Document:

EX-10.3

 

Exhibit 10.3

PERFORMANCE AWARD AGREEMENT

(Under the Connecticut Water Service, Inc.

2004 Performance Stock Program)

     THIS AGREEMENT, made and entered into as of the 11th day of January, 2006 (the
“Grant Date”) by and between CONNECTICUT WATER SERVICE, INC., a Connecticut corporation, (the
“Company”), and                                          (“Participant”).

W I T N E S S E T H :

     WHEREAS, the Company has determined that the Participant is an Eligible Person under the
Company’s 2004 Performance Stock Program (the “Plan”); and

     WHEREAS, the Committee wishes to grant to the Participant a Performance Share or Cash Unit
Award, as hereinafter described (the “Award”);

     NOW, THEREFORE, in consideration of the premises, and of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:

     1. Capitalized Terms. All capitalized terms not defined herein shall have the meaning
ascribed to them in the Plan.

     2. Incentive Award.

          (a) Subject to the terms and conditions of the Plan and this Agreement, the Company hereby
awards to the Participant an Award which shall entitle the Participant to payment of a bonus based
upon the achievement of Performance Goals established by the Committee, a bonus computation formula
and other factors set forth in Exhibit A to this Agreement which is incorporated herein by
reference. The Award shall be subject to forfeiture as described in Section 5 of this Agreement.

          (b) In order for the Participant to be eligible to receive the bonus which the Participant may
otherwise earn pursuant to the Award, the Participant must execute and deliver a copy of this
Agreement and a copy of Exhibit A to the Company within ten (10) business days of the date
on which the Participant has received this Agreement. In the event that this Agreement is executed
by the Company and the Participant prior to the completion of Exhibit A, the Company and
the Participant shall complete Exhibit A within a reasonable time. The Participant shall
not be entitled to any bonus under this Agreement except in accordance with the achievement of the
Performance Goals and other factors with respect to such bonus set forth on Exhibit A to
this Agreement. For purposes of this Agreement, “Performance Goals” may include absolute or
relative growth in earnings per share, rate of return on stockholders’ equity, earnings per share,
total stockholder return relative to peers, water quality, customer satisfaction, customer growth
or other measurement of the Company’s performance.

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          (c) At the completion of the applicable Award Period (or as promptly as practicable
thereafter), the Committee shall determine the extent to which such Performance Goals have been
achieved, and shall calculate the amount of Performance Share or Cash Units earned with respect to
Participant’s Award hereunder. The amount of the Award hereunder shall become earned or forfeited,
as the case may be, as of the date of such determination.

          (d) Notwithstanding the acceptance of Exhibit A by the Company and the Participant, as
evidenced by their execution and attachment hereto of a copy thereof, the Performance Goals
applicable to the Award may be adjusted as the Committee deems necessary or appropriate in the
manner permitted by and subject to the Plan.

     3. Payment; Vesting.

          (a) Unless the Participant executes the Deferral Election Form attached as Exhibit B hereto,
the Award shall be paid in Performance Cash Units. By executing the Deferral Election Form
attached as Exhibit B, the Participant consents to payment of the Award in Performance Share Units,
which shall be credited to the Participant’s Performance Share Account in accordance with the terms
of the Plan. Payment from the Participant’s Performance Share Account shall thereafter be made in
accordance with the terms of the Plan.

          (b) The earned portion of the Award shall be, in the case of an Award of Performance Cash
Units, paid to the Participant on or after the March 1st following the end of the Award Period (but
in no event later than the December 1st following the end of the Award Period), or in the case of
an Award of Performance Share Units, credited to the Participant’s Performance Share Account on or
after the March 1st following the end of the Award Period (but in no event later than the December
1st following the end of the Award Period). Payment from the Participant’s Performance Share
Account shall thereafter be made in accordance with the terms of the Plan.

     4. Change in Control. Notwithstanding the vesting provisions of Section 3(a) hereof,
if a “Change in Control” (as defined in the Plan) occurs after the date of this Agreement, then the
restrictions and other conditions applicable to the Award under this Agreement shall immediately
lapse and be of no further force and effect.

     5. No Employment or Other Contractual Rights. No provision of this Agreement shall:
(a) confer or be deemed to confer upon the Participant any right to continue in the employ of the
Company or any Subsidiary or shall in any way affect the right of the Company or any Subsidiary to
dismiss or otherwise terminate the Participant’s employment at any time for any reason with or
without case, (b) be construed to impose upon the Company or any Subsidiary any liability for any
forfeiture of the Award which may result under this Agreement if the Participant’s employment is so
terminated, or (c) affect the Company’s right to terminate or modify any contractual relationship
with the Participant if the Participant is not an employee of the Company or a Subsidiary.

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     6. Changes in Capitalization. This Agreement and the issuance of the Award hereunder
shall not affect in any way the right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other changes in the
Company’s capital structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate act or proceedings,
whether of a similar character or otherwise.

     7. No Liability for Business Acts or Omissions. The Participant recognizes and agrees
that the Board or the officers, agents or employees of the Company in their conduct of the business
and affairs of the Company, may cause the Company to act, or to omit to act, in a manner that may,
directly or indirectly, affect the amount of or the ability of the Participant to earn the Award
under this Agreement. No provision of this Agreement shall be interpreted or construed to impose
any liability upon the Company, the Board or any officer, agent or employee of the Company for any
effect on the Participant’s entitlement under the Award that may result, directly or indirectly,
from any such action or omission.

     8. Governing Law; Interpretation. The terms of this Agreement shall be governed by
Connecticut law, without regard to its choice of law provisions. This Agreement shall at all times
be interpreted, administered and applied in a manner consistent with the provisions of the Plan.
If any of the terms or provisions of this Agreement conflict with any terms or provisions of the
Plan, then such terms or provisions shall be deemed inoperative to the extent they so conflict with
the requirements of the Plan.

     9. Amendment; Modification; Waiver. No provision of this Agreement may be amended,
modified or waived unless such amendment, modification or waiver shall be authorized by the
Committee and shall be agreed to in writing by the Participant.

     10. Miscellaneous. This Agreement (a) contains the entire Agreement of the parties
relating to the subject matter of this Agreement and supersedes any prior agreements or
understandings with respect thereto; and (b) shall be binding upon and inure to the benefit of the
Company, its successors and assigns and the Participant, his heirs, devisees and legal
representatives. In the event of the Participant’s death or a judicial determination of his
incompetence, reference in this Agreement to the Participant shall be deemed to refer to his legal
representative, heirs or devisees, as the case may be.

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******

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first
written above.

	 	 	 	 	 	 	 
	Participant	 	 	 	CONNECTICUT WATER SERVICE, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 

	 	 	 	 	 	Title:

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Exhibit A

DESCRIPTION OF THE

PERFORMANCE GOALS APPLICABLE TO THE AWARD 

Dated:                     , 2006

	 	 	 	 	 	 	 
	Participant	 	 	 	CONNECTICUT WATER SERVICE, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 

	 	 	 	 	 	Title:

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Exhibit B

I,                                                             , hereby elect to have my Award, as that term is defined in the
Performance Award Agreement between myself and Connecticut Water Service, Inc. dated January 11,
2006 (the “Agreement”), credited to my Performance Share Account, as described in the Connecticut
Water Service, Inc. 2004 Performance Stock Program (the “Plan”). I understand that my Performance
Share Account shall be paid in accordance with the terms if the Plan. I further acknowledge that I
have received a copy of the Plan.

Dated:                     , 2006

	 	 	 	 	 
	Witness:

	 	 	 	Participant:
	 
	 	 	 	 
	 

	 	 	 	 

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Exhibit 10.1

January 6, 2006

Mr. Eric Thornburg

473 Pine Bend Drive

Chesterfield, MO 63005

Dear Eric:

The Connecticut Water Service Board of Directors is very pleased to offer you the position of
President and CEO, and a Director of Connecticut Water Service, Inc., reporting to the Chairman of
the Board.

The attached offer term sheet outlines the key dimensions of the compensation package. Also
included is an outline of our standard benefits package. Necessary supporting documentation on
these terms will be provided once you are aboard.

We are excited about the prospect of you joining us. There is much to do. We would hope to ratify
your election at a board meeting scheduled for January 11, 2006. We need to discuss the timing and
content of the public announcement.

If the attached documentation is acceptable, please initial each page of the term sheet and return
it with a signed copy of this letter by fax to me at 860.669.5579.

The Board and I very much look forward to working with you and to making Connecticut Water Service
a larger and even more successful regional water company.

Sincerely,

Marshall T. Chiaraluce

Chairman, President & CEO

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CONNECTICUT WATER SERVICE, INC./THE CONNECTICUT WATER COMPANY

EXECUTIVE COMPENSATION TERM SHEET

	 	 	 
	Title:

	 	President and CEO, and Director
	 
	 	 
	Reports to:

	 	Chairman of the Board
	 
	 	 
	Base Salary:

	 	$294,100 (midpoint of salary range) per year, paid bi-monthly. To be reviewed and adjusted on a calendar year
basis
	 
	 	 
	Annual

	 	15% of midpoint salary at threshold; 30% of midpoint at target;
	Incentive Award:

	 	45% of mid-point at maximum.
	 
	 	 
	 

	 	Determined by Compensation Committee of the Board, based on Company’s
financial performance, corporate indicators and strategic initiatives.
	 
	 	 
	Long Term

Incentives:

	 	4,507 shares of restricted CWS Common Stock on hire; 6-year
vesting starting in 2006
	 
	 	 
	 

	 	Annual awards of restricted stock and/or stock options consistent with
2004 Performance Stock Plan, with value equal to annual incentive award.
	 
	 	 
	 

	 	Deferred Compensation Agreement; defer up to 12% of salary with interest
earned at Moody’s AAA corporate bond yield average rate plus an additional
1 l/2 to 3%.
	 
	 	 
	 

	 	Pension and Supplemental Executive Retirement Plan; 60% of last 5-year
average salary base, including bonus; reduced by pension payments from
previous employer. Retirement can begin at age 55 with reduction factor.
Five-year vesting.
	 
	 	 
	Vacation:

	 	4 weeks
	 
	 	 
	Holidays:

	 	13 paid holidays and 2 personal days per year
	 
	 	 
	401(k):

	 	Yes; 50% matching to statutory maximum

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Executive Compensation Term Sheet – Page 2

	 	 	 
	Insurance:

	 	See standard Company documentation.
	 

	 	Medical – managed care and point-of-service options; employee pays 25% of
premium
	 

	 	Dental – yes; with employee contribution
	 

	 	Eye Care- discounts on routine exams and prescription eye wear
	 

	 	Life – 2 times salary up to $350,000; premium fully paid by company
	 

	 	Short Term Disability – 100% of salary for first 30 days; 60% to 180 days
	 

	 	Long Term Disability – 60% of salary; $10,000/month max.
	 

	 	Employee Counseling Assistance
	 

	 	Flexible Medical Spending Account
	 
	 	 
	Severance:

	 	For Cause – none
	 
	 	 
	 

	 	Not for Cause:
	 

	 	1-year salary continuation; 1 year health and welfare benefit premium
continuation; 1 year non-compete
	 
	 	 
	 

	 	Change in Control

• 3-year salary and target bonus lump sum with tax gross up.
	 

	 	• 3-year health and welfare benefit premium continuation
	 

	 	• accelerated vesting of options and/or restricted stock;
	 

	 	• 2-year non-compete
	 
	 	 
	Car:

	 	Yes; American-made, non-luxury vehicle
	Cell phone:

	 	Yes
	Club:

	 	The Hartford Club
	 
	 	 
	Industry

	 	 
	Associations:

	 	Membership in national organizations and attendance at annual
NAWC and Water Utility Executive conferences
	 
	 	 
	Relocation

	 	Relocation expenses and other appropriate expenses grossed up for taxes; Assistance: temporary living benefits until
August 2006; trip home every other week during school year; 3 house-hunting trips for spouse
	 
	 	 
	Start Date:

	 	February 1, 2006 up to March 1, 2006 (your choice)

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