Exhibit 10.1

CITIZENS BANK OF CONNECTICUT
63 Eugene O’Neill Drive
New London, Connecticut 06103

May 1, 2002

David C. Benoit
Vice President-Finance and Treasurer
Connecticut Water Service, Inc.
93 West Main Street
Clinton, CT 06413

Re:       Modification of Revolving Credit Facility

Dear Mr. Benoit:

         We are pleased to confirm the willingness of Citizens Bank of
Connecticut (the “Bank”) to amend and restate the terms and conditions of the
existing demand revolving credit facility (the “Facility”) provided to
Connecticut Water Service, Inc. (the “Company”). The Facility will be available
to the Company for general corporate and working capital purposes and will be
made pursuant and subject to the following terms, conditions and limitations
(collectively, the “Letter Agreement”):

1.   Amount.       The aggregate principal amount of loans and advances
(“Advances”) outstanding under the Facility shall not exceed (a) $9,000,000 at
any time during the period commencing on the effective date of this Letter
Agreement and terminating on May 31, 2003 and (b) $6,000,000 at any time
thereafter.   2.   Term.       This Facility shall terminate and shall be
repayable upon DEMAND by the Bank at any time and for any reason in the Bank’s
sole and absolute discretion, even if the Company is in compliance with the
terms, covenants, conditions, representations and warranties contained herein,
and in any event, shall expire and terminate on May 31, 2004 (the “Maturity
Date”), unless renewed by the Bank.   3.   Promissory Note.       The Facility
shall be evidenced by a promissory note in the original principal amount of
$9,000,000 made by the Company to the order of the Bank and payable on demand
(the

 

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Exhibit 10.1

    “Note”), in substitution for, but not a novation of, a certain $6,000,000
Demand Promissory Note executed by the Company to the order of the Bank dated
January 3, 2001. The Note shall be in substantially the form of Exhibit A
attached hereto. The Bank shall record the date and amount of each advance in a
loan account maintained by the Bank for the Facility and the Bank’s records with
respect to such loan account shall, absent manifest error, be conclusive and
binding.   4.   Utilization.       The Company may utilize the Facility in whole
or in part in the form of: a) advances bearing interest at the Prime Rate (as
hereinafter defined) payable on demand; b) advances bearing interest at the
Fixed Rate (as hereinafter defined) with mutually agreed upon maturities up to
ninety (90) days, repayable, unless demand is sooner made, at maturity; or b)
short term advances bearing interest at a rate determined by reference to the
Libor Rate (as hereinafter defined) with mutually agreed upon maturities up to
ninety (90) days, repayable, unless demand is sooner made, at maturity. Advances
of whatever type may be used to support the Company’s working capital needs,
dividend reinvestment purchases and interim capital expenditure funding.
Advances under the Facility shall be available in the sole and absolute
discretion of the Bank and shall be in amounts, which are at least $100,000. The
Company may request a quotation from the Bank for a Libor Rate advance on any
business day by the submission of any such request no later than 12:00 noon
(Hartford, Connecticut time) on the day which is two (2) Business Days (as
defined in Section 9) prior to the date of the requested Advance. Advances
(including Libor Rate advance quotations which the Company desires to accept)
shall be requested on any Business Day no later than 1:30 p.m. (Hartford,
Connecticut time) (requests being received after such time shall, at the option
of the Bank, be deemed to be received on the next business day) and confirmed
immediately thereafter by the delivery by the Company to the Bank of a written
confirmation in the form of Exhibit B attached hereto.   5.   Interest.      
Advances shall bear interest, at the option of the Bank, at either:

  a)   a fluctuating rate equal to the Bank’s Prime Rate in effect from time to
time (“Prime Rate Advances”); or     b)   a rate equal to the Fixed Rate for
maturities of up to 90 days (“Fixed Rate Advances”); or     c)   a rate equal to
the Libor Rate for maturities of 30, 60 or 90 days plus 375 basis points (“Libor
Advances”).

 

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    Definitions:

  a)   “Prime Rate” shall mean the annual rate of interest announced from time
to time by the Bank at its head office as its “prime rate”.     b)   “Fixed
Rate” shall mean, as of any date as of which the amount thereof shall be
determined and with respect to each Interest Period, a fixed per annum rate of
interest equal to the U.S. Treasury Bill or Note rate as of such date for a
period equal to the Interest Period.     c)   “Libor Rate” shall mean, with
respect to each Interest Period, the rate per annum (rounded upwards, if
necessary, to the next higher 1/8 of 1%) determined pursuant to the following
formula:

          Libor Rate   =   Libor Base        

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        (1.0- Libor Reserve Percentage)

  d)   “Libor Base” shall mean the rate per annum (rounded upwards, if
necessary, to the next higher 1/8 of 1%) that is the offered rate for U.S.
dollar deposits that are approximately equal in principal amount to the amount
of the requested Libor Advance which the British Bankers Association fixes as
its LIBOR rate and which appears on the Telerate Page 3750 as of 11:00 a.m.
London time on the day which is two (2) London Banking Days prior to the
beginning of such Interest Period.     e)   “London Banking Day” means a day on
which dealings in U.S. dollar deposits are transacted in the London interbank
market.     f)   “Libor Reserve Percentage” means, relative to any day of any
Interest Period for a Libor Advance, the maximum aggregate (without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements
(including all basic, emergency, supplemental, marginal and other reserves and
taking into account any transitional adjustments or other scheduled changes in
reserve requirements) under any regulations of the Board of Governors of the
Federal Reserve System (the “Board”) or other governmental authority having
jurisdiction with respect thereto as issued from time to time and then
applicable to assets or liabilities consisting of “Eurocurrency Liabilities”, as
currently defined in Regulation D of the Board, having a term approximately
equal or comparable to such Interest Period.     g)   “Interest Period” shall
mean (a) with respect to Libor Advances (A) initially, the period commencing on
the date of the making of such Libor Advance and, unless demand is sooner made,
ending on (but excluding) the day which numerically corresponds to such date 30,
60 or 90 days thereafter, (if such month has no numerically corresponding day,
on the last Business Day of such month), in each case as the Company may select
in its irrevocable notice to the Bank and (B)

 

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      thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Libor Advance and, unless demand is sooner
made, ending 30, 60 or 90 days thereafter, as selected by the Company by
irrevocable notice to the Bank not less than two (2) Business Days prior to the
last day of the then current Interest Period with respect thereto; (b) with
respect to each Prime Rate Advance, the period commencing on the date of the
making of such Prime Rate Advance and, unless demand is sooner made, ending on
the Maturity Date; and (c) with respect to each Fixed Rate Advance, the period
commencing on the date of making of such Fixed Rate Advance and, unless demand
is sooner made, ending ninety (90) days thereafter;         provided, however,
that:         (i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless, in
the case of Libor Advances, such Business Day falls in the next calendar month,
in which case such Interest Period shall end on the immediately preceding
Business Day;         (ii) any Interest Period applicable to a Libor Advance
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall, subject to clause (iii) below, end on the last
Business Day of a calendar month;         (iii) notwithstanding clause
(ii) above, no Interest Period applicable to a Libor Advance shall have a
duration of less than thirty (30) days and if any Interest Period applicable to
such Libor Advance would be for a shorter Interest Period, such Interest Period
shall not be available hereunder;         (iv) any Interest Period that would
otherwise end after the Maturity Date shall end on the Maturity Date;        
(v) Interest Periods commencing on the same day for the Libor Advances, which
comprise part of the same advance under this Letter Agreement shall be of the
same duration;         (vi) Interest Periods for Libor Advances in connection
with which the Company has or may incur Hedging Obligations with the Bank shall
be of the same duration as the relevant periods pursuant to the applicable
Hedging Contracts; and         (vii) notwithstanding any provision of this
Letter Agreement to the contrary, the Company shall not be permitted to select
Interest Periods to be in effect at any one time, which have expiration dates
occurring on more than three (3) different dates applicable to Libor Advances
outstanding at any one time.

 

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  h)   “Business Day” shall mean any day that is neither a Saturday nor Sunday
nor a legal holiday on which commercial banks are authorized or required to be
closed in Hartford, Connecticut, and, in the case of any Libor Advance,        
(i)       when such term is used to describe a day on which a borrowing,
payment, prepaying or repaying is to be made in respect of any Libor Advance,
any day which is: (i) neither a Saturday or Sunday nor legal holiday on which
commercial banks are authorized or required to be closed in New York, New York
and (ii) a London Banking Day; and         (ii)       when such term is used to
describe a day on which an interest rate determination is to be made in respect
of any Libor Loan, any day which is a London Banking Day.     i)   Hedging
Obligations shall mean, with respect to the Company, all liabilities of the
Company to Bank under Hedging Contracts.     j)   Hedging Contracts shall mean,
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements, or any other agreements or arrangements entered into between
the Company and the Bank and designed to protect the Company against
fluctuations in interest rates or currency exchange rates.

6.   Payments.       The principal amount of each Advance shall be due and
payable upon the earlier of DEMAND by the Bank, the Maturity Date (or any
renewal thereof) or, in the case of Libor Advances or Fixed Rate Advances, on
the maturity date thereof. Prime Rate Advances may be prepaid in whole or in
part at any time without premium or penalty. Libor Advances and Fixed Rate
Advances may not be prepaid in whole or in part without the prior written
consent of the Bank and the payment of any amounts required under Section 11
hereof. Furthermore, for Libor Advances in connection with which the Company has
or may incur Hedging Obligations, additional obligations may be associated with
prepayment in accordance with the terms and conditions of the applicable Hedging
Contracts.       Upon the maturity thereof, Libor Advances may be continued as
Libor Advances or converted to Prime Rate Advances at the option of Company. Any
Libor Advance with respect to which the Company fails to elect an interest rate
option upon the maturity thereof shall be converted to a Prime Rate Advance. In
the event that (i) on any date on which the Libor Rate would otherwise be set,
Bank shall have determined in good faith (which determination, upon notice
thereof to the Company, shall be final, conclusive and binding on the Company)
that adequate and fair means do not exist for ascertaining the Libor Base, or
(ii) at any time Bank shall have determined in good faith (which determination
shall be final and conclusive) that (A) the introduction of or any change in or
in the interpretation of any law, rule, regulation or guideline, (whether or not
having

 

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    the force of law) makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for Bank to make, continue
or maintain any Libor Advance as, or to convert any loan into, a Libor Advance
of a certain duration; (B) U.S. dollar deposits in the relevant amount and for
the relevant Interest Period are not available to Bank in the London interbank
market; (C) by reason of circumstances affecting Bank in the London interbank
market, adequate means do not exist for ascertaining the Libor Base applicable
hereunder to Libor Advances of any duration; or (D) Libor Base no longer
adequately reflects Bank’s cost of funding loans; and (iii) at any time the
Company defaults in the fulfillment of its obligations under this Letter
Agreement; then, and in any such event, Bank shall forthwith so notify the
Company thereof and Bank’s obligation, if any, to make or continue Libor
Advances shall be suspended, and such Advance shall be made or continued as a
Prime Rate Advance.       In the absence of demand, interest on Prime Rate
Advances shall be payable monthly in arrears on the first day of each month and
when any such advance is due (whether by reason of demand, prepayment or
otherwise). Interest on Libor Advances and Fixed Rate Advances shall be payable
in arrears on the last day of the interest period applicable thereto and when
any such Advance is due (whether by reason of demand, prepayment or otherwise).
Interest shall be calculated on the basis of a 360 day year. If the Company for
any reason fails to borrow any Libor Advance requested under Section 5, the
Company will be required to pay any costs, losses or liabilities (including lost
profits) incurred by the Bank as a result thereof, including any losses incurred
in obtaining, liquidating or employing deposits with reference to which the rate
of interest for such loan was determined, upon presentation by the Bank of a
statement in the amount and setting forth the Bank’s calculation thereof, which
statement shall be deemed true and correct absent manifest error. All payments
to be made hereunder shall be made without set-off or counterclaim and free
from, clear of and without deduction of any taxes or any other charges.   7.  
Collateral.       The Facility shall be unsecured.   8.   Facility Fee.       In
consideration of the Bank’s agreement to make the Facility available to the
Company, the Company shall pay a per annum facility fee in an amount equal to
.25% of the full amount of the Facility (the “Facility Fee”). The Facility Fee
shall be payable quarterly in arrears.

 

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9.   Conditions Precedent.       Conditions to be fulfilled to the Bank’s
satisfaction prior to the utilization of the Facility include delivery of the
following:

  a)   a counterpart of this letter is duly executed by the Company and
delivered to the Bank;     b)   the Note in form and substance satisfactory to
the Bank is duly executed by the Company and delivered to the Bank;     c)  
certified copies of the resolutions of the Company’s Board of Directors
authorizing the acceptance of this Facility on the terms and conditions of this
letter and designating those persons authorized to sign on behalf of the Company
are delivered to the Bank, if any of the foregoing shall have been amended and
modified since January 3, 2001;     d)   certified copies of the Company’s
Certificate of Incorporation and Bylaws (or equivalent) are delivered to the
Bank, if any of the foregoing shall have been amended or modified since
January 3, 2001; and     e)   a certificate of the corporate secretary of the
Company designating those persons authorized to act on behalf of the Company
with respect to the Facility together with specimens of their signatures are
delivered to the Bank, if any of the foregoing shall have been amended or
modified since January 3, 2001.

    In addition, the Company shall maintain a depository account with the Bank
for purposes of administering the Facility.   10.   Financial Reporting.      
As soon as available, but in no event later than March 31 in each year, the
Company shall provide the Bank with copies of the Company’s audited financial
statements for the Company’s most recently ended fiscal year. In addition, the
Company agrees to provide the Bank with copies of any and all reports issued by
the Company to its shareholders, including Form 10-Q and Form 10-K, and such
additional information as the Bank may from time to time request.   11.   Costs.
      a)       The Company shall pay or reimburse the Bank, on demand, for all
expenses (including, without limitation, reasonable independent counsel fees and
expenses as well as internally allocated costs and expenses of the Bank’s
in-house counsel) incurred or paid by Bank in connection with: (i) the
enforcement by the Bank of the Bank’s rights as against the Company in respect
of the Facility, including, but not limited to, any action to

 

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    enforce the Note, and (ii) in the defense of any action against the Bank
with respect to the Bank’s rights or liabilities in respect to the Company’s
obligations.       b)       The Company shall indemnify the Bank on demand for
any loss or damage incurred or to be incurred by the Bank as a consequence or
payment of any amount otherwise than on the due date thereof or as a result of
the payment of any amount in respect of a Libor Advance otherwise than on the
maturity date for that advance, including any losses incurred in obtaining,
liquidating or employing deposits with reference to which the rate of interest
for such loan was determined, upon presentation by the Bank of a statement in
the amount and setting forth the Bank’s calculation thereof, which statement
shall be deemed true and correct absent manifest error.       c)       The
Company acknowledges that prepayment or acceleration of a Libor Advance during
an Interest Period shall result in Bank incurring additional costs, expenses
and/or liabilities and that it is extremely difficult and impractical to
ascertain the extent of such costs, expenses and/or liabilities. Therefore, all
full or partial prepayments of Libor Advances shall be accompanied by, and the
Company hereby promises to pay, on each date a Libor Advance is prepaid or the
date all sums payable hereunder become due and payable, by acceleration or
otherwise, in addition to all other sums then owing, an amount (“Libor Advance
Prepayment Fee”) determined by Bank pursuant to the following formula:

  (i)   the then current rate for United States Treasury securities (bills on a
discounted basis shall be converted to a bond equivalent) with a maturity date
closest to the end of the Interest Period as to which prepayment is made,      
  subtracted from     (ii)   the Libor Rate applicable to the Libor Advance
being prepaid.         If the result of this calculation is zero or a negative
number, then there shall be no Libor Advance Prepayment Fee. If the result of
this calculation is a positive number, then the resulting percentage shall be
multiplied by:     (iii)   the amount of the Libor Loan being prepaid.        
The resulting amount shall be divided by:     (iv)   360         and multiplied
by:     (v)   the number of days remaining in the Interest Period as to which
the prepayment is being made.

 

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      Said amount shall be reduced to present value calculated by using the
referenced United States Treasury securities rate and the number of days
remaining on the Interest Period for the Libor Loan being prepaid.

  d)   If the Company for any reason makes any payment of principal with respect
to any Fixed Rate Advance on any day other than the last day of an Interest
Period applicable to such Advance, or if any Fixed Rate Advance is accelerated
pursuant to the terms hereof, the Company shall pay a prepayment penalty
calculated according to the following formula:

      The latest published rate preceding the date of prepayment for United
States Treasury Notes or Bills (Bills on a discounted basis shall be converted
to a bond equivalent) as published weekly in the Federal Reserve Statistical
Release with a maturity date closest to the last date of the then applicable
Interest Period as to which the prepayment is made shall be subtracted from the
interest rate in effect at the time of prepayment with respect to the
indebtedness being paid. If the result is zero or a negative number, there shall
be no prepayment premium. If the result is a positive number, then the resulting
percentage shall be multiplied by the amount of the principal balance being
prepaid. The resulting amount will be divided by 360 and multiplied by the
number of days remaining in the then applicable Interest Period. Said amount
shall be reduced to present value calculated by using the above-referenced
United States Treasury Note or Bill rate as of the date of prepayment as the
discount rate. The resulting amount shall be the prepayment premium due to Bank
upon prepayment.

12.   Law.       The respective rights and obligations of the Company and the
Bank hereunder shall be governed by the construed in accordance with the laws of
the State of Connecticut. The Company hereby consents to the jurisdiction of any
court sitting in the State of Connecticut for the purposes of resolution of any
dispute which may arise hereunder or under the Note and for enforcement of the
Bank’s rights and remedies hereunder or under the Note, and further waives to
the fullest extent permitted by law any right to assert that said courts do not
constitute a convenient forum for such resolution or enforcement.   13.  
Representations, Warranties and Covenants.       The Company hereby represents
and warrants to the Bank that (i) the execution and delivery by the Company of
this letter and the Note and the performance of its agreements and obligations
hereunder and thereunder are within the Company’s power

 

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    and authority and have been authorized by all necessary corporate
proceedings and will not violate any provision of the Company’s certificate of
incorporation or bylaws or any material agreement or contractual obligations
binding upon the Company; (ii) the Facility, this letter, and the Note, when
executed and delivered, are the valid, legal and binding obligations of the
Company and do not require the consent or approval of any governmental authority
or agency; and (iii) there is no litigation, proceeding or investigation
pending, or to the knowledge of the Company, threatened, against the Company
except as previously disclosed to the Bank.       The Company shall
substantially comply with all Environmental Laws (as hereinafter defined) and
establish and maintain policies and procedures to ensure and monitor continued
compliance with all Environmental Laws. The Company shall promptly take any and
all necessary remedial action in connection with the presence, storage, use,
disposal, transportation or release of any hazardous materials on, under or
about its business premises. If the Company undertakes any remedial action with
respect to any hazardous materials on, under or about its business premises, the
Company shall conduct and complete such remedial action in compliance with the
policies, orders and directives of any governmental authority except when and
only to the extent that the Company’s liability for such presence, storage, use,
disposal, transportation or discharge of any hazardous material is being
contested in good faith by the Company. “Environmental Laws” means any and all
laws, statutes, ordinances, rules, regulations, orders, or determinations of any
Federal, state or local governmental body, instrumentality or agency pertaining
to the environment, including without limitation, the Clean Water Act, the Clean
Air Act, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (“SARA”), and as may be further amended (all
together herein called “CERCLA”), the Federal Water Pollution Control
Amendments, the Resource Conservation and Recovery Act of 1976, as amended
(“RCRA”), the Hazardous Materials Transportation Act of 1975, as amended, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, and any comparable or similar environmental laws of the State of
Connecticut and any other state in which the Company maintains business
premises. Likewise, the terms “hazardous substance,” “release,” and “threatened
release” herein referenced in connection with Environmental Laws shall have the
meanings specified in CERCLA and the terms “solid waste” and “dispose” (or
“disposed”) shall have the meanings specified in RCRA; provided, however, in the
event either CERCLA or RCRA is amended so as to broaden the meaning of any term
defined therein, such broader meaning shall apply subsequent to the effective
date of such amendment, and provided further that, to the extent the laws of any
state which establish a meaning for “hazardous substance,” “release,” “solid
waste” or “disposal” which is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.   14.   Counterparts. This letter may be
executed in any number of counterparts, each of which shall be an original and
all of which, when taken together, shall constitute one agreement.

 

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15.   Entire Agreement. This letter supersedes and replaces in its entirety all
prior agreements or understandings, whether oral or written, between the Bank
and the Company relating to the Facility.

         Please confirm the Company’s acceptance of the terms and conditions of
the Facility by signing and returning to us the enclosed copy of this letter,
the Note, and the other items required to be delivered by the Company under
Section 9 hereof.

              CITIZENS BANK OF CONNECTICUT               By:            

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        Name:         Title:

[Intentionally Left Blank – Company Signature Page Follows]

 

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Exhibit 10.1

[Company Signature Page to Letter Agreement Regarding Modification of Revolving
Credit Facility]

         The Company hereby agrees to and accepts the terms and conditions
contained in the foregoing letter and confirms that the Bank, shall be entitled
but shall not be obliged, to rely upon and act in accordance with any
communication (whether a request for an Advance under this Facility or any other
notice, request, instruction or other communication whatsoever) which may be or
purport to be given by telephone or telex or telefax transmission on the
Company’s behalf by any person notified to the Bank by the Company as being
authorized to give such communication without inquiry by the Bank to make such
communication. The Company hereby indemnifies the Bank and agrees to hold it
harmless against all losses, claims, actions, proceedings, damages, costs and
expenses incurred or sustained by the Bank as a result thereof or in connection
therewith.

         The persons authorized to give communication on the Company’s behalf
are the persons named on the certificate of incumbency delivered to the Bank
pursuant to Section 9(e).

              CONNECTICUT WATER SERVICE, INC.               By:   /s/ David C.
Benoit        

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        Name: David C. Benoit         Title: CFO

 

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Exhibit 10.1

DEMAND PROMISSORY NOTE

          May 1, 2002 $9,000,000.00                              , Connecticut

         ON DEMAND, FOR VALUE RECEIVED, the undersigned CONNECTICUT WATER
SERVICE, INC. (“Maker”) hereby unconditionally promises to pay to CITIZENS BANK
OF CONNECTICUT, a Connecticut stock savings bank (the “Payee” or “Bank”), or any
subsequent assignee or holder (Payee and any subsequent assignee or holder being
sometimes referred to as “Holder”) at the head office of the Bank located at 63
Eugene O’Neill Drive, New London, Connecticut 06320, the principal amount of
NINE MILLION AND NO/100 DOLLARS ($9,000,000.00) or such lesser amount as may
have been loaned, advanced or readvanced to Maker by Bank under the terms of
that certain letter agreement of even date herewith, by and between Maker and
the Bank (as amended and in effect from time to time, the “Letter Agreement”),
together with interest thereon as provided herein and all other sums due from
Maker to Bank under the Letter Agreement and this Note.

         The unpaid principal amount of this Note shall be paid at the times and
in the manner set forth in Section 6 of the Letter Agreement, but if not sooner
paid or demanded, the entire unpaid principal amount of this Note, together with
accrued and unpaid interest thereon, shall be due and payable on May 31, 2004,
unless such date shall be extended pursuant to Section 2 of the Letter
Agreement.

         Interest on the unpaid principal amount of this Note shall be payable
at the rates set forth in Section 5 of the Letter Agreement and at the times and
in the manner specified in Section 6 of the Letter Agreement.

         This Note is the promissory note referred to in Section 3 of the Letter
Agreement, the terms and conditions of which are hereby incorporated by this
reference, and is in substitution for, but not a novation of, and continues to
evidence amounts outstanding under, that certain $6,000,000 demand promissory
note dated January 3, 2001. Capitalized terms used herein without definition
shall have the meanings set forth in the Letter Agreement.

         Overdue payments of principal (whether at stated maturity, by
acceleration or otherwise), and, to the extent permitted by law, overdue
interest, shall bear interest at the Prime Rate plus four percentage points
(4.0%).

 

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         If a payment of principal or interest is not made within ten (10) days
of its due date, the undersigned will also pay on demand a late payment charge
equal to, the greater of $35.00 or five percent (5%) of the amount of such
payment.

         No reference to the Letter Agreement nor any provision thereof shall
affect or impair the absolute and unconditional obligation of the Maker of this
Note to pay the principal of and interest on this Note as herein provided.

         All sums paid under this Note shall be applied first to all fees, costs
and expenses incurred by Bank under the Letter Agreement and this Note, then to
any late charges payable by Maker, then to any accrued and unpaid interest, with
the balance, if any, to be applied to unpaid principal.

         Until notified in writing of the transfer of this Note, Maker shall be
entitled to deem Payee or such person who has been so identified by the
transferor in writing to Maker as the holder of this Note, as the owner and
holder of this Note. Holder agrees that before disposing of this Note, or any
part hereof, it will make a notation on Schedule A attached hereto and
incorporated herein by reference evidencing (i) the date and amount of each
advance to be evidenced by this Note and (ii) the date and amount of each
principal payment made with respect thereto; provided, however, that the failure
to make a notation of any payment made on this Note shall not limit or otherwise
affect the obligations of Maker under this Note.

         The Letter Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of Connecticut.

         Maker and each endorser, guarantor and surety of this Note, and each
other person liable or who shall become liable for all or any part of the
indebtedness evidenced by this Note:

                  (a) waive demand, presentment, protest, notice of protest,
notice of dishonor, diligence in collection, notice of nonpayment and all
notices of a like nature; and

                  (b) consent to (i) the release, surrender, exchange or
substitution of all or any part of the security for the indebtedness evidenced
by this Note, or the taking of any additional security; (ii) the release of any
or all other persons from liability, whether primary or contingent, for the
indebtedness evidenced by this Note or for any related obligations; and
(iii) the granting of any other indulgences to any such person.

                  (c) consent to (i) all renewals, extensions or modifications
of this Note or the Agreement (including any affecting the time of payment), and
(ii) all advances under this Note or the Letter Agreement.

 

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3

Any such renewal, extension, modification, advance, release, surrender,
exchange, substitution, taking or indulgence may take place without notice to
any such person, and, whether or not any such notice is given, shall not impair
the liability of any such person.

         Maker and each endorser, guarantor and surety of this Note, and each
other person liable or who shall become liable for all or any part of the
indebtedness evidenced by this Note, hereby give Holder a lien and right of
setoff for all of their respective liabilities in respect of such indebtedness
upon and against all of their respective deposits, credits and property, now or
hereafter in the possession or control of Holder or in transit to Holder.

         If this Note is now, or hereafter shall be, signed by more than one
Person, it shall be the joint and several obligation of all such persons
(including, without limitation, all makers, endorsers, guarantors and sureties,
if any) and shall be binding on all such Persons and their respective heirs,
executors, administrators, legal representatives, successors and assigns. This
Note and all covenants, agreements and provisions set forth in this Note shall
inure to the benefit of Holder and its successors and assigns, including any
lender(s) with which Holder may participate in the making of any loans or
advances evidenced by this Note.

         As used in this Note, words of any gender shall be deemed to apply
equally to any other gender, the plural shall include the singular and the
singular shall include the plural (as the context shall require), and the word
“person” shall refer to individuals, entities, authorities and other natural and
juridical persons of every type.

         MAKER AND EACH AND EVERY ENDORSER, GUARANTOR AND SURETY OF THIS NOTE,
AND EACH OTHER PERSON WHO IS OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF
THIS NOTE, HEREBY ACKNOWLEDGE THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART
IS A COMMERCIAL TRANSACTION AND WAIVE THEIR RIGHTS TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES OR BY OTHER APPLICABLE LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE.

         MAKER AND EACH AND EVERY ENDORSER, GUARANTOR AND SURETY OF THIS NOTE,
AND EACH OTHER PERSON WHO IS OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF
THIS NOTE, HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION, OR
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
TRANSACTION OF WHICH THIS NOTE IS A PART AND/OR IN THE ENFORCEMENT BY BANK OF
ANY OF ITS RIGHTS AND REMEDIES HEREUNDER OR UNDER APPLICABLE LAW. MAKER
ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER BY ITS ATTORNEY.

 

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4

         MAKER AND EACH AND EVERY ENDORSER, GUARANTOR AND SURETY OF THIS NOTE,
AND EACH OTHER PERSON WHO IS OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF
THIS NOTE HEREBY ACKNOWLEDGE THAT THIS NOTE IS A DEMAND INSTRUMENT AND THAT THE
INDEBTEDNESS EVIDENCED HEREBY IS DUE AND PAYABLE UPON DEMAND BY THE HOLDER AT
ANY TIME AND FOR ANY REASON IN THE HOLDER’S SOLE AND ABSOLUTE DISCRETION.

         IN WITNESS WHEREOF, Maker has executed this Note as of the date first
set forth above.

                  CONNECTICUT WATER SERVICE, INC.               By:   /s/ David
C. Benoit        

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        David C. Benoit, CFO

 

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SCHEDULE A
TO REVOLVING CREDIT NOTE

                          DATE   AMOUNT   FIXED
RATE   PRIME
RATE   LIBOR
RATE   DATE
PAID   NOTATION
MADE
BY

 

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EXHIBIT B

FORM OF CONFIRMATION OF ADVANCE

Citizens Bank of Connecticut
63 Eugene O’Neill Drive
New London, CT 06320

         Re: $9,000,000 Revolving Credit Facility

Ladies and Gentlemen:

         Pursuant to Section 5 of that certain Letter Agreement dated May
       , 2002 by and between Citizens Bank of Connecticut and Connecticut Water
Service, Inc., the undersigned hereby confirms its request made
on                              , 20      for an advance in the amount of
                   AND      /100 DOLLARS ($                ) on             
               , 20     .

         The advance shall be a Prime Rate Advance [Fixed Rate Advance; a Libor
Advance].

         The maturity date of the advance, in the case of Libor Advance or Fixed
Rate Advance, shall be                          , 20     .

              CONNECTICUT WATER SERVICE, INC.               By:            

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        Name:         Title:          

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        Date