained by the Employer or
an Affiliated Company shall have his actual
contribution ratio reduced pursuant to Treasury
Regulations Section 1.401(m)-2. The provisions of
Code Section 401(m) and Treasury Regulations Section
1.401(m)-1(b) and 1.401(m)-2 are incorporated herein
by reference.
(b) For the purposes of this Section and Section 8.10, "Actual
Contribution Percentage" for a Plan Year means, with respect
to the Highly Compensated Participant group and Non-Highly
Compensated Participant group, the average of the ratios
(calculated separately for each Participant in each group) of:
(1) the sum of Additional Employee Contributions made
pursuant to Section 5.2; matching Employer
Contributions made pursuant to Section 6.2(a) and
excess contributions recharacterized as Additional
Employee Contributions pursuant to Section 8.8(a) on
behalf of each such Participant for such Plan Year;
to
(2) the Participant's 414(s) Compensation for such Plan
Year.
The actual contribution ratio must be rounded to the nearest
one-hundredth of one percent.
VIII-15
<PAGE> 56
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions
pursuant to Section 8.10(d), only matching Employer
Contributions contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the
Administrator may elect to take into account with respect to
Employees eligible to have matching Employer Contributions
pursuant to Section 6.2 and Additional Employee Contributions
pursuant to Section 5.2 allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-1(b)) and
qualified non-elective contributions (as defined in Code
Section 401(m)(4)(C)) contributed to any plan maintained by
the Employer. Such elective deferrals and qualified
non-elective contributions shall be treated as matching
Employer Contributions subject to Regulation 1.401(m)-1(b)(2)
which is incorporated herein by reference. However, the Plan
Year must be the same as the plan year of the plan to which
the elective deferrals and the qualified non- elective
contributions are made.
(d) For the purpose of determining the actual contribution ratio
of a Highly Compensated Employee who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because
such Employee is either a "five percent owner" of the Employer
or one of the ten (10) Highly Compensated Employees paid the
greatest Code Section 415 Compensation during the year, the
following rules shall apply:
VIII-16
<PAGE> 57
(1) The combined actual contribution ratio for the family
group (which shall be treated as one Highly
Compensated Participant) shall be determined by
aggregating Additional Employee Contributions made
pursuant to Section 5.2, matching Employer
Contributions made pursuant to Section 6.2, excess
contributions recharacterized as Additional Employee
Contributions pursuant to Section 8.8(a) and 414(s)
Compensation of all eligible Family Members
(including Highly Compensated Participants). However,
in applying the $150,000 limit to 414(s)
Compensation, Family Members shall include only the
affected Employee's spouse and any lineal descendants
who have not attained age 19 before the close of the
Plan Year.
(2) The Additional Employee Contributions made pursuant
to Section 5.2, matching Employer Contributions made
pursuant to Section 6.2, excess contributions
recharacterized as Additional Employee Contributions
pursuant to Section 8.8(a) and 414(s) Compensation of
all Family Members shall be disregarded for purposes
of determining the "Actual Contribution Percentage"
of the Non-Highly Compensated Participant group
except to the extent taken into account in paragraph
(1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all
Participants who are members of those
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<PAGE> 58
family groups that include the Participant are
aggregated as one family group in accordance with
paragraphs (1) and (2) above.
(e) For purpose of this Section, if two or more plans of the
Employer to which Additional Employee Contributions, matching
Employer Contributions, or elective deferrals are made are
treated as one plan for purpose of Code Sections 401(a)(4) or
410(b) (other than the average benefits test under Code
Section 410(b)(2)(A)(ii)), such plans shall be treated as one
plan for purposes of this Section 8.9. In addition, two or
more plans of the Employer to which Additional Employee
Contributions, matching Employer Contributions, or Employee
Salary Deferral Contributions are made may be considered as a
single plan for purposes of this Section. In such a case, the
aggregated plans must satisfy Code Sections 401(a)(4) and
410(b) as though such aggregated plans were a single plan.
Notwithstanding the above, contributions to an employee stock
ownership plan as defined in Code Section 4975(e)(7) shall not
be aggregated with this Plan.
(f) If a Highly Compensated Participant participates in two or
more plans which are maintained by the Employer or an
Affiliated Company to which Additional Employee Contributions,
matching Employer Contributions, or Employee Salary Deferral
Contributions are made, all such contributions on behalf of
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<PAGE> 59
such Highly Compensated Participant shall be aggregated for
purposes of this Section 8.9.
(g) For purposes of Section 8.9(a) and 8.10, a Highly Compensated
Participant and Non-Highly Compensated Participant shall
include any Employee eligible to have matching Employer
Contributions pursuant to Section 6.2 (whether or not a
deferral election was made or suspended pursuant to Section
5.1) and Additional Employee Contributions pursuant to Section
5.2 (whether or not Additional Employee Contributions are
made) allocated to his account for the Plan Year.
8.10 Adjustment to Actual Contribution Percentage Tests.
(a) In the event that the "Actual Contribution Percentage" for the
Highly Compensated Participant group exceeds the "Actual
Contribution Percentage" for the Non-Highly Compensated
Participant group pursuant to Section 8.9(a), the Committee
(on or before the fifteenth day of the third month following
the end of the Plan Year, but in no event later than the close
of the following Plan Year) shall direct the Trustee to
distribute to the Highly Compensated Participant having the
highest actual contribution ratio, his vested portion of
excess aggregate contributions (and income allocable to such
contributions) until either one of the tests set forth in
Section 8.9(a) is satisfied, or until his
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<PAGE> 60
actual contribution ratio equals the actual contribution ratio
of the Highly Compensated Participant having the second
highest actual contribution ratio. This process shall continue
until one of the tests set forth in Section 8.9(a) is
satisfied. The distribution of excess aggregate contributions
shall be made in the following order:
(1) Matching Employer Contributions distributed pursuant
to Section 8.8(a)(1);
(2) Additional Employee Contributions including excess
contributions recharacterized as Additional Employee
Contributions pursuant to Section 8.8(a)(2);
(3) Remaining matching Employer Contributions.
(b) Any distribution of less than the entire amount of excess
aggregate contributions (and income) shall be treated as a pro
rata distribution of excess aggregate contributions and
income. Distribution of excess aggregate contributions shall
be designated by the Employer as a distribution of excess
aggregate contributions (and income).
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<PAGE> 61
(c) Excess aggregate contributions attributable to amounts other
than Additional Employee Contributions shall be treated as
Employer contributions for purposes of Code Sections 404 and
415 even if distributed from the Plan.
(d) For each Highly Compensated Participant, the amount of excess
aggregate contributions is equal to the total Additional
Employee Contributions made pursuant to Section 5.2, matching
Employer Contributions made pursuant to Section 6.2, excess
contributions recharacterized as Additional Employee
Contributions pursuant to Section 8.8(a) and any qualified
non-elective contributions or elective deferrals taken into
account pursuant to Section 8.9(c) on behalf of the Highly
Compensated Participant (determined prior to the application
of this paragraph) minus the amount determined by multiplying
the Highly Compensated Participant's actual contribution ratio
(determined after application of this paragraph) by his 414(s)
Compensation. In no case shall the amount of excess aggregate
contribution with respect to any highly compensated
participant exceed the amount of Additional Employee
Contributions made pursuant to Section 5.2, matching Employer
Contributions made pursuant to Section 6.2, Excess Aggregate
Contributions recharacterized as Additional Employee
Contributions pursuant to Section 8.8(a) and any qualified
non-elective contributions or elective deferrals taken into
account pursuant to Section 8.9(c) on behalf of such Highly
Compensated Participant for such Plan Year.
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<PAGE> 62
(e) The determination of the amount of excess aggregate
contributions with respect to any Plan Year shall be made
after first determining the excess contributions, if any, to
be treated as Additional Employee Contributions due to
recharacterization for the plan year of any other qualified
cash or deferred arrangement (as defined in Code Section
401(k)) maintained by the Employer that ends with or within
the Plan Year or which are treated as Additional Employee
Contributions due to recharacterization pursuant to Section
8.8(a).
(f) If the determination and correction of excess aggregate
contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation
rules, then the actual contribution ratio shall be reduced and
the excess aggregate contributions for the family unit shall
be allocated among the Family Members in proportion to the sum
of Additional Employee Contributions made pursuant to Section
5.2, matching Employer Contributions made pursuant to Section
6.2, excess contributions recharacterized as Additional
Employee Contributions pursuant to Section 8.8(a) and any
qualified non-elective contributions or elective deferrals,
taken into account pursuant to Section 8.9(c) of each Family
Member that were combined to determined the group actual
contribution ratio.
(g) Notwithstanding the above, within twelve (12) months after the
end of the Plan Year, the Employer may make a special
qualified non-elective contribution on
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behalf of Non-Highly Compensated Participants in an amount
sufficient to satisfy one of the tests set forth in Section
8.9(a). Such contribution shall be allocated to the Employee
Salary Deferral Contribution Account of each Non-Highly
Compensated Participant in the same proportion that each
Non-Highly Compensated Participant's Compensation for the year
bears to the total Compensation of all Non-Highly Compensated
Participants. A separate accounting shall be maintained for
the purpose of excluding such contributions from the "Actual
Deferral Percentage" tests pursuant to Section 8.7(a).
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ARTICLE IX
VESTING
9.1 Vesting Schedule. A Participant shall at all times be fully vested
in the Accrued Balance in his Account.
<PAGE> 65
ARTICLE X
PAYMENT OF BENEFITS
10.1 Distribution on Account of Termination of Employment. If a
Participant terminates his employment other than by reason of death, retirement
or Total Disability, the Accrued Balance in such Participant's Account
(calculated as of the Valuation Date next preceding the date of the
distribution) hereof shall be paid to the Participant in a lump sum. Such lump
sum shall consist of cash, except that the Participant's interest in the Company
Stock Fund shall be paid in the form of whole shares of Company Stock, the
number of such whole shares to be determined as of the Valuation Date next
preceding the date of distribution, with any amounts representing fractional
shares of Company Stock to be paid in cash. The lump sum distribution shall be
made no later than the close of the second Plan Year following the Plan Year in
which termination of employment occurs, except as provided in the following
sentence. If the amount of the distribution derived from the Participant's
Employer Contribution Account exceeds, or has ever exceeded, $3,500 (or such
larger amount that may be established by Treasury Regulations under Section
411(a)(7)(B) of the Code), the payment of the distribution shall be delayed
until the Participant's Normal Retirement Date, unless the Participant requests
an earlier payment of benefits.
10.2 Distribution at Retirement. Any Participant shall be eligible to
terminate his employment by retiring at any time on or after the first day of
the month coinciding with or next following his Early Retirement Date, if
applicable, or his Normal Retirement Date. In
<PAGE> 66
the event of such retirement of any Participant, the Accrued Balance credited to
such Participant's Account (calculated as of the Valuation Date next preceding
the date of the distribution) shall be paid to such former Participant in a lump
sum.
10.3 Deferred Retirement. A Participant may remain in the service of
the Employer after reaching his Early Retirement Date or Normal Retirement Date
and shall continue to be eligible to defer salary pursuant to Section 5.1
hereof, to make Additional Employee Contributions pursuant to Section 5.2
hereof, to share in Employer Contributions, if any, pursuant to Section 6.2
hereof, and to share in allocations pursuant to Section 8.3 hereof.
10.4 Distribution Upon Death. In the event of the termination of
employment of a Participant through the death of the Participant prior to his
retirement, the Accrued Balance credited to his Account (calculated as of the
Valuation Date next preceding the date of the distribution) shall be paid to his
Beneficiary in a lump sum.
10.5 Designation of Beneficiary. In the event of the death of a
Participant or former Participant, any benefits payable hereunder shall be paid
to the Participant's surviving spouse, if any, or to any other Beneficiary or
alternate Beneficiary who may be designated by the Participant as hereinafter
provided if such surviving spouse consents thereto or if there is no surviving
spouse. For purposes of entitlement to receive benefits pursuant to the
foregoing sentence, surviving spouse shall mean the spouse to whom a Participant
shall be married on the date payment of his benefits commences or to whom a
Participant shall be married at the
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time of his death if he shall die while employed by the Employer, unless
otherwise specifically provided by a qualified domestic relations order pursuant
to Section 414(p) (5) of the Code.
The consent of a surviving spouse to the designation of any other
Beneficiary shall be made in writing on a form provided by the Committee, which
form shall contain the surviving spouse's acknowledgment of the effect of such
consent and shall be witnessed by the Administrator or his representative, or a
notary public. Notwithstanding the foregoing, such written consent shall not be
required if it is established to the satisfaction of the Administrator or his
representative that such consent may not be obtained because there is no spouse,
because the spouse cannot be located, or because of such other circumstances as
the Secretary of the Treasury may by regulations prescribe.
Subject to the foregoing paragraphs of this Section 10.5, each
Participant and former Participant shall have the unrestricted right at any time
to designate a primary and an alternate Beneficiary to receive any benefits
payable hereunder on the death of the Participant, and from time to time to
change any such designation. Each such designation shall be evidenced by a
written instrument filed with the Committee, signed by the Participant. Such
designation or change shall take effect as of the date of execution of such
written instrument, whether or not the Participant is living at the time of such
filing, but without prejudice to the Trust Fund on account of any payments made
before receipt of such written instrument by the Committee.
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10.6 Distribution Upon Total Disability. In the event of a
Participant's Total Disability, the Accrued Balance in his Account (calculated
as of the Valuation Date next preceding the date of the distribution) shall be
paid to such former Participant in a lump sum.
10.7 Commencement of Benefit Payments. A Participant who terminates
service by reason of retirement shall have the right to elect to delay the
benefit commencement date until the expiration of one year after his date of
termination of service if payment would otherwise be made within that year.
Notwithstanding the foregoing, unless a Participant elects a later date
by submitting a signed election form to the Administrator setting forth the date
on which the payment of benefits shall be made, the payment of benefits under
the Plan shall be made not later than the sixtieth (60th) day after the close of
the Plan Year in which the later of the following events occurs: (1) the
Participant attains age 65; or (2) the Participant terminates his service with
the Employer. In no case shall distributions of benefits under the Plan be made
later than April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2. However, if a Participant had attained age 70
1/2 before January 1, 1988 and was not a five percent (5%) owner at any time
during the Plan Year ending with or within the calendar year in which the
Participant attained age 66 1/2 or any subsequent Plan Year, such Participant
may elect to delay his distribution until the calendar year in which the
Participant retires.
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10.8 Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to
an eligible retirement plan specified by the distributee in a
direct rollover.
(b) Definitions.
(1) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any
portion of the balance to the credit of the
distributee, except that an eligible rollover
distribution does not include: any distribution that
is one of a series of substantially equal periodic
payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or
the joint lives (or joint life expectancies) of the
distributee and the distributee's designated
beneficiary, or for a specified period of ten years
or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of
the Code; and the portion of any distribution that is
not includible in gross income (determined without
regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
(2) Eligible retirement plan: An eligible retirement plan
is an individual retirement account described in
Section 408(a) of the Code, an
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individual retirement annuity described in Section
408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution.
However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account
or individual retirement annuity.
(3) Distributee: A distributee includes an Employee or
former Employee. In addition, the Employee's or
former Employee's surviving spouse and the Employee's
or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of
the spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by
the Plan to the eligible retirement plan specified by
the distributee.
ARTICLE XI
WITHDRAWALS FROM ACCOUNTS
11.1 Withdrawals. A Participant may at any time, but not more than
twice in any Plan Year nor more than once in any Calendar Quarter, on the
appropriate form filed with the
<PAGE> 71
Committee at least fifteen (15) days before the last day of a Calendar Quarter,
elect to withdraw from one or more Investment Funds, subject to the limitations
herein, all or any part of his Account, excluding his Rollover Account and the
amount of any loan to the Participant under Section 12.1 which is outstanding,
as adjusted for investment income, gain or loss. If the Participant's Account is
invested in one or more Investment Funds pursuant to Section 7.1, the
Participant shall be entitled to elect on the form provided by the Committee, in
dollar amounts, the extent to which the withdrawal shall be made from any such
Fund. The effective date of the withdrawal shall be the last day of the Calendar
Quarter in which the Participant's election is received by the Committee.
All amounts distributed pursuant to this Section shall be paid from the
following sources, in the following order:
(a) from that part of his Account equal to the aggregate amount of
his Additional Employee Contributions;
(b) from that part of his Account equal to the earnings on the
amounts described in (a); and
(c) from that part of his Account equal to the aggregate amount of
his Employee Salary Deferral Contributions, including pre-1989
earnings thereon; provided, however, that no withdrawal of
such amount shall be permitted unless the
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Participant has attained age 59-1/2, has suffered a Total
Disability, or is able to demonstrate hardship pursuant to
Section 11.2 hereof; and further provided, that Employee
Salary Deferral Contributions which have not been deposited in
the Trust Fund for at least two (2) years may not be withdrawn
except upon a showing of hardship.
11.2 Hardship.
(a) The Committee shall authorize a distribution for hardship only
if the distribution is on account of:
(1) Medical expenses described in Code Section 213(d)
incurred by the Participant, his spouse, or any of
his dependents (as defined in Code Section 152);
(2) The purchase (excluding mortgage payments) of a
principal residence for the Participant;
(3) Payment of tuition for the next semester or quarter
of post-secondary education for the Participant, his
spouse, children, or dependents; or
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(4) The need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence.
(b) No distribution shall be made on account of hardship unless
the Committee, based upon the Participant's representation and
such other facts as are known to the Committee, determines
that all of the following conditions are satisfied:
(1) The distribution is not in excess of the amount of
the immediate and heavy financial need of the
Participant; and
(2) The Participant has obtained all distributions, other
than hardship distributions, and all nontaxable loans
currently available under all plans maintained by the
Employer.
11.3 Suspension of Contributions. If a Participant receives a hardship
distribution pursuant to Section 11.2, such Participant's Employee Salary
Deferral Contributions and Additional Employee Contributions will be suspended
for twelve (12) months after receipt of the hardship distribution. In addition,
the Participant may not make Employee Salary Deferral Contributions for his
taxable year immediately following the taxable year of the hardship distribution
in excess of the applicable limit under Code Section 402(g) for such next
taxable
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year less the amount of such Participant's Employee Salary Deferral
Contributions for the taxable year of the hardship distribution.
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ARTICLE XII
LOANS TO PARTICIPANTS
12.1 Procedures. The Committee may, upon the application of any
Participant but in the Committee's sole discretion, direct the Trustee to make a
loan to a Participant under the following circumstances: (a) loans shall not be
made available to Highly Compensated Employees, officers, or shareholders in an
amount greater than the amount made available to other Participants; (b) loans
shall bear a reasonable rate of interest; (c) loans shall be adequately secured;
and (d) loans shall provide for periodic repayment over a period of up to five
(5) years, provided, however, that a loan shall not be granted to any
Participant that provides for a repayment period extending beyond such
Participant's Normal Retirement Date. Notwithstanding the foregoing clause (d),
a loan for a term of up to ten (10) years shall be permitted if the proceeds of
such loan are used for the purpose of a Participant's purchase of his principal
residence; provided, however, that in no event shall the term of such loan
extend beyond a Participant's Normal Retirement Date. In addition to any other
security that may be required, every loan to a Participant shall be secured by a
pledge of fifty percent (50%) of the Participant's interest in the Trust Fund
(excluding the Participant's interest in the Company Stock Fund).
A Participant may specify from which Investment Fund the loan funds are
to be taken, and in the absence of any such designation the Committee shall so
specify.
<PAGE> 76
A loan to a Participant shall be considered an earmarked investment of
such Participant's Account. Loan funds shall be taken first from the Additional
Employee Contribution Account and then, to the extent necessary, from the
Rollover Account and the Employee Salary Deferral Contribution Account, in that
order. Loan funds shall not be taken from the Employer Contribution Account.
Repayments of loans shall reduce the amount of the loan investment in the
Employee Loan Fund and shall be invested in one or more of the Investment Funds
in accordance with the Participant's then current investment election.
Loans made pursuant to this Section from a Participant's Account shall
be limited in amount to the lesser of:
(i) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan, or any
other qualified plan maintained by the Employer, to
the Participant during the one year period ending on
the day before the date on which such loan is made,
over the outstanding balance of loans from the Plan
to the Participant on the date on which such loan was
made, or
(ii) one-half (1/2) of the present value of the
Participant's vested Accrued Balance.
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<PAGE> 77
Any loans granted or renewed shall be made pursuant to a Participant
loan program. Such loan program shall be established in writing and must
include, but need not be limited to, the following:
(1) the identity of the person or positions authorized to administer
the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans offered;
(5) the procedure under the program for determining a reasonable rate
of interest;
(6) the types of collateral which may secure a Participant loan; and
(7) the events constituting default and the steps that will be taken to
preserve Plan assets.
Such Participant loan program shall be contained in a separate written
document which, when properly executed, is hereby incorporated by reference and
made a part of the
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Plan. Furthermore, such Participant loan program may be modified or amended in
writing from time to time without the necessity of amending this Section.
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<PAGE> 79
ARTICLE XIII
TERMINATION OF PLAN
13.1 Termination. The Employer hopes to continue the Plan and its
contributions to the Trust Fund indefinitely. Nevertheless, each Employer
maintains the right to suspend, terminate, or completely discontinue
contributions under the Plan with respect to its Employees. Upon any full or
partial termination of the Plan or complete discontinuance of contributions by
an Employer hereunder, all affected Participants who are Employees of such
Employer shall become vested in the Accrued Balances in their Accounts.
13.2 Distribution. Upon (1) the termination of the Plan, (2) the
complete discontinuance of contributions by an Employer to the Trust Fund, or
(3) the termination of the liability of an Employer, as provided for in Section
13.1 hereof, the Committee shall make a final allocation of Employer
Contributions, if any, and net earnings or losses in the manner prescribed
herein to the Accounts of Participants who are Employees of such Employer.
Thereafter, the funds in the Account of each such Participant shall be paid and
distributed to such person in a lump sum upon the earliest of (1) a date that is
not more than 60 days following the later of termination of the Plan or the
receipt of a favorable determination letter (if requested) from the Internal
Revenue Service following such termination, but only if another defined
contribution plan (other than an employee stock ownership plan) has not been
established or is not maintained by the Employer, (2) the
<PAGE> 80
Participant's attainment of age 59 1/2, (3) the Participant's termination of
employment with the Employer, (4) the Participant's Total Disability, or (5) the
Participant's death.
13.3 Final Expenses. Notwithstanding anything to the contrary herein,
all expenses of administration of the Trust Fund, and other expenses incident to
the termination and distribution of the Trust Fund, incurred after the
termination of the Plan shall be paid from the Trust Fund as directed by the
Committee.
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ARTICLE XIV
AMENDMENT OF PLAN
14.1 Amendment. The Company shall have the right, by action of the
Board, to modify or amend this Plan, in whole or in part, at any time and from
time to time; provided, however, that no such action shall adversely affect
Participants to the extent of their vested benefits, nor shall such action
decrease a Participant's accrued benefit or eliminate an optional form of
distribution. Any such modification or amendment may be made retroactively.
If the Plan should at any time become a transferee of a plan which is
subject to the requirements of Section 401(a)(11)(A) of the Code, the Plan shall
be amended to meet said requirements.
14.2 Change in Vesting. If an amendment or a change in the top-heavy
status of the Plan changes the vesting schedule of the Plan, as set forth in
Section 9.1 hereof, any Participant having three (3) or more Years of
Eligibility Service on the date which is sixty (60) days after such amendment or
change is adopted or becomes effective (or, if later, sixty (60) days after
written notice of the amendment or change is given) may, within a reasonable
time after the effective date of the amendment or change, elect to remain
subject to the vesting schedule in effect prior to such amendment or change.
<PAGE> 82
14.3 Trustee. The Committee shall deliver a copy of each amendment to
the Plan, and the Board resolution adopting the same, to the Trustee promptly
after its adoption. No amendment shall be made that would adversely affect the
Trustee or impose additional duties on it without the Trustee's written consent
thereto.
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ARTICLE XV
CLAIMS PROCEDURE
15.1 Claims. Each Participant and Beneficiary of the Plan shall submit
all claims for benefits, claims relating to the amount or manner of any
distribution, and any other request relating to any Account, in writing, to the
Administrator of the Plan. The Administrator shall within a reasonable period of
time, but not later than 60 days after receipt thereof, either approve or deny
such claim or request either wholly or in part, and notify the claimant in
writing of the action taken.
15.2 Notice of Denial. If such claim or request is wholly or partially
denied, the written notice of the Administrator shall set forth in a manner
calculated to be understood by the claimant:
(a) specific reasons for the denial;
(b) specific references to the pertinent Plan provisions on which
the denial is based;
(c) specific references to any additional material or information
necessary for the claimant to perfect review of the claim and
an explanation of why such material or information is
necessary; and
<PAGE> 84
(d) an explanation of the Plan's claims review procedure.
If the notice of the denial is not furnished to the Participant in
accordance with this section within a reasonable period of time, such
participant's claim shall be deemed denied.
15.3 Review. Upon denial of such a claim or request, the claimant shall
be entitled within 60 days after the receipt of written notice of denial by the
Administrator:
(a) to request, in writing, a review by the Committee of the
denial;
(b) to review pertinent documents; and
(c) to submit issues and comments in writing.
The Committee shall render a decision on its review of the denial
promptly, but not later than 60 days after the receipt of the request for
review, unless special circumstances require an extension of time, in which case
a decision shall be rendered not later than 120 days after the receipt of a
request for review. If the Committee's decision on review is not furnished to
the Participant within the time limitations described herein, the claim shall be
deemed denied upon review.
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The decision of the Committee shall be in writing and shall set forth
reasons therefor stated in a manner calculated to be understood by the claimant,
including specific references to the pertinent Plan provisions. Determinations,
decisions and other actions of the Committee, taken in accordance with the
provisions hereof shall be final, conclusive and binding on all parties.
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<PAGE> 86
ARTICLE XVI
THE TRUSTEE
16.1 All contributions hereunder to the Trust Fund shall be held, in
trust, by such Trustee as may be selected by the Committee, from time to time,
under a trust agreement approved by the Board, with such powers in the Trustee
as to investment, reinvestment, control and disbursement of all or part of the
Trust Fund as shall be in accordance with the provisions hereof.
<PAGE> 87
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 The Plan and the Trust provided for hereunder are created for the
exclusive benefit of the Participants and their Beneficiaries. Under no
circumstances whatsoever shall any assets of the Trust Fund ever revert to, or
be used or enjoyed by, the Employer, or any successor thereto, nor shall any
such assets ever be used other than for the exclusive benefit of the
Participants or their Beneficiaries.
17.2 No Participant or Beneficiary shall have any legal or equitable
right or interest in the Trust Fund established hereunder, or in any annuity
contract purchased hereunder, except as expressly provided for herein, and no
Employee shall be deemed to possess a right to share in any moneys allocated by
the Committee as hereinabove set forth, except as herein provided.
17.3 Participation in the Plan shall not give any Participant the right
to be retained in the service of the Employer or any right or claim to a
retirement pension unless the right to such retirement pension is provided for
herein.
17.4 All decisions of the Committee hereunder shall be made in a
uniform, non-discriminatory manner.
<PAGE> 88
17.5 Whenever an Employer is permitted or required under the terms of
this Plan to take any action, it shall be done by its Board of Directors and
shall be evidenced by proper resolutions certified by the Secretary thereof.
17.6 The Plan shall not be automatically terminated by the Company's
acquisition by, or merger into, any other company. The Plan shall be continued
after such merger if the successor company agrees to continue the Plan. All
rights to amend or terminate the Plan shall be transferred to the successor
company, effective as of the date of the merger.
The merger or consolidation with, or transfer of assets and liabilities
to, any other qualified retirement plan shall be permitted only if the benefit
each Participant would receive if the Plan were terminated immediately after
such merger or consolidation, or transfer of assets and liabilities, would be at
least as great as the benefit he would have received had the Plan been
terminated immediately before any such transaction.
17.7 To the extent permitted by law and with the exception of payments
pursuant to a qualified domestic relations order within the meaning of Section
414(p) of the Code, no benefit payable hereunder shall be subject in any manner
to anticipation, assignment, garnishment, or pledge. Any attempt to anticipate,
assign, garnish or pledge the same will be of no effect. No such benefits will
be in any manner liable for or subject to the debts, liabilities, or torts of
any Participant, and if any Participant is adjudicated bankrupt or attempts to
anticipate, assign, or pledge any such benefits, then such benefits will, in the
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discretion of the Committee, cease. In such event, the Committee will have the
authority to cause the same or any part thereof to be held or applied to or for
the benefit of such Participant, his spouse, his children or other dependents,
or any of them, in such manner and in such proportion as the Committee may in
its discretion deem proper.
17.8 A Participant shall not, with or without cause, be divested of any
portion of his Accrued Balance that is vested under the terms of the Plan.
17.9 Notwithstanding any other provisions of the Plan, a former
Participant shall not be entitled to payment of duplicate benefits upon again
becoming a Participant.
17.10 The headings of the Sections herein are for reference only. In
the event of a conflict between such a heading and the content of a Section, the
content of the Section shall control.
17.11 If any person to whom a benefit is payable hereunder is an
infant, or if the Committee determines that any person to whom a benefit is
payable is incapable by reason of physical or mental disability of taking care
of his own affairs, the Committee shall have power to cause the payments
becoming due to such person to be made to another for his benefit without
responsibility of the Committee or the Trustee to see to the application of such
payments. Payments made pursuant to such power shall operate as a complete
discharge
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of the obligation of the Employer, the Trust Fund, the Trustee and the Committee
to make such payments.
17.12 The interpretation of the provisions hereof and the
administration of the Plan shall be governed, to the extent applicable, by the
Act and, to the extent the Act is not applicable, by the laws of Connecticut.
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ARTICLE XVIII
TOP-HEAVY PLAN PROVISIONS
(Sections 18.1-18.10 provide definitions for Article XVIII.)
18.1 Compensation. Compensation of an Employee which is reportable on
Form W-2 for the calendar year ending with or within the Plan Year.
18.2 Key Employee. Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the Determination Period
was an officer of the Employer with Compensation greater than 150 percent of the
dollar limitation under Section 415(c)(1)(A) of the Code, an owner (or
considered an owner under Section 318 of the Code) of one of the ten largest
interests in the Employer if such individual's Compensation exceeds the dollar
limitation under Section 415(c)(1)(A) of the Code and such individual's
ownership interest exceeds 1/2 percent, a 5-percent owner of the Employer, or a
1-percent owner of the Employer who has Compensation of more than $150,000. The
determination of who is a Key Employee will be made in accordance with Section
416(i)(1) of the Code.
18.3 Top-Heavy Plan. For any Plan Year, this Plan is top-heavy if any
of the following conditions exist:
<PAGE> 92
(a) If the Top-Heavy Ratio for this Plan exceeds 60 percent and
this Plan is not part of any Required Aggregation Group or
Permissive Aggregation Group of plans.
(b) If this Plan is a part of a Required Aggregation Group of
plans (but not part of a Permissive Aggregation Group) and the
Top-Heavy Ratio for the Required Aggregation Group of plans
exceeds 60 percent.
(c) If this Plan is a part of a Required Aggregation Group of
plans and part of a Permissive Aggregation Group of plans and
the Top-Heavy Ratio for the Permissive Aggregation Group
exceeds 60 percent.
18.4 Top-Heavy Ratio.
(a) The Top-Heavy Ratio for any Required or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator of which
is the sum of the account balances under the aggregated
defined contribution plan or plans for all Key Employees as of
the Determination Date(s) (including any part of any account
balance distributed in the Determination Period(s)), and the
Present Value of accrued benefits under the aggregated defined
benefit plan or plans for all Key Employees as of the
Determination Date(s), and the denominator of which is the sum
of all account balances (including any part of any account
balance
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distributed in the Determination Period(s)) under the
aggregated defined contribution plan or plans for all
Participants and the Present Value of accrued benefits under
the defined benefit plan or plans for all Participants as of
the Determination Date(s), all determined in accordance with
Section 416 of the Code. The accrued benefits under a defined
benefit plan in both the numerator and denominator of the Top-
Heavy Ratio are adjusted for any distribution of an accrued
benefit made in the Determination Period.
(b) For purposes of (a) above, the value of account balances and
the Present Value of accrued benefits shall be determined as
of the most recent Valuation Date that falls within or ends
with the 12-month period ending on the Determination Date,
except as provided in Section 416 of the Code and the
Regulations thereunder for the first and second plan years of
a defined benefit plan. The account balances and accrued
benefits of a Participant (1) who is not a Key Employee but
who was a Key Employee in a prior year, or (2) who has not
performed any services for any Employer maintaining the Plan
at any time during the Determination Period shall be
disregarded. The calculation of the Top-Heavy Ratio, and the
extent to which distributions, rollovers, and transfers are
taken into account shall be made in accordance with Section
416 of the Code and the Regulations thereunder. Deductible
employee contributions shall not be taken into account for
purposes of computing the Top-Heavy Ratio. When aggregating
plans, the value of account balances and accrued benefits
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<PAGE> 94
shall be calculated with reference to the Determination
Date(s) that falls within the same calendar year.
18.5 Permissive Aggregation Group - The Required Aggregation Group of
plans plus any other plan or plans of the Employer which, when considered as a
group with the Required Aggregation Group, would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
18.6 Required Aggregation Group - (1) Each qualified plan of the
Employer in which at least one Key Employee participated during the
Determination Period, and (2) any other qualified plan of the Employer which
enabled a plan described in (1) to meet the requirements of Sections 401(a)(4)
and 410 of the Code during the Determination Period.
18.7 Determination Date - For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, the last day of that year.
18.8 Determination Period - The Plan Year containing the Determination
Date and the four (4) preceding Plan Years.
18.9 Valuation Date - For purposes of computing the Top-Heavy Ratio,
the Valuation Date shall be the normal annual valuation date for the Plan.
XVIII-4
<PAGE> 95
18.10 Present Value - For purposes of computing the Top-Heavy Ratio,
any benefit shall be discounted only for mortality and interest as follows:
<TABLE>
<CAPTION>
<S> <C>
Interest Rate: 5%
Mortality Table: 1971 TPF&C Forecast Mortality Table
</TABLE>
18.11 If the Plan is or becomes a Top-Heavy Plan in any Plan Year, the
following provisions shall supersede any conflicting provision in the Plan:
(a) Minimum Allocations.
(i) Except as otherwise provided in (ii) and (iii) below,
for any Plan Year in which this Plan is a Top-Heavy
Plan, the Employer Contributions allocated on behalf
of any Participant who is not a Key Employee shall
not be less than the lesser of three percent (3%) of
such Participant's Compensation or in the case where
the Employer has no defined benefit plan which
designates this Plan to satisfy Section 401 of the
Code, the largest percentage of Employer
Contributions allocated on behalf of any Key Employee
for that year. The minimum allocation is determined
without regard to any Social Security contribution.
This minimum allocation shall be made even though,
under other Plan provisions, the Participant would
not otherwise be entitled to receive an allocation,
or
XVIII-5
<PAGE> 96
would have received a lesser allocation for the year
because of (i) the Participant's failure to complete
1,000 Hours of Service (or any equivalent provided in
the Plan).
(ii) The provision in (i) above shall not apply to any
Participant who was not employed by the Employer on
the last day of the Plan Year.
(iii) The provision in (i) above shall not apply to any
Participant to the extent the Participant is a
Participant in The Connecticut Water Company
Employees' Retirement Plan which shall provide the
minimum allocation or benefit applicable to Top-Heavy
Plans.
(b) Additional Limitation. With respect to any Plan Year for which
the Plan is determined to be a Top-Heavy Plan, paragraph
(2)(B) and (3)(B) of Section 415(e) of the Code, as
incorporated in Section 8.6 hereof, shall be applied by
substituting "1.0" for "1.25 percent" in the calculation of
the defined benefit and defined contribution fractions unless
the requirements of Section 416(h)(2) of the Code are met.
XVIII-6
<PAGE> 1
Exhibit 10.10
THE CONNECTICUT WATER COMPANY
EMPLOYEES' RETIREMENT PLAN
Amended and Restated as of
September 1, 1996
(except as otherwise indicated herein)
<PAGE> 2
AMENDMENT AND RESTATEMENT OF
THE CONNECTICUT WATER COMPANY
EMPLOYEES' RETIREMENT PLAN
THE CONNECTICUT WATER COMPANY, a corporation organized and existing
under the laws of the State of Connecticut, with its principal place of business
at Clinton, Connecticut, pursuant to ARTICLE XI, Section A of The Connecticut
Water Company Employees' Retirement Plan and Trust, dated October 23, 1957, as
amended, does hereby further amend and restate said Plan in its entirety,
effective as of September 1, 1996, except as otherwise indicated herein, as
follows:
<PAGE> 3
TABLE OF CONTENTS
ARTICLE I INTRODUCTION
ARTICLE II DEFINITIONS
ARTICLE III PARTICIPATION
ARTICLE IV NORMAL RETIREMENT
ARTICLE V EARLY RETIREMENT
ARTICLE VI POSTPONED RETIREMENT
ARTICLE VII TERMINATION OF EMPLOYMENT
AND VESTED RIGHTS
ARTICLE VIII DISABILITY
ARTICLE IX PRE-RETIREMENT DEATH
BENEFIT
ARTICLE X NORMAL AND OPTIONAL FORMS
OF RETIREMENT INCOME
ARTICLE XI FIDUCIARIES-ADMINISTRATION OF THE
PLAN
ARTICLE XII METHOD OF FINANCING
ARTICLE XIII AMENDMENT OR TERMINATION
ARTICLE XIV GENERAL PROVISIONS
ARTICLE XV TOP-HEAVY PLAN PROVISIONS
<PAGE> 4
CONNECTICUT WATER COMPANY
EMPLOYEES' RETIREMENT PLAN
ARTICLE I
INTRODUCTION
1.1 This Plan shall be known as The Connecticut Water Company Employees'
Retirement Plan.
1.2 The purpose of this Plan is to provide eligible Employees with
retirement income benefits which will provide periodic income during
the Employees' retirement years, and support their beneficiaries upon
the death of such Employees.
1.3 It is the intention of the Company that The Connecticut Water Company
Employees' Retirement Trust, which is a part of this Plan, shall meet
the requirements of the Employee Retirement Income Security Act of 1974
(ERISA) and shall be qualified and exempt under Sections 401(a) and
501(a) of the Internal Revenue Code of 1986, as amended from time to
time.
I-1
<PAGE> 5
ARTICLE II
DEFINITIONS
Unless otherwise required by the context, the terms used herein shall have the
meanings set forth in the remaining paragraphs of this Article II.
2.1 Actuarial Equivalent shall mean a benefit of equivalent current value
to the benefit which would otherwise have been provided to the
Participant, determined as described in Exhibit I attached to and made
part of this Plan.
2.2 Actuary shall mean an actuary selected by the Committee who has been
"enrolled" in accordance with ERISA.
2.3 Administrator shall mean the person or persons designated by the
Committee in accordance with Article XI as the Administrator of the
Plan within the meaning of Section 3(16) of ERISA.
2.4 Affiliated Company shall mean any company which is included within a
"controlled group of corporations" within which the Company is also
included, as determined under Section 1563 of the Code without regard
to Subsections (a)(4) and (e)(3)(C) of said Section 1563.
Notwithstanding the
II-1
<PAGE> 6
foregoing, with respect to the benefit limitation set forth in Section
4.4 of this Plan, such determination under Section 1563 shall be made
assuming the phrase "more than 50 percent" were substituted for the
phrase "at least 80 percent" each place it appears in Section
1563(a)(1).
2.5 Anniversary Date shall mean January 1 of each year commencing on or
after January 1, 1958.
2.6 Annual Earnings shall mean the regular basic earnings paid to a
Participant by his Employer during a Plan Year, excluding any other
items of compensation such as overtime earnings, bonuses, or
contributions made by the Employer to or under any form of employee
benefit program expressed on an annual basis. For hourly Employees,
Annual Earnings shall mean the average hourly straight time rate,
determined by dividing total straight time earnings by actual hours
worked, times 2080 hours. Notwithstanding the foregoing, any amounts
which would otherwise be Annual Earnings and which are deferred by a
Participant pursuant to a cash or deferred arrangement qualified under
Section 401(k) of the Code or a cafeteria plan pursuant to Section 125
of the Code shall, with the exception of Sections 4.4 and 4.5 hereof,
be regarded as Annual Earnings for purposes of this Plan.
II-2
<PAGE> 7
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the Annual Earnings of
each Employee taken into account under the Plan shall not exceed the
OBRA '93 annual compensation limit. The OBRA '93 annual compensation
limit is $150,000, as adjusted by the Commissioner of Internal Revenue
for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for
a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in
such calendar year. If a determination period consists of fewer than 12
months, the OBRA' 93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall
mean the OBRA '93 annual compensation limit set forth in this
provision.
If Annual Earnings for any prior determination period is taken into
account in determining an employee's benefits accruing in the current
Plan Year, the Annual Earnings for that prior determination period is
subject to
II-3
<PAGE> 8
the OBRA '93 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first Plan Year beginning on or
after January 1, 1994, the OBRA '93 annual compensation limit is
$150,000.
2.7 Average Earnings shall mean the average Annual Earnings earned during
the sixty consecutive months of highest Annual Earnings of a
Participant (or during his total Employment if less than 60 months).
2.8 Beneficiary shall mean any person entitled to receive benefits under
the Plan which are payable upon the death of a Participant.
2.9 Board shall mean the Board of Directors of the Company.
2.10 Code shall mean the Internal Revenue Code of 1986, as amended from time
to time.
2.11 Committee shall mean the Committee as provided for in Article XI.
2.12 Company shall mean The Connecticut Water Company, a Connecticut
corporation, or any successor thereto.
II-4
<PAGE> 9
2.13 Contingent Annuitant shall mean any person designated by a Participant
and entitled to receive benefits pursuant to the Contingent Annuitant
Option described in Section 10.3(b).
2.14 Covered Compensation shall mean for each Participant the average of the
contribution and benefit bases in effect under Section 230 of the
Social Security Act for each year in the thirty-five (35) year period
ending with the year in which the Participant attains the Social
Security Retirement Age. The determination for any Plan Year preceding
the year in which the Participant attains the Social Security
Retirement Age shall be made by assuming that there is no increase in
the bases described herein after the beginning of the Plan Year and
before the Participant attains the Social Security Retirement Age.
2.15 Credited Service shall mean the number of years of service as an
Employee, in completed twelfths of a year commencing with the
Employee's earliest date of hire and ending on the earlier of his
Termination Date or Retirement Date, subject to adjustment as follows:
(a) a full year of Credited Service shall be granted for each Plan
Year for which an Employee completes at least 1,000 Hours of
service;
II-5
<PAGE> 10
(b) no credit shall be granted for any Plan Year in which an
Employee has less than 1,000 Hours of service; except that (i)
for each Employee, pro rata credit shall be granted for the
Plan Year in which the Employee was hired if he is a
Participant and is credited with at least 2,000 Hours of
service in the next succeeding Plan Year and (ii) for each
Employee, pro rata credit shall be granted for the Plan Year
in which the earlier of the Employee's Termination Date or
Retirement Date occurs if he was a Participant and was
credited with at least 2,000 Hours of service in the
immediately preceding Plan Year; and
(c) no credit shall be granted for any period of employment during
which an Employee waived his right to participate in the Plan
pursuant to Section 3.3.
For purposes of this Section 2.15, pro rata credit shall be granted in
completed twelfths of a year, based upon a full year of 1,000 Hours of
service, but no more than one full year of Credited Service shall be
granted with respect to any Plan Year.
Effective September 1, 1996, Credited Service shall be determined by
crediting an Employee with two months of Credited Service for each
II-6
<PAGE> 11
completed full calendar month of service. Notwithstanding any provision
of this Plan to the contrary, for the period prior to September 1,
1996, an Employee's Credited Service shall equal the greater of
Credited Service calculated based on actual Hours of service and
Credited Service calculated as described in the preceding sentence.
2.16 Effective Date shall mean November 1, 1957.
2.17 Employee shall mean any person who is engaged in rendering personal
services to the Employer other than as an independent contractor.
2.18 Employer shall mean the Company and any Participating Company.
2.19 Employment shall mean the service of an Employee with an Employer or a
Predecessor Company.
2.20 ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any regulations issued pursuant
thereto.
2.21 Fiduciary shall mean any person who exercises discretionary authority
or control over the management of the Plan, assets held under the Plan
or
II-7
<PAGE> 12
disposition of Plan assets; who renders investment advice for direct or
indirect compensation as to assets held under the Plan or has any
authority or responsibility to do so; or who has any discretionary
authority or responsibility in the administration of the Plan; but only
to the extent required by ERISA.
2.22 Hour shall mean:
(a) each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by the Employer for the
performance of duties (to be credited as of the time when the
duties are performed);
(b) each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by the Employer for reasons
other than the performance of duties, such as vacation or
holidays (to be credited in accordance with Labor Department
Regulation 2530.200b-2(c) or any successor regulation); and
(c) each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by the Employer
(to be credited as of the time to which the award or agreement
pertains). The same hour shall not be credited under more than
one of the
II-8
<PAGE> 13
above clauses. In determining Hours of service for the purposes of
clause (b) above, the provisions of Labor Department Regulation
2530.200b-2(b) or any successor regulation shall be applicable. Hours
of service shall also include each hour, based on the Employee's
standard work week and work day as in effect from time to time, during
which an Employee is absent from work:
(i) temporarily, on account of illness or with the consent of the
Employer for a period not to exceed six months. In the event
of any absence approved by the Employer and exceeding six
months the Committee shall establish uniform rules for the
inclusion or exclusion of any hour as an Hour of service on
account of such absence in excess of six months; or
(ii) on account of service in the armed forces of the United
States, provided that the Employee returns to work within the
period during which his reemployment rights are guaranteed by
applicable Federal law following his or her discharge or
severance from such service.
II-9
<PAGE> 14
2.23 Participant shall mean any Employee who is or becomes eligible to
participate in the Plan pursuant to Article III and who has taken all
the steps required by said Article III to participate in the Plan.
2.24 Participating Company shall mean any Affiliated Company which is
designated by the Board as a Participating Company under the Plan and
whose designation as such has become effective and has continued in
effect. The designation shall become effective only when it shall have
been accepted by the Board of Directors of the Participating Company. A
Participating Company may revoke its acceptance of such designation at
any time, but until such acceptance has been revoked, all of the
provisions of the Plan and amendments thereto shall apply to the
Employees (and their Beneficiaries) of the Participating Company. In
the event the designation of a Participating Company as such is revoked
by the Board of Directors of the Participating Company, the Plan will
be deemed terminated only as to such Participating Company in
accordance with Article XIII.
2.25 Plan shall mean The Connecticut Water Company Employees' Retirement
Plan set forth in its entirety in this document and the Trust
Agreement, as this document and such Agreement may be amended from time
to time.
II-10
<PAGE> 15
2.26 Plan Year shall mean each calendar year.
2.27 Predecessor Company shall mean any organization which was acquired by
the Employer or an Affiliated Company.
2.28 Retirement Date shall mean a Participant's Normal, Early or Postponed
Retirement Date as defined in Articles IV through VI, whichever is
applicable.
2.29 Retirement Income shall mean a Participant's monthly benefit payable
beginning on his Retirement Date.
2.30 Social Security Retirement Age shall mean the age used as the
retirement age under Section 216(1) of the Social Security Act, except
that such Section shall be applied without regard to the age increase
factor and as if the early retirement age under Section 216(1)(2) of
the Social Security Act were 62.
2.31 Spouse shall mean the spouse to whom a Participant shall be married on
the date payment of his benefits commences or to whom a Participant
shall be married at the time of his death.
II-11
<PAGE> 16
2.32 Termination Date shall mean the date on which the Participant ceases to
be an Employee other than by reason of retirement.
2.33 Trust Agreement shall mean The Connecticut Water Company Employees'
Retirement Trust entered into between the Company and the Trustee to
carry out the purposes of the Plan, as set forth herein, which Trust
Agreement shall form a part of the Plan.
2.34 Trustee shall mean the Trustee selected by the Company in accordance
with Article XII.
2.35 Trust Fund or Fund shall mean the cash and other properties held and
administered by the Trustee in accordance with the provisions of the
Trust Agreement and the Plan.
2.36 Vesting Service shall mean the number of years of service as an
Employee, in completed twelfths of a year, commencing with the
Employee's earliest date of hire and ending on the earlier of his
Termination Date or Retirement Date, subject to adjustment as follows:
(a) a full year of Vesting Service shall be granted for each Plan
Year in which an Employee completes at least 1,000 Hours of
service;
II-12
<PAGE> 17
(b) no Vesting Service shall be granted for any Plan Year in which
an Employee has less than 1,000 Hours of service; except that
(i) for each Employee, pro rata vesting credit shall be
granted for the Plan Year in which the Employee was hired if
he is a Participant and is credited with at least 2,000 Hours
of service in the next succeeding Plan Year, and (ii) for each
Employee, pro rata vesting credit shall be granted for the
Plan Year in which the earlier of the Employee's Termination
Date or Retirement Date occurs if he was a Participant and was
credited with at least 2,000 Hours of service in the
immediately preceding Plan Year.
(c) no Vesting Service shall be granted for any period of
employment during which an Employee waived his right to
participate in the Plan pursuant to Section 3.3.
For purposes of this Section 2.36, pro rata vesting credit shall be
granted in completed twelfths of a year, based upon a full year of
2,000 Hours of service, but no more than one full year of Vesting
Service shall be granted with respect to any Plan Year.
Effective September 1, 1996, Vesting Service shall be determined by
crediting an Employee with two months of Vesting Service for each
II-13
<PAGE> 18
completed full calendar month of service. Notwithstanding any provision
of this Plan to the contrary, for the period prior to September 1,
1996, an Employee's Vesting Service shall equal the greater of Vesting
Service calculated based on actual Hours of service and Vesting Service
calculated as described in the preceding sentence.
Masculine pronouns used herein shall refer to men or women or both and nouns and
pronouns when stated in the singular shall include the plural and when stated in
the plural shall include the singular, wherever appropriate.
II-14
<PAGE> 19
ARTICLE III
PARTICIPATION
3.1 Former Employees. Any person who either retired or terminated
Employment prior to June 3, 1975 shall be entitled to benefits in
accordance with the Plan as in effect on his Retirement Date or
Termination Date, whichever is applicable.
3.2 Current and Future Employees. Except as provided for in Section 3.3,
each Employee shall participate in the Plan, as described herein,
provided that he has completed 1,000 Hours of service within the
consecutive 12-month period beginning on his date of hire. Any Employee
who had at least one Hour of service on or after January 1, 1988, who
fulfilled the 1,000 Hours of service requirement as of January 1, 1988,
but who has been excluded from participation in the Plan because of the
prior provisions of the Plan which excluded Employees hired at or after
age 60, shall retroactively participate in the Plan as of January 1,
1988. Employees affected by this rule of retroactive Plan participation
shall have their years of service commencing January 1, 1988 counted
toward their Credited Service. In the event an Employee fails to
complete 1,000 Hours of service as described above, he shall
participate in the Plan after completing 1,000 Hours of service in any
Plan Year beginning after his date of hire. If a
III-1
<PAGE> 20
Participant terminates his employment but is rehired by the Employer,
he shall again be eligible to participate in the Plan as of his date of
rehire.
3.3 Waiver of Participation. Any Employee may waive his right to become a
Participant under this Plan by electing such waiver in writing on a
form supplied by the Administrator. Such Employee may, also in writing,
withdraw such waiver and, subject to Section 3.2, be eligible to
participate in this Plan.
III-2
<PAGE> 21
ARTICLE IV
NORMAL RETIREMENT
4.1 Normal Retirement Date. The Normal Retirement Date of a Participant
shall be the first day of the month coinciding with or next following
his 65th birthday, or the fifth anniversary of his entry into the Plan,
if later, but in no event later than the first day of the month
coinciding with or next following his 70th birthday.
4.2 Basic Retirement Income. The monthly Basic Retirement Income with
payments commencing at Normal Retirement Date under this Plan is equal
to 1/12 of the sum of (a) plus (b) where:
(a) equals the sum of 1.2% of Average Earnings up to Covered
Compensation and 1.5% of Average Earnings in excess of Covered
Compensation multiplied times years of Credited Service prior
to January 1, 1981, and
(b) equals the sum of 1.45% of Average Earnings up to Covered
Compensation and 1.75% of Average Earnings in excess of
Covered Compensation times years of Credited Service after
December 31, 1980.
IV-1
<PAGE> 22
Notwithstanding the foregoing, the minimum Basic Retirement Income with
payments commencing at Normal Retirement Date under this Plan is equal
to 1/12 of $1,000, except that for an Employee who has less than 10
years of Credited Service, the $1,000 shall be reduced by the ratio of
Credited Service to 10 years.
Unless otherwise provided under the Plan, the accrued benefit of each "section
401(a)(17) employee" under this Plan will be the greater of the accrued benefit
determined for the employee under 1 or 2 below:
(1) the employee's accrued benefit determined with respect to the
benefit formula applicable for the Plan Year beginning on or
after January 1, 1994, as applied to the employee's total
years of Service taken into account under the Plan for the
purposes of benefit accruals, or
(2) the sum of:
(a) the employee's accrued benefit as of the last day of
the last Plan Year beginning before January 1, 1994,
frozen in accordance with Section 1.401(a)(4)-13 of
the Treasury Regulations, and
IV-2
<PAGE> 23
(b) the employee's accrued benefit determined under the
benefit formula applicable for the Plan Year
beginning on or after January 1, 1994, as applied to
the employee's Years of Service credited to the
employee for Plan Years beginning on or after January
1, 1994, for purposes of benefit accruals.
A "section 401(a)(17) employee" means an Employee whose current accrued
benefit as of a date on or after the first day of the first Plan Year
beginning on or after January 1, 1994, is based on Annual Earnings for
a year beginning prior to the first day of the first Plan Year
beginning on or after January 1, 1994, that exceeded $150,000.
4.3 Normal Retirement Income. The Retirement Income of a Participant who
retires on his Normal Retirement Date shall be determined as follows:
(a) If the Participant does not have a Spouse and has made no
election as to the form of payment of pension benefits, then
his Retirement Income shall be equal to his Basic Retirement
Income as determined under Section 4.2 and shall be paid in
the form of a Straight Life Annuity.
IV-3
<PAGE> 24
(b) If the Participant has a Spouse and has not made a qualified
waiver of the 50% Contingent Annuitant Option described in
Subsection 10.3(b) with his Spouse as Contingent Annuitant,
his Retirement Income payable as of the date payment of his
Retirement Income commences shall equal the product of (i) and
(ii) where:
(i) equals the Basic Retirement Income as determined
under Section 4.2, and
(ii) equals the Actuarial Equivalent factor for such
Contingent Annuitant Option, and shall be paid in the
manner described under such optional form.
(c) If the Participant elects an optional form of payment under
Article X, his Retirement Income payable as of the date
payment of his Retirement Income commences shall equal the
product of (i) and (ii) where:
(i) equals his Basic Retirement Income as determined
under Section 4.2, and
IV-4
<PAGE> 25
(ii) equals the Actuarial Equivalent factor for the
particular optional form elected as of the date
payment of his Retirement Income commences, and shall
be paid in the manner described under such optional
form.
4.4 Maximum Benefit. Except as set forth below, in no event shall the Basic
Retirement Income of a Participant under the Plan exceed one twelfth of
the lesser of (i) $90,000, or (ii) 100% of the Participant's Average
Compensation for the three (3) consecutive Plan Years during which the
Employee was an active Participant and received the greatest
Compensation from the Employer. For the purposes of this Section,
Compensation shall mean all compensation of the Participant from the
Employer. The foregoing maximum benefit shall be subject to adjustment
as follows:
(a) The $90,000 amount referred to in (i) shall be subject to an
annual cost of living adjustment as provided by Treasury
Regulations in effect from time to time under Section 415 of
the Code and shall be increased to the extent necessary to
equal the Participant's current accrued benefit (as defined in
Section 235(g)(4) of the Tax Equity and Fiscal Responsibility
Act of 1982) as of September 30, 1983;
IV-5
<PAGE> 26
(b) In the case of a Participant who has less than ten (10) years
of Plan participation, the maximum benefit shall be reduced by
multiplying the maximum benefit stated above by a fraction the
numerator of which is the number of years of Plan
participation (or parts thereof) with the Employer and the
denominator of which is 10;
(c) In the event that the Participant's retirement benefits
commence on or after the Participant has attained age 62 but
prior to his Social Security Retirement Age, the maximum
dollar limitation referred to in (i) shall be reduced in such
manner as the Secretary of the Treasury shall prescribe which
is consistent with the reduction for old-age insurance
benefits commencing before the Social Security Retirement Age
under the Social Security Act. In the event that the
Participant's retirement benefits commence prior to age 62,
the maximum dollar limitation is the lesser of the equivalent
amount computed using the interest rate and mortality table in
effect for lump sum distributions made on or after September
1, 1996, as specified in the definition of Actuarial
Equivalent and the amount computed using an interest rate of
five percent (5%) and the mortality table prescribed by the
Secretary of the Treasury pursuant to Section
417(e)(3)(A)(ii)(I) of the Code;
IV-6
<PAGE> 27
(d) If the Participant's retirement benefits commence subsequent
to his Social Security Retirement Age, the maximum dollar
limitation referred to in (i) shall be increased so that it is
the lesser of the Actuarial Equivalent of the maximum dollar
limitation referred to above and the amount computed using an
interest rate of five percent (5%) and the mortality table
prescribed by the Secretary of the Treasury pursuant to
Section 417(e)(3)(A)(ii)(I) of the Code;
(e) Any benefit payable in a form other than a straight life
annuity must be adjusted to an actuarially equivalent straight
life annuity before applying the limitations of this Section
4.4. Such equivalent annual benefit shall be the greater of
the equivalent annual benefit computed using the interest rate
and mortality table in effect for lump sum distributions made
on or after September 1, 1996, as specified in the definition
of Actuarial Equivalent or an interest rate of five percent
(5%) and the mortality table prescribed by the Secretary of
the Treasury pursuant to Section 417(e)(3)(A)(ii)(I) of the
Code. The annual benefit does not include any benefits
attributable to employee contributions or rollover
contributions, or the assets transferred from a qualified plan
that was not maintained by the Employer. No actuarial
adjustment to the benefit is required for (1) the value of a
qualified joint and survivor annuity, (2) the
IV-7
<PAGE> 28
value of benefits that are not directly related to retirement benefits
(such as qualified disability benefits, pre-retirement death benefits,
and post-retirement medical benefits), and (3) the value of
post-retirement cost-of-living increases made in accordance with the
Federal Income Tax Regulations.
Notwithstanding the foregoing, the interest rate and mortality table
used to determine actuarial equivalence of lump sum distributions for
purposes of Section 415 of the Code shall be the interest rate and
mortality table in effect for lump sum distributions made on or after
September 1, 1996, as specified in the definition of Actuarial
Equivalent.
(f) Notwithstanding anything in this Article to the contrary, the maximum
benefit for any individual who is a Participant as of January 1, 1987
shall not be less than the Participant's accrued benefit under the Plan
expressed as an annual benefit within the meaning of Code Section
415(b)(2) and determined as if the Participant had separated from
service as of December 31, 1986. For purposes of this clause, in
determining the amount of such Participant's accrued benefit, the
following shall be disregarded: (1) any change in the terms and
conditions of the Plan after May 5,
IV-8
<PAGE> 29
1986; and (2) any cost of living adjustment occurring
after May 5, 1986.
Notwithstanding the foregoing, so long as the Employer does
not maintain a defined contribution plan in which the
Participant participates, the maximum benefit limitation
stated above shall not be deemed to be exceeded if the
retirement benefits payable with respect to a Participant
hereunder (and under any other defined benefit plan which the
Employer may establish) do not exceed $10,000 for the Plan
Year or for any prior Plan Year; provided that in the case of
a Participant who has less than ten (10) years of Plan
participation, the $10,000 figure shall be adjusted in the
manner provided in (b) above.
4.5 Additional Limitation-Members of Defined Contribution Plan. In
the case of any Participant who is entitled to benefits due to
Employer contributions under any defined contribution plan
maintained by the Employer, in addition to the limitations
under Section 4.4 hereof, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any
Plan Year may not exceed 1.0. The "defined benefit plan
fraction" for any Plan Year is a fraction (a) the numerator of
which is the projected annual benefit of the Participant under
this Plan (determined as of the close of the Plan Year), and
(b) the denominator of which is the lesser of: (1) the
IV-9
<PAGE> 30
product of 1.25 multiplied by the maximum dollar limitation in effect
under Section 415(b)(1)(A) of the Code for such Plan Year, or (2) the
product of 1.4 multiplied by the amount which may be taken into account
under Section 415(b)(1)(B) of the Code for such Participant for such
Plan Year. The "defined contribution plan fraction" for any Plan Year
is a fraction (a) the numerator of which is the sum of the annual
additions to the Participant's account as of the close of the Plan
Year, and (b) the denominator of which is the sum of the lesser of the
following amounts determined for such year and for each prior year of
service with the Employer: (1) the product of 1.25 multiplied by the
maximum dollar limitation in effect under Section 415(c)(1)(A) of the
Code for such Plan Year (determined without regard to Section 415(c)(6)
of the Code), or (2) the product of 1.4 multiplied by the amount which
may be taken into account under section 415(c)(1)(B) of the Code for
such Participant for such Plan Year; provided, however, that the
foregoing denominator may instead, at the election of the
Administrator, be determined in accordance with the special transition
rule set forth in Section 415(e)(6) of the Code, and further provided
that the defined contribution plan fraction may be reduced in
accordance with Section 235(g)(3) of the Tax Equity and Fiscal
Responsibility Act of 1982. In the event that the said projected annual
benefit of a Participant under this Plan should cause the aforesaid
limitation to be exceeded, the Administrator shall have the right to
IV-10
<PAGE> 31
accomplish the aforementioned compliance by reducing or limiting either
benefits under this Plan in the manner set forth above or annual
additions under any defined contribution plan in the manner set forth
in such defined contribution plan, and may vary the extent to which the
reduction or limitation will be applied to either, provided that any
such reduction or limitation shall be made in a nondiscriminatory
manner.
IV-11
<PAGE> 32
ARTICLE V
EARLY RETIREMENT
5.1 Early Retirement Date. A Participant may retire on the first of any
month between his 55th and 65th birthdays, provided he has then
completed at least 10 years of Credited Service, any such date being
his Early Retirement Date. Any such Participant may elect to receive
his Retirement Income commencing on his Early Retirement Date in a
reduced amount as set forth in Section 5.2 or to receive his Retirement
Income commencing on his Normal Retirement Date as determined under
Section 4.3 based on his Average Earnings and Credited Service as of
his Early Retirement Date.
5.2 Early Commencement. A Participant who retires in accordance with the
provisions of Section 5.1 and elects to have payment of his Retirement
Income commence on his Early Retirement Date shall be entitled to
receive a reduced Annual Retirement Income in the form stated in
Section 4.3. The amount of such reduced Retirement Income shall equal
(a) times (b) where:
(a) equals such Participant's Normal Retirement Income as
determined under Section 4.3 based on his Average Earnings and
his Credited
V-1
<PAGE> 33
Service as of his Early Retirement Date and with the Actuarial
Equivalent factors described in Subsections 4.3(b) and 4.3(c)
being determined as of his Early Retirement Date; and
(b) equals the appropriate percentage factor from the following
table:
<TABLE>
<CAPTION>
Complete Years by Which
Early Retirement Date Early Retirement
Precedes Age 65 Percentage Factors
--------------------- ------------------
<S> <C>
10 .72
9 .76
8 .80
7 .84
6 .88
5 .92
4 .96
3 1.00
2 1.00
1 1.00
0 1.00
</TABLE>
5.3 Delayed Commencement of Pension. A Participant who retires in
accordance with the provisions of Section 5.1 but elects to have
payment of his Retirement Income commence at a later date, may defer
such commencement of payment to the first of any subsequent month which
is not later than his Normal Retirement Date. Notice of the selected
payment commencement date must be given to the Administrator at least
30 days prior to such date. The amount of pension payable to the
V-2
<PAGE> 34
Participant shall be determined in accordance with Section 5.2, except
that the selected payment commencement date shall be considered the
Participant's Early Retirement Date for purposes of this benefit
determination.
V-3
<PAGE> 35
ARTICLE VI
POSTPONED RETIREMENT
6.1 Delayed Retirement. Subject to the provisions of Article XIV, Section
14.1, any Employee may remain in the Company's employment after his
Normal Retirement Date.
6.2 Commencement of Pension. A Participant whose retirement is postponed
beyond his Normal Retirement Date shall begin receiving his monthly
Retirement Income on the first day of the month coinciding with or next
following his actual retirement. The amount and form of the
Participant's Retirement Income payable monthly commencing on his
Postponed Retirement Date shall be the same as the Participant's
Retirement Income that would have been had he retired on his Normal
Retirement Date except the Basic Retirement Income shall be determined
based on Credited Service and Average Earnings of the Participant as of
his Postponed Retirement Date. The Retirement Income shall be offset by
the Actuarial Equivalent of the total benefit distributions made to the
Participant by the close of the Plan Year pursuant to Section 14.9. If
the Participant should die after Normal Retirement Date, but before his
actual
VI-1
<PAGE> 36
retirement date, it shall be presumed that the Participant had retired
as of the first day of the month coinciding with or next preceding his
date of death.
VI-2
<PAGE> 37
ARTICLE VII
TERMINATION OF EMPLOYMENT AND VESTED RIGHTS
7.1 Vesting Requirements. A Participant whose Employment is terminated
other than by retirement, disability or death, and prior to having
completed 5 years of Vesting Service shall not be entitled to any
benefit under this Plan. A Participant whose Employment is terminated
after having completed at least 5 years of Vesting Service shall be
entitled to receive a Retirement Income equal to his Vested Benefit
determined as of his Termination Date as set forth in Section 7.2.
A participant who terminates Employment with the Employer and has no
Vested Benefit under this Plan shall be deemed to have received the
full value of his Vested Benefit ($0) upon such termination of
Employment.
7.2 Vested Benefit. A Participant's Vested Benefit shall be the Retirement
Income payable at Normal Retirement Date in the form and amount as set
forth in Section 4.3 based on his Average Earnings and Credited Service
as of his Termination Date, multiplied by the applicable percentage
specified below:
VII-1
<PAGE> 38
<TABLE>
<CAPTION>
If Years of Vesting Then Vested
Service Are Percentage Is
------------------- -------------
<S> <C>
Less than 5 0%
5 or more 100%
</TABLE>
Notwithstanding the foregoing, a Participant shall be 100% vested upon
the later of his 65th birthday or the fifth anniversary of his entry
into the Plan.
7.3 Commencement of Payments. Retirement Income payments in the form stated
in Section 4.3 shall commence at the terminated Participant's Normal
Retirement Date unless the Participant elects in writing on a form
supplied by the Administrator to have reduced payments commence at an
earlier date provided that such earlier date shall not be prior to the
first day of the calendar month coinciding with or next following the
terminated Participant's attainment of age 55. Such written election
must be received by the Administrator at least six months prior to the
commencement of benefits.
If a terminated Participant elects to have payments commence prior to
his Normal Retirement Date, the terminated Participant's Retirement
Income shall be reduced by .5% for each complete month by which the
date payments commence precedes his Normal Retirement Date.
VII-2
<PAGE> 39
ARTICLE VIII
DISABILITY
8.1 Eligibility and Disability Determination. If a medical examiner
selected by the Employer certifies that an Employee who has completed 5
years of Credited Service is mentally or physically disabled for
further performance of duty and that such disability is likely to be
permanent, such that the Employee is considered eligible for a full
disability pension under the provisions of the Social Security Act,
this Employee may be terminated and he shall be entitled to a monthly
benefit in amount and form described below.
8.2 Disability Benefit. The monthly income of an Employee who becomes
eligible for a monthly benefit in accordance with Section 8.1 shall
equal the Basic Retirement Income as determined in Section 4.2 based on
his Average Earnings and his Credited Service as of his Termination
Date reduced by the appropriate Early Retirement Percentage Factor from
Subsection 5.2(b) (with a Percentage Factor of .72 if his Termination
Date precedes age 65 by more than 9 complete years).
8.3 Form and Commencement of Payments. An Employee who becomes eligible for
a monthly benefit in accordance with Section 8.1 shall receive
VIII-1
<PAGE> 40
such benefit in the form stated in Section 4.3 commencing on the first
day of the month next following his Termination Date; provided,
however, that no payments shall be made under this Article VIII while
the Employee is receiving disability benefits from the Employer's
long-term disability plan.
8.4 Recovery. A Participant whose Employment is terminated in accordance
with Section 8.1 and subsequently recovers, shall be considered an
active Employee with Credited Service both before and after termination
of Employment aggregated for purposes of determining all benefits under
this Plan.
VIII-2
<PAGE> 41
ARTICLE IX
PRE-RETIREMENT DEATH BENEFIT
9.1 Death While Employed and Eligible for Early Retirement. If a
Participant dies while he is actively employed and eligible for Early
Retirement as provided in Section 5.1 but before the earlier of his
actual date of retirement or Normal Retirement Date, his surviving
Spouse (if designated or deemed his Beneficiary in accordance with
Section 9.4), if any, shall receive monthly benefits equal to 50% of
the Retirement Income the Participant would have received under Section
5.2 had he retired early as of the first day of the month coinciding
with or next preceding his date of death and elected the 50% Contingent
Annuitant Option under Subsection 10.3(b) with his Beneficiary as
Contingent Annuitant. Payment shall commence on the first day of the
calendar month following the Participant's death and shall continue
each month thereafter through the month in which the Beneficiary's
death occurs. If a Participant dies while he is actively employed and
eligible for Early Retirement as provided in Section 5.1 but before the
earlier of his actual date of retirement or Normal Retirement Date,
with no surviving Spouse designated or deemed his Beneficiary, his
Beneficiary (as determined in accordance with Section 9.4), if any,
shall receive a death benefit. This death benefit shall be paid in the
form of a lump sum which shall be the Actuarial Equivalent of the
IX-1
<PAGE> 42
Retirement Income which the Beneficiary would have received had the
Participant retired on the date of his death with the optional form of
benefit under Subsection 10.3(d) (Five Years Certain and Life Option)
in effect.
9.2 Death After Early Retirement But Before Commencement of Pension. If a
Participant retires on his Early Retirement Date but dies before
payment of his Retirement Income commences, his surviving Spouse (if
designated or deemed his Beneficiary in accordance with Section 9.4),
if any, shall receive monthly benefits equal to 50% of the Retirement
Income the Participant would have received under Section 5.3 had he
elected to have payment of his Retirement Income commence as of the
first day of the month coinciding with or next preceding his date of
death and elected the 50% Contingent Annuitant Option under Subsection
10.3(b) with his Spouse as Contingent Annuitant.
If a Participant retires on his Early Retirement Date but dies before
payment of his Retirement Income commences with no surviving Spouse
designated or deemed his Beneficiary, his Beneficiary (as determined in
accordance with Section 9.4), if any, shall receive a death benefit.
This death benefit shall be paid in the form of a lump sum which shall
be the Actuarial Equivalent of the Retirement Income which the
Beneficiary
IX-2
<PAGE> 43
would have received had the Participant retired on the date of his
death with the optional form of benefit under Subsection 10.3(d) (Five
Years Certain and Life Option) in effect.
9.3 Death Before Retirement.
(a) Unless waived within the Waiver Period pursuant to a qualified
waiver as described in Section 10.2, if a Participant who is
no longer actively employed dies after attaining the Earliest
Retirement Age, the Participant's surviving Spouse (if any)
shall receive the same benefit that would be payable if the
Participant had retired with the 50% Contingent Annuitant
Option as described in Subsection 10.3(b) on the day before
the Participant's date of death.
(b) Unless waived within the Waiver Period pursuant to a qualified
waiver as described in Section 10.2, if a Participant dies on
or before attaining the Earliest Retirement Age, the
Participant's surviving Spouse (if any) shall receive the same
benefit that would be payable if the Participant had:
(i) separated from service on the date of death, or date
of actual separation from service, if earlier,
IX-3
<PAGE> 44
(ii) survived to the Earliest Retirement Age,
(iii) retired with an immediate 50% Contingent Annuitant
Option as described in Subsection 10.3(b) at the
Earliest Retirement Age, and
(iv) died on the day after the Earliest Retirement Age;
provided, however, that in calculating the benefit of
a surviving Spouse of a Participant who dies while
actively employed, the Retirement Income to which the
Participant would have been entitled at his Normal
Retirement Date shall be reduced in accordance with
the formula described in Section 5.2, rather than
that described in Section 7.3.
(c) For purposes of this Section 9.3, a surviving Spouse shall
begin to receive payments at the later of (i) the date of the
Participant's death, or (ii) the Earliest Retirement Age,
unless such surviving Spouse elects a later date.
(d) For purposes of this Section 9.3, the following definitions
shall apply:
IX-4
<PAGE> 45
(i) Waiver Period: The period which begins on the date
the Participant separates from service and ends on
the date of the Participant's death.
(ii) Earliest Retirement Age: The earliest date on which,
under the Plan, the Participant could have elected to
receive retirement benefits.
(e) For the period during which a Participant who is no longer
actively employed has not waived the pre-retirement survivor
annuity described in this Section 9.3, the Participant's
Retirement Income shall be reduced as follows:
<TABLE>
<CAPTION>
Reduction in Retirement Income
Attained Age for each Month of Coverage
------------ --------------------------
<S> <C>
Under 45 1/120%
45-54 1/60%
55 and over 1/24%
</TABLE>
9.4 Designation of Beneficiary. The Administrator shall provide to each
actively employed Participant at least 90 days before the date on which
he meets the age and service requirements for early retirement, a form
on which he may designate his Beneficiary. The person whom a
Participant
IX-5
<PAGE> 46
designates as his Beneficiary must be his Spouse, unless a qualified
waiver of the qualified pre-retirement survivor annuity has been made
in accordance with Section 10.2. If such a qualified waiver has been
made, the Participant's Beneficiary for this purpose must be one of the
following: the Participant's spouse, father, mother, sister, brother,
son or daughter. The beneficiary may also be a legal ward living with
and dependent on the Participant at the time of his death. If the
Participant dies after satisfying the requirements for early
retirement, and has not designated a Beneficiary, his Beneficiary shall
be his Spouse, if living; otherwise, he shall have no Beneficiary and
no payments shall be made pursuant to this Article IX.
IX-6
<PAGE> 47
ARTICLE X
NORMAL AND OPTIONAL FORMS OF RETIREMENT INCOME
10.1 Normal Form of Payments. If a Participant does not make a timely
election of one of the optional forms of payment described below, then
his Retirement Income shall be payable in the form and amount under
Section 4.3, if he retires as of his Normal or Postponed Retirement
Date; under Section 7.3, if he terminates his employment other than by
reason of death, disability or retirement; and under Section 8.3, if he
is disabled.
10.2 Election of Optional Form of Payment. A Participant whose Retirement
Income is otherwise payable under the Normal Form may elect in writing
to the Employer to receive his benefit under one of the optional forms
set forth in Section 10.3. The Administrator shall provide to each
active Participant and each terminated Participant with a vested
interest whose benefits have not yet commenced, by personal delivery or
mail, at least 90 days before the date on which he meets the age and
service requirements for early retirement, the following information in
written nontechnical language: (1) a general description of the Normal
Form and optional forms of payment and the availability of the election
not to receive the Normal Form; (2) a general explanation of the
relative financial effect of an election not to receive the Normal
Form; (3) the right to make, and the
X-1
<PAGE> 48
effect of, a revocation of a previous election not to receive the
Normal Form; (4) the rights of a Participant's Spouse; and (5)
notification of the availability upon written request of a written
explanation of the financial effect (in dollars per annuity payment)
upon the particular Participant's annuity of an election not to take
the Normal Form. The Administrator shall furnish this additional
information to a Participant by personal delivery or first-class mail
within 30 days from the date of the Participant's written request. An
election of an optional form of payment pursuant to Section 10.3 shall
not be effective unless it is filed with the Administrator within the
90-day period before pension benefit payments are to commence.
Notwithstanding the foregoing, if a Participant requests the additional
information described in clause (3) above, he shall have the right to
elect an optional form of payment for a period of at least 90 days
following the day this information is personally delivered or mailed
and the commencement of his benefits may be delayed until the form of
payment is determined.
Notwithstanding the foregoing, no election of an optional form of
benefit or election to waive the pre-retirement survivor annuity by a
married Participant will be effective without a qualified waiver. Such
waiver must be in writing and may only be made with the written consent
of the Participant's Spouse. The Spouse's consent to a waiver must be
witnessed
X-2
<PAGE> 49
by the Administrator or his representative or by a notary public.
Notwithstanding the foregoing requirement of spousal consent, if the
Participant establishes to the satisfaction of the Administrator that
such written consent may not be obtained because there is no Spouse or
the Spouse cannot be located, a waiver will be deemed to be a qualified
waiver. Any consent necessary under this provision will be valid only
with respect to the Spouse who signs the consent, or in the event of a
deemed qualified waiver, the designated Spouse, if any. Additionally, a
revocation of a prior qualified waiver may be made by a Participant
without the consent of the Spouse at any time before the date payment
of benefits commences. The number of revocations shall not be limited.
10.3 Optional Forms of Payment. The optional forms of benefit payment
available shall be the Actuarial Equivalent of the Retirement Income
otherwise payable to the Participant.
(a) Straight Life Annuity Option - Retirement Income payable
monthly during the Participant's lifetime, with no further
payments on his behalf after his death. If this option is
elected, the Participant's Retirement Income shall equal his
Basic Retirement Income without actuarial adjustment except as
provided for election of early commencement of payments, as
applicable.
X-3
<PAGE> 50
(b) Contingent Annuitant Option - Retirement Income payable
monthly during the Participant's lifetime with the provision
that after his death such Retirement Income shall be continued
to the Contingent Annuitant, in the same or a lesser amount,
as specified by the Participant, during the life of such
Contingent Annuitant. The lesser percentage which may be
specified by a Participant shall be either 75% or 50% of the
Participant's Retirement Income.
Except as provided for in Article IX, if a Participant shall
elect the Contingent Annuitant Option and he shall die before
the earlier of his Early Retirement Date, or Normal Retirement
Date, whichever is applicable, his Contingent Annuitant shall
not be entitled to any Retirement Income under this Plan.
If a Participant shall elect the Contingent Annuitant Option
and his Contingent Annuitant shall die before the Participant
does, but such death occurs after the retirement of the
Participant, the Participant shall continue to receive the
Retirement Income payable to him prior to the death of his
Contingent Annuitant.
(c) Ten Years Certain and Life Option - Retirement Income payable
monthly during the Participant's lifetime and in the event of
the
X-4
<PAGE> 51
Participant's death within a period of 10 years after benefits
hereunder have commenced, the Actuarial Equivalent of the
value of the Retirement Income remaining to be paid during the
aforementioned 10-year period shall be paid to the
Participant's Beneficiary in a lump sum within 5 years of the
date of the Participant's death.
Except as provided for in Article IX, if a Participant shall
elect the Ten Years Certain and Life Option and he shall die
before the earlier of his Early Retirement Date, or Normal
Retirement Date, whichever is applicable, his Beneficiary
shall not be entitled to any Retirement Income under this
Plan.
If a Participant shall elect the Ten Years Certain and Life
Option and his Beneficiary shall die before the Participant
does, but such death occurs after the retirement of the
Participant, the Participant shall continue to receive the
Retirement Income payable to him prior to the death of his
Beneficiary and shall designate a new Beneficiary.
(d) Five Years Certain and Life Option - Retirement Income payable
monthly during the Participant's lifetime and in the event of
the
X-5
<PAGE> 52
Participant's death within a period of 5 years after benefits
hereunder have commenced, the Actuarial Equivalent of the
value of the Retirement Income remaining to be paid during the
aforementioned 5-year period shall be paid to the
Participant's Beneficiary in a lump sum within 5 years of the
date of the Participant's death.
Except as provided for in Article IX, if a Participant shall
elect the Five Years Certain and Life Option and he shall die
before the earlier of his Early Retirement Date, or Normal
Retirement Date, whichever is applicable, his Beneficiary
shall not be entitled to any Retirement Income under this
Plan.
If a Participant shall elect the Five Years Certain and Life
Option and his Beneficiary shall die before the Participant
does, but such death occurs after the retirement of the
Participant, the Participant shall continue to receive the
Retirement Income payable to him prior to the death of his
Beneficiary and shall designate a new Beneficiary.
For purposes of the optional forms of payment set forth in Subsections
(b), (c) and (d) hereof, the Participant's Beneficiary shall be
designated on a
X-6
<PAGE> 53
form provided by the Administrator. Any person may be designated a
Beneficiary for these purposes; provided, however, that if no other
Beneficiary shall have been effectively designated, the executor or
administrator of the Participant's estate shall be deemed his
Beneficiary.
10.4 General Limitation. Anything in the foregoing to the contrary
notwithstanding, no method of distribution may be made under this
Article which would result in the Actuarial Equivalent of a Contingent
Annuitant's or Beneficiary's interest equaling or exceeding 50% of the
Actuarial Equivalent of the Participant's full retirement benefit, both
equivalents being determined as of the Participant's actual Retirement
Date.
10.5 Lump Sum Distributions. Anything in the Plan to the contrary
notwithstanding, the Committee shall pay benefits to a Participant who
retires or otherwise terminates Employment with the Employer in a lump
sum that is the Actuarial Equivalent of a Participant's Retirement
Income; provided, however, that the lump sum value of such Retirement
Income may not exceed (or have ever exceeded) $3,500 (or such greater
amount as may be permitted by law or regulation at the time of
payment). A Participant who receives a lump sum distribution pursuant
to this Section 10.5 shall forfeit all Credited Service accrued prior
to such distribution, and such forfeited Credited Service shall be
disregarded if such Participant is
X-7
<PAGE> 54
subsequently reemployed by the Employer unless the Participant repays
the entire amount of the distribution, plus interest compounded
annually from the date of the distribution at the rate of 5 percent per
year, prior to the earlier of (1) the expiration of the fifth
consecutive Plan Year in which the Participant completed 500 or fewer
Hours of service or (2) the fifth anniversary of the date of the
Participant's reemployment.
10.6 Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the
manner prescribed by the Administrator, to have any portion of
an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct
rollover.
(b) Definitions.
(1) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any
portion of the balance to the credit of the
distributee, except that an eligible rollover
distribution does not include: any distribution that
is one of
X-8
<PAGE> 55
a series of substantially equal periodic payments
(not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for
a specified period of ten years or more; any
distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in
gross income (determined without regard to the
exclusion for net unrealized appreciation with
respect to employer securities).
(2) Eligible retirement plan: An eligible retirement plan
is an individual retirement account described in
Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code,
or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an
eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
X-9
<PAGE> 56
(3) Distributee: A distributee includes an Employee or
former Employee. In addition, the Employee's or
former Employee's surviving Spouse and the Employee's
or former Employee's Spouse or former Spouse who is
the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of
the Spouse or former Spouse.
(4) Direct rollover: A direct rollover is a payment by
the Plan to the eligible retirement plan specified by
the distributee.
X-10
<PAGE> 57
ARTICLE XI
FIDUCIARIES -
ADMINISTRATION OF THE PLAN
11.1 Appointment of Named Fiduciary. The Committee is hereby designated as
the named Fiduciary of the Plan, within the meaning of Section
402(a)(2) of ERISA.
11.2 Authority of Named Fiduciary. Subject to the provisions of Section
11.4, the Committee shall have the authority to control and manage the
operation and administration of the Plan in accordance with the terms
hereof.
11.3 Discharge of Duties - Fiduciaries. Any Fiduciary with respect to the
Plan shall discharge its duties solely in the interest of the
Participants and Beneficiaries for the exclusive purpose of providing
benefits to Participants and Beneficiaries and defraying reasonable
expenses of administering the Plan. In addition any Fiduciary with
respect to the Plan shall discharge its duties with the care, skill,
prudence and vigilance under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with
like aims.
XI-1
<PAGE> 58
11.4 Delegation of Duties. The Committee shall have authority and discretion
to designate or appoint in writing (i) persons to carry out specified
fiduciary responsibilities, other than Trustee responsibilities, to
manage and control the assets of the Plan, and (ii) investment advisors
and managers to manage (including the power to acquire and dispose of)
any assets of the Plan. Any such person shall serve at the pleasure of
the Committee and may resign by delivering a written notice to the
Committee. Any delegation of duties shall be made and acknowledged in
writing and shall clearly state the powers and duties so delegated.
11.5 Appointment of Committee. The Board shall appoint the Committee which
shall consist of not less than three members, who shall serve at the
pleasure of the Board. The members of the Committee shall elect a
chairman and a secretary, the latter of whom may, but need not be, a
member of the Committee.
11.6 Meetings. The Committee shall hold meetings upon such notice, and at
such place or places, and at such intervals as it may from time to time
determine.
11.7 Quorum. A majority of the members of the Committee at any time in
office shall constitute a quorum for the transaction of business. All
XI-2
<PAGE> 59
resolutions or other actions taken by the Committee shall be by vote of
a majority of those present at a meeting of the Committee; or without a
meeting by instrument in writing signed by a majority of the members of
the Committee.
11.8 Expenses. The reasonable expenses incident to the operation of the
Plan, including premiums for termination insurance payable to the
Pension Benefit Guaranty Corporation, the compensation of the Trustee,
Actuary, attorney, advisors, Fiduciaries, and such other technical and
clerical assistance as may be required, shall be paid out of the Fund,
but the Employer in its discretion may elect at any time to pay part or
all thereof directly, and any such election shall not bind the Employer
as to its right to elect with respect to the same or other expenses at
any other time to have such compensation paid from the Fund.
11.9 Powers and Duties of the Committee. In addition to any implied powers
and duties which may be needed to carry out the provisions of the Plan,
the Committee, subject to the provisions of Section 11.4, shall have
the following specific powers and duties.
(a) To make and enforce such rules and regulations as it shall
deem necessary or proper for the efficient administration of
the Plan;
XI-3
<PAGE> 60
(b) To interpret the Plan and to decide any and all matters
arising hereunder; including the right to remedy possible
ambiguities, inconsistencies or omissions; provided, however,
that all such interpretations and decisions shall be applied
in a uniform and nondiscriminatory manner to all Employees
similarly situated;
(c) To compute the amount of Retirement Income which shall be
payable to any Participant, Spouse or Beneficiary in
accordance with the provisions of the Plan; and
(d) To authorize disbursements from the Fund, any instructions of
the Committee to the Trustee to be evidenced in writing and
signed by a member of the Committee delegated with such
authority by a majority of the Committee.
11.10 Administrator. The Committee may designate an Administrator of the
Plan, and may delegate to the Administrator such duties as the
Committee may decide including the responsibility to prepare and file,
or to cause to be prepared and filed, such reports, descriptions,
summaries financial and other statements as may be required from time
to time under applicable provisions of ERISA, within the time
prescribed for the preparation or filing of such documents, and to
furnish such reports, statements and
XI-4
<PAGE> 61
documents to Participants and Beneficiaries of the Plan as may be
required by ERISA, within the time specified for furnishing such
documents. Any such designation and delegation shall be made in the
manner provided in Section 11.4.
11.11 Agent for Service. The Committee, or the Administrator if one shall be
appointed, shall be the agent for service of legal process in
connection with any claim or proceeding relating to the Plan.
11.12 Use of Enrolled Actuary. The Company shall employ or engage an Actuary
to make actuarial valuations of the liabilities under this Plan and to
recommend the amounts of contributions to be made and to perform such
other services deemed necessary or advisable in connection with the
administration of the Plan.
11.13 Bonding; Liability of Committee. The Committee, or its delegee, shall
ensure that each Fiduciary of the Plan, including members of the
Committee, is bonded in accordance with ERISA. The Employer shall
indemnify and hold harmless each member of the Committee, the
Administrator, and any Director or Employee held to be a Fiduciary with
respect to the Plan from any liability, claim, demand, suit or action
of any type arising from any action or failure to act; provided that
such person
XI-5
<PAGE> 62
acted in good faith and in a manner he reasonably believed to be in the
best interests of the Participants and Beneficiaries and consistent
with the provisions of the Plan and, with respect to any criminal
action or proceeding, that he had no reasonable cause to believe his
conduct was unlawful.
11.14 Reliance on Reports and Certificates. The Committee, and its delegees,
shall be entitled to rely conclusively upon all tables, valuations,
certificates, opinions and reports which will be furnished by an
Actuary, accountant, controller, counsel or other person who is
employed or engaged for such purposes.
11.15 Member's Own Participation. No member of the Committee may act, vote or
otherwise influence a decision of the Committee specifically relating
to his own participation under the Plan.
11.16 Claims Procedure. Each Participant and Beneficiary of the Plan shall
submit all claims for benefits, claims relating to the amount or manner
of any distribution, and any other request relating to any account, in
writing, to the Administrator of the Plan. The Administrator shall
within a reasonable period of time, but not later than 60 days after
receipt thereof,
XI-6
<PAGE> 63
either approve or deny such claim or request either wholly or in part,
and notify the claimant in writing of the action taken.
11.17 Notice of Denial. If such claim or request is wholly or partially
denied, the written notice of the Administrator shall set forth in a
manner calculated to be understood by the claimant:
(a) specific reasons for the denial;
(b) specific references to the pertinent Plan provisions on which
the denial is based;
(c) specific reference to any additional material or information
necessary for the claimant to perfect review of the claim and
an explanation of why such material or information is
necessary; and
(d) an explanation of the Plan's claims review procedure.
If the notice of the denial is not furnished to the Participant in
accordance with this Section within a reasonable period of time, such
Participant's claim shall be deemed denied.
XI-7
<PAGE> 64
11.18 Review. Upon denial of such a claim or request, the claimant shall be
entitled within 60 days after the receipt of written notice of denial
by the Administrator:
(a) to request, in writing, a review by the Committee of the
denial;
(b) to review pertinent documents; and
(c) to submit issues and comments in writing.
The Committee shall render a decision on its review of the denial
promptly, but not later than 60 days after the receipt of the request
for review, unless special circumstances require an extension of time,
in which case a decision shall be rendered not later than 120 days
after the receipt of a request for review.
If the Committee's decision on review is not furnished to the
Participant within the time limitations described herein, the claim
shall be deemed denied upon review.
The decision of the Committee shall be in writing and shall set forth
reasons therefor stated in a manner calculated to be understood by the
XI-8
<PAGE> 65
claimant, including specific references to the pertinent Plan
provisions. Determinations, decisions and other actions of the
Committee, taken in accordance with the provisions hereof shall be
final, conclusive and binding on all parties.
XI-9
<PAGE> 66
ARTICLE XII
METHOD OF FINANCING
12.1 Appointment of Trustee. The Trustee under the Plan will be appointed by
the Board, with such powers, as to investments, reinvestment, control
and disbursement of the Fund, as set forth in the Trust Agreement, or
in such Trust Agreement as modified from time to time. The Board may
remove the Trustee at any time on the notice required by the terms of
such Trust Agreement, and upon such removal or upon the resignation of
any such Trustee, such Board will designate a successor Trustee.
12.2 The Employer shall contribute to the Trust Fund such amounts as are
deemed necessary by an Actuary to fund the benefits provided by the
Plan on an acceptable basis in accordance with Title I, Section 302 and
Title II, Section 1013 of ERISA. Any actuarial gains arising from
actual experience under the Plan will be used to reduce future Employer
contributions and will not be used to increase any benefits payable
under the Plan. All contributions made under this Plan are made on the
condition that they are deductible under Section 404 of the Code.
12.3 Except as provided in Section 12.6, all Employer contributions when
made to the Trust Fund and all property of the Trust Fund, including
income
XII-1
<PAGE> 67
from investments and all other sources, shall be retained for the
exclusive benefit of Participants, Spouses, or their Beneficiaries and
shall be used to pay benefits provided hereunder or to pay expenses of
administration of the Plan and the Trust Fund to the extent not paid by
the Employer.
12.4 The Employer shall not be required to make, but may make in any
calendar or fiscal year, any contributions to the Trust Fund in any
amount which is greater than the amount specified in Section 12.2. The
timing of all contributions shall be entirely discretionary with the
Employer to the extent permitted by ERISA.
12.5 Participants will not be required or permitted to make contributions to
the Plan.
12.6 Amounts forfeited by any Participant shall be used to reduce Employer
contributions.
XII-2
<PAGE> 68
ARTICLE XIII
AMENDMENT OR TERMINATION
13.1 Right to Amend or Terminate. The Employer hopes and expects to continue
the Plan indefinitely. Nevertheless, each Employer maintains the right
to suspend, terminate, or completely discontinue contributions under
the Plan with respect to its Employees and the Board may terminate the
Plan for any reason at any time; subject to the requirement that the
Administrator shall file a notice of intent to terminate with the
Pension Benefit Guaranty Corporation ("PBGC") at least 60 days prior to
the proposed date of termination of the Plan, and shall comply with all
other provisions of ERISA or the PBGC relating to plan terminations. In
addition, the Board may amend or modify the Plan from time to time,
provided, however, that no such action shall adversely affect
Participants to the extent of their vested benefits, nor shall such
action decrease a Participant's accrued benefit or eliminate an
optional form of distribution with respect to benefits accrued prior to
such amendment. Notwithstanding the foregoing, however, any
modification or amendment of the Plan may be made retroactively, if
necessary or appropriate to qualify or maintain the Plan as a Plan
meeting the requirements of the Code and ERISA. Upon any termination of
the Plan all accrued benefits, to the extent funded, shall become
nonforfeitable on the date of the
XIII-1
<PAGE> 69
termination. In the event of partial termination of the Plan, all
accrued benefits for Participants affected by such partial termination,
to the extent funded, shall become nonforfeitable on the date of the
termination.
13.2 Change in Vesting. If an amendment or a change in the top-heavy status
of the Plan changes the vesting schedule of the Plan, as set forth in
Section 7.2 hereof, any Participant having three (3) or more years of
service on the date which is sixty (60) days after such amendment or
change is adopted or becomes effective (or, if later, sixty (60) days
after written notice of the amendment is given) may, no later than the
end of the election period, elect to remain subject to the vesting
schedule in effect prior to such amendment or change. For purposes of
the foregoing, the "election period" shall begin on the date the
amendment changing the vesting schedule is adopted or the date on which
the Plan's top-heavy status is changed and shall end no earlier than
the latest of the following dates (provided that in the case of a
change in the Plan's top-heavy status, only clause (b) shall apply):
(a) the date which is 60 days after the day the Plan amendment is
adopted;
(b) the date which is 60 days after the day the Plan
XIII-2
<PAGE> 70
amendment becomes effective or the top-heavy status of the
Plan changes; or
(c) the date which is 60 days after the day the Participant is
issued written notice of the Plan amendment by the Employer or
Administrator.
13.3 Mergers, Consolidations and Transfers. The Plan shall not be
automatically terminated by the Employer's acquisition by or merger
into any other company, but the Plan shall be continued after such
merger provided the successor company agrees to continue the Plan. All
rights to amend, modify, suspend, or terminate the Plan shall be
transferred to the successor company, effective as of the date of the
merger.
The merger or consolidation with, or transfer of assets and liabilities
to, any other qualified retirement plan shall be permitted only if the
benefit each plan participant would receive if the plan were terminated
immediately after such merger or consolidation, or transfer of assets
and liabilities, would be at least as great as the benefit he would
have received had the Plan been terminated immediately before any such
transaction.
XIII-3
<PAGE> 71
13.4 Distribution of Funds upon Termination. In the event H the Plan shall
be terminated or contributions permanently discontinued, the then
present value of benefits vested in each Participant in accordance with
Article VII shall be determined as of the Plan termination date and the
assets of any Fund then held by the Trustee as reserves for Retirement
Income for Participants under this Plan shall be allocated to the
extent that they shall be sufficient, after providing for expenses of
administration, in the order of precedence set forth below:
(a) There shall first be set aside an amount which will provide
Retirement Income for Participants, Spouses, or Beneficiaries
who were receiving benefits or who were eligible to receive
benefits at least three years prior to termination of the Plan
based on Plan provisions in effect five years prior to the
date of the Plan's termination.
(b) There shall next be set aside an amount which will provide all
other benefits insured by the PBGC.
(c) There shall next be set aside an amount which will provide all
other vested benefits, under the provisions of the Plan on its
termination date, but which are not incurred under ERISA.
XIII-4
<PAGE> 72
(d) Finally, there shall be set aside an amount which will provide
all other accrued benefits for Participants who were not
vested as of the date of Plan termination.
If the assets of the Fund held by the Trustee as reserves for
Retirement Income for Participants of the Plan, as of the date of the
Plan is terminated, are not sufficient to provide in whole the amounts
required within the classes described above, such assets will be
allocated pro rata within the class in which the amounts first cannot
be provided in full.
Allocation in any of the above listed categories is adjusted for any
allocation already made to the same Participant under a prior category.
Allocation of assets may be modified by the Internal Revenue Service to
meet nondiscrimination requirements. After all liabilities of the Plan
have been satisfied, the Employer shall be entitled to any balance of
the Fund which shall remain.
13.5 Provision of Benefits. The Retirement Income payable in accordance with
Section 13.4 shall be provided through continuance of the existing
Trust Agreement or through a new instrument entered into for that
purpose or through the purchase of nontransferable annuity contract or
contracts from a commercial life insurance company or by a combination
thereof. If the
XIII-5
<PAGE> 73
allocations produce Retirement Income of less than $120 a year, a lump
sum payment which is the Actuarial Equivalent of such Retirement Income
may be paid in lieu thereof.
13.6 Special Limitations. Subject to the limitations expressed in Sections
4.3, 4.4 and 13.4, if, at any time prior to June 3, 1985 the Plan shall
be terminated or the full current cost of the Plan shall not have been
met, then the amount of the contributions by the Employer, or funds
attributable thereto, that may be applied for the benefit of any
Participant who on June 3, 1975 is one of the 25 highest paid Employees
and whose anticipated annual Normal Retirement Income resulting from
contributions of the Employer is more than $1,500 shall not exceed:
(a) the greater of $20,000 or an amount computed by multiplying
the number of years or parts thereof from June 3, 1975, to the
date of failure to meet the full current costs of the Plan or
the date of termination of the Plan, as the case may be, by
20% of the first $50,000 of the Employee's average Annual
Earnings during the five year period preceding the date of
failure to meet the full current costs of the Plan or the date
of termination of the Plan, or
XIII-6
<PAGE> 74
(b) such larger amount as may be permissible under relevant laws
and regulations at the time in force.
The provisions of this Section shall not restrict the current payment
of full benefits called for by the Plan to any person while the Plan is
in full effect and its full current costs have been met; nor shall it
restrict payment of any benefit withheld for a prior year (under the
foregoing provisions) after all deficits for all prior years and full
current costs have been met. Notwithstanding the otherwise applicable
restrictions on distributions of benefits incident to early Plan
termination, a Participant's otherwise restricted benefit may be
distributed in full upon such Participant's depositing with an
acceptable depository property having a fair market value equal to 125%
of the amount which would be repayable had the Plan terminated on the
date of the lump sum distribution. If the fair market value of the
property held by the depository falls below 110% of the amount which
would be repayable if the Plan were then to terminate, additional
property necessary to bring the value of the property held by the
depository up to 125% of such amount shall be deposited.
XIII-7
<PAGE> 75
ARTICLE XIV
GENERAL PROVISIONS
14.1 No Guarantee of Employment. The Plan shall not be deemed to constitute
a contract between an Employer and any Employee or to be a
consideration for, or an inducement for, the employment of any Employee
by an Employer. Nothing contained in the Plan shall be deemed to give
any Employee the right to be retained in the service of any Employer or
to interfere with the right of the Employer to discharge or to
terminate the service of any Employee at any time without regard to the
effect such discharge or termination may have on any rights under the
Plan.
14.2 Payments to Minors and Incompetents. If a Participant, Contingent
Annuitant or Beneficiary entitled to receive any benefits hereunder is
a minor or is deemed by the Committee or is adjudged to be legally
incapable of giving valid receipt and discharge for such benefits, they
will be paid to such persons as the Committee might designate or to the
duly appointed guardian. Such payment shall, to the extent made, be
deemed a complete discharge of any liability for such payment under the
Plan.
14.3 Nonalienation of Benefits. To the extent permitted by law and with the
exception of payments pursuant to a qualified domestic relations order
XIV-1
<PAGE> 76
within the meaning of Section 414(p) of the Code, no benefit payable
under this Plan will be subject in any manner to anticipation,
alienation, assignment, garnishment, or pledge; and any attempt to
anticipate, alienate, assign, garnishee or pledge the same will be
void; and no such benefits will be in any manner liable for or subject
to the debts, liabilities, engagements, or torts of any Participant;
and if any Participant is adjudicated bankrupt or attempts to
anticipate, alienate, assign, or pledge any benefits, then such
benefits will, in the discretion of the Committee, cease, and in this
event, the Committee will have the authority to cause the same or any
part thereof to be held or applied to or for the benefit of such
Participant, his Spouse, his children or other dependents, or any of
them, in such manner and in such proportion as the Committee may deem
proper.
14.4 Purchase of Annuities. If the Committee for any reason deems it
advisable, the Retirement Income benefits payable at retirement date
under the Plan may be provided through the purchase of non-transferable
annuities from such insurance company or companies as may be approved
by the Committee. Payment thereof will be made from the Fund held by
the Trustee.
XIV-2
<PAGE> 77
14.5 Notwithstanding any other provision of the Plan, a former Participant
shall not be entitled to payment of duplicate benefits upon again
becoming a Participant.
14.6 A Participant shall not, with or without cause, be divested of any
annual benefits that are vested under the terms of the Plan.
14.7 Governing Law. The provisions of the Plan will be construed according
to the laws of the State of Connecticut, subject to ERISA.
14.8 Preservation of Prior Methods of Payment. Notwithstanding any of the
methods of payment of benefits provided in Articles IX and X, in the
case of a Participant who has made a designation prior to January 1,
1984 which conforms to the requirements of Section 242(b)(2) of the Tax
Equity and Fiscal Responsibility Act of 1982 and which provides that
one or more of the payment methods contained in the Plan prior to
January 1, 1984 shall apply to such Participant's benefits, the
Participant and any Beneficiary shall be entitled to receive such
benefits in accordance with the payment methods in effect under the
Plan prior to January 1, 1984. The Committee shall be authorized to
disregard any designation, or any portion thereof, which has been made
in accordance with the preceding sentence if it
XIV-3
<PAGE> 78
determines that such action is necessary to preserve the tax
qualification of the Plan.
14.9 Commencement of Benefits. In no case shall distributions of benefits
under the Plan be made or commence later than April 1 of the calendar
year following the calendar year in which a Participant attains age 70
1/2 whether or not he has retired or otherwise terminated his
Employment at that time; provided that, however, if a Participant had
attained age 70 1/2 before January 1, 1988 and was not a five percent
(5%) owner at any time during the Plan Year ending with or within the
calendar year in which the Participant had attained age 66 1/2 or any
subsequent Plan Year, such Participant may elect to delay his
distribution until the calendar year in which the Participant retires,
and, provided further, that if a Participant has made a designation
prior to January 1, 1984 which conforms to the requirements of Section
242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982,
distributions of benefits under the Plan may be made or commence in
accordance with the terms of such designation.
14.10 Notwithstanding any other provision of the Plan, in no event shall a
Participant's benefit payments under the Plan decrease due to any
increase in such Participant's social security benefits.
XIV-4
<PAGE> 79
14.11 Suspension of Benefits.
(a) Except for payments required by Section 14.9 hereof, benefits
under this Plan are payable only after termination of
employment; provided, however, that benefits shall be paid to
a Participant who is otherwise entitled to receive benefits
hereunder even if such Participant has not terminated
Employment, but only if such Participant does not complete at
least 40 Hours of service during a calendar month in Section
203(a)(3)(B) service, within the meaning of Section
203(a)(3)(B) of ERISA and Section 2530.203-3 of the Code of
Federal Regulations. In addition, normal or early retirement
benefits in pay status will be suspended for each calendar
month during which the Participant completes at least 40 Hours
of service in Section 203(a)(3)(B) service. In accordance with
the foregoing, the actuarial value of benefits which commence
later than a Participant's Normal Retirement Date will be
computed without regard to amounts which would have been
suspended under the preceding sentences as if the Participant
had been receiving benefits since Normal Retirement Date.
(b) If benefit payments have been suspended, payments shall resume
no later than the first day of the third calendar month after
the
XIV-5
<PAGE> 80
calendar month in which the Participant ceases to be employed for at
least 40 Hours of service for a calendar month in Section 203(a)(3)(B)
service. The initial payment upon resumption shall include the payment
scheduled to occur in the calendar month when payments resume and any
amounts withheld during the period between the cessation of such
Section 203(a)(3)(B) service and the resumption of payments.
(c) No payment shall be withheld by the Plan pursuant to this Section
unless the Plan notifies the Participant by personal delivery or first
class mail during the first calendar month or payroll period in which
the Plan withholds payments that his or her benefits are suspended.
Such notification shall contain a description of the specific reasons
why benefit payments are being suspended, a description of the Plan
provision relating to the suspension of payments, a copy of such
provisions, and a statement to the effect that applicable Department of
Labor regulations may be found in Section 2530.203-3 of the Code of
Federal Regulations. In addition, the notice shall inform the
Participant of the Plan's procedures for affording a review of the
suspension of benefits. Requests for such review may be considered in
accordance with the claims procedure adopted by the Plan pursuant to
Section 503 of ERISA and applicable regulations.
XIV-6
<PAGE> 81
(d) The amount suspended shall be an amount equal to the portion
of a monthly benefit payment derived from Company
contributions.
(e) This paragraph does not apply to the minimum benefit to which
the Participant may become entitled under the top-heavy rules
of Article XV.
XIV-7
<PAGE> 82
ARTICLE XV
TOP-HEAVY PLAN PROVISIONS
(Paragraphs 15.1 - 15.10 provide definitions for Article XV.)
15.1 Compensation. Compensation of an Employee which is reportable on Form
W-2 for the calendar year ending with or within the Plan Year.
15.2 Key Employee. Any Employee or former Employee (and the Beneficiaries of
such Employee) who at any time during the Determination Period was an
officer of the Employer with Compensation greater than 150 percent of
the dollar limitation under Section 4l5(c)(1)(A) of the Code, an owner
(or considered an owner under Section 318 of the Code) of one of the
ten largest interests in the Employer if such individual's Compensation
exceeds the dollar limitation under Section 4l5(c)(1)(A) of the Code
and such individual's ownership interest exceeds 1/2 percent, a
5-percent owner of the Employer, or a 1-percent owner of the Employer
who has Compensation of more than $150,000. The determination of who is
a Key Employee shall be made in accordance with Section 416(i)(1) of
the Code.
XV-1
<PAGE> 83
15.3 Top-Heavy Plan. For any Plan Year, this Plan is top-heavy if any of the
following conditions exists:
(a) If the Top-Heavy Ratio for this Plan exceeds 60 percent and
this Plan is not part of any Required Aggregation Group or
Permissive Aggregation Group of plans.
(b) If this Plan is a part of a Required Aggregation Group of
plans (but which is not part of a Permissive Aggregation
Group) and the Top-Heavy Ratio for the Required Aggregation
Group of plans exceeds 60 percent.
(c) If this Plan is a part of a Required Aggregation Group of
plans and part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the Permissive Aggregation Group exceeds
60 percent.
15.4 Top-Heavy Ratio.
(a) If the Employer maintains one or more defined benefit plans
and the Employer has not maintained any defined contribution
plan (including any simplified employee pension plan) which
during the Determination Period(s) has or has had account
balances, the Top-Heavy Ratio for this Plan alone or for the
Required or Permissive
XV-2
<PAGE> 84
Aggregation Group as appropriate is a fraction, the numerator
of which is the sum of the Present Values of accrued benefits
of all Key Employees as of the Determination Date(s)
(including any part of any accrued benefit distributed in the
Determination Period(s)), and the denominator of which is the
sum of the Present Values of all accrued benefits (including
any part of any accrued benefit distributed in the
Determination Period(s)), determined in accordance with
Section 416 of the Code and the Regulations thereunder.
(b) If the Employer maintains one or more defined benefit plans
and the Employer maintains or has maintained one or more
defined contribution plans (including any simplified employee
pension plan) which during the Determination Period(s) has or
has had any account balances, the Top-Heavy Ratio for any
Required or Permissive Aggregation Group as appropriate is a
fraction, the numerator of which is the sum of the Present
Values of accrued benefits under the aggregated defined
benefit plan or plans for all Key Employees, determined in
accordance with (a) above, and the sum of account balances
under the aggregated defined contribution plan or plans for
all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the Present Values of
accrued benefits under the aggregated defined benefit
XV-3
<PAGE> 85
plan or plans, determined in accordance with (a) above for all
Participants, and the sum of the account balances under the
aggregated defined contribution plan or plans for all
Participants as of the Determination Date(s), all determined
in accordance with Section 416 of the Code and the Regulations
thereunder. The account balances under a defined contribution
plan in both the numerator and denominator of the Top-Heavy
Ratio are adjusted for any distribution of an account balance
made in the Determination Period.
(c) For purposes of (a) and (b) above, the value of account
balances and the Present Value of accrued benefits shall be
determined as of the most recent Valuation Date that falls
within or ends with the 12-month period ending on the
Determination Date, except as provided in Section 416 of the
Code and the Regulations thereunder for the first and second
plan year of a defined benefit plan. The account balances and
accrued benefits of a Participant (1) who is not a Key
Employee but who was a Key Employee in a prior year, or (2)
who has not received any compensation from any Employer
maintaining the plan at any time during the Determination
Period shall be disregarded. The calculation of the Top-Heavy
Ratio, and the extent to which distributions, rollovers, and
transfers are taken into account will be made in accordance
with Section 416 of the Code
XV-4
<PAGE> 86
and the Regulations thereunder. Deductible Employee
contributions shall not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans, the
value of account balances and accrued benefits shall be
calculated with reference to the Determination Date(s) that
falls within the same calendar year.
15.5 Permissive Aggregation Group. The Required Aggregation Group of plans
plus any other plan or plans of the Employer which, when considered as
a group with the Required Aggregation Group, would continue to satisfy
the requirements of Sections 401(a)(4) and 410 of the Code.
15.6 Required Aggregation Group. (1) Each qualified plan of the Employer in
which at least one Key Employee participated during the Determination
Period, and (2) any other qualified plan of the Company which enables a
plan described in (1) to meet the requirements of Sections 410(a)(4)
and 410 of the Code during the Determination Period.
15.7 Determination Date. For any Plan Year, the last day of the preceding
Plan Year.
15.8 Determination Period. The Plan Year containing the Determination Date
and the four (4) preceding Plan Years.
XV-5
<PAGE> 87
15.9 Valuation Date. For purposes of computing the Top-Heavy Ratio, the
Valuation Date shall be the normal annual valuation date for the Plan.
15.10 Present Value. For purposes of computing the Top-Heavy Ratio, any
benefit shall be discounted only for mortality and interest as follows:
Interest rate: 5%
Mortality table: 1971 TPF&C Forecast Mortality Table
15.11 If the Plan is or becomes a Top-Heavy Plan in any Plan Year beginning
after December 31, 1983, the following provisions shall supersede any
conflicting provision in the Plan.
(a) Vesting.
Notwithstanding the provisions of Section 7.2, a Participant's
Vested Benefit shall be the Retirement Income payable at
Normal Retirement Date in the form and amount as set forth in
Section 4.3 based on his Average Earnings and Credited Service
as of his Termination Date, multiplied by the applicable
percentage specified below:
XV-6
<PAGE> 88
<TABLE>
<CAPTION>
If Years of Then Vested
Vesting Service Are Percentage Is
------------------- -------------
<S> <C>
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
</TABLE>
Notwithstanding the foregoing, a Participant shall be 100%
vested upon the later of his 65th birthday or the fifth
anniversary of his entry into the Plan. In the event of a
change in the top-heavy status of the Plan, Section 13.2 of
the Plan shall apply.
(b) Minimum Accrued Benefit.
(i) Notwithstanding any other provision in this
Plan except (iii), (iv) and (v) below, for
any Plan Year in which this Plan is a Top
Heavy Plan, each Participant who is not a
Key Employee and has completed 1,000 Hours
of service shall accrue a benefit (to be
provided solely by Employer contributions
and expressed as a life annuity commencing
at normal retirement age) of not less than
two percent of his or her highest average
Compensation for the five consecutive years
for which the Participant had the highest
Compensation. The minimum accrual is
determined without regard to any Social
XV-7
<PAGE> 89
Security contribution. The minimum accrual
applies even though under other Plan
provisions the Participant would not
otherwise be entitled to receive an accrual,
or would have received a lesser accrual for
the year because (1) the non-Key Employee
fails to make mandatory contributions to the
Plan, (2) the non-Key Employee's
Compensation is less than a stated amount,
(3) the non-Key Employee is not employed on
the last day of the accrual computation
period, or (4) the Plan is integrated with
Social Security.
(ii) No additional benefit accruals shall be
provided pursuant to (i) above to the extent
that the total accruals on behalf of the
Participant attributable to Employer
contributions will provide a benefit
expressed as a life annuity commencing at
age 65 that equals or exceeds 20 percent of
the Participant's highest average
Compensation for the five consecutive years
for which the Participant had the highest
Compensation.
(iii) The provisions in (i) above shall not apply
to any Participant to the extent that the
Participant is covered under any other plan
or plans of the Employer which provide(s)
for the minimum allocation or benefit
applicable to Top-Heavy Plans.
XV-8
<PAGE> 90
(iv) All accruals of Employer derived benefit,
whether or not attributable to years for
which the Plan is a Top-Heavy Plan, may be
used in computing whether the minimum
accrual requirements of Section (ii) above
are satisfied.
(c) Additional Limitation - Members of Retirement Plan.
With respect to any Plan Year for which the Plan is
determined to be a Top-Heavy Plan, paragraphs (2)(B)
and (3)(B) of Section 415(e) of the Code, as
incorporated in Section 4.5 hereof, shall be applied
by substituting "1.0" for "1.25" in the calculation
of the defined benefit and defined contribution
fractions unless the requirements of Section
416(h)(2) of the Code are met.
XV-9
<PAGE> 91
THE CONNECTICUT WATER COMPANY
EMPLOYEES' RETIREMENT PLAN
EXHIBIT I
This Exhibit is attached to and made a part of the Plan.
Actuarial Equivalent shall mean a benefit of equivalent current value to the
benefit which would otherwise have been provided to the Participant. The factors
used to determine equivalencies shall be determined as follows:
- 50% Contingent Annuity Option
90% (less)(plus) .5% for each year by which the age of the
Contingent Annuitant (is less than)(exceeds) the age of the
Participant. Such factor not to exceed 1.0.
- 75% Contingent Annuity Option
86% (less)(plus) .6% for each year by which the age of the
Contingent Annuitant (is less than)(exceeds) the age of the
Participant. Such factor not to exceed 1.0.
- 100% Contingent Annuity Option
82% (less)(plus) .7% for each year by which the age of the
Contingent Annuitant (is less than)(exceeds) the age of the
Participant. Such factor not to exceed 1.0.
<PAGE> 92
- Lump Sum Distribution
Actuarial Equivalent factors shall be determined using the
UP-1984 Mortality Table and, for any Plan Year, the interest
rates promulgated by the Pension Benefit Guaranty Corporation
for the purposes of determining the present value of a lump
sum distribution on plan termination for the month containing
the first day of such Plan Year.
Effective for lump sum distributions made on or after
September 1, 1996, Actuarial Equivalent factors shall be
determined using the mortality table prescribed by the
Secretary of the Treasury pursuant to Section
417(e)(3)(A)(ii)(I) of the Code and the annual rate of
interest on 30-year Treasury securities for the month
containing the first day of the Plan Year in which such
distribution is made.
- Five Years Certain and Life Option: 98%
- Ten Years Certain and Life Option: 93%
- Lump Sum Distribution Under Years Certain and Life Options:
-2-
<PAGE> 93
Actuarial Equivalent factors shall be determined using the mortality
table prescribed by the Secretary of the Treasury pursuant to Section
417(e)(3)(A)(ii)(I) of the Code and the annual rate of interest on
30-year Treasury securities for the month containing the first day of
the Plan Year in which such distribution is made.
-3-
<PAGE> 94
APPENDIX A
SPECIAL EARLY RETIREMENT BENEFIT
A.1 Eligibility
A special early retirement benefit, as set forth in Section A.2 hereof,
shall be offered to all eligible Participants; provided, however, that
said special early retirement benefit shall not be available to any
Eligible Participant if fewer than six (6) Eligible Participants elect
to retire and receive such benefit. For purposes of this Appendix A,
the term 'Eligible Participant' shall mean each Participant who as of
September 1, 1991 (a) will have completed ten (10) or more years of
Credited Service, and (b) will have attained the age of fifty-five
(55). Each such Eligible Participant will be offered the special early
retirement benefit described in Section A.2 and may make a written
election during an election period beginning on July 10, 1991 and
ending at 4:30 P.M. on August 9, 1991 to retire on September 1, 1991
and receive such special early retirement benefit commencing as of said
date; provided, however, that such Eligible Participant either electing
or declining to retire and receive the special early retirement benefit
described in Section A.2 may revoke said decision during the period
beginning on August 10, 1991 and ending at 4:30 P.M. on August 16,
1991, after which date such decision shall be irrevocable.
<PAGE> 95
A.2 Special Early Retirement Benefit
Each Eligible Participant who, pursuant to Section A.1, has elected to
retire and receive the special early retirement benefit shall be
credited with an additional five (5) years of Credited Service for
purposes of the calculation of the benefit under Articles IV, V and VI
and, if such retirement occurs prior to attainment of age sixty-two
(62), shall receive an additional benefit of $500 each month ending
with the month in which such Eligible Participant attains age sixty-two
(62).
A.3 Limitation
The limitations of Section 415 of the Code, as set forth in Section
4.4, shall apply to the special early retirement benefit and, for
purposes of Section 415(b)(5)(D) of the Code, the adoption of the
special early retirement benefit shall be considered a change in
benefit structure, unless otherwise provided by Treasury Regulations or
other determinative authority.
-2-
<PAGE> 1
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-53211.
/s/ Arthur Andersen LLP
Hartford, Connecticut
March 24, 1997
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<COMMON> 42,456
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0
772
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0
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<OPERATING-INCOME-LOSS> 10,128
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38
<EARNINGS-AVAILABLE-FOR-COMM> 6,565
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