<PAGE> 1
As filed with the Securities and Exchange Commission on July 12, 1999
REGISTRATION NO. 333-80947
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------
CONNECTICUT WATER SERVICE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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CONNECTICUT 221300 06-0739839
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification Number)
incorporation) Classification Code Number)
</TABLE>
93 WEST MAIN STREET
CLINTON, CONNECTICUT 06413
(860) 669-8636
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
--------------------------------------------
DAVID C. BENOIT
93 WEST MAIN STREET
CLINTON, CONNECTICUT 06413
(860) 669-8636
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
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Michael F. Halloran, Esq. Anthony M. Macleod, Esq.
Day, Berry & Howard LLP Whitman Breed Abbott & Morgan LLP
CityPlace I 100 Field Point Road
Hartford, Connecticut 06103 Greenwich, Connecticut 06830
(860) 275-0127 (203) 862-2458
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: Upon consummation of the Merger as described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
CONNECTICUT WATER SERVICE, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K, the following table sets
forth the location in the Prospectus of the information required by Part I of
Form S-4.
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ITEM ON FORM S-4 LOCATION IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing Page; Cross/Reference Sheet; Front Cover
Outside Front Cover Page of Prospectus Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page of Proxy
Pages of Prospectus Statement/Prospectus; Table of Contents; Where
You Can Find More Information
3. Risk Factors, Ratio of Earnings to Fixed Summary Selected Historical and Unaudited Pro
Charges, and Other Information Forma Combined Condensed Financial
Information; CWS Price Range and Dividends;
Crystal Common Stock
4. Terms of the Transaction Summary; The Merger; The Merger Agreement;
Description of CWS's Capital Stock; Comparison
of Shareholder Rights
5. Pro Forma Financial Information Summary Selected Historical and Unaudited Pro
Forma Combined Condensed Financial
Information
6. Material Contacts with the Company The Merger; The Merger Agreement; Interests of
Being Acquired Certain Persons In the Merger; Management
Following the Merger
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM ON FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
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B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Summary; Where You Can Find More
Registrants Information; CWS Common Stock Price and
Dividends; Description of CWS Common Stock;
Comparison of Shareholder Rights
11. Incorporation of Certain Information by Where You Can Find More Information
Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Registrants Not Applicable
Other Than S-3 or S-2 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17 Information with Respect to Companies Summary; Crystal Common Stock; Information
Other Than S-3 or S-2 Companies Concerning Crystal Water Utilities Corporation;
Management's Discussion and Analysis of
Financial Condition and Results of Operations of
Crystal Water Utilities Corporation; Principal
Crystal Shareholders and Stock Ownership of
Crystal Management; Index to Financial
Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Summary; Crystal Special Shareholders Meeting;
Authorizations are to be Solicited The Merger Agreement; Interests of Certain
Persons In the Merger; Rights of Dissenting
Shareholders; Principal CWS Shareholders and
Stock Ownership of Management; Principal
Crystal Shareholders and Stock Ownership of
Crystal Management
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<PAGE> 4
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ITEM ON FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
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19. Information if Proxies, Consents or Not Applicable
Authorizations Are Not to be Solicited, or
in an Exchange Offer
</TABLE>
<PAGE> 5
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Crystal Water Utilities Corporation
("Crystal") and Connecticut Water Service, Inc. ("CWS") have agreed on a merger
designed to create one of Connecticut's largest, fast-growing water companies
(the "Merger"). The Merger is structured so that CWS will be the surviving
publicly traded company and Crystal will become a wholly-owned subsidiary of
CWS.
If the Merger is completed, Crystal Shareholders will receive that
number of shares of CWS Common Stock equal to $75.00, as adjusted, for each
share of Crystal Common Stock that they own. CWS Shareholders will continue to
own their existing shares after the Merger. We estimate that the shares of CWS
stock to be issued to Crystal Shareholders will represent approximately 6% of
the outstanding stock of CWS after the Merger.
The Merger cannot be completed unless the Shareholders of Crystal
approve it. No approval of CWS Shareholders is required. We have scheduled a
special meeting for our Shareholders to vote on the Merger. YOUR VOTE IS VERY
IMPORTANT.
Whether or not you plan to attend the meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy card without indicating how you want to vote, your proxy
will be counted as a vote in favor of the Merger. If you fail to return your
card, the effect in most cases will be a vote against the Merger.
The date, time and place of the meeting are as follows:
August 11, 1999
10:00 a.m.
Crystal Water Utilities Corporation
321 Main Street
Danielson, Connecticut
This Proxy Statement/Prospectus provides you with detailed information
about the proposed Merger. In addition, you may obtain information about Crystal
and CWS from documents that we have filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
/s/ Roger Engle
-----------------------------------
Roger Engle
President
Crystal Water Utilities Corporation
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED THE CWS COMMON
STOCK TO BE ISSUED UNDER THIS PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Proxy Statement/Prospectus dated July 12, 1999, and first mailed to shareholders
on or about July 12, 1999.
<PAGE> 6
PROSPECTUS
CONNECTICUT WATER SERVICE, INC.
310,346 SHARES
PROXY STATEMENT
COMMON STOCK, NO PAR VALUE
CRYSTAL WATER UTILITIES CORPORATION
FOR A SPECIAL MEETING OF CRYSTAL SHAREHOLDERS
TO BE HELD ON AUGUST 11, 1999
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to shareholders of Crystal Water Utilities Corporation ("Crystal")
(the "Crystal Shareholders") in connection with the solicitation of proxies by
the Board of Directors of Crystal from holders of Crystal's outstanding shares
of common stock ( the "Crystal Common Stock") for use at a special meeting of
Shareholders of Crystal (together with any adjournments or postponements
thereof, the "Crystal Special Meeting").
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Crystal with and into CWS New Company ("NewCo"), a wholly-owned
subsidiary of Connecticut Water Service, Inc. ("CWS"), pursuant to the Merger
Agreement, dated as of March 10, 1999 (the "Merger Agreement"), by and among CWS
and Crystal.
Pursuant to the Merger Agreement, upon consummation of the Merger, each
share of Crystal Common Stock, no par value, will be converted into the right to
receive that number of shares of Common Stock, no par value, of CWS (the "CWS
Common Stock") equal to the Exchange Ratio. The Exchange Ratio will be
calculated by dividing $75.00 by the Closing Price (as defined below); provided
that the Closing Price shall not be more than $31.00 or less than $24.00. The
Closing Price is the average of the daily last sale prices of the CWS Common
Stock as reported by NASDAQ for the ten consecutive business days commencing
twenty business days before the Closing Date (as defined in the Merger
Agreement).
CWS Common Stock is listed on the NASDAQ under the symbol "CTWS". On
July 7, 1999, the last sale price of CWS Common Stock was $28.50 per share. If
the Merger had been consummated as of that date, the Closing Price would have
been $26.0625 (based on the average of the CWS Common Stock closing prices for
prior dates, as described above), and each share of Crystal Common Stock would
have been converted into 2.87 shares of CWS Common Stock; the
<PAGE> 7
aggregate dollar value (based on the $26.0625 Closing Price) of all CWS Common
Stock to be issued in the Merger would have been $7,448,325. (Pro forma
information included herein is calculated assuming a Closing Price of $26.0625.)
The actual market value of the CWS Common Stock to be received in the Merger may
be different due to changes in the market value of the CWS Common Stock.
The consummation of the Merger is subject to various conditions,
including the receipt of required approval of the Connecticut Department of
Public Utility Control ("DPUC" or "Department") and the approval of the Merger
by the Crystal Shareholders at the Crystal Special Meeting to be held on August
11, 1999.
Neither the Crystal Board of Directors nor the CWS Board of Directors
sought an opinion of an investment bank or other outside party as to the
fairness of the transaction from a financial point of view to the Crystal
Shareholders or to CWS. See "THE MERGER -- Background of the Transaction," "--
Crystal's Reasons for the Transaction; Recommendation of Crystal's Board of
Directors," and "-- CWS's Reasons for the Transaction."
Crystal Shareholders who dissent from the Merger ("Dissenting
Shareholders") have certain rights of appraisal pursuant to Connecticut law. See
"RIGHTS OF DISSENTING SHAREHOLDERS".
This Proxy Statement/Prospectus is first being sent to the Crystal
Shareholders on or about July 12, 1999.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS REFERS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 12, 1999.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
2
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE CWS/CRYSTAL MERGER
SUMMARY .........................................................................................................1
Risk Factors.............................................................................................7
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION.................................................................9
CWS COMMON STOCK PRICE RANGE AND DIVIDENDS.......................................................................13
Dividend Rights and Restrictions........................................................................13
Dividend Reinvestment and Common Stock Purchase Plan....................................................14
CRYSTAL COMMON STOCK.............................................................................................15
CRYSTAL SPECIAL SHAREHOLDERS MEETING.............................................................................16
Date, Time and Place of Crystal Special Meeting.........................................................16
Business to Be Transacted at the Crystal Special Meeting................................................16
Record Date; Voting Rights..............................................................................16
Voting Requirements.....................................................................................16
Affiliate Ownership.....................................................................................17
Revocability of Proxies.................................................................................17
Proxy Solicitation......................................................................................18
THE MERGER.......................................................................................................18
Background of the Transaction...........................................................................18
Background to the Merger................................................................................19
Crystal's Reasons for the Transaction; Recommendation of Crystal's Board
of Directors............................................................................................22
CWS's Reasons for the Transaction.......................................................................24
THE MERGER AGREEMENT.............................................................................................25
The Merger..............................................................................................25
Surviving Company.......................................................................................25
Consideration...........................................................................................25
Fractional Shares.......................................................................................26
Exchange of Shares......................................................................................26
No Further Rights.......................................................................................26
Governance of CWS and the Surviving Company.............................................................27
Representations and Warranties..........................................................................27
Certain Covenants.......................................................................................28
Conditions Precedent to the Merger......................................................................29
</TABLE>
1
<PAGE> 9
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Termination or Amendment................................................................................30
Fees and Expenses.......................................................................................31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..........................................................................31
ACCOUNTING TREATMENT.............................................................................................32
RESTRICTIONS ON RESALE OF SECURITIES.............................................................................33
NASDAQ LISTING...................................................................................................34
RIGHTS OF DISSENTING SHAREHOLDERS................................................................................34
INTERESTS OF CERTAIN PERSONS IN THE MERGER.......................................................................38
MANAGEMENT FOLLOWING THE MERGER..................................................................................38
INFORMATION CONCERNING CONNECTICUT WATER SERVICE, INC............................................................38
PRINCIPAL CWS SHAREHOLDERS AND STOCK OWNERSHIP
OF MANAGEMENT....................................................................................................39
INFORMATION CONCERNING CRYSTAL WATER UTILITIES CORPORATION.......................................................41
Crystal and Crystal Water...............................................................................41
Description of the Business of Crystal Water............................................................41
Seasonality of Demand...................................................................................42
Operating Authority.....................................................................................42
Regulation..............................................................................................42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CRYSTAL WATER UTILITIES
CORPORATION......................................................................................................44
Consolidated Results of Operations......................................................................44
Financial Condition and Liquidity.......................................................................45
Year 2000...............................................................................................45
PRINCIPAL CRYSTAL SHAREHOLDERS AND STOCK OWNERSHIP OF CRYSTAL
MANAGEMENT.......................................................................................................46
DESCRIPTION OF CWS CAPITAL STOCK.................................................................................47
Common Stock............................................................................................48
Preferred and Preference Stock..........................................................................49
</TABLE>
2
<PAGE> 10
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COMPARISON OF SHAREHOLDER RIGHTS.................................................................................50
Issuance of Shares......................................................................................50
Voting Rights...........................................................................................51
Preemptive Rights.......................................................................................51
Dissenters' Rights of Appraisal.........................................................................52
Dividends and Distributions.............................................................................52
Filling Director Vacancies..............................................................................52
Standards of Conduct for Directors......................................................................53
Removal of Directors....................................................................................53
Amendments to Certificate of Incorporation..............................................................54
Amendments to By-Laws...................................................................................54
Provisions Relating to Change in Control................................................................55
Business Combination Statute............................................................................56
Classification of the Board of Directors................................................................57
Shareholder Meetings....................................................................................57
Preferred Stock Purchase Rights.........................................................................57
Indemnification of Directors and Officers...............................................................61
EXPERTS ........................................................................................................62
LEGAL MATTERS....................................................................................................62
WHERE YOU CAN FIND MORE INFORMATION..............................................................................62
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION.................................................................65
INDEX TO CRYSTAL CONSOLIDATED FINANCIAL STATEMENTS...............................................................66
</TABLE>
APPENDIX A - MERGER AGREEMENT
APPENDIX B - SECTIONS 33-855 to 33-872 OF THE CONNECTICUT GENERAL
STATUTES - THE DISSENTING SHAREHOLDER PROVISIONS
3
<PAGE> 11
QUESTIONS AND ANSWERS
ABOUT THE CWS/CRYSTAL MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: This Merger means that you will have a stake in Connecticut's second
largest investor-owned water company. The merged company will be
strongly positioned to capitalize on growth opportunities, particularly
in Eastern Connecticut. We believe that this Merger will allow us to
accelerate long-term growth, to provide competitive dividends, and
create shareholder value in years to come. To review the reasons for
the Merger in greater detail, and related uncertainties, see pages 22
through 25.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as
soon as possible, so that your shares may be represented at the Crystal
Special Meeting. The Crystal Special Meeting will take place on August
11, 1999. No approval of the CWS Shareholders is required. The Boards
of Directors of both CWS and Crystal unanimously approved and voted in
favor of the proposed Merger. The Crystal Board unanimously recommended
that you approve the Merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send Crystal Shareholders
written instructions for exchanging their share certificates. CWS
Shareholders will keep their certificates.
Q: PLEASE EXPLAIN THE EXCHANGE RATIO.
A: As a result of the Merger, CWS will pay Crystal Shareholders 2.87
shares of CWS Common Stock for each share of Crystal Common Stock that
they own. This "Exchange Ratio" is based on the assumption that the
Merger was consummated on July 7, 1999 and that the Closing Price
(based on the average closing prices for CWS Common Stock for prior
dates, as described herein) is $26.0625 and is subject to adjustment
based on the market price of CWS Common Stock shortly before the
Merger, but the price will not be more than $31.00 or less than $24.00.
If the market price at that time is above $26.0625, the Exchange Ratio
will go down and if the market price is below $26.0625, the Exchange
Ratio will go up. (See "THE MERGER AGREEMENT -- Consideration" on page
25.)
Crystal Shareholders will not receive fractional shares. Instead, they
will receive a check in payment for any fractional shares based on the
market value of CWS Common Stock.
<PAGE> 12
Example: If you currently own 100 shares of Crystal Common Stock, then
after the Merger you will be entitled to receive between 241 and 312
shares of CWS Common Stock and a check for the market value of any
fractional share.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: We expect no changes in our dividend policies before the Merger. After
the Merger, we expect the initial annualized dividend rate to be
approximately $1.17 per share of CWS Common Stock, reflecting our
desire to provide you with competitive dividends. The annualized rate
of $1.17 per share is equivalent to the historic dividend rate paid to
CWS Shareholders. The expected dividend policy after the Merger would
result in a 181% dividend increase for current Crystal Shareholders,
from the 1998 annualized dividend rate of $1.20 per share to the $1.17
per share expected to be paid after the Merger due to the increased
number of CWS shares to be owned by Crystal Shareholders after the
Merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the Merger as quickly as possible. In
addition to Crystal Shareholder approval, we must also obtain
regulatory approval. We hope to complete the Merger in the third
quarter of 1999.
Q: WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS OF THE MERGER?
A: The exchange of shares by Crystal Shareholders will be tax-free to
Crystal Shareholders for federal income tax purposes, except for taxes
on cash received for a fractional share. To review the tax consequences
to Crystal Shareholders in greater detail, see page 31.
2
<PAGE> 13
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
Merger fully and for a more complete description of the legal terms of the
Merger, you should read carefully this entire document and the documents we have
referred you to. See "WHERE YOU CAN FIND MORE INFORMATION". (Page 62)
THE COMPANIES
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Crystal Water Utilities Corporation...... Crystal was incorporated in Connecticut in 1967. It
is a holding company, the sole subsidiary of which
is engaged in the regulated utility business of public
water supply. Crystal's subsidiary, Crystal Water
Company of Danielson ("Crystal Water"; and,
together with Crystal, herein referred to as the
"Companies"), collects, treats and distributes water
primarily to residential and commercial customers
and for fire protection in four communities in
Windham County, Connecticut. Crystal's principal
place of business is located at 321 Main Street,
Danielson, Connecticut 06239, and its telephone
number is 860-774-8889.
Connecticut Water Service, Inc...... CWS is a holding company whose principal
subsidiaries are engaged in the regulated utility
business of public water supply. CWS's utility
subsidiaries, The Connecticut Water Company
("CWC"), and Gallup Water Service, Inc.
("Gallup") collect, treat, and distribute water to
residential, commercial and industrial customers, to
other utilities for resale and for private and
municipal fire protection. CWC and Gallup provide
water to customers in 36 municipalities in Hartford,
Litchfield, New Haven, New London, Middlesex
and Windham Counties in Connecticut. CWC is the
second largest investor-owned water company in
New England and is among the twelve largest
investor-owned water companies in the nation.
CWS is engaged, through other subsidiaries, in the
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1
<PAGE> 14
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business of providing various utility management
services and in selling excess real estate. CWS's
executive offices are located at 93 West Main
Street, Clinton, Connecticut 06413 and its
telephone number is 860-669-8630.
</TABLE>
OUR REASONS FOR THE MERGER
The Boards believe that the Merger represents an opportunity for us to
expand our public water supply business in the State of Connecticut. The service
area of Crystal adjoins areas where CWC is franchised to supply water. CWS has
recently acquired Gallup and two small water systems, all in the same geographic
north-south corridor in eastern Connecticut. Therefore, the Merger will enable
us to supervise and coordinate the operations of these companies with greater
economy than could be achieved through separate ownership. The Merger is
therefore a natural geographic fit which will expand our core water supply
business, integrate water supply planning, and maximize opportunities for shared
efficiencies and further growth in eastern Connecticut.
We are confident that our two companies will come together in a smooth
and expeditious manner. CWS has a successful track record in assimilating
smaller water companies. CWS has realized efficiencies by maximizing
complementary strengths and improving operating results.
To review the reasons for the Merger in greater detail, as well as
related uncertainties, see pages 22 through 25.
APPROVAL OF THE MERGER
BY CRYSTAL SHAREHOLDERS:
The affirmative vote of two-thirds of the shares of Crystal Common
Stock present and entitled to vote at the Crystal Special Meeting is required to
approve the Merger. The directors, officers and affiliates of Crystal, which
collectively hold approximately 41% of the Crystal Common Stock, have agreed to
vote in favor of the Merger.
No vote of the shareholders of CWS is required to approve or consummate
the Merger.
OUR RECOMMENDATION TO CRYSTAL SHAREHOLDERS
The Crystal Board believes that the Merger is in your best interest and
unanimously recommends that you vote FOR the proposal to approve and adopt the
Merger Agreement and the Merger.
2
<PAGE> 15
Shareholders of record of Crystal Common Stock at the close of business
on July 9, 1999 (the "Record Date") are entitled to notice of and vote at the
Crystal Special Meeting and any adjournment or postponement thereof. As of the
Record Date, 99,311 shares of Crystal Common Stock were issued and outstanding,
each of which will be entitled to one vote on the Merger.
Crystal Shareholders' Special Meeting: The Crystal Special Meeting will
be held on August 11, 1999 at 10:00 a.m., local time, at the offices of Crystal,
321 Main Street, Danielson, Connecticut.
THE MERGER
The Merger Agreement is attached as Appendix A to this Proxy
Statement/Prospectus. We encourage you to read the Merger Agreement as it is the
legal document that governs the Merger.
WHAT CRYSTAL SHAREHOLDERS WILL RECEIVE
(SEE PAGE 25)
As a result of the Merger, CWS will pay Crystal Shareholders 2.87
shares of CWS Common Stock for each share of Crystal Common Stock that they own.
This "Exchange Ratio" is based on the assumption that the Merger was consummated
on July 7, 1999 and that the Closing Price (based on the average closing prices
for CWS Common Stock for prior dates, as described herein) is $26.0625. The
Exchange Ratio is subject to adjustment based on the market price of CWS Common
Stock shortly before the Merger, but the price will not be more than $31.00 or
less than $24.00. If the market price at that time is above $26.0625, the
Exchange Ratio will go down and if the market price is below $26.0625 the
Exchange Ratio will go up.
(See "THE MERGER AGREEMENT -- Consideration" on page 25.)
Crystal Shareholders will not receive fractional shares. Instead, they
will receive a check in payment for any fractional shares based on the market
value of CWS Common Stock.
The following table sets forth the Exchange Ratio to be applied in the
Merger and the aggregate Merger consideration assuming various Closing Prices.
<TABLE>
<CAPTION>
Aggregate Merger
Exchange Rate Consideration
CWS (CWS Stock: (Shares of CWS
Closing Price Crystal Stock) Common Stock)
------------- -------------- -------------
<S> <C> <C>
$24 3.12:1.0 310,346
$28 2.67:1.0 266,011
$31 2.41:1.0 240,268
</TABLE>
3
<PAGE> 16
Thus, each shareholder of Crystal will receive between 2.41 and 3.12
shares of CWS Common Stock for each share of Crystal Common Stock owned.
Example: If you currently own 100 shares of Crystal Common Stock, then after the
Merger you will be entitled to receive between 241 and 312 shares of CWS Common
Stock and a check for the market value of the fractional share.
THE VALUE OF THE CWS COMMON STOCK THAT HOLDERS OF CRYSTAL COMMON STOCK
WILL RECEIVE IN THE MERGER IS SUBJECT TO FLUCTUATION DUE TO CHANGES IN THE
MARKET PRICE OF CWS COMMON STOCK. CRYSTAL SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR CWS COMMON STOCK. FOR CERTAIN RECENT STOCK PRICE
DATA, SEE "CWS COMMON STOCK PRICE RANGE AND DIVIDENDS."
Crystal Shareholders should not send in their stock certificates until
instructed to do so after the Merger is completed.
WHAT WILL HAPPEN TO CRYSTAL
If the Merger is completed, Crystal will merge and become a subsidiary
of CWS. Individuals who owned stock in Crystal before the Merger will own stock
in CWS after the Merger.
BOARD OF DIRECTORS AND MANAGEMENT OF CWS FOLLOWING THE MERGER
(SEE PAGES 38)
If the Merger is completed, we expect that Marshall T. Chiaraluce will
continue as President and Chief Executive Officer of CWS. We also expect that
after the Merger, Roger Engle, who is the President of Crystal, will remain as
President of Crystal until he retires on December 31, 1999, with Crystal
operating as a wholly-owned subsidiary of CWS.
The Board of Directors of CWS initially will remain unchanged.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
(SEE PAGE 38)
In considering the Crystal Board's recommendation that you vote in
favor of the Merger, you should be aware that two officers of Crystal, who are
also directors, have employment agreements that provide them with interests in
the Merger that are different from, or in addition to, yours.
4
<PAGE> 17
CONDITIONS TO THE MERGER
(SEE PAGE 29)
The completion of the Merger depends upon meeting a number of
conditions, including the following:
(a) the approval of the holders of two-thirds of the stock of
Crystal;
(b) there shall have been no law enacted or injunction entered
which effectively prohibits the Merger or which causes a
material adverse effect on either of our companies;
(c) the approval of the DPUC without burdensome demands;
(d) the Merger must qualify for pooling of interests accounting
treatment; and
(e) the receipt of an opinion of CWS's counsel to the effect that
the Merger will not be a taxable transaction for Crystal
Shareholders.
Certain of the conditions to the Merger may be waived by the company
entitled to assert the condition.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 30)
We can agree to terminate the Merger Agreement without completing the
Merger, and either of us can terminate the Merger Agreement if any of the
following occurs:
(a) the Merger is not completed by December 31, 1999;
(b) the approval of the holders of two-thirds of the stock of
Crystal is not received or any other condition to the Merger
has not been met;
(c) by mutual agreement of the parties; or
(d) the Closing Price for CWS Common Stock at the time it is to be
used in calculating the number of shares to be issued to
Crystal Shareholders is $20 per share or less.
5
<PAGE> 18
REGULATORY APPROVALS
The Merger must be approved by the DPUC. The parties have made
regulatory filings with the DPUC. As part of that review, the Department may
look at the impact of the Merger on competition and on the customers of the
companies.
It is possible that the DPUC may impose conditions for granting
approval. We cannot predict whether we will obtain the required regulatory
approval within the time frame contemplated by the Merger Agreement or on
conditions that would not be detrimental to either of us or the combined
company.
ACCOUNTING TREATMENT
(SEE PAGE 32)
We expect the Merger to qualify as a pooling of interests, which means
that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes. However, if the cash value of the
sum of the total number of CWS fractional shares sold and the number of Crystal
shares for which appraisal rights are exercised is more than 10% of the total
Merger consideration, the Merger will not qualify for pooling of interests
accounting treatment.
NO OPINIONS OF FINANCIAL ADVISORS
(SEE PAGES 22-25)
In deciding to approve the Merger, neither of our Boards considered
opinions from financial advisors as to the fairness of the Exchange Ratio from a
financial point of view.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 31)
We have structured the Merger so that Crystal Shareholders will not
recognize any gain or loss for federal income tax purposes in the Merger (except
for tax payable because of cash received instead of fractional shares or
pursuant to the exercise of appraisal rights). We have conditioned the Merger on
our receipt of a legal opinion that such is the case.
DISSENTERS' RIGHTS
(SEE PAGE 34)
Under Connecticut law, Crystal Shareholders who do not vote in favor of
the Merger and who comply with certain notice requirements and other procedures
will have the right to be paid cash for the "fair value" of their shares. "Fair
value" may be more or less than the value of CWS stock to be paid to other
Crystal Shareholders according to the Merger Agreement. Dissenting Crystal
Shareholders must precisely follow specific procedures to exercise this right,
or the right
6
<PAGE> 19
may be lost. These procedures are described in this Proxy Statement/Prospectus,
and the Connecticut law that grants the right is attached as Appendix B.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
(SEE PAGE 12)
Shares of CWS Common Stock are traded on NASDAQ. On March 9, 1999, the
last full trading day on the NASDAQ prior to the public announcement of the
proposed Merger, CWS stock closed at $25.50 per share. On July 7, 1999, CWS
Common Stock closed at $28.50 per share. Crystal Common Stock is not actively
traded. To the knowledge of Crystal, the most recent sale price (January 1,
1999) for Crystal Common Stock was $25.00 per share.
DIVIDENDS AFTER THE MERGER
(SEE PAGE 13)
We expect that the initial annualized dividend rate paid to CWS Common
Shareholders after the completion of the Merger will be approximately $1.17 per
share, subject to approval and declaration by the CWS Board of Directors.
Crystal's annual dividend for 1998 was $1.20 per share. The annualized rate of
$1.17 per share is equivalent to the historic dividend rate paid to CWS
Stockholders. The payment of dividends by CWS in the future, however, will
depend on business conditions, its financial position and earnings, and other
factors.
RESALE OF CWS COMMON STOCK
(SEE PAGE 33)
All shares of CWS Common Stock received by Crystal Shareholders in the
Merger will be freely transferable, except that shares of CWS Common Stock
received by persons who are deemed to be "affiliates" of Crystal prior to the
Merger may be resold by them only in transactions permitted under the federal
Securities Act of 1933, as amended (the "Securities Act").
RISK FACTORS
In determining whether to vote for the Merger, you should understand
that there may be some risks related to the Merger as well as some other factors
that you should consider, including:
o the need to obtain regulatory approval for the Merger, the
time that will be required to obtain this approval and the
possibility that regulatory authority may impose burdensome
conditions;
o the potential effect of market fluctuations on the value of
the CWS Common Stock to be issued to Crystal Shareholders due
to the fact that the number of
7
<PAGE> 20
shares of CWS to be issued to Crystal Shareholders is not now
determinable but will be based on the market price of CWS
Common Stock shortly before the closing;
o certain officers and members of the Crystal Board of Directors
may have interests in the Merger that are different from or in
addition to the interests of Crystal Shareholders generally.
(See "INTERESTS OF CERTAIN PERSONS IN THE MERGER" on page 38.)
8
<PAGE> 21
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the Merger. We derived this information
from audited financial statements for 1994 through 1998 and unaudited CWS
financial statements for the 3 months ended March 31, 1999. The information is
only a summary and you should read it in conjunction with our historical
financial statements (and related notes) contained in the annual reports and
other information that CWS has filed with the Securities and Exchange Commission
(the "SEC"). See "WHERE YOU CAN FIND MORE INFORMATION" on page 62 and the
Crystal financial statements and related notes beginning on page F-1.
CWS - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At or for the 3 At or for the Year Ended December 31,
Months Ended ----------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
-------------- ---- ---- ---- ---- ----
(unaudited) (Dollars in Millions, Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues 8.9 37.9 38.5 38.6 39.4 38.1
Income from continuing operations 1.4 6.9 6.8 6.6 6.3 5.8
Income from continuing operations
per common share 0.32 1.53 1.50 1.46 1.44 1.38
Cash dividends declared per
common share .2933 1.167 1.153 1.133 1.120 1.10
Book value per common share 12.79 12.77 12.38 12.04 11.64 11.14
Total assets 195.4 194.6 189.3 184.6 176.5 171.2
Long-term debt 62.5 62.5 54.5 54.4 54.5 54.6
</TABLE>
9
<PAGE> 22
CRYSTAL - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Millions, Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues 1.8 1.8 1.8 1.8 1.5
Income from continuing
operations 0.1 0.2 0.2 0.2 0.0
Income from continuing
operations per common share 1.41 2.31 2.34 2.06 0.09
Cash dividends declared per
common share 1.20 1.10 0.90 0.60 0.00
Book value per common share 18.54 18.31 17.09 15.66 14.20
Total assets 9.4 9.3 8.8 8.3 8.0
Long-term debt 3.0 3.1 3.1 3.1 3.2
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
We expect that the Merger will be accounted for as a "pooling of
interests," which means that for accounting and financial reporting purposes we
will treat our companies as if they had always been combined. For a more
detailed description of pooling of interests accounting, see "ACCOUNTING
TREATMENT" on page 32.
We have presented below unaudited pro forma financial information that
reflects the pooling of interests method of accounting and is intended to give
you a better picture of what our businesses might have looked like had they
always been combined. For purposes of the tables, we assumed an Exchange Ratio
of 2.87:1.0 based on the assumption that the Merger was consummated on July 7,
1999. If the Merger had been consummated as of that date, the Closing Price
would have been $26.0625 (based on the average of the CWS Common Stock closing
prices for prior dates). See "THE MERGER AGREEMENT -- Consideration" on page 25.
We prepared the pro forma income statement and balance sheet by adding or
combining the historical amounts of each company. We then adjusted the combined
amounts for significant differences in accounting methods used by the companies.
The companies may have performed differently if they were combined. You should
not rely on the pro forma information as being indicative of the historical
results that we would have had or the future results that we will experience
after the Merger.
10
<PAGE> 23
UNAUDITED PRO FORMA COMBINED
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Millions, Except for Per Share Amounts)
<S> <C> <C> <C>
Operating revenues 39.7 40.3 40.4
Income from continuing operations 7.1 7.0 6.8
Income from continuing operations
per common share [1.47] [1.45] [1.42]
Cash dividends declared per
common share (1) [1.12] [1.11] [1.08]
Book value per common share [12.39] [12.02] [11.67]
Total assets 204.0 198.6 193.4
Long-term debt 65.5 57.6 57.6
</TABLE>
- -----------------
(1) We have announced that, upon consummation of the Merger, the initial
annualized dividend rate will be equal to $1.17 per share of CWS Common
Stock, subject to approval and declaration by the Board of Directors of
CWS. The annualized rate of $1.17 per share of CWS Common Stock is
equivalent to the historical dividend rate paid to CWS Shareholders.
The cash dividends declared per common share in the Unaudited Pro Forma
Combined Condensed Financial Information reflect the sum of the
dividends declared by us divided by the number of shares that would
have been outstanding for the periods presented after adjusting the
Crystal shares by the Exchange Ratio.
11
<PAGE> 24
COMPARATIVE PER SHARE INFORMATION
We have summarized below the per-share information for our respective
companies on a historical, pro forma combined, and equivalent basis. We have
assumed that the Crystal Shareholders will receive 2.87 shares of CWS Common
Stock in exchange for each share of Crystal Common Stock.
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Millions, Except for Per Share Amounts)
<S> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED
Income from continuing operations
per common share 1.47 1.45 1.42
Cash dividends declared per common
share 1.12 1.11 1.08
Book value per common share 12.39 12.02 11.67
CRYSTAL PER SHARE EQUIVALENTS
Income from continuing operations
per common share 0.49 0.80 0.81
Cash dividends declared per common
share 0.42 0.38 0.31
Book value per common share 6.38 6.28 5.86
CRYSTAL - HISTORICAL
Income (loss) from continuing operations
per common share 1.41 2.31 2.34
Cash dividends declared per common share 1.20 1.10 0.90
Book value per common share 18.37 18.15 16.94
CWS - HISTORICAL
Income from continuing operations per
common share 1.53 1.50 1.46
Cash dividends declared per common share 1.167 1.153 1.133
Book value per common share 12.77 12.38 12.04
</TABLE>
12
<PAGE> 25
CWS COMMON STOCK PRICE RANGE AND DIVIDENDS
CWS Common Stock is traded on the NASDAQ under the symbol "CTWS". The
following table sets forth the high and low closing sale prices as reported on
NASDAQ and dividends paid for the period indicated.
<TABLE>
<CAPTION>
PRICE RANGE DIVIDENDS
PAID PER
HIGH LOW SHARE
------------- --------------- -------------------
<S> <C> <C> <C>
1997 QUARTER ENDED
March 31........................................ 20 18.33 .28668
June 30......................................... 19.67 18.33 .28668
September 30.................................... 19.42 18.58 .29000
December 31..................................... 22.67 18.92 .29000
1998 QUARTER ENDED
March 31........................................ 23.08 20.00 .29000
June 30......................................... 24.00 21.42 .29000
September 30.................................... 24.420 22.917 .29333
December 31..................................... 28.375 25.00 .29333
1999 QUARTER ENDED
March 31........................................ 27.75 24.00 .29333
June 30......................................... 29.00 21.75 .29333
</TABLE>
On July 7, 1999, the last reported sale price for CWS Common Stock on
the NASDAQ was $28.50.
On March 9, 1999, the date preceding the public announcement of the
execution of the Merger Agreement, the last reported sale price per share of CWS
Common Stock, as reported on NASDAQ, was 25.50.
As of June 1, 1999, there were 5,210 holders of record of CWS Common
Stock.
DIVIDEND RIGHTS AND RESTRICTIONS
Holders of CWS Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors from the net profits and surplus of
CWS. CWS has declared and paid quarterly dividends on its Common Stock without
interruption since its affiliation with CWC in 1975. Dividends, when declared,
are normally paid on the 15th day of March, June, September and December.
13
<PAGE> 26
While CWS's Board of Directors intends to continue the practice of
declaring cash dividends on a quarterly basis, no assurance can be given as to
future dividends or dividend rates since future dividends of CWS will be
dependent upon timely and adequate rate relief, consolidated and parent company
net income, availability of cash to CWS and CWC, the financial condition of CWS
and CWC, the ability of CWS and CWC to sell their securities, the requirements
of the construction program of CWC and other factors existing at the time.
CWS 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 CWS Cumulative Preferred Stock have been paid or set aside
for payment.
The income of CWS is derived principally from its investment in CWC,
and CWS's future ability to pay dividends to holders of its Common Stock is
dependent upon the continued payment by CWC of dividends to CWS. At December 31,
1998, the retained earnings of CWC aggregated $15,770,000. As a result of
dividend restrictions contained in CWC's mortgage indenture, the amount of cash
dividends payable on CWC's common equity out of CWC's retained earnings at that
date was limited to $15,520,000.
Although the terms of CWC's Preferred Stock prohibit payment of cash
dividends on CWC Common Stock in the event of an arrearage in the payment of
cumulative dividends on the Preferred Stock and limit cash dividends on such
Common Stock whenever Common Stock equity is less than 30% of CWC's total
capitalization, no such CWC Preferred Stock is presently outstanding. See
"DESCRIPTION OF CWS CAPITAL STOCK".
DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
CWS has a Dividend Reinvestment and Common Stock Purchase Plan (the
"Plan"). Under the Plan, holders of CWS 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
between $25 and $1,000 per month to purchase additional shares of Common Stock
at 100% of said average market price. The Company may either issue authorized
but unissued shares, or purchase in the open market shares, of Common Stock to
meet the requirements of the Plan.
14
<PAGE> 27
CRYSTAL COMMON STOCK
There is no established trading market for the Crystal Common Stock.
The following table sets forth the dividends paid by Crystal on the
dates indicated.
<TABLE>
<CAPTION>
DIVIDENDS PAID
PER SHARE
--------------
<S> <C>
1997
March 25, 1997 50(cent)
October 23, 1997 60(cent)
1998
April 28, 1998 60(cent)
October 6, 1998 60(cent)
1999
April 23, 1999 75(cent)
</TABLE>
At June 1, 1999, there were 77 record holders of Crystal Common Stock.
Although there can be no assurance that Crystal would continue to pay
any dividends to holders of Crystal Common Stock, the policy of the Board is to
attempt to pay sufficient dividends to attract and maintain equity investors.
Although there is no policy, the Crystal Board and management have in recent
years believed that a dividend providing a return of 5.5-6% on the then value of
the Crystal Common Stock has been sufficient.
15
<PAGE> 28
CRYSTAL SPECIAL SHAREHOLDERS MEETING
DATE, TIME AND PLACE OF CRYSTAL SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to the holders of
Crystal Common Stock in connection with the solicitation of proxies by the
Crystal Board for use at a Crystal Special Meeting to be held on August 11,
1999, at the offices of Crystal, 321 Main Street, Danielson, Connecticut, at
10:00 a.m., local time, and at any adjournment or postponement thereof.
This Proxy Statement/Prospectus and accompanying proxy are first being
mailed to the Crystal Shareholders on or about July 12, 1999.
BUSINESS TO BE TRANSACTED AT THE CRYSTAL SPECIAL MEETING
At the Crystal Special Meeting, Crystal Shareholders will consider and
vote upon a proposal to approve the Merger.
A copy of the Merger Agreement (without the schedules thereto) is
attached as Appendix A to this Proxy Statement/Prospectus. Pursuant to the
Merger Agreement , upon satisfaction or waiver of certain conditions described
in the Merger Agreement, (i) Crystal will be merged with NewCo, a wholly-owned
subsidiary of CWS, (ii) each outstanding share of Crystal Common Stock will be
converted into the right to receive that number of shares of CWS Common Stock
equal to the Exchange Ratio, and (iii) Crystal, as the surviving corporation in
the Merger, will thereafter be a wholly-owned subsidiary of CWS.
David R. Daggett, independent certified public accountant of Crystal,
will be present at the Crystal Special Meeting, and will have an opportunity to
make a statement, if he so desires, and to respond to appropriate questions
raised at the Crystal Special Meeting.
RECORD DATE; VOTING RIGHTS
Only shareholders of record of Crystal Common Stock at the close of
business on the Record Date will be entitled to vote at the Crystal Special
Meeting. On that date, there were issued and outstanding 99,311 shares of
Crystal Common Stock. Each share of Crystal Common Stock is entitled to one vote
per share on the Merger, all exercisable in person or by properly executed proxy
at the Crystal Special Meeting or any adjournment or postponement thereof.
VOTING REQUIREMENTS
The presence, either in person or by proxy, of the holders of a
majority of the shares of Crystal Common Stock outstanding on the Record Date is
necessary to constitute a quorum for the transaction of business at the Crystal
Special Meeting.
16
<PAGE> 29
Under the Connecticut Business Corporation Act ("CBCA"), the
affirmative vote, either in person or by proxy, of the holders of at least
two-thirds of the shares of Crystal Common Stock outstanding on the Record Date
is required to approve the Merger. Abstentions have the effect of negative
votes.
All shares represented by properly executed proxies received prior to
or at the Crystal Special Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated on a properly executed returned proxy, such proxies will be voted FOR
approval of the Merger. Brokers and nominees are precluded from exercising their
voting discretion with respect to the approval and thus, absent specific
instructions from the beneficial owner of such shares, are not empowered to vote
such shares ("broker non-votes") with respect to the approval and adoption of
the Merger.
The management of Crystal does not know of any business to be presented
at the Crystal Special Meeting other than such business described in this Proxy
Statement/Prospectus. Should additional business properly come before the
Crystal Special Meeting, the persons acting as the proxies will have discretion
to vote in accordance with their own judgment on such business.
Pursuant to the CBCA and CWS's Certificate of Incorporation and
By-Laws, no vote of the CWS Shareholders is required to complete the Merger.
AFFILIATE OWNERSHIP
As of the Record Date, directors, officers and affiliates of Crystal as
a group owned approximately 40,600 shares of Crystal Common Stock, representing
approximately 41% of the outstanding shares of Crystal Common Stock.
Of these persons, holders whose ownership constitutes 40.8% of the
Crystal Common Stock have committed to vote for the Merger. Accordingly, the
Merger will be approved if 33,883 additional shares or 25.9% of Crystal Common
Stock are voted in favor thereof.
REVOCABILITY OF PROXIES
Any proxy given in response to this solicitation may be revoked by the
person giving it any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Crystal, at or before the taking of the vote at the
Crystal Special Meeting, a written notice of revocation bearing a later date
than the proxy given, (ii) duly executing a proxy bearing a later date than the
proxy given and delivering it to the Secretary of Crystal before the vote at the
Crystal Special Meeting, or (iii) attending the Crystal Special Meeting and
voting in person (although attendance at the Crystal Special Meeting will not in
and of itself constitute a revocation of a proxy previously given). Any written
notice of revocation or subsequent proxy should be sent so as to be delivered
to: Crystal Water Utilities Corporation, 321 Main Street, Danielson, Connecticut
06239, Attention: Secretary, at or before the taking of the vote at the Crystal
Special Meeting.
17
<PAGE> 30
PROXY SOLICITATION
All expenses of this solicitation (other than the SEC filing fee which
will be paid by CWS), including the cost of preparing and mailing this Proxy
Statement/Prospectus, will be borne by Crystal. In addition to solicitation by
use of the mails, proxies may be solicited by directors, officers and employees
of Crystal in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated for,
but may be reimbursed for out-of-pocket expenses in connection with, such
solicitations. Arrangements will also be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of Crystal Common Stock held of record by such custodians, nominees and
fiduciaries, and Crystal may reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith.
THE MERGER
The following information insofar as it relates to matters contained in
the Merger Agreement is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and attached hereto as
Appendix A. Crystal Shareholders are urged to read the Merger Agreement in its
entirety. All information contained in this Proxy Statement/Prospectus with
respect to Crystal has been supplied by Crystal for inclusion herein and has not
been independently verified by CWS. All information contained in this Proxy
Statement/Prospectus with respect to CWS has been supplied by CWS for inclusion
herein and has not been independently verified by Crystal.
BACKGROUND OF THE TRANSACTION
Public water supply has been the core business of CWC since it was
established in 1956 and it remains a core business of CWC's parent company, CWS.
CWC's water supply business grew in Connecticut both through the legislative
expansion of its utility franchise into areas which were previously not served
by a public water supplier and through acquisition of water companies which
served other Connecticut areas. In 1998, CWS entered into an agreement to
acquire, by merger, all of the outstanding stock of Gallup and in 1997, CWC
acquired the assets of two small water companies, all in eastern Connecticut.
CWS's strategic objectives include the growth of its public water supply
business, and the opportunity to acquire Crystal, which is in the same eastern
Connecticut corridor and can therefore be operated economically in conjunction
with these other acquisitions, will further CWS's attainment of those
objectives. The acquisition of Crystal will also serve to extend CWS's public
water supply business into a new area.
Water quality regulation became more complex and costly as a result of
amendments to the federal Safe Drinking Water Act in 1986. Water quality
standards for public drinking water and related testing and treatment
requirements demanded more operational expertise and capital investment by water
suppliers, and the costs of compliance with water quality regulations have
caused the rates charged for water to increase. Since the changes in the
regulations became
18
<PAGE> 31
effective, Crystal has come under increasing regulatory pressure to comply with
a myriad of orders, regulations and laws, many of which require considerable
expenditures. Given the impact on rates, economic regulators such as the DPUC
have scrutinized both operational and capital expenditures critically over the
past several years. Crystal, as a smaller company, cannot raise capital as
readily as larger water companies. CWS is the second largest investor-owned
water company operating in New England, and it has considerable financial
resources and an ability to attract additional equity capital.
BACKGROUND TO THE MERGER
Public water supply has been and remains the core business of CWS
through its subsidiary, CWC. The normal growth and expansion of the business has
been enhanced by CWS's acquisition of smaller water utilities throughout
Connecticut that are close to CWC's three operating regions. Since 1986, CWC has
acquired 22 smaller systems adding 4,800 customers to its base. In recent years,
CWS has more aggressively pursued viable water company acquisitions.
In 1992, senior management of CWS began to consider ways to sustain and
enhance the growth of CWS in the future. Mr. Chiaraluce, President and Chief
Executive Officer of CWS, reviewed his thoughts with the Board of Directors of
CWS. The Board of Directors concurred and requested that management develop a
strategic vision for CWS based on the consolidation in the water industry.
In connection with this strategic planning, CWS's management began to
analyze possible acquisition candidates in Connecticut that would enable CWS to
meet its growth objectives. As part of its strategy considerations, Crystal was
a primary focus in CWS's analysis based on various factors, including: (i)
Crystal's size in terms of customers; and (ii) the geographic proximity of
Crystal's operations to CWS.
Over the last seven years, CWS and Crystal have discussed numerous
legislative, regulatory and operational water-related issues of their respective
companies. The respective Presidents and staff of both utilities have enjoyed a
good relationship in the water business over the years. Since there have been
numerous occasions where both Presidents have been in contact with each other
over the years, there were times that the possibility of combining the two
companies was informally discussed.
On October 18, 1996, Mr. Chiaraluce submitted a written offer to Mr.
Roger Engle, the President of Crystal, proposing to acquire Crystal for CWS
Common Stock having a fair market value of $2 million. Mr. Engle advised that
the Crystal Board had not made any determination that Crystal was for sale and
stated that he did not believe the offer reflected Crystal's value.
In June 1997, CWS submitted a written offer to Mr. Engle that proposed
a stock-for-stock reorganization with a purchase price based upon 130% of
Crystal's balance sheet equity
19
<PAGE> 32
and preserving for Crystal Shareholders the proceeds of any sale of Crystal's
reservoir. CWS was informed by Mr. Engle sometime in July 1997 that the offer
was too low and would not be brought to the attention of the full Board of
Directors of Crystal.
In May of 1998, Mr. Engle was contacted by a third party seeking to
enter into the water utility business in Connecticut by means of acquisition.
Following a meeting with Mr. Engle on May 14, 1998, the party submitted a
proposal to acquire Crystal for consideration consisting mainly of preferred
stock for which there was no trading market and which could not be converted
into common stock for a period of several years. Mr. Engle, after polling
various Board members, informed the offeror that the proposed consideration was
too speculative.
On June 5, 1998, the same third-party offeror submitted a revised offer
with certain enhancements based upon Crystal's future water utility growth and
assumption of debt. Crystal's Board met on June 16, 1998, at which time Mr.
Engle and Crystal's legal advisor briefed the Board on the offer and pertinent
considerations. The Board considered the offer and determined that because it
was based mainly on preferred stock that could not be converted into common
stock for a long period, it was too uncertain and speculative to recommend to
shareholders. The Board further considered that the offeror had no prior
regulatory experience in Connecticut and had no track record with Connecticut
regulators. The same offeror subsequently made an offer valued at almost $70 per
share, plus the value of surplus land on September 28, 1998.
In July and August 1998, Mr. Chiaraluce expressed CWS's continuing
interest in acquiring Crystal, and Mr. Engle indicated that the price would have
to be in the range proposed by the third-party offeror.
In August 1998, Mr. Engle was contacted by another third party with
water supply operations serving other areas of Connecticut. After discussions in
August and September, on October 6, 1998, this third party expressed interest in
an acquisition of Crystal for consideration involving $6 million and the
assumption of debt.
In October 1998, Mr. Chiaraluce called Mr. Engle to suggest that they
meet again to explore the benefits of a possible merger of the two companies.
They met on October 20, 1998. On October 27, 1998, CWS submitted a Letter of
Intent to acquire Crystal at $70 per share, a price higher than that of the June
1997 CWS offer, conditioned upon specific regulatory rate treatment. Mr. Engle
indicated that he would submit this offer to his Board for discussion.
On November 5, 1998, the party which had expressed interest in Crystal
on October 6, 1998 made a proposal to acquire Crystal in a stock transaction in
which Crystal shares would be valued at $75. Mr. Engle asked if CWS would revise
its offer in light of this offer. On November 5, 1998, CWS verbally offered to
match the third party offer of $75 per share and Mr. Engle stated that he would
take the offer to Crystal's Board.
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Over the next few days there was an exchange of additional information
and a series of discussions between Mr. Chiaraluce and Mr. Engle regarding
issues that would need to be resolved in order for a transaction to take place.
On November 9, 1998, the parties signed a Letter of Intent outlining the general
terms and agreed, subject to approval of Crystal's Board, to complete the due
diligence review and negotiate a definitive merger agreement.
The respective managements of Crystal and CWS reached agreement on the
Exchange Ratio through arm's length negotiations. In reaching their
understanding, each management considered factors described below under "CWS's
Reasons for the Transaction" and "Crystal's Reasons for the Transactions";
Recommendation of Crystal's Board of Directors". The managements of the two
companies did not assign relative or specific weights to any of such factors or
analysis.
On November 18, 1998, the Board of Directors of CWS met with Mr.
Chiaraluce and senior management of CWS along with CWS's legal advisor to review
and to approve the proposed Merger.
On November 20, 1998, certain members of Crystal's senior management,
together with Mr. Chiaraluce, Mr. Benoit and Mr. O'Neill of CWS and legal
advisors, briefed the Crystal Board of Directors with respect to the status of
discussions with CWS. At the meeting, the directors and management of Crystal
and their legal advisor discussed with CWS various open issues, including the
ability of Crystal Shareholders to be paid in either cash or CWS Common Stock.
After the CWS representatives excused themselves from the meeting, Crystal's
Board discussed the offer and the terms proposed by CWS, including the amount
and form of consideration, CWS's financial performance and prospects, the
proximity of CWS's operations to Crystal's water utility service area, and
various economic, regulatory and service considerations. The Crystal Board
determined that the price was fair and directed its senior management and legal
advisor to seek to resolve certain open issues, including the registration of
CWS shares to be issued to Crystal Shareholders.
On December 21, 1998, Mr. Engle and Mr. Kempain of Crystal met with
Crystal's legal advisor to review open issues and a draft merger agreement in
preparation for a meeting with senior management of CWS.
On January 5, 1999, Mr. Chiaraluce and Mr. Engle, along with senior
executives of both companies and legal advisors, met to discuss items from their
due diligence review and to negotiate the detailed terms and specific language
of the Merger Agreement.
Negotiations on the final terms of the Merger Agreement were completed
in early March 1999. The companies executed the Merger Agreement as of March 10,
1999, and on that date issued an announcement of their agreement.
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On April 23, 1999, the Board of Directors of Crystal met with Mr. Engle
and Crystal's senior management to review the final Merger Agreement. After a
full discussion, Crystal's Board approved the transaction as presented in the
Merger Agreement.
CRYSTAL'S REASONS FOR THE TRANSACTION; RECOMMENDATION OF CRYSTAL'S BOARD OF
DIRECTORS
The Crystal Board of Directors believes that the Merger should be
approved by the Crystal Shareholders in light of the favorable exchange of
investments that will be afforded the Crystal Shareholders and the immediate and
long-term capital needs of Crystal. The material factors on which the Board
based its determination, which are all of the material factors which the Board
deemed relevant, are described below. The Directors believe that CWS's strategic
business plan to build a profitable, expanding water supply business is
consistent with the goals of Crystal. The Directors of Crystal and the
management of Crystal, after careful study and evaluation of the economic,
financial and legal factors involved, which are described below, believe that
the Merger will provide CWS with an increased opportunity for expansion of its
business, which in turn should benefit the Crystal Shareholders who become
shareholders of CWS.
The terms of the Merger Agreement were the result of arm's-length
negotiations over an extended period of time. Among the positive factors
considered by the Crystal Board in deciding to approve and recommend the Merger
were: the monetary terms of the Merger Agreement, which management of Crystal
believes constitute a fair price for the Common Stock of Crystal; the financial
condition, business assets and liabilities and management of CWS and its
subsidiaries; the financial and business prospects of CWS and its subsidiaries
as a result of their becoming a larger, combined operating entity, including the
achievement of economies of scale; the proximity of CWS's service area and the
potential operational synergies resulting therefrom; and the existence of an
active trading market for the CWS Common Stock on the NASDAQ, something that is
lacking for Crystal Common Stock.
The Crystal Board considers the Merger particularly advantageous to
Crystal Shareholders, and considers the exchange of investments to be favorable,
in that the Crystal Shareholders will receive a security which, in the opinion
of the Crystal Directors, represents an investment of the same character that
has significantly greater market liquidity than the Crystal Common Stock. The
receipt of CWS shares as a result of the Merger is also intended to be a
tax-free exchange, thereby affording Crystal Shareholders an equity
participation in CWS without currently incurring federal income tax liability.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES". The Board did not perform any
quantifiable analysis in concluding that the exchange of investments was
favorable.
The Crystal Board considered economic, financial and legal factors in
reaching its conclusion to approve and recommend the transaction. The economic
factors included the greater access to capital Crystal would have through CWS
for the operation and expansion of its business, and cost impacts associated
with compliance with an increasing number of laws and
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regulations affecting such business. This included economic regulation by the
DPUC, environmental regulation and health-related regulation (including
maintaining compliance with the Federal Safe Drinking Water Act and its
amendments). The costs of maintaining compliance with such laws and regulations
was imposing greater burdens on the revenue requirements and rates of companies
the size of Crystal Water. It was also becoming apparent to the Board of Crystal
that larger water companies could more effectively absorb the costs of
regulatory compliance.
The financial factors considered related primarily to whether the
aggregate purchase price to be received by Crystal was fair. In addition, the
Crystal Board considered the facts that the transaction would not have immediate
tax consequences for the Crystal Shareholders, that the Crystal Shareholders
would receive securities with a more active trading market and that CWS had a
long record of paying uninterrupted dividends on its Common Stock. The legal
factors considered included the structure and form of the transactions and the
effect thereof on Crystal Shareholders, as well as the likelihood that CWS, as a
Connecticut-based company with water supply operations proximate to Crystal's
service area, could obtain necessary regulatory approval for the transaction.
The Crystal Board made its determination without the assistance of a
financial advisor and without a "fairness opinion". Crystal is in the regulated
business of public water supply within the Sate of Connecticut and is
experienced in regulation by the DPUC, which determines the rates water
companies may charge for water service and which must approve the economic
aspects of the Merger. The Crystal Board believed that it could rely on the
regulatory and financial experience of its management in evaluating the
transaction, without incurring the expense of a fairness opinion, in addition to
the fact that Crystal received and considered other proposals relating to the
possible acquisition of Crystal.
The merger of Crystal and CWS will allow Crystal Shareholders to
realize a significant increase in the value of their interest in Crystal through
a tax-free transaction, while allowing Crystal Shareholders to continue to
participate as investors in the water utility industry through ownership of a
stronger, combined entity better able to take advantage of future consolidation
in the industry and achieve some of the economies of scale that Crystal had been
seeking.
In addition, Crystal believes that the combined entity will provide
more opportunities for its employees, moderate future rate increases to the
companies' customers through the realization of economies of scale and provide
continued excellent service to its customers. The combined entity will also be
in a better position to support customer growth in the regions served.
The foregoing discussion of the information and factors considered by
the Crystal Board of Directors is not intended to be exhaustive, but includes
all material factors considered by the Crystal Board. In reaching its
determination to approve and recommend the Merger, the Crystal Board of
Directors did not assign relative or specific weights to the foregoing factors,
and individual directors may have given different weights to different factors.
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FOR THE REASONS DESCRIBED ABOVE, THE CRYSTAL BOARD OF DIRECTORS HAS
DETERMINED THE MERGER TO BE FAIR AND IN THE BEST INTERESTS OF CRYSTAL AND ITS
SHAREHOLDERS, CUSTOMERS AND COMMUNITIES SERVED. ACCORDINGLY, THE CRYSTAL BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
CWS'S REASONS FOR THE TRANSACTION
CWS believes that the combination with Crystal can provide better
opportunities to achieve significant benefits for both companies' shareholders,
customers, employees and the regions that they serve than could be achieved by
the two companies separately.
CWS, through its regulated public utility subsidiary, CWC, has been
acquiring and consolidating various small, privately owned water systems
adjacent to its service territory in Connecticut. Beginning in 1986, CWS has
acquired 23 water systems in Connecticut. CWS's management anticipates that the
Merger will permit CWS to enter, and subsequently expand its customer growth in,
the regions served by Crystal's operations in southeastern Connecticut.
CWS has focused primarily on southeastern and eastern Connecticut as
areas for expansion through acquisitions of other water companies. In 1997, CWS
acquired three water systems in this part of the state, adding 530 customers to
its customer base. In April 1999, CWS acquired Gallup. Gallup has 1,154
customers in Plainfield and Griswold. The Gallup water distribution system is
within ten miles of the CWC distribution system. The ownership of both Gallup
and Crystal would encompass a service area in Connecticut that is experiencing
rapid growth. The proximity of the service areas would enable CWS to supervise
and coordinate the operations of these companies with greater economy than could
be achieved through their present separate ownership. The acquisition is
therefore a natural geographic fit and would expand CWS's core water supply
business, integrate water supply planning and create opportunities for operating
efficiency. CWS would also benefit from the inclusion in this transaction of
Crystal's reservoir and surrounding land holdings. The inactive status of this
reservoir has placed the approximately 300 acres of surrounding land holdings in
a position under which this land can be marketed for sale. The circumstance of
readily disposable land holdings, operational synergies and an area where
significant growth is occurring justify the price to be paid by CWS in the
Merger.
CWS has not retained an outside party to evaluate the proposed Merger
but has instead relied upon the knowledge of its management concerning the
business of public water supply in Connecticut (and in particular the business
of Crystal), and utility regulation and ratemaking in Connecticut, in
considering the financial viability of the Merger. The relatively small size of
the transaction was also a factor in not retaining an outside financial advisor.
The CWS Board
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believes that the Merger is justified by the overall benefit to CWS and is in
the best interests of the CWS Shareholders.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Appendix A to this Proxy Statement/Prospectus
and is incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval and adoption
of the Merger Agreement by the Crystal Shareholders and the satisfaction or
waiver of the other conditions to the Merger, on the Closing Date, Crystal will
be merged with NewCo, a wholly-owned subsidiary of CWS, with Crystal becoming a
wholly-owned subsidiary of CWS and continuing as the surviving corporation (the
"Surviving Company"). As a result of the Merger and assuming an Exchange Ratio
of 2.87:1.0, CWS would issue 2.87 shares of CWS Common Stock for each share of
Crystal Common Stock. This share amount assumes that the Exchange Ratio is based
upon a Closing Price of $26.0625, which, in turn, is based upon the assumption
that the Merger had been consummated on July 7, 1999. See "THE MERGER AGREEMENT
- -- Consideration" on page 25. Cash will be paid in lieu of fractional shares.
Holders of Crystal Common Stock are entitled to dissenters' rights in connection
with the Merger. See "COMPARISON OF SHAREHOLDER RIGHTS -- Dissenters' Rights of
Appraisal" and "THE MERGER AGREEMENT -- Conditions Precedent to the Merger".
The Merger will become effective in accordance with the Plan of Merger
to be filed with the Secretary of State of Connecticut. It is anticipated that
such filing will be made immediately after the Closing.
SURVIVING COMPANY
At the Effective Time, each issued and outstanding share of common
stock of NewCo shall remain issued and outstanding and unaffected by the Merger.
The Certificate of Incorporation of NewCo and the By-Laws of Crystal as in
effect immediately prior to the Closing Date will be the Certificate of
Incorporation and By-Laws of the Surviving Company after the Closing Date, until
thereafter changed or amended as provided therein or by applicable law.
CONSIDERATION
At the Closing Date, by virtue of the Merger and without any action by
any holder of Crystal Common Stock, each share of Crystal Common Stock will be
converted into the right to receive that number of shares of CWS Common Stock
equal to the Exchange Ratio. The
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Exchange Ratio will be calculated by dividing $75.00 by the Closing Price (as
defined below); provided, however, that the Closing Price shall not be more than
$31.00 or less than $24.00. The Closing Price is the average of the daily last
sale prices of the CWS Common Stock for the ten consecutive business days
commencing twenty business days before the Closing Date (as defined in the
Merger Agreement).
Based upon the capitalization of Crystal and CWS as of December 31,
1998 and an assumed Exchange Ratio of 2.87:1.0 (based on the assumption that the
Merger was consummated on July 7, 1999), the holders of the then outstanding
shares of Crystal Common Stock would own approximately 285,787 shares of CWS
Common Stock or approximately 6% of the outstanding shares of CWS Common Stock
as a result of the Merger.
FRACTIONAL SHARES
No fractional shares of CWS Common Stock will be distributed pursuant
to the Merger. If any Crystal Shareholder is not entitled to a whole number of
shares of CWS Common Stock, the Crystal Shareholder will receive a cash payment
in lieu of any entitlement to a fractional share of CWS Common Stock from the
proceeds of a sale on NASDAQ by CWS of a sufficient number of shares of CWS
Common Stock to settle the aggregate amount of fractional share distribution
entitlements of all similarly situated shareholders of Crystal.
EXCHANGE OF SHARES
At the Closing Date, the stock transfer books of Crystal shall be
closed and there shall be no further registration of transfers of Crystal Common
Stock. Immediately after the Closing Date, transmittal letters will be mailed to
each holder of record of Crystal Common Stock to be used in forwarding his or
her certificates evidencing such shares for surrender and exchange for
certificates evidencing the shares of CWS Common Stock to which he or she has
become entitled. After receipt of such transmittal form, each holder of
certificates formerly representing Crystal Common Stock should surrender such
certificates to the paying agent approved by CWS, and each such holder will
receive in exchange therefor certificates evidencing the number of whole shares
of CWS Common Stock to which such holder is entitled. Such transmittal letters
will be accompanied by instructions specifying other details of the exchange.
CRYSTAL SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES TO THE PAYING
AGENT UNTIL THEY RECEIVE A TRANSMITTAL LETTER FOLLOWING THE CLOSING DATE.
NO FURTHER RIGHTS
From and after the Closing Date, holders of certificates representing
shares of Crystal Common Stock will cease to have any rights with respect to
Crystal Common Stock. The sole right of holders of such certificates shall be
the right to receive the number of shares of CWS Common Stock which the holder
of such certificate is entitled to receive. The holder of such
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unexchanged certificate will not be entitled to receive any dividends or other
distributions declared or made after the Closing Date with respect to CWS Common
Stock until the certificate is surrendered. Subject to applicable laws, such
dividends and distributions, if any, will be accumulated and, at the time of
such surrender, all such unpaid dividends and distributions will be paid,
without interest. None of CWS, Crystal, the paying agent or any other person
will be liable to any holder of shares of Crystal Common Stock for any amount
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar laws.
If a certificate for Crystal Common Stock has been lost, stolen or
destroyed, the paying agent will issue CWS Common Stock in accordance with the
Merger Agreement upon receipt of appropriate evidence as to such loss, theft or
destruction, appropriate evidence as to the ownership of such certificate by the
claimant and appropriate and customary indemnification.
For a description of the differences between the rights of the holders
of CWS Common Stock and Crystal Common Stock, see "COMPARISON OF SHAREHOLDER
RIGHTS".
GOVERNANCE OF CWS AND THE SURVIVING COMPANY
The Merger Agreement sets forth certain matters related to the Board of
Directors and the executive officers of CWS and the Surviving Company, from and
after the Closing Date. See "MANAGEMENT FOLLOWING THE MERGER".
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of
CWS regarding, without limitation, (i) due organization and good standing, (ii)
validity and non-assessability of its Common Stock, (iii) absence of defaults,
(iv) corporate authority to enter into the contemplated transaction, (v) recent
reports filed with the SEC, and (vi) absence of material adverse changes in
CWS's business or other material events.
The Merger Agreement contains certain representations and warranties of
Crystal regarding, without limitation, (i) due organization and good standing,
(ii) authorized capital stock, (iii) ownership of subsidiaries and other
investments, (iv) corporate authority to enter into the Merger, (v) absence of
defaults, (vi) financial statements, (vii) absence of certain material adverse
changes in Crystal's business or other material events, (viii) compliance with
applicable laws, (ix) real and personal property, (x) employees and employee
benefit plans, (xi) insurance, (xii) tax matters, (xiii) condition of assets,
(xiv) regulatory matters, including utility regulation, and (xv) the absence of
certain undisclosed liabilities relating to (a) contractual defaults, (b)
material changes or events, (c) litigation, (d) violations of law, (e) related
party transactions, (f) bank accounts and/or credit, and (g) environmental
matters.
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CERTAIN COVENANTS
All Parties.
Pursuant to the Merger Agreement, CWS and Crystal have each agreed that
prior to the Closing Date, each will, among other things, (i) treat information
received from the other party as confidential, (ii) use its best efforts to
take, or cause to be taken, all actions necessary to consummate the Merger,
(iii) not take any action that would result in any of the representations and
warranties set forth in the Merger Agreement becoming untrue at the Closing
Date, and (iv) use its best efforts to obtain all regulatory and other approvals
required to consummate the Merger.
CWS.
In addition to the covenants above, CWS has agreed to, among other
things, prepare and file with the SEC and duly seek effectiveness of a
Registration Statement on Form S-4 containing this Proxy Statement/Prospectus.
Crystal.
In addition to the convents above, Crystal has agreed that among other
things, prior to the Closing Date, except (A) as permitted or required by the
Merger Agreement or (B) as consented to by CWS, it will, among other things, (i)
carry on its business in the ordinary course so that its representations and
warranties will be true at the Closing Date and so that the conditions to be
satisfied by the Companies under the Merger Agreement will be satisfied on or
prior to the Closing Date; (ii) co-operate with CWS to effect a satisfactory
transition in the Companies' operations; (iii) not dispose of any Assets (as
defined in the Merger Agreement) of the Companies having a value of $5,000 or
more or dispose of assets having an aggregate value of $25,000 or more; (iv) not
incur additional liabilities other than in the ordinary course of business in
the aggregate amount of $25,000 or more whether for borrowed money of otherwise,
or encumber of any of the Assets; (v) maintain in force all existing liability
insurance policies and bonds; (vi) advise CWS in writing of any occurrence of
any events which may be material and adverse to any of the Companies; (vii)
maintain Assets in good condition; (viii) not enter into any new leases or
contracts that would impose any aggregate obligation in excess of $25,000; (ix)
not make any material alterations to the Assets; (x) not cancel, amend or modify
in any material respect any material easement, license or other right held by
either of the Companies; (xi) not increase any compensation payable to any
officers or employees; (xii) not issue, sell or otherwise dispose of any the
shares of capital stock of either of the Companies or agree to acquire any of
the shares of such capital stock or grant any options, warrants or otherwise to
acquire any of such capital stock; (xiii) pay no dividends or make any other
distributions on any shares of capital stock except for regularly scheduled
dividend payments by Crystal of $.75 per common share paid on April 1, 1999 and
by Crystal at $.65 per common share payable on November 1, 1999 if the Merger
has not been closed by that date; (xiv) give to CWS and its
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representatives reasonable access to all Assets, documents, etc.; (xv) notify
CWS promptly of any lawsuit, inquiry or investigation involving a transaction
contemplated in the Merger Agreement or which might have a material adverse
effect on either of the Companies or any of the Assets; (xvi) use its best
efforts to remain in compliance with all laws, regulations, etc.; (xvii) submit
the Plan of Merger to shareholders of Crystal, recommend approval thereof and
use its best efforts to solicit the requisite approval of the Merger by Crystal
Shareholders; (xviii) provide CWS with ongoing, current information with respect
to the Companies; and (xviv) give prompt notice to CWS of the occurrence of any
event which would be likely to cause any representation or warranty contained in
the Merger Agreement to be untrue or inaccurate or of any failure of either of
the Companies or any officers, directors or employees to comply with any
covenant or condition to be complied with pursuant to the Merger Agreement.
CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of each party to the Merger Agreement to
effect the Merger are subject to the fulfillment prior to the Closing Date of
certain conditions precedent.
All Parties.
The obligations of CWS and Crystal are subject to the fulfillment of
each of the following conditions prior to the Closing Date, unless waived by
both parties: (i) receipt of DPUC approval; (ii) the Merger shall have been
approved by the requisite number of shareholders of Crystal; (iii) the
Registration Statement of which this Proxy Statement/Prospectus is a part shall
have become effective and shall not be the subject of a stop order or
proceedings seeking a stop order; and (iv) the representations and warranties of
CWS and Crystal set forth in the Merger Agreement will have been true and
correct in all material respects.
CWS.
The obligation of CWS to effect the Merger is subject to the
fulfillment of various conditions, prior to or at the Closing Date, unless
waived by CWS, including, among others, (i) Crystal shall have performed and
complied in all material respects with the obligations required to be performed
by it prior to or at the Closing Date pursuant to the Merger Agreement; (ii) the
holders of more than 10% of Crystal's capital stock shall not have exercised
their appraisal rights under Connecticut law; (iii) the DPUC shall have
authorized CWS, as owner of the Companies, to continue to charge the Companies'
current rates for water service; (iv) Crystal shall have obtained consents
necessary and appropriate to effect the transactions contemplated by the Merger
Agreement; (v) there shall have been no material adverse change in the Assets,
business, results of operations or condition, financial or otherwise, of either
of the Companies taken as a whole; (vi) the Property shall be in good condition,
comply with all applicable legal requirements and shall be free and clear of any
management, leasing or other agreements or contracts; (vii) receipt of an
opinion of Whitman Breed Abbott and Morgan LLP, counsel to Crystal, in form and
substance reasonably satisfactory to CWS and its counsel; (viii) receipt of
resignations of
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officers and directors of each of the Companies (except for Messrs. Engle and
Kempain); (ix) execution by Messrs. Roger Engle, Kempain, Pezanko and Roger D.
Engle of employment agreements, and (x) the Merger shall have met the
requirements for pooling of interests accounting treatment (although the parties
expect that the Merger will be treated as a pooling of interests, if the cash
value of the sum of the total number of CWS fractional shares sold and the
number of Crystal shares for which appraisal rights are exercised is more than
10% of the total Merger consideration, the Merger will not qualify for pooling).
Crystal.
The obligation of Crystal to effect the Merger is subject to the
fulfillment of various conditions, prior to or at the Closing Date, unless
waived by Crystal, including, among others, (i) CWS shall have performed and
complied in all material respects with the obligations required to be performed
by it prior to or at the Closing Date pursuant to the Merger Agreement; (ii)
Crystal shall have received from Day, Berry & Howard LLP, counsel to CWS, an
opinion as to such matters reasonably requested by Crystal and its counsel;
(iii) the Merger shall be treated as a reorganization, within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
(which will be evidenced by an opinion to that effect from Day, Berry & Howard,
LLP, counsel for CWS); and (iv) Crystal Water and CWS shall have entered into
satisfactory arrangements with Mr. Engle with respect to his subsequent
employment and matters relating thereto.
TERMINATION OR AMENDMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval of the Merger by Crystal Shareholders,
(i) by mutual written consent of CWS and Crystal; or (ii) by either CWS or
Crystal if (1) the other party shall not have complied with or performed the
conditions to said party's closing, (2) the Merger shall not have been
consummated on or before December 31, 1999 (the "Termination Date"); or (3) the
Closing Price shall be $20.00 or less.
The parties to the Merger Agreement have agreed that, in the event of
the termination of such Agreement, all obligations of all of the parties will
terminate and no party will have any obligation or liability to any of the other
parties with respect to any breach of the Merger Agreement, regardless of
whether such breach is outstanding or curable at the date of termination of the
Merger Agreement.
The Merger Agreement can be amended by mutual written consent of
Crystal and CWS and any failure of either Crystal or CWS to comply with any of
the conditions set forth in the Merger Agreement may be waived in writing by the
other party. The President of Crystal and the President or any Vice President of
CWS have full power to interpret the Merger Agreement on behalf of their
respective companies and any such interpretation shall be binding on such
company.
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FEES AND EXPENSES
The Merger Agreement provides that each party will pay all of its own
legal, accounting and other expenses incurred in the preparation of the Merger
Agreement and the performance of the terms and provisions of the Merger
Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury regulations thereunder and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to change,
possibly with retroactive effect, and any such change could affect the
continuing validity of the following discussion. The discussion assumes that
holders of Crystal Common Stock hold such stock as a capital asset for federal
income tax purposes. Further, the discussion does not address the tax
consequences that may be relevant to a particular shareholder subject to special
treatment under certain federal income tax laws, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, non-United States persons,
shareholders who acquired Crystal Common Stock through the exercise of options
or otherwise as compensation or through a tax-qualified retirement plan, and
holders of options under Crystal benefit plans. The discussion does not address
any consequences arising under the laws of any state, locality or foreign
jurisdiction.
Neither Crystal nor CWS has requested a ruling from the Internal
Revenue Service ("IRS") regarding any of the federal income tax consequences of
the Merger. The opinion of counsel as to such federal income tax consequences
described below will not be binding on the IRS and will not preclude the IRS
from adopting a position contrary to that of the opinion.
As of the date hereof, it is intended that the Merger will constitute a
reorganization pursuant to Section 368(a) of the Code and that for federal
income tax purposes, no gain or loss will be recognized by Crystal or the
Crystal Shareholders to the extent they receive shares of CWS. The obligation of
Crystal to consummate the Merger is conditioned on the Merger constituting a
reorganization within the meaning of Section 368(a)(1) of the Code (which will
be evidenced by an opinion of Day, Berry & Howard LLP counsel to CWS). Such
opinion will be based upon facts, representations and assumptions set forth in
such opinion and upon certificates of officers of Crystal and CWS.
Assuming the Merger constitutes a reorganization under Section
368(a)(1) of the Code, no gain or loss will be recognized by holders of Crystal
Common Stock as a result of the surrender of their Crystal Common Stock for CWS
Common Stock pursuant to the Merger (except as discussed below with respect to
cash received in lieu of fractional shares). The aggregate tax basis of the CWS
Common Stock received in the Merger (including any fractional shares of CWS
stock deemed received) will be the same as the aggregate tax basis of the
Crystal Common Stock surrendered in exchange therefor in the Merger. The holding
period of the CWS
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Common Stock received in the Merger (including any fractional shares of CWS
stock deemed received) will be the same as the holding period of the Crystal
Common Stock surrendered in exchange therefor in the Merger.
If a holder of Crystal Common Stock receives cash in lieu of a
fractional share interest in CWS Common Stock in the Merger, such fractional
share interest will be treated as having been distributed to the holder, and
such cash amount will be treated as received in redemption of the fractional
share interest. Under Section 302 of the Code, if such redemption is "not
essentially equivalent to a dividend" after giving effect to the constructive
ownership rules of the Code, the holder will generally recognize capital gain or
loss equal to the cash amount received for the fractional share interest reduced
by the portion of the holder's tax basis in the Crystal Common Stock surrendered
that is allocable to the fractional share interest in CWS Common Stock. Under
these rules, a holder of Crystal Common Stock should ordinarily recognize
capital gain or loss on the receipt of cash in lieu of a fractional share
interest in CWS Common Stock.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, CRYSTAL
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS,
THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX
LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN TAX LAWS.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for
accounting and financial reporting purposes. Under this accounting method, the
assets and liabilities of Crystal will be carried forward to CWS on a
consolidated basis at their historical recorded bases. Results of operations of
CWS on a consolidated basis will include the results of Crystal for the entire
fiscal year in which the Merger occurs. The reported balance sheet amounts and
results of operations of the separate corporations for prior periods will be
combined, reclassified and conformed, as appropriate, to reflect the combined
balance sheets and statements of results of operations for Crystal and CWS. It
is a condition to the obligations of CWS under the Merger Agreement that the
transactions contemplated by the Merger Agreement, if consummated, will qualify
as a transaction to be accounted for in accordance with the pooling of interests
method of accounting under the requirements of generally accepted accounting
principles (although the parties expect that the Merger will be treated as a
pooling of interests, if the cash value of the sum of the total number of CWS
fractional shares sold and the number of Crystal shares for which the appraisal
rights are exercised is more than 10% of the total Merger consideration, the
Merger will not qualify for pooling). See "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION".
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<PAGE> 45
RESTRICTIONS ON RESALE OF SECURITIES
The shares of CWS Common Stock to be issued to the Crystal Shareholders
in connection with the Merger have been registered under the Securities Act. CWS
Common Stock received by the Crystal Shareholders upon consummation of the
Merger will be freely transferable under the Securities Act, except for shares
issued to any person who may be deemed an "Affiliate" (as defined below) of
Crystal within the meaning of Rule 145 under the Securities Act. "Affiliates"
are generally defined as persons who control, are controlled by, or are under
common control with Crystal at the time the Merger is submitted for vote or
consent (generally, directors and executive officers of Crystal and major
holders of Crystal Common Stock). Affiliates of Crystal may not sell their
shares of CWS Common Stock acquired in connection with the Merger, except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Closing Date, an Affiliate (together
with certain related persons) would be entitled to sell shares of CWS Common
Stock acquired in connection with the Merger only through unsolicited "brokers'
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144 under the Securities Act. Additionally, the number of
shares to be sold by an Affiliate (together with certain related persons and
certain persons acting in concert) during such one-year period within any
three-month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding shares of CWS Common Stock or the average weekly trading volume
of such stock during the four calendar weeks preceding such sale. Rule 145 would
remain available to Affiliates only if CWS remained current with its periodic
filings with the SEC under the Exchange Act. Beginning one year after the
Closing Date, an Affiliate would be able to sell such CWS Common Stock without
such manner of sale or volume limitations, provided that CWS was current with
its Exchange Act filings and such Affiliate was not then an affiliate of CWS.
Beginning two years after the Closing Date, an Affiliate would be able to sell
such shares of CWS Common Stock without any restrictions so long as such
Affiliate had not been an affiliate of CWS for at least three months prior to
the date of such sale. Affiliates of CWS are subject to further limitations and
may not sell their shares of CWS Common Stock except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 144 or another applicable exemption from the registration
requirements of the Securities Act. Rule 144 permits affiliates to sell shares
subject to the volume and manner of sale provisions described above and subject
to the availability of certain public information about CWS and the filing of
certain notices of sale. The Merger Agreement requires Crystal to cause each of
its affiliates to execute a written agreement to the effect that such persons
will not offer or sell or otherwise dispose of any of the shares of CWS Common
Stock issued to such persons in the Merger in violation of the Securities Act or
the rules and regulations promulgated by the SEC thereunder.
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<PAGE> 46
NASDAQ LISTING
CWS will file a Notification Form for the Listing of Additional Shares
prior to the Closing Date with the NASDAQ National Market relating to the shares
of CWS Common Stock to be issued in the Merger to the Crystal Shareholders.
Although no assurance can be given that the NASDAQ National Market will accept
the shares of CWS Common Stock to be so issued for listing, CWS anticipates that
such shares of CWS Common Stock will be listed. It is not a condition to the
consummation of the Merger that such shares of CWS Common Stock be listed on the
NASDAQ National Market.
RIGHTS OF DISSENTING SHAREHOLDERS
Any Crystal Shareholder who objects to the Merger Agreement shall have
the right to be paid the fair value of all shares of Crystal Common Stock owned
by such shareholder in accordance with the provisions of Sections 33-855 to
33-872 of the CBCA, a copy of which is set forth in Appendix B to this Proxy
Statement/Prospectus. The right to be paid the value of such shares shall be
such shareholder's exclusive remedy as holder of such shares with respect to the
Merger, whether or not such shareholder proceeds as provided in CBCA Sections
33-855 to 33-872.
Any Crystal Shareholder may elect to exercise such right by giving
written notice to Crystal of such shareholder's intent to demand payment for
such shareholder's shares as provided in CBCA Section 33-861(a) prior to the
voting of the Crystal Shareholders on the proposal to approve the Merger
Agreement and must not vote any of his or her shares in favor of the proposal.
Such notice should be sent to Crystal Water Utilities Corporation, 321 Main
Street, Danielson, Connecticut 06239, Attention: Secretary.
A CRYSTAL SHAREHOLDER WHO VOTES IN FAVOR OF THE MERGER AGREEMENT WILL
BE PRECLUDED FROM EXERCISING DISSENTERS' RIGHTS.
A VOTE AGAINST THE MERGER AGREEMENT WILL NOT OF ITSELF SATISFY THE
REQUIREMENT THAT A DISSENTING CRYSTAL SHAREHOLDER DELIVER HIS OR HER WRITTEN
NOTICE OF INTENT TO DEMAND PAYMENT IF THE MERGER IS CONSUMMATED, NOR WILL SUCH
VOTE SATISFY ANY OTHER NOTICE REQUIREMENT UNDER CONNECTICUT LAW WITH RESPECT TO
DISSENTERS' RIGHTS.
A demand for payment must be executed by or for the shareholder of
record fully and correctly, as the shareholder's name appears on the share
certificate. A beneficial owner of shares of Crystal Common Stock who is not the
record owner may make such demand for payment with respect to all (but not less
than all) shares held on his or her behalf if the beneficial owner submits to
Crystal at or before the assertion of his or her dissenters' rights a written
consent of the record holder. A record owner, such as a broker, who holds
Crystal Common Stock for others, may make such demand for payment with respect
to less than all of the shares of Crystal Common Stock held of record by such
person. In that event, the record owner must
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<PAGE> 47
make such demand with respect to all shares owned beneficially by the same
person, and must provide Crystal with the name and address of each person on
whose behalf such demand is being made.
If the Merger Agreement is approved, any Crystal Shareholder notifying
Crystal of his or her intent to demand payment for his or her shares as provided
in CBCA Section 33-861(a), provided none of such shareholder's shares shall have
been voted in favor of the Merger Agreement, may require Crystal to purchase
such shareholder's shares at fair value. As provided in CBCA Section 33-862,
Crystal shall send a dissenters' notice to shareholders who have complied with
CBCA Section 33-861 no later than ten days after the consummation of the Merger.
The dissenters' notice sent by Crystal shall state where the demand for payment
must be sent and where and when certificates for certificated shares must be
deposited; inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received; supply a
form for demanding payment that includes the date of the first announcement to
news media or to shareholders of the terms of the Merger Agreement (March 10,
1999); and require that each Crystal Shareholder asserting dissenters' rights
certify whether or not such shareholder acquired beneficial ownership of the
shares before that date. Finally, Crystal shall set a date by which Crystal must
receive the payment demand, which date may not be fewer than 30 nor more than 60
days after the date that the written dissenters' notice is delivered by Crystal,
and Crystal shall ensure that each such dissenters' notice is accompanied by a
copy of CBCA Sections 33-855 to 33-872.
After a Crystal Shareholder receives such written dissenters' notice by
Crystal, such shareholder must demand payment for such shareholder's shares and
certify whether such shareholder acquired beneficial ownership of such shares
prior to the date of the first announcement to the news media or to shareholders
of the terms of the Merger Agreement in accordance with the terms of the
dissenters' notice, as provided in CBCA Section 33-863(a). Such shareholder who
demands payment shall also be required to submit the certificate or certificates
representing such shareholder's shares to Crystal in accordance with the terms
of the dissenters' notice. A CRYSTAL SHAREHOLDER'S FAILURE TO DEMAND PAYMENT OR
DEPOSIT HIS OR HER SHARE CERTIFICATES SHALL TERMINATE SUCH SHAREHOLDER'S RIGHTS
UNDER CBCA SECTIONS 33-855 TO 33-872.
If a Crystal Shareholder makes such demand for payment and submits such
share certificates to Crystal, such shareholder shall retain all other rights of
a Crystal Shareholder until these rights are canceled or modified by the
consummation of the Merger as provided in CBCA Section 33-863(b). Any
shareholder failing to make such demand as described above shall be bound by the
terms of the Merger Agreement if it is approved.
Pursuant to CBCA Section 33-864, Crystal is further entitled to
restrict the transfer of uncertificated shares from the date the demand for
payment by such shareholders is received until Crystal either consummates the
Merger or fails to do so within 60 days after the date set for demanding payment
and depositing share certificates. A Crystal Shareholder who has asserted
35
<PAGE> 48
dissenters' rights as to uncertificated securities retains all rights (other
than the foregoing potential restriction on transfer) of a Crystal Shareholder
until such rights are canceled or modified by the consummation of the Merger.
After Crystal either receives such demand for payment by a Crystal
Shareholder, or upon consummation of the Merger, Crystal shall pay each
shareholder who makes a proper demand for payment pursuant to CBCA Section
33-863 the amount Crystal estimates to be the fair value of such shareholder's
shares, plus accrued interest as provided in CBCA Section 33-865(a). The payment
by Crystal to such shareholder shall be accompanied by: Crystal's balance sheet
as of the fiscal year ending not more than 16 months before the date of payment;
an income statement for that year; a statement of changes in shareholders'
equity for that year; the latest available interim financial statements, if any;
a statement of Crystal's estimate of the fair value of the shares; an
explanation of how the interest was calculated; a statement of the dissenting
shareholder's right to demand payment under CBCA Section 33-860; and a copy of
CBCA Sections 33-855 to 33-872.
Pursuant to CBCA Section 33-866, if the Merger is not consummated
within 60 days after the date set for such shareholders' demand for payment and
deposit of share certificates, Crystal shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated shares. If the
Merger is consummated after the deposited certificates have been returned and
the transfer restrictions have been released, Crystal shall send a new
dissenters' notice under CBCA Section 33-862 and repeat the payment demand
procedure.
Crystal may elect to withhold payment to a shareholder who makes a
demand for payment pursuant to CBCA Section 33-863 if such shareholder was not
the beneficial owner of such shares of Crystal Common Stock before the date set
forth in the dissenters' notice as the date of the first announcement to the
news media or to shareholders of the terms of the Merger Agreement. Pursuant to
CBCA Section 33-867(b), if Crystal elects to withhold payment to such
shareholder and the Merger is consummated, Crystal shall estimate the fair value
of such shareholder's shares, plus accrued interest, and shall pay this amount
to such shareholder if such shareholder agrees to accept such payment in full
satisfaction of such shareholder's demand. Crystal's offer to such shareholder
shall be accompanied by a statement of Crystal's estimate of the fair value of
such shares, an explanation of how the interest was calculated and a statement
of such shareholder's right to demand payment under CBCA Section 33-868.
Pursuant to CBCA Section 33-868, a dissenting Crystal Shareholder may
notify Crystal in writing of such shareholder's own estimate of the fair value
of his shares and the amount of interest due, and demand payment of his or her
estimate, less any payment by Crystal under CBCA Section 33-865, or may reject
Crystal's offer to purchase such shareholder's shares, and demand payment for
the fair value of such shareholder's shares and interest owing provided,
however, that such action may be taken only if (a) such shareholder believes
that the amount paid under CBCA Section 33-865 or offered under CBCA Section
33-867 is less than the fair value of such shareholder's shares or that the
interest due is incorrectly calculated; (b) Crystal fails to
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<PAGE> 49
make payment under CBCA Section 33-865 within 60 days after the date set for
such shareholder's demand for payment; or (c) if the Merger is not consummated,
and Crystal fails to return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date set
for such shareholder's demand for payment. Such dissenting Crystal Shareholder
must make a demand for payment pursuant to CBCA Section 33-868(a) within 30
days after Crystal makes or offers payment for such shareholder's shares.
FAILURE TO MAKE SUCH A DEMAND WITHIN THE 30-DAY PERIOD WILL BE TREATED AS A
WAIVER OF SUCH SHAREHOLDER'S RIGHT TO DEMAND PAYMENT IN AN AMOUNT EXCEEDING THE
AMOUNT PREVIOUSLY PAID OR OFFERED BY CRYSTAL.
If a Crystal Shareholder's demand for payment under CBCA Section 33-868
remains unsettled, Crystal shall commence a proceeding within 60 days after
receipt of such shareholder's demand for payment and file a petition in the
Connecticut Superior Court for the Judicial District of Windham at Putnam,
Connecticut or before any judge thereof, requesting that the fair value of the
shares of such shareholder and the accrued interest thereon be found and
determined as provided in CBCA Section 33-871(a). If Crystal fails to timely
commence such proceeding, Crystal shall pay each dissenting shareholder whose
demand remains unsettled the amount demanded. All shareholders making such
demand for payment as described above, whose demands remain unsettled, wherever
residing, shall be made parties to the proceeding. A copy of the petition shall
be served on each such shareholder who is a resident of Connecticut. Nonresident
dissenting shareholders may be served by registered or certified mail or by
publication as provided by law. The jurisdiction of the court shall be
exclusive. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as shall be specified
in the order of their appointment or an amendment thereof. Each Crystal
Shareholder made a party to the proceeding is entitled to judgment for the
amount, if any, by which the court finds the fair value of such shareholders'
shares, plus interest, exceeds the amount paid by Crystal, or for the fair
value, plus accrued interest, of the after-acquired shares of such shareholders
for which Crystal elected to withhold payment under CBCA Section 33-867. The
costs and expenses, including the reasonable compensation and expenses of
court-appointed appraisers, of any such proceeding shall be determined by the
court and shall be assessed against Crystal, but all or any part of such costs
and expenses may be apportioned and assessed as the court may deem equitable
against any or all shareholders who are parties to the proceeding to whom
Crystal has made an offer to pay for the shares if the court finds that the
action of such shareholders was arbitrary or vexatious or not in good faith in
demanding payment under CBCA Section 33-868. Such expenses also may include the
fees and expenses of counsel and experts employed by any party, and be entered
against (a) Crystal in favor of any or all dissenting shareholders who are
parties to the proceeding if Crystal failed to substantially comply with the
requirements of CBCA Sections 33-860 to 33-868, inclusive, or (b) either Crystal
or a dissenter, in favor of any other party, if the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to rights provided by CBCA Sections 33-855 to 33-872, inclusive. If
the court finds that the services of counsel for any shareholder were of
substantial benefit to other dissenting shareholders similarly situated, and
that such fees
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<PAGE> 50
should not be assessed against Crystal, the court may find that such fees should
be paid out of the amounts awarded to the dissenting shareholders who were
benefitted.
The foregoing is only a summary of the rights of an objecting holder of
Crystal Common Stock. Any holder of Crystal Common Stock who intends to object
to the Merger Agreement should carefully review the text of the applicable
provisions of the CBCA set forth in Appendix B to this Proxy
Statement/Prospectus and should also consult with such holder's attorney. THE
FAILURE OF A HOLDER OF CRYSTAL COMMON STOCK TO FOLLOW PRECISELY THE PROCEDURES
SUMMARIZED ABOVE AND SET FORTH IN APPENDIX B MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS. No further notice of the events giving rise to dissenters'
rights or any steps associated therewith will be furnished to holders of Crystal
Common Stock, except as otherwise required by law.
In general, any objecting shareholder who perfects the right to be paid
the fair value of such holder's Crystal Common Stock in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Crystal Board of Directors and management may be
deemed to have certain interests in the Merger which are in addition to their
interests as shareholders of Crystal Common Stock, generally. These additional
interests may be deemed to arise from certain requirements of the Merger
Agreement with respect to providing employment contracts and certain benefits
for certain officers and employees of Crystal after the Merger, two of which,
Mr. Engle and Mr. Kempain, are also members of the Crystal Board of Directors.
The Crystal Board of Directors was aware of these interests and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
MANAGEMENT FOLLOWING THE MERGER
Following the consummation of the Merger, the composition of the CWS
Board of Directors will consist of the then current members of the CWS Board of
Directors. The CWS Board of Directors is divided into three classes, each of
which have a nominal term of three years.
INFORMATION CONCERNING CONNECTICUT WATER SERVICE, INC.
CWS, founded in 1956, is a non-operating holding company whose income
is derived principally from CWC. CWC's and CWS's other utility subsidiary,
Gallup, supplies water to over 64,000 customers for residential, commercial,
industrial and municipal purposes throughout 36 municipalities in the State of
Connecticut. CWC operates through three non-contiguous regions with an estimated
combined population of 224,000.
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<PAGE> 51
CWC's and Gallup's water systems consist of some 1,025 miles of water
main with reservoir storage capacity of approximately 6.8 billion gallons. The
safe, dependable yield from their 99 active wells and 20 reservoirs is
approximately 39 million gallons per day. Water supply sources vary among the
regions. Overall, however, about 55% of the total dependable yield comes from
reservoirs and 45% from wells.
CWC and Gallup are subject to the regulations of the State of
Connecticut, DPUC and various federal and state regulatory agencies concerning
water quality and environmental standards. Generally, the profitability of CWC
and Gallup, and the water industry in general, is materially dependent on the
adequacy of approved water rates to allow for a fair rate of return on the
investment in utility plant in service. The ability of CWC and Gallup to
maintain their operating costs at the lowest level possible while providing good
quality water service is beneficial to customers and shareholders. Profitability
is also dependent on the timeliness of rate relief, when necessary, and numerous
factors over which CWC and Gallup have little or no control, such as the
quantity of rainfall and temperature in a given period of time, industrial
demand, financing costs, energy rates, and compliance with environmental and
water quality regulations.
The mission of CWS is to provide good quality water service to our
customers at a fair return to its shareholders through a work environment that
will attract, retain and motivate employees to achieve a high level of
performance.
CWS, CWC and Gallup represent the second largest investor-owned water
system in New England in terms of operating revenues and utility plant
investment.
PRINCIPAL CWS SHAREHOLDERS AND
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the CWS Common Stock by (i) each director of CWS, (ii)
each named executive officer of CWS, (iii) all directors and executive officers
of CWS as a group, and (iv) each person known by CWS to be the beneficial owner
of more than 5% of the outstanding shares of CWS Capital Stock. Except as
otherwise indicated, all shares are owned directly.
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<PAGE> 52
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Amount
Beneficially Percent
Title of Class Name of Beneficial Owner Owned (1) of Class
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock OUTSIDE DIRECTORS
----------------------------------------------------------------------------------------
Francis E. Baker, Jr. 287 *
----------------------------------------------------------------------------------------
Harold E. Bigler, Jr. 3,500 *
----------------------------------------------------------------------------------------
Mary Ann Hanley 200 *
----------------------------------------------------------------------------------------
Marcia L. Hincks 510 *
----------------------------------------------------------------------------------------
Ronald D. Lengyel 500 *
----------------------------------------------------------------------------------------
Rudolph Luginbuhl 450 *
----------------------------------------------------------------------------------------
Harvey G. Moger 3,517 *
----------------------------------------------------------------------------------------
Robert F. Neal 1,000 *
----------------------------------------------------------------------------------------
Warren E. Packard 700 *
----------------------------------------------------------------------------------------
Arthur C. Reeds 300 *
----------------------------------------------------------------------------------------
Donald B. Wilbur 1,077 *
----------------------------------------------------------------------------------------
EXECUTIVE OFFICERS
Marshall T. Chiaraluce (& director) 15,983 (2) *
----------------------------------------------------------------------------------------
David C. Benoit 4,017 (3) *
----------------------------------------------------------------------------------------
James R. McQueen 5,452 (4) *
----------------------------------------------------------------------------------------
Terrance P. O'Neill 2,923 (5) *
----------------------------------------------------------------------------------------
Maureen P. Westbrook 2,041 (6) *
----------------------------------------------------------------------------------------
Directors and Executive Officer Group 42,457 *
- -------------------------------------------------------------------------------------------------------------------------
$.90 Cumulative William Neal MacKenzie 1,476 5.0%
Preferred Stock, 222 North Main Street
$16 par value Wallingford, Connecticut 06492
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred William Neal MacKenzie 1,850 12%
Stock--Series A, 222 North Main Street
$20 par value Wallingford, Connecticut 06492
- -------------------------------------------------------------------------------------------------------------------------
Jeannette Vennewald 1,129 7.5%
35 Terry Road
East Hartford, Connecticut 06108
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicates ownership of less than one percent of the class of securities.
(1) All amounts owned are as of July 1, 1999.
(2) Includes 5,060 unrestricted and 3,870 restricted performance share
Units under the CWS's Performance Stock Program.
(3) Includes 874 unrestricted and 780 restricted performance share units
and 780 shares of restricted stock under the CWS's Performance Stock
Program.
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<PAGE> 53
(4) Includes 1,161 unrestricted and 1,092 restricted performance share
units and 469 shares of restricted stock under the CWS's Performance
Stock Program.
(5) Includes 1,560 shares of restricted stock under the CWS's Performance
Stock Program.
(6) Includes 1,560 shares of restricted stock under the CWS's Performance
Stock Program.
INFORMATION CONCERNING CRYSTAL WATER UTILITIES CORPORATION
CRYSTAL AND CRYSTAL WATER
Crystal was incorporated in Connecticut in 1967. It is a holding
company whose subsidiary, Crystal Water, is engaged in the regulated business of
public water supply in northeastern Connecticut. Crystal owns all of the
outstanding capital stock of Crystal Water.
Crystal has one class of Common Stock, the holders of which have the
exclusive voting power of the corporation and are entitled to receive dividends
when and as declared by the Board of Directors of Crystal.
DESCRIPTION OF THE BUSINESS OF CRYSTAL WATER
Crystal Water was incorporated by Special Act of the Connecticut
legislature in 1882. It collects, treats and distributes water to residential,
commercial and industrial customers in the Borough of Danielson, within the Town
of Killingly, and portions of the Towns of Killingly, Brooklyn, Plainfield and
Thompson, Connecticut. Crystal Water provides water directly to approximately
3,205 metered customers and public fire protection to nine fire districts
through 203 public fire hydrants and private fire protection through 54 private
hydrants.
Crystal Water's supply comes exclusively from groundwater sources
consisting of four wellfields having a total of 11 wells and a safe daily yield
of 2.7 million gallons per day, calculated according to the methodology
prescribed by the Connecticut Department of Public Health (the "DPH"). Crystal
Water's Crystal Division has sufficient supply from its P.B. Hopkins and
Brooklyn wellfields to meet anticipated demand through the year 2040. Projected
population increases within Crystal Water's Plainfield Division suggest the need
for additional sources of supply for that Division after 2010. Two replacement
wells proposed for one of the wells in Crystal Water's Thompson Division
wellfield which has been deemed to be under the influence of surface water will,
if approved by state regulators, enable that Division to maintain an adequate
margin of safety through 2040. As groundwater under the influence of surface
water, the existing well would otherwise require costly improvements to comply
with the Surface Water Treatment Rule of the Safe Drinking Water Act. Crystal
Water's Chase and Hygeia Reservoirs were discontinued as active supply sources
in 1982.
Water from Crystal Water's wells is treated with a poly/orthophosphate
blend for corrosion control and caustic potash for pH adjustments. Chlorination
is also provided at some wells.
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<PAGE> 54
Crystal Water distributes water from its wells to customers through
approximately 70 miles of water mains. Five standpipes providing storage of
2,350,000 gallons help maintain system pressure, meet peak demands and provide
water for fire protection. Crystal has three booster pumping stations which
provide adequate water pressure for higher elevations in the system. Certain
undersized mains and older galvanized iron mains within the system are deficient
and require replacement.
As a regulated utility, Crystal Water cannot raise or lower its rates
without DPUC approval. In the absence of a rate increase, increased revenue can
only come from customer growth. Such growth can occur only within Crystal
Water's franchise area without DPUC approval. Crystal Water expects moderate
growth in the future through a combination of new commercial and industrial
users and modest residential development.
All operations and maintenance activities of Crystal Water are carried
on through its main office at 321 Main Street in Danielson, Connecticut through
employees and, when required, outside contractors. In addition to its President
and Vice President, Operations, Crystal Water also employs two full-time
administrative personnel, four full-time field employees and two part-time
employees.
SEASONALITY OF DEMAND
The business of Crystal Water is subject to seasonal fluctuations and
weather variations. The demand for water during the warmer months is greater
than during the cooler months, due primarily to additional water requirements of
customer cooling systems and various private and public outdoor uses, such as
lawn sprinkling. From year to year and season to season, demand will vary with
rainfall and temperature levels.
OPERATING AUTHORITY
Crystal Water is incorporated under and operates as a public water
utility by virtue of authority granted by Special Acts adopted by the
Connecticut legislature (the "Acts"). These Acts afford franchises, unlimited in
duration, to provide public water supply to private and public customers in
designated municipalities and adjacent areas. The Acts also authorize Crystal
Water to lay its mains and conduits in public streets, highways and public
grounds, and to exercise the power of eminent domain in connection with lands,
springs, streams or ponds and any rights or interests therein which are
expedient to or necessary for furnishing public water supply. In the event of
the exercise of any condemnation powers, appropriate compensation must be paid
to those injuriously affected by the taking.
REGULATION
Crystal Water is subject to regulation by the DPUC, which has
jurisdiction with respect to rates, service, accounting procedures, issuance of
securities, disposition of utility property and
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<PAGE> 55
other related economic matters. Customer rates are subject to approval by the
DPUC. Crystal Water has its own rate structure and is separately regulated for
ratemaking and other purposes by the DPUC. The following table sets forth
information regarding rate increase requests by Crystal Water, and increases
granted by the DPUC, in its last three general rate proceedings.
<TABLE>
<CAPTION>
Docket Number 90-06-07 93-05-19 94-09-20
- ------------- -------- -------- --------
<S> <C> <C> <C>
Decision Date January 10, 1991 January 5, 1994 March 16, 1995
Returns on Rate Base
Requested 13.07% 9.99% 10.30%
Allowed 12.97% 9.13% 10.16%
Revenue Increase
Requested in Dollars $340,500 $256,545 $368,546
Requested as a Percentage 27.51% 6.80% 24.10%
Allowed in Dollars $304,552 $ 15,370 $278,708
Allowed as a Percentage 24.15% 1.01% 18.10%
</TABLE>
Crystal Water is also subject to regulation by the DPH with respect to
water quality matters, use of water from surface and subsurface sources, the
location, construction and operation of water supply facilities and the sale of
certain properties. Plans for new water supply systems or enlargement of
existing water supply systems also must be submitted to the DPH for approval.
DPH has primary enforcement responsibility for regulations promulgated by the
federal Environmental Protection Agency under the Safe Drinking Water Act, and
by the DPH itself, establishing minimum water quality standards and water
treatment requirements for all public drinking water.
The Connecticut Department of Environmental Protection (the "DEP") is
authorized to regulate the operations of Crystal Water with respect to water
pollution abatement, diversion of water from surface and subsurface sources, and
the location, construction, alteration and operation of dams and other water
obstructions and facilities that affect, or discharge effluents into, state or
interstate waters. Aquifer protection legislation in Connecticut requires each
water utility to conduct extensive groundwater data collection and groundwater
mapping of critical well field areas. The DEP is also proposing land use
regulations within these critical areas. The aquifer protection legislation also
mandates that each municipality designate an aquifer protection agency to
regulate land use in these areas.
Developments with respect to the identification and measurement of
various elements in water supplies and concern about the effect of such elements
on public health, together with possible contamination of water sources, may in
the future require Crystal Water to modify all or portions of its water
supplies, to develop replacement supplies or to implement new treatment
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techniques. Any such developments would significantly increase Capital Water's
operating costs and capital requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CRYSTAL WATER UTILITIES CORPORATION
The following discussion and analysis should be read in conjunction
with "CRYSTAL CONSOLIDATED FINANCIAL STATEMENTS" and the Consolidated Financial
Statements of Crystal and Notes thereto included elsewhere in this Proxy
Statement/Prospectus. Except for the historical information contained herein,
the discussion in this Proxy Statement/Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of Crystal's plans, objectives, expectations and intentions. When
used in this Proxy Statement/Prospectus, the words "anticipate," "plan,"
"believe," "estimate,"expect" and similar expressions as they relate to Crystal
or its management are intended to identify such forward-looking statements. The
cautionary statements made in this Proxy Statement/Prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this Proxy Statement/Prospectus. Crystal's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "RISK FACTORS," as well as those
discussed elsewhere herein.
CONSOLIDATED RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net income decreased $89,000, from $229,000 for 1997 to $140,000 for
1998. The decrease was primarily attributable to an increase in operation
expense in 1998 resulting from write-offs of costs deferred in prior years
associated with potential system expansion that now appears less likely to
occur.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net income decreased $2,000, from $231,000 for 1996 to $229,000 for
1997. This slight decrease was due to normal increases in operating expenses
reflecting annual pay increases and additional depreciation and municipal tax
expense associated with plant additions. These items were partially offset by
increased water sales. The increased water sales did not translate into
increased operating revenues due to a midyear 1997 5% rate reduction associated
with the elimination of the Connecticut Gross Earnings tax.
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FINANCIAL CONDITION AND LIQUIDITY
During the three-year period from 1996 through 1998 Crystal invested
$1,364,000 in gross additions to utility plant. It funded 34% of this investment
through advances, contributions and funds from others and the remainder through
internally generated funds. Crystal expects to be able to continue to fund its
construction program, currently estimated to be between $250,000 and $350,000
annually net of amounts funded through advances, contributions and amounts
provided by others, through internally generated funds. Crystal is currently
highly leveraged with its debt to equity ratio at December 31, 1998 at 62% debt,
38% equity. If Crystal has to raise capital in the future, the DPUC might not
approve an additional debt issuance unless Crystal increases its equity first.
The DPUC in the past has directed utilities whose debt to equity ratios exceeded
what the Department considered appropriate to reduce or curtail their dividends.
In the past, Crystal has been directed to omit dividend payments.
YEAR 2000
Like many organizations, Crystal is currently evaluating and responding
to its exposure to the Year 2000 problem. In general terms, the problem arises
from the fact that many existing computer systems and other equipment containing
date-sensitive embedded technology (including non-information technology
equipment and systems) use only two digits to identify a year in the date field,
with the assumption that the first two digits of the year are always "19". As a
result, such systems may misinterpret dates after December 31, 1999, which may
result in miscalculations, other malfunctions or the total failure of such
systems. Additional problems arise from the fact that the Year 2000 is a special
case leap year. Because Crystal is dependent upon the proper functioning of
computer systems and other equipment containing date-sensitive embedded
technology, a failure of such systems and equipment to be Year 2000 compliant
could have a material adverse effect on Crystal. If not remedied, potential
risks include business interruption or shutdown, financial loss, regulatory
actions and legal liability.
Crystal has taken the following steps to address the Year 2000 problem:
(a) management reviewed the computer-dependency of various aspects of its
business and determined that Crystal Water's water supply sources, water
treatment and water distribution operations are not dependent on computerization
and would not be materially affected by the Year 2000 problem; (b) management
determined that certain computer applications involved in customer billing and
accounting functions could be adversely affected by the Year 2000 problem and
therefore engaged computer systems consultants to evaluate potential problems
and recommend and implement solutions; (c) management intends to contact
Crystal's major vendors to determine the status of their Year 2000 readiness but
has not yet done so. Crystal Water's major vendors supply chemicals used for
corrosion control and pH adjustment, pipes, fittings and valves and various
operations and maintenance services. It is possible that the Year 2000 problem
could affect outside vendors. Crystal anticipates that it will complete
necessary Year 2000 remediation measures in the summer of 1999. Crystal has not
developed a contingency plan for addressing unresolved Year 2000 problems.
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Crystal does not believe that the costs of addressing the Year 2000
problem, excluding the costs of the MIS, will be material to Crystal's financial
condition. Crystal anticipates spending approximately $3,000 for effecting its
Year 2000 program in 1999. Crystal has funded, and expects to continue to fund,
the costs of its Year 2000 efforts through its operating cash flow.
The costs of Crystal's Year 2000 program and the timetable for
completing its Year 2000 preparations are based on current estimates, which
reflect numerous assumptions about future events, including the continued
availability of certain resources, the timing and effectiveness of third-party
remediation plans and other factors. Crystal can give no assurance that these
estimates will be achieved, and actual results could differ materially from
those currently anticipated. In addition, there can be no assurance that
Crystal's Year 2000 program will be effective or that its contingency plans will
be sufficient. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct relevant computer software codes
and embedded technology, the results of internal and external testing and the
timeliness and effectiveness of remediation efforts of third parties.
PRINCIPAL CRYSTAL SHAREHOLDERS AND STOCK OWNERSHIP OF CRYSTAL
MANAGEMENT
The following table sets forth certain information known to Crystal
regarding the beneficial ownership of Crystal Common Stock as of June 1, 1999,
by (i) each director of Crystal; (ii) each named executive officer of Crystal;
(iii) all directors and executive officers of Crystal as a group; and (iv) each
person known by Crystal to be the beneficial owner of more than 5% of the
outstanding Crystal Common Stock. Except as otherwise indicated, all shares are
owned directly.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS
- ------------------------------------ ----- ----------------
<S> <C> <C>
Joseph and Claire Langevin
6 Charles Place
Plainfield, CT
(Joseph Langevin-Director of Crystal Water) 14,975 15%
Langevin Electric Inc.
Profit Sharing Fund
P.O. Box 208
Brooklyn, CT 06234 13,637 13%
Georgette Pappas
7 Bonneville Street
Danielson, CT 06234 9,861 10%
</TABLE>
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<PAGE> 59
<TABLE>
<S> <C> <C>
Advest, Inc., F.B.O. Donald Vachon
103 Main Street
Danielson, CT 06239 5,228 5.3%
DIRECTORS/OFFICERS -
Roger Engle, President/Asst. Treasurer 4,281 4.3%
Randolph Kempain, V.P./Secretary 154 *
Jayne L. Hebert, Treasurer 30 *
Peter Pezanko, Asst. Secretary 122 *
John E. Cuneen 421 *
Edward J. Desaulnier 103 *
Philip B. Hopkins 1,209 1.2
Ernest Joly 4,207 4.2
Hans H. Koehl 1,461 1.5
All directors and officers
as a group (9 persons). 11,988 12.1
</TABLE>
*Less than 1% of the outstanding Crystal Common Stock
DESCRIPTION OF CWS CAPITAL STOCK
The CWS Common Stock that will be delivered to holders of Crystal's
Common Stock will be newly issued from the authorized but unissued shares of
CWS's Common Stock. These shares, when delivered pursuant to the Merger
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable. CWS is authorized to issue up to 7,500,000 shares of Common
Stock, no par value (stated value $1), of which 4,546,850 shares were
outstanding on June 1, 1999, 15,000 shares of Voting Cumulative Preferred Stock,
Series A, $20 par value, all of which are outstanding and 50,000 shares of
Cumulative Preferred Stock, Series $.90, $16 par value, of which 29,499 shares
are outstanding. CWS is also authorized to issue 400,000 shares of an additional
class of Preferred Stock, $25 par value, none of which is outstanding. CWS also
has authorized 1,000,000 shares of Preference Stock, $1 par value. Other
significant provisions of CWS's capital stock, including provisions relating to
corporate governance, are described under the caption "COMPARISON OF SHAREHOLDER
RIGHTS". The description herein and under the caption "COMPARISON OF SHAREHOLDER
RIGHTS" include brief summaries of
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certain provisions relating to the CWS Common Stock and CWS's Preferred Stock
and Preference Stock contained in its Certificate of Incorporation and the
Rights Agreement, do not purport to be complete and are subject in all respects
to the applicable provisions thereof.
COMMON STOCK
Each share of the CWS Common Stock is entitled to dividends when and as
declared by the Board of Directors out of sources legally available therefor,
subject to the limitations set forth under "CWS COMMON STOCK PRICE RANGE AND
DIVIDENDS". Each share of CWS Common Stock is entitled to three votes, voting on
all matters as a single class with the holders of the $20 Par Cumulative
Preferred Stock. Holders of CWS Common Stock do not have any cumulative voting
rights, which means that the holders of more than 50% of the outstanding Common
Stock voting in the election of directors can elect all of the directors if they
so choose and, in such event, the holders of the remaining shares will not be
able to elect any director.
The Board of Directors is authorized to issue all unissued shares of
the Common Stock from time to time, without any further action or authorization
by shareholders. The holders of Common Stock have no preemptive or conversion
rights. The shares of Common Stock presently outstanding are, and the shares
issued in the Merger will be upon issuance, fully paid and nonassessable.
Each of the outstanding shares of CWS Common Stock will share equally
in respect to all dividends paid on such Common Stock. The Certificate of
Incorporation empowers CWS's Board of Directors to issue Preferred Stock and/or
Preference Stock with such preferences and other rights as the Board of
Directors may provide in the resolutions providing for the issuance of such
Preferred Stock and/or Preference Stock. Such preferences and other rights may
restrict or otherwise limit the rights of holders of CWS Common Stock to receive
dividends. Any future issues of Cumulative Preferred Stock or Preference Stock
will increase the preference of such stock, as classes, over Common Stock as to
matters such as dividends and liquidation rights.
In the event of any liquidation, dissolution or winding up of the
affairs of CWS, whether voluntary or involuntary, all assets available for
distribution to its shareholders, after the payment to the holders of Preferred
Stock and Preference Stock, if any, at the time outstanding of the full amounts
to which they shall be entitled, shall be divided and distributed pro rata among
the holders of CWS Common Stock.
The CWS Common Stock is traded on NASDAQ.
All holders of record of CWS Common Stock are eligible to participate
in CWS's Dividend Reinvestment and Common Stock Purchase Plan. See "CWS COMMON
STOCK PRICE RANGE AND DIVIDENDS -- Dividend Reinvestment and Common Stock
Purchase Plan".
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The Transfer Agent and Registrar of CWS Common Stock is EquiServe, P.O.
Box 8200, Boston, Massachusetts 02266-8200.
PREFERRED AND PREFERENCE STOCK
$20 Par Value Cumulative Preferred Stock
CWS's $20 Par Cumulative Preferred Stock is preferred as to dividends
and on liquidation over the CWS Common Stock and is on a parity with CWS's $16
Par Cumulative Preferred Stock as to preferences on dividends and liquidation.
It is entitled to one vote per share voting with the holders of Common Stock
(entitled to three votes per share). Dividends on the presently outstanding
Series A Preferred Stock are at the rate of 80 cents per annum and are
cumulative. In the case of involuntary liquidation, shares of the $20 Par
Cumulative Preferred Stock are entitled to a liquidation preference of $20 per
share plus accrued dividends. In the case of voluntary liquidation or
redemption, such shares are entitled to the applicable redemption price for the
series thereof. The redemption price with respect to Series A is $21 per share
plus accrued dividends. The $20 Par Cumulative Preferred Stock, voting as a
single class with all Cumulative Preferred Stock (including the $16 Par
Cumulative Preferred Stock) of CWS, is also entitled to elect a majority of the
Board of Directors upon default in the payment of six quarterly dividends on any
outstanding shares of Preferred Stock (including $16 Par Cumulative Preferred
Stock) and upon certain other defaults. The shares of $20 Par Cumulative
Preferred Stock have no conversion, sinking fund or preemptive rights. The
shares of the $20 Par Cumulative Preferred Stock presently outstanding are fully
paid and nonassessable.
$16 Par Value Cumulative Preferred Stock
The CWS $16 Par Cumulative Preferred Stock is similarly preferred as to
dividends and on liquidation over the CWS Common Stock. It is entitled, voting
as a single CWS class with all Cumulative Preferred Stock (including the $20 Par
Cumulative Preferred Stock) of CWS, to elect a majority of the Board of
Directors upon default in the payment of six quarterly dividends on any
outstanding shares of Preferred Stock (including the $20 Par Cumulative
Preferred Stock), and upon certain other defaults, but otherwise it has no
voting rights except as provided by law. Dividends on the presently outstanding
$16 Par Cumulative Preferred Stock are $.90 per share per annum and are
cumulative. In the case of involuntary liquidation, shares of the $16 Par
Cumulative Preferred Stock are entitled to a liquidation preference of $16 per
share plus accrued dividends. In the event of voluntary liquidation or
redemption, such shares are entitled to the applicable redemption price
therefor, which, with respect to the $.90 Series Preferred Stock, is $16 per
share plus accrued dividends. The shares of $16 Par Cumulative Preferred Stock
have no conversion, sinking fund or preemptive rights. The shares of the $16 Par
Cumulative Preferred Stock presently outstanding are fully paid and
nonassessable.
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<PAGE> 62
$25 Par Value Cumulative Preferred Stock
CWS has authorized 400,000 shares of Preferred Stock, $25 par value per
share, the general preferences, voting powers, restrictions and qualifications
of which are generally similar to the Company's existing Cumulative Preferred
Stock. No shares of the $25 Par Cumulative Preferred Stock have been issued to
date.
$1 Par Value Preference Stock
CWS also has authorized 1,000,000 shares of Preference Stock, $1 par
value per share. To the extent that CWS's Certificate of Incorporation does not
otherwise provide, the Board of Directors has the authority to determine, from
time to time, the terms, limitations and relative rights and preferences of the
Preference Stock, to establish series and to fix and determine variations as
among series of the Preference Stock. The Preference Stock is junior to CWS's
existing Cumulative Preferred Stock (but ranks ahead of the Common Stock) in
rights to dividends and on voluntary or involuntary liquidation of CWS. The
Preference Stock has no preemptive, conversion or voting rights, except as may
be specifically provided in the Board of Directors' resolutions creating any
series of the Preference Stock. No shares of the Preference Stock have been
issued, but 150,000 of such shares has been designated Series A Junior
Participating Preference Stock and are reserved and available for issuance under
the CWS Shareholder Rights Plan.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the consummation of the Merger, shareholders of Crystal, a
Connecticut corporation, will become shareholders of CWS, also a Connecticut
corporation. Differences between Crystal's Certificate of Incorporation, as
amended ("Crystal's Certificate of Incorporation"), and By-Laws and CWS's
Certificate of Incorporation, as amended ("CWS's Certificate of Incorporation"),
and By-Laws will result in several changes in the rights of Shareholders of
Crystal when the Merger is effected. A summary of the more significant changes
is set forth below.
ISSUANCE OF SHARES
The CBCA provides that, subject to the limitations contained in the
certificate of incorporation of a corporation, the board of directors of a
corporation may authorize the issuance of additional shares of the corporation's
capital stock up to the amount authorized in its certificate of incorporation.
Under Connecticut law, Crystal's Board of Directors may issue and sell
all or any part of the shares of stock of any class of the corporation, from
time to time, without further action by shareholders. In addition, although
Crystal's Certificate of Incorporation currently authorizes only one class of
stock, the no par value Common Stock, Crystal's Certificate of Incorporation
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<PAGE> 63
authorizes the Board of Directors to determine the rights and preferences of any
preferred or special capital stock that may be issued by Crystal.
CWS's Certificate of Incorporation empowers the Board of Directors to
issue and dispose of Preferred Stock, Preference Stock and Common Stock with
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations and restrictions thereof as the Board may decide.
The CWS Board of Directors, without shareholder approval, can issue Preferred
Stock with voting and conversion rights which could limit the voting rights of
holders of CWS Common Stock. The issuance of Preferred Stock and/or Preference
Stock may have the effect of delaying, deferring or preventing a change in
control of CWS. CWS's Board of Directors has designated the Series A Junior
Participating Preference Stock ("Series A Preference Stock"). No shares of this
series are outstanding. However, the Series A Preference Stock is issuable in
certain circumstances, and CWS has issued rights to purchase such Preference
Stock to holders of Common Stock. The Preference Stock purchase rights are
exercisable only in the event of certain threatened changes in control described
more fully below.
VOTING RIGHTS
The CBCA provides that every shareholder shall be entitled to one vote
for each share of capital stock held by such shareholder unless otherwise
specified in the certificate of incorporation. The CBCA also provides that the
holders of outstanding shares of any class of stock (even non-voting stock) are
entitled to vote as a class upon any proposed amendment to the certificate of
incorporation submitted to shareholder vote which would have certain specified
effects on their rights.
Holders of Crystal's Common Stock have exclusive voting power and are
entitled to vote and receive notice of any shareholders' meetings.
Holders of CWS Common Stock are entitled to cast three votes per share,
and holders of CWS Cumulative Preferred Stock, Series A are entitled to one vote
per share, on each matter submitted to a vote of shareholders of CWS. The
holders of the CWS Common Stock and Cumulative Preferred Stock, Series A vote
together as one class. If issued, each share of Series A Preference Stock would
have at least 300 votes per share.
PREEMPTIVE RIGHTS
The Certificate of Incorporation of CWS eliminates preemptive rights to
subscribe to any future issues of shares of Common Stock. Under Connecticut law,
holders of Crystal Common Stock do have such preemptive rights.
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DISSENTERS' RIGHTS OF APPRAISAL
Dissenters' rights are the same for both CWS and Crystal Common Stock.
The CBCA grants dissenters' rights to shareholders (i.e., the right to cash
payment of the fair value of one's shares determined by judicial appraisal) in
the case of a merger, consolidation or a sale of all or substantially all of the
corporation's assets, and certain other corporate actions and transactions.
See "RIGHTS OF DISSENTING SHAREHOLDERS".
DIVIDENDS AND DISTRIBUTIONS
Each of the outstanding shares of CWS Common Stock will share equally
in respect to all dividends paid on such Common Stock but only after all
dividends have been paid on the outstanding Preferred Stock and Preference
Stock.
Holders of CWS's Series A Preferred Stock, if issued, would be entitled
to receive dividend, voting and liquidation rights which are at least 100 times
the equivalent rights of one share of CWS Common Stock. The rights would become
exercisable only if a person or group acquires, or announces or commences a
tender or exchange offer for, 15% or more of CWS' Common Stock.
In the event of any liquidation, dissolution or winding up of the
affairs of CWS, whether voluntary or involuntary, all assets available for
distribution to its shareholders, after the payment to the holders of Preferred
Stock and Preference Stock, shall be divided and distributed pro rata among the
holders of CWS Common Stock.
Under Connecticut law, holders of Crystal's Common Stock are entitled
to share equally in respect to all distributions as and if declared by the
Crystal Board of Directors.
In the event of any dissolution or liquidation of Crystal, whether
voluntary or involuntary, the remaining assets shall be divided and distributed
pro rata among the holders of Crystal Common Stock.
FILLING DIRECTOR VACANCIES
The CBCA provides that unless otherwise specified in the certificate of
incorporation, a vacancy occurring on a board of directors (including one
resulting from an increase in the number of directors) may be filled by the
shareholders or directors. In the event that the directors remaining in office
constitute less than a quorum of the board, the directors remaining in office
may fill the vacancy by a majority vote.
CWS's Certificate of Incorporation and By-Laws provide that any newly
created or vacated directorship may be filled only by a majority vote of the
directors then in office, although less than a quorum.
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Crystal's By-Laws provide that, upon the occurrence of a vacancy of any
director or directors by reason other than an increase in the number of
directorships, a majority of the remaining directors, although less than quorum,
may choose a successor or successors. A vacancy created by an increase in the
number of directorships shall only, and any other vacancy may, be filled by the
vote of the Crystal Shareholders at a shareholder's meeting.
STANDARDS OF CONDUCT FOR DIRECTORS
The CBCA generally requires that a director shall discharge his or her
duties in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner that such
director reasonably believes to be in the best interests of the corporation.
In addition, directors of corporations such as CWS with a class of
voting stock registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), shall consider, in determining what such director believes
to be in the best interests of the corporation (i) the long-term as well as the
short-term interests of the corporation; (ii) the long-term and short-term
interests of the shareholders of the corporation, including the possibility that
those interests may be best served by the continued independence of the
corporation; (iii) the interests of the corporation's employees, customers,
creditors and suppliers; and (iv) community and societal considerations
including those of the community in which any office or other facility of the
corporation is located.
REMOVAL OF DIRECTORS
The CBCA allows shareholders to remove directors, with or without
cause, unless the corporation's certificate of incorporation provides that
directors may be removed only for cause, if the number of votes cast in favor of
his or her removal exceeds the number cast against removal. In addition, a
director may be removed in a judicial proceeding commenced either by the
corporation or its shareholders holding at least ten percent of the outstanding
shares of any class of stock.
CWS's By-Laws and Certificate of Incorporation provide that, subject to
the rights of Preferred and Preference Shareholders, any director, or the entire
Board of Directors, may be removed from office at any time, but only for cause
and only by the affirmative vote of the holders of at least 80 percent of the
combined voting power of all of the then-outstanding shares of the voting stock,
voting together as a class.
Crystal's By-Laws provide that one or more directors may be removed
from office at any time, with or without cause, by the vote of a majority of the
corporation's issued and outstanding voting shares, or by action of a majority
of the directors in the case of a removal for reasonable cause.
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AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the CBCA, unless the CBCA or the corporation's certificate of
incorporation or directors requires a greater vote, amendments to the
certificate of incorporation generally require the affirmative vote of the
majority of the voting power of the shares entitled to vote thereon, and if any
class of shares is entitled to vote thereon as a class, by the affirmative vote
of the holders of the shares of each class of shares entitled to vote thereon as
a class.
For Connecticut corporations such as Crystal, which were incorporated
prior to January 1, 1997, and have less than one hundred shareholders of record,
the CBCA requires the affirmative vote of at least two-thirds of the voting
power of the shares of each class of stock outstanding and entitled to vote
thereon with respect to any amendment submitted for shareholder approval.
Under the CBCA, the holders of the outstanding shares of any class of
stock (even non-voting stock) are entitled to vote as a class upon any proposed
amendment to the certificate of incorporation submitted to shareholder vote
which would affect their rights in certain specified ways.
CWS's Certificate of Incorporation requires a supermajority vote of 80%
of the combined voting power of all of the then-outstanding shares of the voting
stock to alter, amend or repeal the provisions in the Certificate of
Incorporation (or to amend comparable By-Law provisions) covering certain
change-in-control type matters including membership and classification of the
Board, filling of Board vacancies, removal of directors, shareholder action,
calling of special meeting of shareholders, quorum at Board meetings, business
combinations with certain shareholders or their affiliates and amendment of the
foregoing voting requirements.
AMENDMENTS TO BY-LAWS
Under the CBCA, the board of directors of a Connecticut corporation may
adopt, amend or repeal the corporation's by-laws unless: (1) the corporation's
certificate of incorporation reserves this power to the corporation's
shareholders; or (2) the shareholders, in amending or repealing a particular
by-law, provide expressly that the board of directors may not amend or repeal
that by-law. Furthermore, the CBCA allows a corporation's shareholders to amend
or repeal a corporation's by-laws even though the by-laws may also be amended or
repealed by its board of directors.
Crystal's By-Laws provide that the By-Laws may be amended or repealed
by the affirmative vote of a majority of the holders of the Common Stock issued
and outstanding and entitled to vote; or may be altered or amended by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board.
Both CWS's Certificate of Incorporation and By-Laws provide that CWS's
By-Laws may be amended by the Board of Directors with the exception that
amendment of certain provisions
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requires the affirmative vote of 80% of the outstanding shares entitled to vote.
Those By-Law provisions are those relating to membership and classification of
the Board, filling of Board vacancies, removal of directors, shareholder action,
calling of special meeting of shareholders, quorum at Board meetings, business
combinations with certain shareholders or their affiliates and amendment of the
foregoing voting requirements.
PROVISIONS RELATING TO CHANGE IN CONTROL
Change in control issues may be specifically addressed in a
corporation's certificate of incorporation, and are also governed in certain
circumstances under the CBCA provisions relating to Business Combinations (see
discussion below under the heading "Business Combination Statute").
The CWS Certificate of Incorporation provides that the Board of
Directors of CWS, when evaluating any offer of another party (1) to make a
tender or exchange offer for any equity security of CWS, (2) to merge or
consolidate CWS with or into another corporation or (3) to purchase or otherwise
acquire all or a substantial part of the properties and assets of CWS or any of
its subsidiaries, may, in connection with the exercise of its judgment in
determining what it reasonably believes is in the best interests of CWS as a
whole, give consideration to all such factors as the Board of Directors
determines to be relevant, including, without limitation:
(i) the interests of the CWS shareholders, long-term as well
as short-term, including the possibility that those interests may be
best served by the continued independence of the Company;
(ii) the interest of the customers of CWC;
(iii) whether the proposed transaction might violate Federal
or State law;
(iv) the form and amount of consideration being offered in the
proposed transaction not only in relation to the then-current market
price for the outstanding capital stock of CWS, but also in relation to
the market price for the capital stock of CWS over a period of years,
the estimated price that might be achieved in a negotiated sale of CWS
or CWC as a whole or in part to either public or private entities or
through orderly liquidation, the estimated future value of CWS, the
premiums over market price paid for the securities of other
corporations in similar transactions, current political, economic and
other factors bearing on securities prices, and CWS's financial
condition and future prospects; and
(v) the social, legal and economic effects upon employees,
customers, suppliers and others that have similar relationships with
CWS or CWC, and the communities in which CWS and CWC conduct business,
including, without limitation, the public interest obligations imposed
on CWC as an operating public utility and the effect or impact of
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any such transaction on the ability of CWS, any subsidiaries or any
successor entity to provide prudent, adequate and effective water
supply service to the areas served by CWC.
In connection with such evaluation, the Board of Directors may conduct
such investigations and engage in such legal proceedings as the Board of
Directors may determine. None of the foregoing provisions may be altered,
amended or repealed without the affirmative vote of the holders of at least 80
percent of all of the then-outstanding shares of the voting stock of CWS, in
addition to any affirmative vote of the holders of any particular class or
series of such voting stock required by law or CWS's Certificate of
Incorporation.
Crystal has no comparable provision and is thus governed solely by the
provisions of the CBCA referenced above.
BUSINESS COMBINATION STATUTE
CBCA Sections 33-840 through 33-845 (the "CBCA Business Combination
Statute") provide for limitations and prohibitions on certain business
combinations. In general, a "business combination" includes mergers,
combinations, certain transfers, or issuances of equity securities to interested
shareholders and their affiliates, liquidation/dissolution resolutions passed by
such persons or reclassifications of securities that result in the proportionate
increase of ownership of outstanding shares by such persons.
The CBCA Business Combination Statute generally requires that in
addition to any vote otherwise required by law or the certificate of
incorporation, a business combination shall first be approved by the Board of
Directors and then be approved by the affirmative vote of at least (i) the
holders of eighty percent (80%) of the voting power of the outstanding shares of
the corporation, and (ii) the holders of two-thirds of the voting power of the
outstanding shares of the corporation (other than shares held by the interested
shareholder and any affiliates).
The CBCA Business Combination Statute also generally prohibits a
corporation from engaging in any business combination with any interested
shareholder for a period of five years following the date that such shareholder
became an interested shareholder, unless:
(1) prior to such date the board of directors of the corporation
and a majority of non-employee directors (of which there must
be at least two) approved either the business combination or
the transaction which resulted in the shareholder becoming an
interested shareholder; or
(2) the business combination is otherwise excepted from the
five-year prohibition by applicable provisions of the CBCA.
In general, "interested shareholder" is defined as the holder of 10% of
the outstanding voting stock of the corporation.
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The CBCA Business Combination Statute generally applies to CWS,
although CWS might qualify for certain available exceptions to its application
depending upon the nature of the transaction. Because Crystal is not a reporting
company under the Exchange Act, the CBCA Business Combination Statute would
generally not apply to it.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Under the CBCA, a Connecticut corporation may have a classified board
of directors.
CWS's Certificate of Incorporation provides that directors (other than
directors who may be elected by Preferred or Preference Shareholders) are to be
classified into three classes, which are to hold office in staggered three-year
terms.
Crystal's Board of Directors is not classified into classes.
SHAREHOLDER MEETINGS
Under the CBCA, any action which may be taken at a meeting of
shareholders may be taken without a meeting by unanimous written consent or, if
so provided by the certificate of incorporation, by the written consent of a
majority of the voting power of shares. The CBCA also provides that special
meetings of the shareholders may be called only by the board of directors, or by
such person or persons as may be authorized by the certificate of incorporation
or the bylaws or upon the written request of the holders of at least 10% (35%
for certain public corporations such as CWS, but not Crystal) of all of the
votes entitled to be cast at the meeting.
CWS's Certificate of Incorporation provides that shareholder action may
only be taken at an annual or special meeting of shareholders and not by written
consent. Special meetings of shareholders may be called only by the Board of
Directors and otherwise by shareholders as expressly permitted by applicable
statute.
Crystal's By-Laws provide that shareholder action may only be taken at
an annual or special meeting of shareholders. Special meetings of shareholders
may be called by the President or by resolution of the Board of Directors and
shall be called by the President upon the request of any two directors or one or
more shareholders holding at least one-tenth of the total number of shares
entitled to vote at the meeting.
PREFERRED STOCK PURCHASE RIGHTS
CWS has reserved 150,000 shares of its Series A Preference Stock for
issuance under its Preference Stock Purchase Rights Plan. Each share of CWS
Common Stock, including the shares to be issued to holders of Crystal Common
Stock in the Merger, is entitled to one right to buy (the "Right" or "Rights"),
under certain circumstances, one one-hundredth of a share of Series A Preference
Stock at a price of $90.00 per one one-hundredth of a share.
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<PAGE> 70
Subject to certain terms and conditions, each Right shall entitle the
registered holder to purchase from CWS one one-hundredth of a share of Series A
Preference Stock, $1 par value, of CWS at a price of $90 per one one-hundredth
of a share of Series A Preference Stock (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement dated as of August 12, 1998, as the same may be amended from time to
time (the "Rights Agreement"), between CWS and State Street Bank and Trust
Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") have acquired beneficial ownership of
15% or more of the outstanding shares of CWS Common Stock or (ii) 10 business
days (or such later date as may be determined by action of the CWS Board of
Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding shares of CWS Common Stock (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced, with respect to
any of the CWS Common Stock certificates outstanding as of the record date, by
such CWS Common Stock certificates together with a copy of the Summary of Rights
sent to holders of such CWS Common Stock on the record date (the "Summary of
Rights").
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the CWS Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new CWS Common Stock certificates
issued after the record date upon transfer or new issuances of CWS Common Stock,
including issuances under the CWS Dividend Reinvestment and Common Stock
Purchase Plan, will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for shares of CWS
Common Stock, even without such notation or a copy of the Summary of Rights,
will also constitute the transfer of the Rights associated with the shares of
CWS Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the CWS Common
Stock as of the close of business on the Distribution Date and such separate
Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on October 11, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by CWS, in each case as described below.
The Purchase Price payable, and the number of shares of Series A
Preference Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision,
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<PAGE> 71
combination or reclassification of, the Series A Preference Stock, (ii) upon the
grant to holders of the Series A Preference Stock of certain rights or warrants
to subscribe for or purchase Series A Preference Stock at a price, or securities
convertible into Series A Preference Stock with a conversion price, less than
the then-current market price of the Series A Preference Stock, or (iii) upon
the distribution to holders of the Series A Preference Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends or dividends
payable in Series A Preference Stock) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Rights is also subject to adjustment in the
event of a stock split of the CWS Common Stock or a stock dividend on the CWS
Common Stock payable in shares of CWS Common Stock or subdivisions,
consolidations or combinations of the CWS Common Stock occurring, in any such
case, after August 12, 1998 and prior to the Distribution Date; provided,
however, that no such adjustment was made with respect to any such dividend or
subdivision approved by the Board of Directors of CWS on August 12, 1998,
including the stock split effected on September 1, 1998.
Shares of Series A Preference Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Series A Preference Stock will be
entitled, when, as and if declared, to a minimum preferential quarterly dividend
payment of $1 per share but will be entitled to an aggregate dividend of 100
times the dividend declared per share of CWS Common Stock. In the event of a
liquidation, dissolution or winding up of CWS, the holders of the Series A
Preference Stock will be entitled to a minimum preferential liquidation payment
of $100 per share (plus any accrued but unpaid dividends) but will be entitled
to an aggregate payment of 100 times the payment made per share of CWS Common
Stock. Each share of Series A Preference Stock will have 100 votes, voting
together with the CWS Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of CWS Common Stock are
converted or exchanged, each share of Series A Preference Stock will be entitled
to receive 100 times the amount received per share of CWS Common Stock. These
rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preference Stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Series A Preference Stock purchasable upon exercise of each Right
should approximate the value of one share of CWS Common Stock.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right at the then
current exercise price of the Right, that number of shares of CWS Common Stock
having a market value of two times the exercise price of the Right.
In the event that, after a person or group has become an Acquiring
Person, CWS is acquired in a merger or other business combination transaction or
50% or more of its
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consolidated assets or earning power are sold, proper provision will be made so
that each holder of a Right (other than Rights beneficially owned by an
Acquiring Person, which will have become void) will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the person with whom CWS has
engaged in the foregoing transaction (or its parent), which number of shares at
the time of such transaction will have a market value of two times the exercise
price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of CWS Common Stock or the occurrence of an event described
in the prior paragraph, the Board of Directors of CWS may exchange the Rights
(other than Rights owned by such person or group, which will have become void),
in whole or in part, at an exchange ratio of one share of CWS Common Stock, or
one one-hundredth of a share of Series A Preference Stock (or of a share of a
class or series of CWS's Series A Preference Stock or Preferred Stock having
equivalent rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A Preference Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Preference Stock, which may, at the election of CWS, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Series A Preference Stock on the
last trading day prior to the date of exercise.
At any time prior to the earlier of (i) the close of business on the
tenth day following the first public announcement by CWS or an Acquiring Person
that an Acquiring Person has become such or such earlier date as a majority of
the CWS Board of Directors shall become aware of the existence of an Acquiring
Person, subject to extension by the CWS Board, or (ii) the close of business on
the Final Expiration Date, the Board of Directors of CWS may redeem the Rights
in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the CWS Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
For so long as the Rights are then redeemable, CWS may, except with
respect to the Redemption Price, amend the Rights in any manner. After the
Rights are no longer redeemable, CWS may, except with respect to the Redemption
Price, amend the Rights in any manner that does not adversely affect the
interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of CWS, including, without limitation, the right to vote
or to receive dividends.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
The CBCA states that, unless its certificate of incorporation otherwise
provides, a corporation formed under Connecticut law prior to January 1, 1997 is
obligated to indemnify a director to the same extent the corporation is
permitted to provide indemnification to a director pursuant to Section 33-771.
This obligation to indemnify is subject to certain limitations set forth in
Section 33-775 of the CBCA, which requires a determination in each case that
indemnification of the director is permissible and authorized. Under the CBCA, a
director may also apply to a court of competent jurisdiction for
indemnification. The CBCA provides that a corporation incorporated under
Connecticut law prior to January 1, 1997 shall also indemnify each officer,
employee or agent who is not a director to the same extent.
In general, Section 33-771 provides that a corporation may indemnify an
individual made a party to a proceeding because he is a director against
liability incurred in the proceeding if: (1) (A) he conducted himself in good
faith; (B) he reasonably believed (i) in the case of conduct in his official
capacity, that his conduct was in the best interests of the corporation and (ii)
in all other cases, that his conduct was at least not opposed to the best
interests of the corporation; and (C) in the case of any criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful; or (2) he engaged
in conduct for which broader indemnification has been made permissible or
obligatory under a provision of the corporation's certificate of incorporation.
Section 33-775 also provides that, unless ordered by a court, a corporation may
not indemnify a director (1) in connection with a proceeding by or in the right
of the corporation except for reasonable expenses incurred in connection with
the proceeding if it is determined that the director has not met the relevant
standard of conduct under 33-771; or (2) in connection with any proceeding with
respect to conduct for which he was adjudged liable on the basis that he
received a financial benefit to which he was not entitled whether or not
involving action in his official capacity.
The CBCA provides that a corporation may provide indemnification of or
advancement of expenses to a director, officer, employee or agent only as
permitted therein.
CWS's Certificate of Incorporation provides that the personal liability
of any person who is or was a director of CWS to CWS or its shareholders for
monetary damages for breach of duty as a director is limited to the amount of
the compensation received by the director for serving CWS during the year or
years in which the violation occurred so long as such breach did not (i) involve
a knowing and culpable violation of law by the director, (ii) enable the
director or an associate to receive an improper personal economic gain, (iii)
show a lack of good faith and a conscious disregard for the duty of the director
to CWS under circumstances in which the director was aware that his or her
conduct or omission created an unjustifiable risk of serious injury to CWS, (iv)
constitute a sustained and unexcused pattern of inattention that amounted to an
abdication of the director's duty to CWS, or (v) create liability under Section
33-757 of the Connecticut General Statutes.
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CWS's Certificate of Incorporation requires CWS to indemnify and pay
for or reimburse the expenses of directors and officers to the fullest extent
permitted by law; and permits CWS to indemnify and pay for or reimburse the
expenses of employees or agents not otherwise entitled to indemnification on
such terms and conditions as may be established by the Board of Directors.
CWS's By-Laws also provide that CWS, through action by its Board of
Directors, may purchase and CWS has purchased indemnity insurance for directors,
officers, employees or agents of CWS.
Crystal's Certificate of Incorporation and By-Laws are silent on this
issue. Crystal's ByLaws provide that its Board may indemnify Crystal's officers
and employees to the extent allowed by law. Thus, indemnification is governed
solely by the CBCA provisions described above. Crystal has purchased indemnity
insurance for directors and officers.
EXPERTS
The audited financial statements and schedules of CWS included
(incorporated by reference) in this Prospectus and elsewhere in this Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements, consolidated balance sheets and related
consolidated statements of income and cash flows of Crystal set forth in this
Prospectus and elsewhere in this Proxy Statement/Prospectus have been audited by
David R. Daggett, CPA, as indicated in his report with respect thereto, and are
included herein in reliance upon the authority of said individual as an expert
in giving said reports.
LEGAL MATTERS
The validity of the issuance of the CWS Common Stock to be delivered at
the Merger Closing Date will be passed upon by Day, Berry & Howard LLP,
Hartford, Connecticut, general counsel to CWS.
WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROXY STATEMENT/PROSPECTUS.
All documents filed by CWS pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this Proxy
Statement/Prospectus and before the
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date of the Crystal Special Meeting are incorporated by reference into and to be
part of this Proxy Statement/Prospectus from the date of filing of those
documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
The following documents, which were filed by CWS with the SEC, are
incorporated by reference into this Proxy Statement/Prospectus:
CWS's Annual Report on Form 10-K for the year ended December 31, 1998,
Quarterly Reports on Form 10-Q for the quarter ended March 31, 1999 and the CWS
Proxy Statement dated March 17, 1999 for the CWS Annual Meeting of Shareholders
held on April 23, 1999.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this Proxy Statement/Prospectus will be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained in this Proxy Statement/Prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this Proxy Statement/Prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
The documents incorporated by reference into this Proxy
Statement/Prospectus are available from us upon request. We will provide a copy
of any and all of the information that is incorporated by reference in this
Proxy Statement/Prospectus (not including exhibits to the information unless
those exhibits are specifically incorporated by reference into this Proxy
Statement/Prospectus) to any person, without charge, upon written or oral
request. Requests for documents should be directed to Corporate Secretary,
Connecticut Water Service, Inc., 93 West Main Street, Clinton, Connecticut 06413
(telephone 860-669-8630, extension 305). In order to ensure timely delivery of
the documents, any request should be made by August 2, 1999.
CWS files reports, proxy statements and other information with the SEC.
Copies of such CWS reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the SEC
at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
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Reports, proxy statements and other information concerning CWS may also be
inspected at:
The National Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding CWS. The address of the SEC Website is http://www.sec.gov.
Crystal is not subject to the informational requirements of the
Exchange Act and financial and other information about Crystal and its
subsidiary is not publicly available other than as set forth in this Proxy
Statement/Prospectus.
CWS has filed a Registration Statement on Form S-4 under the Securities
Act with the SEC with respect to CWS's Common Stock to be issued to Crystal
Shareholders in the Merger. This Proxy Statement/Prospectus constitutes the
prospectus of CWS filed as part of the Registration Statement. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement because certain parts of the Registration Statement are
omitted in accordance with the rules and regulations of the SEC. The
Registration Statement and its exhibits are available for inspection and copying
as set forth above.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO CWS AND ITS
SUBSIDIARIES WAS PROVIDED BY CWS AND HAS NOT BEEN INDEPENDENTLY VERIFIED BY
CRYSTAL AND THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO CRYSTAL AND ITS SUBSIDIARY WAS PROVIDED BY CRYSTAL AND HAS NOT BEEN
INDEPENDENTLY VERIFIED BY CWS.
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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus and the documents incorporated by
reference into this Proxy Statement/Prospectus contain forward-looking
statements within the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 with respect to our financial condition, results
of operations and business, and on the expected impact of the Merger on CWS's
financial performance. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements.
In evaluating the Merger, you should carefully consider the discussion
of risks and uncertainties in the section entitled "SUMMARY -- Risk Factors" on
page 7 of this Proxy Statement/Prospectus.
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CRYSTAL WATER UTILITIES CORPORATION
INDEX TO CRYSTAL CONSOLIDATED FINANCIAL STATEMENTS
2. Annual Financial Statements:
<TABLE>
<S> <C>
Report of Independent Public Accountant F-1
Consolidated Balance Sheets at December 31, 1998 and December 31, 1997 F-2
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996 F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders of
Crystal Water Utilities Corporation and Subsidiary:
I have audited the accompanying consolidated balance sheets of Crystal Water
Utilities Corporation (a Connecticut corporation) and Subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Crystal Water
Utilities Corporation and Subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
David R. Daggett, CPA
July 8, 1999
F-1
<PAGE> 80
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (Thousands of dollars) 1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Utility Plant
Utility Plant $ 10,304 $ 9,936
Utility Plant Acquisition Adjustments (21) (35)
------------ ------------
10,283 9,901
Accumulated Provision for Depreciation (2,802) (2,568)
------------ ------------
Net Utility Plant 7,481 7,333
------------ ------------
Investments
Nonutility Property 55 52
Other 1 18
------------ ------------
Total Investments 56 70
------------ ------------
Current Assets
Cash and Cash Equivalents 244 333
Accounts Receivable 269 315
Accrued Unbilled Revenues 118 130
Materials and Supplies, at Average Cost 60 49
Prepayments and Other Current Assets 37 5
------------ ------------
Total Current Assets 728 832
------------ ------------
Deferred Charges and Regulatory Assets
Unamortized Debt Issuance Expense 72 77
Income Taxes 859 786
Other Costs 169 211
------------ ------------
Total Deferred Charges and Regulatory Assets 1,100 1,074
------------ ------------
Total Assets $ 9,365 $ 9,309
------------ ------------
</TABLE>
F-2
<PAGE> 81
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
December 31, (Thousands of dollars) 1998 1997
------------ ------------
<S> <C> <C>
Capitalization
Common Stockholders' Equity:
Common Stock $ 1,198 $ 1,189
Retained Earnings 626 606
Long-Term Debt 2,977 3,092
------------ ------------
Total Capitalization 4,801 4,887
------------ ------------
Current Liabilities
Current Portion of Long-Term Debt 122 120
Accounts Payable 67 41
Accrued Taxes 13 41
Accrued Interest 0 29
Other 96 64
------------ ------------
Total Current Liabilities 298 295
------------ ------------
Advances for Construction 78 78
------------ ------------
Contributions in Aid of Construction 2,628 2,611
------------ ------------
Deferred Federal Income Taxes 563 506
------------ ------------
Unfunded Future Income Taxes 809 731
------------ ------------
Unamortized Investment Tax Credits 32 34
------------ ------------
Accrued Pension cost 156 167
------------ ------------
Total Capitalization and Liabilities $ 9,365 $ 9,309
------------ ------------
</TABLE>
F-3
<PAGE> 82
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31, (In thousands except per share amounts) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues $ 1,796 $ 1,824 $ 1,837
------------ ------------ ------------
Operating Expenses
Operation 953 802 811
Maintenance 81 92 63
Depreciation 233 223 208
Income Taxes 65 108 87
Taxes Other Than Income Taxes 105 140 189
------------ ------------ ------------
Total Operating Expenses 1,437 1,365 1,358
------------ ------------ ------------
Utility Operating Income 359 459 479
------------ ------------ ------------
Other Income (Deductions)
Interest and Dividend Income 12 12 10
Gain on Sale of Property 0 1 0
Non-Water Sales Earnings 59 37 22
Miscellaneous Income (Deductions) (5) (4) (1)
Taxes on Other Income (26) (16) (9)
------------ ------------ ------------
Total Other Income (Deductions) 40 30 22
------------ ------------ ------------
Interest and Debt Expenses
Interest on Long-Term Debt 254 255 264
Other Interest Charges 0 0 1
Amortization of Debt Expense 5 5 5
------------ ------------ ------------
Total Interest and Debt Expenses 259 260 270
------------ ------------ ------------
Net Income Applicable to Common Stock $ 140 $ 229 $ 231
------------ ------------ ------------
Weighted Average Common Shares Outstanding 99.1 99.0 98.9
------------ ------------ ------------
Basic and Fully Diluted Earnings Per Average Common Share $ 1.41 $ 2.31 $ 2.34
------------ ------------ ------------
</TABLE>
F-4
<PAGE> 83
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, (Thousands of dollars) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net Income Applicable to Common Stock $ 140 $ 229 $ 231
------------ ------------ ------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 233 223 208
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable and
Accrued Unbilled Revenues 59 (9) (29)
(Increase) Decrease in Other Current Assets (43) 19 17
(Increase) Decrease in Other Non-Current Items 50 (65) 230
Increase (Decrease) in Accounts Payable,
Accrued Expenses and Other Current
Liabilities (38) (10) 78
Increase in Deferred Income Taxes and
Investment Tax Credits, Net 60 58 (241)
Total Adjustments 321 216 263
------------ ------------ ------------
Net Cash Provided by Operating Activities 461 445 494
------------ ------------ ------------
Investing Activities:
Gross Additions to Utility Plant (325) (433) (606)
------------ ------------ ------------
Financing Activities:
Proceeds from Issuance of Long-Term Debt 0 140 2,700
Reduction of Long-Term Debt Including Current (131) (97) (2,735)
Portion
Proceeds from Issuance of Common Stock 9 0 6
Advances, Contributions and Funds from
Others for Construction, Net 17 0 452
Costs Incurred to Issue Long-Term Debt 0 0 (17)
Cash Dividends Paid (120) (109) (89)
------------ ------------ ------------
Net Cash Provided by (Used in) Financing (225) (66) 317
Activities
------------ ------------ ------------
Net Increase (Decrease) in Cash (89) (54) 205
Cash at Beginning of Year 333 387 182
------------ ------------ ------------
Cash at End of Year $ 244 $ 333 $ 387
------------ ------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest $ 281 $ 227 $ 283
State and Federal Income Taxes $ 90 $ 60 $ 0
</TABLE>
F-5
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL -The Company is a holding company whose subsidiary, The Crystal Water
Company of Danielson, is engaged in the regulated utility business of public
water supply serving approximately 3,200 customers in Danielson, CT and
surrounding communities. The Subsidiary's largest customer, the Town of
Danielson, accounts for approximately 15% of the total operating revenues.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiary, and all intercompany transactions
have been eliminated.
PUBLIC UTILITY REGULATION - The Subsidiary is regulated by the State of
Connecticut Department of Public Utility Control (DPUC) and as such maintains
its accounts in accordance with the DPUC Uniform System of Accounts prescribed
for Water Utilities Class A.
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.
REVENUES - The Subsidiary accrues an estimate for the amount of water sold but
not billed as of the balance sheet date.
UTILITY PLANT - The cost of additions to utility plant and improvements are
capitalized. Costs include labor, materials, services and charges for such
indirect costs as engineering, supervision, payroll taxes, employee benefits,
transportation and certain preliminary survey and investigation. The cost of
repairs and maintenance is expensed. When depreciable utility plant is retired
or disposed of its book cost along with the cost of removal, less salvage, is
charged to accumulated depreciation.
NON-UTILITY PLANT -The Subsidiary owns land, buildings and equipment with an
original cost of $132,000 that is not now used in utility service. Depreciation
in the amount of $77,000 was accumulated during the period these items were in
service and for financial statement presentation this amount is netted against
the original cost. No depreciation for this property is currently being charged
against income. Upon retirement or disposal of this plant the book cost,
accumulated depreciation and any salvage are netted and any gain or loss is
recognized in the statement of income.
The land not being used consists mostly of a reservoir retired from service
which the Subsidiary estimates have a fair market value of $2 - 3 million. If
such land was sold, the sale must be approved by the DPUC and a portion of the
gain, decided upon by the DPUC, may accrue to the benefit of the customers.
DEPRECIATION -The Company and Subsidiary use the straight-line method for
financial statement purposes and straight-line and accelerated depreciation
methods for income tax purposes. See note on income taxes which follows. No
depreciation for financial statement purposes is charged against income relating
to utility plant constructed with developers' contributions after 1990 as the
DPUC does not allow the Subsidiary to recover this expense through rates.
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 ten years and not in excess of
the original advance.
F-6
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidating balance sheets.
Income taxes paid relating to developers' contributions which were taxable in
prior years (January 1987 through June 1996) are recorded as a deferred charge
are being amortized over the tax life of the related asset.
Investment credits are normalized ratably over the lives of the properties
giving rise to the credits.
The Company believes that all deferred income tax assets will be realized in the
future.
OTHER DEFERRED COSTS - Costs of certain administrative projects of the
Subsidiary relating to regulatory processes and costs of items which benefit
more than one accounting period are deferred and amortized against income over
their respective lives and/or periods allowed by the DPUC. Costs which are "not
year amortizable" may be entirely charged against income if and when the DPUC
does not allow the Subsidiary to recover these costs through rates. During 1998
the Subsidiary charged $88,000 against income for deferred costs it believes
would not be recovered in future rates. As of December 31, 1998 the following
costs have been deferred:
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Rate Case Costs $ 6 $ 23
Tank Painting 46 50
Water Supply Plan 20 0
Gas Spill Monitoring 0 30
Preliminary Survey and Investigation Charges 72 93
Other Studies 6 0
Notes Receivable Employees (A) 19 15
---- -----
Total $169 $ 211
</TABLE>
(A) The Company has notes receivable from four (4) employees of the
Subsidiary totaling $19,000 on the balance sheet date. These notes bear
interest at one (1) percent over prime and are adjusted annually on the
anniversary date of each note.
EARNINGS PER SHARE - Earnings per share is computed on the weighted average
number of common shares outstanding during each year. Basic and fully diluted
earnings per share are the same amounts.
RECLASSIFICATION - Certain reclassifications have been made to conform
previously reported data to the current presentation.
NOTE 2: ACCOUNTS RECEIVABLE
The balance of accounts receivable, stated at the estimated amounts to be
collected, as of December 31, 1998 and 1997 is comprised of the following:
F-7
<PAGE> 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands of dollars)
1998 1997
----- -----
<S> <C> <C>
Water customers $ 254 $ 291
Merchandising & Jobbing and Other 15 24
----- -----
$ 269 $ 315
</TABLE>
NOTE 3: INCOME TAXES
Income tax expense for the year ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income Taxes Accrued $ 31 $ 66 $ 6
Deferred Income Taxes 57 56 88
Normalization of Prepaid Income Taxes 6 5 5
Normalization of Investment Credit (3) (3) (3)
---------- ---------- ----------
Total Income Tax Expense $ 91 $ 124 $ 96
</TABLE>
The consolidated income tax returns of the Company and its Subsidiary have been
audited through 1993 by the Internal Revenue Service with no changes.
NOTE 4: COMMON STOCK
The Company has 200,000 authorized shares of common stock, no par value. A
summary of the changes in the common stock accounts for the period January 1,
1996 through December 31, 1998, appears below:
<TABLE>
<CAPTION>
(Thousands of dollars except share amounts) Shares Total
------ ------
<S> <C> <C>
Balance, January 1, 1996 98,566 $1,183
Stock issued to Employees 382 6
------ ------
Balance, December 31, 1996 98,948 1,189
Stock issued to Employees 0 0
------ ------
Balance, December 31, 1997 98,948 1,189
Stock issued to Employees 363 9
------ ------
Balance, December 31, 1998 99,311 $1,198
</TABLE>
F-8
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: ANALYSIS OF RETAINED EARNINGS
The summary of the changes in Retained Earnings for the period January 1, 1996
through December 31, 1998, appears below:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $ 606 $ 486 $ 344
Net Income 140 229 231
-------- -------- --------
746 715 575
-------- -------- --------
Dividends Declared:
Common Stock:
1998 $1.20 Per Share 120 -- --
1997 $1.10 Per Share -- 109 --
1996 $0.90 Per Share -- -- 89
-------- -------- --------
120 109 89
-------- -------- --------
Balance at End of Year $ 626 $ 606 $ 486
</TABLE>
NOTE 6: LONG-TERM DEBT
Long-Term Debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
------ ------
<S> <C> <C>
New London Trust
8.0% Maturing Dec., 2017 $137 $140
The Farmers' Home Administration
6.25% Maturing April 2015 18 0
Connecticut Development Authority
7.82% Maturing Oct., 2020 528 539
New London Trust
8.0% Maturing Jan., 2011 2,416 2,533
Less Due Amounts in One Year (122) (120)
------ ------
Net Long-Term Debt $2,977 $3,092
</TABLE>
Principal payments due in future years are as follows: 1999 - $122,000; 2000 -
$142,000; 2001 - $154,000; 2002 - $167,000; 2003 - $181,000
The long-term mortgage obligations are secured by the Company's real estate and
by substantially all assets of the Subsidiary, by a pledge of the Subsidiary's
stock and a guarantee by the Company.
NOTE 7: UTILITY PLANT AND CONSTRUCTION PROGRAM
The components of utility plant and equipment at December 31, are as follows:
F-9
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
------- ------
<S> <C> <C>
Source of Supply 722 717
Pumping 590 545
Water Treatment 163 159
Transmission and Distribution 7,797 7,597
General (including intangible) 1,032 919
Plant Acquisition Adjustment (21) (35)
------- ------
Total $10,283 $9,901
</TABLE>
The amounts of depreciable plant at December 31, 1998 and 1997 included in total
plant were $9,397,000 and $9,029,000, respectively.
The Subsidiary is engaged in a continuous construction and mapping programs. The
Subsidiary's estimated annual capital expenditures, net of amounts financed by
customer advances and contributions in aid of construction, are expected to be
$250,000 to $350,000 annually over the next five (5) years for these projects.
NOTE 8: TAXES OTHER THAN INCOME TAXES
Taxes Other than Income Taxes consist of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Municipal Property Taxes $ 67 $ 60 $ 58
Payroll Taxes 38 35 34
Connecticut Gross Earnings Tax (A) -- 45 97
---- ---- ----
Total $105 $140 $189
</TABLE>
(A) This tax was legislatively eliminated for water companies effective July 1,
1997. The Subsidiary's rates were correspondingly reduced at the same time.
NOTE 9: PENSION
PENSION - The Subsidiary has a defined benefit pension plan covering employees
who have completed six (6) months of service and attained the age of 20 1/2.
Accrued pension costs and required contributions to the plan are actuarially
calculated annually taking into account the employees' service to date and their
expected future earnings. The following tables set for the plan's funded status
as of December 31, 1998 and 1997 and the net pension cost of $14,365 and $27,024
for the years then ended.
<TABLE>
<CAPTION>
(Thousand of Dollars) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations $ 1,008 $ 556 $ 483
Projected benefit obligation for salary increase 367 357 310
Projected benefit obligation 1,375 913 793
</TABLE>
F-10
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Plan assets at fair value 1,503 1,171 875
Unfunded (overfunding) projected benefits (128) (258) (82)
Unrecognized (gains) / loss 663 475 347
Unrecognized prior service cost (350) (18) 0
Unrecognized transition obligation (29) (32) (52)
------------ ------------ ------------
Accrued pension costs $ 156 $ 167 $ 213
Service costs $ 49 $ 44 $ 40
Interest cost of benefit obligation 73 63 58
Return on assets (96) (73) (5)
Amortization of unrecognized gain / loss (15) (9) (49)
Amortization of prior service cost 1 0 0
Amortization of transition asset 2 2 2
------------ ------------ ------------
Net pension cost $ 14 $ 27 $ 46
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0%. The expected long-term rate of return on assets was 8.0%.
NOTE 10: RELATED PARTY TRANSACTIONS
The Subsidiary purchases services, materials, and supplies from professional
firms, contractors and retailers whose principals are also shareholders and
directors of the Company. During 1998 the amount of these purchases approximated
$13,000.
NOTE 11: CONTINGENT LIABILITY
During 1998 two (2) of the Subsidiary's diversion permits lapsed and it
continues to operate as if the lapses has not occurred. It timely paid the
renewal fee and subsequently filed necessary applications for reinstatement of
these permits with the Department of Environmental Protection, (D.E.P.). The
D.E.P. may accept these applications or may require the Subsidiary to perform
more studies, and/or pay fines, the cost of which cannot be estimated but such
costs could be substantial.
NOTE 12: NON-CASH TRANSACTIONS
On December 30, 1998 the Subsidiary acquired the transmission and distribution
system and the customers of the Powdrell and Alexander Memorial Water
Association, Inc. (P&A). The Subsidiary also acquired the current assets of P&A
and assumed all of P&A's debt. In exchange the Subsidiary is obligated to
provide water, at no charge, to the former P&A customers for one year. During
1997 and 1996 there were no non-cash transactions.
F-11
<PAGE> 90
NOTE 13: SUBSEQUENT EVENT
The Company has entered into an agreement to be acquired by Connecticut Water
Service, Inc., in a non-taxable exchange of stock. This transaction is subject
to approval by the DPUC and the Company's shareholders.
F-12
<PAGE> 91
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits filed or incorporated by reference in the original
Registration Statement on Form S-4 (Registration No.
333-80947) are hereby incorporated herein by reference and
shall be deemed to be a part of this Amendment No. 1 to said
Registration Statement.
Exhibits indicated below are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
5.1* Opinion of Day, Berry & Howard LLP regarding validity of securities being
registered
8.1* Opinion of Day, Berry & Howard LLP regarding certain tax aspects of the
Merger
23.1* Consent of Day, Berry & Howard LLP (included as part of its opinions filed
as Exhibit 5.1 and Exhibit 8.1, respectively and incorporated herein by
reference)
23.2* Consent of Arthur Andersen LLP
23.3* Consent of David R. Daggett, CPA
</TABLE>
<PAGE> 92
II-2
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that, for the purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in this Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(2) that before any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form S-4 under
the Securities Act of 1933, within one business day of receipt of any such
request, and to send the incorporated documents by first-class mail or other
equally prompt means, including information contained in documents filed after
the effective date of the Registration Statement through the date of responding
to such request; and
(5) to supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not the
subject of and included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 20 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. If a claim of indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or
<PAGE> 93
II-3
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
<PAGE> 94
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amendment to the Registration Statement 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>
By /s/ Michael F. Halloran
/s/ Marshall T. Chiaraluce Director and ----------------------------
- ------------------------------------------- President and Michael F. Halloran
Marshall T. Chiaraluce Chief Executive Officer Attorney-in-Fact
(Principal Executive Officer) July 12, 1999
/s/ David C. Benoit Vice President - By /s/ Michael F. Halloran
- ------------------------------------------- Finance, ---------------------------
David C. Benoit Accounting, and Michael F. Halloran
(Principal Financial and Treasurer Attorney-in-Fact
Accounting Officer) July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Francis E. Baker, Jr. Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Francis E. Baker, Jr. July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Harold E. Bigler, Jr. Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Harold E. Bigler, Jr. July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Mary Ann Hanley Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Mary Ann Hanley July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Marcia Hincks Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Marcia Hincks July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Ronald D. Lengyel Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Ronald D. Lengyel July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Rudolph E. Luginbuhl Director Michael F. Halloran
- ------------------------------------------- Attorney-in-Fact
Rudolph E. Luginbuhl July 12, 1999
</TABLE>
<PAGE> 95
<TABLE>
<S> <C> <C>
By /s/ Michael F. Halloran
---------------------------
Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Harvey G. Moger July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Robert F. Neal Director Michael F. Halloran
- ------------------------------------------- Attorney-in-Fact
Robert F. Neal July 12, 1999
By /s/ Michael F. Halloran
---------------------------
/s/ Warren C. Packard Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Warren C. Packard July 12, 1999
By /s/ Michael F. Halloran
---------------------------
Michael F. Halloran
- ------------------------------------------- Director Attorney-in-Fact
Arthur C. Reeds July 12, 1999
Director By /s/ Michael F. Halloran
/s/ Donald B. Wilbur ---------------------------
- ------------------------------------------- Michael F. Halloran
Donald B. Wilbur Attorney-in-Fact
July 12, 1999
</TABLE>
<PAGE> 96
SIGNATURES
Pursuant to requirements of the Securities Act, the Registrant has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Clinton, State of
Connecticut, on July 7, 1999.
CONNECTICUT WATER SERVICE, INC.
By: /s/ Marshall T. Chiaraluce By /s/ Michael F. Halloran
-------------------------------------------- -----------------------
Name: Marshall T. Chiaraluce Michael F. Halloran
Title: President and Chief Executive Officer Attorney-in-Fact
July 12, 1999
<PAGE> 97
A-1
APPENDIX A
MERGER AGREEMENT
This Merger Agreement dated as of March 10, 1999 (the "Agreement") by
and among Connecticut Water Service, Inc., a Connecticut corporation (together
with its subsidiaries and affiliates or successors in business, hereinafter
individually and collectively ("CWS"), and Crystal Water Utilities Corporation,
a Connecticut corporation ("Crystal").
WHEREAS, Crystal owns all of the issued and outstanding shares of the
common stock of Crystal Water Company of Danielson (the "Subsidiary"; Crystal
and the Subsidiary being herein collectively referred to as the "Companies");
WHEREAS, Crystal desires to merge with a subsidiary ("Newco") of CWS to
be formed prior to the Closing Date, with the shareholders of Crystal receiving
shares of Common Stock of CWS in exchange for all of the outstanding shares of
capital stock of Crystal (the "Shares"), all on the terms and subject to the
conditions hereinafter set forth;
WHEREAS, Crystal and CWS desire that the transaction set forth herein
qualify as a tax-free "A" Reorganization for federal income tax purposes and
corresponding provisions of applicable state income tax law of Connecticut and
that this Agreement be interpreted accordingly;
<PAGE> 98
A-2
WHEREAS, the Subsidiary owns and operates water systems located in the
towns of Plainfield, Brooklyn, Killingly and Thompson, Connecticut, consisting
of the Crystal Water, Plainfield, Williamsville and Thompson systems
(collectively the "Systems"), and are subject to the jurisdiction of the
Connecticut Department of Public Utility Control ("DPUC"), the Connecticut
Department of Environmental Protection ("DEP") and the Connecticut Department of
Public Health ("DPH").
NOW, THEREFORE, in consideration of these premises and the mutual
agreements, representations and warranties set forth in, and subject to the
terms and conditions of, this Agreement, the parties agree as follows:
1. MERGER
1.1 Merger.
(a) Upon the Closing Date:
(i) Newco will be merged into Crystal, with Crystal, as the
surviving corporation (the "Merger") continuing the business of Crystal under
the name of Crystal, (Crystal in its capacity as the surviving corporation being
sometimes referred to as the "Surviving Corporation");
(ii) the outstanding Common Stock of Newco will become Common
Stock of the Surviving Corporation; and
<PAGE> 99
A-3
(iii) the outstanding Common Stock of Crystal will be
exchanged for Common Stock of CWS as provided herein.
(b) The merger of Newco into Crystal will be effected pursuant to the
Certificate and Plan of Merger attached hereto as Exhibit A (the "Plan of
Merger").
1.2 Title and Survey.
Within 10 days of the execution of this Agreement, Crystal shall
provide CWS with a copy of the due diligence materials listed in Schedule 1.2.1.
Crystal represents to CWS that there are no due diligence materials listed in
Schedule 1.2.1 within Crystal's or the Companies' possession and control that
will not be so delivered to CWS. CWS shall have until thirty days after receipt
of all of said materials to give Crystal a written notice (the "Title Objection
Notice") setting forth any objections (the "CWS Title Objections") that CWS has
to title or survey matters affecting the real property constituting part of the
Assets (as that term is defined in Section 3.2 hereof) (the "Property"). For
purposes of this Agreement, the standards of title of the Connecticut Bar
Association, to the extent applicable, shall govern the determination of
marketable title. Crystal shall have the option to cure the CWS Title Objections
within 30 days after the date of such notice. If Crystal elects not to cure or
is unable to cure the CWS Title Objections by said date, CWS shall have the
option (in its sole discretion) of either (a) accepting the title as it then is
and proceeding to carry out the transactions contemplated herein, or (b)
terminating this Agreement, whereupon this Agreement shall terminate and CWS and
Crystal shall have no further obligations or liabilities hereunder other than
CWS's indemnity obligation
<PAGE> 100
A-4
under Section 1.3. Except for liens securing the debt set forth on Crystal's
December 31, 1997 audited consolidated financial statements provided pursuant to
Section 3.10 hereof and liens securing debt set forth on Schedule 1.2.2 hereto
which debt CWS will assume (the "Assumed Debt"), any other mortgages and liens
securing Crystal's obligations for borrowed money will be satisfied by Crystal
on or prior to the Closing Date or, if not so satisfied, shall be satisfied on
the Closing Date out of the proceeds otherwise payable to Crystal.
1.3 Due Diligence
Until the termination of this Agreement, CWS, through its authorized
agents or representatives, shall be entitled, upon reasonable advance notice to
Crystal, to enter upon the Property during normal business hours, and shall have
the right to make such reasonable investigations and conduct such reasonable
tests, including engineering studies, soil tests, and environmental studies, as
CWS deems necessary or advisable (the "Testing Rights"), subject to the
following limitations: (a) CWS shall give Crystal written or telephonic notice
at least one (1) business day before conducting any inspections on the Property,
and a representative of Crystal shall have the right to be present when CWS or
its agents or representatives conducts its or their investigations on the
Property; (b) neither CWS nor its representatives shall materially interfere
with the use, occupancy or enjoyment of the Property by the Companies; (c)
neither CWS nor its agents or representatives shall damage the Property or any
portion thereof, except for any immaterial damage caused by invasive tests, all
of which shall promptly be repaired by CWS; and (d) CWS shall indemnify, hold
harmless and defend the Companies against all costs (including reasonable
attorneys' fees) and direct damages caused by the activities of CWS or its
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agents or representatives under this Section 1.3, provided, however, that such
indemnity shall not include any costs or damages caused by (1) the acts of the
Companies or their agents or representatives or (2) any pre-existing condition
of the Property. The foregoing indemnification obligation shall survive the
Closing Date or termination of this Agreement for a period of six (6) months.
1.4 Inspection Period
CWS shall have the period (the "Inspection Period") from the date
hereof to and ending at 5 p.m. on the date that is forty (40) days from the date
hereof to exercise CWS's Testing Rights and to otherwise conduct such due
diligence as CWS, in its sole and absolute discretion, deems appropriate. CWS
may elect to extend the Inspection Period for an additional thirty (30) days by
giving notice to Crystal within the Inspection Period, so long as CWS has
diligently pursued its investigative efforts but has been unable to complete
such efforts. At any time before the end of the Inspection Period, CWS may, in
its discretion, give written notice thereof to Crystal setting forth any
objections (the "CWS Objections") that the CWS has resulting from its
investigation. Crystal shall have the option to cure the CWS Objections within
30 days after the date of such notice. If Crystal elects not to cure or is
unable to cure the CWS Objections by said date, CWS shall have the option (in
its sole discretion) of either (a) accepting the situation as it then is and
proceeding to carry out the transactions contemplated herein, or (b) terminating
this Agreement, whereupon this Agreement shall terminate and CWS and Crystal
shall have no further obligations or liabilities hereunder other than CWS's
indemnity obligation under Section 1.3. If
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CWS does not give such a notice setting forth any CWS objections, this Agreement
shall remain in full force and effect.
1.5 Instruments of Title
At least forty (40) days prior to the Closing Date, Crystal will
provide to CWS proper legal descriptions and surveys (to the extent such surveys
presently exist) for the real property constituting part of the Assets. On the
Closing Date, upon consummation of the Merger, CWS will acquire full indirect
ownership of the Companies which will then own all of the Assets referred to in
Section 3.2 hereof, and Crystal will deliver to CWS all such documents as shall
be necessary or desirable, in the reasonable discretion of CWS or its counsel,
to evidence that the Companies hold good title in and to all of the Assets, and
good and marketable title in and to the Property, free and clear of all liens
and encumbrances other than liens and encumbrances securing the Assumed Debt
(the "Permitted Encumbrances") including, without limitation, the following
documents, fully and properly executed, to CWS and, with respect to items 4 and
5 in the forms attached hereto as Schedule 1.5.
1. Corporate resolution of Crystal (including Secretary's
Certificate);
2. Good standing certificates for the Companies;
3. Certified vote of shareholders of Crystal approving the
Merger;
4. Affidavit of the Companies re assets and public roads;
5. Certificate of the Companies;
6. Opinion of counsel for the Companies;
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7. Releases of mortgages and liens other than the Permitted
Encumbrances encumbering the Property; and
8. UCC-3 termination statements of any financing statements
other than those relating to the Permitted Encumbrances.
At the request of CWS after the Closing Date, Crystal or its successor
in interest will execute and deliver any such further instruments of conveyance
and transfer or confirmation thereof and will take such other action as may
reasonably be requested by CWS in order further to make effective and to assure
the transfers of the Assets and vesting of title as provided for by this
Agreement.
1.6 Closing Date
The transactions provided for in this Agreement shall take place at the
offices of Day, Berry & Howard LLP, CityPlace, Hartford, Connecticut, at 10:00
A.M. on the first business day after a period of twenty-five (25) days following
the receipt of the last of the approvals described in Section 6.1 hereof, or on
such other date or at such other place as the parties may mutually agree upon
(the "Closing Date").
Crystal and Newco will effect the Merger by executing and filing a
Certificate of Merger in the manner provided by the Business Corporation Act of
the State of Connecticut.
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2. MERGER CONSIDERATION
2.1 Exchange
Crystal's shareholders will receive CWS common shares registered with
the Securities and Exchange Commission and freely tradeable (subject to certain
restrictions pursuant to Section 12.3 hereof) on NASDAQ, and, having a market
value of $75 per share for each share of Crystal's Common Stock, such market
value to be determined as provided in the next succeeding paragraph.
For the purpose of valuing the CWS Common Stock for purposes of this
Section 2.1, the market price per share of the CWS Common Stock shall be deemed
to be the average of the daily closing prices for the ten consecutive business
days commencing twenty business days before the Closing Date. The closing price
for each day shall be the last reported sales price regular way on NASDAQ, or,
if there is no transaction on any such day, the average of the bid and asked
prices regular way on such day; provided, however, that the maximum price of CWS
Common Stock for such ten-day period shall be $31.00 per share and the minimum
price for such ten-day period shall be $24.00 per share.
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3. REPRESENTATIONS AND WARRANTIES OF CRYSTAL
Crystal hereby represents and warrants as follows:
3.1 Organization and Good Standing of the Companies; Status of the
Companies and Crystal
The Subsidiary is a public service company as defined in Section 16-1
of the General Statutes of Connecticut and is legally authorized to sell and
distribute water in the towns in which it presently sells and distributes water.
Each of the Companies is a corporation duly organized, validly existing and in
good standing under the laws of the State of Connecticut, and has all other
requisite power and authority and all necessary licenses and permits to own,
lease or operate the Assets and to carry on its business as it is now being
conducted. The Subsidiary is legally authorized to charge the rates which it has
been charging. Except for the Subsidiary, Crystal has no other subsidiaries or
affiliates. Crystal possesses full legal and other capacity to enter into and
carry out the provisions of this Agreement, and is under no receivership,
impediment or prohibition imposed by any court, regulatory commission, board,
administrative body, arbitration board or tribunal or other federal, state or
municipal government instrumentality (any such entity herein referred to as a
"Governmental Body") that would render any of the Companies unable to enter into
and carry out the provisions of this Agreement.
3.2 Title to Properties; Use of Water
The Companies have good title to (i) all assets of the Companies
including, without limitation, the complete and operating Systems shown on the
maps attached hereto as Schedule 3.2.1, the real property, wells, transmission
and distribution mains, reservoirs, tanks and
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standpipes, pumps and pumping stations, hydrants, meters and personal property
described on pages 400 - 401 of the Companies' Annual Report to the DPUC for the
year ended December 31, 1997, which pages are attached hereto as Schedule 3.2.2,
and those acquired subsequent to December 31, 1997, and all of the Companies'
right, title and interest in and to the curb stops, service connections (to the
extent curb stops and service connections may be owned by the Companies) and
easements, rights of way and leases, and any and all franchise rights, including
without limitation all franchise and related rights set forth in the Public Acts
described in Section II of the Crystal Water Supply Plan (outside binder dated
November, 1999; inside title page dated October 1998), (ii) all documents,
reports, maps and customer records pertaining to the Systems including, but not
limited to, all engineering, laboratory and operating reports, customer service
records including meter readings and fixture surveys, financial books and
records, property maps, distribution maps, gate drawings, main laying
specifications and tap and service cards, the Companies' cash and bank deposits,
(iii) all materials, supplies, prepayments and customer deposits, (iv) any
accounts receivable of the Companies for service rendered prior to the Closing
Date, and (v) any accounts payable, taxes accrued, accrued interest, tax
collections payable, deferred credits, or accumulated deferred income taxes of
the Companies. The property (real, personal and mixed, tangible and intangible),
rights, privileges and assets now and hereafter owned by any of the Companies
and/or to be indirectly acquired by CWS pursuant to the Merger, are hereinafter
referred to as the "Assets". Except for the Permitted Encumbrances or as set
forth on Schedule 3.2.3, all of the Assets are free and clear of all mortgages,
liens, pledges, security interests, restrictions on transfer, claims or
encumbrances of any nature whatsoever and no other assets or property interests
are necessary for the conduct and operation
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of the Companies' water supply businesses and the distribution and delivery of
water to each of the Companies' water customers. The Companies have the right to
use the water they are now using in the manner in which they are using such
water and such rights may be indirectly transferred to CWS pursuant to the
Merger upon approval by the DPUC without the consent or permission of any other
third party except as set forth on Schedule 3.2.3. All water supply sources,
pump stations and storage facilities for the Systems are located on real estate
owned by the Companies in fee simple, and all mains and service connections are
located on real estate owned by the Companies in fee simple, within the public
rights-of-way, or within sufficient permanent easements of record in favor of
the Companies, and all services to customer premises from mains are located
entirely on such customer's premises, on public rights-of-way or on property
owned by the Companies in fee simple, except as may otherwise be set forth in
Schedule 3.2.3 attached hereto. Except for the stock of the Subsidiary owned by
Crystal and 100 shares of stock of New England Service Company, the Companies do
not own, and on the Closing Date will not own, any securities of, or any other
direct or indirect interest in, any other firm, corporation or other entity
(including without limitation any joint venture or partnership).
3.3 Location and Use of Assets
The location and present use of the Assets conforms in all material
respects to all zoning, building, building line and similar restrictions or the
Companies have obtained the necessary variances therefor. The Assets are located
in the Towns of Plainfield, Brooklyn, Killingly and Thompson, Connecticut. The
Systems map attached hereto as Schedule 3.2.1, showing the land,
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wells, transmission and distribution mains, reservoirs and standpipes and pumps
and pumping stations of the Systems, is accurate in all material respects.
3.4 Certificate of Incorporation, By-Laws and Resolutions
The copies attached hereto, or previously delivered to CWS, of the
Companies' Certificates of Incorporation and By-laws and of the resolutions
adopted by Crystal's Board of Directors authorizing the execution and delivery
of this Agreement, all of which copies have been certified by Crystal's
Secretary, are true and complete copies of said documents, and said
Certificates, By-laws and resolutions are in full force and effect and include
any and all amendments thereto.
3.5 Authorization of Agreement
The execution, delivery and performance of this Agreement by Crystal
has been duly and validly authorized by all requisite action on the part of
Crystal. This Agreement has been duly executed and delivered by Crystal and
constitutes a valid and legally binding obligation of Crystal, enforceable in
accordance with its terms. Except as set forth on Schedule 3.2.3, approval by
the DPUC and approval by Crystal's shareholders are the only other actions
required in order to authorize Crystal to consummate the transactions
contemplated by this Agreement. The directors and officers of the Companies are
listed on Schedule 3.5 hereto.
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3.6 Absence of Defaults
Except as specified in Schedule 3.6, the execution and delivery of this
Agreement do not and, upon approval thereof by the DPUC and Crystal's
shareholders, the consummation of the transactions contemplated hereby will not
(a) violate any provision of the Certificate of Incorporation or By-laws of any
of the Companies; (b) violate, conflict with or result in the breach or
termination of, or constitute a default under the terms of, any agreement or
instrument to which any of the Companies is a party or by which it or any of the
Assets may be bound; (c) result in the creation of any lien, charge or
encumbrance upon any of the Assets pursuant to the terms of any such agreement
or instrument; (d) violate any judgment, order, injunction, decree, license,
permit, award, rule or regulation against, or binding upon, any of the Companies
or upon any of the Assets; or (e) constitute a violation by any of the Companies
of any law or regulation of any jurisdiction as such law or regulation relates
to any of the Companies, the Systems or any of the Assets. Crystal has obtained
all consents, releases or waivers from governmental authorities and third
parties which may be necessary to prevent the execution of this Agreement or the
consummation of the transactions contemplated herein from resulting in any
violation, breach, default or other event referred to in this Section 3.6.
3.7 Litigation, Orders, Etc.
Except as set forth in Schedule 3.7 hereto, there are no actions,
suits, proceedings or governmental investigations pending, or insofar as is
known to Crystal, in prospect or threatened, against or relating to any of the
Companies, any of the Assets or the transactions contemplated by this Agreement
in or before any Governmental Body. Except as set forth in Schedule 3.7
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hereto, the Systems, and the Companies in their capacity as owners or operators
of the Systems, are not subject to or in violation of any judgment, order,
decree, injunction or award of any Governmental Body entered in any proceeding
to which they were a party or of which they had knowledge, including, without
limitation, decisions, letter requests or proceedings of the DPUC, the DPH, the
DEP, the Internal Revenue Service and the Towns of Plainfield, Brooklyn,
Killingly or Thompson, Connecticut, where such judgment or order or said
violation could have a material adverse effect on either of the Companies. No
proceedings are pending or, to the knowledge of Crystal, threatened against the
rates now being charged by any of the Companies.
3.8 Contracts; Liabilities
Schedule 3.8 contains a true and complete list of, and copies of, all
contracts, agreements and leases involving $5,000 or more, pertaining, directly
or indirectly, in whole or in part, to the ownership or operation of the Systems
or to which either of the Companies is a party or to which any of the Assets are
subject. Except as set forth in Schedule 3.8, each of such contracts,
agreements, and leases are valid, binding and in full force and effect and
enforceable in accordance with its terms, and neither of the Companies nor, to
the best of Crystal's knowledge, any other party to any such contract, agreement
or lease has breached any material provision of, or is in default in any
material respect under the terms of, any such contract, agreement or lease.
Except as is set forth to the contrary in Schedule 3.8, all contracts,
agreements and leases of either of the Companies will remain in full force and
effect notwithstanding the Merger and the Merger can be effected without
obtaining the consent of any other party or such consent has been given in a
form reasonably satisfactory to CWS.
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3.9 No Brokers
All negotiations relative to this Agreement have been carried on by
Crystal directly with CWS, without the intervention of any person as a result of
any act of Crystal in such manner as to give rise to any valid claim against any
of the parties hereto for a brokerage commission, finder's fee or other like
payment.
3.10 Financial Statements; Annual Reports
The audited financial statements of the Companies for each of the years
of 1995, 1996 and 1997 and the unaudited financial statements for the nine
months ended September 30, 1998, heretofore furnished to CWS, are true, correct
and complete, were prepared in accordance with generally accepted accounting
principles consistently applied (except that the September 30, 1998 unaudited
statements do not contain footnotes and usual year-end adjustments) and present
fairly the consolidated financial position and the results of the operations of
the Companies at the dates and for the periods indicated. Such financial
statements do not contain any items of special or nonrecurring revenue or income
or any other income not earned in the ordinary course of business, except as
expressly specified therein. The Companies have no liabilities or obligations of
any nature, whether accrued, absolute, contingent, known, unknown, determinable,
indeterminable, liquidated, unliquidated, or otherwise, whether now due or to
become due, which are not shown and adequately described in such financial
statements. Neither of the Companies is a guarantor, indemnitor, accommodation
party or surety for any person, entity, liability or obligation except for
liabilities or obligations to each other. All annual reports filed by either of
the Companies with respect to the Companies and the Systems with the DPUC from
and after
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1995 are correct and complete in all material respects and accurately represent
in all material respects for the respective periods and dates covered by such
reports the financial condition and operations of the Companies.
3.11 Absence of Adverse Change
Since December 31, 1997, except as may be reflected in the contracts
referred to in Schedule 3.8, there has not been any change in the financial
position, results of operations, assets, liabilities or business of either of
the Companies as described in the financial statements described in Section 3.10
hereof, other than changes in the ordinary course of business which have not
been material.
3.12 Compliance with Laws; No Environmental Hazards
3.12.1 The location and construction, occupancy, operation and
use of all improvements now and hereafter attached to or placed, erected,
constructed or developed as a portion of any of the Systems (the "Improvements")
do not violate any applicable law, statute, ordinance, rule, regulation, policy,
order or determination of any Governmental Body, or any restrictive covenant or
deed restriction affecting any portion of the Companies or the Systems
including, without limitation, any applicable health, environmental, rates,
utility, water quality, antitrust, hiring, wages, hours, collective bargaining,
safety, price and wage controls, payment of withholding and social security
taxes, zoning ordinances and building codes, flood and disaster laws, rules and
regulations (hereinafter collectively called the "Applicable Laws") which
violations could have a material adverse effect on either of the Companies.
Schedule 3.12.1
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discloses a list of and copies of all material governmental licenses, permits,
certifications and approvals of any governmental authority possessed by or
granted to either of the Companies ("Licenses") and used or relied upon in the
operation of either of the Companies or the Systems. Except as set forth in
Schedule 3.12.1, Crystal knows of no reason why any material License used in or
necessary for the operation of either of the Companies, the Assets or the
Systems should terminate prior to its stated expiration date or not be renewed
in accordance with past practices of the Companies, and neither of the Companies
is in violation of any term or condition of any License.
3.12.2 Without in any way limiting the generality of Section
3.12.1 above, except as disclosed on Schedule 3.12.2, neither any of the Assets
nor any of the Companies are the subject of any pending or, to the best of
Crystal's knowledge, threatened investigation or inquiry by any Governmental
Body, or are subject to any remedial obligations under any Applicable Laws
pertaining to health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), the Resource Conservation Recovery Act of 1987, as
amended ("RCRA"), the Safe Drinking Water Act, as amended ("SDWA"), the Clean
Water Act, as amended ("CWA"), the Toxic Substances Control Act ("TSCA"), the
Connecticut Water Pollution Control Act ("WPCA") or any other applicable
provision of Title 22a of the Connecticut General Statutes (all collectively
hereinafter referred to as "Applicable Environmental Laws").
<PAGE> 114
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3.12.3 Except as set forth on Schedule 3.12.2, each of the
Companies is in material compliance with Applicable Environmental Laws and is
not required to obtain any permits, licenses or authorizations to construct,
occupy, operate or use any portion of the Assets as it is now being used by
reason of any Applicable Environmental Laws.
3.12.4 Except as set forth in Schedule 3.12.2 to the best
knowledge of Crystal, no prior use of any of the Assets, either by any of the
Companies or the prior owners of any of the Assets, has occurred which violates
any Applicable Environmental Laws. Neither of the Companies has at any time,
directly or indirectly "treated", "disposed of", "generated", "stored" or
"released" any "toxic or hazardous substances", as each term is defined under
the Applicable Environmental Laws, or arranged for such activities, in, on or
under any of the Assets or any parcel of land, whether or not owned, occupied or
leased by either of the Companies.
3.12.5 To the best of Crystal's knowledge and belief, there
has been no litigation brought or threatened nor any settlement reached by or
with any parties alleging the presence, disposal, release, or threatened
release, of any toxic or hazardous substance or solid wastes from the use or
operation of any of the Assets, and none of the Assets are on any federal or
state "Superfund" list, or subject to any environmentally related liens.
3.13 Insurance
The Companies maintain insurance in connection with the Assets and the
Systems against hazards and risks and liability to persons and property to the
extent and in the manner set forth on
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Schedule 3.13. Except for workmen's compensation insurance, no such insurance
provides for a retroactive premium adjustment or other experienced-based
liability on the part of either of the Companies.
3.14 Condition of Assets
Except as specifically set forth in Schedule 3.14 hereto, the Assets
were designed and installed in material compliance with good waterworks
engineering practice and the applicable rules and regulations of the DPUC. The
Assets have been adequately maintained and are in good operating condition and
repair, ordinary wear and tear excepted, are fit for their intended purpose and
conform in all material respects to all restrictive covenants, applicable laws,
regulations and ordinances relating to their construction, use and operation.
3.15 Tax Matters
Each of the Companies has prepared in accordance with good practices
and filed or caused to be filed with all appropriate governmental authorities
all tax returns, reports or other filings required to be filed by it on its
behalf before such returns, reports and filings were past due. All such tax
returns and reports are complete in all material respects and accurately reflect
all material matters therein required to be reflected. Each of the Companies has
provided to CWS true and complete copies of such tax returns for the three-year
period ended December 31, 1997. Except as disclosed in Schedule 3.15, all taxes
owed to any governmental authority for the periods covered by such returns,
reports and filings, and all claims, demands, assessments, judgments, interest,
penalties, costs and expenses connected therewith have been paid in full.
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Except as disclosed in Schedule 3.15, each of the Companies has complied with
all requirements applicable to it with respect to all income, withholding,
sales, use, gross earnings, real and personal property, business, franchise,
intangibles, excise and other taxes. Except as disclosed in Schedule 3.15, none
of the Companies has executed or filed with any governmental authority any
agreement extending the period of assessment or the collection of any tax. None
of the Companies has been the subject of any audit by any state or federal
agency for any years completed within six years of the Closing Date, except as
stated in Schedule 3.15. There are no unpaid federal, state or local employment
or payroll taxes with respect to present or former employees of any of the
Companies ("Employees"), except for such taxes not yet required to be paid or
deposited. None of the Companies is a party to any pending action or proceeding,
nor to the best knowledge of Crystal is any action or proceeding threatened, by
any governmental authority for assessment or collection of any tax, and no claim
for assessment or collection of taxes has been asserted against any of the
Companies.
3.16 Employees
Schedule 3.16 contains a true and complete list of all present full and
part-time Employees of each of the Companies and the hourly wage rate or
biweekly salary and dates of employment of such Employees and a list of all
written or oral employment contracts (including severance arrangements or any
other arrangements under which the Employees will be entitled to receive
payment, or accelerate any payment due from either of the Companies, as a result
of the transactions contemplated by this Agreement). Except as set forth in
Schedule 3.16, neither of the Companies has any liability to any employee or to
any Governmental Body or any other
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person for any damages, wages, bonus, salary, commission, deferred compensation,
vacation pay, health or hospital insurance, worker's compensation benefits or
unemployment insurance premium with respect to any Employee, except for the last
pay period or any portion thereof immediately preceding the Closing Date. None
of the Employees of either of the Companies are represented by any labor union
or labor organization. During the past three years, there has not been any
existing or threatened labor grievance or work stoppage by Employees or any
investigation or proceeding of any kind pending or threatened by any Employee,
and, to the best knowledge of Crystal, there exists no set of facts which would
give rise to any of the foregoing. There are no unfair labor practices or
discrimination or sexual harassment charges pending or threatened with respect
to either of the Companies or any Employee and, to the best knowledge of
Crystal, there exists no set of facts which would give rise to any such charge.
3.17 Related Party Transactions.
Except as shown on Schedule 3.17, there are no existing transactions or
agreements between either of the Companies and any shareholder, officer,
director, or affiliate of either of the Companies.
3.18 Employee Benefit Plans
Schedule 3.18 lists all "employee pension benefit plans" (as such term
is defined in Section 3(2) of the Employee Retirement Income Security Act of
1974 ("ERISA")), and all "employee welfare benefit plans" (as such term is
defined in Section 3(1) of ERISA), including, without limitation, all formal or
informal plans, practices, programs, contracts or arrangements
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(excluding workers' compensation, unemployment compensation and other
government-mandated programs) which are maintained, administered or contributed
to by either of the Companies or in which any Employees participate (each such
employee welfare benefit plan, practice, program, contract or arrangement being
hereinafter referred to as a "Plan"). No liability under ERISA or the Internal
Revenue Code (the "Code") has been or, through the Closing Date will be,
incurred with respect to any Plan or with respect to any "employee benefit plan"
(as such term is defined in Section 3(3) of ERISA) of any trade or business
(whether or not incorporated) which is under common control, or a member of an
affiliated service group, with either of the Companies (within the meaning of
Section 4001(b)(1) of ERISA or Section 414(b), (c) or (m) of the Code) which
could result in a lien or other claim upon any of the assets of either of the
Companies, and no such liability will be incurred as a result of the
transactions contemplated by this Agreement. Each Plan has been, and will
continue through the Closing Date to be, operated in material compliance with
the applicable provisions of such Plan, employee benefit plan, ERISA and the
Code. Currently, there are, and as of the Closing Date there will be, no pending
or threatened claims, suits or other proceedings by any Employees or Plan
participants or beneficiaries, spouses or representatives of any of them, or
governmental agencies against any Plan, the assets held thereunder, the trustees
of any such Plan's assets, or any of the Companies, involving any Plan. Except
as set forth in Schedule 3.18, CWS will not have or incur any liability or
obligation to any Employee as a result of or after the consummation of the
transactions contemplated hereby.
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Neither of the Companies is or has been since 1984 a party to any
"multiemployer plan" (as such term is defined in Section 3(37) of ERISA).
3.19 Capitalization
As of the date of this Agreement, the authorized capital stock of
Crystal consists of 200,000 shares of Common Stock, of which 99,311 shares of
such capital stock are presently outstanding.
The authorized and outstanding shares of capital stock of the
Subsidiary is 5,000 shares of Common Stock authorized and 4,375 shares
outstanding.
Crystal is the sole record and beneficial owner of all of the shares of
capital stock of the Subsidiary, free and clear of any liens, encumbrances,
security interests, rights and restrictions of any nature. Neither of the
Companies is a party to any proxy, power-of-attorney, voting agreement, voting
trust or shareholder agreement with respect to any of the Shares. As of the date
of this Agreement, no shares of stock are held by either of the Companies in
their respective treasuries.
Except as set forth in Schedule 3.19, as of the Closing Date there will
be, and as of the date hereof there are, no existing options, warrants, calls or
other rights or other agreements committing either of the Companies to resell,
transfer, issue or sell any shares of capital stock of either of the Companies,
except as contemplated in this Agreement. The Merger will be effective to
transfer good title to CWS of the Shares, free and clear of any liens,
encumbrances, security
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interests, rights and restrictions of any nature other than those imposed under
federal or state securities laws.
The issued and outstanding shares of capital stock of each of the
Companies have been duly and validly issued and are fully paid and
nonassessable. None of the shares of capital stock of either of the Companies
have been issued in violation of, nor are they subject to, any preemptive
rights.
3.20 Corporate Records
The stock registers delivered at the Closing, and the minutes of all
directors' and shareholders' meetings heretofore exhibited to CWS, constitute
all of the transfer books and minute books and are true in all material
respects, complete and accurate records of all material proceedings of the
shareholders and directors of the Companies, and the issuance and record
ownership of all shares of capital stock of the Companies. The accounting books
and records of the Companies are in all material respects true, correct and
complete, and have been maintained in accordance with good business practices.
3.21 Disclosure
No representation or warranty in this Article 3 or in any information,
list, schedule or certificate furnished or to be furnished by or on behalf of
any of the Companies pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit a material fact
necessary to make the statements contained herein or therein not misleading.
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3.22 Investigation
Any investigation or examination of the business, property or
operations of any of the Companies by CWS shall not affect the representations
and warranties of Crystal herein contained.
3.23 Bank Accounts and/or Credit
Schedule 3.23 sets forth a true, correct and complete list of all
financial institutions or vendors in which an account is maintained by, or
loans, lines of credit or other credit commitments have been secured by or for,
either of the Companies, together with the names of all persons authorized to
draw thereon. Except as disclosed in Schedule 3.23, the Companies do not have
any loan or other agreements for the borrowing of money and none of the loans or
lines of credit impose any prepayment restrictions. Except as set forth in
Schedule 3.23, there are no loans or other agreements which upon the transfer of
the Shares as contemplated by this Agreement will accelerate to maturity,
increase the rate or charges or otherwise change their terms or provisions.
4. REPRESENTATIONS AND WARRANTIES OF CWS CWS
hereby represents and warrants as follows:
4.1 Organization and Good Standing
CWS is a is a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut.
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4.2 Authority Relative to this Agreement
The execution and delivery of this Agreement by CWS has been duly and
validly authorized by all requisite action on the part of CWS. Approval by the
DPUC is the only other action required in order to authorize CWS to consummate
the transactions contemplated by this Agreement. Subject to such approval, this
Agreement has been duly executed and delivered by CWS and constitutes a valid
and legally binding obligation of CWS, enforceable in accordance with its terms.
4.3 Absence of Defaults
The execution and delivery of this Agreement does not and, upon
approval thereof by the Board of Directors of CWS and the DPUC, the consummation
of the transactions contemplated hereby will not (a) violate any provision of
the Certificate of Incorporation or Bylaws of CWS; (b) violate, conflict with or
result in the breach or termination of, or constitute a default under the terms
of, any agreement or instrument to which CWS is a party or by which it or any of
its assets may be bound; (c) violate any judgment, order, injunction, decree,
award, rule or regulation against, or binding upon, CWS; or (d) constitute a
violation by CWS of any law or regulation of any jurisdiction as such law or
regulation relates to CWS.
4.4 No Brokers
All negotiations relative to this Agreement have been carried on by CWS
directly with Crystal without the intervention of any person as a result of any
act of CWS in such manner as to
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give rise to any valid claim against any of the parties hereto for a brokerage
commission, finder's fee or other like payment.
4.5 CWS Common Stock
When delivered to Crystal's shareholders as provided in this Agreement,
the shares of CWS Common Stock will be duly authorized, validly issued, fully
paid, nonassessable and free and clear of any preemptive rights, liens,
encumbrances, security interests, rights and restrictions of any nature and will
be duly registered pursuant to an effective registration statement filed
pursuant to the Securities Act of 1933, as amended, in form reasonably
acceptable to Crystal and duly registered or qualified pursuant to applicable
state blue sky laws.
4.6 CWS's Investment Representations
CWS has, by reason of its business or financial experience, the
capacity to protect its own interest in connection with the transaction
contemplated by this Agreement. CWS is purchasing the Shares for its own account
and not with a view to or for sale in connection with any distribution of the
Shares hereby acquired. The offer and sale of the Shares has not been, to the
best of CWS's knowledge, accomplished by the publication of any advertisement.
4.7 SEC Filings
CWS has delivered to Crystal true and complete copies of its (i) Annual
Report on Form 10-K for the year ended December 31, 1997, as filed with the SEC,
and its Annual Report to Stockholders of such year; (ii) proxy statements
relating to all of CWS's meetings of
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stockholders (whether annual or special) since December 31, 1997; and (iii) all
other reports, statements and registration statements (including Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K) filed by CWS with the SEC
since December 31, 1997 (collectively, the "SEC Filings"). As of their
respective dates, the SEC Filings (including all exhibits and schedules thereto
and documents incorporated by reference therein) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of CWS and its subsidiaries included or incorporated by reference in
the SEC Filings (including the related notes and schedules) have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated assets, liabilities and
financial position of CWS and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments).
4.8 Absence of Adverse Change
Since December 31, 1997, there has not been any change in the financial
position, results of operations, assets, liabilities or business of CWS as
described in the financial statements described in the SEC Filings, other than
changes in the ordinary course of business which have not been material or
adverse or changes reflected in one or more of the SEC Filings.
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5. CONDUCT OF THE PARTIES PENDING THE CLOSING DATE AND AGREEMENTS OF THE
SELLER
5.1 Approvals and Consents
Crystal and CWS will use their best efforts to secure the approval of
the transactions contemplated by this Agreement by the DPUC and of all other
parties whose consent is required by law or under the terms of any indenture,
contract or agreement to which either of the Companies or CWS is a party.
5.2 Conduct of Companies' Business
Until the Closing Date, each of the Companies will conduct its business
and affairs with respect to the Systems only in the ordinary course and so that
the representations and warranties contained in Article 3 hereof will be true
and correct at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement, and so that the conditions to be satisfied by
each of the Companies on or prior to the Closing Date shall then have been
satisfied. Each of the Companies will use its best efforts to maintain and
preserve the business and operations of the Companies, and to preserve its
relationships with persons or entities having business relations with the
Companies. Each of the Companies will cooperate with CWS on and after the
Closing Date to effect a satisfactory transition in the operation of the
Systems.
Without limiting the generality of the foregoing, pending the Closing
Date, without the prior written consent of CWS:
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5.2.1 Neither of the Companies will dispose of any of the
Assets having a value of $5,000 or more, or dispose of Assets having in the
aggregate a value of $25,000 or more.
5.2.2 Except for normal expenses incurred in the ordinary
course of business, neither of the Companies will incur any additional
liabilities in an aggregate amount of $25,000 or more, whether for borrowed
money or otherwise, or encumber any of the Assets.
5.2.3 Neither of the Companies will take any action that might
adversely affect its ability to consummate the transactions contemplated hereby.
5.2.4 Each of the Companies will maintain in force all
existing liability insurance policies and fidelity bonds relating to the Systems
or the Assets, or policies or bonds providing substantially the same coverage;
5.2.5 Each of the Companies will advise CWS in writing of any
material adverse change or of any event, occurrence or circumstance which is
likely to cause a material adverse change in any of the Assets or liabilities
(whether absolute, accrued, contingent or otherwise) or operations of either of
the Companies.
5.2.6 Each of the Companies will maintain the Assets in good
condition, reasonable wear and tear excepted.
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5.2.7 Neither of the Companies shall enter into any new leases
or contracts or material modifications or renewals of any existing leases or
contracts that would impose any aggregate obligations on CWS or on any of the
Assets in excess of $25,000.
5.2.8 Neither of the Companies shall (i) make any material
alterations or additions to the Assets, except as may be required by law or as
may reasonably be required for the prudent repair and maintenance of the Assets,
(ii) change or attempt to change (or consent to any change in) the zoning or
other legal requirements applicable to the Property, or (iii) cancel, amend or
modify in any material respect any material easement, license, permit or other
rights held by either of the Companies.
5.2.9 If either of the Companies becomes aware during the term
of this Agreement of any matters that render any of the representations or
warranties untrue, it shall promptly disclose such matters to CWS in writing.
5.2.10 Neither of the Companies will increase the compensation
payable to any of its officers or employees.
5.2.11 Neither of the Companies has issued, sold or disposed
of, and will not issue, sell or otherwise dispose of or agree to issue, sell or
otherwise dispose of, any shares of capital stock of either of the Companies, or
any other security convertible into or exchangeable for shares of either of the
Companies' capital stock. Neither of the Companies has acquired or
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agreed to acquire or will acquire or agree to acquire (through redemption,
repurchase or otherwise) any of its shares of capital stock. Neither of the
Companies has authorized, granted or agreed to grant and will not authorize,
grant or agree to grant any options, warrants or other rights to acquire any of
its shares of capital stock, or any other security convertible into or
exchangeable for shares of capital stock of any of the Companies.
5.2.12 There have been no dividends or other distributions
declared or paid since November 1, 1998 in respect of any of the shares of
capital stock of any of the Companies, and neither of the Companies will declare
or pay any other dividends or make any other distributions in respect of any of
the shares of its capital stock, except for regularly scheduled dividend
payments by Crystal of $.75 per common share (and by the Subsidiary of $17.02
per common share) payable on April 1, 1999 to shareholders of record as of March
31, 1999 and of $.65 per common share (and by the Subsidiary of $17.02 per
share) payable on November 1, 1999 to shareholders of record as of October 31,
1999, which amounts may be payable by the Companies only if the Closing Date has
not occurred as of the applicable record date.
5.3 Information and Access
Crystal will give to CWS and to CWS's representatives reasonable access
at such times and locations as are mutually agreed upon by CWS and Crystal to
all the Assets, and to the books, contracts, documents, records, and files of
the Companies, and will furnish to CWS all such documents and records and copies
of documents and records with respect to each of the Companies' business as CWS
may reasonably request. Said access shall specifically include
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access to and the right to copy (i) all personnel records of any of the
Companies; (ii) all contracts and agreements referred to in Section 3.8 hereof;
(iii) all files and records described in Section 3.2; and (iv) the Systems.
5.4 Lawsuits
Crystal shall notify CWS promptly of any lawsuit, claim, proceeding or
investigation that may be threatened, brought, asserted or commenced (a)
involving the transaction contemplated by this Agreement or (b) which might have
a material adverse effect on either of the Companies or any of the Assets.
5.5 Compliance with Laws
From the date hereof, each of the Companies shall use its best efforts
to remain in compliance with all foreign, federal, state, local and other laws,
statutes, ordinances, rules, regulations, orders, judgments, and decrees
applicable to either of the Companies and any of their operations or Assets, the
non-compliance with which could have a material adverse effect on either of the
Companies.
5.6 Shareholder Approval
Crystal will submit the Plan of Merger to the shareholders of Crystal
at the earliest practicable date and the Board of Directors and management of
Crystal will recommend approval of the Merger, and use their best efforts to
solicit the requisite approval of the Merger by the Crystal shareholders.
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5.7 Additional Documents
Each of the Companies and their respective officers shall execute and
deliver such other documents as CWS may reasonably request for the purpose of
carrying out this Agreement.
5.8 Prospectus
Crystal will furnish CWS all information relating to the Companies as
is necessary to enable CWS to comply in all material respects with the
requirements of federal and applicable state law in connection with the
Registration Statement to be filed with the Securities and Exchange Commission
(the "SEC") and any information statement/preliminary prospectus (hereinafter
the "preliminary prospectus") and Prospectus to be sent to Crystal's
shareholders for purposes of the meeting of shareholders. The information
provided by the Companies contained in the Registration Statement and Prospectus
will not contain any untrue statements of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that Crystal makes no representation or warranty in respect
of any information contained in such proxy statement furnished by CWS expressly
for use therein. Crystal will cooperate with CWS and will provide CWS with its
shareholder lists, including correct addresses, to enable CWS to send the
Prospectus and any preliminary prospectus to Crystal's shareholders. Crystal
will cooperate with CWS to allow CWS to send to Crystal's shareholders
amendments or supplements to the Prospectus as may be necessary, in the light of
developments occurring subsequent to the mailing of such Prospectus, to ensure
that the Registration Statement and Prospectus as so amended or supplemented,
will not, on the date of the meeting of shareholders,
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contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
5.9 Confidentiality
CWS and Crystal agree that they will, and will cause their directors,
officers, other personnel and authorized representatives to, hold in strict
confidence, and not to use, any data and information obtained from each other
(other than information which is a matter of general public knowledge or which
has heretofore been or is hereafter published for public distribution or filed
by the applicable party as public information with any governmental authority
other than as a result of a breach of this covenant) and will not, and will
ensure that such other persons do not, disclose or use such data and information
unless required by legal process or applicable governmental regulations. If this
Agreement is terminated for any reason, CWS and Crystal will not disclose or use
such data and information and will promptly return to the other party all
tangible evidence (and all copies thereof) of such data and information which
said other party has furnished to CWS or Crystal, as the case may be.
5.10 Other Requested Information
With reasonable promptness, the Companies and their respective
officers, employees, accountants and other agents will (i) deliver to CWS all
financial statements and audit reports that became available subsequent to the
date hereof and such other information as CWS from time to time may reasonably
request, and (ii) supplement or amend the Schedules to this
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Agreement with respect to any matters hereafter arising which, if existing or
occurring before or as of the date of this Agreement, would have been required
to be set forth or described in the Schedules to this Agreement.
5.11 Current Information
Crystal shall make available to CWS prior to the Closing Date any
financial information with respect to the Companies reasonably required by CWS.
During the period from the date of this Agreement to the Closing Date, the
Companies will make available one or more of their designated representatives to
confer on a regular and frequent basis with a representative of CWS and to
report the general status of the ongoing operations of the Companies. Crystal
will promptly notify CWS of any material change in the normal course of business
or in the operations or the properties of the Companies and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of significant
litigation involving either of the Companies, and will keep CWS fully informed
of such events and permit CWS's representative access to all materials prepared
in connection therewith.
5.12 Further Assurances
Crystal and CWS agree to execute and deliver such instruments and take
such other action as CWS or Crystal may reasonably require in order to carry out
the purpose and intent of this Agreement.
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5.13 No Inconsistent Action
Crystal and CWS shall not take any action inconsistent with their
obligations under this Agreement or which could materially hinder or delay the
consummation of the transactions contemplated by this Agreement.
5.14 Notification of Certain Matters
Upon actual notice thereof, Crystal shall give prompt notice to CWS, of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any respect at any time from the
date hereof to the Closing Date, and (ii) any failure of either of the Companies
as the case may be, or any officer, director, employee or agent thereof, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder.
6. COVENANTS OF CWS
6.1 Cooperation
CWS will use best efforts (a) to prevent any CWS representation or
warranty contained in this Agreement from becoming inaccurate, (b) to satisfy
the requirements, covenants, and agreements applicable to it as set forth in
this Agreement, and (c) to satisfy the conditions to the consummation of the
transactions contemplated by this Agreement.
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6.2 Lawsuits
CWS shall promptly notify Crystal of any lawsuit, claim, proceeding or
investigation which may be threatened, be brought, asserted or commenced
involving the transactions called for in this Agreement or which might have an
adverse impact upon CWS.
6.3 Prospectus Preparation
CWS will expeditiously prepare and file the Registration Statement with
the SEC and send shareholders of Crystal for purposes of the meeting of
Crystal's shareholders any preliminary prospectus and the Prospectus, all of
which will comply in all material respects with the requirements of federal and
applicable state law. The information contained in the Registration Statement,
any preliminary prospectus or the Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that CWS makes
no representation or warranty in respect of any information contained in the
Registration Statement, any preliminary prospectus, or the Prospectus furnished
by either of the Companies expressly for use therein. CWS also makes no
representations or warranties regarding the accuracy or completeness of
Crystal's shareholder list which Crystal will have provided. CWS will send to
Crystal's shareholders such amendments and supplements to the Prospectus as may
be necessary, in the light of developments occurring subsequent to the mailing
of the Prospectus, to ensure that the Prospectus, as so amended or supplemented,
will not, on the date of the meeting of Crystal's shareholders, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. CWS shall give Crystal, its
representatives and counsel a reasonable opportunity to participate in the
drafting of the Registration Statement, any preliminary prospectus or the
Prospectus and any amendments or supplements thereto and to review the
Registration Statement, any preliminary prospectus and the Prospectus prior to
being sent to the SEC for review and to Crystal's shareholders.
7. CONDITIONS OF CWS'S OBLIGATIONS
The obligations of CWS to be performed by it under this Agreement shall
be subject on or prior to the Closing Date to the following conditions in
addition to any other conditions precedent in favor of CWS as may be expressly
set forth elsewhere in this Agreement. Each condition may be waived in whole or
in part only by written notice of such waiver from CWS to Crystal.
7.1 Required Approvals
7.1.1 This Agreement shall have been approved by (a) the
shareholders and the Board of Directors of Crystal in the manner required by law
and by Crystal's Certificate of Incorporation or By-Laws to approve this
Agreement, the Plan of Merger, the Merger and the other transactions
contemplated hereby; and (b) the DPUC.
7.1.2 The holders of more than 10% of Crystal's capital stock
shall not have exercised their appraisal rights under Connecticut law.
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7.1.3 The DPUC shall have authorized CWS, as owner of the
Companies, to continue to charge the Companies' current rates for water service.
7.1.4 Within ten (10) days of receipt of the relevant
decision, order or other communication from the DPUC, CWS shall advise Crystal
in writing as to whether it deems such communication complies with the
requirements of this Section 7.1 and as to whether or not CWS intends to proceed
with the transactions contemplated herein.
7.2 Consents
Each of the Companies shall have obtained the consents necessary or
appropriate in the reasonable opinion of counsel for CWS in order to effect the
transactions contemplated by this Agreement.
7.3 Performance by the Company and Crystal
The representations and warranties of Crystal contained in this
Agreement or in any document delivered by or on behalf of any of the Companies
to CWS pursuant to this Agreement shall be true, complete and correct in all
material respects at and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date, and
except for changes permitted or contemplated by this Agreement, each of the
Companies shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date, and Crystal
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shall have certified to such effect in writing to CWS. If Crystal is unable to
certify to such effect, Crystal shall provide a certificate which details the
exceptions from the certifications required by the preceding sentence, including
any supplements or amendments to Schedules hereto required by Section 5.10. CWS
shall have three days to review and discuss such exceptions, and within such
three day period, CWS shall have the option, in its sole discretion, of either
waiving the requirements of the first sentence of this Section 7.3 or
terminating this Agreement.
7.4 Adverse Change
Since the date of this Agreement, there shall have been no material
adverse change in the Assets or in the business, results of operations, or
condition, financial or otherwise, of either of the Companies taken as a whole.
7.5 Instruments of Transfer
All such assignments and instruments of conveyance and transfer
necessary, in the reasonable opinion of counsel for CWS, to convey the Companies
and the Assets shall have been duly executed by the Companies in such form as to
be effective under Connecticut law to convey to CWS ownership of each of the
Companies which, in turn, shall have good title and all rights in and to the
Assets.
7.6 Title Insurance Policy
On the Closing Date, CWS shall have obtained, at its sole cost and
expense, an owner's title insurance policy (on the current ALTA Form B) in the
amount of the purchase price,
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together with any required endorsements, insuring good and indefeasible fee
simple title to the Property in the Companies, subject only to Permitted
Encumbrances and to the provisions of Section 1.4, or other evidence of such
title in the Companies acceptable to CWS.
7.7 Condition of Property
On the Closing Date, (i) the Property shall be in the condition
required hereby, reasonable wear and tear excepted, (ii) except as disclosed
herein, there shall be no judicial or administrative or condemnation proceeding
pending or threatened concerning the Property which could have a material
adverse effect on the Companies, (iii) the Property and the use and operation
thereof shall comply in all material respects with all applicable legal
requirements, and (iv) except as disclosed herein, the Property shall be free
and clear of any management, leasing or other agreements or contracts.
7.8 Form of Documents.
All actions, proceedings, instruments and documents required to carry
out this Agreement or incidental thereto and all other related matters shall
have been approved by CWS, which determination shall be reasonable.
7.9 Litigation
No suit, action, proceeding or governmental investigation shall be
threatened, pending or reasonably believed by CWS or its counsel to be in
prospect before or by any Governmental
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Body which could, in the reasonable opinion of CWS or its counsel, have a
material adverse effect on either of the Companies.
7.10 Opinion of Counsel for the Company
CWS shall have received an opinion of counsel to Crystal, dated the
Closing Date, in form and substance reasonably satisfactory to CWS and its
counsel. In rendering such opinion, Crystal's counsel shall be entitled to rely
as to matters of fact on certificates of public officials and of officers of
either of the Companies.
7.11 Resignations
At the Closing, Crystal shall deliver to CWS written resignations of
the officers and directors of each of the Companies (except for Mr. Engle and
Mr. Kempain who will remain as President and Vice President, respectively, of
Crystal), effective upon the Closing Date.
7.12 Employment Agreements; Employment Generally
(a) Each of Messrs. Roger Engle, Kempain, Pezanko and Roger D. Engle
shall have entered into employment agreements with Crystal Water, satisfactory
in form and substance to CWS and Crystal.
(b) If any present Crystal Water job positions are eliminated (with the
exception of the position of President or Chairman) within five years of the
Closing, the individuals in those positions will be re-assigned to positions of
a similar or greater salary grade for which such individuals are qualified.
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7.13 Registration Statement
(a) The Registration Statement shall have become effective; no
stop order suspending the effectiveness of the Registration Statement shall be
in effect, and no proceedings for such purpose shall be pending before or
threatened by the SEC.
(b) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the United
States or by any federal or state governmental or regulatory body nor any
statute, rule, regulation or executive order promulgated or enacted by any
federal or state governmental authority which restrains, enjoins or otherwise
prohibits the transactions contemplated hereby shall be in effect.
7.14 Pooling of Interests
The transaction contemplated by the Agreement shall qualify as a
pooling of interests transaction under generally accepted accounting principles.
8. CONDITIONS OF THE OBLIGATIONS OF CRYSTAL
The obligations of Crystal to be performed by it under this Agreement
shall be subject on or prior to the Closing Date to the following conditions:
8.1 Required Approvals
This Agreement shall have been approved by the shareholders of Crystal
and by the DPUC.
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8.2 Performance by CWS
The representations and warranties of CWS contained in this Agreement
or in any document delivered by or on behalf of CWS to Crystal pursuant to this
Agreement shall be true and correct in all material respects at and as of the
Closing Date with the same effect as if such representations and warranties had
been made on and as of such date, except for changes permitted or contemplated
by this Agreement, and CWS shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied with by it
on or prior to the Closing Date.
8.3 Litigation
No suit, action, proceeding or governmental investigation shall be
threatened, pending or reasonably believed by Crystal or its counsel to be in
prospect before or by any Governmental Body which, in the reasonable opinion of
Crystal or its counsel, renders completion of the transactions contemplated
hereby inadvisable or impractical.
8.4 Opinion of Counsel for CWS
Crystal shall have received an opinion, dated the Closing Date, of
Messrs. Day, Berry & Howard LLP, counsel for CWS, with respect to the matters
set forth in Sections 4.1, 4.2 and 4.5 hereof. This opinion shall also cover
appropriate matters relating to the Merger, the CWS Common Stock and the federal
income tax-free nature of the exchange by shareholders of Crystal of their
shares of Crystal common stock for common stock of CWS. In rendering such
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opinion, such counsel shall be entitled to rely as to matters of fact on
certificates of officers of CWS.
8.5 Employment Agreement
The Subsidiary and Mr. Engle shall have entered into one or more
agreements containing appropriate terms and conditions satisfactory to CWS and
Crystal, which agreements will include the following provisions:
Mr. Engle will remain an employee of the Subsidiary, receiving a salary
of $120,000 on an annual basis (pro rated) until he retires on December 1, 1999.
During his employment, Mr. Engle will receive benefits currently offered to
officers of the Companies. Upon retirement, Mr. Engle would receive the benefits
presently available to Crystal retirees, including the option to take pension
benefits in a lump sum payment. At retirement, Mr. Engle will make himself
available to CWS for specified consulting duties for a period of 10 years and
with an annual consulting fee of a $16,000 per year. Upon termination of the
consulting arrangement, Mr. Engle will receive a supplemental executive
retirement benefit designed to pay him annual retirement benefits (assuming no
spousal options are exercised) of $16,000 per year regardless of payments, if
any, due him under any pension plans of the Companies. The Subsidiary's
obligations to Mr. Engle hereunder will be guaranteed by CWS. Mr. Engle will
have use of a company vehicle during his employment and shall be given that
vehicle at the time of his retirement. Upon retirement, Mr. Engle shall be
recommended to the CWS Committee on Directors for consideration as a candidate
for nomination to the Board of Directors of CWS.
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8.6 CWS Stock
On or before the Closing Date, CWS shall issue and deliver to Newco the
number of shares of CWS Common Stock as may be required to consummate the Merger
in the manner contemplated by, and subject to the terms and conditions of, this
Agreement and the Plan of Merger.
8.7 Adverse Change
Since the date of this Agreement, there shall have been no material
adverse change in the Assets or in the business, results of operations, or
condition, financial or otherwise, of CWS.
8.8 Registration Statement
(a) The Registration Statement shall have become effective; no
stop order suspending the effectiveness of the Registration Statement shall be
in effect, and no proceedings for such purpose shall be pending before or
threatened by the SEC.
(b) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the United
States or by any federal or state governmental or regulatory body nor any
statute, rule, regulation or executive order promulgated or enacted by any
federal or state governmental authority which restrains, enjoins or otherwise
prohibits the transactions contemplated hereby shall be in effect.
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8.9 Tax-Free Merger
The transaction contemplated by this Agreement shall qualify as a
tax-free "A" Reorganization for federal income tax purposes and the
corresponding provisions of applicable state income tax law of Connecticut.
9. EXPENSES
Regardless of whether or not the transactions contemplated herein are
consummated, all fees, costs, taxes and expenses incurred in connection with the
transactions contemplated by this Agreement and the other agreements
contemplated herein shall be paid by the party incurring such expenses.
10. TERMINATION
10.1 Termination Events.
This Agreement may be terminated and abandoned at any time prior to the
Closing Date:
(a) by mutual agreement of CWS and Crystal;
(b) by CWS if the conditions set forth in Section 6 shall
not have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated by
Crystal on or before the Closing Date;
(c) by Crystal, if the conditions set forth in Section 7
shall not have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated by CWS
on or before the Closing Date;
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(d) by either party if the Closing Date has not occurred
by December 31, 1999; or
(e) by either party if the closing sale price of CWS
Common Stock on the date of valuation thereof for purposes of Section 2.1 hereof
shall be $20.00 per share or less.
11. AMENDMENT, WAIVER, AND INTERPRETATION
This Agreement may be amended in writing at any time prior to the
Closing Date by the mutual written consent of Crystal and of CWS. Any failure of
either Crystal or CWS to comply with any of the conditions set forth in the
Agreement may be waived in writing by the other party. The President of Crystal
shall have full power to interpret this Agreement on behalf of each of the
Companies and such interpretations shall be binding thereon. The President or
any Vice President of CWS have full power to interpret this Agreement on behalf
of CWS and such interpretations shall be binding thereon.
12. OTHER REQUIREMENTS
12.1 No Inconsistent Action. Crystal and CWS shall not take any action
inconsistent with their obligations under this Agreement or which could
materially hinder or delay the consummation of the transactions contemplated by
this Agreement.
12.2 Crystal Office
CWS agrees that the Companies' office and operations center will remain
in Danielson, Connecticut for a period of at least three years from the Closing
Date.
<PAGE> 146
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12.3 Certain Trading Restrictions
(a) Those persons who constitute affiliates (as the term is
used in Rule 145 under the Securities Act of 1933, as amended) of Crystal in the
opinion of CWS shall enter into agreements with CWS restricting the resale of
the CWS shares to be acquired by them pursuant to this Agreement and the Plan of
Merger, except as permitted by (i) Rule 145(d) under said Act which permits
regular trading transactions in limited quantities and (ii) generally accepted
accounting principles which must be met in order to permit CWS to treat the
Merger as a pooling of interests;
(b) at Closing, CWS will have entered a stop transfer order
with its transfer agent against the transfer of any shares of the CWS Common
Stock except in compliance with the requirements of this Section 12.3.
13. OTHER PROVISIONS
13.1 Governing Law
This Agreement shall be construed and interpreted according to the laws
of the State of Connecticut.
13.2 Assignment
This Agreement may not be assigned by any party hereto without the
prior written consent of the parties and any attempt to assign without such
consent shall be voidable by any party.
<PAGE> 147
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13.3 Notices
All notices, waivers and consents under this Agreement shall be in
writing and shall be deemed to have been duly given if delivered or mailed,
first class mail, postage prepaid, addressed as follows:
If to the Companies to:
Roger Engle, President
Crystal Water Utilities Corporation
321 Main Street
Danielson, CT 06239
with a copy to:
Anthony MacLeod, Esq.
Whitman, Breed, Abbott & Morgan LLP
100 Field Point Road
P.O. Box 2250
Greenwich, CT 06836
If to CWS to:
Mr. David C. Benoit
Vice President-Finance
Connecticut Water Service, Inc.
93 West Main Street
Clinton, CT 06413
with a copy to:
Michael F. Halloran
Day, Berry & Howard LLP
CityPlace I
Hartford, CT 06103
<PAGE> 148
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13.4 Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be treated as an original, but all of which, collectively, shall
constitute only one instrument.
13.5 No Survival of Representations and Warranties
CWS and Crystal agree that the representations and warranties contained
in this Agreement or in any instrument delivered hereunder shall not survive the
Closing Date.
13.6 Waiver.
Waiver of any term or conditions of this Agreement by any party shall
only be effective if in writing and shall not be construed as a waiver of any
subsequent breach or failure of the same term or condition, or a waiver of any
other term or condition of this Agreement.
13.7 Successor and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors and assigns of the parties hereto.
13.8 Severability.
In case one or more provisions contained in this Agreement shall be
invalid, illegal or unenforceable in any respect under any applicable law, rule
or regulation, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE> 149
A-53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ATTEST: CONNECTICUT WATER SERVICE, INC.
("CWS")
By /s/ Marshall T. Chiaraluce
- ---------------------------------- -----------------------------
Secretary Marshall T. Chiaraluce
Its President
ATTEST: CRYSTAL WATER UTILITIES
CORPORATION ("CRYSTAL")
By /s/ Roger Engle
- ---------------------------------- -----------------------------
Roger Engle
Its President
<PAGE> 150
A-54
Exhibit A
CERTIFICATE OF MERGER
OF
CWS NEW COMPANY
(A Connecticut Corporation)
WITH AND INTO
CRYSTAL WATER UTILITIES CORPORATION
(A Connecticut Corporation)
To the Secretary of the State
State of Connecticut
Pursuant to the provisions of the Connecticut Business Corporation Act, the
Connecticut business corporations named below do hereby adopt the following
Certificate of Merger.
1. The Plan of Merger, a copy of which is attached hereto as EXHIBIT A
and made a part hereof, provides for the merger of CWS New Company with and into
Crystal Water Utilities Corporation, which is the surviving corporation.
2. The Plan of Merger requires the approval of the holders of not less
than (i) a majority of the outstanding common stock of CWS New Company; and (ii)
two-thirds of the outstanding common stock of Crystal Water Utilities
Corporation.
3. CW New Company has 1,000 shares of common stock outstanding, each of
which shares is entitled to one vote; and
Crystal Water Utilities Corporation has ________ shares of
common stock outstanding, each of which shares is entitled to one vote.
4. The Plan of Merger was approved by the following shareholder votes:
(i) By a vote of the holders of the common stock of CWS New
Company of 1,000 FOR and 0 AGAINST; and
<PAGE> 151
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(ii) By a vote of the holders of the common stock of Crystal
Water Utilities Corporation of _________ FOR and ________
AGAINST.
5. The Plan of Merger was approved by vote of the respective
Boards of Directors and recommended to the respective
shareholders of:
(i) CWS New Company; and
(ii) Crystal Water Utilities Corporation.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 152
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Dated as of __________, 199__ at _____________, Connecticut.
We hereby declare, under the penalties of false statement, that the
statements made herein, insofar as they pertain to CWS New Company, are true.
CWS New Company
By:
----------------------------------
Name:
Title: President
By:
----------------------------------
Name:
Title: Secretary
We hereby declare, under the penalties of false statement, that the
statements made herein, insofar as they pertain to Crystal Water Utilities
Corporation, are true.
Crystal Water Utilities Corporation
By:
----------------------------------
Name:
Title: President
By:
----------------------------------
Name:
Title: Secretary
<PAGE> 153
A-57
EXHIBIT A TO CERTIFICATE OF MERGER
PLAN OF MERGER
of
CWS NEW COMPANY
a Connecticut Corporation
WITH AND INTO
CRYSTAL WATER UTILITIES CORPORATION
a Connecticut Corporation
Under the Name of
CRYSTAL WATER UTILITIES CORPORATION
ARTICLE I
Names of Merging Corporations
The merging corporations are Crystal Water Utilities Corporation
("CRYSTAL"), a Connecticut corporation, and CWS New Company ("NEWCO"), a
Connecticut corporation and a wholly-owned subsidiary of Connecticut Water
Service, Inc. ("CWS"). Each of Crystal and Newco are hereinafter sometimes
collectively referred to as the "MERGING CORPORATIONS."
<PAGE> 154
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ARTICLE II
The Surviving Corporation
The corporation which shall survive the merger provided for herein (the
"SURVIVING CORPORATION") shall be Crystal. The name of the Surviving Corporation
shall be "CRYSTAL WATER UTILITIES CORPORATION" and its principal place of
business shall continue to be in Danielson, Connecticut.
ARTICLE III
Effect of Merger
The merger herein provided for shall be effected in accordance with,
and be subject to, the provisions of the applicable statutes of the State of
Connecticut. The effect of the merger shall be that provided herein and in
Section 33-820 of the General Statutes of Connecticut, Revision of 1958, as
amended.
ARTICLE IV
Effective Date
The merger herein provided for shall become effective (the "EFFECTIVE
DATE") at the close of business on __________________________, 19__.
<PAGE> 155
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ARTICLE V
Terms and Conditions of the Merger
The terms and conditions of the merger are as follows:
A. Upon the merger becoming effective, the Certificate of Incorporation
of Crystal, as in effect on the date hereof, and as further amended by operation
of law as a result of the merger of Newco into Crystal, shall, without any
further action, be the Certificate of Incorporation of the Surviving Corporation
until further amended as provided by law. The Surviving Corporation shall have,
in addition to the powers conferred on it by the General Statutes of the State
of Connecticut, all of the special rights, powers and franchises possessed by
Crystal and Newco, including all such special rights, powers and franchises to
which Crystal and Newco have succeeded by merger, consolidation, purchase or
otherwise. The Bylaws of Crystal shall be the Bylaws of the Surviving
Corporation until altered, amended or repealed.
B. On the Effective Date, the Surviving Corporation shall continue in
existence and, without other transfer, succeed to and possess all the rights,
privileges, immunities and franchises, as well of a public as of a private
nature, of each of the Merging Corporations; and all property, real, personal
and mixed, and all debts due on whatever account, and all other choses in
action, and all and every other interest of or belonging to or due to each of
the Merging Corporations shall be taken and transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate, or any interest therein, vested in any of the
<PAGE> 156
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Merging Corporations shall not revert or be in any way impaired by reason of
such merger. Any devise, bequest, gift or grant, contained in any will or in any
other instrument, made before or after the merger, to or for the benefit of any
of the Merging Corporations shall inure to the benefit of the Surviving
Corporation. So far as is necessary for that purpose, the existence of each
Merging Corporation shall be deemed to continue in and through the Surviving
Corporation. The Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities, obligations, and penalties of each of the
Merging Corporations; and any claim existing or action or proceeding, civil or
criminal, pending by or against any such corporation may be prosecuted as if
such merger had not taken place, or the Surviving Corporation may be substituted
in its place; and any judgment rendered against any of the Merging Corporations
may be enforced against the Surviving Corporation. Neither the rights of
creditors nor any liens upon the property of any Merging Corporation shall be
impaired by the merger.
If at any time the Surviving Corporation shall consider or be advised
that any further assignments, conveyances or assurances in law are necessary or
desirable to vest, perfect or confirm of record in the Surviving Corporation the
title to any property or rights of the Merging Corporations, or otherwise to
carry out the provisions thereof, the proper officers and directors of the
Merging Corporations as of the Effective Date shall execute and deliver any and
all proper deeds, assignments and assurances in law, and do all things necessary
or proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the provisions hereof.
<PAGE> 157
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C. Upon the merger becoming effective:
(i) The authorized capital stock of the Surviving Corporation
shall consist of 20,000 shares of Common Stock, without par value.
(ii) Each of the 1000 outstanding shares of Common Stock,
without par value, of Newco shall continue to be outstanding and shall
by virtue of the merger and without any action on the part of the
holder thereof automatically be converted into and shall be one share
of Common Stock, without par value, of the Surviving Corporation.
(iii) CWS, a corporation organized under the Stock Corporation
Act of Connecticut, which owns all of the issued and outstanding shares
of Common Stock of Newco has entered into a Merger Agreement, dated as
of January __, 1999 (the "AGREEMENT") with Crystal with respect to
various matters relating to the merger herein provided. Each
outstanding share of Common Stock, without par value, of Crystal
("CRYSTAL COMMON STOCK") held by any shareholder ("CRYSTAL
SHAREHOLDER") of Crystal (the "CRYSTAL STOCK") (excluding shares of
Crystal Stock held by any Crystal Shareholder who has perfected his
rights as an objecting shareholder under Section 33-856 of the General
Statutes of Connecticut, Revision of 1958, as amended) shall by virtue
of the merger and without any action on the part of the holder thereof
automatically be converted into and shall be (subject to the provisions
of Subsections E and G of this Article V) ___ [fraction to be
determined based on CWS closing price prior to Closing
<PAGE> 158
A-62
Date as provided in Section 2.1 of the Agreement] shares of Common
Stock, without par value, of CWS, which corporation has covenanted in
the Agreement to issue and deliver such number of shares of CWS Common
Stock as may be necessary to effect such conversion. Each share of CWS
Common Stock shall continue to have three votes per share.
D. Upon the merger becoming effective, each holder of an outstanding
certificate or certificates which prior thereto represented shares of Crystal
Stock shall be entitled, upon (i) surrender of such certificate or certificates
to CWS or its designated agent at such place or places as CWS shall designate
and (ii) proper execution by such holder of appropriate transmittal documents,
to receive in exchange therefor a certificate or certificates representing the
number of whole shares of CWS Common Stock into which the shares theretofore
represented by the certificate or certificates of Crystal Stock so surrendered
shall have been converted as aforesaid. Until so surrendered each such
outstanding certificate which prior to the merger becoming effective represented
shares of Crystal Stock shall be deemed for all corporate purposes, subject to
the other provisions of this Article V, to evidence the ownership of the number
of shares of CWS Common Stock into which such shares of Crystal Stock shall have
been so converted. No cash or stock dividend payable, and no certificate
representing split shares deliverable in the event any stock split shall be
declared, to holders of record of CWS Common Stock as of any date subsequent to
the Effective Date, which prior to such Effective Date represented Crystal
Stock, shall be paid or delivered unless and until such certificate is
surrendered as hereinabove provided, but upon such surrender there shall be paid
or delivered (without interest thereon) to
<PAGE> 159
A-63
the initial holder of record of the certificates for CWS Common Stock issued in
exchange therefor the amount of any such cash dividend, or a certificate for the
whole number of shares of CWS Common Stock resulting from any such stock
dividends or splits which shall have theretofore become payable or deliverable
with respect to such CWS Common Stock.
E. No certificates or scrip representing fractional shares of CWS
Common Stock shall be issued upon the surrender for exchange of certificates for
shares of Crystal Stock converted into shares of CWS Common Stock pursuant to
this Article V, and no CWS dividend or stock split shall relate to any
fractional share, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder. In lieu of any such
fractional share, CWS shall pay to each holder of shares of Crystal Stock who
otherwise would be entitled to receive a fractional share of CWS Common Stock,
at the time of the surrender by such holder of his certificate or certificates
representing shares of Crystal Stock, a cash adjustment in respect of such
fractional share in an amount equal to the same fraction of the Closing Price
per share of CWS Common Stock otherwise receivable pursuant to this Article V by
each holder of shares of Crystal Stock. For purposes of this Subsection E the
"CLOSING PRICE" of CWS Common Stock shall be the price used to determine the
exchange ratio as provided in Section 2.1 of the Agreement.
F. All shares of CWS Common Stock into which shares of Crystal Stock
shall have been converted pursuant to this Article V shall be deemed to have
been issued in full satisfaction of all rights pertaining to such converted
shares.
<PAGE> 160
A-64
G. If between the date of the Agreement and the Effective Date, CWS
shall reclassify, combine or subdivide the CWS Common Stock or declare or pay
any dividend or distribution in shares of CWS Common Stock, or shall agree to do
any of the foregoing as of a record date prior to the Effective Date, an
appropriate adjustment shall be made in the number of shares of CWS Common Stock
otherwise receivable pursuant to this Article V by each holder of shares of
Crystal Stock.
H. When the merger becomes effective, the holders of certificates
representing Crystal Stock outstanding on the Effective Date shall cease to have
any rights with respect to such stock (except such rights, if any, as they may
have as objecting shareholders) and (except as aforesaid) their sole rights
shall be with respect to the CWS Common Stock into which their shares of Crystal
Stock shall have been converted by the merger.
I. This Plan of Merger may be terminated and the merger abandoned at
any time prior to the Effective Date, either by mutual consent of the Boards of
Directors of both Merging Corporations, or by the Board of Directors of one of
the Merging Corporations under the terms and conditions provided in the
Agreement. In the event of termination of this Plan of Merger by either of the
Merging Corporations as provided in this Subsection I, notice thereof shall
forthwith be given to the other Merging Corporation. In such event, or in the
event of termination of this Plan of Merger by mutual consent of the Boards of
Directors of both Merging Corporations, both Boards shall direct their officers
not to file a Certificate of Merger in the office of the Secretary of the State
of Connecticut or if so filed to take such action as may be necessary to revoke
or
<PAGE> 161
A-65
terminate such Plan and Certificate, notwithstanding favorable action by their
respective shareholders.
J. This Plan of Merger may be amended or modified in whole or in any
part (a) at any time prior to the vote of the shareholders of either of the
Merging Corporations hereon by the respective Boards of Directors of the Merging
Corporations and (b) at any time after the vote of the shareholders of either of
the Merging Corporations hereon by the respective Boards of Directors of the
Merging Corporations and such approval by the shareholders of the Merging
Corporations as is required by law or by the Agreement.
ARTICLE VI
Directors and Officers
On and after the Effective Date the members of the Board of Directors
and the officers of the Surviving Corporation shall be as set forth in Schedule
I hereto, and said directors and officers shall hold office until the next
annual meeting of the Surviving Corporation or as otherwise provided by law or
by the bylaws of the Surviving Corporation.
<PAGE> 162
A-66
Executed at Hartford, Connecticut, the ______th day of ____________,
199__.
CRYSTAL WATER UTILITIES CORPORATION
By:
-------------------------------------------
Name:
Title: [President or Vice President]
By:
-------------------------------------------
Name:
Title: [Secretary or Assistant Secretary]
CWS NEW COMPANY
By:
-------------------------------------------
Name:
Title: [President or Vice President]
By:
-------------------------------------------
Name:
Title: [Secretary or Assistant Secretary]
<PAGE> 163
APPENDIX B
DISSENTERS' RIGHTS
(A)
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SEC. 33-855. DEFINITIONS. As used in sections 33-855 to 33-872,
inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
<PAGE> 164
B-2
SEC. 33-856. RIGHT TO DISSENT. (a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 33-817
or the certificate of incorporation and the shareholder is entitled to vote on
the merger or (B) if the corporation is a subsidiary that is merged with its
parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(4) An amendment of the certificate of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (E)
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under section
33-668; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available
to a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
SEC. 33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the
<PAGE> 165
B-3
shares as to which he dissents and his other shares were registered in the
names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which
he has power to direct the vote.
SECS. 33-858 AND 33-859. Reserved for future use.
(B)
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SEC. 33-860. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate
action creating dissenters' rights under section 33-856 is submitted to a vote
at a shareholders' meeting, the meeting notice shall state that shareholders
are or may be entitled to assert dissenters' rights under sections 33-855 to
33-872, inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section
33-856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
SEC. 33-861. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed
corporate action creating dissenters' rights under section 33-856 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights (1) shall deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (2) shall not vote his shares in favor of
the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
SEC. 33-862. DISSENTERS' NOTICE. (a) If proposed corporate action
creating dissenters' rights under section 33-856 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
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B-4
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
SEC. 33-863. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a
dissenters' notice described in section 33-862 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subdivision (3) of
subsection (b) of said section and deposit his certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
SEC. 33-864. SHARE RESTRICTIONS. (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action.
SEC. 33-865. PAYMENT. (a) Except as provided in section 33-867, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with section
33-863 the amount the corporation estimates to be the fair value of his shares,
plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an
<PAGE> 167
B-5
income statement for that year, a statement of changes in shareholders' equity
for that year and the latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the shares;
(3) an explanation of how the interest was calculated; (4) a statement of the
dissenter's right to demand payment under section 33-868; and (5) a copy of
sections 33-855 to 33-872, inclusive.
SEC. 33-866. FAILURE TO TAKE ACTION. (a) If the corporation does not
take the proposed action within sixty days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand
procedure.
SEC. 33-867. AFTER-ACQUIRED SHARES. (a) A corporation may elect to
withhold payment required by section 33-865 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest
was calculated and a statement of the dissenter's right to demand payment under
section 33-868.
SEC. 33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value
of his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865
or offered under section 33-867 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
<PAGE> 168
B-6
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection
(a) of this section within thirty days after the corporation made or offered
payment for his shares.
SECS. 33-869 AND 33-870. Reserved for future use.
(C)
JUDICIAL APPRAISAL OF SHARES
SEC. 33-871. COURT ACTION. (a) If a demand for payment under section
33-868 remains unsettled, the corporation shall commence a proceeding within
sixty days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior
court for the judicial district where a corporation's principal office or, if
none in this state, its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the superior court for the judicial district where
the registered office of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
SEC. 33-872. COURT COSTS AND COUNSEL FEES. (a) The court in an
appraisal proceeding commenced under section 33-871 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall
<PAGE> 169
B-7
assess the costs against the corporation, except that the court may assess
costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of
sections 33-860 to 33-868, inclusive; or (2) against either the corporation or
a dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
SECS. 33-873 TO 33-879. Reserved for future use.
<PAGE> 1
EXHIBIT 5.1
[DAY, BERRY & HOWARD LLP LETTERHEAD]
July 12, 1999
Connecticut Water Service, Inc.
93 West Main Street
Clinton, Connecticut 06413
Re: Registration Statement on Form S-4
Registration No. 333-80947
Dear Ladies and Gentlemen:
We have acted as counsel to Connecticut Water Service, Inc. ("CWS"), a
Connecticut corporation with its principal office in Clinton, Connecticut, in
connection with the proposed merger (the "Merger") whereby Crystal Water
Utilities Corporation ("Crystal") will merge with and into CWS New Company
("NewCo"), a wholly-owned subsidiary of CWS, pursuant to a merger agreement,
dated as of March 10, 1999, by and among CWS and Crystal (the "Merger
Agreement").
In rendering our opinion, we have reviewed: (i) the Certificate of
Incorporation of CWS, as amended and restated to date, (ii) the Bylaws of CWS,
as amended and restated to date, (iii) the Merger Agreement, (iv) resolutions
of the Board of Directors of CWS, (v) the Registration Statement on Form S-4 of
CWS (the "Registration Statement") relating to up to 310,346 shares of common
stock of CWS, no par value (the "CWS Common Stock"), to be issued in connection
with the Merger and (vi) such other documents and instruments, and have made
such examination of law, as we have deemed necessary or appropriate for
purposes of this opinion. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts
material to this opinion which we did not independently establish or verify, we
have relied upon statements and representations of officers and other
representatives of CWS. The opinions set forth herein are based on the
corporation laws of the State of Connecticut, and no opinion is expressed as to
the laws of any other jurisdiction.
<PAGE> 2
[DAY, BERRY & HOWARD LLP LETTERHEAD]
Connecticut Water Service, Inc.
July 12, 1999
Page 2
Based upon and subject to the foregoing, we are of the opinion that
upon consummation of the Merger as contemplated in the Merger Agreement, the
shares of CWS Common Stock that will be issued to the shareholders of Crystal
will be duly and validly authorized, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Proxy Statement-Prospectus contained therein. In giving this
consent we do not thereby admit that we are in the category of persons whose
consent is requested under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ DAY, BERRY & HOWARD LLP
DAY, BERRY & HOWARD LLP
<PAGE> 3
[DAY, BERRY & HOWARD LLP LETTERHEAD]
July 9, 1999
Connecticut Water Service, Inc.
93 West Main Street
Clinton, Connecticut 06413
Re: Merger Agreement dated as of March 10, 1999 by and among
Connecticut Water Service, Inc. ("CWS") and Crystal Water
Utilities Corporation ("Crystal") (the "Merger Agreement")
Ladies and Gentlemen:
You have requested our opinion relating to certain federal income tax
consequences arising out of the transactions described in the Merger Agreement.
Capitalized terms used but not defined in this letter have the meaning given
them in the Merger Agreement.
Our conclusions are based upon the facts set forth in the Registration
Statement of CWS on Form S-4 and accompanying exhibits dated July 12, 1999 (as
amended, the "Registration Statement"). We have made no independent
investigation with regard to the facts set forth in the Registration Statement.
In rendering our opinion we have assumed, with your consent, that the preceding
facts are true, complete and accurate as of the date hereof and will be true,
complete and accurate as of the Closing Date.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service (the
"Service") and such other authorities as we have considered relevant. It should
be noted that statutes, regulations, judicial decisions and administrative
interpretations are subject to change at any time and in certain circumstances
with retroactive effect.
In connection with our opinion addressing the transactions
contemplated by the Merger Agreement, we have assumed, with your consent, that
all representations and facts set forth in the Merger Agreement and in the
certificates of officers of Crystal and CWS to be delivered at the Closing Date
are true, complete and accurate as of the date hereof and will be true,
complete and accurate as of the Closing Date, and that the transactions
described in the Merger Agreement will be carried out in accordance with its
terms.
Based upon and subject to the assumptions, representations and
limitations described above, our examination of the Merger Agreement, the facts
set forth in the Registration
<PAGE> 4
Connecticut Water Service, Inc.
July 9, 1999
Page 2
Statement and the relevant legal authorities, it is our opinion that the
statements made under the caption "SUMMARY - Material Federal Income Tax
Consequences" and "CERTAIN INCOME TAX CONSEQUENCES" in the Registration
Statement to the extent they constitute matters of law or legal conclusions,
are correct in all material respects.
If any fact, representation or assumption described above or contained
in the Merger Agreement or Registration Statement is not true, correct and
complete, or in the event of a change in law after the date hereof adversely
affecting the conclusions reached in this letter, our opinion shall be void and
of no force or effect. You should be aware that although this letter represents
our opinion concerning the matters specifically discussed, it is not binding on
the courts or on any administrative agency, including the Service, and a court
or agency may act or hold to the contrary. We undertake no obligation to update
this letter or our opinion at any time after the Closing Date. Our opinion is
provided to you as a legal opinion only, and not as a guaranty or warranty, and
is limited to the specific transactions, documents and matters described above.
We express no opinion as to the truth, accuracy or completeness of any facts
set forth in the Registration Statement or any representation relied upon in
rendering our opinion and no opinion may be implied or inferred beyond that
which is expressly stated in this letter.
Our opinion may not be relied upon by any person or entity other than
you, and no person may be subrogated to any rights you have in connection with
our opinion. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and the reference to the above mentioned opinion
under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." In giving such consent, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended. Without our
prior written consent, this opinion may not be furnished to any other person or
entity and may not be quoted in whole or in part or otherwise referred to in
(or be the basis for) any report or document furnished to any person or entity,
except in connection with inspection of the addressee's files by internal
company or governmental examiners or auditors.
Very truly yours,
/s/ DAY, BERRY & HOWARD LLP
DAY, BERRY & HOWARD LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference
in this registration statement of our report dated February 11, 1999 included
in Connecticut Water Service, Inc.'s Form 10-K for the year ended December 31,
1998 and to all references to our Firm included in this registration statement.
July 8, 1999 /s/ Arthur Andersen LLP
Hartford, Connecticut -----------------------------------
Arthur Andersen LLP
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountant, I hereby consent to the use of my report
included or made a part of this registration statement.
July 8, 1999 /s/ David R. Daggett
Torrington, Connecticut --------------------------------
David R. Daggett, CPA
