DEFERRED COMPENSATION AGREEMENT
Exhibit 10.2
THIS AGREEMENT (the “Deferred Compensation Agreement”) is made as of the 20th day
of March, 2006, and between The Connecticut Water Company (together with any affiliated companies
hereinafter collectively referred to as the “Employer”) and Xxxx X. Xxxxxxxxx
(hereinafter referred to as the “Employee”).
WITNESSETH:
WHEREAS, the Employee is among a select group of management or highly compensated employees of
the Employer; and
WHEREAS, the Employer and the Employee are willing to enter into this Deferred Compensation
Agreement (the “Agreement”) on the terms herein set forth, effective as of the date first above
written;
NOW, THEREFORE, in consideration of the premises and the mutual and dependent promises herein,
the parties hereto agree as follows:
1. DEFERRED COMPENSATION. The Employee may file a written election with the Employer
in the form attached to this Agreement or such other form as may be approved by the Employer to
defer up to 12 percent (12%) of the Employee’s salary. Such amount shall be credited to a Deferred
Compensation Account as provided in Section 2 hereof. This election to defer the receipt of salary
must be made before the beginning of the calendar year for which the salary is earned and shall
remain in effect, unless terminated or changed, or until the date the Employee ceases to be an
employee of the Employer. Any election termination or change of a deferral election must be made
on a form provided by the Employer for such purpose and may only be made with respect to salary
which will be earned on and after the January 1 following the Employer’s receipt of such form
provided that such form is received at least seven (7) days prior to the applicable January 1.
2. DEFERRED COMPENSATION ACCOUNT. The Employer shall maintain on its books and
records a Deferred Compensation Account to record its liability for future payments of deferred
compensation and interest thereon required to be paid to the Employee or his beneficiary pursuant
to this Agreement. However, the Employer shall not be required to segregate or earmark any of its
assets for the benefit of the Employee or his beneficiary. The amount reflected in said Deferred
Compensation Account shall be available for the Employer’s general corporate purposes and shall be
available to the Employer’s general creditors. The amount reflected in said Deferred Compensation
Account shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of the Employee or his beneficiary, and
any attempt to anticipate, alienate, transfer, assign or attach the same shall be void. Neither
the Employee nor his beneficiary may
assert any right or claim against any specific assets of the Employer. The Employee or his
beneficiary shall have only a contractual right against the Employer for the amount reflected in
said Deferred Compensation Account and shall have the status of general unsecured creditors.
Notwithstanding the foregoing, in order to pay amounts which may become due under this Agreement,
the Employer may establish a grantor trust (hereinafter the “Trust”) within the meaning of Section
671 of the Internal Revenue Code of 1986, as amended. The assets in such Trust shall at all times
be subject to the claims of the general creditors of the Employer in the event of the Employer’s
bankruptcy or insolvency, and neither the Employee nor any beneficiary shall have any preferred
claim or right, or any beneficial ownership interest in, any such assets of the Trust prior to the
time such assets are paid to an Employee or beneficiary pursuant to this Agreement.
The Employer shall credit to said Deferred Compensation Account the amount of any salary to
which the Employee becomes entitled and which is deferred pursuant to Section 1 hereof, such amount
to be credited as of the first business day of each month. The Employer shall also credit to said
Deferred Compensation Account an Interest Equivalent in the amount and manner set forth in Section
3 hereof.
3. PAYMENT OF DEFERRED COMPENSATION
(a) Termination of Employment On or After Attainment of Age 55. If the Employee’s
employment should terminate on or after his attainment of age fifty-five (55) for any reason other
than death or an account of “Cause” as defined in subsection (d) below, he shall be entitled to
receive payment of the entire amount of his Deferred Compensation Account including an Interest
Equivalent, as described below, in the form of an actuarially equivalent life annuity providing for
equal annual payments for the life of the Employee. Such actuarially equivalent life annuity shall
be computed on the basis of a mortality table that assumes a life expectancy of age eighty (80) and
uses the Interest Factor described below. The first annuity payment under this subsection shall be
paid seven (7) months following the date of the Employee’s termination of employment, and
subsequent payments shall be made on anniversaries of that date.
There shall be credited to the Employee’s Deferred Compensation Account as of each January 1
and July 1, commencing with July 1, 2007 until payment of such account begins, as additional
deferred compensation, an Interest Equivalent equal to fifty percent (50%) of the product of (i)
the AAA Corporate Bond Yield Averages published by Xxxxx’x Bond Survey for the Friday ending on or
immediately preceding the applicable January 1 and July 1 plus ___(___) percentage points (the
“Interest Factor”), multiplied by (ii) the balance of the Employee’s Deferred Compensation Account,
including the amount of Interest Equivalent previously credited to such Employee’s account, as of
the preceding day (i.e., December 31 or June 30). The Interest Factor used to compute the annuity
payable upon the Employee’s termination of employment on or after his attainment of age fifty-five
(55) shall be calculated based upon the Interest Factor as of the January 1 or July 1 immediately
preceding the date of the Employee’s termination of employment, whichever shall fall nearer to the
date of the Employee‘s termination of employment.
(b) Termination of Employment Prior to Attainment of Age 55. If the Employee’s
employment should terminate prior to his attainment of age fifty-five (55) for any reason other
than death or on account of “Cause” as defined in subsection (d) below, the Employee shall be
entitled to receive payment in a lump sum of the entire amount of his Deferred Compensation
Account, including the same Interest Equivalent as described in subsection (a) above. Payment
under this subsection shall be made on the date which is seven (7) months following the Employee’s
termination of employment.
(c) Termination of Employment for Cause.
(i) If the employment of the Employee is terminated by the Employer for Cause, the Employee
shall be entitled only to a return of amounts deferred pursuant to Section 1 hereof.
(ii) If the Employee is so terminated on or after age 55, payment shall be made in accordance
with the terms of Section 3(a) above. However, the Employee shall not be entitled to the Interest
Equivalent for any years prior to such termination, and such Interest Equivalent shall not be
included in determining Employee’s benefit hereunder. An Interest Factor shall be utilized in
calculating the amount of the annuity payable in accordance with the last sentence of subsection
(a) above.
(iii) If the Employee is so terminated prior to attainment of age 55, payment of the return of
amounts deferred (excluding any Interest Equivalent) shall be made in a lump sum on the date which
is seven (7) months following the Employee’s termination of employment.
(iv) As used in this Agreement, the term “Cause” shall mean:
(A) the Employee’s rendering, while employed by the Employer, of any services, assistance or
advice, either directly or indirectly, to any person, firm or organization competing with, or in
opposition to, the Employer;
(B) the Employee’s allowing, while employed by the Employer, any use of his name by any
person, firm or organization competing with, or in opposition to, the Employer; or
(C) willful misconduct by the Employee, including, but not limited to, the commission by the
Employee of a felony or the perpetration by the Employee of a common law fraud upon the Employer.
(d) Death While Employed. Notwithstanding anything to the contrary contained in the
foregoing, if the Employee should die while employed by the Employer, his beneficiary, designated
pursuant to Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise
payable to the Employee under this Agreement, a death benefit equal to the greater of (i) the
Hypothetical Death Benefit, as defined in subsection
(g) hereof, and (ii) the entire amount of his Deferred Compensation Account at the date of his
death, assuming that an Interest Equivalent were credited to such account as of each January 1 and
July 1, occurring after the first deferral hereunder until the date of death at the rate set forth
in subsection (a) hereof. Such beneficiary shall receive such death benefit on the thirtieth
(30th) day following the death of the Employee.
(e) Death After Termination of Employment.
(i) If the Employee should die after the termination of his employment, whether prior to or on
or after attainment of age 55, and prior to the date on which payment of his Deferred Compensation
Account has commenced in the form of an annuity in accordance with subsection (a) or has been paid
in the form of a lump sum as provided in subsection (b), his beneficiary, designated pursuant to
Section 4 hereof, shall receive in a lump sum, in lieu of the amount(s) otherwise payable to the
Employee under this Agreement, a death benefit equal to the entire amount of the Employee’s
Deferred Compensation Account, including the same Interest Equivalent as described in subsection
(a) above, at the date of his death, provided that the Employee’s employment shall not have
terminated on account of “Cause” as defined in subsection (c) hereof. In the event that the
Employee should die after the termination of his employment for “Cause,” whether prior to or on or
after attainment of age 55, and in either case prior to the date upon which payment of his Deferred
Compensation Account has been made or has commenced, his beneficiary, designated pursuant to
Section 4 hereof, shall receive a return of the amounts deferred (excluding any Interest
Equivalent). No Interest Equivalent shall be credited to the Employee‘s Deferred
Compensation Account in the event of the Employee’s death after his termination on account of
“Cause” as provided in subsection (d) hereof. In either case, the Employee’s beneficiary shall
receive such death benefit on the thirtieth (30th) day following the death of the
Employee.
(ii) If the Employee should die after the termination of his employment with the Employer on
or after attainment of age 55 (not on account of “Cause”) and after the date on which payment of
his Deferred Compensation Account and the Interest Equivalent set forth in subsection (a) hereof
has commenced in the form of an annuity as provided in subsection (a), no additional benefits shall
be payable under this Agreement after the Employee’s death except to the extent that the Employee
did not receive prior to his death benefits in an amount equal to or greater than the Employee’s
Deferred Compensation Account plus any Interest Equivalent credited thereto, as of the date of the
Employee’s death. If the Employee dies prior to receiving benefits equal to or greater than the
Employee’s Deferred Compensation Account plus any Interest Equivalent credited thereto as of the
date of the Employee’s death, his beneficiary shall be entitled to a lump sum payment, thirty (30)
days following Employee’s death, equal to the difference between benefits paid to the Employee
hereunder and the Employee’s Deferred Compensation account, plus any Interest Equivalent credited
thereto, as of the date of the Employee’s death.
(iii) If the Employee should die after the termination of his employment with the Employer on
or after attainment of age 55 on account of “Cause” and after the
date payments have commenced to him in the form of an annuity as provided in subsection (c),
no additional benefits shall be payable under this Agreement after the Employee’s death except to
the extent the Employee did not receive prior to his death benefits in an amount equal to or
greater than the amounts deferred (excluding any Interest Equivalent earned while employed). In
such event, his beneficiary shall be entitled to a lump sum payment, thirty (30) days following
Employee’s death, equal to the difference between benefits paid to the Employee hereunder and the
amounts deferred (excluding any Interest Equivalent earned while employed).
(iv) If the Employee should die after the termination of his employment with the Employer and
after the date on which payment has been paid to him in the form of a lump sum pursuant to
subsection (b) or (c), no additional benefits shall be payable upon the Employee’s death.
(f) Hypothetical Death Benefit. For purposes of this Agreement, the term
“Hypothetical Death Benefit” shall mean a lump sum benefit equal to the proceeds of any policy of
key-man life insurance on the life of the Employee, of which the Employer is owner and beneficiary,
and which policy is designated by the Employer as subject to the provisions hereof, reduced
by (i) the amount of any tax imposed on the Employer with respect to such proceeds and (ii) the
cost to the Employer of any tax deductions postponed as a result of salary deferrals pursuant to
Section 1 hereof and increased by (iii) the tax deduction to the Employer which would
result from payment of the Hypothetical Death Benefit to a beneficiary of the Employee. For
purposes of (ii) above, an opportunity cost factor of six (6) percent pre-tax interest will be
applied during the period of postponed deductions under (ii). The calculation of the Hypothetical
Death Benefit shall be done by the Employer, whose calculation shall be final and binding on the
Employee and his beneficiary. Anything herein to the contrary notwithstanding, the Employer shall
not be required to purchase a policy of key-man life insurance on the life of any Employee, and any
such policy purchased by the Employer, and all proceeds thereof, shall remain at all times
available to the Employer’s general creditors.
(g) Termination of Employment. In order for the Employee to be considered to have
terminated employment with the Employer, the Employee must have incurred a separation from service
from the Employer (and all related companies) within the meaning of Section 409A of the Code.
4. BENEFICIARY. The Employee has notified or will in the future notify the Employer
of the person or persons entitled to receive payments on the death of the Employee. For the
purposes of this Agreement, such person or persons are herein referred to collectively as the
“beneficiary.” The person whom an Employee designates as his beneficiary for this purpose must be
one of the following: the Employee‘s spouse; father, mother, sister, brother, son or
daughter. The beneficiary may also be a legal xxxx living with and dependent on the Employee at
the time of his death. If the Employee dies and has not designated a beneficiary, his beneficiary
shall be his spouse, if living; otherwise, his beneficiary shall be deemed to be his estate. An
Employee’s beneficiary designation may be changed at any time by the Employee giving written notice
to the
Employer of such change. The rights of any beneficiary presently or hereafter designated are
subject to any changes made in this Agreement by the Employee and the Employer.
5. WITHHOLDING. The Employer shall be permitted to withhold from any payment to the
Employee or his beneficiary hereunder all federal, state or other taxes which may be required with
respect to such payment.
6. ARBITRATION. In the event that a dispute shall arise with respect to any of the
provisions of this Agreement, either the Employer or the Employee or his beneficiary, as the case
may be, may give written notice to the other stating the claims that said party desires to
arbitrate, and naming an arbitrator. Within ten (10) days after the receipt of such notice, the
party receiving same shall appoint a second arbitrator by written notice to be sent to the party
who requested arbitration. Within ten (10) days after receipt of such notice of appointment of the
second arbitrator, the two (2) arbitrators so appointed shall meet to select a third arbitrator and
shall give written notice of such selection to the Employer and the Employee or his beneficiary.
The decision of a majority of the arbitrators shall be conclusive and binding upon the Employer and
the Employee or his beneficiary. All notices hereunder shall be by registered mail addressed to
the last known address of the party entitled to receive notice. The Employer and the Employee
shall each pay their own costs incurred in the arbitration proceeding; provided, however, that the
arbitrators may require that the losing party reimburse the prevailing party for its costs if it
shall be determined that the claim which gave rise to the dispute was without substantial
foundation.
7. MISCELLANEOUS.
(a) This Agreement shall be binding upon the parties hereto, their heirs, executors,
administrators, successors and assigns. The Employer agrees that it will not be a party to any
merger, consolidation or reorganization unless and until its obligations hereunder shall be
expressly assumed by its successor or successors.
(b) This Agreement may be amended at any time by mutual written agreement of the parties
hereto, but no amendment shall operate to give the Employee, or any beneficiary designated by him,
either directly or indirectly, any interest whatsoever in any funds or assets of the Employer,
except the right to receive the payments herein provided.
(c) Deferrals under this Agreement may be suspended by the Employer effective as of any
January 1, following the time that tax or other laws are enacted or interpreted which result or
will result in costs to the Employer significantly in excess of those contemplated at the time of
the execution hereof. In the event of such suspension, the Employer‘s sole obligation
shall be to pay to the Employee in accordance with Section 3 above. In no event may deferrals be
ceased during a calendar year by action of either the Employer or the Employee, or both.
(d) This Agreement shall not supersede any contract of employment, whether oral or written,
between the Employer and the Employee, nor shall it affect or impair the
rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing
contained herein shall impose any obligation on the Employer to continue the employment of the
Employee.
(e) If Xxxxx’x Bond Survey shall cease to publish the Corporate Bond Yield Averages referred
to in Section 3 hereof, a similar average selected by the Board of Directors of the Employer, in
its sole discretion, shall be used.
(f) This Agreement shall be executed in duplicate, and each executed copy of this Agreement
shall be deemed an original.
(g) This Agreement shall be construed in all respects under the laws of the State of
Connecticut, subject to applicable federal law.
(h) This Agreement has been prepared with reference to Section 409A of the Internal Revenue
Code and should be interpreted and administered in a manner consistent with Section 409A. In the
event that any part of the Agreement is determined to be in violation of 409A, such part of the
Agreement shall be automatically revised to be in compliance with Section 409A in such way as most
closely approximates the intent of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of
the day and year first above written.
| THE CONNECTICUT WATER COMPANY |
||||
| By: | Xxxxxxx X. XxXxxx | |||
| Its Corporate Secretary | ||||
| /s/ Xxxx X. Xxxxxxxxx | ||||
| Xxxx X. Xxxxxxxxx | ||||
