STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (“Agreement”) dated this 21 ^st day of July, 2008, by and among The Connecticut Water Company, a Connecticut corporation (the “Buyer”), Ellington Acres Company, a Connecticut corporation (“EAC”), and the shareholders of EAC listed on Appendix A attached hereto (the “Shareholders”)

W I T N E S S E T H :

WHEREAS, EAC owns and operates a water system located in the Town of Ellington, Connecticut and the Town of Somers, Connecticut (the “System”), and is subject to the jurisdiction of the Connecticut Department of Public Utility Control (“DPUC”), the Connecticut Department of Environmental Protection (“DEP”) and the Connecticut Department of Public Health (“DPH”); and

WHEREAS, the Shareholders listed on Appendix A attached hereto are the owners of an aggregate of 200 shares (the “Shares”) of EAC’s common stock, no par value per share (the “EAC Common Stock”), the Shares being 100% of the issued and outstanding shares of capital stock of EAC; and

WHEREAS, Buyer desires to purchase from the Shareholders, and the Shareholders desire to sell to Buyer, all of the Shares for the consideration and upon the terms and conditions hereinafter set forth; and

WHEREAS,  it is the intention of the parties hereto that, upon the consummation of the purchase and sale of the Shares pursuant to this Agreement, Buyer will own all of the issued and outstanding shares of capital stock of EAC; and

1.           THE PURCHASE AND SALE TRANSACTION.

1.1.            Purchase and Sale of Shares .  Subject to the terms and conditions of this Agreement, and in reliance on the representations, warranties, covenants and agreements contained herein, on the Closing Date (as hereinafter defined), the Shareholders shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from the Shareholders, in exchange for the Purchase Price (as hereinafter defined), the Shares.  The Shares shall be free and clear of all liens, claims, options, charges or encumbrances of any nature whatsoever, except for any liens, claims, options, charges or encumbrances disclosed in this Agreement or the Disclosure Schedules attached hereto.

1.3.            Due Diligence .

(a)           Buyer acknowledges that EAC and the Shareholders have previously delivered to Buyer certain documents and information in response to Buyer’s due diligence request list dated May 29, 2008.

(b)           Buyer shall have the period from the date hereof and ending at 5:00 p.m. on the date that is sixty (60) days from the date hereof (the “Inspection Period”) to conduct such due diligence with respect to EAC, the Property, the Assets and the System (as each such term is hereinafter defined), including without limitation such investigation of any matters disclosed or not disclosed herein or in any Disclosure Schedule hereto as Buyer, in its sole and absolute discretion, deems appropriate.

(d)           (i)           At any time before the end of the Inspection Period, Buyer may, in its discretion, give one written notice thereof delivered prior to the termination of the Inspection Period to EAC setting forth any objections (the “Buyer Objections”) that Buyer has resulting from its due diligence investigation.  EAC and the Shareholders shall have the option to cure the Buyer Objections within the thirty (30) day period after the date of such notice (the “Cure Period”) and shall within 10 days of receipt of the Buyer Objections give Buyer a written response of either their intention to cure the Buyer Objections or their intention not to cure or inability to cure the Buyer Objections (in either case, the “EAC Response”).

(ii)           If the EAC Response indicates that EAC and the Shareholders elect not to cure the Buyer Objections or EAC and the Shareholders attempt, but are unable, to cure the Buyer Objections prior to the end of the Cure Period, Buyer shall have the option (in its sole, reasonable discretion) to be exercised within 10 days of the earlier of the date of Buyer’s receipt of the EAC Response or the end of the Cure Period of either (X) accepting the situation as it then is for all purposes under this Agreement, waiving any additional rights Buyer may have arising from such Buyer Objections, and proceeding to carry out the purchase and sale transaction contemplated herein, or (Y) terminating this Agreement, whereupon this Agreement shall terminate and Buyer, EAC and the Shareholders shall have no further obligations or liabilities hereunder other than Buyer’s indemnity obligation under Section 1.3(c) ; provided however , that if Buyer elects to terminate this Agreement pursuant to this Section 1.3(d)(ii) , then Buyer shall reimburse the Shareholders and EAC for legal and accounting fees in an amount not to exceed $60,000, provided that the Shareholders submit copies to Buyer of documents establishing the amount of such legal and accounting fees.

(iii)           If Buyer does not give EAC a written notice setting forth any Buyer Objections during the Inspection Period or Buyer accepts the EAC Response and elects to proceed to carry out the purchase and sale transaction contemplated herein (as provided in Section 1.3(d)(ii)(X) above), this Agreement shall remain in full force and effect, except that Buyer's rights pursuant to this Section 1.3 shall terminate upon the date which is the earlier of Buyer’s election to proceed under Section 1.3(d)(ii)(X) above or the end of the Inspection Period.

1.4.            Closing Time and Place .  The closing of the purchase and sale transaction provided for in this Agreement (the “Closing”) shall take place at the offices of Murtha Cullina LLP, CityPlace I, 185 Asylum Street, Hartford, Connecticut, at 10:00 A.M. on a date mutually agreed to by the parties promptly following the receipt of DPUC approval as described in Section 6.2 hereof, or on such other date or at such other place as the parties may mutually agree upon (the “Closing Date”).  All proceedings to be taken and all documents to be executed and delivered by the parties at the Closing shall be deemed to have been taken and executed simultaneously and no proceedings shall be deemed taken or any documents executed or delivered until all have been taken, executed and delivered.

1.5.            Shareholders’ Obligations .

(a)  At least twenty (20) days prior to the Closing Date, EAC shall provide to the Buyer proper legal descriptions and surveys (to the extent such surveys presently exist) for the Property (as hereinafter defined).

(b)           At the Closing, EAC and the Shareholders shall deliver or cause to be delivered to the Buyer the following:

1.6.            Further Assurances .  The Shareholders shall, at any time and from time to time after the Closing, upon request of the Buyer, do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such reasonable further acts, deeds, assignments, transfers, conveyances, powers of attorney, and assurances as may be required for the better assigning, transferring, granting, conveying, assuring and confirming to the Buyer, or to its successors and assigns, or for aiding and assisting in collecting and reducing to possession of, any or all of the Shares.

1.7.            Buyer’s Obligations .   At the Closing, the Buyer shall deliver, or cause to be delivered in accordance with this Agreement, the Purchase Price by wire transfer of immediately available funds in accordance with Section 1.2 above.

Each of the Shareholders and EAC, jointly and severally, represent and warrant to the Buyer that, except as set forth in the Disclosure Schedule, the statements contained in this Section 2 are true and correct as of the date of this Agreement, except to the extent that such representations and warranties are specifically made as of a particular date (in which case, such representation and warranty shall be true and correct as of such date).  The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Section 2 (it being understood that any matter disclosed in any section of the Disclosure Schedule will be deemed to be disclosed in any other Section thereof).

2.1            EAC Common Stock .  Each Shareholder is the record and beneficial shareholder of the Shares owned by such Shareholder and has good and valid title to the Shares which are to be transferred to the Buyer by such Shareholder pursuant to this Agreement, free and clear of any and all covenants, conditions, restrictions, voting trust arrangements, liens, charges, encumbrances, options and adverse claims or rights whatsoever.  The authorized capital stock of EAC consists of 5,000 shares of EAC Common Stock.  There are presently two hundred (200) shares of EAC Common Stock issued and outstanding.   Appendix A sets forth a true and correct description of all Shares owned by each Shareholder.  All of the issued and outstanding Shares (i) are duly authorized, validly issued, fully paid and nonassessable, (ii) were not issued in violation of any preemptive or other rights of any person to acquire the securities of EAC and (iii) were issued in compliance with all applicable federal and state securities laws.  Except for this Agreement, there are no outstanding options, convertible securities, rights (preemptive or other), warrants, calls or agreements relating to any capital stock of EAC.

2.2            Authority .  Each Shareholder has the full right, power and authority to enter into this Agreement and to transfer, convey and sell to the Buyer at the Closing the Shares to be sold by such Shareholder hereunder.  This Agreement has been duly and validly executed and delivered by each Shareholder and constitutes a valid and binding obligation of each Shareholder, enforceable against each Shareholder in accordance with its terms,  subject as to enforcement, (a) to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally and (b) to general equitable principles.

2.3            Regulatory Approvals; No Brokers .  Except as set forth on Schedule 2.3 , no Shareholder is a party to, subject to or bound by any agreement or any judgment, order, writ, prohibition, injunction or decree of any court or other governmental body which would prevent the execution or delivery of this Agreement by any such Shareholder or the transfer, conveyance and sale of the Shares to be sold by any such Shareholder to the Buyer pursuant to the terms hereof.  All negotiations relative to this Agreement have been carried on by EAC and the Shareholders directly with the Buyer, without the intervention of any person as a result of any act of EAC or the Shareholders in such manner as to give rise to any valid liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the purchase and sale transaction contemplated by this Agreement.

2.4.            Organization and Status of EAC; Authority of EAC .  EAC is a public service company as defined in Section 16-1 of the Connecticut General Statutes and sells and distributes water in the Town of Ellington and the Town of Somers (collectively, the “Towns”).  EAC is a corporation legally existing under the laws of Connecticut, and has all other requisite corporate power and authority and all necessary licenses and permits to carry on its business as it is now being conducted, except to the extent that EAC’s failure to have such licenses or permits has not had, and would not reasonably be expected to have, an EAC Material Adverse Effect (as hereinafter defined). EAC’s rates and charges are and have been those shown on schedules filed with and approved by the DPUC.  EAC has all requisite corporate authority and capacity to enter into this Agreement and all other documents to be entered into by EAC in connection with the consummation of the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by EAC and constitutes a valid and binding obligation of EAC, enforceable against EAC in accordance with its terms, subject as to enforcement, (a) to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally and (b) to general equitable principles.  EAC is not under receivership, impediment or prohibition imposed by any court, regulatory commission, board, administrative body, arbitration board or tribunal or other federal, state or municipal government instrumentality (any such entity being referred to herein as a “Governmental Body”) that would render EAC unable to enter into and carry out the provisions of this Agreement.  As used in this Agreement, the term “EAC Material Adverse Effect” shall mean and include any effect, event, development or change which, individually or together with any other effects, events, developments or changes, either: (i) has a material adverse effect on the business, financial condition, assets and liabilities, prospects or results of operations of EAC taken as a whole, other than any effect, event, development or change resulting from (A) changes in applicable law or generally accepted accounting principles in the United States (“GAAP”) or the enforcement or interpretation thereof, (B) any action taken by the parties that is expressly permitted by the terms of this Agreement or to which Buyer has consented in writing, (C) changes generally affecting the water utility industry (provided, in the cases of clauses (A) or (C), such effects, events, developments or changes do not disproportionately adversely affect EAC relative to other similarly-situated businesses, in which case such disproportionate effects, events, developments or changes may be taken into account in determining whether or not an EAC Material Adverse Effect has occurred); or (ii) that prevents or materially adversely affects the ability of the Shareholders to consummate the purchase and sale transaction within the time periods contemplated by this Agreement.

2.5            No Subsidiaries .  EAC has never had any subsidiaries and does not otherwise own or control, directly or indirectly, or have any direct or indirect equity interest in, any domestic or foreign corporation, partnership, trust, joint venture, limited liability company or other business association or entity.

2.6            Title to Properties and Assets; Use of Water .  Except as set forth on Schedule 2.6 ,   EAC has good and valid title to (i) all Assets (as hereinafter defined) of EAC including, without limitation, the System, the wells, transmission and distribution mains, tanks and standpipes, pumps and pumping stations, hydrants, meters and personal property described in EAC’s Annual Report to the DPUC for the year ended December 31, 2007, and those acquired subsequent to December 31, 2007, and all of EAC’s right, title and interest in and to the curb stops, service connections (to the extent curb stops and service connections are purported to be owned by EAC) and easements, rights of way and leases, and any and all franchise rights, copies of which have been previously provided to the Buyer, and (ii) all documents, reports, maps and customer records pertaining to the System including, but not limited to, all engineering, laboratory and operating reports, customer service records including meter readings and fixture surveys, financial books and records, property maps, gate drawings, main laying specifications and tap and service cards, and EAC’s cash and bank deposits, except to the extent that EAC’s failure to have such title has not had, and would not reasonably be expected to have, an EAC Material Adverse Effect. EAC has good and marketable title in fee simple to all of its real property (“Property”), except where the failure of EAC to have such title has not had, and would not reasonably be expected to have, an EAC Material Adverse Effect. EAC acknowledges and agrees that it must satisfy and discharge all monetary liens and encumbrances affecting the Property at Closing, except any statutory liens for non-delinquent real property taxes.  All assets of EAC other than the Property (whether personal or mixed, tangible and intangible), rights and privileges (whether now and hereafter owned or leased by EAC) are referred to in this Agreement as the “Assets”, and are free and clear of all liens and encumbrances, except for any liens or encumbrances which do not, or would not reasonably be expected to, adversely affect the ability of EAC to operate the System for water utility purposes in the ordinary course of business.  Other than the Assets owned or leased by EAC, no other assets are used in the conduct and operation of the System and the distribution and delivery of water to each of EAC’s water customers.  EAC has the right to use the water it is now using in the manner in which it is using such water.  Except as set forth on Schedule 2.6 , all water supply sources, pump stations and storage facilities for the System are located on Property owned by EAC in fee simple.  All mains and service connections are located on Property owned by EAC in fee simple, within the public rights-of-way, or within permanent easements of record in favor of EAC, except for any deficiencies of title which do not, or would not reasonably be expected to, adversely affect the ability of EAC to operate the System for water utility purposes in the ordinary course of business.

2.7            Use of Property .  To the knowledge of EAC and the Shareholders, either (a) the present use of the Property conforms in all material respects to all applicable zoning, building, building line and similar restrictions, is a permitted “non-conforming use” as defined in such zoning, inland wetland, building, building line or similar restrictions or (b) EAC has obtained the necessary permits, variances or relief therefore, except where the lack of such permits, variances or relief do not, or would not reasonably be expected to, adversely affect the ability of EAC to operate the System for water utility purposes in the ordinary course of business.  All of the Property is located in the Towns, except for EAC’s main office located in Enfield, Connecticut.

2.8            Certificate of Incorporation, By-Laws .  The copies previously delivered to the Buyer of EAC’s Certificate of Incorporation and By-Laws are true and complete copies of said documents, and said Certificate and By-Laws are in full force and effect and include any and all amendments thereto.

2.9            Absence of Defaults .  Except as set forth on Schedule 2.9 , the execution and delivery of this Agreement does not and the consummation of the purchase and sale transaction contemplated hereby will not (a) violate any provision of the Certificate of Incorporation or Bylaws of EAC; (b) violate, conflict with or result in the breach or termination of, or constitute a default under the terms of, any agreement or instrument to which any of the Shareholders or EAC is a party or by which EAC or any of EAC’s Assets or Property may be bound; (c) result in the creation of any material lien, charge or encumbrance upon any of EAC’s Assets or Property pursuant to the terms of any agreement or instrument; (d) violate any judgment, order, injunction, decree, license, permit, award, rule or regulation against, or binding upon, EAC or upon any of the Assets or Property; or (e) constitute a material violation by EAC of any material law or regulation of any jurisdiction as such law or regulation relates to EAC, the System or any of the Assets or Property except, in the case of clauses (b), (d) and (e), where such violation would not reasonably be expected to have an EAC Material Adverse Effect.  EAC has obtained or will obtain prior to Closing all material consents, releases or waivers from Governmental Bodies and third parties which may be necessary to prevent the execution of this Agreement or the consummation of the transactions contemplated herein from resulting in any violation, breach, default or other event referred to in this Agreement, it being understood that it is the joint responsibility of the Buyer and EAC to obtain DPUC approval (as described in Section 6.2 hereof) of the purchase and sale transaction contemplated by this Agreement.

2.10            Litigation, Orders, Etc .  Except as set forth on Schedule 2.10 , there are no actions, suits, proceedings or governmental investigations pending, or insofar as is known to EAC or the Shareholders, in prospect or threatened, against or relating to EAC or the purchase and sale transaction contemplated by this Agreement in or before any Governmental Body.  The System, and EAC in its capacity as owner or operator of the System, is not subject to or in violation of any judgment, order, decree, injunction or award of any Governmental Body entered in any proceeding to which it was a party or of which EAC or the Shareholders had knowledge, including, without limitation, decisions, letter requests or proceedings of the DPUC, the DPH, the DEP, the Internal Revenue Service and the Towns, where such judgment, order, decree, injunction or award or said violation would reasonably be expected to have an EAC Material Adverse Effect.  No proceedings are pending or, to the knowledge of EAC or the Shareholders, threatened against the rates now being charged by EAC.

2.11            Contracts .   Schedule 2.11 sets forth a description of certain of EAC’s water main extension agreements and is true, complete and correct in all material respects.  All contracts, agreements and leases to which EAC is a party involving the payment of $10,000 or more by or to EAC in any one fiscal year or that are otherwise material to the business of EAC are valid, binding and in full force and effect and enforceable in accordance with their respective terms, and, to the knowledge of EAC or the Shareholders, no other party to any such contract, agreement or lease has breached any provision of, or is in default under the terms of, any such contract, agreement or lease, except when such violation or breach has not had, or would not reasonably be expected to have, an EAC Material Adverse Effect. 

2.12            Financial Statements; Annual Reports .

(a)           EAC has heretofore delivered to the Buyer true, correct and complete copies of (X) EAC’s audited financial statements for the three (3) most recently completed fiscal years of EAC, which financial statements have been audited by an independent Certified Public Accountant in accordance with GAAP consistently applied throughout such periods and which have been prepared consistently with prior periods (in each case, except as may be described in the notes thereto) and (Y) the internally prepared unaudited, interim balance sheet and statement of profits and loss of EAC, each dated as of April 30, 2008 (which unaudited statements omit depreciation, accruals for taxes and rent expense for four months) (collectively, the “April 30 ^th Exceptions”).  Each financial statement described in this Section 2.12(a) is hereinafter referred to as a “Financial Statement” and are collectively referred to as the “EAC Financial Statements”.

(b)           Each EAC Financial Statement fairly and accurately presents in all material respects the assets, liabilities, financial condition, revenues, expenses and results of the operations of EAC for the applicable period, subject in the case of the interim Financial Statements, to (i) the April 30 ^th Exceptions, (ii) normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, have an EAC Material Adverse Effect) and (iii) the absence of footnotes (that, if presented, would not differ materially from those included on EAC’s December 31, 2007 balance sheet).  Except for the April 30 ^th Exceptions, each EAC Financial Statement is true and correct in all material respects, contains no untrue statement of material fact and does not omit any material fact necessary to make such financial statement not mis­leading.

(c)           No financial statements of any other person or entity are required by GAAP to be included in the EAC Financial Statements and EAC is not a guarantor, indemnitor, accommodation party or surety for the Slanetz Corporation or any other person, entity, liability or obligation.

(d)           The annual reports filed with the DPUC by EAC with respect to EAC and the System from and after December 31, 2001 (copies of which have been provided to Buyer) are true, correct and complete in all material respects and accurately represent in all material respects the financial condition and operations of EAC for the respective periods and dates covered by such reports.

2.13            Absence of Adverse Change .  Since December 31, 2007, there has not been any material adverse change in the financial position, results of operations, assets, liabilities or business of EAC, taken as a whole.

2.14            No Undisclosed Liabilities .  Except for the April 30 ^th Exceptions, EAC has no liabilities or obligations of any nature (whether known or unknown, or absolute, accrued, contingent or otherwise), except for liabilities and obligations reflected or reserved against in the EAC Financial Statements and current liabilities incurred in the ordinary course of business since the respective dates of the EAC Financial Statements, except such liabilities or obligations which have not had, or would not reasonably be expected to have, an EAC Material Adverse Effect.

2.15            Compliance with Laws; No Environmental Hazards .

(a)           Except as has not had, or would not reasonably be expected to have, an EAC Material Adverse Effect, to the knowledge the Shareholders, the location and construction, occupancy, operation and use of all improvements attached to or placed, erected, constructed or developed as a portion of any of the Property (th