Document:

<PAGE>   1
                                                                     Exhibit 4.9

                                 LOAN AGREEMENT

                                    among the

                        CONNECTICUT DEVELOPMENT AUTHORITY

                     THE CRYSTAL WATER COMPANY OF DANIELSON

                                       and

                       CRYSTAL WATER UTILITIES CORPORATION

                           Dated as of April 19, 1990
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 Page
                                                                                 ----

<S>                                                                              <C>
Parties                                                                           1

Background                                                                        2

SECTION 1 - DEFINITIONS AND INTERPRETATION

         1.1    -   Definitions                                                   3
         1.2    -   Interpretation                                                5

SECTION 2 - THE LOAN

         2.1    -   Loan                                                          7
         2.2    -   The Closing                                                   7
         2.3    -   Term                                                          7
         2.4    -   Interest and Payments                                         7
         2.5    -   Late Charges                                                  7
         2.6    -   Note                                                          8
         2.7    -   Security                                                      8
         2.8    -   Guaranty                                                      8
         2.9    -   Prepayment                                                    8
         2.10   -   Interest After Judgement                                      8
         2.11   -   Application of Payments                                       8
         2.12   -   Failure to Meet Conditions                                    9

SECTION 3    - CONDITIONS OF CLOSING

         3.1    -   Warranties and Representations True; No Prohibited Action    10
         3.2    -   Compliance with This Agreement                               10
         3.3    -   Officers' Certificates                                       10
         3.4    -   Execution and Delivery of Financing Documents                10
         3.5    -   Perfection and Priority of Mortgage, Guaranty Mortgage
                           and Stock Pledge                                      10
         3.6    -   Opinion of Counsel                                           11
         3.7    -   Certification of Costs                                       11
         3.8    -   Department of Health Services Certification                  12
         3.9    -   Completion of Project                                        12
         3.10   -   DPUC Approvals                                               12
         3.11   -   Site Plan and Zoning Compliance                              12
         3.12   -   Insurance                                                    12
         3.13   -   Good Standing Certificates; Tax Clearances                   13
         3.14   -   Affirmative Action Plan                                      13
</TABLE>
<PAGE>   3
SECTION 3    - CONDITIONS OF CLOSING (continued)

<TABLE>
<S>                                                                              <C>
         3.15   -   Commitment Fee                                               13
         3.16   -   Compliance with Loan Authorization                           13
         3.17   -   Proceedings Satisfactory                                     14

SECTION 4 - WARRANTIES AND REPRESENTATIONS OF THE
            COMPANY AND GUARANTOR

         4.1    -   Corporate Existence and Authority                            15
         4.2    -   Enforceability of Financing Documents; No
                           Prohibition or Consent                                15
         4.3    -   DPUC Approvals                                               16
         4.4    -   Eligibility of the Company                                   16
         4.5    -   Use of Proceeds                                              17
         4.6    -   Real Estate                                                  17
         4.7    -   Transmission Rights                                          17
         4.8    -   Property                                                     17
         4.9    -   Perfection and Priority of Mortgage                          17
         4.10   -   Compliance with Laws                                         18
         4.11   -   No Litigation                                                18
         4.12   -   Burdensome Contracts                                         18
         4.13   -   Taxes                                                        18
         4.14   -   Financial Statements; No Adverse Change                      18

SECTION 5 - COVENANTS OF THE COMPANY AND THE GUARANTOR

         5.1    -   Payment of Loan                                              19
         5.2    -   Expenses and Additional Indebtedness                         19
         5.3    -   Indemnification                                              20
         5.4    -   Corporate Existence and Authority                            20
         5.5    -   DPUC and Department of Health Services Compliance            20
         5.6    -   Taxes                                                        20
         5.7    -   Maintenance of Property and Insurance                        21
         5.8    -   Liens                                                        21
         5.9    -   Compliance with Laws                                         21
         5.10   -   Financial Statements                                         22
         5.11   -   Protection of Mortgage and the Guaranty Mortgage             23
         5.12   -   Default Notification                                         23
</TABLE>

3
<PAGE>   4
SECTION 6 - DEFAULT AND REMEDIES

<TABLE>
<S>                                                                              <C>
         6.1    -   Events of Default                                            24
         6.2    -   Remedies upon Event of Default                               25
         6.3    -   Reinstatement                                                26
         6.4    -   Marshalling                                                  26
         6.5    -   Partial Release                                              26
         6.6    -   No Waiver                                                    26
         6.7    -   Remedies Cumulative                                          27
         6.8    -   Waiver of Rights                                             27

SECTION 7 - MISCELLANEOUS

         7.1    -   Governing Laws                                               28
         7.2    -   Notices                                                      28
         7.3    -   Amendment and Waiver                                         28
         7.4    -   Duplicate Originals                                          29
         7.5    -   Severability                                                 29
         7.6    -   Binding Effect                                               29
         7.7    -   Term of this Agreement                                       29
</TABLE>

4
<PAGE>   5
                                 LOAN AGREEMENT

       THIS LOAN AGREEMENT is made and dated as of April 19, 1990 among the
CONNECTICUT DEVELOPMENT AUTHORITY, with its principal office at 217 Washington
Street, Hartford, Connecticut, 06106 (the "Authority"), THE CRYSTAL WATER
COMPANY OF DANIELSON (the "Company") and CRYSTAL WATER UTILITIES CORPORATION
(the "Guarantor"), both with their principal office at 321 Main Street,
Danielson, Connecticut 06239.
<PAGE>   6
                                   BACKGROUND

         A. Pursuant to Title 32, Chapter 579, of the Connecticut General
Statutes, as amended (the "Act"), the Bond Commission of the State of
Connecticut has been granted the power, from time to time, to authorize the
issuance of bonds of the State of Connecticut to provide funds for low-interest
loans to investor-owned water companies which supply water to at least
twenty-five but fewer than ten thousand customers for the planning, design,
modification or construction of drinking water facilities of such companies made
necessary by the requirements of the Safe Drinking Water Act of 1974 (the "Safe
Drinking Water Act"), or by an order of the Department of Health Services of the
State of Connecticut deeming the water supplied by such companies to be
inadequate, which facilities include, but need not be limited to, collection
facilities, treatment facilities, wells, tanks, mains, pumps, transmission
facilities and any other machinery and equipment necessary to meet the
requirements of the Safe Drinking Water Act.

         B. The Act provides that each loan made pursuant thereto shall be
authorized by the Authority or, if the Authority so determines, by a committee
of the Authority, one of whose members may be its Executive Director.

         C. On May 4, 1988, the Company first applied to the Authority for a
loan under the Act to finance certain improvements to its drinking water
facilities made necessary by the requirements of the Safe Drinking Water Act or
an order of the Department of Health Services of the State of Connecticut.

         D. By a Loan Authorization dated March 7, 1989 (the "Loan
Authorization") the Authority authorized a loan to the Company in an amount not
to exceed $587,000 on the terms and conditions therein set forth.

         E. The Loan Authorization requires that the Guarantor guarantee the
loan.

         F. The Authority, in reliance on the representations and warranties of
the Company and the Guarantor in the loan application and herein, is willing to
make the loan to the Company authorized in the Loan Authorization, all on the
terms and conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:

                                       2
<PAGE>   7
                                    SECTION 1

                         DEFINITIONS AND INTERPRETATION

1.1      Definitions

         For purposes of this Agreement, the following words and terms shall
have the respective meanings set forth below or in the Section of this Agreement
referenced below:

         "Act" is defined in the recitals of this Agreement.

         "Agreement" means this Loan Agreement and any amendments or supplements
thereto.

         "Authority" is defined in the recitals to this Agreement.

         "Closing" is defined in Section 2.2.

         "Closing Date" is defined in Section 2.2.

         "Company" is defined in the first paragraph of this Agreement.

         "Default" means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.

         "Department of Health Services" means the Department of Health Services
of the State of Connecticut.

         "DPUC" means the Department of Public Utility Control of the State of
Connecticut.

         "Equipment" means tangible Property which is not Real Estate.

         "Event of Default" is defined in Section 6.1.

         "Financing Documents" means this Agreement, the Note, the Mortgage, the
Guaranty, the Guaranty Mortgage, the Stock Pledge, and all other documents or
agreements executed and/or delivered in connection with the Loan.

         "General Statutes" means the General Statutes of Connecticut, revision
of 1958, as amended.

         "Guarantor" is defined in the first paragraph of this Agreement.

         "Guaranty" is defined in Section 2.8.

                                       3
<PAGE>   8
         "Guaranty Mortgage" is defined in Section 2.8.

         "Indebtedness" means the Note, any amounts due from the Company and the
Guarantor to the Authority under Sections 2.5, 5.2 and 5.3, and all other
indebtedness, obligations and liabilities of the Company and the Guarantor to
the Authority, whether arising under the Note, this Agreement, any of the other
Financing Documents, or otherwise.

         "Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. For the
purpose of this Agreement, the Company and the Guarantor each shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person
for security purposes, and such retention or vesting shall constitute a Lien.

         "Loan" means the loan in the original principal amount of $587,000 made
by the Authority to the Company pursuant to this Agreement.

         "Loan Application" means the initial loan application of the Company to
the Authority dated May 4, 1988 together with all amendments, supplements and
modifications thereto thereafter submitted by the Company to the Authority, and
including all correspondence, exhibits, schedules, financial statements, cost
estimates and other documents furnished by or on behalf of the Company or the
Guarantor with respect thereto.

         "Loan Authorization" means the Loan Authorization from the Authority to
the Company dated March 7, 1989 and any amendments or supplements thereto.

         "Mortgage" is defined in Section 2.7.

         "Note" is defined in Section 2.6.

         "Person" means an individual, partnership, corporation, trust,
unincorporated organization, government, government agency or governmental
subdivision.

         "Project" means the improvements to the Company's drinking water
facilities more particularly described in Exhibit A to this Agreement.

                                       4
<PAGE>   9
         "Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible, and whether now owned
or hereafter acquired, and includes, without limitation, the Project, Real
Estate, Equipment, and Transmission Rights.

         "Real Estate" means realty and other interests in real property,
including buildings and improvements thereon and fixtures related thereto,
whether owned, leased or subject to other right of use or occupancy, but does
not otherwise include Transmission Rights.

         "Safe Drinking Water Act" means the Federal Safe Drinking Water Act of
1974, 42 U.S.C. Sections 300f et seq.

         "Stock Pledge" is defined in Section 2.8.

         "Transmission Rights" means easements, rights-of-way, and other rights
or interests in or through Real Estate of others for purposes of laying and
maintaining water mains, pipes, pumping stations or other water transmission
facilities, whether arising by contract or otherwise and whether recorded or
unrecorded.

1.2      Interpretation

         (a) References to a "Section" or "Sections" herein refer to this
Agreement unless otherwise stated.

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

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

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

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

         (f) If a reference to a provision of the General Statutes appears in a
Section intended to have effect after the date of this Agreement, such reference
shall be deemed to include successor statutes of similar import.

                                       5
<PAGE>   10
         (g) Where any provision of this Agreement refers to action to be taken
by any Person, or which any Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by such
Person.

         (h) Each Exhibit referred to in this Agreement shall be considered a
part of this Agreement as if fully set forth herein.

                                       6
<PAGE>   11
                                    SECTION 2

                                    THE LOAN

2.1      Loan

         The Authority agrees to lend to the Company, and the Company agrees to
borrow from the Authority on the Closing Date, in accordance with and subject to
the terms and conditions of this Agreement, the sum of Five Hundred Eighty-Seven
Thousand Dollars ($587,000).

2.2      The Closing

         The closing (the "Closing") of the Loan shall be conducted by the
Authority's special counsel, Shipman & Goodwin. The Closing shall be held on
such date as shall be mutually agreed to by the Company and the Authority (the
"Closing Date"), at 10 a.m. local time at the offices of Shipman & Goodwin, 799
Main Street, Hartford, Connecticut, or such other place as the parties hereto
shall mutually agree. At the Closing the Company will deliver to the Authority
the Note, dated the Closing Date, in the stated principal amount of $587,000,
against payment by the Authority to the Company of such amount.

2.3      Term

         The Loan will mature and be finally due and payable on July 1, 2020.

2.4      Interest and Payments

         The Loan will bear interest on the unpaid principal balance thereof
from (and including) the Closing Date at an annual rate of seven and eighty-two
hundredths percent (7.82%). Interest on the unpaid principal balance from (and
including) the Closing Date through June 30, 1990 shall be paid at the Closing.
Thereafter, the Loan shall be repaid over a term of 30 years in equal quarterly
payments of principal and interest, beginning October 1, 1990, all as more fully
set forth in the Note.

2.5      Late Charges

         The Authority may assess a late charge not to exceed an amount equal to
five percent (5%) of any scheduled quarterly payment of principal and interest
on the Note which is not paid within ten (10) days of the day on which such
payment is due in order to cover the extra expenses involved in handling such
delinquent payment.

                                       7
<PAGE>   12
2.6      Note

         The Loan will be evidenced by the Company's 7.82% Secured Promissory
Note due July 1, 2020 (the "Note") substantially in the form set forth as
Exhibit B to this Agreement.

2.7      Security

                  The Loan will be Secured by a first security interest in all
of the Company's Property under a Mortgage and Security Agreement (the
"Mortgage") substantially in the form set forth in Exhibit C to this Agreement.

2.8      Guaranty

                  The Loan will be guaranteed by agreement of the Guarantor (the
"Guaranty"), substantially in the form set forth in Exhibit D to this Agreement.
The Guaranty will be secured by a Guaranty Mortgage and Security Agreement (the
"Guaranty Mortgage") and a Stock Pledge Agreement (the "Stock Pledge"), from the
Guarantor, substantially in the forms set forth in Exhibits E and F to this
Agreement, respectively.

2.9      Prepayment

         The principal balance of the Loan may be prepaid in whole or in part
without premium or penalty as of the due date of any scheduled quarterly payment
of principal and interest. The Authority may require that any partial prepayment
be in the amount of $10,000 or a multiple thereof.

2.10     Interest After Judgment

                  If the Authority should obtain a judgment against the Company
with respect to the Indebtedness, interest shall accrue on such judgment at the
interest rate provided for in the Note or as provided by statute, whichever is
greater at the time.

2.11     Application of Payments

           (a)       So long as no Default has occurred and is continuing:

                     i) regularly scheduled quarterly payments on the Note shall
be applied first to accrued interest and then to principal as set forth in the
Note;

                     ii) partial prepayments of principal on the Note, including
the proceeds of insurance on the Company's Property paid to and retained by the
Authority, shall be applied to the then outstanding principal balance on the
Note, but will not delay the due date or change the amount of any scheduled
quarterly payment required under the Note, except to the extent that the
Authority agrees to such delay or change in writing; and

                                       8
<PAGE>   13
                     iii) amounts paid to the Authority pursuant to Sections 5.2
or 5.3 or late charges assessed under Section 2.5 shall be applied consistent
with the invoice, statement or demand made for such payment.

          (b) While a Default exists, all payments and other amounts received by
the Authority with respect to the Indebtedness, whether regular payment,
prepayment or otherwise, including the proceeds of the sale or other disposition
of any of the Company's or the Guarantor's Property, or of insurance with
respect thereto, paid to and retained by the Authority, may be applied by the
Authority to pay the Indebtedness in such manner, order and amount as the
Authority in its sole discretion may determine, notwithstanding any
characterization thereof by the Company or the Guarantor or any entry with
respect thereto on the books and records of the Company or the Guarantor.

2.12     Failure to Meet Conditions

                  If at the Closing the Company fails to deliver the Note to the
Authority, or if any of the conditions specified in Section 3 have not been
fulfilled, the Authority may thereupon elect to be relieved of all further
obligations under this Agreement.

                                       9
<PAGE>   14
                                    SECTION 3

                              CONDITIONS OF CLOSING

                  The Authority's obligation to make the Loan at the Closing on
the Closing Date is subject to the following conditions precedent:

3.1      Warranties and Representations True; No Prohibited Action

                  (a) The warranties and representations of the Company and the
Guarantor contained in Section 4 shall be true in all respects on the Closing
Date with the same effect as though made on and as of that date.

                  (b) The Company and the Guarantor shall not have taken any
action or permitted any condition to exist which would have been prohibited by
Sections 5.4 to 5.9, inclusive, had such Sections been binding and effective at
all times during the period from the date of the Company's Loan Application to
and including the Closing Date.

3.2      Compliance with this Agreement

                  The Company and the Guarantor shall have performed and
complied with all agreements and conditions contained herein which are required
to be performed or complied with before or at the Closing.

3.3       Officers' Certificates

                  The Authority shall have received certificates dated the
Closing Date and signed, respectively, by the Secretary of the Company and the
Secretary of the Guarantor, substantially in the forms of Exhibits G and H, to
this Agreement, respectively, with respect to certain corporate matters.

3.4      Execution and Delivery of Financing Documents

                  The Company and the Guarantor each shall have duly executed
and delivered to the Authority the Financing Documents to which they are a
party.

3.5      Perfection and Priority of Mortgage, Guaranty Mortgage and Stock Pledge

                  (a) On or before the Closing Date, the Company shall cause an
original counterpart of the Mortgage to be filed with the town clerks of all
towns in which the Company owns Real Estate and the Guarantor shall cause an
original counterpart of the Guaranty Mortgage to be filed with the town clerks
of all towns in which the Guarantor owns Real Estate.

                                       10
<PAGE>   15
         (b) The Company shall furnish to the Authority at the Closing, at the
company's expense, a policy of title insurance, in a form and issued by a title
insurance company acceptable to the Authority, insuring that the Mortgage is a
valid lien with respect to the Company's Real Estate, subject to no Lien except
as may be approved by the Authority. The Guarantor shall furnish to the
Authority at the Closing, at the Guarantor's expense, a policy of title
insurance in a form and issued by a title insurance Company acceptable to the
Authority, insuring that the Guaranty Mortgage is a valid lien with respect to
the Guarantor's Real Estate, subject to no lien except as may be approved by the
Authority.

                  (c) The Company and the Guarantor shall each furnish to the
Authority a current search on Form UCC-11 of the records of the Uniform
Commercial Code Division of the office of the Secretary of the State of
Connecticut showing no Liens on the Company's Property and Guarantor's Property,
respectively, except as may be approved by the Authority.

                  (d) The Guarantor shall deliver to the Authority, pursuant to
the Stock Pledge, any shares of stock of the Borrower held by the Guarantor.

                  (e) The Authority agrees that the Mortgage shall be subject to
two prior mortgages to the State of Connecticut and the Guaranty Mortgage shall
be subject to a prior mortgage to The Brooklyn Savings Bank. The priority of the
Mortgage, Guaranty Mortgage and Stock Pledge with respect to certain liens
granted to The Citizens National Bank ("Citizens Bank") to secure the Citizens
Bank Loan (as hereafter defined) shall be determined pursuant to a Subordination
and Intercreditor Agreement between the Authority and Citizens Bank of even date
herewith.

                  (f) The Company and the Guarantor, each shall execute and
deliver to the Authority at the Closing such other financing statements,
certificates and other documents as the Authority may reasonably request in
order to give effect to and perfect its security interest under the Mortgage and
the Guaranty Mortgage.

3.6      Opinion of Counsel

                  The Authority shall have received from counsel to the Company
and the Guarantor a closing opinion dated the Closing Date and in a form
prescribed by the Authority.

3.7      Certification of Costs

                  The Authority shall have received a certificate dated the
Closing Date and signed by the President of the Company as to the actual cost of
the Project, substantially in the form prescribed by the Authority, together
with copies of appropriate bills of sale, construction contracts, invoices,
receipts and other evidence of such costs if the Authority so requests, and an
opinion of the Company's independent public accountant with respect thereto
substantially in the form prescribed by the Authority.

                                       11
<PAGE>   16
3.8      Department of Health Services Certification

                  The Authority shall have received a certification from the
Department of Health Services, substantially in the form prescribed by the
Authority, with respect to the completion of the Project and its compliance with
the Safe Drinking Water Act, and certain other matters.

3.9      Completion of Project

                  The Authority shall be satisfied that the Project has been
completed substantially in accordance with the Loan Application and the Loan
Authorization.

3.10     DPUC Approvals

                  The Company shall have obtained favorable final decisions from
the DPUC with respect to the Company's application to the DPUC to undertake the
Loan and concurrent financing in the amount of $1,250,000.00 (the "Citizens Bank
Loan"), and the Company's application to the DPUC to amend its rates. Each such
final decision shall be satisfactory in form and substance to the Authority and
shall include no burdensome conditions or restrictions. A certified copy of each
such final decision shall be furnished by the Company to the Authority at the
Closing. The Company shall also have furnished to the Authority certification
from the DPUC that the costs of the Project are reasonable.

3.11     Site Plan and Zoning Compliance

                  If required by the Authority, the Company shall have furnished
the Authority with a site plan locating the Project in place, together with a
certificate from the zoning enforcement officer of the town in which the Project
is located to the effect that the Project is in compliance with the state
building code and all local land use regulations, including those relating to
zoning, subdivisions and inland wetlands.

3.12     Insurance

                  The Company and the Guarantor each shall have furnished the
Authority with a lender's certificate of insurance and copies of the policies of
insurance referred to therein, establishing to the satisfaction of the Authority
that the Company and the Guarantor each has obtained property and liability
insurance in such amounts and with such coverages as is customary and reasonable
for similarly situated, investor-owned water companies from such insurers as
shall be reasonably satisfactory to the Authority. The Authority shall be named
under standard, non-contributory mortgagee and loss payee clauses with respect
to the Company's Property and the Guarantor's Property.

                                       12
<PAGE>   17
3.13     Good Standing Certificates; Tax Clearances

         The Company shall furnish the Authority with:

         (a) reasonably current long-form certificates of the Secretary of the
State of Connecticut with respect to the corporate existence and good standing
of the Company and the Guarantor;

         (b) a reasonably current certificate of the DPUC to the effect that the
Company is a public service company subject to DPUC jurisdiction and has filed
all required annual reports and is in good standing with the DPUC;

         (c) a letter from the tax collector of each town in which Property of
the Company and the Guarantor is located confirming that the Company and the
Guarantor are current in the payment of all municipal real and personal property
taxes assessed against them there; and

         (d) a letter from the Department of Revenue Services of the State of
Connecticut confirming that the Company and the Guarantor has filed all
corporation business tax returns and gross earnings tax returns required to the
date thereof and has paid the taxes shown as due thereon.

3.14     Affirmative Action Plan

         The Company shall have filed with the Authority and the Authority shall
have approved an appropriate Affirmative Action Plan for the Company.

3.15     Commitment Fee

         Any balance owing with respect to the commitment fee due to the
Authority from the company pursuant to the terms of the Loan Authorization shall
have been paid.

3.16     Compliance with Loan Authorization

         Except to the extent expressly modified by this Agreement, the Company
and the Guarantor each shall have performed and complied with all agreements and
conditions contained in the Loan Authorization which are required to be
performed or complied with before or at the Closing.

                                       13
<PAGE>   18
3.17     Proceedings Satisfactory

         All proceedings taken in connection with the transactions contemplated
by this Agreement and all documents relating to the transactions contemplated by
this Agreement shall be satisfactory to the Authority and its special counsel.
The Authority shall have received such additional documents not inconsistent
with the terms of this Agreement as the Authority or its special counsel may
reasonably request.

                                       14
<PAGE>   19
                                    SECTION 4

                         WARRANTIES AND REPRESENTATIONS

                          OF THE COMPANY AND GUARANTOR

The Company and Guarantor each hereby represents and warrants as follows:

4.1      Corporate Existence and Authority

         (a) The Company and the Guarantor each is a validly organized and
existing corporation in good standing under the laws of the State of Connecticut
and is not in violation of any provisions of its, charter, certificate of
incorporation or bylaws.

         (b) The execution, delivery and performance of the Financing Documents
are within the corporate powers of the Company and the Guarantor, have been duly
authorized and approved by the boards of directors of the Company and the
Guarantor, and require no stockholder approval or other corporate authorization.

         (c) The Company is a "public service company" and a "water company"
within the meaning of Section 16-1 of the General Statutes, subject to the
jurisdiction of the DPUC. The Company is current in filing all required reports
and financial statements and is in good standing with the DPUC.

         (d) The Company is legally authorized to own and operate its
properties, to lay and maintain its mains and to supply water for public and
domestic use in the town(s) of Killingly, Brooklyn, Thompson and Plainfield, and
the Company is the sole company supplying water for such use in said town(s).

         (e) The Company has valid and sufficient franchises to engage in the
taking, collection, distribution and sale of water in the area served by it, the
right to install and maintain pipes and conduits in public highways and grounds,
and the power of eminent domain, which franchises, right and power are free from
burdensome restrictions and unlimited as to time.

4.2      Enforceability of Financing Documents; No Prohibition or Consent

         (a) The Financing Documents constitute valid and legally binding
agreements of the Company and the Guarantor, enforceable in accordance with
their respective terms.

         (b) Neither the execution and delivery of the Financing Documents, the
consummation of the transactions contemplated thereby, nor the fulfillment by
the Company and the Guarantor of or compliance by the Company and the Guarantor
with the terms and conditions thereof is in contravention of the Company's or
the Guarantor's certificate of incorporation, charter or bylaws or any
applicable law, regulation, order or

                                       15
<PAGE>   20
judgment, or is prevented or limited by or conflicts with or will result in a
breach of or default under the terms, conditions or provisions of any
contractual or other restriction on the Company or the Guarantor, evidence of
its indebtedness or agreement or instrument of whatever nature to which the
Company or the Guarantor is a party or by which it or any of its Property is
bound. No event has occurred and no condition exists which, upon the execution
and delivery of any of the Financing Documents, would constitute a Default.

         (c) There is no action or proceeding pending or, to the knowledge of
the Company or the Guarantor, threatened against or affecting the Company or the
Guarantor before any court, administrative agency or arbitration board that
would materially and adversely affect the ability of the Company or the
Guarantor to perform its obligations under the Financing Documents. All
authorizations, approvals and consents of governmental bodies or agencies
required in connection with the execution, delivery and performance of the
Financing Documents have been obtained, and no authorization, approval or
consent of any other Person is required therefor.

4.3       DPUC Approvals

         (a) The DPUC, by final decision dated November 20, 1989 approved an
amended schedule of rates for the Company allowing the costs of the Project to
be included in the Company's rate base and designed to produce increases in the
Company's annual revenues of approximately $238,973.

         (b) The DPUC, by final decision dated November 20, 1989, approved the
Loan, including the grant by the Company to the Authority of a security interest
in its Property as contemplated by the Mortgage, and approved the Citizens Bank
Loan.

4.4       Eligibility of the Company

         (a) The Company is a "water facility" as defined in Section 32-23x of
the General Statutes. All of the outstanding capital stock of the Company is
owned by the Guarantor.

         (b) The Company provides water service on a daily basis to at least
twenty-five but fewer than ten thousand customers.

         (c) The Company is subject to the provisions of the Safe Drinking Water
Act. The Project was necessary in order that the Company might comply with the
provisions of the Safe Drinking Water Act and of an order of the Department of
Health Services deeming the water supplied by the Company to be inadequate. The
Project has been satisfactorily completed, and by virtue thereof the Company now
is in compliance with the provisions of the Safe Drinking Water Act and such
order.

                                       16
<PAGE>   21
4.5      Use of Proceeds

         All of the proceeds of the Loan will be used by the Company to pay the
costs of planning, design, modification or construction of eligible drinking
water facilities within the meaning of the Act.

4.6      Real Estate

         Except as set forth in Exhibit I to this Agreement, none of the
Company's or the Guarantor's Real Estate is subject to any Lien which either (a)
secures an obligation with respect to borrowed money or (b) is of a nature or
character which materially impairs the value of the Real Estate or interferes
with the use of the Real Estate in the Company's or the Guarantor's operations.

4.7      Transmission Rights

         The Company has Transmission Rights sufficient to permit it adequately
to serve the town(s) of Killingly, Brooklyn, Thompson and Plainfield. The
Company's Transmission Rights are free from burdensome restrictions and are
unlimited as to time.

4.8      Property

         The Company and the Guarantor each owns all Property which it purports
to own and which is used by it in the conduct of its business. None of its
Property is subject to any Lien, except as set forth in Exhibit J to this
Agreement.

4.9      Perfection and Priority of Mortgage

         The Mortgage has been duly recorded with the Town Clerk of the town(s)
of Killingly, Brooklyn, Thompson and Plainfield, and the Guaranty Mortgage has
been duly recorded with the Town Clerk of the town of Killingly. Financing
Statements naming the Company as debtor and the Authority as secured party, and
describing the Company's Property as collateral, have been filed with the office
of the Secretary of the State of Connecticut and the Town Clerk of the towns of
Killingly, Brooklyn, Thompson and Plainfield. Financing Statements naming the
Guarantor as debtor and the Authority as secured party, and describing the
Guarantor's Property as collateral, have been filed with the Office of the
Secretary of the State of Connecticut and the Town Clerk of the town of
Killingly. No further action is necessary to perfect or make effective the
security interest in the Property of the Company and the Guarantor intended to
be created by the Mortgage and the Guaranty Mortgage, and the Mortgage and
Guaranty Mortgage create valid and direct liens on all of the Property of the
Company and the Guarantor, respectively, subject only to those Liens
contemplated by this Agreement or described in an Exhibit attached hereto.

                                       17
<PAGE>   22
4.10     Compliance with Laws

         The Company and Guarantor each is in compliance with all applicable
federal, state and local laws and regulations affecting it, its Property and its
business, including those relating to land use, including zoning, subdivision
and inland wetlands; health; occupational safety; and environmental quality.

4.11     No Litigation

         There is no action or proceeding pending or, to the knowledge of the
Company or the Guarantor, threatened against or affecting the Company or the
Guarantor before any court, administrative agency or arbitration board.

4.12     Burdensome Contracts

         Neither the Company nor the Guarantor is a party to any burdensome
contract or agreement which could or might materially and adversely affect its
business operations or financial condition.

4.13     Taxes

         All tax returns required to be filed by the Company and the Guarantor
in any jurisdiction have in fact been filed, and all taxes, assessments, fees
and other governmental charges upon the Company and the Guarantor, or upon any
of their Property, income or franchises which are due and payable have been
paid. Each of the Company and the Guarantor knows of no proposed additional tax
assessment against it, and each has adequately provided or reserved on its books
for taxes for all open years and for its current fiscal year.

4.14     Financial Statements; No Adverse Change

         (a) The financial statements of the Company and the Guarantor furnished
to the Authority as part of the Loan Application or thereafter in connection
with the Loan have been prepared in accordance with generally accepted
accounting principles and present in a complete and fair manner the financial
position of the Company and the Guarantor, respectively, and the results of
their operations for the fiscal periods covered thereby.

         (b) Since the end of the last fiscal period for which financial
statements have been furnished to the Authority, there has been no material and
adverse change in the Company's and the Guarantor's business, Property or
financial condition.

                                       18
<PAGE>   23
                                    SECTION 5

                   COVENANTS OF THE COMPANY AND THE GUARANTOR

         The Company and Guarantor each covenants that on and after the Closing
Date, and for so long as any part of the Indebtedness shall remain outstanding:

5.1      Payment of Loan

         The Company will pay the Note according to its terms and the Company
and Guarantor each will comply with each provision of this Agreement and each
provision of the other Financing Documents binding upon it.

5.2      Expenses and Additional Indebtedness

         (a) The Company and the Guarantor (promptly, and in any event within
thirty (30) days of receiving any invoice, statement or demand therefor) will
pay all of the out-of-pocket expenses of the Authority, including the reasonable
fees and disbursements of special counsel to the Authority, relating to:

                  i) this Agreement and the transactions contemplated hereby,
including the Closing;

                  ii) perfecting, sustaining or defending the security interest
of the Authority in the Company's and the Guarantor's Property;

                  iii) protecting, maintaining and preserving the Company's and
the Guarantor's Property following an Event of Default, including the payment by
the Authority as deemed necessary by it in its sole discretion of insurance
premiums, taxes, expenses of maintenance and repair, and the fees and
disbursements of custodians, receivers, appraisers, liquidators and others
retained with respect to the Property; and

                  iv) collection of the Note and enforcement of the rights of
the Authority under the Financing Documents following an Event of Default,
including foreclosure of the Mortgage or the Guaranty Mortgage.

         (b) The Company and the Guarantor shall pay the reasonable fees and
expenses of special counsel to the Authority in connection with the preparation
of the Financing Documents whether or not the Loan is made.

         (c) Amounts due to the Authority under this Section 5.2 remaining
unpaid thirty (30) days after the Company has received an invoice, statement or
demand therefor shall bear interest at the rate provided for in the Note and
shall be considered an addition to the principal balance on the Note, secured by
and entitled to the benefit of the Mortgage.

                                       19
<PAGE>   24
5.3       Indemnification

         The Company and Guarantor each, jointly and severally, agrees to
protect, defend and hold harmless the Authority and the members, officers and
employees thereof from any claim, demand, suit, action or other proceeding
whatsoever by any Person, arising or purportedly arising from or in connection
with the Financing Documents, the transactions contemplated thereby or actions
taken thereunder (except for any willful misconduct or gross negligence of any
such indemnified party), or the construction, use or operation of the Project.

5.4      Corporate Existence and Authority

         (a) The Company will maintain its corporate existence in Connecticut
and its status as a "public service company" and a "water company" within the
meaning of Section 16-1 of the General Statutes and as a "water facility" within
the meaning of the Act, and will preserve and keep in existence all of its
rights and franchises. The Guarantor will maintain its corporate existence in
Connecticut.

         (b) Without the prior written consent of the Authority, neither the
Company nor the Guarantor will consolidate with, merge with or into or sell or
transfer all or a significant part of their Property to any other Person, or
issue any additional shares of their capital stock.

5.5      DPUC and Department of Health Services Compliance

         (a) The Company will file with the DPUC in a timely fashion all
required reports and financial statements and will comply with all laws and
regulations relating to its status as a public service company and all DPUC
decisions, rulings, and orders applicable to the Company.

         (b) The Company will comply with all laws and regulations administered
by the Department of Health Services and applicable to the Company, and all
applicable orders of the Department of Health Services.

5.6      Taxes

         The Company and the Guarantor each will file in a timely fashion all
tax returns required of it in any jurisdiction and will pay, before they become
delinquent, all taxes, assessments, fees and other governmental charges upon it,
or upon any of its Property, income or franchises; provided that such items need
not be paid while being contested by it in good faith and by appropriate legal
proceedings so long as adequate book reserves have been established with respect
thereto and its title to, and its right to use, its Property is not materially
and adversely affected thereby.

                                       20
<PAGE>   25
5.7      Maintenance of Property and Insurance

         (a) The Company and the Guarantor each will maintain its Property in
good condition and make all necessary renewals, replacements, additions,
betterments and improvements thereto, and the Company will maintain Transmission
Rights sufficient adequately to provide water to its service area.

         (b) The Company and the Guarantor will maintain, with such insurers as
shall be reasonably satisfactory to the Authority, casualty and liability
insurance in such amounts and with such coverages as is customary and reasonable
for similarly situated companies. Without limiting the foregoing, the Company
shall maintain casualty insurance with respect to its Property in an aggregate
amount not less than the outstanding principal balance of the Loan, and public
liability insurance with an aggregate limit not less than $1,000,000.

5.8      Liens

         The Company and the Guarantor each will not agree to, cause, or permit
any of its Property to be subject to any Lien, except:

         (a) Liens contemplated by this Agreement or described in an Exhibit
attached hereto;

         (b) Liens securing taxes, assessments, fees or governmental charges,
provided the payment thereof is not required by Section 5.6;

         (c) attachments, judgments and other similar Liens arising in
connection with court proceedings, provided the execution or other enforcement
of such Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings; and

         (d) reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting Real Estate, provided they neither (i) secure an
obligation with respect to borrowed money, nor (ii) are of a nature or character
which materially impairs the value of the Real Estate or interferes with the use
of the Real Estate in the Company's or the Guarantor's operations.

5.9      Compliance with Laws

         The Company and the Guarantor each will comply with all applicable
federal, state and local laws and regulations affecting it, its Property and its
business, including those relating to land use, including zoning, subdivision
and inland wetlands; health; occupational safety; and environmental quality.

                                       21
<PAGE>   26
5.10     Financial Statements

         (a) The Company and the Guarantor each will at all times keep accurate
and complete records and books of account with respect to all of the its
business activities, in accordance with sound accounting practices and generally
accepted accounting principles, such records and accounts to be maintained at
the address set forth on the first page of this Agreement.

         (b) The Company and Guarantor each shall furnish to the Authority (i)
within 90 days after the end of each fiscal year, its balance sheet as of the
end of such fiscal year, and the related statements of earnings and retained
earnings and changes in financial position for the year then ended, setting
forth in each case in comparative form the corresponding figures for the
preceding fiscal year in reasonable detail, including all supporting schedules
and comments, all of which shall be prepared in accordance with generally
accepted accounting principles consistently maintained, and certified by
independent public accountants of recognized standing, satisfactory to the
Authority; (ii) within 90 days after the end of each fiscal year, a statement
from its independent public accountants indicating that, in the preparation of
such statements, said accountants have obtained no knowledge of any default in
any obligation to the Authority, or disclosing all defaults of which the
accountants have obtained knowledge; (iii) such quarterly financial statements
as the Authority may from time to time request; and (iv) such other financial
information and statements relating to the Company or the Guarantor as the
Authority reasonably may request.

         (c) The Authority, or any Person designated by it, shall have the right
(to be exercised in a reasonable manner), from time to time, to call at the
Company's and Guarantor's place or places of business during reasonable business
hours, and, without hindrance or delay, to inspect, audit, check and make
extracts from the books, records, journals, orders, receipts and any
correspondence and other data relating to the Company's or the Guarantor's
business or to any transactions between the parties hereto, and shall have the
right to make such verification concerning the Company's and the Guarantor's
Property as the Authority may consider reasonable under the circumstances, all
at the Company's expense.

         (d) The Company shall deliver to the Authority copies of all financial
statements, reports, rate requests, applications or other filings with the DPUC
within 15 days of such filing and, within 15 days of receipt, copies of all DPUC
rulings and orders with respect to the Company.

         (e) The Company and the Guarantor each shall deliver to the Authority
copies of all reports or other communications to its shareholders within 15 days
of the mailing thereof.

                                       22
<PAGE>   27
5.11     Protection of Mortgage and the Guaranty Mortgage

         The Company and the Guarantor each from time to time as the Authority
may request will execute such additional financing statements, certificates and
other documents as the Authority reasonably may require in order to continue in
effect, perfect, preserve, and maintain the priority of the security interest
intended to be afforded by the Mortgage and the Guaranty Mortgage.

5.12     Default Notification

         Upon becoming aware of the existence or occurrence of a Default under
this Agreement, the Company or the Guarantor immediately shall provide to the
Authority written notice identifying the Default and specifying the corrective
action it is taking with respect thereto.

                                       23
<PAGE>   28
                                    SECTION 6

                              DEFAULT AND REMEDIES

6.1      Events of Default

         Each of the following is an Event of Default under this Agreement:

         (a) the failure of the Company to make payment of any installment of
principal and/or interest due under the Note within ten (10) days of its due
date;

         (b) the failure of the Company or the Guarantor to pay any amount due
the Authority pursuant to Section 2.5, Section 5.2 or Section 5.3 or any other
Indebtedness within the time prescribed by this Agreement, and if no time is
prescribed, within thirty (30) days of demand therefor made by the Authority;

         (c) the failure of the Company or the Guarantor to keep in force any
insurance required by this Agreement or any of the other Financing Documents;

         (d) the actual or threatened waste, removal or demolition of, or
material alteration to any significant part of the Company's or the Guarantor's
Property;

         (e) the inaccuracy in any material respect of any representation made
by or on behalf of the Company or the Guarantor in the Loan Application, this
Agreement Or any of the other Financing Documents;

         (f) the material breach by the Company or the Guarantor of any its
warranties in Section 4 of this Agreement;

         (g) the failure, for thirty (30) days after notice thereof from the
Authority, of the Company or the Guarantor to observe or perform any other
covenant or agreement in this Agreement, including but not limited to Section 5,
or in any of the other Financing Documents;

         (h) without the prior written consent of the Authority, a change in the
stock ownership or control of the Company or the Guarantor;

         (i) any default or event of default under any note, mortgage, security
agreement or other instrument evidencing, securing or guarantying the Citizens
Bank Loan or any modification, supplement or refinancing thereof;

         (j) the failure, for thirty (30) days after notice thereof from the
Authority, of the Company or the Guarantor to observe and perform any of its
covenants or agreements under any other note, mortgage, security agreement or
other instrument evidencing, securing or guaranteeing a debt of the Company or
the Guarantor, other than the Loan

                                       24
<PAGE>   29
(including, without limitation, the Citizens Bank Loan) to any Person, or the
acceleration after default in the payment of any indebtedness due thereunder;

         (k) the failure of the Company or the Guarantor generally to pay its
debts as such debts become due;

         (1) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Company or the Guarantor in an involuntary case
under the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or the Guarantor or for any
substantial part of the its property, or the issuance of an order for the
winding-up or liquidation of the affairs of the Company or the Guarantor and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days; or upon the commencement by the Company or the Guarantor of
a voluntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, or the consent by the Company or the Guarantor to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the Company or
the Guarantor or for any substantial part of the property of the Company or the
Guarantor or the making by the Company or the Guarantor of any assignment for
the benefit of creditors, or the taking of corporate action by the Company or
the Guarantor in furtherance of any of the foregoing;

         (m) the revocation under Section 16-10a of the General Statutes of all
or any part of the Company's franchise to operate as a public service company;

         (n) without the prior written consent of the Authority, the filing by
the Company with the DPUC pursuant to Section 16-43 or Section 16-46 of the
General Statutes of any application to merge or consolidate, sell, lease,
assign, mortgage or dispose of an essential part of its franchise or Property,
or dissolve or terminate its corporate existence; and

         (o) an Event of Default under any other Financing Document.

6.2      Remedies upon Event of Default

         In addition to, and not in limitation of, any other term of this
Agreement or any other right or remedy hereunder or in accordance with law, upon
the occurrence of any Event of Default:

         (a) the whole of the principal sum and accrued interest on the Note,
and all other Indebtedness, at the option of the Authority and without notice,
demand or legal process of any kind, shall become immediately due and payable;

                                       25
<PAGE>   30
         (b) the Authority may proceed to enforce the performance or observance
of any obligations, agreements, or covenants of the Company or the Guarantor in
this Agreement or any of the other Financing Documents, to collect the amounts
then due and thereafter to become due, and to foreclose the Mortgage or the
Guaranty Mortgage, or the Stock Pledge, or otherwise enforce and realize upon
its security interest in the Company's or the Guarantor's Property; and

         (c) in connection with any of the foregoing, the Authority may from
time to time exercise any rights and remedies and take any action available to
it at law or in equity, including the Uniform Commercial Code, in addition to
and not in lieu of, any rights and remedies provided for in this Agreement or in
any of the other Financing Documents.

6.3      Reinstatement

         In the event that any Event of Default is waived in writing by the
Authority, then such Event of Default shall be annulled and the parties hereto
shall be restored to their former rights hereunder, but no such waiver shall
extend to any subsequent or other Event of Default or impair any other right of
the Authority.

6.4      Marshalling

         The Authority shall not be compelled to release, or be prevented from
foreclosing or enforcing the Mortgage upon all or any part of the Company's
Property or the Guaranty Mortgage upon all or any part of the Guarantor's
Property unless the entire Indebtedness shall be paid, and shall not be required
to accept any part of the Company's or the Guarantor's Property, as
distinguished from the whole, as payment of or upon the Indebtedness or to allow
any apportionment of the Indebtedness to or among any separate parts of the
Company's or the Guarantor's Property.

6.5      Partial Release

         The Authority, without notice, and without regard to the consideration,
if any, paid therefor, and notwithstanding the existence at that time of any
inferior liens thereon, may release any part of the Company's or Guarantor's
Property from its security interests or any Person primarily or contingently
liable for the Indebtedness, or may agree to extend the time for payment
thereof, without in any way affecting the existence or priority of its security
interest or the liability of any Person not expressly released.

6.6      No Waiver

         No delay or failure on the part of the Authority in the exercise of any
right or remedy under this Agreement or any of the other Financing Documents
shall operate as a waiver thereof, and no single or partial exercise by the
Authority of any such right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy.

                                       26
<PAGE>   31
6.7      Remedies Cumulative

         The rights and remedies provided in this Agreement and the other
Financing Documents are cumulative and the Authority may recover judgment
thereon, issue execution therefor, and resort to every other right or remedy
available at law or in equity, without first exhausting and without impairing or
affecting the security of or any right or remedy afforded by this Agreement or
any of the other Financing Documents, and no enumerated or special rights or
powers herein shall be construed to limit any grant of general rights or powers
or take away or limit any rights of the Authority under applicable law.

6.8      Waiver of Rights

         THE COMPANY AND THE GUARANTOR EACH ACKNOWLEDGES THAT THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT IS A COMMERCIAL TRANSACTION, AND VOLUNTARILY AND
KNOWINGLY WAIVES ANY RIGHT IT MAY HAVE TO NOTICE AND HEARING UNDER CHAPTER 903A
OF THE GENERAL STATUTES OR AS OTHERWISE ALLOWED BY LAW WITH RESPECT TO ANY
PREJUDGMENT REMEDY.

                                       27
<PAGE>   32
                                    SECTION 7

                                  MISCELLANEOUS

7.1      Governing Laws

         This Agreement and each of the other Financing Documents shall be
governed and construed in accordance with the laws of the State of Connecticut.

7.2      Notices

         Notices and other communications under this Agreement or any of the
other Financing Documents shall be deemed sufficiently given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
addressed as follows:

         (a)      if to the Authority:

                           Connecticut Development Authority
                           217 Washington Street
                           Hartford, CT 06106

                           Attention: Water Company Loans

                  or to such other address as the Authority shall have furnished
                  in writing to the Company, or

         (b)      if to the Company or Guarantor at:

                           321 Main Street
                           P.O. Box 648
                           Danielson, CT 06239

                  or to such other address as the Company or the Guarantor shall
                  have furnished in writing to the Authority.

7.3      Amendment and Waiver

         (a) This Agreement and any of the other Financing Documents may be
amended, and the observance of any provision hereof or thereof may be waived,
but only by an appropriate instrument in writing signed, in the case of an
amendment, by all of the parties hereto, and in the case of a waiver, by the
party against whom the waiver is to operate.

                                       28
<PAGE>   33
         (b) No such amendment or waiver shall extend to or affect any provision
of this Agreement or any of the other Financing Documents, or any Default or
Event of Default, not expressly amended or waived.

7.4      Duplicate Originals

         This Agreement and each of the other Financing Documents may be signed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.

7.5      Severability

         If any provision of this Agreement or any of the other Financing
Documents or the application thereof to any Person or circumstance, shall to any
extent be invalid or unenforceable, the remainder of this Agreement or such
Financing Document, or the application of such provision to other Persons or
circumstances, shall not be affected thereby, and each provision shall be valid
and enforceable to the fullest extent permitted by law.

7.6      Binding Effect

         This Agreement and each of the other Financing Documents shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.

7.7      Term of this Agreement

         This Agreement and the other Financing Documents shall continue in full
force and effect as long as any Indebtedness remains outstanding.

                                       29
<PAGE>   34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

ATTEST           [SEAL]                            THE CRYSTAL WATER COMPANY
                                                        OF DANIELSON

By: /s/  Randolph Kempain                          By: /s/  Roger Engle
   ----------------------                             -----------------
    Randolph Kempain                                    Roger Engle
    Its Secretary                                       Its President

ATTEST           [SEAL]                            CRYSTAL WATER UTILITIES
                                                        CORPORATION

By: /s/  Randolph Kempain                             By: /s/  Roger Engle
   ----------------------                                -----------------
    Randolph Kempain                                       Roger Engle
    Its Secretary                                          Its President

                                                  CONNECTICUT DEVELOPMENT
                                                  AUTHORITY

                                                  By: /s/  Brian Day
                                                     ---------------
                                                       Its Loan Officer

                                       30<PAGE>   1
                                                                    Exhibit 4.10

                           LOAN AND SECURITY AGREEMENT

        THIS AGREEMENT made this 9th day of February, 1996, between THE CRYSTAL
WATER COMPANY OF DANIELSON, a public service company specially chartered by the
General Assembly of the State of Connecticut whose principal place of business
is P.O. Box 648, 321 Main Street, Danielson, Connecticut (the "Debtor"), and NEW
LONDON TRUST, F.S.B., a federal savings bank organized and existing under the
laws of the United States of America and having an office at 203 Main Street,
Danielson, Connecticut 06239 (the "Secured Party").

WITNESSETH:

        In consideration of the mutual covenants and agreements contained herein
and for other good and valuable consideration, receipt of which is hereby
acknowledged, Debtor and Secured Party agree as follows:

         1. COMMERCIAL MORTGAGE LOAN. Subject to the terms and conditions
contained in this Agreement, Secured Party agrees to make a commercial mortgage
loan (the "Loan") to Debtor in the principal amount of TWO MILLION SEVEN HUNDRED
THOUSAND DOLLARS ($2,700,000). In addition to this Agreement, the Loan shall be
evidenced by the Mortgage Note (the "Note"), a copy of which is attached hereto
as Exhibit A. The Loan will be payable in principal installments as set forth in
the Note.

        2. INTEREST RATE. The Loan shall bear interest at the rates set forth
and described in the Note.

        3. USE OF LOAN PROCEEDS. Loan proceeds shall be used to refinance
existing indebtedness with Citizens National Bank and The Connecticut
Development Authority ("CDA").

        4. SECURITY INTEREST. To secure payment and performance of each and all
of the Obligations, Debtor hereby assigns and grants to Secured Party a
continuing security interest in all tangible and intangible personal property of
Debtor, including, without limitation, Accounts, Chattel Paper, Equipment,
General Intangibles, Instruments, and Inventory, together, in each instance,
with the renewals, substitutions, replacements, additions, accessories, rental
payments, products and proceeds (including, without limitation, insurance
proceeds) thereof, (hereinafter, collectively called the "Collateral").

         5. DEFINITIONS.

                 (a) The term "Accounts" shall mean, any right to payment held
by Debtor, whether in the form of accounts receivable, notes, drafts,
acceptances or other forms of obligations and receivables now or hereafter
received by or belonging to Debtor for Inventory sold or leased by it or for
services rendered by it whether or not earned by performance, together with all
guarantees and security therefor and all proceeds thereof, whether cash proceeds
or otherwise, including, without limitation, all right, title and interest of
Debtor in the Inventory which gave rise to any such Accounts, including, without
limitation, the right of stoppage in transit and all returned, rejected,
rerouted or repossessed Inventory;

                  (b) The term "Chattel Paper" shall mean a writing or writings
which evidence both a monetary obligation and a security interest in or a lease
of specific goods, whether now or hereafter held by Debtor;

                  (c) The term "Equipment" shall mean all the machinery,
equipment, furniture, tools, goods and other tangible personal property,
excluding Motor Vehicles and Inventory, now owned or hereafter acquired by
Debtor;
<PAGE>   2
                  (d) The term "Financing Agreements" shall mean all agreements,
notes, instruments, mortgages, security agreements and documents evidencing,
securing or relating in any way to any and all loans, overdrafts, indebtedness,
obligations, guaranties and liabilities of Debtor or any guarantor of the Loan
to Secured Party of every kind and description, direct or indirect, absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising, including without limitation, this Agreement and the Note;

                  (e) The term "General Intangibles" shall mean any intangible
personal property (including, without limitation, things in action) now or
hereafter held by Debtor, other than Accounts, Chattel Paper and Instruments;

                  (f) The term "Guarantor" shall mean Crystal Water Utilities
Corporation.

                  (g) The term "Instruments" shall mean a negotiable instrument
or a certificated security, as defined in the Uniform Commercial Code of
Connecticut, or any other writing which evidences a right to the payment of
money and is not itself a security agreement or lease and is of a type which, in
the ordinary course of business, is transferred by delivery with any necessary
endorsement or assignment, whether now or hereafter held by Debtor;

                  (h) The term "Inventory" shall mean all goods, merchandise,
raw materials, work in process, finished goods and products and other tangible
personal property now owned or hereafter acquired by Debtor and held for sale or
lease, or furnished or to be furnished under contracts of service or used or
consumed in Debtor's business;

                  (i) The term "Loan Account" shall mean the account on the
books of Secured Party in which will be recorded the Loan made by Secured Party
to Debtor pursuant to this Agreement, payments made on the Loan, and other
debits and credits as provided by this Agreement;

                  (j) The term "Obligations" shall mean any and all loans,
overdrafts, indebtedness, obligations, guaranties and liabilities of Debtor to
Secured Party of every kind and description, direct or indirect, absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising, regardless of how they arise or by what agreement or
instrument they may be evidenced or whether evidenced by any agreement or
instrument, including, but not limited to, the Loan, and all costs, expenses,
fees, charges and attorneys' and other professional fees incurred by Secured
Party in connection with any of the foregoing, or in any way connected with or
related to the preservation, realization, enforcement, protection or defense of
the Collateral, this Agreement, the Note, and the other Financing Agreements,
and the rights and remedies hereunder or thereunder;

                  (k) The term "Subordinated Debt" shall mean such of the
liabilities of Debtor with respect to which payment has been subordinated to the
payment of the Obligations pursuant to a subordination agreement in form and
substance satisfactory to the Secured Party.

         6. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that:

                  (a) Financial Statements. The financial statements, as of
December 31, 1994 and prepared by David R. Daggett, previously furnished to
Secured Party, present fairly in all material respects the financial position at
such date and the results of operations of Debtor as of and for the periods then
ending, in conformity with generally accepted accounting principles, there has
been no material adverse change in the financial condition of Debtor since the
date thereof, and there are no liabilities, fixed or contingent, not disclosed
in such statements, except as incurred in the ordinary course of business since
the date thereof.
<PAGE>   3
                  (b) Business/Annual Report. Debtor's regular annual report and
its audited financial report to the Department of Public Utility Control of the
State of Connecticut ("DPUC") for its fiscal year ended December 31, 1994,
correctly describes the business, financial condition and properties of Debtor,
and the financial statements contained therein have been prepared in accordance
with generally accepted accounting principles, except to the extent such
principles are modified in accordance with the Uniform System of Accounts for
Class A Utilities duly adopted by the DPUC and then in effect.

                  (c) Ownership of Assets. Debtor has good and marketable title
to its assets, free from any liens, mortgages, security interests, pledges or
encumbrances, except: (i) as permitted in Section 8(a) hereof, and (ii) as shown
on Exhibit B attached hereto. Except as shown on Exhibit B, no financing
statements covering all or any part of Debtor's assets are on file in the office
of the Secretary of the State of Connecticut or in any other federal, state or
local governmental office, whether or not properly filed under applicable law.

                  (d) Corporate Organization. Debtor is, and will continue to
be, a corporation duly organized, validly existing and in good standing as a
public service company under the laws of the State of Connecticut, and is, and
will continue to be, duly qualified as a foreign corporation in good standing in
every jurisdiction in which such qualification is necessary. Debtor has
corporate power to enter into the Financing Agreements and to borrow hereunder,
and has all requisite authorizations and permits to own and operate Debtor's
properties and assets and to carry on Debtor's business as now being conducted.

                  (e) Litigation: Taxes. There are no actions, suits,
proceedings, or investigations pending, or judgments or orders outstanding, or,
to the knowledge of Debtor, threatened against Debtor, which, if adversely
decided against Debtor, could have a material adverse effect on the condition,
operations or prospects (financial or otherwise) of Debtor, and Debtor has filed
all required federal, state and local tax returns, and has paid all taxes as
shown on such returns, and has provided adequate reserves for payment of any tax
which is being contested.

                  (f) Authority. The execution, delivery and performance of this
Agreement, the Note, and each and every other agreement, instrument and document
required to be executed or delivered to Secured Party by Debtor in connection
with the Loan have been duly authorized by all necessary corporate action; the
execution, delivery and performance of said agreements, instruments and
documents, the consummation of the transactions therein contemplated, and the
fulfillment of or compliance with the terms and provisions therein, are within
Debtor's powers and are not in contravention of any provisions of Debtor's
Certificate of Incorporation/Charter or By-Laws. The execution, delivery and
performance of said agreements, instruments and documents will not result in a
violation of any laws, or a breach of, or constitute a default under, or result
in the creation of any lien, charge or encumbrance upon any of Debtor's assets
(other than the security interest granted to Secured Party hereunder) pursuant
to any of the terms, conditions or provisions of any agreement, instrument or
other undertaking to which Debtor is a party or by which Debtor is bound. No
consent, approval, authorization or other order of, or registration or filing
with any governmental body is required in connection with the execution,
delivery and performance of said agreements, instruments and documents.

                  (g) Defaults. Debtor is not in default under any agreement,
indenture, mortgage, deed of trust, or any other agreement or any court order or
other order issued by any governmental body to which Debtor is a party or by
which Debtor may be bound.

                  (h) Environmental, Health, Safety Laws. Debtor has not
received any notice, order, petition or similar document in connection with or
arising out of any violation of any environmental, health or safety law,
regulation, rule or order, and Debtor knows of no basis for any claim of such a
violation or of any threat thereof.

                  (i) Other Laws. Debtor is not in violation of any law,
regulation, rule or order including, but not limited to, the laws, regulations,
rules and orders described in subparagraph (g) above, which violation materially
and adversely affects the financial condition of Debtor or the ability of Debtor
to perform hereunder.
<PAGE>   4
                  (j) Business Location. The Collateral, the books and records
relating thereto, and the principal place of business of Debtor are all at the
address of Debtor first written above.

                  (k) Business Name. The name of Debtor has not changed for at
least the past ten (10) years and during such period, Debtor has conducted, and
currently conducts, its business solely in its own name without the use of a
tradename or the intervention of or through any entity of any kind, except as
shown on Exhibit B.

                  (l) Water Company, Franchise Area. Debtor is a water company
within the meaning of Section 16-1 (10), and conducts its business as such only
in the Connecticut Towns of Killingly, Plainfield, Thompson and Brooklyn.

                  (m) Permissible CDA Indebtedness. Secured Party has agreed to
accept liens on the Collateral, as well as liens on certain real estate and
properties located in the Towns of Killingly, Brooklyn and Thompson,
respectively, owned by Debtor and property located at 321 Main Street,
Danielson, Connecticut owned by Guarantor (collectively, the "Real Estate
Collateral") reportedly subordinate to liens of the CDA only (the "CDA Liens").
Debtor hereby represents that the CDA Liens secure the repayment of indebtedness
in favor of the CDA in the present amount of $562,157.00 (the balance as of
fiscal year end December 31, 1994 and hereinafter referred to as the "Current
CDA Debt"). Debtor hereby acknowledges that Secured Party has agreed to
subordinate its liens and security interests to the CDA Liens only (that secure
the Current CDA Debt) and to no other liens whatsoever.

         7. AFFIRMATIVE COVENANTS. Debtor covenants and agrees that, from the
date hereof until payment in full of the Loan and payment and performance of all
the Obligations, unless Secured Party otherwise agrees in writing, Debtor and
Guarantor (where indicated) shall:

                  (a) Financial Reports. Furnish to Secured Party:

                           (i) Within one hundred twenty (120) days after the
end of each fiscal year of Debtor and Guarantor, their respective audited
financial statements in form and substance acceptable to Secured Party, which
shall be prepared in conformity with generally accepted accounting principles,
and certified by the President or Treasurer of Debtor, as presenting fairly in
all material respects the financial position of Debtor and Guarantor, as the
case may be, as of the date of the period then ended and the results of
operations of Debtor and Guarantor, as the case may be, as of and for the
periods then ending, together with a statement that no Event of Default then
exists under this Agreement, the Note or Guarantor's guaranty.

                           (ii) Within thirty (30) days after the end of each
six-month period, Debtor-prepared financial statements in form and substance
satisfactory to Secured Party.

                           (iii) Copies of all income tax returns of the Debtor
and Guarantor, and any requests for extensions of filing deadlines, within ten
(10) days of the filing of such returns or requests for extensions.

                           (iv) Within fifteen (15) days of each filing date,
all reports and applications filed with the DPUC, including, without limitation,
Debtor's annual report and also any DPUC decisions concerning Debtor within
fifteen (15) days of the draft of final decision.

                           (v) Promptly upon Secured Party's written request,
such other information about the financial condition, operations, and business
of Debtor, or Guarantor, as Secured Party may, from time to time, request.

                  (b) Taxes and Other Liens. File all required federal, state
and local tax returns and pay when due all taxes, assessments and other charges
of every nature which may be levied or assessed against Debtor or its assets,
including without limitation, claims for labor, supplies and rent, except those
liabilities being contested in good faith and for which Debtor maintains
reserves in amount and form satisfactory to Secured Party.
<PAGE>   5
                  (c) Casualty Insurance. Keep its properties insured against
fire and other hazards (so-called "All Risk" coverage) in amounts and with
insurers satisfactory to Secured Party, which insurance shall by the terms of
the policy be payable to Secured Party as its interest may appear pursuant to a
loss payee/mortgagee clause satisfactory to Secured Party. Secured Party shall
have the right to apply the proceeds of any such insurance in reduction of the
Obligations, whether or not then due and payable, in such manner as Secured
Party in its sole discretion may determine. Without limiting the generality of
the foregoing, such insurance must provide that it may not be canceled without
30 days prior written notice to Secured Party. Debtor hereby appoints Secured
Party its attorney-in-fact, coupled with an interest, to settle, adjust and
compromise any insurance losses, to collect and receive payments of insurance,
and to endorse Debtor's name on all documents, checks and drafts in connection
therewith.

                  (d) Maintain Collateral. Maintain and preserve the Collateral
in good repair, working order and condition, and make all needed and proper
repairs, renewals, replacements, additions or improvements thereto, and
immediately notify Secured Party of any event causing material loss or
depreciation in the value of the Collateral and the amount of such loss or
depreciation.

                  (e) Inspection. Allow Secured Party by or through any of its
officers, agents, attorneys, or accountants designated by it, to enter the
offices and plants of Debtor to examine, inspect and make copies of the books
and records of Debtor and to inspect the Collateral, all at such times and as
often as Secured Party may reasonably request.

                  (f) Liability Insurance. Maintain general public liability
insurance against claims for personal injury, death or property damage in
respect to the Real Estate Collateral in an aggregate amount of no less than
$1,000,000, with companies satisfactory to Secured Party and in forms
satisfactory to Secured Party, and workmen's compensation insurance, employment
or similar insurance, as required by applicable law.

                  (g) Defend Collateral. Defend the Collateral against all
liens, claims and demands of all persons, and allow Secured Party, at the
expense of Debtor, to contest or defend any such liens, claims and demands in
Debtor's name. Cause the security interest of Secured Party to be properly noted
on all certificates of title issued or outstanding with respect to any of the
Collateral, and deposit same with Secured Party.

                  (h) Financing Statements. From time to time, at the request of
Secured Party, execute, deliver and file one or more financing statements,
assignments, and other agreements, instruments or documents, and amendments and
renewals thereof, and do all other acts as Secured Party deems necessary or
desirable to create and maintain a valid and enforceable second priority
security interest in the Collateral, and pay, upon demand, Secured Party's
costs, charges and expenses, including without limitation, attorneys' fees
incurred by Secured Party in connection therewith. Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, coupled with an interest,
to execute and file one or more financing statements, amendments and renewals
thereof on Debtor's behalf.

                  (i) Books and Records. Maintain complete and accurate books
and records relating to its financial affairs at all times in accordance with
generally accepted accounting principles, the Collateral, the Obligations, and
Debtor's covenants hereunder.

                  (j) Compliance with Laws. Comply with all laws, orders, rules
and regulations applicable to Debtor of any governmental body or agency,
including without limitation, environmental and health and safety laws, orders,
rules and regulations.

                  (k) Notification of Default. Give prompt written notice to
Secured Party upon the occurrence of an Event of Default, or of any state of
facts which would constitute an Event of Default hereunder or, which, but for
the giving of notice or passage of time, or both, would constitute an Event of
Default.
<PAGE>   6
                  (l) Notification of Litigation. Give prompt written notice to
Secured Party of the commencement or threat of litigation, including arbitration
proceedings, and any proceedings before any governmental agency, or the
occurrence of any other event, which, if decided adversely to Debtor, could have
an adverse effect upon the condition, operations or prospects (financial or
otherwise) of Debtor.

                  (m) ERISA; Labor Disputes. Give prompt written notice to
Secured Party of: (i) any event which causes Debtor to become subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and, upon becoming
subject thereto, comply in all respects with ERISA; and (ii) any labor dispute
or controversy resulting or likely to result in a strike or work stoppage
against Debtor.

         8. FINANCIAL AND OTHER COVENANTS. Debtor covenants and agrees that,
from the date hereof until payment in full of the Loan and payment and
performance of all the Obligations, unless Secured Party otherwise agrees in
writing, Debtor shall:

                  (a) Encumbrances. Not create or permit to exist any lien,
mortgage, encumbrance or security interest against any of its assets, whether
now owned or hereafter acquired, except for (i) security interests in favor of
Secured Party, (ii) liens for taxes not yet due and payable, (iii) pledges or
deposits in connection with or to secure worker's compensation, unemployment or
liability insurance, and (iv) the CDA Liens.

                  (b) Limitation on Indebtedness. Not create or assume any
liability for borrowed money from any person or entity other than Secured Party
(excluding the Current CDA Debt).

                  (c) Name; Collateral. Not change Debtor's name, adopt any
trade names or conduct Debtor's business under any trade name or style other
than as shown on Exhibit B, or change Debtor's place of business or the present
location of the Collateral, or any records relating to the Collateral.

                  (d) Margin Stock. Not use any part of the proceeds of the
Loan, directly or indirectly, for the purpose of purchasing or carrying any
margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, or to extend credit to any entity or person for the
purpose of purchasing or carrying any such margin stock.

                  (e) Depository Accounts. Establish and maintain all of its
depository accounts with the Secured Party.

                  (f) Net Worth. Maintain a net worth (i.e., total assets less
total liabilities) of $500,000 or greater on an annual basis.

                  (g) Debt Service Coverage Ratio. Not permit its debt service
coverage ratio to fall below 1.2 at any time (debt service coverage ratio is
defined as annual net income plus depreciation, interest and deferred federal
income taxes divided by the annual debt service payment).

                  (h) Total Assets. Not permit its total assets to fall below
$5,000,000 at any time during the term of the Loan.

         9. PAYMENTS BY SECURED PARTY. At its option, but without any liability
for failing to do so, Secured Party may pay for insurance on the Collateral and
taxes, assessments or other charges which Debtor fails to pay in accordance with
the provisions hereof, or of the other Financing Agreements, and may discharge
any security interest in or lien upon the Collateral. No such payment or
discharge of any such security interest or lien shall be deemed to constitute a
waiver by Secured Party of the violation of any covenant hereunder by Debtor as
a result of Debtor's failure to make any such payment or Debtor's suffering of
any such security interest or lien. Any payment made, or expense incurred by
Secured Party, pursuant to this or any other Section of this Agreement shall be
added to and become a part of the Obligations, shall bear interest at the
Default Rate, and shall be charged to the Loan Account.
<PAGE>   7
         10. EVENTS OF DEFAULT. Secured Party shall have the right at its option
to terminate the Loan and/or declare any or all of the Obligations to be
immediately due and payable without notice upon the occurrence of any one of the
following events (each being an "Event of Default"):

                  (a) The failure by Debtor to pay any of the Obligations when
due, or such failure by Guarantor of any of the Obligations;

                  (b) The failure by Debtor or such Guarantor to observe,
perform or comply with any condition or covenant in this Agreement or any of the
other Financing Agreements;

                  (c) The existence of an event of default under any of the
other Financing Agreements;

                  (d) If any representation or warranty made by Debtor or
Guarantor in this Agreement or in any of the other Financing Agreements, or any
statement, certificate or other data furnished by Debtor or Guarantor in
connection with any of the Obligations proves to be incorrect or untrue in any
material respect when made;

                  (e) The entry of a judgment for the payment of money against
Debtor which remains unsatisfied and in effect for any period of thirty (30)
consecutive days without a stay of execution, or appeal;

                  (f) The insolvency of Debtor or Guarantor (the term
"insolvency" shall mean either a negative tangible net worth or an inability to
pay Debtor's or Guarantor's debts as they mature);

                  (g) The filing by or against Debtor or Guarantor of any
petition seeking an arrangement, reorganization or the like, the commencement of
any proceedings under any bankruptcy or insolvency law by or against either of
them, the adjudication of any of them as a bankrupt, the appointment of a
receiver for all or any part of their respective assets, or the making of an
assignment for the benefit of creditors, or the calling of a meeting of
creditors, or the appointment of a committee of creditors or liquidating agents,
by, for, or of either of them;

                  (h) The death, dissolution, liquidation, insolvency, or
termination of legal existence of Debtor or Guarantor, or merger or
consolidation of Debtor or Guarantor with or into any other person or entity;

                  (i) The failure by Debtor or Guarantor to pay any other
indebtedness or obligations owed to others for borrowed money (including,
without limitation, the Current CDA Debt) or if any such other indebtedness or
obligation shall be accelerated; or

                  (j) If, at any time, Secured Party believes in good faith that
the prospect of payment or performance of any of the Obligations is impaired, or
there is a change in the condition or affairs (financial, operating or
otherwise) of Debtor or any such guarantor which Secured Party believes, in good
faith, impairs its security or increases its risk,

         11. REMEDIES OF SECURED PARTY: NOTICES. When the Obligations, or any of
them, become immediately due and payable, whether by reason of passage of time,
acceleration, or otherwise, Secured Party may, in addition to and not in
limitation of Secured Party's rights set forth in Section 14 of this Agreement,
pursue any legal remedy available to it to collect the Obligations outstanding
at said time, to enforce its rights under the Financing Agreements, and to
enforce any and all other rights or remedies available to it both under the
Uniform Commercial Code of Connecticut (the "Code"), and otherwise, including,
without limitation, the right to take possession of the Collateral and dispose
of the same on Debtor's premises, all without judicial process, Debtor hereby
waiving any right Debtor might otherwise have to require Secured Party to resort
to judicial process and further waiving Debtor's right to notice and hearing
under the Constitution of the United States or any state or under any Federal or
state law, and no such action shall operate as a waiver of any other right or
remedy of Secured Party under the terms of any of the Financing Agreements, or
the law, all rights and remedies of Secured Party being cumulative and not
<PAGE>   8
alternative. In addition, Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties.

         The net cash proceeds resulting from the collection, liquidation, sale,
lease or other disposition of the Collateral shall be applied first to the
expenses (including all attorneys' fees) of retaking, holding, storing,
processing and preparing for sale, selling, collecting, liquidating and the
like, and then to the satisfaction of all Obligations, application as to
particular Obligations or against principal or interest to be in Secured Party's
sole discretion. Any notice which Secured Party is required to give Debtor under
the Code shall be deemed to constitute reasonable notice if such notice is
mailed, return receipt requested, at least seven (7) days prior to such action.
Debtor shall be liable to Secured Party and shall pay to Secured Party on demand
any deficiency which may remain after such sale, lease, disposition, collection
or liquidation of the Collateral. Debtor agrees that the powers granted
hereunder, being coupled with an interest, shall be irrevocable so long as any
of the Obligations remain outstanding.

         12. SET-OFF. Debtor hereby grants to Secured Party a lien and right of
set-off for all Obligations upon or against all moneys, deposits, property,
collateral and securities and the proceeds thereof, now or hereafter held or
received by, or in transit to, Secured Party from or for Debtor, whether for
safekeeping, pledge, custody, transmission, collection or otherwise. Secured
Party may at any time apply the same, or any part thereof, to the Obligations,
or any part thereof, whether or not matured or demanded at the time of such
application.

         13. RIGHTS OF SECURED PARTY. With respect both to the Obligations and
the Collateral, Debtor hereby consents to any extension or postponement of the
time of payment or any other indulgence, to any substitution, exchange or
release of the Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payments thereon
and the settlement, compromising or adjusting of any claims thereof, all in such
manner and at such time or times as Secured Party may deem advisable. Secured
Party shall have no duty as to the collection or protection of the Collateral or
any income thereon, nor as to the preservation of any rights against prior
parties, nor as to the preservation of any rights pertaining thereto beyond the
safe custody thereof. Secured Party may exercise its rights with respect to the
Collateral without resorting or regard to other collateral or sources of
reimbursement for the Obligations. Secured Party shall not be deemed to have
waived any of its rights under the Financing Agreements or upon or under the
Obligations or the Collateral unless such waiver is in writing and signed by
Secured Party. No delay or omission on the part of Secured Party in exercising
any right shall operate as a waiver of such right or any other right. A waiver
on any one occasion shall not be construed as a bar to or waiver of any right on
any future occasion. Secured Party may revoke any permission or waiver
previously granted to Debtor, and such revocation shall be effective whether
given orally or in writing. All rights and remedies of Secured Party with
respect to the Obligations or the Collateral, whether evidenced hereby or by any
other document, shall be cumulative and may be exercised singularly or
concurrently.

         14. GENERAL PROVISIONS.

                  (a) Expenses. Debtor shall pay on demand all expenses of
Secured Party arising out of this transaction or in connection with the
negotiation, preparation, administration, collection, defense, protection,
preservation or enforcement of, or realization on, this Agreement, the other
Financing Agreements, the Obligations, or any of the Collateral, or any waiver,
modification or amendment of any provision of any of the foregoing, including,
without limitation, attorneys' fees of outside counsel, and other professionals'
fees, and the allocation costs of in-house legal counsel, and including, without
limitation, any fees or expenses associated with any travel or other costs
relating to any appraisals, examinations, administration of this Agreement, the
other Financing Agreements or any of the Collateral, and the amounts of all such
expenses shall, until paid, be Obligations secured by the Collateral.

                  (b) Survival. This Agreement and the security interest granted
to Secured Party by Debtor and every representation, warranty, covenant and
other term contained herein shall survive until the Obligations have been paid
in full.
<PAGE>   9
                  (c) Notices. Any notice required to be given hereunder shall
be effective when delivered to an overnight mail or messenger service or
deposited in the mails, first class, postage prepaid, registered or certified
mail, return receipt requested, to Debtor or Secured Party, as the case may be,
at its address set forth above. Either of the parties hereto may notify the
other that any such notice shall be given to such other address as such party
may so instruct by written notice similarly given.

                  (d) Entire Agreement. This Agreement is the entire agreement
between the parties hereto and cannot be amended or modified except by a writing
signed by Debtor and Secured Party.

                  (e) Governing Law. This Agreement and the other Financing
Agreements shall be construed in accordance with and governed by the laws of the
State of Connecticut. Debtor hereby consents to service of process, and to be
sued, in the State of Connecticut and consents to the jurisdiction of the courts
of the State of Connecticut and the United States District Court for the
District of Connecticut, for the purpose of any suit, action, or other
proceeding arising hereunder, and expressly waives any and all objections it may
have to venue in any such courts.

                  (f) Headings. Sections and subsection headings have been
inserted herein for convenience only and form no part of this Agreement and
shall not be deemed to affect the meaning or construction of any of the
covenants, agreements, conditions or terms hereof.

                  (g) Severability. If any term or provision of this Agreement
shall be invalid, illegal or unenforceable for any reason whatsoever, such term
or provision shall be severable from the remainder of this Agreement and the
validity, legality and enforceability of the remaining terms and provisions
shall not in any way be affected or impaired thereby.

                  (h) Binding. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns provided, however, that Debtor may not
assign its rights hereunder without the prior written consent of Secured Party
in its sole discretion, and any such attempted assignment without such consent
shall be null and void. If Debtor consists of more than one person or entity,
they shall be jointly and severally liable for all obligations herein contained.

                  (i) Interpretation. As used herein, plural or singular include
each other, and pronouns of any gender are to be construed as masculine,
feminine or neuter, as context requires.

         16. PREJUDGMENT REMEDY WAIVER; WAIVERS. DEBTOR AND GUARANTOR
ACKNOWLEDGE THAT THE LOAN EVIDENCED AND SECURED BY THIS AGREEMENT IS A
COMMERCIAL TRANSACTION AND DEBTOR AND GUARANTOR HEREBY WAIVE THEIR RIGHTS TO
NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS
OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT
REMEDY WHICH SECURED PARTY MAY DESIRE TO USE, and further, Debtor and Guarantor
waive diligence, demand, presentment for payment, notice of nonpayment, protest
and notice of protest, and notice of any renewals or extensions of the Note or
Guarantor's guaranty, and all rights under any statute of limitations.

         17. WAIVER OF JURY TRIAL. DEBTOR AND GUARANTOR HEREBY WAIVE TRIAL BY
JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN
CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH
THIS AGREEMENT IS A PART AND/OR THE ENFORCEMENT OF ANY OF SECURED PARTY'S RIGHTS
AND REMEDIES. DEBTOR AND GUARANTOR ACKNOWLEDGE THAT THEY MAKE THIS WAIVER
KNOWINGLY, VOLUNTARILY AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH THEIR ATTORNEYS. NO PARTY TO THIS AGREEMENT
HAS AGREED WITH OR REPRESENTED TO ANY OTHER PARTY HERETO THAT THE PROVISIONS OF
THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
<PAGE>   10
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.

BORROWER:
THE CRYSTAL WATER COMPANY OF DANIELSON

By:

Roger Engle
Its President

GUARANTOR:
CRYSTAL WATER UTILITIES CORPORATION

By:

Roger Engle
Its President

NEW LONDON TRUST, F.S.B.

By:

Brian P. McNamara
Its Vice President
<PAGE>   11
                                    EXHIBIT A

                          ATTACH COPY OF MORTGAGE NOTE
<PAGE>   12
                                  MORTGAGE NOTE

$2,700,00.00                                              Danielson, Connecticut
                                                                February 9, 1996

         FOR VALUE RECEIVED, the undersigned THE CRYSTAL WATER COMPANY OF
DANIELSON, a public service company specially chartered by the General Assembly
of the State of Connecticut ("Maker"), promises to pay to the order of NEW
LONDON TRUST, F.S.B., a federal savings bank organized under the laws of the
United States of America having its principal place of business in Danielson,
Connecticut ("Payee"), or any subsequent holder hereof (Payee or any subsequent
holder hereof sometimes being hereinafter referred to as "Holder"), at the
office of Payee at 203 Main Street, Danielson, Connecticut 06293, or at such
other place as Holder may designate from time to time in writing, the principal
sum of TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS ($2,700,000.00), together
with: (i) interest at the rate and in the manner hereinafter provided; (ii) all
amounts which may be or become due under the Mortgage (as hereinafter defined)
or under any other document securing the indebtedness evidenced by this Note;
(iii) all costs and expenses, including reasonable attorneys' and appraisers'
fees, incurred in collecting or attempting to collect the indebtedness evidenced
by this Note, or in foreclosing or otherwise enforcing the Mortgage or
protecting or sustaining the lien of the Mortgage or in any litigation or
controversy arising from or connected with this Note or the Mortgage; and (iv)
all taxes and duties assessed upon the indebtedness evidenced by this Note or by
the Mortgage or upon the Property (as hereinafter defined). Refer to paragraph
17 for defined terms.

         1. This Note shall bear interest on the unpaid balance at a rate to be
determined as follows:

                  (a) Until the first Adjustment Date, the interest rate shall
                  be eight percent (8%) per annum.

                  (b) The interest rate during each Adjustment Period shall be a
                  fixed rate per annum equal to the Index Rate less one quarter
                  of one percentage point (.25%) as determined on the Adjustment
                  Date which is the first day of such Adjustment Period;
                  provided, however, the interest rate for any Adjustment Period
                  shall not exceed 11.25% per annum for that particular
                  Adjustment Period.

         2. Principal and interest shall be due and payable, with interest
payable in arrears, in monthly installments as follows:

                  (a) Payments in the amount of $25,802.61 shall be due and
                  payable on the first (1st) day of the month immediately
                  following the date of this Note and on the first day of each
                  and every month thereafter through and including the first
                  Adjustment Date; provided, however, that if this Note is dated
                  after the first day of a month, the interest that would accrue
                  through the end of such month shall be payable in advance on
                  the date of this Note, and, in that event, the monthly
                  installments referred to above shall commence on the first day
                  of the second month following the date of this Note through
                  and including the first Adjustment Date.

                  (b) Beginning with the first monthly payment due and payable
                  after each Adjustment Date, monthly payments hereunder shall
                  be adjusted to the amount that would fully amortize the
                  then-outstanding principal balance at the adjusted interest
                  rate then in effect in equal payments over a period of fifteen
                  years from the date of the first payment due hereunder.
                  Payments of such amounts shall be due and payable on the first
                  day of the month immediately following the first Adjustment
                  Date and on the first day of each and every month thereafter
                  until the entire principal balance of the indebtedness
                  evidenced by this Note and all interest and other amounts from
                  time to time payable hereunder shall have been paid in full;

                  (c) Provided, however, that, if not sooner paid, all amounts
                  owing under this Note shall be due and payable in full on
                  April 1, 2011.
<PAGE>   13
         3. Maker may prepay the indebtedness evidenced by this Note, in full,
at any time, subject to the concurrent payment to Holder of an amount equal to
the Prepayment Premium; provided, however, that any prepayment in full of the
then outstanding principal balance of this Note after the Reference Date shall
not be subject to payment of the Prepayment Premium. Amounts so prepaid shall be
applied to interest and other charges accrued under this Note to the date
prepayment shall have been received by Holder and then to principal, in the
inverse order of the installments of principal payable under this Note. If the
maturity of this Note shall be accelerated for any reason, then a tender of
payment by Maker, or by anyone on behalf of Maker, of the amount necessary to
satisfy all sums due hereunder shall constitute an evasion of the payment terms
hereof and shall be deemed to be a voluntary prepayment under this Note, and any
such prepayment, to the extent permitted by law, shall require the concurrent
payment to Holder of the aforesaid Prepayment Premium.

         4. All amounts owing under this Note shall be payable in legal tender
of the United States of America. Interest shall be calculated on the daily
unpaid principal balance of the indebtedness evidenced by this Note on the basis
of a three hundred sixty (360) day year, provided that interest shall be due for
the actual number of days elapsed during the period for which interest is being
charged. Each payment hereunder shall be applied first to the payment of late
charges, if any, then to interest and the balance to principal.

         5. Any payment under this Note which is stated to be due on a day other
than a "Business Day" (a day on which banks are open for business in
Connecticut) shall be made on the next succeeding Business Day, and any such
extension of time shall be included in the computation of the amount of interest
to be paid; provided, however, that, if any such extension would cause any
payment to be payable in the next following calendar month, such payment shall
be made on the next preceding Business Day.

         6. It shall be an Event of Default hereunder if Maker shall fail to
make any payment hereunder when due or if any "Event of Default" (as defined in
the Mortgage) shall occur. If an Event of Default or any other cause for
acceleration of the indebtedness evidenced by this Note shall occur, then, at
the option of Holder, all amounts remaining unpaid under this Note shall
immediately become due and payable. The failure to exercise any such option or
any other rights hereunder or any delay in such exercise, shall not constitute a
waiver of the right to exercise such option or such other right at a later time
so long as such Event of Default shall remain uncured, and shall not constitute
a waiver of the right to exercise such option or other right in the event of any
other Event of Default. The acceptance by Holder of payment of any sum payable
hereunder after the due date of such payment shall not be a waiver of Holder's
right either to require prompt payment when due of all other sums payable
hereunder or to declare a default for failure to make prompt payment in full.

         7. Upon the occurrence of any Event of Default, or upon maturity hereof
(by acceleration or otherwise), the outstanding principal balance of the
indebtedness evidenced by this Note shall, at the option of Holder, bear
interest from the date of occurrence of such Event of Default or such maturity
until collection (including any period of time occurring after judgment), at the
lower of (a) the highest rate allowed by applicable law, or (b) four percent
(4%) in excess of the interest rate that otherwise would have been in effect
under this Note. If Holder shall not receive the full amount of any payment due
under the terms of this Note or the Mortgage within ten (10) days after the due
date of such payment, then Maker shall pay to Holder, upon demand, a late charge
equal to five percent (5%) of the total amount of such payment, to cover the
additional expenses involved in handling such overdue payment. Such charge shall
be in addition to, and not in lieu of, any other remedy Holder may have and
shall be in addition to, and not in lieu of, Maker's obligation to pay any
reasonable fees and charges of any agents or attorneys employed by Holder in the
event of any default hereunder.

         8. 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) all
renewals, extensions or modifications of this Note or the Mortgage (including
any affecting the time of payment), (ii) all advances under this Note or the
Mortgage, (iii) the release, surrender, exchange or substitution of all or any
part of the security for the
<PAGE>   14
indebtedness evidenced by this Note, or the taking of any additional security,
(iv) 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 (v) the granting of any other indulgences to any such person.
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 affect
the liability of any such person.

         9. 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 (other
than the Property), now or hereafter in the possession or control of Holder or
in transit to it. Holder may at any time apply the same, or any part thereof, to
any liability of Maker or any such other person, whether matured or unmatured.

         10. 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 acknowledge that the transaction of
which this Note is a part is a commercial transaction, and to the extent allowed
under Connecticut General Statutes Sections 52-278a to 52-278n, inclusive, or
by other applicable law, hereby waive their right to notice and hearing with
respect to any prejudgment remedy which holder or its successors or assigns may
desire to use.

         11. If any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part, or
in any respect, or if any one or more of the provisions of this Note shall
operate, or would prospectively operate, to invalidate this Note, then such
provision or provisions only shall be deemed to be null and void and of no force
or effect and shall not affect any other provision of this Note, and the
remaining provisions of this Note shall remain operative and in full force and
effect, shall be valid, legal and enforceable, and shall in no way be affected,
prejudiced or disturbed thereby.

         12. This Note may not be modified or terminated orally, but only by a
written instrument signed by the party against whom enforcement of any such
modification or termination is sought. Time is and shall be of the essence in
the performance of all obligations under this Note. This Note shall be governed
by and construed in accordance with the laws of the State of Connecticut.

         13. 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.

         14. 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.

         15. Each adjustment in the interest rate on this Note pursuant to
paragraph 1 (b) hereof shall take effect automatically on the applicable
Adjustment Date. Holder shall use reasonable efforts to mail to Maker, within
ten (10) days after each Adjustment Date, written notice (the "Adjustment
Notice") specifying the interest rate at which this Note will bear interest from
and after the applicable Adjustment Date and specifying the amount of each
monthly installment that will be payable from and after such Adjustment Date.
Notwithstanding the foregoing, Maker shall not be relieved of any obligations
under the terms of this Note in the event of any failure of Holder to mail an
Adjustment Notice, or any failure of Holder to mail an Adjustment Notice in a
timely or proper manner, or any failure of Maker to receive an Adjustment
Notice, or the presence of any error or errors in an Adjustment Notice.
<PAGE>   15
         16. The indebtedness evidenced by this Note is secured by, among other
things, a blanket mortgage of even date herewith (the "Mortgage"), delivered to
Holder encumbering certain real estate and properties located in the Towns of
Killingly, Brooklyn, Plainfield and Thompson, respectively, (collectively, the
"Property"), more particularly described in the Mortgage. The Mortgage is
incorporated herein by reference and shall be deemed a part of this Note as if
set forth in full herein.

         17. As used in this Note, the following terms shall have the following
meanings:

         (a) "Index Rate" on any Adjustment Date shall mean the prime rate as
         published in the "Money Rates" table of the Wall Street Journal. If
         more than one prime rate is published in the "Money Rates" table, the
         highest of those rates will be the Prime Rate for purposes of this
         Note. If the Wall Street Journal ceases to publish a "Money Rates"
         table, or if a prime rate is no longer included in the rates published
         therein, Holder will designate a comparable index. The selection of a
         comparable index shall be made in Holder's sole discretion. If interest
         hereunder is computed in relation to the Prime Rate, then as said Prime
         Rate changes from time to time, the interest rate hereunder shall
         change correspondingly on the date of each Prime Rate change, without
         notice or demand of any kind.

         (b) "Reference Date" shall mean April 1, 2003.

         (c) "Adjustment Date" shall mean the date each year, following the
         Reference Date, which is the anniversary of the Reference Date.

         (d) "Adjustment Period" shall mean the one-year period commencing on
         each Adjustment Date.

         (e) "Prepayment Premium" shall mean the payment by Maker of an amount
         equal to (1) 5% of the then outstanding balance hereof, if paid during
         the first year of the loan evidenced by this Note (the "Loan"), (2) 4%
         of the then outstanding balance hereof, if paid during the second year
         of the Loan, (3) 3% of the then outstanding balance hereof, if paid
         during the third year of the Loan, (4) 2% of the then outstanding
         balance hereof, if paid during the fourth year of the Loan, and (5) 1%
         of the then outstanding balance hereof, if paid during the fifth year
         through and including the seventh year of the Loan.

THE CRYSTAL WATER COMPANY OF DANIELSON

By:

Roger Engle
Its President
<PAGE>   16
                                    EXHIBIT B

Description of Financing Statements, Liens, Mortgages and other Encumbrances
(See Section 6(c)):

Previously furnished to and disclosed to the Secured Party.

Tradenames (See Sections 6(j) and 8(h)):

None

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