Document:

<PAGE>   1
                                                                   EXHIBIT 10.28

                               CONSENT AND WAIVER

Indianapolis Life Insurance Company
c/o AmerUs Capital Management
699 Walnut Street, Suite 1700
Des Moines, IA  50309-3945
Attention:  Tamara Harmon
            Director - Private Placements

         Consent and Waiver dated as of December 21, 2000, by Indianapolis Life
Insurance Company (the "Holder"), in favor of Barnstable Water Company, a
Massachusetts corporation (the "Company"), Barnstable Holding Co., Inc., a
Delaware corporation (the "Guarantor") and Connecticut Water Service, Inc., a
Connecticut corporation ("CWS").

         Reference is made to the following:

         a.       The Note Agreement dated as of February 15, 1991 (the "Note
Agreement") between the Holder and the Company, as amended as of the date
hereof; and

         b.       The Guaranty Agreement dated as of February 15, 1991 as
amended as of the date hereof (the "Guaranty") from the Guarantor to the holders
of $2,000,000 10.2% Senior Notes due February 15, 2001 (the "Notes"), issued
under the Note Agreement.

         Capitalized terms used but not defined herein shall have the meanings
assigned in the Note Agreement or the Guaranty, as the case may be.

         The parties hereto agree as follows:

         1.       Solely in connection with the proposed merger (the "Merger")
of the Guarantor with and into CWS Barnstable Acquisition Corp. ("New
Barnstable"), a Connecticut corporation and wholly-owned subsidiary of CWS,
pursuant to an Agreement and Plan of Merger dated as of October 4, 2000 (the
"Merger Agreement") among CWS, the Guarantor and New Barnstable, and in
consideration of the payment to you on the date hereof of the hereinafter
defined Waiver Fee by CWS, by signing this Consent and Waiver the Holder hereby
waives, subject to the satisfaction of the conditions set forth in Section 2
hereof, the Company's compliance with Section 2.3 of the Note Agreement, and the
Guarantor's compliance with Section 8 of the Guaranty Agreement, in each case
insofar as compliance therewith is required as a result, or in contemplation, of
the Merger and regardless of whether or not the Merger is actually consummated,
and with Section 7.7(2) of the Guaranty Agreement.

         2.       The Holder's waiver and consent in Section 1 hereof is subject
to the following conditions;

                  (a)      payment by CWS on the date hereof to the Holder of
the irrevocable waiver and consent fee of $80,000, to be retained by the Holder
whether or not the Merger is consummated (the "Waiver Fee").
<PAGE>   2
                  (b)      the due execution and delivery by CWS to the Holder
on the effective date of the Merger of (i) a new Guaranty Agreement in the form
of Exhibit A hereto (or with such changes therein as may be agreed to in writing
by CWS and the Holder)( the "CWS Guaranty"); and (ii) a Second Amendment to Note
Agreement in the form of Exhibit B hereto (or with such changes therein as may
be agreed in writing by CWS and the Holder) (the "Second Amendment"). If the
remaining conditions in this Section 2 are satisfied, the Holder agrees to
contemporaneously accept the CWS Guaranty and duly execute and deliver the
Second Amendment.

                  (c)      (i) compliance by CWS with each condition set forth
in Section 7.7(2) of the Guaranty (without duplication of satisfaction of the
requirements of the next following clause (ii),(ii) delivery by CWS to the
Holder on the effective date of the Merger of a copy of the resolutions of the
Board of Directors of CWS expressly authorizing the execution, delivery and
performance by CWS of the CWS Guaranty, duly certified by its Secretary or an
Assistant Secretary;

                  (d)      delivery of an opinion of independent counsel to CWS
to the Holder on the effective date of the Merger with respect to the due
organization of CWS, the due authorization, execution, delivery and
enforceability of the CWS Guaranty, the absence of the necessity of any consent
or approval of any regulatory body with respect to the CWS Guaranty and the
absence of any conflict between the execution and delivery of the CWS Guaranty
and any applicable written agreement of CWS; and

                  (e)      the consummation of the Merger on or prior to May 31,
2001.

         3.       Effective upon compliance with the requirements of Section 2
hereof, the Guaranty shall be void and of no force or effect.

         4.       If the conditions precedent set forth in Section 2 hereof are
not met or if the Merger is not consummated for any reason, this Consent and
Waiver shall have no force and effect; provided, however, that the Company and
the Guarantor shall be deemed in all events to have complied in full with the
notice and offer requirements of Section 2.3 of the Note Agreement and Section 8
of the Guaranty Agreement in connection with the Merger. Nothing contained in
this Consent and Waiver shall be deemed or construed to constitute a consent to
the consummation of the Merger if for any reason whatsoever any of the
conditions set forth in Section 2 hereof have not been satisfied.

         5.       CWS hereby agrees to pay in full the fees and expenses of
special counsel to the Holder in connection with the preparation of this Waiver
and related documents, no later than ten (10) business days after submission of
an invoice from said special counsel.

         6.       Without limiting the foregoing, and assuming the effectiveness
of this Consent and Waiver, the Guarantor and the Company jointly and severally
represent to the Holder that, as of the date hereof, no Default or Event of
Default has occurred and is continuing.

         7.       This letter agreement may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties, the

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Company, the Guarantor and their respective successors and assigns, including as
such successors and assigns all holders of the Notes.

         8.       The Holder represents that it owns 100% of the outstanding
Notes.

         9.       This letter agreement shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.

         If the foregoing is in accordance with your understanding, please sign
this letter in the space indicated below and return it to us at your earliest
convenience, whereupon this letter will become a binding agreement among the
parties.

                                      -3-
<PAGE>   4

                                                 Very truly yours,

                                                 BARNSTABLE HOLDING CO., INC.

                                                 By: /s/ George D. Wadsworth
                                                     ---------------------------
                                                     Title:  President

                                                 BARNSTABLE WATER COMPANY

                                                 By: /s/ George D. Wadsworth
                                                     ---------------------------
                                                     Title:  President
The foregoing is hereby agreed to and accepted:

INDIANAPOLIS LIFE INSURANCE COMPANY

By AmerUs Capital Management, as
authorized agent

By: /s/ Roger Fors
    ------------------------------------------
    Title:  Vice President Investment
Management and Research

The foregoing is hereby agreed to and accepted.

CONNECTICUT WATER SERVICE, INC.

By: /s/ Marshall T. Chiaraluce
    ------------------------------------------
    Title:  President and Chief Executive Officer

                                      -4-
<PAGE>   5
                                                                       EXHIBIT A

     =======================================================================

                               GUARANTY AGREEMENT

                         Dated as of ____________, 200_

                                       of

                         CONNECTICUT WATER SERVICE, INC.

     =======================================================================

                        Re: $2,000,000 10.2% Senior Notes

                                       of

                            Barnstable Water Company
<PAGE>   6
                             TABLE OF CONTENTS

                                                                            PAGE

SECTION 1.  GUARANTEE..........................................................1
SECTION 2.  PAYMENT UPON CERTAIN EVENTS........................................1
SECTION 3.  WAIVERS; OBLIGATION UNCONDITIONAL..................................2
SECTION 4.  COLLECTION EXPENSES................................................3
SECTION 5.  NO SUBROGATION UNTIL PAYMENT IN FULL...............................3
SECTION 6.  REPRESENTATIONS AND WARRANTIES.....................................3
SECTION 7.  GUARANTOR COVENANTS................................................3
SECTION 8.  REQUIRED PURCHASE OF NOTES ON GUARANTOR CHANGE OF CONTROL.........14
SECTION 9.  DEFINITIONS.......................................................15
SECTION 10. JURISDICTION AND SERVICE IN RESPECT OF GUARANTOR..................18
SECTION 11. SUCCESSORS AND ASSIGNS............................................19
SECTION 12. NOTICES...........................................................19
SECTION 13. GOVERNING LAW.....................................................19
SECTION 14. AMENDMENTS, WAIVERS AND CONSENTS..................................19

                                      -i-
<PAGE>   7
                               GUARANTY AGREEMENT

         AGREEMENT dated as of _________________, 200_ by Connecticut Water
Service, Inc., a Connecticut corporation (the "Guarantor").

                            RECITALS OF THE GUARANTOR

                  A.       The Guarantor owns 100% of the outstanding shares of
common stock of Barnstable Holding Company, a Massachusetts corporation (the
"Prior Guarantor") which, in turn, owns ___% of the outstanding shares of common
stock of Barnstable Water Company, a Massachusetts corporation (the "Company").

                  B.       The Company entered into a Note Agreement dated as of
February 15, 1991 (the "Note Agreement") with Indianapolis Life Insurance
Company (the "Note Purchaser") providing for the sale by the Company of its
$2,000,000 principal amount 10.2% Senior Notes due February 15, 2011 (the
"Notes").

                  C.       Capitalized terms used but not defined herein shall
have the meanings assigned in the Note Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and to give effect to the terms of the Consent and
Waiver dated as of November __, 2000 by Indianapolis Life Insurance Company (the
"Holder") in favor of the Company, the Prior Guarantor and the Guarantor and to
induce every future holder of the Notes to purchase the Notes, it is hereby
agreed as follows:

SECTION 1.        GUARANTEE.

         The Guarantor hereby unconditionally guarantees to each holder of any
Note (collectively "Noteholders" and individually a "Noteholder") (1) the due
and punctual payment at maturity, whether at stated maturity, by acceleration,
by notice of prepayment or otherwise, of the principal of and premium, if any,
and interest on the Notes in accordance with the terms and conditions thereof
and of the Note Agreement, and (2) the prompt performance and compliance by the
Company with each of its other obligations under the Note Agreement.

SECTION 2.        PAYMENT UPON CERTAIN EVENTS.

         The Guarantor agrees that, if any of the following events occurs, i.e.,

                  (a)      the entry of a decree or order by a court having
         jurisdiction in the premises for relief under any bankruptcy or similar
         law or laws for the relief of debtors in respect of the Guarantor, or
         adjudging the Guarantor a bankrupt or insolvent, or approving as
         properly filed a petition seeking reorganization, adjustment or
         composition of or in respect of the Guarantor under the Federal
         Bankruptcy Code or any other applicable
<PAGE>   8
         Federal or state law, or appointing a custodian, receiver, liquidator,
         assignee, trustee, sequestrator (or other similar official) of or for
         the Guarantor or any substantial part of its property, or ordering the
         winding up or liquidation of its affairs, and the continuance of any
         such decree or order unstayed and in effect for a period of 60
         consecutive days; or

                  (b)      the commencement by the Guarantor of a voluntary
         case, or the institution by it of proceedings to be adjudicated a
         bankrupt or insolvent, or the consent by it to the institution of
         bankruptcy or insolvency proceedings against it, or the filing by it of
         a petition or answer or consent seeking reorganization, arrangement or
         relief under the Federal Bankruptcy Code or any other applicable
         Federal or state law, or the consent or acquiescence by it to the
         filing of any such petition or to the appointment of or taking
         possession by a custodian, receiver, liquidator, assignee, trustee,
         sequestrator (or other similar official) of the Guarantor or any
         substantial part of its property, or the making by it of an assignment
         for the benefit of creditors, or the admission by it in writing of its
         inability or its failure to pay its debts generally as they become due,
         or the taking of corporate action by the Guarantor in furtherance of
         any such action;

the Guarantor will forthwith pay to the Noteholders, without demand or notice
and whether or not there has been any other default under the Note Agreement or
the Notes, the whole amount of the principal of the Notes then outstanding and
any unpaid interest thereon, and, to the extent not prohibited by applicable
law, an amount as liquidated damages for the loss of the bargain evidenced
hereby (and not as a penalty) equal to the Make Whole Amount.

SECTION 3.        WAIVERS; OBLIGATION UNCONDITIONAL.

         The Guarantor assents to all the terms, covenants and conditions of the
Notes and the Note Agreement, and irrevocably waives presentation, demand for
payment, or protest, of any of the Notes, any and all notice of any such
presentation, demand or protest, notice of any Default or Event of Default under
the Note Agreement, notice of acceptance of this guarantee or of the terms and
provisions hereof by any Noteholder, any requirement of diligence or promptness
on the part of any Noteholder in the enforcement of rights under the provisions
hereof, of the Note Agreement or of the Notes, or any right to require any
Noteholder to proceed first against the Company. The obligations of the
Guarantor hereunder shall be unconditional irrespective of the genuineness,
validity, regularity or enforceability of the Note Agreement or of the Notes or
of any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor. The obligations of the Guarantor hereunder
shall not be affected by:

                  (a)      the recovery of any judgment against the Company, or
         by the levy of any writ or process of execution under any such
         judgment, or by any action or proceeding taken by any Noteholder,
         either under the Notes or under the Note Agreement for the enforcement
         thereof, or hereof, or in the exercise of any right or power given or
         conferred thereby, or hereby, or

                  (b)      any delay, failure or omission upon the part of any
         Noteholder to enforce any of the rights or powers given or conferred
         hereby or by the Note Agreement, or by any delay, failure or omission
         upon the part of any Noteholder to enforce any right of any Noteholder
         against the Company, or by any action by any Noteholder in granting

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<PAGE>   9
         indulgence to the Company, or in waiving or acquiescing in any Default
         or Event of Default upon the part of the Company under the Notes or
         under the Note Agreement, or

                  (c)      the consolidation or merger of the Company with or
         into any other corporation or corporations or any sale, lease or other
         disposition of the Company's properties as an entirety or substantially
         as an entirety to any other corporation, or

                  (d)      any other act or delay or failure to act, or by any
         other thing, which may or might in any manner or to any extent vary the
         risk of the Guarantor hereunder;

it being the purpose and intent of the parties hereto that the obligations of
the Guarantor hereunder shall be absolute and unconditional under any and all
circumstances, and shall not be discharged except by payment as herein provided,
and then only to the extent of such payment or payments.

SECTION 4.        COLLECTION EXPENSES.

                  In the event that the Guarantor shall be required to make any
payment to any Noteholder pursuant to this Agreement, it shall, in addition to
such payment, pay to such Noteholder such further amount as shall be sufficient
to cover the costs and expenses of collection, including a reasonable
compensation to attorneys, and any expenses or liabilities incurred by any
Noteholder hereunder. The covenants contained in this Agreement may be enforced
by any Noteholder.

SECTION 5.        NO SUBROGATION UNTIL PAYMENT IN FULL.

                  No payment by the Guarantor pursuant to the provisions hereof
to any Noteholder shall entitle the Guarantor, by subrogation to the rights of
the holders of the Notes in respect of which such payment is made or otherwise,
to any payment by the Company or out of the property of the Company, except
after payment in full of the entire principal of and premium, if any, and
interest on the Notes, or provision for such payment satisfactory to the holders
of the Notes.

SECTION 6.        REPRESENTATIONS AND WARRANTIES.

                  The Guarantor represents and warrants that all representations
set forth in the form of Closing Certificate of the Guarantor attached hereto as
Schedule A are true and correct as of the date hereof.

SECTION 7.        GUARANTOR COVENANTS.

                  From and after the date hereof and continuing so long as any
amount remains unpaid on any Note:

                  7.1      Corporate Existence, Etc. The Guarantor will preserve
and keep in full force and effect, and will cause each Significant Subsidiary to
preserve and keep in full force and effect, its corporate existence and all
licenses, permits and franchises necessary to the proper

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<PAGE>   10
conduct of its business, provided that the foregoing shall not prevent any
transaction permitted by Section 7.7.

                  7.2      Taxes, Claims for Labor and Materials, Compliance
with Laws. The Guarantor will promptly pay and discharge, and will cause each
Significant Subsidiary promptly to pay and discharge, all lawful taxes,
assessments and governmental charges or levies imposed upon the Guarantor or
such Significant Subsidiary, respectively, or upon or in respect of all or any
part of the property or business of the Guarantor or such Significant
Subsidiary, all trade accounts payable in accordance with usual and customary
business terms, and all claims for work, labor or materials, which if unpaid
might become a Lien upon any property of the Guarantor or such Significant
Subsidiary; provided the Guarantor or such Significant Subsidiary shall not be
required to pay any such tax, assessment, charge, levy, account payable or claim
if (i) the validity, applicability or amount thereof is being contested in good
faith by appropriate actions or proceedings which will prevent the forfeiture or
sale of any property of the Guarantor or such Significant Subsidiary or any
material interference with the use thereof by the Guarantor or such Significant
Subsidiary, and (ii) the Guarantor or such Significant Subsidiary shall set
aside on its books, reserves deemed by it to be adequate with respect thereto.
The Guarantor will promptly comply and will cause each Significant Subsidiary to
promptly comply with all laws, ordinances or governmental rules and regulations
to which it is subject including, without limitation, the Occupational Safety
and Health Act of 1970, as amended, ERISA and all laws, ordinances, governmental
rules and regulations relating to environment, protection in all applicable
jurisdictions, the violation of which could materially and adversely affect the
properties, business, prospects, profits or condition of the Guarantor and its
Significant Subsidiaries or would result in any Lien not permitted under Section
7.4.

                  7.3      Limitations on Current Debt and Funded Debt. (a) The
Guarantor will not, and will not permit CWC or any Significant Subsidiary to,
create, assume or incur or in any manner become liable in respect of any Current
Debt or Funded Debt, except:

                           (1)      unsecured Funded Debt and Funded Debt
                  secured by Liens permitted by Section 7.4(g), provided that at
                  the time of issuance thereof and after giving effect thereto
                  and to the application of the proceeds thereof:

                                    (i)      the aggregate of all Group Funded
                           Debt and Group Current Debt shall not exceed 65% of
                           the sum of Total Capitalization plus Consolidated
                           Current Debt;

                                    (ii)     the Net Income Available for Fixed
                           Charges in any consecutive 12 of the 15 calendar
                           months immediately preceding any date of
                           determination thereof shall have equaled at least
                           175% of Pro Forma Fixed Charges; and

                                    (iii)    CWC would be permitted to incur
                           $1.00 of additional Funded Debt under the provisions
                           of Section 7.3(b)(1) of this Agreement.

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<PAGE>   11
                           (2)      any refinancing of Funded Debt issued and
                  outstanding pursuant to Section 7.3(a)(1) (without increase in
                  principal amount from the amount outstanding on the date of
                  such refinancing);

                           (3)      unsecured Current Debt, provided that at the
                  time of issuance thereof and after giving effect thereto and
                  to the application of the proceeds thereof:

                                    (i)      the aggregate of all Group Funded
                           Debt and Group Current Debt shall not exceed 65% of
                           the sum of Total Capitalization plus Consolidated
                           Current Debt; and

                                    (ii)     CWC would be permitted to incur
                           $1.00 of additional Current Debt under the provisions
                           of Section 7.3(b)(3) of this Agreement;

                           (4)      Current Debt or Funded Debt of CWC or a
                  Significant Subsidiary to the Guarantor or to a Wholly-owned
                  Significant Subsidiary.

                  (b)      The Guarantor will not permit CWC to create, assume
         or incur or in any manner become liable in respect of any Current Debt
         or Funded Debt, except:

                           (1)      Funded Debt of CWC, provided, that at the
                  time of issuance thereof and after giving effect thereto and
                  to the application of the proceeds thereof:

                                    (i)      the aggregate of all Funded Debt of
                           CWC and Current Debt of CWC shall not exceed 65% of
                           the sum of Total Capitalization plus aggregate
                           Current Debt of CWC; and

                                    (ii)     the Guarantor would be permitted to
                           incur $1.00 of additional Funded Debt under the
                           provisions of Section 7.3(a)(1) of this Agreement;

                           (2)      Any refinancing of Funded Debt of CWC issued
                  and outstanding pursuant to Section 7.3(b)(1) (without
                  increase in principal amount from the amount outstanding on
                  the date of such refinancing);

                           (3)      unsecured Current Debt of CWC, provided that
                  at the time of issuance thereof and after giving effect
                  thereto and to the application of the proceeds thereof:

                                    (i)      the aggregate of all Funded Debt of
                           CWC and Current Debt of CWC shall not exceed 65% of
                           the sum of Total Capitalization plus aggregate
                           Current Debt of CWC, and

                                    (ii)     the Guarantor would be permitted to
                           incur $1.00 of additional Current Debt under the
                           provisions of Section 7.3(a)(3) of this Agreement,
                           and

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<PAGE>   12
                           (4)      Current Debt or Funded Debt of CWC to the
                  Guarantor or to a Wholly-owned Significant Subsidiary

                  (c)      Any corporation which becomes a Significant
         Subsidiary after the date hereof shall for all purposes of this Section
         7.3 be deemed to have created, assumed or incurred at the time it
         becomes a Significant Subsidiary all Funded Debt of such corporation
         existing immediately after it becomes a Significant Subsidiary.

                  7.4      Limitation on Liens. The Guarantor will not, and will
not permit any Significant Subsidiary to, create or incur, or suffer to be
incurred or to exist, any Lien on its or their property or assets, whether now
owned or hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to the payment of
obligations in priority to the payment of its or their general creditors, or
acquire or agree to acquire, or permit any Significant Subsidiary to acquire,
any property or assets upon conditional sales agreements or other title
retention devices, except:

                  (a)      Liens for property taxes and assessments or
         governmental charges or levies and Liens securing claims or demands of
         mechanics and materialmen, provided that payment thereof is not at the
         time required by Section 7.2;

                  (b)      Liens of or resulting from any judgment or award, the
         time for the appeal or petition for rehearing of which shall not have
         expired, or in respect of which the Guarantor or a Significant
         Subsidiary shall at any time in good faith be prosecuting an appeal or
         proceeding for a review and in respect of which a stay of execution
         pending such appeal or proceeding for review shall have been secured;

                  (c)      Liens incidental to the conduct of business or the
         ownership of properties and assets (including Liens in connection with
         worker's compensation, unemployment insurance and other like laws,
         warehousemen's and attorneys' liens and statutory landlords' liens) and
         Liens to secure the performance of bids, tenders or trade contracts, or
         to secure statutory obligations, surety or appeal bonds or other Liens
         of like general nature incurred in the ordinary course of business and
         not in connection with the borrowing of money, provided in each case,
         the obligation secured is not overdue or, if overdue, is being
         contested in good faith by appropriate actions or proceedings;

                  (d)      minor survey exceptions or minor encumbrances,
         easements or reservations, or rights of others for rights-of-way,
         utilities and other similar purposes, or zoning or other restrictions
         as to the use of real properties which are necessary for the conduct of
         the activities of the Guarantor and its Significant Subsidiaries or
         which customarily exist on properties of corporations engaged in
         similar activities and similarly situated and which do not in any event
         materially impair their use in the operation of the business of the
         Guarantor and its Significant Subsidiaries;

                  (e)      Liens securing Indebtedness of a Significant
         Subsidiary to the Guarantor or to another Significant Subsidiary;

                  (f)      Liens existing as of _____________, 200_ and
         reflected on Schedule B attached hereto; and

                                      -6-
<PAGE>   13
                  (g)      Liens incurred after the First Closing Date given to
         secure the payment of the purchase price incurred in connection with
         the acquisition of fixed assets useful and intended to be used in
         carrying on the business of the Guarantor or a Significant Subsidiary,
         including Liens existing on such fixed assets at the time of
         acquisition thereof or at the time of acquisition by the Guarantor or a
         Significant Subsidiary of any business entity then owning such fixed
         assets, whether or not such existing Liens were given to secure the
         payment of the purchase price of the fixed assets to which they attach
         so long as they were not incurred, extended or renewed in contemplation
         of such acquisition, provided that (i) the Lien shall attach solely to
         the fixed assets acquired or purchased; (ii) at the time of acquisition
         of such fixed assets, the aggregate amount remaining unpaid on all
         Indebtedness secured by Liens on such fixed assets whether or not
         assumed by the Guarantor or a Significant Subsidiary shall not exceed
         an amount equal to 65% (or 100% in the case of Capitalized Leases) of
         the lesser of the total purchase price or fair market value at the time
         of acquisition of such fixed assets (as determined in good faith by the
         Guarantor), and (iii) all such Indebtedness shall have been incurred
         within the applicable limitations provided in Section 7.3(a)(1) or
         Section 7.3(a)(2).

                  7.5      Limitation on Sale and Leasebacks. The Guarantor will
not, and will not permit any Significant Subsidiary to, enter into any
arrangement whereby the Guarantor or any Significant Subsidiary shall sell or
transfer any property owned by the Guarantor or any Significant Subsidiary to
any Person other than the Guarantor or a Significant Subsidiary and thereupon
the Guarantor or any Significant Subsidiary shall lease or intend to lease, as
lessee, the same property unless such sale and leaseback would be permitted by
Sections 7.3, 7.4 and 7.7.

                  7.6      Investments. The Guarantor will not, and will not
permit any Significant Subsidiary to, make any Investments, other than:

                  (a)      Investments by (i) the Guarantor in and to the
         Restricted Group, including any Investment in a corporation which,
         after giving effect to such investment, will become a member of the
         Restricted Group and (ii) any Significant Subsidiary in and to another
         Significant Subsidiary, including any Investment in a corporation which
         after giving effect to such Investment will become a Significant
         Subsidiary;

                  (b)      Investments by the Guarantor or any Significant
         Subsidiary in (i) the acquisition of fixed assets used and useful and
         intended to be used or consumed in carrying on the business of the
         Restricted Group; or (ii) any Investment described in paragraphs (a)
         through (f), inclusive, of Section 5.10 of the Note Agreement;

                  (c)      Investments by the Guarantor in direct obligations of
         the United States of America or any agency or instrumentality of the
         United States of America, the payment or guarantee of which constitutes
         a full faith and credit obligation of the United States of America, in
         either case, maturing in five years or less from the date of
         acquisition thereof;

                  (d)      Investments by the Guarantor in certificates of
         deposit maturing within three years from the date of issuance thereof,
         issued by a bank or trust company organized under the laws of the
         United States or any state thereof, having capital, surplus

                                      -7-
<PAGE>   14
         and undivided profits aggregating at least $100,000,000 and whose
         long-term certificates of deposit are, at the time of acquisition
         thereof by the Guarantor, rated AA or better by Standard & Poor's
         Corporation or Aa or better by Moody's Investors Service, Inc.;

                  (e)      Investments by the Guarantor in debt Securities
         issued by corporations organized under the laws of the United States or
         any state thereof maturing in three years or less from the date of
         acquisition thereof which, at the time of acquisition by the Guarantor,
         is accorded a rating of A or better by S&P or Moody's;

                  (f)      Investments by the Guarantor in general obligations
         of any state or political subdivision of any state maturing in three
         years or Less from the date of acquisition thereof which, at the time
         of acquisition by the Guarantor, is accorded a rating of AA or better
         by S&P or Aa or better by Moody's;

                  (g)      loans or advances in the usual and ordinary course of
         business to officers, directors and employees for expenses (including
         moving expenses related to a transfer) incidental to carrying on the
         business of the Guarantor or any Significant Subsidiary; and

                  (h)      receivables arising from the sale of goods and
         services in the ordinary course of business of the Guarantor and its
         Significant Subsidiaries.

         In valuing any Investments for the purpose of applying the limitations
set forth in this Section 7.6, such investments shall be taken at the original
cost thereof, without allowance for any subsequent write-offs or appreciation or
depreciation therein, but less any amount repaid or recovered on account of
capital or principal.

         For purposes of this Section 7.6, at any time when a corporation
becomes a Significant Subsidiary, all Investments of such corporation at such
time shall be deemed to have been made by such corporation, as a Significant
Subsidiary, at such time.

                  7.7      Mergers and Consolidations. (a) The Guarantor will
not, and will not permit any Significant Subsidiary to, consolidate with or be a
party to a merger with any other corporation, provided, however, that:

                           (1)      any Significant Subsidiary may merge or
                  consolidate with or into the Guarantor or any Wholly-owned
                  Significant Subsidiary or any entity which after giving effect
                  to such merger or consolidation would become a Significant
                  Subsidiary so long as in any merger or consolidation involving
                  the Guarantor, the Guarantor shall be the surviving or
                  continuing corporation; and

                           (2)      the Guarantor may consolidate or merge with
                  any other corporation if (i) the surviving or continuing
                  corporation (the "New Guarantor") shall be a corporation
                  organized and existing under the laws of the United States of
                  America or any State thereof or the District of Columbia, (ii)
                  the New Guarantor shall expressly and unconditionally assume,
                  by an instrument in writing the due and punctual performance
                  or observance of every covenant of this Agreement to be
                  performed or observed by the Guarantor, (iii) the Guarantor
                  shall have delivered to the holders of the Notes a certificate
                  of a responsible officer of

                                      -8-
<PAGE>   15
                  the Guarantor and an opinion of counsel, each stating that
                  such consolidation or merger complies with the provisions of
                  this Section 7.7(2) and that all conditions precedent relating
                  to such transaction provided for in this Section 7.7(2) have
                  been met and (iv) at the time of such consolidation or merger
                  and after giving effect thereto, no Default or Event of
                  Default shall have occurred and be continuing.

                  (b)      The Guarantor will not permit CWC to consolidate with
         or be party to a merger with any other corporation unless CWC is the
         surviving or continuing corporation and the Guarantor shall have caused
         CWC to have delivered to the holders of the Notes a certificate of a
         responsible officer of CWC stating that at the time of such
         consolidation or merger and after giving effect thereto, no Default or
         Event of Default shall have occurred and be continuing.

                  7.8      Sale of Assets; Issuance or Sale of Subsidiary Stock.

                  (a)      Except as otherwise permitted by Section 7.7, the
         Guarantor will not, and will not permit any Significant Subsidiary to,
         sell, lease or otherwise dispose of more than an insubstantial part (as
         defined in paragraph (f) of this Section 7.8) of the assets of the
         Guarantor and its Significant Subsidiaries (other than in the ordinary
         course of business) (a "Disposition") unless an amount at least equal
         to 25% of the net proceeds of such Disposition received by the
         Guarantor or such Significant Subsidiary is, within three months of the
         date of such Disposition, (i) used to prepay the Notes in accordance
         with Section 2.2 of the Note Agreement, or (ii) used to purchase Notes
         from the holders thereof in accordance with the provisions of Section
         5.13 of the Note Agreement or (iii) invested in Investments permitted
         by Section 7.6; provided that (x) any Significant Subsidiary may sell,
         lease or otherwise dispose of more than an insubstantial part of its
         assets to the Guarantor or any Wholly-owned Significant Subsidiary, and
         (y) Barlaco may lease more than an insubstantial part of its assets to
         the Company pursuant to the provisions of the Real Estate Lease.

                  (b)      The Guarantor will not permit any Significant
         Subsidiary to issue or sell any shares of stock of any class (including
         as "stock" for the purposes of this Section 7.8, any warrants, rights
         or options to purchase or otherwise acquire stock or other Securities
         exchangeable for or convertible into stock) of such Significant
         Subsidiary to any Person other than the Guarantor or a Wholly-owned
         Significant Subsidiary, except for the purpose of qualifying directors,
         or except in satisfaction of the validly pre-existing preemptive rights
         of minority shareholders in connection with the simultaneous issuance
         of stock to the Guarantor and/or a Significant Subsidiary whereby the
         Guarantor and/or such Significant Subsidiary maintain their same
         proportionate interest in such Significant Subsidiary.

                  (c)      The Guarantor will not sell, transfer or otherwise
         dispose of any shares of stock of any Significant Subsidiary (except to
         qualify directors), and will not permit any Significant Subsidiary to
         sell, transfer or otherwise dispose of (except to the Guarantor or a
         Wholly-owned Significant Subsidiary) any shares of stock of any other
         Significant Subsidiary, unless:

                                      -9-

<PAGE>   16

                  (1) simultaneously with such sale, transfer, or disposition,
         all shares of stock of such Significant Subsidiary at the time owned by
         the Guarantor and by every other Significant Subsidiary shall be sold,
         transferred or disposed of as an entirety;

                  (2) the Board of Directors of the Guarantor shall have
         determined, as evidenced by a resolution thereof, that the proposed
         sale, transfer or disposition of said shares of stock is in the best
         interests of the Guarantor;

                  (3) said shares of stock are sold, transferred or otherwise
         disposed of to a Person, for a cash consideration and on terms
         reasonably deemed by the Board of Directors to be adequate and
         satisfactory;

                  (4) the Significant Subsidiary being disposed of shall not
         have any continuing investment in the Guarantor or any other
         Significant Subsidiary not being simultaneously disposed of;

                  (5) such sale or other disposition does not involve more than
         an insubstantial part (as hereinafter defined) of the assets of the
         Guarantor and its Significant Subsidiaries.

         (d) Notwithstanding any contrary provisions of this Guaranty, the
Guarantor shall at all times own 100% of the outstanding common stock of CWC and
at least 95% of the outstanding common stock of the Company.

         (e) The Guarantor shall not permit CWC to sell, transfer or otherwise
dispose of more than an insubstantial part (as defined in Paragraph (f) of this
Section 7.8) of its assets (other than in its ordinary course of business) (a
"CWC Disposition") unless (i) an amount at least equal to 75% of the net
proceeds of such CWC Disposition received by CWC is, within three months of the
date of such CWC Disposition, used to prepay the Notes at any applicable
prepayment premium, on a pro rata basis, in accordance with Section 2.2 of the
Note Agreement, or (ii) an amount at least equal to 75% of the net proceeds of
such CWC Disposition received by CWC were or are, within ten months of the date
of such CWC Disposition, applied to the acquisition of fixed assets useful and
intended to be used in the operation of the business of CWC and having a fair
market value (as determined in good faith by the Board of Directors of the
Company) at least equal to that of the assets so disposed of.

         (f) (i) For purposes Sections 7.8(a) and (c), a sale, transfer or
other disposition shall be deemed to be more than an "insubstantial part" of the
assets of the Guarantor and its Significant Subsidiaries if the fair market
value of the assets to be sold, transferred or otherwise disposed of (determined
in good faith by a resolution adopted by the Board of Directors of the
Guarantor), together with the fair market value of all other assets previously
disposed of during the immediately preceding 12-month period ending on the date
of such sale, transfer or other disposition, exceeds $100,000; (ii) for purposes
of Section 7.8(e), a sale, transfer or other disposition by CWC shall be deemed
to be more than an "insubstantial part" of the assets of CWC if the fair market
value of the assets to be sold,

                                      -10-
<PAGE>   17
         transferred or otherwise disposed of (determined in good faith by a
         resolution adopted by the Board of Directors of CWC), together with the
         fair market value of all other assets sold, transferred or otherwise
         disposed of in the immediately preceding 12-month period ending on the
         date of such sale, transfer or other disposition, exceeds $500,000;
         provided that the sale, transfer or other disposition by CWC of any
         Class III Land shall not be subject to the requirements of
         Section 7.8(e).

         7.9 Guaranties. The Guarantor will not, and will not permit any
Significant Subsidiary to, become or be liable in respect of any Guaranty except
Guaranties by the Guarantor which are limited in amount to a stated maximum
dollar exposure or which constitute Guaranties of obligations incurred by the
Company or any Significant Subsidiary in compliance with the provisions of this
Agreement.

         7.10 Use of Real Property.

                  (a) The Guarantor will not, and will not permit any member of
         the Restricted Group to, use, sell, lease or otherwise dispose of any
         of its real property in a manner which could impair in any material
         respect the business of the Company as a corporation principally
         engaged in the storage, transmission and sale of water for domestic,
         industrial and commercial uses, and activities related thereto (the
         "Company's Business").

                  (b) Prior to any change in use by any Significant Subsidiary
         (other than Barlaco) of any of its real property (including a
         Disposition to any other Person), the Guarantor will furnish or cause
         to be furnished to each holder of the Notes a hydrological assessment
         of the property in view of the proposed use by a Hydrogeologist stating
         that the proposed use could not reasonably be expected to impair in any
         material respect the Company's Business.

         "Hydrogeologist" shall mean a hydrogeologist who is (i) certified by
the National Water Well Association as a certified groundwater professional, or
(ii) a member of the American Institute of Professional Geologists having
appropriate academic and work experience in hydrogeology or (iii) a member of
the American Institute of Hydrology having appropriate academic and work
experience in hydrology.

         7.11 Purchase of Notes. Neither the Guarantor nor any Significant
Subsidiary or Affiliate, directly or indirectly, may purchase or make any offer
to purchase any Notes unless an offer has been made to purchase Notes, pro rata,
from all holders of the Notes at the same time and upon the same terms. In case
the Guarantor purchases or otherwise acquires any Notes, such Notes shall
immediately thereafter be cancelled and no Notes shall be issued in substitution
therefor. Without limiting the foregoing, upon the purchase or other acquisition
of any Notes by the Guarantor, any Significant Subsidiary or any Affiliate, such
Notes shall no longer be outstanding for purposes of any section of the Note
Agreement relating to the taking by the holders of the Notes of any actions with
respect thereto, including, without limitation, Section 6.3, Section 6.4 and
Section 7.l of the Note Agreement.

         7.12 Transactions with Affiliates. The Guarantor will not, and will not
permit any Significant Subsidiary to, enter into or be a party to any
transaction or arrangement with any

                                      -11-
<PAGE>   18
Affiliate (including, without limitation, the purchase from, sale to or exchange
of property with, or the rendering of any service by or for, any Affiliate),
except in the ordinary course of and pursuant to the reasonable requirements of
the Guarantor's or such Significant Subsidiary's business and upon fair and
reasonable terms no less favorable to the Guarantor or such Significant
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person other than an Affiliate; provided that notwithstanding the foregoing, the
Guarantor may permit the Company and Barlaco to be parties to the Real Estate
Lease.

         7.13 Reports. The Guarantor will keep, and will cause CWC and each
Significant Subsidiary to keep, proper books of record and account in which full
and correct entries will be made of all dealings or transactions of, or in
relation to, the business and affairs of the Guarantor or such Significant
Subsidiary, in accordance with GAAP consistently applied (except for changes
disclosed in the financial statements furnished to the Note Purchaser pursuant
to this Section 7.13 and concurred in by the independent public accountants
referred to in Section 7.13(b) hereof), and will furnish to the Note Purchaser
so long as it is the holder or any Note and to each other Institutional Holder
of the then outstanding Notes (in duplicate if so specified below or otherwise
requested):

         (a) Quarterly Statements. As soon as available and in any event within
     75 days after the end of the first quarterly fiscal period and within 60
     days after the end of each other quarterly fiscal period of each fiscal
     year, copies of:

                  (1) consolidated balance sheets of the Guarantor and its
         consolidated subsidiaries as of the close of such quarterly fiscal
         period, setting forth in comparative form the consolidated figures for
         the fiscal year then most recently ended,

                  (2) consolidated statements of income of the Guarantor and its
         consolidated subsidiaries for such quarterly fiscal period and for the
         portion of the fiscal year ending with such quarterly fiscal period, in
         each case setting forth in comparative form the consolidated figures
         for the corresponding periods of the preceding fiscal year, and

                  (3) consolidated statements of cash flows of the Guarantor and
         its consolidated subsidiaries for the portion of the fiscal year ending
         with such quarterly fiscal period, setting forth in comparative form
         the consolidated figures for the corresponding period of the preceding
         fiscal year,

all in reasonable detail prepared in conformity with GAAP and certified as
complete and correct by an authorized financial officer of the Guarantor;

         (b) Annual Statements. As soon as available and in any event within 120
     days after the close of each fiscal year of the Guarantor, copies of:

                  (1) consolidated balance sheets of the Guarantor and its
         consolidated subsidiaries as of the close of such fiscal year, and

                                      -12-
<PAGE>   19
                  (2) consolidated statements of income and retained earnings
         and cash flows of the Guarantor and its consolidated subsidiaries for
         such fiscal year,

in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by a report
thereon of a firm of independent public accountants of recognized national
standing selected by the Guarantor to the effect that the consolidated financial
statements present fairly, in all material respects, the consolidated financial
position of the Guarantor and its consolidated subsidiaries as of the end of the
fiscal year being reported on and the consolidated results of the operations and
cash flows for said year in conformity with GAAP and that the examination of
such accountants in connection with such financial statements has been conducted
in accordance with generally accepted auditing standards and included such tests
of the accounting records and such other auditing procedures as said accountants
deemed necessary in the circumstances;

         (c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of the
Guarantor or any Significant Subsidiary and any management letter received from
such accountants;

         (d) SEC and Other Reports. Promptly upon their becoming available, one
copy of each financial statement, report, notice or proxy statement sent by the
Guarantor to common stockholders generally and of each regular or periodic
report, and any registration statement or prospectus filed by the Guarantor or
CWC with any securities exchange or the Securities and Exchange Commission or
any successor agency, and copies of any material orders in any material
proceedings to which the Guarantor, CWC or any Significant Subsidiary is a
party, issued by any governmental agency, Federal or state, having jurisdiction
over the Guarantor, CWC or any Significant Subsidiary;

         (e) Officer's Certificates. Within the periods provided in paragraphs
(a) and (b) above, a certificate of an authorized financial officer of the
Guarantor stating that such officer has reviewed the provisions of this
Agreement and setting forth: (i) the information and computations (in sufficient
detail) required in order to establish whether the Guarantor was in compliance
with the requirements of Section 7.2 through Section 7.12 at the end of the
period covered by the financial statements then being furnished, and (ii)
whether there existed as of the date of such financial statements and whether,
to the best of such officer's knowledge, there exists on the date of the
certificate or existed at any time during the period covered by such financial
statements any default under any of the terms or provisions of this Agreement
and, if any such condition or event exists on the date of the certificate,
specifying the nature and period of existence thereof and the action the Company
is taking and proposes to take with respect thereto;

         (f) Accountants' Certificates. Within the period provided in paragraph
(b) above, a certificate of the accountants who render an opinion with respect
to such financial statements, stating that they have reviewed this Agreement and
stating further whether, in making their audit, such accountants have become
aware of any default under any of the terms or provisions of this Agreement
insofar as any such terms or provisions

                                      -13-

<PAGE>   20
pertain to or involve accounting matters or determinations, and if any such
condition or event then exists, specifying the nature and period of existence
thereof;

         (g) Requested Information. With reasonable promptness, such other data
and information as the Note Purchaser or any such Institutional Holder may
reasonably request;

         (h) Alternative Financial Statements. Within the respective periods
provided in paragraphs (a) and (b) above, financial statements of the character
and for the dates and periods as in said paragraphs (a) and (b) provided
covering the Guarantor, CWC and the Significant Subsidiaries if any subsidiary
or subsidiaries of the Guarantor (other than CWC and the Significant
Subsidiaries) individually or in the aggregate constitute more than 10% of the
aggregate assets (determined in accordance with GAAP) of the Guarantor and its
consolidated subsidiaries or contribute individually or in the aggregate more
than 10% of net income (determined in accordance with GAAP) of the Guarantor and
its consolidated subsidiaries; and

         (i) The Guarantor may comply with the requirements of paragraphs (a)
and (b) of this Section 7.13 by providing each Institutional Holder of the Notes
with a copy of the Guarantor's SEC Reports on Form 10-K (in the case of
paragraph (b)) and the applicable quarterly reports on Form 10-Q (in the case of
paragraph (a)), so long as such Forms 10-K and 10-Q contain substantially the
same financial information described in clauses (a) and (b) above and in the
case of clause (b), the auditors opinion.

         7.14 CWC. The Guarantor shall cause CWC to maintain at all times CWC
Tangible Net Worth of not less than $50,000,000.

SECTION 8.        REQUIRED PURCHASE OF NOTES ON GUARANTOR CHANGE OF CONTROL.

         In the event that a Guarantor Change of Control shall occur or the
Guarantor shall have knowledge of any impending Guarantor Change of Control, the
Guarantor shall give written notice thereof (a "Guarantor Notice") promptly (and
in any event within three business days thereafter) to each holder of the Notes
then outstanding. The Guarantor Notice shall (i) describe in reasonable detail
the facts and circumstances giving rise to such Guarantor Change of Control,
(ii) offer to purchase, on a date (the "Change of Control Purchase Date") which
shall be not less than 30 days nor more than 60 days after the date of the
Guarantor Notice, all of the Notes held by such holder, at a price equal to 100%
of the principal amount of Notes so to be prepaid, accrued interest thereon to
the Change of Control Purchase Date, together with the then applicable
Make-Whole Amount, (iii) request such holder to notify the Guarantor in writing,
not less than 10 days prior to the Change of Control Purchase Date, of its
acceptance or rejection of such offer, (iv) inform such holder that, upon its
receipt of the Guarantor Notice, failure to reject such offer in writing on or
before the 10th day prior to the Change of Control Purchase Date shall be deemed
acceptance of such offer and (v) set forth the respective names and addresses
of, and principal amounts of the Notes held by, any other holders of the Notes
then outstanding. Not less than two business days prior to the Change of Control
Purchase Date, the Guarantor shall

                                      -14-
<PAGE>   21
provide each holder of the Notes with a reasonably detailed computation of the
Make-Whole Amount.

         The Guarantor covenants and agrees that it will on the Change of
Control Purchase Date purchase, or cause to be purchased, all of the Notes held
by each holder of the Notes then outstanding which has accepted the purchase
offer in accordance with this Section 8, by payment of the principal amount of
such Notes, together with interest accrued on the unpaid principal amount of
such Notes to the Change of Control Purchase Date and the then applicable
Make-Whole Amount.

         For purposes of this Section 8, the following terms shall have the
meanings ascribed thereto below:

         "Control Group" shall mean any related Persons constituting a "group"
for the purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (other than the Designated Shareholders).

         "Guarantor Change of Control" shall mean the occurrence after the date
of this Guaranty of any event which results in either (i) the legal or
beneficial ownership of more than 35% of the outstanding shares of Voting Stock
of the Guarantor being owned by any Person or Control Group, or (ii) any Person
or Control Group having the power to elect, appoint or cause the election or
appointment of, at least a majority of the members of the Board of Directors of
the Guarantor through beneficial ownership of capital stock of the Guarantor or
otherwise.

SECTION 9.        DEFINITIONS.

         In addition to the terms defined in the Note Agreement or elsewhere in
this Agreement, and unless the context otherwise requires, the terms hereinafter
set forth when used herein shall have the following meanings and the following
definitions shall be equally applicable to both the singular and plural forms of
any of the terms herein defined:

         "Barlaco" shall mean Barlaco, Inc., a Massachusetts corporation.

         "Class III Land" shall mean any land designated as Class III land by
the Connecticut Department of Health.

         "Consolidated Net Income" for any period shall mean the gross revenues
of the Guarantor and its consolidated subsidiaries for such period less all
expenses and other proper charges (including taxes on income), determined on a
consolidated basis after eliminating earnings or losses attributable to
outstanding Minority Interests, but excluding in any event:

                  (a) any gains or losses on the sale or other disposition of
         Investments or fixed or capital assets, and any taxes on such excluded
         gains and any tax deductions or credits on account of any such excluded
         losses;

                  (b) the proceeds of any life insurance policy;

                                      -15-
<PAGE>   22
                  (c) net earnings and losses of any consolidated subsidiary
         accrued prior to the date it became a consolidated subsidiary;

                  (d) net earnings and losses of any corporation (other than a
         consolidated subsidiary), substantially all the assets of which have
         been acquired in any manner by the Guarantor or any consolidated
         subsidiary, realized by such corporation prior to the date of such
         acquisition;

                  (e) net earnings and losses of any corporation (other than a
         consolidated subsidiary) with which the Guarantor or a consolidated
         subsidiary shall have consolidated or which shall have merged into or
         with the Guarantor or a consolidated subsidiary prior to the date of
         such consolidation or merger;

                  (f) net earnings of any business entity (other than a
         consolidated subsidiary) in which the Guarantor or any consolidated
         subsidiary has an ownership interest unless such net earnings shall
         have actually been received by the Guarantor or such consolidated
         subsidiary in the form of cash distributions;

                  (g) any portion of the net earnings of any consolidated
         subsidiary which for any reason is unavailable for payment of dividends
         to the Guarantor or any other consolidated subsidiary;

                  (h) earnings resulting from any reappraisal, revaluation or
         write-up of assets;

                  (i) any deferred or other credit representing any excess of
         the equity in any Subsidiary at the date of acquisition thereof over
         the amount invested in such Subsidiary;

                  (j) any gain arising from the acquisition of any Securities of
         the Guarantor or any consolidated subsidiary; and

                  (k) any reversal of any contingency reserve, except to the
         extent that provision for such contingency reserve shall have been made
         from income arising during such period.

         "Consolidated Net Tangible Assets" shall mean as of the date of any
determination thereof the total amount of all Tangible Assets of the Guarantor
and its consolidated subsidiaries after deducting therefrom all Restricted
Investments and all items which in accordance with GAAP would be included on the
liability and equity side of a consolidated balance sheet, except deferred
income taxes, deferred investment tax credits, capital stock of any class,
surplus and Funded Debt of the Guarantor and its consolidated subsidiaries.

         "Consolidated Tangible Net Worth" shall mean as of the date of any
determination thereof Consolidated Net Tangible Assets less all outstanding
Funded Debt, deferred income taxes and deferred investment tax credits of the
Guarantor and its consolidated subsidiaries.

         "CWC" shall mean The Connecticut Water Company, a Connecticut
corporation and a subsidiary of the Guarantor.

                                      -16-
<PAGE>   23
         "CWC Net Tangible Assets" shall mean as of the date of any
determination thereof the total amount of all CWC Tangible Assets after
deducting therefrom all Restricted Investments and all items which in accordance
with GAAP would be included on the liability and equity side of a consolidated
balance sheet, except deferred income taxes, deferred investment tax credits,
capital stock of any class, surplus and Funded Debt of CWC and its subsidiaries.

         "CWC Tangible Assets" shall mean as of the date of any determination
thereof the total amount of all assets of CWC and its subsidiaries (less
depreciation, depletion and other properly deductible valuation reserves) after
deducting good will, patents, trade names, trade marks, copyrights, franchises,
experimental expense, organization expense, unamortized debt discount and
expense, deferred assets other than prepaid insurance and prepaid taxes, the
excess of cost of shares acquired over book value of related assets and such
other assets as are properly classified as "intangible assets" in accordance
with GAAP.

         "CWC Tangible Net Worth" shall mean as of the date of any determination
thereof CWC Net Tangible Assets less all outstanding Funded Debt, deferred
income taxes and deferred investment tax credits of CWC and its subsidiaries.

         "Disposition" is defined in Section 7.8(a).

         "Fixed Charges" for any period shall mean on a consolidated basis the
sum of (i) all Rentals (other than Rentals on Capitalized Leases) payable during
such period by the Guarantor and its consolidated subsidiaries and (ii) all
interest and all amortization of debt discount and expense on all Indebtedness
(including the interest component of Rentals on Capitalized Leases) of the
Guarantor and its consolidated subsidiaries. Computations of Fixed Charges on a
pro forma basis for Indebtedness having a variable interest rate shall be
calculated at the rate in effect on the date of any determination.

         "Group Current Debt" shall mean Current Debt of the Guarantor and its
consolidated subsidiaries, determined on a consolidated basis eliminating
intercompany items.

         "Group Funded Debt" shall mean Funded Debt of the Guarantor and its
consolidated subsidiaries, determined on a consolidated basis eliminating
intercompany items.

         "Guaranty" shall mean this Guaranty Agreement as the same may from time
to time be amended or modified.

         "Minority Interests" shall mean any shares of stock of any class of a
consolidated subsidiary (other than directors' qualifying shares as required by
law) that are not owned by the Guarantor and/or one or more of its consolidated
subsidiaries. Minority Interests shall be valued by valuing Minority Interests
constituting preferred stock at the voluntary or involuntary liquidating value
of such preferred stock, whichever is greater, and by valuing Minority Interests
constituting common stock at the book value of capital and surplus applicable
thereto adjusted, if necessary, to reflect any changes from the book value of
such common stock required by the foregoing method of valuing Minority Interests
in preferred stock.

         "Net Income Available for Fixed Charges" for any period shall mean the
sum of (i) Consolidated Net Income during such period plus (to the extent
deducted in determining

                                      -17-
<PAGE>   24
Consolidated Net Income), (ii) all provisions for any Federal, state or other
income taxes made by the Guarantor and its consolidated subsidiaries during such
period and (iii) Fixed Charges of the Guarantor and its consolidated
subsidiaries during such period.

         "Pro Forma Fixed Charges" for any period shall mean, as of the date of
any determination thereof, the maximum aggregate amount of Fixed Charges which
would have become payable by the Guarantor and its consolidated subsidiaries in
such period determined on a pro forma basis giving effect as of the beginning of
such period to the incurrence of any Funded Debt (including Capitalized Rentals)
and the concurrent retirement of outstanding Funded Debt or Current Debt or
termination of any Capitalized Leases.

         "Real Estate Lease" shall mean that certain real estate lease between
Barlaco, as lessor, and the Company, as lessee, executed by the parties thereto
as of November 1, 1991, with a term beginning January 1, 1991.

         "Restricted Group" shall mean collectively the Guarantor, its
consolidated subsidiaries and affiliates.

         "Significant Subsidiary" shall mean the Prior Guarantor, the Company
and Barlaco and any subsidiary of the Prior Guarantor, the Company and Barlaco
(i) which is organized under the laws of the United States or any State thereof;
(ii) which conducts substantially all of its business and has substantially all
of its assets within the United States; and (iii) of which more than 80% (by
number of votes) of the Voting Stock is beneficially owned, directly or
indirectly, by the Prior Guarantor, the Company and Barlaco.

         "Tangible Assets" shall mean as of the date of any determination
thereof the total amount of all assets of the Guarantor and its consolidated
subsidiaries (less depreciation, depletion and other properly deductible
valuation reserves) after deducting good will, patents, trade names, trade
marks, copyrights, franchises, experimental expense, organization expense,
unamortized debt discount and expense, deferred assets other than prepaid
insurance and prepaid taxes, the excess of cost of shares acquired over book
value of related assets and such other assets as are properly classified as
"intangible assets" in accordance with GAAP.

         "Total Capitalization" shall mean, at any date of determination
thereof, the sum of (i) the aggregate principal amount of all Group Funded Debt
then outstanding plus Consolidated Tangible Net Worth as of such date.

         "Wholly-owned Significant Subsidiary" shall mean a Significant
Subsidiary of which all of the issued and outstanding shares of common stock
(except shares required as directors' qualifying shares) and all Funded Debt and
Current Debt shall be owned by the Guarantor and/or one or more of its
Wholly-owned Significant Subsidiaries.

SECTION 10.       JURISDICTION AND SERVICE IN RESPECT OF GUARANTOR.

         The Guarantor hereby irrevocably submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts and of the courts of the United
States of America having jurisdiction in the Commonwealth of Massachusetts for
the purpose of any legal action or proceeding in any such court with respect to,
or arising out of, this Agreement. The Guarantor

                                      -18-
<PAGE>   25
hereby designates and appoints the Secretary of State of Massachusetts, and its
successors as the Guarantor's lawful agent in the Commonwealth of Massachusetts
upon which may be served and which may accept and acknowledge, for and on behalf
of the Guarantor, all process in any action, suit or proceeding that may be
brought against the Guarantor in any of the courts referred to in this Section,
and agrees that such service of process, or the acceptance or acknowledgment
thereof by said agent, shall be valid, effective and binding in every respect.
If any Noteholder shall cause process to be served upon the Guarantor by being
served upon such agent, a copy of such process shall also be mailed to the
Guarantor by United States registered mail, first class postage prepaid, at 47
Old Yarmouth Road, Hyannis, Massachusetts 02601-0326, Attention: President or to
such other address as the Guarantor may in writing designate to the Note
Purchaser or to a subsequent Noteholder.

SECTION 11.       SUCCESSORS AND ASSIGNS.

         All covenants and agreements contained in this Agreement by or on
behalf of the Guarantor shall be binding upon the Guarantor and its successors
and assigns and shall inure to the benefit of the Note Purchaser and each and
every Noteholder.

SECTION 12.       NOTICES.

         All communications provided for hereunder shall be in writing and, if
to you, delivered or mailed prepaid by registered or certified mail or overnight
air courier, or by facsimile communication, in each case addressed to you at 699
Walnut Street, Suite 1700, Des Moines, Iowa 50305 or such other address as you
or the subsequent holder of any Note initially issued to you may designate to
the Company in writing, and if to the Company, delivered or mailed by registered
or certified mail or overnight air courier, or by facsimile communication, to
the Company at 93 West Main Street, Clinton, CT 06413, Attention: President or
to such other address as the Company may in writing designate to you or to a
subsequent holder of the Note initially issued to you; provided, however, that a
notice to you by overnight air courier shall only be effective if delivered to
you at the street address designated above, and a notice to you by facsimile
communication shall only be effective if made by confirmed transmission to you
at [FAX], or , in either case, as you or a subsequent holder of any Note
initially issued to you may designate to the Company in writing.

SECTION 13.       GOVERNING LAW.

         This Agreement and all rights arising hereunder shall be governed by
and construed in accordance with Massachusetts law.

SECTION 14.       AMENDMENTS, WAIVERS AND CONSENTS.

         14.1 Consent Required. Any term, covenant, agreement or condition of
this Agreement may, with the consent of the Guarantor, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Guarantor shall have obtained the
consent in writing of the holders of at least 66-2/3% in aggregate principal
amount of outstanding Notes; provided that without the written consent of the
holders of all of the Notes then outstanding, no such waiver, modification,
alteration or

                                      -19-
<PAGE>   26
amendment shall be effective which will reduce the scope of the guaranty set
forth in this Agreement or amend the requirements of Section 1, Section 2,
Section 3, Section 8 or this Section 14.

         14.2 Solicitation of Noteholders. So long as there are any Notes
outstanding, the Guarantor will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each Noteholder (irrespective of the amount of
Notes then owned by it) shall be informed thereof by the Guarantor and shall be
afforded the opportunity of considering the same and shall be supplied by the
Guarantor with sufficient information to enable it to make an informed decision
with respect thereto. The Guarantor will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any Noteholder as consideration for or as an
inducement to entering into by any Noteholder of any waiver or amendment of any
of the terms and provisions of this Agreement unless such remuneration is
concurrently offered, on the same terms, ratably to all Noteholders then
outstanding.

         14.3 Effect of Amendment or Waiver. Any such amendment or waiver shall
apply equally to all of the Noteholders and shall be binding upon them, upon
each future Noteholder and upon the Guarantor, whether or not such Note shall
have been marked to indicate such amendment or waiver. No such amendment or
waiver shall extend to or affect any obligation not expressly amended or waived
or impair any right consequent thereon.

                                      -20-

<PAGE>   27
         The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Guaranty may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.

                                          CONNECTICUT WATER SERVICE, INC.

                                         By _______________________________

Accepted as of _____________, 2000.

INDIANAPOLIS LIFE INSURANCE
    COMPANY
    By AmerUs Capital Management, as
    authorized agent

By ______________________________
    Its

                                      -21-
<PAGE>   28
                                                                      SCHEDULE A

                         REPRESENTATIONS AND WARRANTIES

         The Guarantor represents and warrants to you as follows:

          1. Subsidiaries. Annex 1 attached hereto states the name of each of
the Guarantor's consolidated subsidiaries, its jurisdiction of incorporation and
the percentage of its Voting Stock owned by the Guarantor or its subsidiaries.
The Guarantor and each consolidated subsidiary has good and marketable title to
all of the shares it purports to own of the stock of each consolidated
subsidiary, free and clear in each case of any Lien. All such shares have been
duly issued and are fully paid and non-assessable.

          2. Corporate Organization and Authority. The Guarantor, CWC and each
Significant Subsidiary:

          (a)       is a corporation duly organized, validly existing and in
                    good standing under the laws of its jurisdiction of
                    incorporation;

          (b)       has all requisite power and authority and all necessary
                    licenses and permits to own and operate its properties and
                    to carry on its business as now conducted and as presently
                    proposed to be conducted; and

          (c)       is duly licensed or qualified and is in good standing as a
                    foreign corporation in each jurisdiction wherein the nature
                    of the business transacted by it or the nature of the
                    property owned or leased by it makes such licensing or
                    qualification necessary.

          3. Financial Statements. The __________, 200_ financial statements of
the Guarantor and its consolidated subsidiaries are true and complete in all
material aspects.

          4. Indebtedness. The financial statements referred to in Paragraph 3
correctly describe all Current Debt, Funded Debt and Capitalized Leases of the
Guarantor and its consolidated subsidiaries outstanding as of the date thereof.

          5. Full Disclosure. Neither the Guaranty nor any other written
statement furnished by the Guarantor to you in connection with the negotiation
of the Consent and Waiver of the Guaranty contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact peculiar to the
Guarantor, CWC, and its Significant Subsidiaries which the Guarantor has not
disclosed to you in writing or in public filings with the Securities and
Exchange Commission which materially affects adversely nor, so far as the
Guarantor can now foresee, will materially affect adversely the properties,
business, prospects, profits or condition (financial or otherwise) of the
Guarantor, CWC, or its Significant Subsidiaries, taken as a whole.

          6. Pending Litigation. Except as may be disclosed pursuant to
Paragraph 5, there are no proceedings pending or, to the knowledge of the
Guarantor, threatened against or affecting the Guarantor, CWC, or its
Significant Subsidiaries in any court or before any governmental authority or
arbitration board or tribunal which involve the possibility of materially and
<PAGE>   29
adversely affecting the properties, business, prospects, profits or condition
(financial or otherwise) of the Guarantor, CWC, and its Significant Subsidiaries
taken as a whole.

          7. Title to Properties. The Guarantor and CWC each has good and
marketable title in fee simple (or its equivalent under applicable law) to all
material parcels of real property and has good title to all the other material
items of property it purports to own except as sold or otherwise disposed of in
the ordinary course of business and except for Liens permitted by the Guaranty.

          8. Patents and Trademarks. The Company, CWC and each Significant
Subsidiary owns or possesses all the patents, trademarks, trade names, service
marks, copyright, licenses and rights with respect to the foregoing necessary
for the present and planned future conduct of its business, without any known
conflict with the rights of others.

          9. Guaranty is Legal and Authorized. Compliance by the Guarantor with
all of the provisions of the Guaranty --

          (a) is within the corporate powers of the Guarantor;

          (b) will not violate any provisions of any law or any order of any
court or governmental authority or agency and will not conflict with or result
in any breach of any of the terms, conditions or provisions, or constitute a
default under the Certificate of Incorporation or By-laws of the Guarantor or
any indenture or other agreement or instrument to which the Guarantor is a party
or by which it may be bound or result in the imposition of any Liens or
encumbrances on any property of the Guarantor; and

          (c) has been duly authorized by proper corporate action on the part of
the Guarantor (no action by the stockholders of the Guarantor being required by
law, by the Certificate of Incorporation or By-laws of the Guarantor or
otherwise), executed and delivered by the Guarantor and the Guaranty constitutes
the legal, valid and binding obligation, contract and agreement of the Guarantor
enforceable in accordance with its terms.

          10. No Defaults. No Default or Event of Default has occurred and is
continuing. Neither the Guarantor nor CWC is in default in the payment of
principal or interest on any Funded Debt or Current Debt or is in default under
any instrument or instruments or agreements under and subject to which any
Funded Debt or Current Debt has been issued and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.

          11. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Guarantor of the
Guaranty or compliance by the Guarantor with any of the provisions of the
Guaranty.

          12. Taxes. All tax returns required to be filed by the Guarantor, CWC
or any Significant Subsidiaries in any jurisdiction have, in fact, been filed,
and all taxes, assessments, fees and other governmental charges upon CWC or any
Significant Subsidiary or upon any of its properties, income or franchises,
which are shown to be due and payable in such returns have

                                      A-2
<PAGE>   30
been paid. The Guarantor does not know of any proposed additional tax assessment
against it for which adequate provision has not been made on its accounts, and
no material controversy in respect of additional Federal or state income taxes
due since said date is pending or to the knowledge of the Guarantor threatened.
The provisions for taxes on the books of the Guarantor, CWC and each Significant
Subsidiary are adequate for all open years, and for its current fiscal period.

          13. Compliance with Law. Neither the Guarantor, CWC nor any
Significant Subsidiary (a) is in violation of any law, ordinance, franchise,
governmental rule or regulation to which it is subject; or (b) has failed to
obtain any license, permit, franchise or other governmental authorization
necessary to the ownership of its property or to the conduct of its business,
which violation or failure to obtain would materially adversely affect the
business, prospects, profits, properties or condition (financial or otherwise)
of the Guarantor, CWC and its Significant Subsidiaries, or impair the ability of
the Guarantor to perform its obligations contained in the Guaranty. Neither the
Guarantor, CWC nor any Significant Subsidiary is in default with respect to any
material order of any court or governmental authority or arbitration board or
tribunal.

          14. Compliance with Environmental Laws. The Guarantor is not in
violation of any applicable Federal, state, or local laws, statutes, rules,
regulations or ordinances relating to public health, safety or the environment,
including, without limitation, relating to releases, discharges, emissions or
disposals to air, water, land or ground water, to the withdrawal or use of
ground water, to the use, handling or disposal of polychlorinated biphenyls
(PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal or
management of hazardous substances (including, without limitation, petroleum,
crude oil or any fraction thereof, or other hydrocarbons), pollutants or
contaminants, to exposure to toxic, hazardous or other controlled, prohibited or
regulated substances which violation could have a material adverse effect on the
business, prospects, profits, properties or condition (financial or otherwise)
of the Guarantor. The Guarantor does not know of any liability or class of
liability of the Guarantor under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq.), or the Resource Conservation and Recovery Act of 1976, as amended (42
U.S.C. Section 6901 et seq.).

          15. Investment Company Act. The Guarantor is not, and is not directly
or indirectly controlled by or acting on behalf of any person which is, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

          16. Holding Company. The Guarantor is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", or of a "subsidiary company" of a "holding company" as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.

                                      A-3
<PAGE>   31
                                   SCHEDULE B

                     LIENS EXISTING AS OF ___________, 200_

                                     ANNEX 1
                                 (to Exhibit A)
<PAGE>   32
                                                                         ANNEX 1

                          SUBSIDIARIES OF THE GUARANTOR

<TABLE>
<CAPTION>
                                                                                       Percentage of Common
                                                                                   Stock Owned by the Guarantor
          Name of Subsidiary                Jurisdiction of Incorporation            and each Other Subsidiary
          ------------------                -----------------------------            -------------------------
<S>                                         <C>                                    <C>
The Connecticut Water Company                        Connecticut                               100%

Chester Realty, Inc.                                 Connecticut                               100%

Connecticut Water Utility Svc.                       Connecticut                               100%

Connecticut Water Emergency Svc.                     Connecticut                               100%

Gallup Water Service, Inc.                           Connecticut                               100%

Crystal Water Utilities Corporation                  Connecticut                               100%

Crystal Water Co. of Danielson                       Connecticut                               100%

Barnstable Holding Company                           Connecticut                               100%

Barnstable Water Company                            Massachusetts                               --

BARLACO                                             Massachusetts                               --
</TABLE>

                                     ANNEX 1
                                 (to Exhibit A)
<PAGE>   33
                                                                       EXHIBIT B

                            BARNSTABLE WATER COMPANY

                           ___________________________

                                SECOND AMENDMENT
                        Dated as of _______________, 200_

                                       to

                                 NOTE AGREEMENT
                          Dated as of February 15, 1991

                           ___________________________

                        Re: $2,000,000 10.2% Senior Notes
                              Due February 15, 2011
<PAGE>   34
                       SECOND AMENDMENT TO NOTE AGREEMENT

          THIS SECOND AMENDMENT dated as of _______________, 200_ (the or this
"Second Amendment") to the Note Agreement dated as of February 15, 1991 is
between BARNSTABLE WATER COMPANY, a ________ corporation (the "Company"), and
INDIANAPOLIS LIFE INSURANCE COMPANY (the "Noteholder").

                                    RECITALS:

          A. The Company and the Noteholder have heretofore entered into that
certain Note Agreement dated as of February 15, 1991, as amended by that certain
Amendment Agreement dated as of June 1, 1992 (as so amended, the "Note
Agreement"). The Company has heretofore issued the $2,000,000 10.2% Senior Notes
Due February 15, 2011 (the "Notes") pursuant to the Note Agreement.

          B. The Company and the Noteholder now desire to amend the Note
Agreement in the respects, but only in the respects, hereinafter set forth.

          C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Agreement unless herein defined or the context
shall otherwise require.

          D. All requirements of law have been fully complied with and all other
acts and things necessary to make this Second Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.

          NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of this Second Amendment set forth in
SECTION 3.1 hereof, and in consideration of good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Noteholder do hereby agree as follows:

SECTION 1. AMENDMENTS.

                 1.1. Subsections (d), (e), (g), (k), (m), (n), (o) and (p),
respectively, of Section 6.1 of the Note Agreement shall be and are hereby
amended in their entirely to read as follows:

                    "(d) Default shall be made in the payment when due (whether
          by lapse of time, by declaration, by call for redemption or otherwise)
          of the principal of or interest on any Funded Debt or Current Debt
          (other than the Notes) of (i) the Guarantor, the Company or any
          Restricted Subsidiary or (ii) CWC (insofar as such Funded Debt or
          Current Debt of CWC is outstanding in an aggregate principal amount of
          at least $5,000,000), and such default shall continue beyond the
          period of grace, if any, allowed with respect thereto; or
<PAGE>   35
                    (e) Default or the happening of any event shall occur under
          any indenture, agreement or other instrument under which any Funded
          Debt or Current Debt of the Guarantor, the Company, any Restricted
          Subsidiary or CWC may be issued and such default or event shall
          continue for a period of time sufficient to permit the acceleration of
          the maturity of any Funded Debt or Current Debt of (i) the Guarantor,
          the Company or any Restricted Subsidiary or (ii) CWC (insofar as such
          Funded Debt or Current Debt of CWC is outstanding in an aggregate
          principal amount of at least $5,000,000), outstanding thereunder; or

                    (g) Default shall occur in the observance or performance of
          any covenant or agreement contained in SECTIONS 7.3 through 7.8, both
          inclusive, or SECTION 7.10 or SECTION 7.14 or SECTION 8 of the
          Guaranty; or

                    (k) Any representation or warranty made by Guarantor in the
          Guaranty, or made by the Guarantor or CWC in any statement or
          certificate furnished by the Guarantor or CWC, as the case maybe,
          pursuant thereto or hereto, is untrue in any material respect as of
          the date of the issuance or making thereof; or

                    (m) (i) Final judgment or judgments for the payment of money
          aggregating in excess of $100,000 is or are outstanding against the
          Guarantor, the Company or any Restricted Subsidiary or against any
          property or assets of either and any one of such judgments has
          remained unpaid, unvacated, unbonded or unstayed by appeal or
          otherwise for a period of 60 days from the date of its entry or (ii)
          final judgment or judgments for the payment of money aggregating in
          excess of $1,000,000 is or are outstanding against CWC or against any
          property or assets of CWC and any one of such judgments has remained
          unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
          period of 60 days from the date of its entry; or

                    (n) A custodian, liquidator, trustee or receiver is
          appointed for the Guarantor, the Company, any Restricted Subsidiary or
          CWC or for the major part of the property of either and is not
          discharged within 60 days after such appointments; or

                    (o) The Guarantor, the Company, any Restricted Subsidiary or
          CWC becomes insolvent or bankrupt, is generally not paying its debts
          as they become due or makes an assignment for the benefit of
          creditors, or the Guarantor, the Company, any Restricted Subsidiary or
          CWC applies for or consents to the appointment of a custodian,
          liquidator, trustee or receiver for the Guarantor, the Company, such
          Restricted Subsidiary or CWC or for the major part of the property of
          any such Person; or

                    (p) Bankruptcy, reorganization, arrangement or insolvency
          proceedings, or other proceedings for relief under any bankruptcy or
          similar law or laws for the relief of debtors, are instituted by or
          against the Guarantor, the

                                      -2-
<PAGE>   36
          Company, any Restricted Subsidiary or CWC and, if instituted against
          the Guarantor, the Company, any Restricted Subsidiary or CWC, as the
          case may be, are consented to or are not dismissed within 60 days
          after such institution."

                 1.2. The following definitions set forth in Section 8.1 of the
Note Agreement shall be and are hereby amended in their entirety to read as
follows:

                  "Guarantor" shall mean Connecticut Water Service, Inc., a
         Connecticut corporation of which the Company is an indirect subsidiary
         and any Person who succeeds to all or substantially all, of the assets
         and business of Connecticut Water Service, Inc.

                  "Guaranty" shall mean the Guaranty Agreement dated as of
         _____________, 200_ from the Guarantor in favor of the Purchaser, as
         the same may from time to time be amended or modified.

                 1.3. The following shall be added as a new definition in
alphabetical order to Section 8.1 of the Note Agreement:

                  "CWC" shall mean The Connecticut Water Company, a Connecticut
         corporation and a direct subsidiary of the Guarantor and any Person who
         succeeds to all or substantially all, of the assets and business of The
         Connecticut Water Company.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                 2.1. To induce the Noteholder to execute and deliver this
Second Amendment (which representations shall survive the execution and delivery
of this Second Amendment), the Company represents and warrants to the Noteholder
that:

                    (a) this Second Amendment has been duly authorized, executed
          and delivered by it and this Second Amendment constitutes the legal,
          valid and binding obligation, contract and agreement of the Company
          enforceable against it in accordance with its terms, except as
          enforcement may be limited by bankruptcy, insolvency, reorganization,
          moratorium or similar laws or equitable principles relating to or
          limiting creditors' rights generally;

                    (b) the Note Agreement, as amended by this Second Amendment,
          constitutes the legal, valid and binding obligation, contract and
          agreement of the Company enforceable against it in accordance with its
          terms, except as enforcement may be limited by bankruptcy, insolvency,
          reorganization, moratorium or similar laws or equitable principles
          relating to or limiting creditors' rights generally;

                    (c) the execution, delivery and performance by the Company
          of this Second Amendment (i) has been duly authorized by all requisite
          corporate action and, if required, shareholder action, (ii) does not
          require the consent or approval of any governmental or

                                      -3-
<PAGE>   37
          regulatory body or agency, and (iii) will not (A) violate (1) any
          provision of law, statute, rule or regulation or its certificate of
          incorporation or bylaws, (2) any order of any court or any rule,
          regulation or order of any other agency or government binding upon it,
          or (3) any provision of any material indenture, agreement or other
          instrument to which it is a party or by which its properties or assets
          are or may be bound, or (B) result in a breach or constitute (alone or
          with due notice or lapse of time or both) a default under any
          indenture, agreement or other instrument referred to in clause
          (iii)(A)(3) of this SECTION 2.1(c); and

                    (d) as of the date hereof and after giving effect to this
          Second Amendment, no Default or Event of Default has occurred which is
          continuing.

SECTION 3. CONDITIONS TO EFFECTIVENESS OF THIS SECOND AMENDMENT.

                 3.1. This Second Amendment shall not become effective until,
and shall become effective when, each and every one of the following conditions
shall have been satisfied:

                    (a) executed counterparts of this Second Amendment, duly
          executed by the Company and the Noteholder, shall have been delivered
          to the Noteholder;

                    (b) the Noteholder shall have received a copy of the
          resolutions of the Board of Directors of the Company authorizing the
          execution, delivery and performance by the Company of this Second
          Amendment, certified by its Secretary or an Assistant Secretary;

                    (c) the representations and warranties of the Company set
          forth in SECTION 2 hereof are true AND correct on and with respect to
          the date hereof; and

                    (d) the Noteholder shall have received the favorable opinion
          of counsel to the Company as to the matters set forth in SECTIONS
          2.1(a), 2.1(b) and 2.1(c) hereof, which opinion shall be in form and
          substance satisfactory to the Noteholder.

Upon receipt of all of the foregoing, this Second Amendment shall become
effective.

SECTION 4. PAYMENT OF NOTEHOLDER'S COUNSEL FEES AND EXPENSES.

                 4.1. The Company agrees to pay upon demand, the reasonable fees
and expenses of Chapman and Cutler, counsel to the Noteholder, in connection
with the negotiation, preparation, approval, execution and delivery of this
Second Amendment.

SECTION 5. MISCELLANEOUS.

                 5.1. This Second Amendment shall be construed in connection
with and as part of the Note Agreement, and except as modified and expressly
amended by this Second Amendment, all terms, conditions and covenants contained
in the Note Agreement and the Notes are hereby ratified and shall be and remain
in full force and effect.

                                      -4-
<PAGE>   38
                 5.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Second Amendment may refer to the Note Agreement without making specific
reference to this Second Amendment but nevertheless all such references shall
include this Second Amendment unless the context otherwise requires.

                 5.3. The descriptive headings of the various Sections or parts
of this Second Amendment are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.

                 5.4. This Second Amendment shall be governed by and construed
in accordance with Massachusetts law.

                 5.5. The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this Second
Amendment may be executed in any number of counterparts, each executed
counterpart constituting an original, but all together only one agreement.

                                      BARNSTABLE WATER COMPANY

                                      By ___________________________________
                                         Its________________________________

Accepted and Agreed to:

                                      INDIANAPOLIS LIFE INSURANCE COMPANY

                                      By:   AmerUs Capital Management,
                                            as authorized agent

                                      By ___________________________________
                                         Its________________________________

                                      -5-<PAGE>

                                                                    EXHIBIT 10.8

                      SENIOR CONVERTIBLE PROMISSORY NOTE

                                                _____________
                                                West Caldwell, New Jersey

     FOR VALUE RECEIVED, the undersigned, LIGHTHOUSE LANDINGS, INC. a New Jersey
Corporation (the "Borrower" or the "Company") unconditionally promises to pay to
the order of _________________, c/o _______________, _________________,
_____________, _________ _______ (the "Lender"), the principal sum of
_____________________ ($________) DOLLARS (the "Indebtedness"), together with
interest thereon and all other amounts due hereunder, as follows:

     1.  COMMERCIAL LOAN.  This Note evidences Borrower's indebtedness to Lender
for the Indebtedness, interest thereon and all other amounts due Lender
(collectively referred to as the "Loan").  The term "Loan Documents" means this
Note and any and all agreements and documents evidencing or relating to the
Loan, and all amendments and modifications thereto.

     2.  INTEREST RATE.  Borrower shall pay Lender interest on the unpaid
principal balance of the Loan from the date hereof until the entire principal
balance hereunder is paid in full at the rate (calculated on the actual number
of days elapsed over a 360 day year) or ten (10%) percent per annum.

     3.  PAYMENT TERMS.  All payments made hereunder shall be made on the due
date thereof, in immediately available funds and in lawful currency of the
United States of America.  All payments made hereunder shall be made to Lender
at its offices set forth in this Note or at such other address as Lender shall
notify Borrower of in writing.

     4.  TERM.  The Loan shall mature on _____________ (the "Maturity Date").

     5.  PAYMENTS.

           A.  Borrower shall pay to Lender interest quarterly on the
outstanding principal balance of the Indebtedness with the first interest
payment being due _________________.

           B.  The entire unpaid principal of the Indebtedness, accrued interest
thereon and all other amounts relating thereto shall be due and shall be paid in
full by Borrower on the Maturity Date.

     6.  PREPAYMENT.  The Loan may be prepaid in whole or in part, at any time,
without fee or penalty.  In addition to any prepaid amount, Borrower shall also
pay to Lender any accrued and unpaid interest and all other sums due under the
terms of this Note at the time of such prepayment. All prepayments shall be
applied first to unpaid fees, unpaid interest and then to principal.
<PAGE>

     7.  LATE FEE.  If Lender does not receive the entire amount of any payment
required under this Note on the date it is due, Borrower shall pay a late fee of
five (5%) percent of that payment.

     8.  AFFIRMATIVE COVENANTS.  Borrower covenants and agrees that so long as
there are any outstanding amounts due Lender, Borrower shall:

           A.  Financial Statements.  Keep and maintain complete and accurate
               --------------------
books and records; and permit representatives and/or agents of Lender full and
complete access to any or all of Borrower's financial records.  Borrower shall
furnish to Lender the following financial information:

                  (i)  Not later than forty-five (45) days after the end of
each calendar quarter, Borrower's consolidated financial statements, including
without limitation, statements of financial condition, income and cash flows,
all of the above certified as true, correct and complete by Borrower.

                  (ii) Not later than thirty (30) days after the end of each
month, a financial statement showing the operation of Borrower and revenues and
disbursements.

           B.  Preservation of Property; Insurance.   Keep and maintain all of
               -----------------------------------
its property and assets in good order and repair, maintain insurance in amounts
sufficient to protect its assets and business operation.

     9.  NEGATIVE COVENANTS.  So long as any sums are outstanding under the Loan
Documents, Borrower shall not, without the prior written consent of Lender
convey, lease, sell, transfer or assign any assets, including without
limitation, Borrower's interest in New York Fast Ferry.

     10. EVENTS OF DEFAULT.  The occurrence of any one of the following shall
constitute an Event of Default under this Note:

           A.  Breach.  A breach by Borrower of any term, obligation, provision,
               ------
covenant, representation or warranty arising under (i) this Note, including
without limitation, failure to make any payment when due hereunder, or under any
other Loan Document; or (ii) any present or future agreement with, or in favor
of, Lender including the failure to make any payment when due.

           B.  Bankruptcy; Insolvency.  (i) Borrower commences any bankruptcy,
               ----------------------
reorganization, debt arrangement, or other case or proceeding under the United
States Bankruptcy Code or under any similar foreign, federal, state, or local
statute, or any dissolution or liquidation proceeding, or makes a general
assignment for the benefit of creditors, or takes any action for the purpose of
effecting any of the foregoing; (ii) any bankruptcy, reorganization, debt
arrangement or other case or proceeding under the United States Bankruptcy Code
or under any similar foreign, federal, state or local statute, or any
dissolution or liquidation proceeding, is involuntarily

                                       2
<PAGE>

commenced against or in respect of Borrower or any order for relief is entered
in any such proceeding; (iii) the appointment, or the filing of a petition
seeking the appointment of a custodian, receiver, trustee, or liquidator for
Borrower, or any of its property, or the taking of possession of any part of the
property of Borrower at the instance of any governmental authority.

           C.  Material Misstatement.  Any statement, representation or warranty
               ---------------------
made in or pursuant to this Note or any other Loan Document or to induce Lender
to enter into this Note shall prove to be untrue or misleading in any material
respect.

           D.  Entry of Judgment.  The filing, entry or issuance of any
               -----------------
judgment, execution, garnishment, attachment, distraint, or lien against
Borrower, or its property; the entry of an order enjoining or restraining
Borrower and/or restraining or seizing any property of Borrower.

           E.  Transfer of Assets.  Borrower transfers or sells all or
               ------------------
substantially all of its assets, without the prior written consent of Lender.

     11. REMEDIES.

           A.  Acceleration of Liabilities; Rights of Lender.  Upon the
               ---------------------------------------------
occurrence of an Event of Default described in Section 10 hereof the Loan shall
immediately become due and payable in full, all without protest, presentment,
demand or further notice of any kind to Borrower, all of which are expressly
waived.  Upon and following an Event of Default, Lender, at its option, may
exercise any and all rights and remedies it has under this Note, the other Loan
Documents and under applicable law, including without limitation, the right to
charge and collect all default payments and penalties.  Upon and following an
Event of Default hereunder, Lender may proceed to protect and enforce Lender's
rights under any Loan Document and/or under applicable law by action at law, in
equity, or other appropriate proceeding, including without limitation, an action
for specific performance to enforce or aid in the enforcement of any provision
contained herein or in any other Loan Document.

           B.  Remedies Cumulative; No Waiver.  The rights, powers and remedies
               ------------------------------
hereunder and under the other Loan Documents are cumulative and concurrent, and
are not exclusive of any other rights, powers or remedies available to Lender.
No failure or delay on the part of Lender in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy.

     12. CONVERSION.  The Lender shall have the right, at its sole and
exclusive option, to convert the outstanding Indebtedness to common shares (the
"Conversion Rights") of the Company at any time prior to Borrower making payment
and should such Conversion Rights be exercised, the Company shall issue such
shares to the Lender at the rate of one share for each One Dollar and Fifty
Cents ($1.50) of the Indebtedness then due and owing.  The option and conversion
as provided herein shall be exercised by Lender issuing written notice to the
Borrower.

                                       3
<PAGE>

     13. DEFAULT AS TO REDEMPTION.   Should Borrower default as to the payment
of the Indebtedness on the Maturity Date, the Conversion Rights of Lender as set
forth in Paragraph 12, shall be amended as follows:

           A.  Lender shall receive one (1) share of common stock of the Company
for each one dollar of the Indebtedness due and outstanding after the Maturity
Date.

           B.  Should the Indebtedness remain due and outstanding for a period
greater than ninety (90) days after the Maturity Date, then the Conversion
Rights shall be at the rate of one (1) share of common stock of the Company for
each fifty cents ($.50) of the Indebtedness outstanding.

           C.  In addition to the above, Borrower shall be obligated to issue to
Lender 15,000 one year warrants for each thirty (30) day period that the
Indebtedness remains outstanding after the Maturity Date, said warrants to be
issued on the first day of each thirty (30) day period and exercisable at
twenty-five cents ($.25) per share.

     14. CHANGES.  This Note can only be changed by an agreement in writing
signed by Borrower and Lender.

     15. NOTICES.  Notices and communications under this Note shall be in
writing and shall be given by either (i) hand delivery, (ii) first class
(postage prepaid), or (iii) reliable overnight commercial courier (charges
prepaid) to the addresses listed in this Note.  Notice shall be deemed to have
been given and received (a) if by and delivery, upon delivery, (b) if by mail,
three (3) calendar days after the date first deposited in the United States
mail; and (c) if by overnight courier, on the date scheduled for delivery.  A
party may change its address by giving written notice to the other party as
specified herein.

     16. INTEGRATION; AMENDMENT.  This Note and the other Loan Documents,
constitute the sole agreement of the parties with respect to the subject matter
hereof and thereof and supersede all oral negotiations and prior writings with
respect to the subject matter hereof and thereof.  No amendment of this Note,
and no waiver of any one or more of the provisions hereof shall be effective
unless set forth in writing and signed by the parties hereto.

     17. SUCCESSORS AND ASSIGNS.  This Note (i) shall be binding upon Borrower
and Lender and, where applicable, their respective heirs, executors,
administrators, successors and permitted assigns, and (ii) shall inure to the
benefit of Borrower and Lender and, where applicable, their respective heirs,
executors, administrators, successors and permitted assigns; provided, however,
that Borrower may not assign its rights or obligations hereunder or any interest
herein without the prior written consent of Lender, and any such assignment or
attempted assignment by the Borrower shall be void and of no effect with respect
to Lender.

     18. SEVERABILITY AND CONSISTENCY.  The illegality, unenforceability or
inconsistency of any provision of this Note or any instrument or agreement
required hereunder shall

                                       4
<PAGE>

not in any way affect or impair the legality, enforceability or consistency of
the remaining provisions of this Note or any instrument or agreement required
hereunder. The Loan Documents are intended to be consistent. However, in the
event of any inconsistencies among any of the Loan Documents, such inconsistency
shall not affect the validity or enforceability of any Loan Document.

     19. CONSENT TO JURISDICTION AND SERVICES OF PROCESS. Borrower hereby
consents and agrees that (i) any action or proceeding against it may be
commenced and maintained in any court within the State of New Jersey or in the
United States District Court for the District of New Jersey by service of
process on any Borrower, and (ii) the courts of the State of New Jersey and the
United States District Court for the District of New Jersey shall have
jurisdiction with respect to the subject matter hereof and the person of
Borrower and all collateral for the Liabilities.  Borrower agrees that any
action brought by Borrower shall be commenced and maintained only in a court in
the federal judicial district or county in which Lender has its principal place
of business in New Jersey.

     20. GOVERNING LAW.  This Note shall be construed in accordance with and
governed by the substantive laws of the State of New Jersey without reference to
conflict of laws principles.

     IN WITNESS WHEREOF, Borrower intending this Note to take effect as an
instrument under seal and intending to be legally bound, has caused these
presents to be duly executed the day and year first above written.

Attest:                             LIGHTHOUSE LANDINGS, INC. (Borrower)

_______________________________     By: ________________________________________
ANTHONY T. COLASANTI, Secretary         ANTHONY CAPPAZE, President

                                       5

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