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As filed with the Securities and Exchange Commission on May 29, 2002

Registration No. 333-87864

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ARTESIAN RESOURCES CORPORATION
(Exact name of registrant as specified in charter)

Delaware	51-0002090
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

664 Churchmans Road
Newark, DE 19702
(302) 453-6900

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Dian C. Taylor
Chief Executive Officer and President
Artesian Resources Corporation
664 Churchmans Road
Newark, DE 19702
(302) 453-6900
(Name, address, including zip code, and telephone number, including
area code, of agent for service)

Copies to:

Joanne R. Soslow	Justin P. Klein
Morgan, Lewis & Bockius LLP	Ballard Spahr Andrews & Ingersoll, LLP
1701 Market Street	1735 Market Street, 51st Floor
Philadelphia, PA 19103	Philadelphia, PA 19103
(215) 963-5000	(215) 864-8606

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

        If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

        If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

Prospectus

SUBJECT TO COMPLETION, DATED MAY 29, 2002

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

500,000 Shares

Class A Non-Voting Common Stock

        The Class A Non-Voting Common Stock of Artesian Resources Corporation is quoted on the Nasdaq National Market under the symbol "ARTNA." On May 16, 2002, the last reported sale price of the Class A Non-Voting Common Stock on Nasdaq was $33.00 per share.

Before investing, you should review the "RISK FACTORS" beginning on page 5.

	Per Share	Total
Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds to Artesian Resources	$	$

        We have granted to the Underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to 75,000 additional shares of Class A Non-Voting Common Stock upon the same terms and conditions as the shares offered by this prospectus to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The Underwriters expect to deliver the shares of Class A Non-Voting Common Stock on or about                        , 2002 in Philadelphia, Pennsylvania.

JANNEY MONTGOMERY SCOTT LLC J.J.B. HILLIARD, W.L. LYONS, INC.

The date of this prospectus is                        , 2002.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
FORWARD LOOKING STATEMENTS	4
RISK FACTORS	5
USE OF PROCEEDS	9
COMMON STOCK PRICE RANGE AND DIVIDENDS	9
CAPITALIZATION	10
SELECTED CONSOLIDATED FINANCIAL DATA	11
MANAGEMENT'S DISCUSSION AND ANALYSIS	13
OUR COMPANY	24
MANAGEMENT	31
DESCRIPTION OF CAPITAL STOCK	32
UNDERWRITING	38
LEGAL MATTERS	40
EXPERTS	40
WHERE YOU CAN FIND MORE INFORMATION	40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

PROSPECTUS SUMMARY

This prospectus summary calls your attention to selected information in this document, but may not contain all the information that is important to you. Unless otherwise indicated, we have assumed in presenting information about outstanding shares of Class A Non-Voting Common Stock, including per share information, that the Underwriters' over-allotment option will not be exercised. The terms "we," "our," and "us" refer to Artesian Resources Corporation ("Artesian Resources") and its subsidiaries, including Artesian Water Company, Inc. ("Artesian Water"), Artesian Water Pennsylvania, Inc. ("Artesian Water PA"), Artesian Wastewater Management, Inc. ("Artesian Wastewater Management") and Artesian Development Corporation ("Artesian Development") unless the context suggests otherwise. The term "you" refers to a prospective investor. To understand the offering fully and for a more complete description of the offering, you should read this entire document carefully, including particularly the "RISK FACTORS" section, as well as the documents we have referred you to in the section called "WHERE YOU CAN FIND MORE INFORMATION."

Our Company

         Artesian Water, our principal subsidiary, is the oldest and largest regulated public water utility in the State of Delaware and has been providing water within the State since 1905. We distribute and sell water to residential, commercial, industrial, governmental, municipal and utility customers throughout Delaware. In addition, we provide contract services to other water providers, including operating services and billing functions.

        For the three months ended March 31, 2002, including our non-regulated operations, total revenues increased $784,000 to $7.7 million as compared to the three months ended March 31, 2001, and net income applicable to common stockholders increased $280,000 to $536,000 as compared to the three months ended March 31, 2001. For the year ended December 31, 2001, including our non-regulated operations, we reported total revenues of $32.0 million and net income applicable to common stockholders of $3.3 million, an increase of 16% and 37%, respectively, over revenues and net income applicable to common stockholders for the previous year. Our annualized dividend increased from $0.92 per share for the fiscal year ended December 31, 1997 to an annualized dividend of $1.16 per share based upon our current quarterly dividend of $0.29 per share.

        As of March 31, 2002, we had 66,477 metered customers and served a population of approximately 220,000. According to a 2001 report of the U.S. Census Bureau, this represented 27% of Delaware's estimated total population. The total number of customers we serve has grown 27% since 1992. Substantial portions of Delaware, particularly outside of northern New Castle County, are not served by a public water system and represent potential new exclusive service areas for Artesian Water. According to estimates of the U.S. Census Bureau, the population of Delaware has increased 18% since 1990, the 14th largest percentage increase among the states. Sussex County in southern Delaware, an area we have targeted for continued expansion, has experienced the State's most significant growth with a population increase of approximately 38% since 1990.

        Our primary source of water is from deep aquifers and other water bearing formations. As a result, our supply of water is generally not impacted by weather-related drought or land use contamination to the same degree as surface water sources utilized by other water providers. As of December 31, 2001, our peak water supply capacity was approximately 43.0 million gallons per day, or mgd, while our peak water demand in 2001 was approximately 27.9 mgd. We have identified sufficient sources of supply to serve our expanding customer base for the foreseeable future.

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        Our objective is to strengthen our position as a leading water provider in the State of Delaware and achieve sustainable growth in our revenues and earnings by:

•

broadening our customer base in our existing exclusive service territories;



•

increasing our service area through the acquisition of new exclusive service territories;



•

pursuing contract management opportunities with other water providers;



•

acquiring additional water systems;



•

capitalizing on our dependable supply of high quality water;



•

expanding our wastewater business; and



•

maintaining our active community relations program and participation in policy-making forums.

        To support our strategic initiatives, we have budgeted capital investments in 2002 of approximately $22.8 million. These planned capital investments include $9.6 million for the construction of new treatment facilities and enhancements to our existing facilities, $10.2 million for transmission and distribution facilities and $3.0 million for other general plant and equipment.

Our Address and Telephone Number

         Our executive offices are located at 664 Churchmans Road, Newark, Delaware 19702, and our telephone number is (302) 453-6900.

The Offering

Class A Non-Voting Common Stock, $1 par value			500,000 shares
Common Stock to be outstanding after the offering:
	Class A Non-Voting Common Stock		2,168,679 shares
	Class B Common Stock		391,824 shares
		Total Common Stock outstanding	2,560,503 shares
Nasdaq symbol			ARTNA
Class A Non-Voting Common Stock 52-week price range (through May 16, 2002)			$23.50-$33.82
Annualized dividend rate			$1.16 per share
Use of Proceeds			We will use the net proceeds of this offering to repay certain short-term borrowings of Artesian Water.

        The shares of common stock in the table above to be outstanding after the offering are based on our shares outstanding as of May 6, 2002 and exclude an aggregate of 155,498 shares issuable upon the exercise of outstanding options under our stock option plans as of May 6, 2002, at a weighted average exercise price of $19.84 per share, of which 103,708 were fully vested and exercisable.

        The annualized dividend rate gives effect to the increase in our quarterly dividend to $0.29 per share from $0.28 per share, which was paid on February 22, 2002 to stockholders of record on February 12, 2002.

        On May 1, 2002, we declared a quarterly dividend of $0.29 per share payable on May 24, 2002 to stockholders of record on May 14, 2002.

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Summary Consolidated Financial Information

(In thousands, except per share and operating data)

			For the Three Months Ended March 31,				For the Year Ended December 31,
			2002		2001		2001		2000		1999		1998		1997
			(unaudited)
Statement of Operations:
	Water sales		$	7,570	$	6,835	$	31,362	$	27,090	$	26,310	$	25,096	$	22,003
	Total operating revenues			7,744		6,960		31,987		27,551		26,777		25,466		22,340
	Total operating expenses			6,232		5,690		24,586		21,340		20,687		19,799		17,933
	Operating income			1,512		1,270		7,401		6,211		6,090		5,667		4,407
	Interest charges			1,116		1,085		4,537		4,055		3,298		3,162		2,580
	Net income applicable to common stock			536		256		3,270		2,390		2,909		2,638		1,892
	Net income per share of common stock:
		Basic	$	0.26	$	0.13	$	1.61	$	1.19	$	1.48	$	1.47	$	1.07
		Diluted	$	0.25	$	0.12	$	1.58	$	1.17	$	1.46	$	1.45	$	1.07
	Average shares of common stock outstanding:
		Basic		2,051		2,017		2,026		2,007		1,961		1,796		1,762
		Diluted		2,112		2,058		2,072		2,044		1,996		1,816		1,775
	Cash dividends per share of common stock		$	0.29	$	0.275	$	1.11	$	1.10	$	1.06	$	0.97	$	0.92

				As of or For the Year Ended December 31,
		As of March 31, 2002
				2001		2000		1999		1998		1997
		(unaudited)
Balance Sheet:
	Utility plant and equipment, at original cost less accumulated depreciation	$	157,629	$	152,356	$	134,038	$	122,481	$	109,780	$	97,694
	Total assets		167,396		163,534		144,407		132,482		119,376		107,867
	Notes payable		20,042		16,118		2,000		7,617		7,704		1,164
	Long-term debt and redeemable preferred stock, including current portions		50,552		50,998		52,236		36,165		32,696		32,861
	Stockholders' equity		34,652		34,445		32,829		32,356		27,933		26,587
Operating Data:
	Average water sales per customer			$	474	$	417	$	420	$	419	$	376
	Water pumped (millions of gallons)				7,321		6,886		6,758		6,739		6,637
	Number of metered customers				66,173		64,902		62,621		60,688		59,218
	Population served				220,113		213,761		206,137		200,856		197,432
	Miles of water main				888		872		842		820		797

Population served includes our contract customers for whom we provide water, but does not include our contract customers for whom we provide non-water services only.

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FORWARD LOOKING STATEMENTS

        We discuss in this prospectus and in documents that we have incorporated into this prospectus by reference certain matters that are not historical facts, but which are "forward looking statements." We intend these "forward looking statements" to qualify for safe harbor protection from liability established by the Private Securities Litigation Reform Act of 1995. These "forward looking statements" include, but are not limited to, statements regarding:

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our expected profitability and results of operations;



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our annualized dividend;



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our obligations and investment plans in 2002;



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the amount and timing of rate increases;



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the anticipated hearing date for our April 2, 2002 rate request, and the anticipated effect on our results of operations as a result of the petition filed by the City of Wilmington;



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our strategic initiatives;



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the availability of our water supply;



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whether we will be able to expand our exclusive service territories;



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whether we will offer or replace debt securities; and



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whether and when Artesian Water PA will commence operation.

        The "forward looking statements" in this prospectus reflect what we currently anticipate will happen. What actually happens could differ materially from what we currently anticipate will happen, and our quarterly results are not necessarily indicative of our results for the entire year. We are not promising to make any public announcement when we think "forward looking statements" in this prospectus are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason.

        Important matters that may affect what will actually happen include, but are not limited to:

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rates we are permitted to charge our customers;



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changes in government policies or regulations;



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changes in weather, including drought conditions;



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material changes in demand for water from our customers, including the impact of conservation efforts;



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changes in economic conditions; and



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other matters described in the "RISK FACTORS" section.

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RISK FACTORS

We have described for you below some risks involved in investing in the Class A Non-Voting Common Stock offered under this prospectus. A word of caution: this is not a complete list of every risk. You should carefully consider each of the following factors and all of the information both in this prospectus and in the other documents we refer you to in the section called "WHERE YOU CAN FIND MORE INFORMATION."

The rates we charge our customers are subject to regulation. If we are unable to obtain government approval of our requests for rate increases, or if approved rate increases are untimely or inadequate to cover our investments in utility plant and equipment and projected expenses, our results of operations may be adversely affected.

        Our ability to maintain and meet our financial objectives is dependent upon the rates we charge our customers, which are subject to approval by the Delaware Public Service Commission, or Delaware PSC. We file rate increase requests with the Delaware PSC, from time to time, to recover our investments in utility plant and equipment and projected expenses. The Delaware PSC determines whether the investments and expenses are recoverable, the length in time over which such costs are recoverable, or because of changes in circumstances, whether a remaining balance of deferred investment or expense is no longer recoverable in rates charged to customers. Once a rate increase petition is filed with the Delaware PSC, the ensuing administrative and hearing process may be lengthy and costly. The timing of our rate increase requests are therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase. On April 2, 2002, we petitioned the Delaware PSC for a rate increase of 23.1%, or $7.5 million on an annualized basis. On or about May 15, 2002, the City of Wilmington petitioned to intervene in that rate request. The City of Wilmington is challenging the approval of a new industrial rate classification for water service to a General Motors facility that has received water service from both the City of Wilmington and Artesian Water. We can provide no assurances that an industrial rate classification for water service to General Motors will be approved in this rate request or that we will be able to continue to provide water service to General Motors. In addition, we can provide no assurances that this rate increase request, or future requests, will be approved by applicable regulatory agencies; and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase. If we are unable to obtain government approval of our requests for rate increases, or if approved rate increases are untimely or inadequate to cover our investments in utility plant and equipment and projected expenses, our results of operations may be adversely affected.

        In addition, while a rate increase request is pending, we are permitted to place rate increases into effect on a temporary basis. If a permitted temporary rate increase is determined to be in excess of rates that, after the administrative process, the Delaware PSC ultimately deems appropriate, we must refund the excess portion plus interest to our customers, which may adversely affect our results of operations.

We are subject to federal, state and local regulation that may impose costly limitations and restrictions on the way we do business.

        Various federal, state and local authorities regulate many aspects of our business. This includes regulation that provides for the grant of Certificates of Public Convenience and Necessity, or CPCNs, which, under the statutory process, have been interpreted to provide water utilities regulated by the Delaware PSC, or water utilities, the exclusive right to serve water utility customers in designated service areas. There may be, however, limited circumstances where third parties may be permitted to provide water service in our designated service areas, based on prior agreements or practices that may pre-date the existing CPCN statutory process.

        Among the most important of the regulations that we are subject to are those relating to the quality of water we supply our customers, and water allocation rights. Government authorities continually review

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these regulations, particularly the primary water quality regulations, and may propose and adopt new or more restrictive requirements in the future. We are required to perform water quality tests that are monitored by the Delaware Division of Public Health, or Delaware DPH, for the detection of certain chemicals and compounds in our water. If we detect certain chemicals or compounds in our water supply, or if new or more restrictive limitations on permissible levels of substances and contaminants in our water are imposed, we may be required to interrupt or stop the use of certain sources of supply or to remove the contaminants. We may not be able to adequately predict the costs necessary to meet the regulatory standards. If the implementation of new water treatment procedures in response to the detection of certain chemicals or compounds or compliance with more restrictive water quality regulations are too costly, or if we fail to comply with such regulations, it could have a material adverse effect on our financial condition and results of operations.

        We are also subject to water allocation regulations that control the amount of water that we can draw from water sources. Our access to aquifers within our service territory is subject to water-level draw down limits, annual, monthly and daily pumpage limits, and well field allocation pumpage limits. As a result, changed enforcement of current standards or new or more restrictive water allocation regulations may have an adverse effect on our ability to supply the demands of our customers, and in turn, on our water supply revenues and results of operations.

        In addition to regulations related to our water supply, approval from the Delaware PSC must be obtained prior to the sale and issuance of securities by Artesian Water, or the acquisition of control of Artesian Resources by a third party. Our inability to obtain approval from the Delaware PSC on these matters, or to obtain approval in a timely manner, may impact our ability to effect transactions that are profitable to us and our stockholders.

We face competition from other water utilities for the acquisition of new exclusive service territories.

        Water utilities competitively pursue the right to exclusively serve territories in Delaware by entering into agreements with landowners, developers or municipalities and, under current law, then applying to the Delaware PSC for a CPCN, which grants a water utility the exclusive right to serve all existing and new customers of a water utility within a designated area. Typically, water utilities enter into agreements with developers who have approval from county governments with respect to proposed subdivisions or developments. Once a CPCN is granted to a water utility, generally it may not be suspended or terminated unless the Delaware PSC determines in accordance with its rules and regulations that good cause exists for any such suspension or termination. Therefore, we face competition from other water utilities as we pursue the right to exclusively serve territories. If we are unable to enter into agreements with landowners, developers or municipalities and secure CPCNs for the right to exclusively serve territories in Delaware, our ability to expand may be significantly impeded.

Our business is subject to seasonal fluctuations that could adversely affect demand for our water service and our revenues.

        Demand for water during the warmer months is generally greater than during cooler months due primarily to additional requirements for water in connection with cooling systems, swimming pools, irrigation systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand for water will vary with temperature and rainfall. In the event that temperatures during the typically warmer months are cooler than expected, or there is more rainfall than expected, the demand for water may decrease and our revenues may be adversely affected.

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Drought conditions may impact our ability to serve our current and future customers, and may impact our customers' use of water, which may adversely affect our financial condition and results of operations.

        We depend on an adequate water supply to meet the present and future demands of our customers and to continue our expansion efforts. Drought conditions could negatively impact our water supply and could adversely affect our ability to supply water in sufficient quantities to our existing and future customers. Any interruption in our water supply could have a material adverse effect on our financial condition and results of operations. Moreover, governmental restrictions on water usage during drought conditions may result in a decreased demand for our water, which may adversely affect our revenues and earnings.

        On March 5, 2002, the Governor of Delaware issued a statewide drought "warning." Under the drought "warning," all state facilities are required to impose a ban on non-essential use of water and residents are urged to restrict voluntarily the non-essential use of water. The Governor, at his or her discretion, without prior notice or hearing, or the Delaware River Basin Commission, or DRBC, after public hearing, may issue a drought "emergency," that would restrict mandatorily the non-essential use of water. Any decrease in water usage by our customers as a result of the drought "warning," or as a result of a drought "emergency," if issued, may adversely affect our revenues.

Contamination to our water supply may cause disruption in our services and adversely affect our revenues.

        Our sources of supply may become contaminated by naturally-occurring or man-made compounds and events. In the event that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to install treatment equipment or substitute the flow of water from an uncontaminated water source through our interconnected transmission and distribution facilities. In addition, we may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities, or development of new treatment methods. Our inability to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, may have an adverse effect on our revenues.

        In addition, in the wake of the September 11, 2001 terrorist attacks and the ensuing threats to the health and security of the United States of America, we have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. We are not aware of any specific threats to our facilities, operations or supplies; however, it is possible that we would not be in a position to control the outcome or the costs of such events should they occur, which could have an adverse effect on our results of operations.

We depend on the availability of capital for expansion, construction and maintenance.

        Our ability to continue our expansion efforts and fund our utility construction and maintenance program depends on the availability of adequate capital. There is no guarantee that we will be able to obtain sufficient capital in the future on favorable terms and conditions for expansion, construction and maintenance. In the event we are unable to obtain sufficient capital, our expansion efforts could be curtailed, which may affect our growth and may affect our future results of operations.

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Our principal stockholders have significant control over the outcome of most fundamental corporate matters and our Restated Certificate of Incorporation, as amended, contains certain provisions that may delay or prevent a change of control.

        As of May 6, 2002, members of the Taylor family, which include Dian C. Taylor, our Chair of the Board, Chief Executive Officer and President, and Norman H. Taylor, Jr. and John R. Eisenbrey, Jr., two of our other directors, beneficially owned 71.3% of the outstanding Class B Common Stock and 5.6% of the outstanding Class A Non-Voting Common Stock and our directors and executive officers as a group beneficially owned 44.2% of the outstanding Class B Common Stock and 4.3% of the outstanding Class A Non-Voting Common Stock. The holders of Class B Common Stock generally have the exclusive right to vote on most fundamental corporate decisions, including the election of our board of directors. As a result, these principal stockholders will have significant control over the outcome of most fundamental corporate matters. If you purchase shares of Class A Non-Voting Common Stock, you will not be able to vote on most fundamental corporate matters, including the election of our board of directors.

        In addition, we have adopted certain provisions in our Restated Certificate of Incorporation, as amended, and By-laws that may have anti-takeover implications, including a classified board of directors with staggered terms and higher stockholder voting requirements for certain corporate actions. These provisions could discourage, delay or prevent a change of control.

Our ability to pay dividends is limited by our Restated Certificate of Incorporation, as amended, preferred stock and bond covenants.

        Our Restated Certificate of Incorporation, as amended, requires that we pay or set aside for payment all accrued dividends and sinking fund payments payable on any outstanding preferred stock before we can pay dividends on our common stock.

        There are a number of other factors that determine both our ability to pay dividends on our common stock and the amount of those dividends. These factors include:

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certain limitations on dividend payments in our bond covenants included in our trust indentures;



•

our earnings, capital requirements and financial condition; and



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other factors, including the timeliness and adequacy of rate increases granted to Artesian Water.

        We cannot guarantee that we will continue to pay dividends on our common stock in the future or in amounts similar to past dividends.

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USE OF PROCEEDS

        The net proceeds from the sale of the 500,000 shares of Class A Non-Voting Common Stock offered by this prospectus, after deducting the Underwriters' discounts and estimated offering expenses, are estimated to be $15.4 million ($17.7 million if the Underwriters' over-allotment option is exercised in full) at an assumed offering price of $33.00 per share. We will use the entire net proceeds to fund a paid-in capital contribution in the same amount to our subsidiary, Artesian Water. Artesian Water will use the paid-in capital contribution to repay short-term borrowings incurred primarily to finance expenses associated with its construction program, including investment in utility plant and equipment. These proceeds will reduce Artesian Water's debt to total capitalization ratio, which we believe will improve Artesian Water's ability to issue additional long-term debt to finance future capital investments.

        At March 31, 2002, Artesian Water had lines of credit with three separate financial institutions, one of which is PNC Bank, Delaware, or PNC Bank, totaling $35.0 million to meet its temporary cash requirements. J.J.B. Hilliard, W.L. Lyons, Inc., one of the representatives of the Underwriters, is an affiliate of PNC Bank. We will use approximately $8.7 million, which constitutes 57% of the estimated net proceeds from this offering, to pay down our line of credit with PNC Bank. These lines of credit are unsecured. As of March 31, 2002, we had $15.0 million of available funds under these lines. The interest rate for borrowings under each of these lines is the London Interbank Offering Rate plus 1.0% or the banks' federal funds rate plus 1.0%, and as of March 31, 2002, the weighted average rate was 2.52%. These lines of credit mature in May and June 2003. All of the lines of credit are reviewed annually by each bank for renewal.

COMMON STOCK PRICE RANGE AND DIVIDENDS

        Our Class A Non-Voting Common Stock is listed on the Nasdaq National Market and trades under the symbol "ARTNA." On April 30, 2002, there were 745 holders of record of the Class A Non-Voting Common Stock. The following table sets forth, for the periods indicated, the high and low closing sale prices for the Class A Non-Voting Common Stock on the Nasdaq National Market and the cash dividends declared per share:

		High		Low		Dividend Per Share
2000
	First Quarter	$	31.50	$	21.00	$	0.270
	Second Quarter		26.00		22.00		0.275
	Third Quarter		25.00		22.00		0.275
	Fourth Quarter		26.50		21.77		0.275
2001
	First Quarter	$	26.75	$	23.25	$	0.275
	Second Quarter		26.98		23.55		0.275
	Third Quarter		28.50		24.55		0.280
	Fourth Quarter		30.94		26.25		0.280
2002
	First Quarter	$	31.50	$	28.60	$	0.290
	Second Quarter (through May 16, 2002)		33.82		30.25		0.290

        The closing sale prices shown above reflect prices between dealers and do not include retail markups or markdowns or commissions and may not necessarily represent actual transactions. On May 1, 2002, we declared a quarterly dividend of $0.29 per share payable on May 24, 2002 to stockholders of record on May 14, 2002.

        Our Class B Common Stock is quoted on the OTC Bulletin Board under the symbol "ARTNB." There has been a limited and sporadic public trading market for the Class B Common Stock. As of April 30, 2002, the last reported trade of the Class B Common Stock on the OTC Bulletin Board was at a price of $26.55 per share on March 12, 2002. As of April 30, 2002, we had 226 holders of record of the Class B Common Stock. The Class B Common Stock receives the same dividend per share as the Class A Non-Voting Common Stock.

9

CAPITALIZATION

        The following table sets forth our capitalization as of March 31, 2002 and as adjusted to give effect to the sale of 500,000 shares of Class A Non-Voting Common Stock at an assumed offering price of $33.00 per share and the application of estimated net proceeds of $15.4 million. The following should be read in conjunction with our Financial Statements and the related Notes which are included in this prospectus.

				As of March 31, 2002
				Actual				As Adjusted
				Amount		Percent		Amount		Percent
				(In thousands)
Long-term debt, net of current portion				$	49,100	58.5	%	$	49,100	49.5	%
9.96% Cumulative Prior Preferred Stock — mandatorily redeemable					100	0.1			100	0.1
7% Prior Preferred Stock					272	0.3			272	0.3
Common stockholders' equity:
	Class A Non-Voting Common Stock				1,665	2.0			2,165	2.2
	Class B Common Stock				392	0.5			392	0.4
	Additional paid-in capital				25,389	30.3			40,246	40.5
	Retained earnings				6,934	8.3			6,934	7.0
		Total common stockholders' equity			34,380	41.1			49,737	50.1
			Total capitalization	$	83,852	100.0	%	$	99,209	100.0	%

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SELECTED CONSOLIDATED FINANCIAL DATA

        In the table below, we provide you with our selected financial data on a consolidated basis as of and for each year in the five-year period ended December 31, 2001 and the quarterly periods ended March 31, 2001 and March 31, 2002. You should read this table in conjunction with the consolidated financial statements, related notes and other financial information included in this prospectus.

				For the Three Months Ended March 31,				For the Year Ended December 31,
				2002		2001		2001		2000		1999		1998		1997
				(unaudited)				(In thousands, except per share data)
Statement of Operations:
	Operating revenues
		Water sales		$	7,570	$	6,855	$	31,362	$	27,090	$	26,310	$	25,096	$	22,003
		Other revenue			174		125		625		461		467		370		337
			Total operating revenues		7,744		6,960		31,987		27,551		26,777		25,466		22,340
	Operating expenses
		Operating and maintenance			4,602		4,360		17,619		15,399		14,690		14,273		12,775
		Depreciation and amortization			812		708		3,001		2,706		2,417		2,183		2,441
		State and federal income taxes			373		169		2,184		1,619		1,960		1,808		1,278
		Property and other taxes			445		453		1,782		1,616		1,620		1,535		1,439
			Total operating expenses		6,232		5,690		24,586		21,340		20,687		19,799		17,933
	Operating income				1,512		1,270		7,401		6,211		6,090		5,667		4,407
	Other income (expense), net				152		86		457		295		188		215		158
	Total income before interest charges				1,664		1,356		7,858		6,506		6,278		5,882		4,565
	Interest charges				1,116		1,085		4,537		4,055		3,298		3,162		2,580
	Net income				548		271		3,321		2,451		2,980		2,720		1,985
	Dividends on preferred stock				12		15		51		61		71		82		93
	Net income applicable to common stock			$	536	$	256	$	3,270	$	2,390	$	2,909	$	2,638	$	1,892
	Net income per share of common stock:
		Basic		$	0.26	$	0.13	$	1.61	$	1.19	$	1.48	$	1.47	$	1.07
		Diluted		$	0.25	$	0.12	$	1.58	$	1.17	$	1.46	$	1.45	$	1.07
	Average shares of common stock outstanding:
		Basic			2,051		2,017		2,026		2,007		1,961		1,796		1,762
		Diluted			2,112		2,058		2,072		2,044		1,996		1,816		1,775
	Cash dividends per share of common stock			$	0.29	$	0.275	$	1.11	$	1.10	$	1.06	$	0.97	$	0.92

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				As of or For the Year Ended December 31,
		As of March 31, 2002
				2001		2000		1999		1998		1997
		(unaudited)		(In thousands, except operating data)
Balance Sheet:
	Utility plant and equipment, at original cost less accumulated depreciation	$	157,629	$	152,356	$	134,038	$	122,481	$	109,780	$	97,694
	Total assets		167,396		163,534		144,407		132,482		119,376		107,867
	Notes payable		20,042		16,118		2,000		7,617		7,704		1,164
	Long-term debt and redeemable preferred stock, including current portions		50,552		50,998		52,236		36,165		32,696		32,861
	Stockholders' equity		34,652		34,445		32,829		32,356		27,933		26,587
	Total capitalization		83,852		84,015		83,846		67,285		60,486		59,290
Operating Data:
	Average water sales per customer			$	474	$	417	$	420	$	419	$	376
	Water pumped (millions of gallons)				7,321		6,886		6,758		6,739		6,637
	Number of metered customers				66,173		64,902		62,621		60,688		59,218
	Population served				220,113		213,761		206,137		200,856		197,432
	Miles of water main				888		872		842		820		797

Population served includes our contract customers for whom we provide water, but does not include our contract customers for whom we provide non-water services only.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General Information

        We are a non-operating holding company, whose income is derived from the earnings of our four wholly owned subsidiary companies. Artesian Water, our principal subsidiary, is the oldest and largest public water utility in the State of Delaware and has been providing water service within the State since 1905. We distribute and sell water to residential, commercial, industrial, governmental, municipal and utility customers throughout Delaware. We also have contract operation agreements with six private and municipal water providers, pursuant to which we provide various services including operations and billing functions. For the year ended December 31, 2001, approximately 99.6% of our earnings were attributable to Artesian Water's service to customers, with the remaining 0.4% related to the other subsidiaries.

        Most of our income and profitability is primarily attributable to the sale of water by Artesian Water, the amount of which is dependent on seasonal fluctuations in weather, particularly during the typically warmer months when water demand may vary with rainfall and temperature.

        Our other water utility subsidiary, Artesian Water PA, is currently seeking recognition, in the form of an application for a Certificate of Convenience and Necessity, from the Pennsylvania Public Utility Commission, or Pennsylvania PUC, as a regulated utility. By the end of the third quarter of 2002, we expect to begin operations in Pennsylvania by providing water service to a residential community consisting of 40 homes in Chester County.

        Our non-regulated subsidiaries are Artesian Wastewater Management and Artesian Development. Artesian Wastewater Management owns a one-third interest in AquaStructure Delaware, LLC, or AquaStructure, whose primary activity is designing, building and/or operating wastewater treatment facilities. The sole asset of Artesian Development is an 11-acre parcel of land located adjacent to our corporate headquarters that is zoned for office buildings.

Water Utility Regulatory Matters and Inflation

        As of March 31, 2002, we had 66,477 metered customers and served a population of approximately 220,000, 27% of Delaware's total population. The Delaware PSC regulates Artesian Water's rate charges for water service, the issuance of CPCNs, the sale and issuance of securities by Artesian Water and other matters. We periodically seek and receive rate increases to cover the cost of increased expenses due to additional investments in utility plant and equipment and other costs of doing business. Increases in customers served by Artesian Water also contribute to increases in our operating revenues.

        We are affected by inflation, most notably by the continually increasing costs required to maintain, improve and expand our service capability and facilities. The cumulative effect of inflation results in significantly higher facility costs, compared to investments previously made, which must be recovered from future cash flows. In 2001, Delaware passed a statute permitting water utilities to put into effect, on a semi-annual basis, increases in customer rates related to investments made in specific types of system improvements through a Distribution System Improvement Charge, or DSIC. This charge is available to water utilities to be implemented between general rate increase applications, which normally recognize changes in a water utility's overall financial position, and significantly reduces expenses associated with general rate increase requests. The first effective date for the implementation of DSIC was January 1, 2002. We requested on November 30, 2001, and subsequently implemented, a 0.53% overall surcharge for bills rendered subsequent to January 1, 2002.

Significant Accounting Policies

        We record water service revenue, including amounts billed to customers on a cycle basis and unbilled amounts, based upon estimated usage from the date of the last meter reading to the end of the accounting

13

period. These estimates are made on an individual customer basis, based on the previous year's consumption in the same period, and are adjusted to reflect current changes in water demand on a system-wide basis. While actual usage for individual customers may differ materially from the estimate, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption, as the overall estimate has been adjusted to reflect any change in overall demand on the system for the period.

        Artesian Water records deferred regulatory assets, which are expenses that may be recovered over various lengths of time as prescribed by the Delaware PSC, under Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." As Artesian Water incurs certain expenses, such as expenses related to rate case applications, a deferred regulatory asset is created. Adjustments to these deferred regulatory assets are made when the Delaware PSC determines whether the expense is recoverable in rates, the length of time over which an expense is recoverable, or, because of changes in circumstances, whether a remaining balance of deferred expense is no longer recoverable in rates charged to customers. Adjustments to reflect changes in recoverability of certain deferred regulatory assets may have a material effect on our financial results.

Results of Operations

March 31, 2002 compared to March 31, 2001

Operating Revenues

        Revenues totaled $7.7 million for the quarter ended March 31, 2002 and were 11.3% above revenues of $7.0 million for the quarter ended March 31, 2001, reflecting an increase in water sales of 10.8% due to customer growth and rate increases approved by the Delaware PSC, effective February 1, 2001 and July 1, 2001. We realized 97.8% of our total revenue for the quarter ended March 31, 2002 from the sale of water and 2.2% of our revenue principally from contract operations, antenna leases on water tanks and wastewater management services.

Operating Expenses

        Operating expenses, excluding depreciation and taxes, increased $242,000, or 5.6%, to $4.6 million for the quarter ended March 31, 2002. The increase in operating expenses resulted primarily from an increase in payroll and related expenses, purchased water expenditures and tank painting expenses. Payroll and related expenses increased $63,000 compared to the quarter ended March 31, 2001 principally due to increases in annual merit compensation. Purchased water expenditures increased $61,000 during the quarter ended March 31, 2002 over the comparable period in 2001 primarily due to the resting of two well fields. Tank painting expenses increased $49,000 during the quarter ended March 31, 2002 compared to the quarter ended March 31, 2001, because the quarter ended March 31, 2002 includes three months of expenses compared to one month of expenses in the quarter ended March 31, 2001 reflecting the commencement of a five year tank painting contract on March 1, 2001. The ratio of operating expense, excluding depreciation and taxes, to total revenue was 59.4% for the quarter ended March 31, 2002, compared to 62.6% for the quarter ended March 31, 2001.

        Depreciation and amortization expense increased $104,000, or 14.7%, for the quarter ended March 31, 2002 compared to the quarter ended March 31, 2001, due to increases in our utility plant and equipment. Income tax expense increased $204,000 for the quarter ended March 31, 2002 compared to the quarter ended March 31, 2001, due to increased profitability.

Interest Charges

        Interest charges increased $31,000, or 2.9%, for the quarter ended March 31, 2002 compared to the quarter ended March 31, 2001, primarily due to an increase in interest related to the $4.3 million note

14

issued to the Delaware DPH on January 31, 2001. Interest began accruing when we received the funds in August 2001.

Net Income

        For the quarter ended March 31, 2002, our net income applicable to common stock increased $280,000 compared to the same period in 2001. The increase in net income was primarily due to rate increases authorized in 2001 and continued customer growth.

2001 Compared to 2000

Operating Revenues

        Revenues totaled $32.0 million in 2001 and were 16.1% above revenues in 2000 of $27.6 million, reflecting an increase in water sales of 15.8% due to customer growth and rate increases approved by the Delaware PSC in 2001. We realized 98.0% of our total revenue in 2001 from the sale of water.

        We filed an application with the Delaware PSC on December 5, 2000 to increase rates for water service for all of Artesian Water's customers. A temporary rate increase, calculated to increase annualized revenues $2.5 million, was approved by the Delaware PSC and placed into effect on February 3, 2001. In Delaware, utilities are permitted to place rates into effect on a temporary basis pending completion of a rate increase proceeding. If such rates are found to be in excess of rates the Delaware PSC finds to be appropriate, the utility must refund the portion found in excess to customers with interest. We received final approval on June 19, 2001 to increase rates up to a total annualized increase in revenues of $3.7 million, or $1.2 million more than permitted under temporary rates. The approval was the result of a stipulated settlement reached by the Delaware PSC Staff and Division of Public Advocate. The increase in revenues for the various customer classes will not consistently match changes in consumption levels for the class primarily due to our use of a multiple rate block structure. This structure charges different rates for different levels of consumption. In addition, rate increases are distributed among the rate blocks and service charges through a cost of service analysis and may not reflect, on an individual class or charge basis, the overall increase in rates approved by the Delaware PSC.

        The following table sets forth our percentage of revenues by customer class for the years ended December 31, 2001, 2000 and 1999.

Percentage of Revenues by Customer Class

		2001	2000	1999
Residential		60.3%	59.6%	60.5%
Commercial		24.8	25.7	24.7
Industrial		1.2	0.7	0.7
Government and other water sales		11.7	12.3	12.4
Other utility operations		1.6	1.5	1.6
Non-utility operations		0.4	0.2	0.1
	Total	100.0%	100.0%	100.0%

Residential

        Residential water service revenues in 2001 amounted to $19.3 million, an increase of 17.4% over the $16.4 million recorded in 2000. The increase in 2001 follows an increase of 1.4% in 2000. The volume of

15

water sold to residential customers, however, decreased marginally from 3,817 million gallons in 2000 to 3,809 million gallons in 2001. The number of residential customers served increased 2.0% in 2001.

Commercial

        Revenues from commercial customers in 2001 increased by 12.1% to $7.9 million from $7.1 million in 2000. The volume of water sold to commercial customers increased by 16.9% from 2,039 million gallons in 2000 to 2,384 million gallons in 2001. The number of commercial customers served increased 1.1% in 2001.

Industrial

        Revenues from industrial customers and the volume of water sold to industrial customers in 2001 increased significantly to $400,000, from $207,000 in 2000, and to 165 million gallons, from 79 million gallons in 2000, respectively. These increases were primarily a result of the addition of one new customer.

Government and Other Water Sales

        Government and other water sales in 2001 increased by 10.9% to $3.7 million, from $3.4 million in 2000. Revenues derived from state, federal and local governmental agencies totaled $683,000 in 2001, exceeding 2000 revenue by 41.8%. The remaining revenue increase was derived from the sale of water to neighboring utilities, public fire protection service, pools and other temporary and seasonal customers.

Other Utility Operations

        Other utility operations, which include revenue derived from contract operations, antenna leases on water tanks and finance charges, increased $91,000, or 22.0%, in 2001 to $509,000, from $418,000 in 2000. The increase was primarily a result of a 28.3% increase in revenues for antenna leases and the addition of contract operation agreements.

Non-Utility Operations

        Non-utility operations includes revenue derived from our wastewater services, which increased in 2001 to $116,000 from $43,000 in 2000. The increase principally relates to income received from our interest in AquaStructure.

Operating Expenses

        Operating expenses, excluding depreciation and taxes, increased $2.2 million, or 14.4%, to $17.6 million in 2001. The increase in operating expenses resulted primarily from an increase in payroll and related expense of $1.2 million, or 15.7%, due to the addition of new employees and increases in annual merit compensation. In addition, purchased water expenditures increased $201,000 over 2000 levels, despite continuing to maintain minimum purchase requirements, primarily due to the recognition of a credit in 2000 for water sold back to a provider in 2000. Repair and maintenance expenses increased as a result of an increase of $244,000 for tank painting expense, which reflects the first year of a five-year tank painting and maintenance agreement, which we entered into in 2000. Water treatment expense increased $86,000, reflecting the increased amount of chemicals used as a result of an increase in water pumped and a $42,000 increase related to the expanded testing of our sources of supply. Administrative expenses increased $481,000, which primarily reflects the one-time $280,000 expense recognition for legal costs associated with the discontinued negotiations for the purchase of Tidewater Utilities, a subsidiary of Middlesex Water Company. In addition, a $74,000 increase in our auditing and tax expense was recorded and reflects an increase in fees associated with the 2001 year end audit and additional fees related to our 2000 year end audit services. The remaining increase of $127,000 represented increases in a number of administrative expenses including bank fees, customer survey expense, regulatory commission expense and

16

training expenses. The ratio of operating expense, excluding depreciation and taxes, to total revenue was 55.1% for the year ended December 31, 2001, compared to 55.9% for the year ended December 31, 2000.

        The following table sets forth our percentage of total operating expenses by category for the years ended December 31, 2001, 2000 and 1999.

Operating Expenses

		2001		2000		1999
Payroll and associated expense		50.5	%	49.9	%	47.6	%
Purchased water		15.6		16.6		16.6
Repair and maintenance		5.1		4.2		4.2
Water treatment		3.5		3.4		3.2
Administrative		24.9		25.6		28.1
Non-utility operations		0.4		0.3		0.3
	Total Operating Expenses	100.0	%	100.0	%	100.0	%

        Depreciation and amortization expense increased $295,000, or 10.9%, due to increases in our utility plant in service. Income tax expense increased $565,000, or 34.9%, due to increased profitability in 2001. Our total effective income tax rate for 2001 and 2000 was 39.7% and 39.8%, respectively.

Interest Charges

        Interest charges increased $482,000, or 11.9%, primarily due to an increase of $949,000 in interest related to long-term debt due to a full year recognition of interest on the Series O First Mortgage Bonds issued December 29, 2000, and the interest associated with the $4.3 million note issued to the Delaware DPH on January 31, 2001. Interest began accruing when we received the funds in August 2001. This increase was partially offset by a $353,000 decrease in interest associated with our short-term debt. The average outstanding lines of credit during 2001 of $14.2 million increased by $1.4 million, compared to the average outstanding lines of credit during 2000 of $12.8 million; however, the average interest rate applied to these balances decreased from 7.2% in 2000 to 4.8% in 2001. In addition, interest charges related to the early redemption of the Series K First Mortgage Bonds of $47,000, and $65,000 for refunds of revenues collected under a temporary rate increase order that were in excess of the final rate increase award in 2000, were reflected in 2000 for which no similar entry was recorded in 2001.

Net Income

        For the year ended December 31, 2001, our net income applicable to common stock increased $880,000, or 36.8%, compared to the same period in 2000. The increase in net income was primarily due to rate increases authorized in 2000 and 2001, increases in consumption following a period of reduced consumption in 2000, a year with unusual frequency of summer rainfall, continued customer growth and lower interest rates on short-term lines of credit.

2000 Compared to 1999

Operating Revenues

        Revenues totaled $27.6 million in 2000 and were 2.9% above revenues in 1999 of $26.8 million, primarily reflecting an increase in water sales due to customer growth of 3.6% and rate increases approved by the Delaware PSC in 2000. The increased revenues from the approved rate increase were offset by a decrease in usage per customer. The decrease in our rate of consumption per customer was a result of the

17

unusual frequency of rainfall during the summer of 2000. We realized 98.3% of our total revenue in 2000 from the sale of water.

        We received approval from the Delaware PSC on August 30, 2000 to increase rates for water service. We reflected in revenues water sales totaling $173,000 of the $720,000 in operating revenues we deferred in 1999 pending the completion of the rate increase proceeding. The remaining $547,000 deferred in 1999, and an additional $808,000 collected under a temporary rate increase order in 2000, were refunded to customers with interest. This $1.4 million refund resulted from our temporary rate increase placed into effect on July 1, 1999.

Residential

        Residential water service revenues in 2000 amounted to $16.4 million, an increase of 1.4% over the $16.2 million recorded in 1999. The volume of water sold to residential customers increased by 4.5% from 3,651 million gallons in 1999 to 3,817 million gallons in 2000. The number of residential customers served increased 3.8% in 2000.

Commercial

        Revenues from commercial customers in 2000 increased by 6.9% to $7.1 million from $6.6 million in 1999. The volume of water sold to commercial customers increased by 0.3% from 2,033 million gallons in 1999 to 2,039 million gallons in 2000. The number of commercial customers served decreased 1.0% in 2000.

Industrial

        Revenues from industrial customers in 2000 increased by 13.0% to $207,000 from $183,000 in 1999. The volume of water sold to industrial customers decreased 6.3% from 84 million gallons in 1999 to 79 million gallons in 2000.

Government and Other Water Sales

        Government and other water sales revenues in 2000 increased by 2.1% to $3.4 million from $3.3 million in 1999. Revenues derived from state, federal and local governmental agencies totaled $482,000 in 2000, declining from 1999 revenue by 23.3%. The remaining revenue increase was derived from the sale of water to neighboring utilities, public fire protection service, pools and other temporary and seasonal customers.

Other Utility Operations

        Other utility operations, derived from finance charges on customer accounts, leases for communications antenna space and other miscellaneous customer charges, decreased 2.3% in 2000 to $418,000 from $427,000 in 1999.

Non-Utility Operations

        Non-utility operations includes revenue derived from our wastewater services, which increased in 2000 to $43,000 from $40,000 in 1999. The increase principally relates to income received from our operation of a wastewater facility for Middletown, Delaware in 1999.

Operating Expenses

        Operating expenses, excluding depreciation and taxes, increased $709,000, or 4.8%, primarily due to increased payroll and related expenses, increased purchased water expenditures of $111,000 and an increase of $75,000 in transportation expenses related to fuel. These increases were partially offset by a

18

$130,000 reduction in legal expenses due, in part, to the hiring of in-house counsel. The ratio of operating expense, excluding depreciation and taxes, to total revenue was 55.9% for the year ended December 31, 2000, compared to 54.9% for the year ended December 31, 1999. Payroll and related expenses increased $689,000, or 9.9%, primarily due to the addition of new employees, increases in annual merit compensation and a 17.0% increase in medical insurance premiums.

        Depreciation and amortization expense increased $289,000, or 12.0%, due to increases in our utility plant and equipment in service. Income tax expense decreased $341,000, or 17.4%, due to decreased profitability in 2000. Our total effective income tax rate for both 2000 and 1999 was 39.8%.

Interest Charges

        Interest charges increased $757,000, or 23.0%, primarily due to an increase of $497,000 in interest related to short-term debt due to increases in the average outstanding lines of credit during 2000 of $12.8 million, compared to the average outstanding lines of credit during 1999 of $7.1 million. Interest on long-term debt increased by $119,000, or 4.4%, primarily due to a full year of interest expense related to the $4.5 million note issued to Ellis Taylor, our former Chairman and Chief Executive Officer, and his spouse Helena Taylor in exchange for our purchase of 24,165 shares of Class A Non-Voting Common Stock and 126,353 shares of Class B Common Stock. In addition, we expensed $47,000 of unamortized issuance cost for our Series K First Mortgage Bonds as a result of their early redemption. Finally, we paid customers $65,000 in interest on the refund of $1.4 million collected in connection with a temporary rate increase order in excess of the final rate award approved by the Delaware PSC on August 30, 2000.

Net Income

        For the year ended December 31, 2000, our net income applicable to common stock decreased $519,000, or 17.8%, compared to the same period in 1999. The decrease in net income was primarily due to reduced consumption as a result of the unusual frequency of rainfall experienced during the summer of 2000 and a delay in the recovery of investments in utility plant and equipment. We incurred $500,000 in interest expense related to $15.9 million invested in utility plant and equipment that was not included in the rate application filed on April 30, 1999. In addition, because our April 30, 1999 rate application proceeding was not concluded until August 29, 2000, we were delayed in filing a new rate increase request to take into consideration new investment in utility plant and equipment placed in service after June 30, 1999.

Liquidity and Capital Resources

Overview

        Our primary sources of liquidity for the quarter ended March 31, 2002 were $3.9 million in funds from our lines of credit and $1.1 million provided by cash flow from operating activities. During the quarter, cash flow from operating activities was primarily provided by our utility operations, and was impacted by the timeliness and adequacy of rate increases. Our primary sources of liquidity for the year ended December 31, 2001 were $4.3 million in proceeds from the issuance of Artesian Water's 4.48% state revolving fund loan, $8.9 million provided by cash flow from operating activities and an increase of $9.8 million in our outstanding lines of credit. During 2001, cash flow from operating activities was primarily provided by our utility operations, and was impacted by the timeliness and adequacy of rate increases and weather conditions.

        A significant part of our ability to maintain and meet our financial objectives is to assure our investments in utility plant and equipment are recovered in the rates charged to customers. As such, from time to time, we file rate increase requests to recover increases in projected operating expenses and investments in utility plant and equipment. The Delaware PSC determines whether the expenses are recoverable, the length in time over which the expenses are recoverable, or because of changes in

19

circumstances, whether a remaining balance of deferred expenses is no longer recoverable in rates charged to customers. In Delaware, utilities are permitted to place rates into effect on a temporary basis pending completion of a rate increase proceeding. On April 2, 2002, we filed a rate increase application with the Delaware PSC, in Delaware PSC Docket 02-109, to request a rate increase of 23.1%, or $7.5 million on an annualized basis. We anticipate placing temporary rates into effect 60 days from the filing date (June 1, 2002) of up to $2.5 million on an annualized basis, until the level of permanent rates is decided by the Delaware PSC.

        We rely on our sources of liquidity for investments in our utility plant and equipment and to meet our various payment obligations. We expect that our aggregate investments in our utility plant and equipment in 2002 will be approximately $22.8 million. Our total obligations related to dividend and sinking fund payments on preferred stock, interest and principal payments on indebtedness, rental payments and water service interconnection agreements for 2002 are anticipated to be approximately $7.7 million.

Investment in Utility Plant and Equipment

        Capital expenditures increased by $6.9 million for the year ended December 31, 2001, or 48.6%, from $14.4 million in 2000 to $21.3 million in 2001. Investment in utility plant and equipment, excluding advances and contributions in aid of construction received from real estate developers, increased by $6.5 million, or 52.1%, from $12.7 million in 2000 to $19.2 million in 2001. Developers financed $2.1 million for the installation of water mains and hydrants serving their developments, compared to $1.7 million financed by developers in 2000.

        Capital expenditures of $7.1 million were made to enhance or improve existing treatment facilities, rehabilitation of pumping equipment and installation of new wells to increase supply capabilities. We invested $4.9 million of the $7.1 million for new sources of supply throughout Delaware, which made available approximately two mgd for customers. In addition, we invested $2.2 million for sources of supply to add new treatment and upgrade existing facilities. In particular, we added activated carbon treatment to two facilities to remove a contaminant that was detected at these well fields and for which a new temporary standard was imposed by the Delaware DPH.

        We invested over $10.6 million in new transmission and distribution facilities, including refunds of advances for developer-financed infrastructure. Of this $10.6 million, $2.9 million was invested for the relocation of infrastructure as a result of roadway improvements and relocations. We invested $2.1 million in our rehabilitation program for transmission and distribution facilities, replacing aging or deteriorating mains. In addition, we invested $5.6 million in new infrastructure to serve new customers, which included construction of a $1.4 million new elevated storage tank in Sussex County.

        The remaining $1.4 million of capital investment in 2001 was made for general plant and equipment, including fleet vehicles and computer equipment.

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        The following table sets forth our investments in utility plant and equipment for the years ended December 31, 2001, 2000 and 1999.

Investment in Utility Plant and Equipment
(In thousands)

		2001		2000		1999
Source of supply		$	1,217	$	470	$	1,567
Treatment and pumping			5,935		1,526		3,666
Transmission and distribution			10,657		10,476		7,086
General plant and equipment			1,428		177		333
Developer financed utility plant and equipment			2,108		1,717		2,697
	Total investment in utility plant and equipment	$	21,345	$	14,366	$	15,349

        We plan to invest approximately $22.8 million in utility plant and equipment in 2002. Developers are expected to finance an additional $3.6 million through advances and contributions in aid of construction in utility plant construction. We expect to invest approximately $9.6 million in new treatment facilities, equipment and wells throughout Delaware, which are anticipated to produce two mgd in additional water supply. Approximately $5.4 million of this expected investment would be made in connection with the construction of four new facilities, including $1.6 million for a facility in southern New Castle County at Willow Grove, $2.4 million for a facility in Sussex County near Bayville and $1.4 million for two facilities in northern New Castle County. In addition to the investment in new facilities, we continue to maximize and enhance our existing treatment facilities and expect to invest over $4.2 million in 2002 to provide quality water. The largest single enhancement is scheduled for our Windsong treatment facility in Kent County, where changes in state and federal standards have required us to invest nearly $1.0 million in new treatment processes and equipment.

        As part of our total utility plant investment, we expect to invest over $10.2 million in transmission and distribution facilities. We project approximately $3.8 million will be invested in the relocations of facilities as a result of government mandates and renewals associated with the rehabilitation of aging infrastructure. We also plan to invest approximately $6.4 million in new transmission and distribution facilities to improve our system hydraulics and address service needs in growth areas of our service territory.

        The remaining $3.0 million of expected utility plant investment represents expenditures for our general plant and equipment, such as fleet vehicles, computer equipment and tools, and refunds paid to developers for investments that they made in infrastructure to service developments in our service territory.

Financing

        We have several sources of liquidity to finance our investment in utility plant and equipment. We estimate that the projected investment of approximately $22.8 million will be financed by our operations and external sources, including a combination of capital investment and short-term borrowings under our lines of credit discussed below. Developers in our exclusive service territory provide advances and contributions in aid of construction, and are expected to finance an additional $3.6 million of capital expenditures, which includes the installation of mains and hydrants in new developments.

        Our cash flows from operations are primarily derived from water sales and may be materially affected by weather and the timing and extent of increases in rates approved by the Delaware PSC.

        At March 31, 2002, Artesian Water had lines of credit with three separate financial institutions totaling $35.0 million to meet its temporary cash requirements. These lines of credit are unsecured. As of

21

March 31, 2002, we had $15.0 million of available funds under these lines. The interest rate for borrowings under each of these lines is the London Interbank Offering Rate plus 1.0% or the banks' federal funds rate plus 1.0% and, as of March 31, 2002, the weighted average rate was 2.52%. All the lines are reviewed annually by each bank for renewal.

        In order to meet the expected level of investment in utility plant and equipment and retain future financing flexibility, we may offer debt securities to investors in 2002. Our trust indentures, which set certain criteria for the issuance of new long-term debt, limit long-term debt, including the short-term portion thereof, to 66.7% of total capitalization. Our debt to total capitalization was 58.5% at March 31, 2002. The amount and timing of future sales of our securities will depend upon compliance with our trust indentures, market conditions and our specific needs. Additionally, Artesian Water anticipates it will refinance its Series L 8.03% First Mortgage Bonds, which become due on February 1, 2003, along with any outstanding short-term debt under our lines of credit. Following this offering, we expect funds available from our short-term lines of credit, available cash balances, together with projected cash generated from operations will be sufficient to fund our activities for at least the next 24 months.

Contractual Obligations and Commitments

        As of December 31, 2001, the following table sets forth our contractual obligations with their corresponding payments due during the course of the periods indicated.

	Payments Due by Period
	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
	(In thousands)
Long-term debt	$	—	$	10,000	$	—	$	35,000	$	45,000
State revolving fund loan		137		293		319		3,558		4,307
Operating leases		246		146		89		—		481
Unconditional purchase obligations		2,670		5,347		5,340		35,997		49,354
Other long-term obligations		1,362		776		249		—		2,387
Total contractual cash obligations	$	4,415	$	16,562	$	5,997	$	74,555	$	101,529

        Long-term debt reflects the maturities of certain series of our First Mortgage Bonds, which we intend to refinance when due. The state revolving fund loan obligation has an amortizing mortgage payment, payable over a 20-year period, and will be refinanced as future securities are issued. Both the long-term debt and the state revolving fund loan have certain provisions that would result in default and subsequently require the obligation to be repaid; however, there are also specific cure provisions that may allow us to avoid default of the obligation. We have not experienced conditions that would result in our default under these agreements, and we do not anticipate any such occurrence. Payments for unconditional purchase obligations reflect minimum purchase obligations under our interconnection agreements with neighboring utilities.

        As of December 31, 2001, the following table sets forth our commitments with respect to our lines of credit and the payments due during the course of the periods indicated.

Commitments	Committed		Less than 1 Year		1-3 Years	4-5 Years	Over 5 Years
	(In thousands)
Lines of Credit	$	16,118	$	16,118	—	—	—

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Impact of Recent Accounting Pronouncements

        In August 2001, the Financial Accounting Standards Board, or FASB, issued statement No. 143, Accounting for Asset Retirement Obligations. Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Statement No. 143 requires recognition of a liability at fair value and an increase to the carrying value of the related asset for any retirement obligation. This amount would then be amortized over the life of the asset. The liability would be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows. This statement is effective June 2003. Our adoption of this statement will not have a material impact on our financial condition or results of operations.

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OUR COMPANY

Overview

        Through Artesian Water, our principal operating subsidiary, we distribute and sell water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware. As of March 31, 2002, we had 66,477 metered customers and served a population of approximately 220,000, 27% of Delaware's estimated total population. We also provide water for public and private fire protection in our service territories and provide wastewater services in Delaware through our non-regulated subsidiary, Artesian Wastewater Management. We are currently seeking and anticipate the recognition of our subsidiary, Artesian Water PA, as a regulated public water utility by the Pennsylvania PUC.

Market and Service Area

        Our current market and service area is the State of Delaware. According to the U.S. Census Bureau, Delaware had a projected population of approximately 800,000 at December 31, 2001, which represents an 18% increase since 1990 and the 14^th largest percentage increase among the states. New Castle is the most populous of Delaware's three counties, and the northern part of New Castle is the location of our largest connected regional water system, consisting of approximately 62,500 customers. Sussex County, which is located in southern Delaware, has experienced the most significant growth with a population increase of approximately 38% since 1990. Substantial portions of Delaware, particularly outside of northern New Castle County, are not served by a public water system and represent potential opportunities for us to obtain new exclusive service areas.

        In Delaware, a CPCN grants a water utility the exclusive right to serve all existing and new customers within a designated area. Effective July 1, 2001, the authority to issue CPCNs was transferred to the Delaware PSC, from the Delaware Department of Natural Resources and Environmental Control, or DNREC. The pursuit of new service territory in Delaware by water utilities is competitive.

Strategic Initiatives

        Our strategy is to achieve sustainable growth in our revenues and earnings through a combination of the following initiatives.

Broaden Our Customer Base

        Broaden Our Customer Base in Existing Exclusive Service Territories.    We expect to continue increasing our customer base and revenues in Delaware by providing water service to new residential, commercial and industrial customers in our exclusive service territories. A significant portion of our exclusive service territory remains undeveloped. As of March 31, 2002, we held CPCNs for nearly 5,000 acres zoned for industrial and manufacturing development within our existing service territory. If and when development occurs and there is population growth in these areas, we will increase our customer base by providing water service to the newly developed areas and new customers. We will also target new customers that are currently served by private wells within our existing service territory.

Increase Our Service Area Through the Acquisition of New Exclusive Service Territories. We plan to continue expanding our exclusive service territory by acquiring water service agreements from landowners, developers or municipalities, and obtaining additional CPCNs from the Delaware PSC. Our expansion efforts are focused in the higher growth areas of Delaware, primarily in southern Delaware. We believe we have significant opportunities to acquire additional exclusive service territory in southern Delaware because substantial portions of this area remain undeveloped and are not presently served by a public water system.

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        Pursue Contract Management Opportunities with Other Water Providers.    We have been actively pursuing contract management opportunities with other water providers and currently have agreements with six providers, including contracts with five water systems to provide operating services, and with Delaware City to provide administrative services such as meter reading and billing. In addition, because Delaware regulations require that water suppliers employ licensed water operators, we believe we have significant opportunities to enter into contract management agreements with municipalities and utilities to provide operational expertise, manage water systems and supply water.

        Acquire Additional Water Systems.    We will continue our efforts to identify water systems as strategic acquisition candidates. The acquisition of additional water systems will allow us to add new customers and increase our water sales.

Capitalize on Our Dependable Supply of High Quality Water

        Continue to Provide High Quality Water.    We believe our water quality gives us a competitive edge in increasing our customer base and expanding our service territory. We will continue to maintain wells that generally access deep aquifers. Deep aquifers usually provide better quality water and greater protection against possible land use contamination and drought-related effects than surface water sources or wells accessing shallow aquifers.

        In addition, our maintenance program for transmission and distribution mains and the construction of new mains also focuses on water quality. We believe that our investments in high quality mains lower the potential for costly and disruptive repairs to our water transmission systems in the future.

        Secure Additional Long-Term Sources of Dependable Self-Supply.    We will continue to focus our efforts on securing long-term sources of our water supply in order to maintain adequate water supply for our current customers, especially during periods of drought; and position ourselves to ensure adequate water supply as we grow.

        We plan to maintain and expand our water supply through investment in our infrastructure, including development of new wells, expansion of our existing treatment plants and upgrading our pumping and storage facilities. In addition, by developing innovative water storage techniques, such as our Aquifer Storage and Recovery Program, we believe we will be able to store large quantities of treated water to meet our customer demands during peak periods and, if available, sell excess water to neighboring utilities at bulk rates.

Expand Our Wastewater Business

        We intend to expand the provision of wastewater services through our one-third interest in AquaStructure, an entity that designs, builds and/or operates wastewater treatment facilities and in which we hold a one-third interest. AquaStructure began construction of a wastewater treatment facility for Middletown, Delaware in July 2001, for which we have a twenty-year contract to operate after it commences operations. We may also enter into direct wastewater service agreements through Artesian Wastewater Management. We believe the expansion of our wastewater business will allow us to diversify our customer base and generate non-weather affected revenue streams.

Maintain Our Active Community Relations Program and Participation in Policy-Making Forums

        We intend to maintain our active community relations program through sponsorship of community events, relationships with local developers and landowners and participation in state, county and municipal policy-making forums. We believe our participation in these activities will enhance our marketing efforts and provide opportunities to encourage and participate in legislative and regulatory reforms that benefit our customers and stockholders.

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Water Supply

        We have identified sufficient sources of supply to serve our expanding customer base for the foreseeable future.

        Our primary sources of water are our wells that pump groundwater from aquifers and other water bearing formations. As of December 31, 2001, we had 87 production and 54 monitoring wells in our systems. To supplement our groundwater supply, we purchase surface water through interconnections only in the northern service area of our New Castle County system. The purchased surface water is blended with our groundwater supply for distribution to our customers in that area. In the remainder of the State, we have several satellite systems that have not yet been connected by transmission and distribution facilities. We intend to join these systems into larger integrated regional systems through the construction of a transmission and distribution network as development continues and our expansion efforts provide us with contiguous exclusive service territories.

        Our self-supply has increased from 63% of our total water supply in 1992 to approximately 82% in 2001. In 2001, the remaining 18% came from interconnections with other utilities and municipalities. During 2001, our average rate of water pumped was approximately 16.4 mgd from our groundwater wells and approximately 3.6 mgd was supplied from interconnections. Our peak water supply capacity as of December 31, 2001 was approximately 43.0 mgd. Our peak water demand in 2001 was approximately 27.9 mgd.

        As of December 31, 2001, we had 14 interconnections with four neighboring water utilities and four municipalities that provide us with the ability to purchase or sell water. Interconnection agreements with the Chester Water Authority and the City of Wilmington have "take or pay" clauses requiring us to take minimum draws totaling 1.3 billion gallons annually. During the years ended December 31, 2001 and December 31, 2000, our purchases of water under these interconnection agreements were generally limited to the respective contract minimums, since our own water supply sources are less costly. The Chester Water Authority agreement, which expires in 2021, provides for a renewal period of an additional 25 years at our option, subject to the approval by the Susquehanna River Basin Commission. Our agreement with the City of Wilmington was renewed in December 2001 for a period of five years. All of the interconnections provide us with the ability to sell water to neighboring water utilities or municipalities. Our interconnected water system also provides us with the ability to serve our customers without interruption or loss of water service from other sources of supply in the event that we temporarily take a well out of service.

        Under state laws and regulations, we are required to file applications with the DNREC for water allocation permits for each of our production wells pumping quantities of water above certain levels. As of December 31, 2001, we had permits for 73 wells and permit applications pending for two others. As of December 31, 2001, we also had 12 wells that did not require a permit. Our access to aquifers within our service territory is not exclusive. Water allocation permits control the amount of water that can be drawn from water resources and are granted with specific restrictions on water level draw down limits, annual, monthly and daily pumpage limits, and well field allocation pumpage limits. Our ability to supply the demands of our customers has not been affected by private usage of the aquifers by landowners or the limits imposed by the State. Because of the extensive regulatory requirements relating to the withdrawal of any significant amounts of water from the aquifers, we believe that third party usage of the aquifers within our service territory will not interfere with our ability to meet the present and future demands of our customers.

        On March 5, 2002, the Governor of Delaware issued a statewide drought "warning." Under the drought "warning," all state facilities are required to impose a ban on non-essential use of water and citizens of the State are urged to restrict voluntarily the non-essential use of water. The Governor, at his or her discretion, without prior notice or hearing, or the DRBC, after public hearing, may issue a drought "emergency," which would restrict mandatorily the non-essential use of water. Despite the issuance of the

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drought "warning," we believe that we have in place sufficient capacity to provide water service for the foreseeable future to all existing and anticipated future customers in all of our service territories.

Transmission and Distribution Facilities

        As of December 31, 2001, we were serving customers through 888 miles of transmission and distribution mains. Mains range in diameter from two inches to twenty-four inches, and most of the mains are made of ductile iron, cast iron or transite pipe. Ductile iron is more durable than plastic and we install ductile iron pipes wherever possible. We are installing a more durable type of plastic pipe only near ocean front property in southern Delaware where corrosive conditions of the surrounding ground affect the longevity of ductile iron pipe. We also supply public fire protection service through approximately 3,600 hydrants installed throughout our service territories.

        As of December 31, 2001, we had 24 storage tanks, most of which are elevated, providing total system storage of 36.0 million gallons. We also are developing and using an Aquifer Storage and Recovery System. In 2001, we began our first full-scale operation of our Aquifer Storage and Recovery System, which permits us to store, on a long-term basis, treated water during periods of excess supply, and later use the stored water during seasonal high demand. We are the first and only water utility in Delaware to utilize this technology.

        We pump all of our water with electric power purchased from major electric utilities. We also have diesel and propane powered generating equipment at selected treatment and elevated storage facilities for the provision of basic water service during possible electrical outages.

Water Treatment

        We derive a significant portion of our self-supplied groundwater from wells located in the Atlantic Coastal Plain. The balance comes from wells in the Piedmont Province. We use a variety of treatment methods, including aeration, pH adjustment, chlorination, fluoridation, activated carbon treatment and iron removal, to meet federal, state and local water quality standards. Additionally, a corrosion inhibitor is added to all of our self-supplied groundwater and most of the supply from interconnections. As of March 31, 2002, we had 38 water treatment facilities. All water supplies that we purchase from neighboring utilities are potable. We believe the costs of treating groundwater are significantly lower than those of treating surface water.

        We added activated carbon treatment at our Collins Park and Llangollen stations in New Castle after the detection of bis (2-chloroethyl) ether, commonly known as "BCEE," and the imposition of a new temporary standard by the Delaware DPH on the permissible level of BCEE in the water supply. The new treatment facilities were installed, and the wells placed back in service, in less than four months at an aggregate cost of $1.7 million.

Utility Plant and Equipment

        We made capital expenditures of $21.3 million for 2001 and $51.1 million for the three-year period ended December 31, 2001. We estimate that we will incur capital expenditures of approximately $22.8 million in 2002. Our planned 2002 capital expenditures include approximately $9.6 million for the construction of new treatment facilities and enhancement of our existing facilities, $10.2 million for transmission and distribution facilities and $3.0 million for other general plant and equipment.

        A major portion of our projected investment is designed to aid in our investment efforts to identify, develop, treat and protect sources of water supply to assure uninterrupted service to our customers. The largest project we are currently undertaking with continued investment in 2002 is the completion of a new water treatment plant and storage tank (a one million gallon elevated storage facility) at our Bayville facilities in Sussex County, with a total projected cost of $2.7 million, $300,000 of which was incurred

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during 2001. The facilities are designed to furnish quality water to new customers in the Fenwick/Route 54 area, interconnect with our water system in South Bethany and ensure a redundant source of supply for all our customers in the coastal Sussex region.

        In addition to the investment in new facilities, we expect to continue to improve our existing treatment facilities and to invest over $4.2 million in 2002 to provide quality water. The largest single enhancement is scheduled for our Windsong treatment facility in Kent County, where changes in state and federal standards have required us to invest nearly $1.0 million in new treatment processes and equipment.

Customers

        We have a reputation, as shown by independent customer satisfaction surveys, for providing water of consistently superior quality to our customers. At March 31, 2002, we provided water service on a retail basis to residential, commercial, industrial and governmental customers through 66,477 meters throughout our service territory serving a population of approximately 220,000, 27% of Delaware's estimated population. In addition, we provide water on a wholesale basis to four other water suppliers. In 2001, we entered into agreements to become the primary water supplier of two large industrial businesses, whose combined water usage we expect to be approximately 350,000 gallons per day. We also provide water for public and private fire protection in our service territories.

        Our gross water sales revenue for 2001 was $31.4 million, and our percentage of revenues for 2001 by customer class were 60% residential, 25% commercial, 12% government and other water sales, and 3% industrial and other utility and non-utility operations. The total number of customers we serve has grown 27% since 1992.

Regulation

        We are subject to regulation by federal, state and local agencies with respect to, among other things, rates charged for water service, awards of new service territory, water allocation rights, water quality and environmental matters.

Rates

        Artesian Water, as a public utility, is regulated by the Delaware PSC with respect to rates and charges for service, the issuance of CPCNs, the sale and issuance of securities by Artesian Water and other matters. We currently derive our water service revenues from base rates applied to water consumption. We periodically seek rate increases to cover the cost of projected operating expenses, increased financing expenses due to additional investments in utility plant and equipment and other costs of doing business. The Delaware PSC approved an increase in rates for water service on June 19, 2001, to allow us to earn an increase in annual revenues of $3.7 million (13.1%). This increase became effective July 1, 2001 and also authorized a return on equity of 10.50%, an overall rate of return of 8.99%. On April 2, 2002, we filed a rate increase application with the Delaware PSC, Delaware PSC Docket 02-109, to request a rate increase of 23.1% or $7.5 million on an annualized basis. On or about May 15, 2002, the City of Wilmington petitioned to intervene in this rate proceeding. The City of Wilmington is challenging the approval of a new industrial rate classification for water service to a General Motors facility that has received water service from both the City of Wilmington and Artesian Water. It is anticipated that a hearing will be held on June 3, 2002 by the Hearing Examiner assigned to this rate proceeding by the Delaware PSC on whether the City of Wilmington and General Motors may intervene. Pursuant to a November 2000 agreement with General Motors, we have been providing expanded water service to General Motors at a fixed rate per thousand gallons, which rate is subject to change based on a cost of service study to be performed in relation to our rate application to the Delaware PSC. We believe that, regardless of the outcome on the issues raised by the City of Wilmington concerning our provision of water service to General Motors, the resolution of the issues will not have a material adverse effect on our results of

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operations. We plan to exercise our right to place a portion of the proposed rate increase into effect on June 1, 2002.

Certificates of Public Convenience and Necessity

        A public water utility operating in Delaware must obtain a CPCN, which is granted by the Delaware PSC, for a service territory to begin or expand its operations. The Delaware PSC grants a CPCN under circumstances where there has been a determination that the water in the proposed service area does not meet the regulations governing drinking water standards for human consumption of the State Board of Health, where the supply is insufficient to meet the projected demand, or where the applicant is in possession of one of the following:

•

a signed service agreement with the developer of a proposed subdivision or development, which subdivision or development has been duly approved by the respective county government;



•

a petition requesting such service signed by a majority of the landowners of the proposed territory to be served; or



•

a duly certified copy of a resolution from the governing body of a county or municipality requesting the applicant to provide service to the proposed territory to be served.

        CPCNs are not transferable, and a water utility must obtain the approval of the Delaware PSC to abandon a service territory once granted. Once a CPCN is granted, generally it may not be suspended or terminated unless the Delaware PSC determines in accordance with its rules and regulations that good cause exists for any such suspension or termination.

Water Quality

        The EPA, DNREC and Delaware DPH regulate the water quality of our treatment and distribution systems. Specifically, the EPA has approved the Delaware DPH's role as the agency with primary authority for enforcing federal Safe Drinking Water Act requirements in Delaware and, in that capacity, the Delaware DPH monitors the activities of Artesian Water and reviews the results of water quality tests performed by Artesian Water for adherence to applicable regulations. We believe that we are in material compliance with regulations under the federal Safe Drinking Water Act and all other current federal, state and local water quality standards. Chester Water Authority, which supplies water to Artesian Water through interconnections in northern New Castle County, is regulated by the Pennsylvania Department of Environmental Protection as well as the EPA.

        As required by the Safe Drinking Water Act, the EPA has established maximum contaminant levels for various substances found in drinking water. The Delaware DPH has set maximum contaminant levels for certain substances that are more restrictive than the maximum contaminant levels set by the EPA. Artesian Water is also subject to other laws regulating substances and contaminants in water, including the Lead and Copper Rule, rules for volatile organic compounds and the Total Coliform Rule. Because we have no surface water sources of supply that we treat for consumption, the Surface Water Treatment Rule generally does not apply to us.

        Delaware enacted legislation in 1998 requiring water utilities to meet secondary water quality standards that include limitations on iron content, odor and other water quality-related issues that are not proven health risks but may be objectionable for consumption. We believe our current treatment systems and facilities meet or exceed these secondary standards.

        As a normal by-product of iron removal, our treatment facility at Old County Road in New Castle County and our treatment facility in South Bethany in Sussex County generate iron removed from untreated groundwater plus residue from chemicals used in the treatment process. We have contracted with a licensed third party vendor to dispose of the solids produced at these facilities. Our other iron

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removal facilities rely on disposal through county-approved wastewater facilities. Management believes that compliance with existing federal, state or local laws and regulations regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has no material effect upon our business and affairs.

Wastewater Business

        Artesian Wastewater Management provides wastewater services and, through a one-third interest in AquaStructure, designs, builds and/or operates wastewater facilities in Delaware. In 1999, Artesian Wastewater Management began operating a wastewater facility for the town of Middletown in southern New Castle County. On March 12, 1997, Artesian Wastewater Management became a one-third participant, along with a heavy-construction contractor and an engineering firm, in AquaStructure. In 2001, AquaStructure began construction of a wastewater treatment facility for Middletown, Delaware that is expected to be completed by mid-2002. Artesian Wastewater Management has secured a 20-year contract to operate this facility, which will incorporate a spray irrigation system and, with a planned 2.5 mgd capacity, is designed to provide service for approximately 10,000 customers.

Properties

        Our corporate headquarters are located at 664 Churchmans Road, Newark, Delaware. The property is leased from White Clay Realty, in which certain of our officers and directors are partners, by Artesian Water through December 31, 2002. The lease may be extended at Artesian Water's option for two consecutive five-year renewal terms subject to the terms set forth in the lease.

        We own various parcels of land, transmission and distribution mains, pump facilities, treatment plants, storage tanks and related facilities throughout Delaware in New Castle, Kent and Sussex Counties. In the aggregate, we own land, rights-of-way and easements totaling approximately 705 acres. Substantially all of Artesian Water's utility plant, except utility plant within the town of Townsend, Delaware, is pledged as security for our First Mortgage Bonds.

Employees

        We have no collective bargaining agreements with any of our employees, and our work force is not union organized or union represented. As of March 31, 2002, we employed 169 full-time and seven part-time employees. Of these employees, 19 were officers and managers; 105 were employed as operations personnel, including engineers, technicians, draftsman, maintenance and repair persons, meter readers and utility personnel; 45 were employed in the accounting, budgeting, information systems, human resources, customer relations, public relations and conservation departments; and seven were employed as administrative personnel. We believe that our employee relations are good.

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MANAGEMENT

Executive Officers and Directors

Name	Age	Position
Dian C. Taylor	56	Chair of the Board, Chief Executive Officer and President of Artesian Resources and our subsidiaries
Joseph A. DiNunzio	39	Senior Vice President and Secretary of Artesian Resources and our subsidiaries
Bruce P. Kraeuter	52	Vice President of Engineering and Planning of Artesian Water and Artesian Water PA
John J. Schreppler, II	45	Vice President, Assistant Secretary and General Counsel of Artesian Resources and our subsidiaries
David B. Spacht	42	Vice President, Chief Financial Officer and Treasurer of Artesian Resources and our subsidiaries
John M. Thaeder	43	Vice President of Operations of Artesian Water, Artesian Water PA and Artesian Wastewater Management
Kenneth R. Biederman	58	Director
John R. Eisenbrey, Jr.	46	Director
Norman H. Taylor, Jr.	62	Director
William C. Wyer	55	Director

Dian C. Taylor has served as Chair of the Board since July 1993, and as President and Chief Executive Officer of Artesian Resources and our subsidiaries since September 1992. Ms. Taylor has been employed by us since August 1991. She was formerly a consultant to the Small Business Development Center at the University of Delaware from February 1991 to August 1991 and Owner and President of Achievement Resources Inc. from 1977 to 1991. Achievement Resources, Inc. specialized in strategic planning, marketing, and entrepreneurial and human resources development consulting. Ms. Taylor was a marketing director for SMI, Inc. from 1982 to 1985. Ms. Taylor is the sister of Norman H. Taylor, Jr. and the aunt of John R. Eisenbrey, Jr.

Joseph A. DiNunzio has served as Senior Vice President and Secretary of Artesian Resources and our subsidiaries since March 2000. Mr. DiNunzio previously served as Vice President and Secretary of Artesian Resources and our subsidiaries since January 1995. Mr. DiNunzio has been employed by us since 1989 and has held various executive and management level positions with Artesian Resources and our subsidiaries. Prior to joining us, Mr. DiNunzio was employed by PricewaterhouseCoopers LLP from 1984 to 1989.

Bruce P. Kraeuter has served as Vice President of Engineering and Planning of Artesian Water since January 1995 and Artesian Water PA since May 2001. Mr. Kraeuter has been employed by us since July 1989 and has held various executive and operational positions with Artesian Resources and our subsidiaries. Mr. Kraeuter served as Senior Engineer with the Water Resources Agency for New Castle County, Delaware from 1974 to 1989.

John J. Schreppler, II has served as Vice President, Assistant Secretary and General Counsel of Artesian Resources and our subsidiaries since July 2000. Mr. Schreppler practiced law in Wilmington, Delaware as John J. Schreppler, II P.A. from February 1999 until he joined us; and prior to that was a partner in The Bayard Firm from 1988 to February 1999.

David B. Spacht has served as Chief Financial Officer and Treasurer of Artesian Resources and our subsidiaries since July 1992, and was appointed Vice President of each company in January 1995.

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Mr. Spacht has been employed by us since 1980 and has held various executive and management level positions with Artesian Resources and our subsidiaries.

John M. Thaeder has served as Vice President of Operations of Artesian Water since February 1998, Artesian Wastewater Management since April 1999 and Artesian Water PA since May 2001. Prior to joining us, Mr. Thaeder was employed by Hydro Group, Inc. from 1996 to 1998 as Southeastern District Manager of Sales and Operations from Maryland to Florida. During 1995 and 1996, Mr. Thaeder was Hydro Group's Sales Manager of the Northeast Division with sales responsibilities from Maine to Florida. From 1988 to 1995, he served as District Manager of the Layne Well and Pump Division of Hydro Group.

Kenneth R. Biederman has served as one of our directors since July 1991. Mr. Biederman has been a Professor of Finance at the College of Business and Economics of the University of Delaware since May 1996. He served as Interim Dean of the College of Business and Economics of the University of Delaware from February 1999 to June 2000 and Dean of the College of Business and Economics of the University of Delaware from 1990 to 1996. Mr. Biederman was formerly a Director of Chase Manhattan Bank USA from 1993 to 1996. He was formerly a financial and banking consultant from 1989 to 1990 and President of Gibraltar Bank from 1987 to 1989. He previously held the following positions: Chief Executive Officer and Chairman of the Board of West Chester Savings Bank; Treasurer of the State of New Jersey and Staff Economist for the US Senate Budget Committee.

John R. Eisenbrey, Jr. has served as one of our directors since July 1993. He has been the owner and President of Bear Industries, Inc., a privately held mechanical contracting firm specializing in fire protection, for over fifteen years. Mr. Eisenbrey is the nephew of Dian C. Taylor.

Norman H. Taylor, Jr. has served as one of our directors since 2001. He has served as Manager of Facilities and Vehicle Maintenance of Artesian Water since July 1997. Mr. Taylor has been employed by Artesian Water since 1965 and has held various operational and supervisory positions with Artesian Water. Mr. Taylor is the brother of Dian C. Taylor and the uncle of John R. Eisenbrey, Jr.

William C. Wyer has served as one of our directors since July 1991. Mr. Wyer has been Managing Director of Wilmington Renaissance Corporation (formerly Wilmington 2000), a private organization seeking to revitalize the City of Wilmington, Delaware, since January 1998, and previously held the same position from May 1993 to September 1995. He served as President of AllNation Life Insurance and as Senior Vice President of Blue Cross/Blue Shield of Delaware from September 1995 to January 1998. He was formerly President of Wyer Group, Inc. from 1991 to 1993, and of Commerce Enterprise Group from 1989 to 1991, both of which companies were management consulting firms specializing in operational reviews of businesses in the areas of productivity, overhead and competitiveness. Mr. Wyer served as President of the Delaware State Chamber of Commerce from 1978 to 1989.

        Susan A. Frank served as Vice President of Customer and Community Relations of Artesian Water through March 2002 and is no longer employed by us.

Classes of the Board

        Our board of directors is divided into three classes that serve staggered three-year terms. The term of Kenneth R. Biederman will expire at the 2003 Annual Meeting of Stockholders. The terms of Norman H. Taylor, Jr. and William C. Wyer will expire at the 2004 Annual Meeting of Stockholders. The terms of Dian C. Taylor and John R. Eisenbrey, Jr. will expire at the 2005 Annual Meeting of Stockholders.

DESCRIPTION OF CAPITAL STOCK

        Our authorized capital stock consists of 15,000,000 shares of Class A Non-Voting Common Stock, par value $1 per share, 1,040,000 shares of Class B Common Stock, par value $1 per share, 10,868 shares of 7% Prior Preferred Stock, par value $25 per share, 80,000 shares of Cumulative Prior Preferred Stock, par value $25 per share, and 100,000 shares of Series Preferred Stock, par value $1 per share.

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        Immediately after the sale of the 500,000 shares of Class A Non-Voting Common Stock offered by this prospectus, there will be issued and outstanding, based on our outstanding securities on May 6, 2002, 2,168,679 shares (2,243,679 shares if the Underwriters' over-allotment option is exercised in full) of Class A Non-Voting Common Stock, 391,824 shares of Class B Common Stock, 10,868 shares of 7% Prior Preferred Stock and 8,000 shares of Cumulative Prior Preferred Stock. There are no shares of Series Preferred Stock outstanding. We sometimes refer to our 7% Prior Preferred Stock, Cumulative Prior Preferred Stock and Series Preferred Stock collectively as "Preferred Stock" in this "DESCRIPTION OF CAPITAL STOCK."

Class A Non-Voting Common Stock

        Holders of shares of Class A Non-Voting Common Stock generally do not have voting rights under our Restated Certificate of Incorporation, as amended, with respect to the election of directors and other matters voted upon by stockholders. However, the Delaware General Corporation Law, which governs our stockholder matters, provides that the holders of Class A Non-Voting Common Stock must vote on certain matters affecting them, such as amendments to the Restated Certificate of Incorporation, as amended, that would:

•

increase or decrease the aggregate number of authorized shares of Class A Non-Voting Common Stock in certain circumstances;



•

increase or decrease the par value of the Class A Non-Voting Common Stock; or



•

alter or change the powers, preferences or special rights of the shares of Class A Non-Voting Common Stock if such change would affect such shares adversely.

        The vote required to approve such amendments is a majority of the outstanding shares of Class A Non-Voting Common Stock. Additionally, we may not issue any shares of Series Preferred Stock without the approval of the holders of a majority of the shares of Class A Non-Voting Common Stock.

        Subject to dividends that we may be required to pay on outstanding shares of Preferred Stock before we may pay dividends on other shares, the holders of Class A Non-Voting Common Stock are entitled to receive dividends, as, when and if declared from time to time by our board of directors out of funds legally available for such purpose. Our Restated Certificate of Incorporation, as amended, requires that we declare and pay the same dividend per share on the Class A Non-Voting Common Stock and on the Class B Common Stock. There are no preemptive, conversion, subscription, redemption or sinking fund rights applicable to the Class A Non-Voting Common Stock. Holders of Class A Non-Voting Common Stock may participate in our dividend reinvestment plan by automatically reinvesting cash dividends declared on all or a portion of their shares to purchase additional shares of Class A Non-Voting Common Stock. In the event of a liquidation, dissolution or winding up of Artesian Resources, the holders of Class A Non-Voting Common Stock are entitled to share pro rata with the holders of Class B Common Stock in all assets and funds remaining after we pay outstanding liabilities and make required distributions to the holders of outstanding shares of Preferred Stock pursuant to our Restated Certificate of Incorporation, as amended. All outstanding shares of Class A Non-Voting Common Stock are fully paid and non-assessable.

Class B Common Stock

        Except as otherwise described in this "DESCRIPTION OF CAPITAL STOCK" with respect to our other classes of stock, the right to vote for the election of directors and other stockholder matters is exercised exclusively by the holders of Class B Common Stock. Holders of Class B Common Stock are entitled to one vote per share on all matters voted upon by stockholders. Holders of shares of Class B Common Stock do not have cumulative voting rights. There are no preemptive, conversion, subscription, redemption or sinking fund rights applicable to the Class B Common Stock. Holders of Class B Common

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Stock may participate in our Dividend Reinvestment Plan by automatically reinvesting cash dividends declared on all or a portion of their shares to purchase additional shares of Class B Common Stock. In the event of our liquidation, dissolution or winding up of our operations, the holders of Class B Common Stock are entitled to share pro rata with the holders of Class A Non-Voting Common Stock in all assets and funds remaining after we pay outstanding liabilities and make required distributions to the holders of outstanding shares of Preferred Stock pursuant to our Restated Certificate of Incorporation, as amended. All outstanding shares of Class B Common Stock are fully paid and non-assessable.

Preferred Stock

        The holders of 7% Prior Preferred Stock generally do not have voting rights under our Restated Certificate of Incorporation, as amended. However, the Delaware General Corporation Law provides Statutory Class Voting Requirements for outstanding shares of preferred stock, such as our 7% Prior Preferred Stock. The 7% Prior Preferred Stock is redeemable at our option, in whole or in part, from time to time at $30 per share plus accrued but unpaid dividends, provided that if we are in default on any dividend or sinking fund payment on any series of Cumulative Prior Preferred Stock, we may not redeem any shares of 7% Prior Preferred Stock or any series of Cumulative Prior Preferred Stock, other than redemption through a fixed sinking fund. The 7% Prior Preferred Stock is entitled to cumulative dividends at a rate of 7% per year out of funds legally available for such purpose, payable quarterly. The 7% Prior Preferred Stock and the Cumulative Prior Preferred Stock rank equally with respect to the payment of cash dividends. No dividends may be declared and paid on the Series Preferred Stock, Class A Non-Voting Common Stock or Class B Common Stock unless the full cash dividends on the 7% Prior Preferred Stock then outstanding have been paid or set apart for payment. In the event of a liquidation, dissolution or winding up of Artesian Resources or the sale by Artesian Resources of all of our assets, the holders of 7% Prior Preferred Stock are entitled, after payment of all liabilities, to be paid in cash the par value of their shares and any accrued but unpaid dividends before any amounts are paid to the holders of common stock. The 7% Prior Preferred Stock and the Cumulative Prior Preferred Stock rank equally with respect to payments upon a liquidation, dissolution or winding up, except that a sale of all of the assets of Artesian Resources will not be deemed a liquidation, dissolution or winding up with respect to the Cumulative Prior Preferred Stock.

        Our Restated Certificate of Incorporation, as amended, currently designates 40,000 shares of 9.96% Cumulative Prior Preferred Stock out of the 80,000 authorized shares of Cumulative Prior Preferred Stock. As of March 31, 2002, there were outstanding 8,000 shares of 9.96% Cumulative Prior Preferred Stock. The Restated Certificate of Incorporation, as amended, also designates 12,000 shares of 9⁵/8% Cumulative Prior Preferred Stock, 10,000 shares of 8¹/2% Cumulative Prior Preferred Stock and 16,000 shares of 11¹/8% Cumulative Prior Preferred Stock, all of which have been issued and subsequently redeemed. Subject to certain stockholder approval requirements described below, the board of directors may fix the designations, preferences and other rights, limitations or restrictions of authorized and unissued Cumulative Prior Preferred Stock in a resolution providing for the initial issuance of any additional series of such stock. Generally, the consent of a majority of the outstanding shares of Series Preferred Stock and Class B Common Stock is required for, among other things, an increase in the authorized amount of any series of Cumulative Prior Preferred Stock and the creation of one or more additional series of Cumulative Prior Preferred Stock. In addition, we may not, without the consent of a majority of the holders of shares of Cumulative Prior Preferred Stock of all series then outstanding, increase the total number of authorized shares of Cumulative Prior Preferred Stock of all series so that such authorized number exceeds 80,000 shares. All series of Cumulative Prior Preferred Stock are of equal rank. We have no present plans to designate any additional series of Cumulative Prior Preferred Stock, increase the authorized shares for any previously designated series or issue any additional shares of any previously designated series.

        Except (i) for Statutory Class Voting Requirements, (ii) in the case of certain defaults in dividend or sinking fund payments described below, and (iii) as described below for certain of our actions, the holders

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of Cumulative Prior Preferred Stock generally do not have voting rights under our Restated Certificate of Incorporation, as amended. If we are in default on dividend or sinking fund payments on any series of Cumulative Prior Preferred Stock for certain periods of time specified in our Restated Certificate of Incorporation, as amended, the holders of Cumulative Prior Preferred Stock are entitled to vote as a class for not less than one-third (if the default continues for certain shorter periods) or a majority (if the default continues for certain longer periods), as the case may be, of the members of our board of directors. Upon cure of such defaults, voting rights revert to the Class B Common Stock. All dividend and sinking fund payments on the Cumulative Prior Preferred Stock are current. The consent of at least 75% of the total number of shares of Cumulative Prior Preferred Stock then outstanding is required for us to:

•

incur any long-term indebtedness that would result in total long-term indebtedness exceeding 65% of our capitalization;



•

create or authorize any class of stock or any obligation or security convertible into shares of stock unless such stock ranks junior to the Cumulative Prior Preferred Stock with respect both to the payment of dividends and distributions upon our liquidation, dissolution or winding up of operations;



•

amend, alter, change or repeal any of the provisions of our Restated Certificate of Incorporation, as amended, with respect to our business purposes so as to substantially change such purposes, or amend, alter, change or repeal any of the terms of the Cumulative Prior Preferred Stock then outstanding in a manner prejudicial to the holders of such stock;



•

merge or consolidate if, among other things, the purposes of the resulting corporation would be substantially different from ours or if any adverse change in the terms and provisions of the Cumulative Prior Preferred Stock would result;



•

reissue any previously purchased, redeemed or retired shares of Cumulative Prior Preferred Stock; or



•

issue any shares of Cumulative Prior Preferred Stock or any stock senior to the Cumulative Prior Preferred Stock unless certain financial tests specified in our Restated Certificate of Incorporation, as amended, are met.

        The outstanding Cumulative Prior Preferred Stock has no preemptive, conversion or other subscription rights. The 9.96% Cumulative Prior Preferred Stock has annual mandatory redemption requirements, and is redeemable on or after February 1, 2003 at our option. The outstanding shares of 9.96% Cumulative Prior Preferred Stock are mandatorily redeemable in certain circumstances at a price equal to par value plus accrued and unpaid dividends. Under our mandatory sinking fund provisions, redemptions will total $100,000 (4,000 shares) annually from 2003 through 2004. If dividends payable or sinking fund payments are in default on any series of Cumulative Prior Preferred Stock, we may not redeem any shares of 7% Prior Preferred Stock or any series of Cumulative Prior Preferred Stock other than redemption through a fixed sinking fund.

        The 9.96% Cumulative Prior Preferred Stock is entitled to cumulative dividends out of funds legally available for such purpose payable quarterly at rates per annum upon the par value. The Cumulative Prior Preferred Stock and the 7% Prior Preferred Stock rank equally with respect to the payment of cash dividends. No dividends may be declared and paid on the common stock unless the full cash dividends on the Cumulative Prior Preferred Stock then outstanding have been paid or set apart for payment. In the event of our liquidation, dissolution or winding up of operations or our sale of all of our assets, the holders of the outstanding series of Cumulative Prior Preferred Stock are entitled, after we pay all outstanding liabilities, to be paid in cash the par value of their shares and any accrued but unpaid dividends before any amounts are paid to the holders of common stock.

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        With the prior approval of the holders of a majority of the shares of Class A Non-Voting Common Stock, our board of directors may issue Series Preferred Stock from time to time in one or more series. The board of directors has the power to fix, subject to preferences that may be applicable to the 7% Prior Preferred Stock or Cumulative Prior Preferred Stock under our Restated Certificate of Incorporation, as amended, the full, limited or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof of any such series of Series Preferred Stock.

        The issuance of Series Preferred Stock, while providing us flexibility in connection with acquisitions and other corporate purposes, may be used by us, in certain circumstances, to create voting impediments to extraordinary corporate transactions or to frustrate persons seeking to effect a merger or otherwise gain control of Artesian Resources. We have no present plans to designate any series or issue any shares of Series Preferred Stock.

Limitations of Liability

        Our Restated Certificate of Incorporation, as amended, provides that our directors will not be personally liable to Artesian Resources or our stockholders for monetary damages for a breach of fiduciary duty as a director, except for liability:

•

for any breach of such person's duty of loyalty;



•

for acts and omissions not in good faith or involving intentional misconduct or a knowing violation of law;



•

for the payment of unlawful dividends and certain other actions prohibited by Delaware corporate law; and



•

for any transaction resulting in receipt by such person of an improper personal benefit.

        We have a directors' and officers' liability insurance policy which affords our directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, error and other wrongful acts. At present, there is no pending litigation or proceeding, and we are not aware of any threatened litigation or proceeding, involving any director, officer, employee or agent where indemnification will be required or permitted under our Restated Certificate of Incorporation, as amended, or By-laws.

Provisions with Possible Anti-Takeover Effects

        Our Restated Certificate of Incorporation, as amended, provides that we will be governed by Section 203 of the Delaware General Corporation Law which prohibits a "business combination" between a corporation and an "interested stockholder" within three years of the stockholder becoming an "interested stockholder." An "interested stockholder" is one who, directly or indirectly, owns 15% or more of the outstanding voting stock of the corporation. A "business combination" includes:

•

a merger;



•

consolidation;



•

sale or other disposition of assets having an aggregate value in excess of 10% of either the aggregate fair market value of the consolidated assets of the corporation or the aggregate market value of all the outstanding stock of the corporation; and



•

certain transactions that would increase the interested stockholder's proportionate share ownership in the corporation or which provide the interested stockholder with a financial benefit.

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        These restrictions do not apply where:

•

the business combination or the transaction in which the stockholder becomes interested is approved by the corporation's board of directors prior to the time the interested stockholder acquired its shares;



•

the interested stockholder acquired at least 85% of the outstanding voting stock of the corporation in the transaction in which the stockholder became an interested stockholder excluding, for determining the number of shares outstanding, shares owned by persons who are directors as well as officers and by employee stock plans in which participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or



•

the business combination is approved by the board of directors and the affirmative vote of two-thirds of the outstanding voting stock not owned by the interested stockholder at an annual or special meeting.

        The business combinations provisions of Section 203 of the Delaware General Corporation Law may have the effect of deterring merger proposals, tender offers or other attempts to affect changes in control of Artesian Resources that are not negotiated and approved by our board of directors.

        We have adopted certain provisions in our Restated Certificate of Incorporation, as amended, and By-laws which may have anti-takeover implications. Our Restated Certificate of Incorporation, as amended, provides that, without the affirmative vote of at least 75% of the voting power of all of the then outstanding shares entitled to vote generally in the election of directors, voting together as a class, the By-laws and the provisions of the Restated Certificate of Incorporation, as amended, establishing a classified board of directors may not be altered, amended or repealed. These supermajority voting provisions, along with various supermajority voting provisions for certain classes of stock required for certain business combinations and other corporate actions described above, may have an effect of discouraging, delaying or preventing a change of control which may be at a premium above the prevailing market price.

Transfer Agent and Registrar

        The Transfer Agent and Registrar for the Class A Non-Voting Common Stock is Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016.

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UNDERWRITING

        Janney Montgomery Scott LLC and J.J.B. Hilliard, W.L. Lyons, Inc. are the representatives of the Underwriters. Subject to the terms and conditions of the underwriting agreement, the Underwriters have agreed to purchase, and we have agreed to sell to the Underwriters, the number of shares of Class A Non-Voting Common Stock set forth opposite their respective names below at the public offering price less the underwriting discount on the cover page of this prospectus.

Underwriters		Number of Shares
Janney Montgomery Scott LLC
J.J.B. Hilliard, W.L. Lyons, Inc.
	Total

        The underwriting agreement provides that obligations of the Underwriters to purchase the shares of the Class A Non-Voting Common Stock that are being offered are subject to the approval of certain legal matters by counsel to the Underwriters and to certain other conditions. Each Underwriter is obligated to purchase all of the shares of the Class A Non-Voting Common Stock being offered by this prospectus (other than shares of Class A Non-Voting Common Stock covered by the over-allotment option described below) if it purchases any of the shares of Class A Non-Voting Common Stock.

        The Underwriters propose to offer some of the shares of Class A Non-Voting Common Stock to the public initially at the offering price per share shown on the cover page of this prospectus and may offer shares to certain dealers at such price less a concession not in excess of $                              per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $                      per share to certain other dealers. After the public offering of the Class A Non-Voting Common Stock, the public offering price and the concessions may be changed by the Underwriters.

        The following table shows the per share and total underwriting discount to be paid to the Underwriters by us. These amounts are shown assuming both no exercise and full exercise of the Underwriters' option to purchase the over-allotment shares:

	Per Share		Total
	Without Over-allotment	With Over-allotment	Without Over-allotment	With Over-allotment
Underwriting Discounts and Commissions to be paid by us	$	$	$	$

        We estimate that our out-of-pocket expenses for this offering will be approximately $385,000.

        In addition to the underwriting discount shown on the cover page of this prospectus, we will pay to the representatives a non-accountable expense allowance of $65,000.

        We have granted to the Underwriters an option, exercisable for up to 30 days after the date of this prospectus, to purchase up to 75,000 additional shares of Class A Non-Voting Common Stock, at the same price per share as the public offering price, less the underwriting discounts and commissions shown on the cover page of this prospectus. The Underwriters may exercise such option only to cover over-allotments in the sale of the shares of Class A Non-Voting Common Stock offered by this prospectus. To the extent the Underwriters exercise this option, each of the Underwriters has a firm commitment, subject to certain conditions, to purchase a number of the additional shares of Class A Non-Voting Common Stock proportionate to such Underwriter's initial commitment as indicated in the table above that lists the Underwriters.

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        In connection with this offering and in compliance with applicable securities laws, the Underwriters may over-allot (i.e., sell more shares of Class A Non-Voting Common Stock than is shown on the cover page of this prospectus) and may effect transactions that stabilize, maintain or otherwise affect the market price of the Class A Non-Voting Common Stock at levels above those which might otherwise prevail in the open market. Such transactions may include placing bids for the Class A Non-Voting Common Stock or effecting purchases of the Class A Non-Voting Common Stock for the purpose of pegging, fixing or maintaining the price of the Class A Non-Voting Common Stock or for the purpose of reducing a short position created in connection with the offering. A short position may be covered by exercise of the over-allotment option described above in place of or in addition to open market purchases.

        Additionally, the Underwriters may engage in syndicate covering transactions, which involve purchases of shares of the Class A Non-Voting Common Stock in the open market after the distribution has been completed in order to cover syndicate short positions.

        The Underwriters may also impose a penalty bid. Penalty bids permit the Underwriters to reclaim a selling concession from a syndicate member when the shares of the Class A Non-Voting Common Stock originally sold by that syndicate member are purchased in a stabilizing transaction or syndicate covering transaction to cover syndicate short positions. The imposition of a penalty bid may have an effect on the price of the Class A Non-Voting Common Stock to the extent that it may discourage resales of the Class A Non-Voting Common Stock.

        In connection with this offering, the Underwriters, selling group members or their respective affiliates who are qualified market makers on the Nasdaq National Market may engage in passive market making transactions in our Class A Non-Voting Common Stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as amended, during the five business days prior to the pricing of the offering before the commencement of offers and sales of the Class A Non-Voting Common Stock. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security. If all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded.

        We and the Underwriters make no representation or prediction as to the direction or magnitude of any effect that these transactions may have on the price of the Class A Non-Voting Common Stock. In addition, we and the Underwriters make no representation that the Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.

        Each Underwriter does not intend to confirm sales of the Class A Non-Voting Common Stock to any accounts over which it exercises discretionary authority.

        Our directors, executive officers and 10% stockholders have agreed that they will not, directly or indirectly, sell or otherwise dispose of any of our Class A Non-Voting Common Stock or our Class B Common Stock for a period of 90 days after the completion of this offering, without the representatives' prior written consent. Together, this group owns, prior to the offering, 7.0% of the outstanding shares of Class A Non-Voting Common Stock, 68.2% of the outstanding shares of Class B Common Stock and 90.0% of the outstanding options to purchase Class A Non-Voting Common Stock. We also have agreed to make no such sales during this period except in connection with the issuance of shares pursuant to our stock option plans, 401(k) and supplemental retirement plans and dividend reinvestment plan.

        We have agreed to indemnify the Underwriters against certain liabilities that may be incurred in connection with this offering, including liabilities under the Securities Act of 1933, as amended.

        PNC Bank, an affiliate of J.J.B. Hilliard, W.L. Lyons, Inc., is a lender under one of our lines of credit and will receive on account of this line a portion of the net proceeds received from the sale of the shares of Class A Non-Voting Common Stock in this offering. Because more than ten percent of such net proceeds

39

will be paid to members or affiliates of members of J.J.B. Hilliard, W.L. Lyons, Inc., the NASD member participating in this offering, this offering will be conducted in accordance with the NASD Conduct Rule 2710(c)(8), which requires that the price of any equity security be no higher than the price recommended by a qualified independent underwriter which has participated in the preparation of the prospectus and performed its usual standard of due diligence with respect thereto. Janney Montgomery Scott LLC has agreed to act as a qualified independent underwriter with respect to this offering, and the price of the Class A Non-Voting Common Stock will be no higher than Janney Montgomery Scott LLC recommends. J.J.B. Hilliard, W.L. Lyons, Inc. will not participate in the determination of the offering price in this offering.

        The shares of Class A Non-Voting Common Stock are listed on the Nasdaq National Market under the symbol "ARTNA."

LEGAL MATTERS

        Certain legal matters relating to the validity of the shares of Class A Non-Voting Common Stock being offered by this prospectus will be passed upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain legal matters will be passed upon for the Underwriters by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania.

EXPERTS

        The consolidated financial statements of Artesian Resources Corporation and subsidiaries as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

        We file annual, quarterly and special reports and other information with the Securities and Exchange Commission, or SEC. You may read and copy any of the reports and other information we file at the SEC's public reference facilities located in Washington at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC. Copies of such material can also be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. Our SEC filings are also available to the public over the Internet at the SEC's web site which is located at the following address: http://www.sec.gov.

        This prospectus is a part of a registration statement on Form S-2, which we filed with the SEC to register the securities we are offering. Certain information and details which may be important to specific investment decisions may be found in other parts of the registration statement, including its exhibits, but are left out of this prospectus in accordance with the rules and regulations of the SEC. To see more detail, you may wish to review the registration statement and its exhibits. Copies of the registration statement and its exhibits are on file at the offices of the SEC and may be obtained upon payment of the prescribed fee or may be examined without charge at the SEC's public reference facilities or over the Internet at the SEC's web site described above.

        The SEC's rules allow us to "incorporate by reference" the information we file with the SEC, which means we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus. We incorporate our Annual Report on Form 10-K for the year ended December 31, 2001 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, as of the dates they were filed with the SEC.

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        We will provide a copy of these filings to any person to whom a prospectus is delivered, including any beneficial owner. You should direct your oral or written request for a copy of these filings to: Artesian Resources Corporation, 664 Churchmans Road, Newark, Delaware 19702, Attention: Joseph A. DiNunzio, Senior Vice President and Secretary (telephone (302) 453-6900). You will not be charged for copies unless you request exhibits, for which we will charge you a minimal fee. However, you will not be charged for exhibits in any case where the exhibit you request is specifically incorporated by reference into another document which is incorporated by reference in this prospectus.

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ARTESIAN RESOURCES CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Accountants		F-2
Interim Consolidated Financial Statements (Unaudited):
	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	F-3
	Consolidated Statements of Income for the quarters ended March 31, 2002 and 2001	F-4
	Consolidated Statements of Retained Earnings for the quarters ended March 31, 2002 and 2001	F-5
	Consolidated Statements of Cash Flows for the quarters ended March 31, 2002 and 2001	F-6
	Notes to Consolidated Financial Statements	F-7
Year-End Consolidated Financial Statements:
	Consolidated Balance Sheets as of December 31, 2001 and 2000	F-9
	Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999	F-10
	Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999	F-11
	Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999	F-12
	Notes to Consolidated Financial Statements	F-15

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Artesian Resources Corporation and Subsidiaries:

        We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Artesian Resources Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 8, 2002

F-2

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEET

(in thousands)

			March 31, 2002		December 31, 2001
			(Unaudited)
ASSETS
Utility plant and equipment, at original cost less accumulated depreciation			$	157,629	$	152,356
Current assets
	Cash and cash equivalents			369		1,053
	Accounts receivable, net			2,473		2,610
	Unbilled operating revenues			2,063		2,159
	Materials and supplies — at cost on FIFO basis			650		616
	Prepaid property taxes			293		589
	Prepaid expenses and other			286		448
				6,134		7,475
Other assets
	Non-utility property (less accumulated depreciation 2002-$84; 2001-$82)			296		297
	Other deferred assets			1,178		1,178
				1,474		1,475
Regulatory assets, net				2,159		2,228
			$	167,396	$	163,534
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
	Common stock		$	2,057	$	2,040
	Additional paid-in capital			25,389		25,107
	Retained earnings			6,934		7,026
	Preferred stock			272		272
		Total stockholders' equity		34,652		34,445
Preferred stock-mandatorily redeemable, net of current portion				100		200
Long-term debt, net of current portion				49,100		49,370
				83,852		84,015
Current liabilities
	Notes payable			20,042		16,118
	Current portion of long-term debt			1,252		1,328
	Current portion of mandatorily redeemable preferred stock			100		100
	Accounts payable			3,755		4,745
	Overdraft payable			1,625		983
	Income taxes payable			354		38
	Deferred income taxes			197		229
	Interest accrued			316		555
	Customer deposits			413		414
	Other			1,164		988
				29,218		25,498
Deferred credits and other liabilities
	Net advances for construction			18,952		18,754
	Postretirement benefit obligation			1,344		1,360
	Deferred investment tax credits			896		904
	Deferred income taxes			5,672		5,660
				26,864		26,678
Commitments and contingencies
Net contributions in aid of construction				27,462		27,343
			$	167,396	$	163,534

The notes are an integral part of the consolidated financial statements.

F-3

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(in thousands, except per share amounts)

		For the Quarter Ended March 31,
		2002		2001
Operating revenues
	Water sales	$	7,570	$	6,835
	Other utility operating revenue		158		112
	Non-utility revenue		16		13
			7,744		6,960
Operating expenses
	Utility operating expenses		4,542		4,302
	Related party expenses		44		44
	Non-utility operating expenses		16		14
	Depreciation and amortization		812		708
	State and federal income taxes		373		169
	Property and other taxes		445		453
			6,232		5,690
Operating income			1,512		1,270
Allowance for funds used during construction (AFUDC)			124		76
Other income (expense), net			28		10
Income before interest charges			1,664		1,356
Interest charges			1,116		1,085
Net income			548		271
Dividends on preferred stock			12		15
Net income applicable to common stock		$	536	$	256
Income per common share:
	Basic	$	0.26	$	0.13
	Diluted	$	0.25	$	0.12
Cash dividend per common share		$	0.29	$	0.275
Average common shares outstanding
	Basic		2,051		2,017
	Diluted		2,112		2,058

The notes are an integral part of the consolidated financial statements.

F-4

CONSOLIDATED STATEMENT OF RETAINED EARNINGS

(Unaudited)

(in thousands)

	For the Quarter Ended March 31,
	2002		2001
Balance, beginning of period	$	7,026	$	6,070
Net income		548		271
		7,574		6,341
Less:  Dividends		614		583
Common stock-repurchase		26		16
Balance, end of period	$	6,934	$	5,742

The notes are an integral part of the consolidated financial statements.

F-5

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(in thousands)

			For the Quarter Ended March 31,
			2002			2001
Cash Flows From Operating Activities
	Net income		$	548		$	271
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		773			671
		Deferred income taxes, net		(28	)		8
		Allowance for funds used during construction (AFUDC)		(124	)		(76	)
	Changes in assets and liabilities:
		Accounts receivable		137			(76	)
		Unbilled operating revenue		96			185
		Materials and supplies		(34	)		26
		Accrued state and federal income taxes		316			23
		Prepaid property taxes		296			296
		Prepaid expenses and other		162			91
		Other deferred assets		—			21
		Regulatory assets		69			131
		Postretirement benefit obligation		(16	)		(24	)
		Accounts payable		(990	)		6
		Interest accrued		(239	)		54
		Customer deposits and other, net		175			132
Net Cash Provided by Operating Activities				1,141			1,739
Cash Flows From Investing Activities
	Capital expenditures (net of AFUDC)			(6,066	)		(5,601	)
	Proceeds from sale of assets			—			7
Net Cash Used in Investing Activities				(6,066	)		(5,594	)
Cash Flow From Financing Activities
	Net borrowings under line of credit agreement			3,924			5,095
	Overdraft payable			642			(426	)
	Net advances and contributions in aid of construction			463			120
	Net proceeds from stock transactions			272			108
	Dividends			(614	)		(583	)
	Repayment of long-term debt			(346	)		(278	)
	Retirement of preferred stock			(100	)		(100	)
Net Cash Provided by Financing Activities				4,241			3,936
Net (Decrease) Increase in Cash and Cash Equivalents				(684	)		81
Cash and Cash Equivalents at Beginning of Period				1,053			392
Cash and Cash Equivalents at End of Period			$	369		$	473
Supplemental Disclosures of Cash Flow Information
	Interest paid		$	1,339		$	1,010
	Income taxes paid		$	—		$	—

The notes are an integral part of the consolidated financial statements.

F-6

ARTESIAN RESOURCES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — General

        The unaudited consolidated financial statements of Artesian Resources Corporation and its wholly-owned subsidiaries (the Company or Artesian Resources), including its principal operating company, Artesian Water Company, Inc. (Artesian Water), presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures prescribed by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2001, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The accompanying consolidated financial statements have not been audited by independent accountants in accordance with generally accepted auditing standards and, in the opinion of management such consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to fairly summarize the Company's financial position and results of operations. The results of operations for the interim periods may not be indicative of the results that may be expected for the entire year.

Note 2 — Regulatory Assets

        Certain expenses are recoverable through rates, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the Delaware Public Service Commission (Delaware PSC). Expenses related to rate proceedings are amortized on a straight-line basis over a period of 2 years. The postretirement benefit obligation, which is being amortized over 20 years, is adjusted for the difference between the net periodic postretirement benefit costs and the cash payments. The deferred income taxes will be amortized over future years as the tax effects of temporary differences previously flowed through to the customers reverse. Regulatory assets, net of amortization, comprise:

	March 31, 2002		December 31, 2001
	(in thousands)
Postretirement benefit obligation	$	1,344	$	1,360
Deferred income taxes recoverable in future rates		654		657
Expense of rate proceedings		161		211
	$	2,159	$	2,228

Note 3 — Related Party Transactions

        The office building and shop complex utilized by Artesian Water are leased at an average annual rental of $180,000 from a partnership, White Clay Realty, in which certain of Artesian Resources' officers and directors are partners. The lease expires at the end of 2002, with provisions for renewals for two consecutive 5-year periods thereafter. Management believes that the payments made to White Clay Realty for the lease of its office building and shop complex and maintenance costs, taxes and other ownership type costs paid are comparable to what Artesian Water would have to pay to unaffiliated parties for similar facilities.

F-7

        Expenses associated with related party transactions are as follows:

	For the Quarter Ended March 31,
	2002		2001
	(in thousands)
White Clay Realty	$	44	$	44

Note 4 — Net Income Per Common Share and Equity Per Common Share

        Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding and the potentially dilutive effect of employee stock options. The following table summarizes the shares used in computing basic and diluted net income per share:

	For the Quarter Ended March 31,
	2002	2001
	(in thousands)
Average common shares outstanding during the period for basic computation	2,051	2,017
Dilutive effect of employee stock options	61	41
Average common shares outstanding during the period for diluted computation	2,112	2,058

        Book value per common share was $16.71 and $16.75 at March 31, 2002 and December 31, 2001, respectively. These amounts were computed by dividing stockholders' equity excluding preferred stock by the number of shares of common stock outstanding at the end of each period.

Note 5 — Impact of Recent Accounting Pronouncements

        In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations. Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Statement No. 143 requires recognition of a liability at fair value and an increase to the carrying value of the related asset for any retirement obligation. This amount would then be amortized over the life of the asset. The liability would be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows. This statement is effective June 2003. Our adoption of this statement will not have a material impact on our financial condition or results of operations.

Note 6 — Rate Proceedings

        On April 2, 2002, Artesian Water filed a rate increase application with the Delaware PSC to request a rate increase of 23.1%, or approximately $7.5 million on an annualized basis. Artesian Water anticipates placing temporary rates into effect, 60 days from the filing date, June 1, 2002, up to the statutory limit of $2.5 million on an annualized basis, until the level of permanent rates is decided by the Delaware PSC.

F-8

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEET

(in thousands)

			For the Year Ended December 31
			2001		2000
ASSETS
Utility plant and equipment, at original cost less accumulated depreciation			$	152,356	$	134,038
Current assets
	Cash and cash equivalents			1,053		392
	Accounts receivable, net			2,610		1,967
	Unbilled operating revenues			2,159		2,102
	Materials and supplies — at cost on FIFO basis			616		730
	Prepaid property taxes			589		591
	Prepaid expenses and other			448		620
				7,475		6,402
Other assets
	Non-utility property (less accumulated depreciation 2001-$82; 2000-$166)			297		268
	Other deferred assets			1,178		1,335
				1,475		1,603
Regulatory assets, net				2,228		2,364
			$	163,534	$	144,407
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
	Common stock		$	2,040	$	2,013
	Additional paid-in-capital			25,107		24,474
	Retained earnings			7,026		6,070
	Preferred stock			272		272
		Total stockholders' equity		34,445		32,829
Preferred stock-mandatorily redeemable, net of current portion				200		300
Long-term debt, net of current portion				49,370		50,717
				84,015		83,846
Current liabilities
	Notes payable			16,118		2,000
	Current portion of long-term debt			1,328		1,119
	Current portion of mandatorily redeemable preferred stock			100		100
	Accounts payable			4,745		3,168
	Overdraft payable			983		1,224
	Income taxes payable			38		—
	Deferred income taxes			229		—
	Interest accrued			555		530
	Customer deposits			414		419
	Other			988		938
				25,498		9,498
Deferred credits and other liabilities
	Net advances for construction			18,754		18,780
	Postretirement benefit obligation			1,360		1,455
	Deferred investment tax credits			904		934
	Deferred income taxes			5,660		4,231
				26,678		25,400
Commitments and contingencies (Note 11)
Net contributions in aid of construction				27,343		25,663
			$	163,534	$	144,407

The notes are an integral part of the consolidated financial statements.

F-9

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share amounts)

				For the Year Ended December 31,
				2001		2000		1999
Operating revenues
	Water sales			$	31,362	$	27,090	$	26,310
	Other utility operating revenue				509		418		427
	Non-utility operating revenue (Note 7)				116		43		40
					31,987		27,551		26,777
Operating expenses
	Utility operating expenses				17,368		15,181		14,426
	Non-utility operating expenses (Note 7)				73		39		37
	Related party expenses (Note 8)				178		179		227
	Depreciation and amortization				3,001		2,706		2,417
	Taxes
		State and federal income
			Currently payable (Note 3)		470		223		921
			Deferred (Note 3)		1,714		1,396		1,039
		Property and other			1,782		1,616		1,620
					24,586		21,340		20,687
Operating income					7,401		6,211		6,090
Other income, net
	Allowance for funds used during construction				375		253		133
	Miscellaneous				82		42		55
					457		295		188
Income before interest charges					7,858		6,506		6,278
Interest charges					4,537		4,055		3,298
Net income					3,321		2,451		2,980
Dividends on preferred stock					51		61		71
Net income applicable to common stock				$	3,270	$	2,390	$	2,909
Income per common share
	Basic			$	1.61	$	1.19	$	1.48
	Diluted			$	1.58	$	1.17	$	1.46
Weighted average common shares outstanding
	Basic				2,026		2,007		1,961
	Diluted				2,072		2,044		1,996
Cash dividends per share of common stock				$	1.11	$	1.10	$	1.06

The notes are an integral part of the consolidated financial statements.

F-10

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

			For the Year Ended December 31,
			2001			2000			1999
Cash flows from operating activities
	Net income		$	3,321		$	2,451		$	2,980
	Adjustments to reconcile net cash provided by operating activities
		Depreciation and amortization		2,848			2,537			2,285
		Deferred income taxes, net		1,628			1,425			1,085
		Allowance for funds used during construction (AFUDC)		(375	)		(253	)		(133	)
	Changes in assets and liabilities
		Accounts receivable, net		(643	)		368			(367	)
		Unbilled operating revenues		(57	)		(95	)		(26	)
		Materials and supplies		114			(20	)		(93	)
		Prepaid property taxes		2			(43	)		4
		Prepaid expenses and other		172			(314	)		21
		Other deferred assets		157			(214	)		(21	)
		Regulatory assets		136			244			78
		Accounts payable		1,577			(790	)		810
		State and federal income taxes		38			(665	)		665
		Interest accrued		25			(125	)		(285	)
		Customer deposits and other, net		45			(472	)		536
		Postretirement benefit obligation		(95	)		(83	)		(89	)
Net cash provided by operating activities				8,893			3,951			7,450
Cash flows used in investing activities
	Capital expenditures (net of AFUDC)			(21,345	)		(14,366	)		(15,349	)
	Proceeds from sale of assets			11			24			6
	Investments in unconsolidated affiliates			—			(29	)		—
Net cash used in investing activities				(21,334	)		(14,371	)		(15,343	)
Cash flows from financing activities
	Net (repayments) borrowings under line of credit agreements			9,811			(1,310	)		(87	)
	Overdraft payable			(241	)		643			(54	)
	Net advances and contributions in aid of construction			2,169			1,569			3,129
	Proceeds from issuance of long-term debt			4,307			20,000			—
	Proceeds from issuance of common stock			590			280			7,960
	Dividends			(2,296	)		(2,257	)		(2,173	)
	Principal payments under capital lease obligations			(26	)		(23	)		(47	)
	Principal payments under long-term debt obligations			(1,112	)		(8,112	)		(727	)
	Redemption of preferred stock			(100	)		(100	)		(100	)
Net cash provided by financing activities				13,102			10,690			7,901
Net increase in cash and cash equivalents				661			270			8
Cash and cash equivalents at beginning of year				392			122			114
Cash and cash equivalents at end of year			$	1,053		$	392		$	122
Supplemental Disclosures of Cash Flow Information
	Interest paid		$	4,426		$	4,045		$	3,513
	Income taxes paid		$	432		$	750		$	256

Supplemental Schedule of Non-Cash Investing and Financing Activities:

During 1999, 24,165 shares of Class A Stock and 126,353 shares of Class B Stock were reacquired in exchange for a note in the amount of $4,450,000 that is discussed under Note 6.

The notes are an integral part of the consolidated financial statements.

F-11

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

		7% Prior Preferred Shares Outstanding	Common Shares Outstanding Class A Non-Voting		Common Shares Outstanding Class B
Balance as of December 31, 1998		10,868	1,291,121		512,726
Net income
Cash dividends declared
	Common stock
	Preferred stock
Stock repurchase			(24,165	)	(126,353	)
Issuance of common stock
	Issuance of common stock(3)		325,000
	Dividend reinvestment plan		7,109		5,451
	Employee stock options		5,366
	Employee Retirement Plan(4)		1,764
Balance as of December 31, 1999		10,868	1,606,195		391,824
Net income
Cash dividends declared
	Common stock
	Preferred stock
Stock repurchase
Issuance of common stock
	Officer bonus		2,100
	Dividend reinvestment plan		9,727
	Employee stock options		3,500
	Employee Retirement Plan(4)		(188	)
Balance as of December 31, 2000		10,868	1,621,334		391,824
Net income
Cash dividends declared
	Common stock
	Preferred stock
Stock repurchase
Issuance of common stock
	Officer bonus		6,000
	Dividend reinvestment plan		9,906
	Employee stock options		5,462
	Employee Retirement Plan(4)		5,452
Balance as of December 31, 2001		10,868	1,648,154		391,824

(1)

At December 31, 2001, 2000, 1999 and 1998, Class A Non-Voting Common Stock had 3,500,000 shares authorized.

(2)

At December 31, 2001, 2000, 1999 and 1998, Class B Common Stock had 1,040,000 shares authorized.

(3)

Artesian Resources issued 325,000 shares of Class A Non-Voting Common Stock on April 13, 1999.

(4)

Artesian Resources registered 200,000 shares of Class A Non-Voting Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.

The notes are an integral part of the consolidated financial statements.

F-12

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

		$25 Par Value 7% Prior Preferred		$1 Par Value Class A Non-Voting(1)			$1 Par Value Class B(2)
Balance as of December 31, 1998		$	272	$	1,291		$	512
Net income
Cash dividends declared
	Common stock
	Preferred stock
Stock repurchase					(24	)		(126	)
Issuance of common stock					325
	Dividend reinvestment plan				7			6
	Employee stock options				5
	Employee Retirement Plan(4)				2
Balance as of December 31, 1999		$	272	$	1,606		$	392
Net income
Cash dividends declared
	Common stock
	Preferred stock
Stock repurchase
Issuance of common stock
	Officer bonus				2
	Dividend reinvestment plan				10
	Employee stock options				3
	Employee Retirement Plan(4)
Balance as of December 31, 2000		$	272	$	1,621		$	392
Net income
Cash dividends declared
	Common stock
	Preferred stock
Stock repurchase
Issuance of common stock
	Officer bonus				6
	Dividend reinvestment plan				10
	Employee stock options				6
	Employee Retirement Plan(4)				5
Balance as of December 31, 2001		$	272	$	1,648		$	392

(1)

At December 31, 2001, 2000, 1999 and 1998, Class A Non-Voting Common Stock had 3,500,000 shares authorized.

(2)

At December 31, 2001, 2000, 1999 and 1998, Class B Common Stock had 1,040,000 shares authorized.

(3)

Artesian Resources issued 325,000 shares of Class A Non-Voting Common Stock on April 13, 1999.

(4)

Artesian Resources registered 200,000 shares of Class A Non-Voting Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.

The notes are an integral part of the consolidated financial statements.

F-13

ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

		Additional Paid-in Capital			Retained Earnings			Total
Balance as of December 31, 1998		$	18,073		$	7,785		$	27,933
Net income						2,980			2,980
Cash dividends declared
	Common stock					(2,102	)		(2,102	)
	Preferred stock					(71	)		(71	)
Stock repurchase			(1,535	)		(2,659	)		(4,344	)
Issuance of common stock
	Issuance of common stock(3)		7,215						7,540
	Dividend reinvestment plan		270						283
	Employee stock options		83						88
	Employee Retirement Plan(4)		47						49
Balance as of December 31, 1999		$	24,153		$	5,933		$	32,356
Net income						2,451			2,451
Cash dividends declared
	Common stock					(2,196	)		(2,196	)
	Preferred stock					(61	)		(61	)
Stock repurchase						(57	)		(57	)
Issuance of common stock
	Officer bonus		45						47
	Dividend reinvestment plan		223						233
	Employee stock options		66						69
	Employee Retirement Plan(4)		(13	)					(13	)
Balance as of December 31, 2000		$	24,474		$	6,070		$	32,829
Net income						3,321			3,321
Cash dividends declared						(2,245	)		(2,245	)
	Common stock					(51	)		(51	)
	Preferred stock					(69	)		(69	)
Stock repurchase
Issuance of common stock
	Officer bonus		151						157
	Dividend reinvestment plan		249						259
	Employee stock options		97						103
	Employee Retirement Plan(4)		136						141
Balance as of December 31, 2001		$	25,107		$	7,026		$	34,445

(1)

At December 31, 2001, 2000, 1999 and 1998, Class A Non-Voting Common Stock had 3,500,000 shares authorized.

(2)

At December 31, 2001, 2000, 1999 and 1998, Class B Common Stock had 1,040,000 shares authorized.

(3)

Artesian Resources issued 325,000 shares of Class A Non-Voting Common Stock on April 13, 1999.

(4)

Artesian Resources registered 200,000 shares of Class A Non-Voting Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.

The notes are an integral part of the consolidated financial statements.

F-14

ARTESIAN RESOURCES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

        Principles of Consolidation — The consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly-owned subsidiaries (Artesian Resources or the Company), including its principal operating company, Artesian Water Company, Inc. (Artesian Water). Appropriate eliminations have been made for all material intercompany transactions and account balances.

        Utility Subsidiary Accounting — The accounting records of Artesian Water are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission (Delaware PSC). Artesian Water follows the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," which provides guidance for companies in regulated industries.

        Utility Plant and Equipment and Capitalized Leases — All additions to utility plant and equipment are recorded at cost. Cost includes direct labor, materials, and indirect charges for such items as transportation, supervision, pension, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant and equipment are retired, the cost of retired property, together with any cost associated with retirement and less any salvage value or proceeds received, is charged to accumulated depreciation. Maintenance, repairs, and replacement of minor items of utility plant and equipment are charged to expense as incurred.

        In accordance with a rate order issued by the Delaware PSC, Artesian Water accrues an Allowance for Funds Used During Construction (AFUDC). AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress. The rate used for the AFUDC calculation is based on Artesian Water's weighted average cost of debt and the rate of return on equity authorized by the Delaware PSC. The rate used to capitalize AFUDC in 2001, 2000 and 1999 was 8.5%, 9.3%, and 9.4%, respectively.

F-15

        Utility plant and equipment comprises:

				Estimated Useful Life In Years	December 31,
					2001		2000
					(in thousands)
Utility plant and equipment, at original cost
	Utility plant and equipment in service
		Intangible plant		—	$	103	$	103
		Source of supply plant		45-85		10,049		8,035
		Pumping and water treatment plant		35-62		21,459		17,049
		Transmission and distribution plant
			Mains	81		90,785		82,278
			Services	39		16,269		14,526
			Storage tanks	79		10,276		9,974
			Meters	26		8,065		7,741
			Hydrants	60		4,941		4,583
		General plant and equipment		5-31		13,505		11,994
	Property held for future use			—		3,132		2,581
	Construction work in progress			—		5,291		4,296
						183,875		163,160
Less — accumulated depreciation						31,519		29,122
					$	152,356	$	134,038

        Depreciation and Amortization — For financial reporting purposes, depreciation is provided using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years. Composite depreciation rates for utility plant were 2.15%, 2.14% and 2.15%, for the years ended December 31, 2001, 2000, and 1999, respectively. In a rate order issued by the Delaware PSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant and equipment. In rate orders issued by the Delaware PSC, Artesian Water was directed effective May 28, 1991 and August 25, 1992 to offset depreciation on utility property funded by Contributions in Aid of Construction (CIAC) and Advances for Construction (Advances), respectively, against CIAC and Advances. Other deferred assets are amortized using the straight-line method over applicable lives, which range from 2 to 20 years.

        Regulatory Assets — Certain expenses are recoverable through rates, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the Delaware PSC. Expenses related to rate proceedings are amortized on a straight-line basis over a period of 2 years. The post-retirement benefit obligation, which is being amortized over 20 years, is adjusted for the difference between the net periodic postretirement benefit costs and the cash payments. The deferred income taxes will be amortized over future years as the tax effects of temporary differences previously flowed through to the customers reverse.

F-16

        Regulatory assets at December 31, net of amortization, comprise:

	2001		2000
	(in thousands)
Post-retirement benefit obligation	$	1,360	$	1,455
Deferred income taxes recoverable in future rates		657		665
Expense of rate proceedings		211		244
	$	2,228	$	2,364

        Other Deferred Assets — Certain expenses are deferred and amortized using the straight-line method over various time periods ranging from 2 to 25 years. In 1992, Artesian Water entered a ten-year agreement for a water service interconnection with the Chester Water Authority (Chester). The interconnection was placed in service during October 1992 at a total cost of $1.5 million and is being amortized over a 10-year period as approved by the Delaware PSC.

        Other deferred assets at December 31, net of amortization, comprise:

	2001		2000
	(in thousands)
Chester interconnection	$	149	$	298
Debt issuance expense		560		587
Other		469		450
	$	1,178	$	1,335

        Advances for Construction — Water mains, services and hydrants, or cash advances to reimburse Artesian Water its costs to construct water mains, services and hydrants, are contributed to Artesian Water by customers, real estate developers and builders in order to extend water service to their properties. The value of these contributions is recorded as Advances. Artesian Water makes refunds on these Advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made, any remaining balance is transferred to CIAC.

        Contributions in Aid of Construction — CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, or cash to reimburse Artesian Water its costs to construct water mains, services and hydrants by customers, real estate developers and builders in order to extend water service to their properties.

        Income Taxes — Deferred income taxes are provided in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements based on the enacted tax rates to be in effect when such temporary differences are expected to reverse.

        The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent to December 31, 1986, generally are taxable income to Artesian Water. For Advances, Artesian Water was

F-17

directed by the Delaware PSC to pay the related taxes and collect amounts equal to the taxes paid from the developer. For CIAC, Artesian Water was directed to pay the taxes instead of the developer contributing the taxes. The 1996 Tax Reform Act provided an exclusion from taxable income for CIAC and Advances received after June 12, 1996 by Artesian Water that are not included in the rate base for rate-making purposes.

        Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.

        Revenue Recognition and Unbilled Revenues — Water service revenue for financial statement purposes includes amounts billed to customers on a cycle basis and unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period.

        Cash and Cash Equivalents — For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with a maturity of three months or less to be cash equivalents. Artesian Water utilizes its bank's controlled disbursement service to reduce the use of its line of credit by funding checks as they are presented to the bank for payment rather than at issuance. If the checks currently outstanding but not yet funded exceed the cash balance on Artesian Water's books, the net liability is recorded as a current liability on the balance sheet in the Overdraft Payable account.

        Use of Estimates in the Preparation of Consolidated Financial Statements — The consolidated financial statements were prepared in conformity with generally accepted accounting principles, which require management to make estimates concerning unbilled revenues and regulatory asset recovery that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management's estimates.

Note 2 — Fair Value of Financial Instruments

        The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

        Current Assets and Liabilities — For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

        Long-term Financial Liabilities — The fair value of Artesian Resources' long-term debt and mandatorily redeemable preferred stock as of December 31, 2001 and 2000, are determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities, are approximately as shown below.

        Fair value of financial instruments at December 31, comprised:

	2001				2000
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in thousands)
Long-term debt	$	49,370	$	50,685	$	50,717	$	50,232
Mandatorily redeemable preferred stock	$	200	$	184	$	300	$	275

F-18

        The fair value of Advances cannot be reasonably estimated due to the inability to accurately estimate future refunds expected to be paid over the life of the contracts. Refund payments are based on the water sales to new customers in the particular development constructed. Future refunds expected to be paid would have to be estimated on a per contract basis using the past history of refund payments. The fair value of Advances would be less than the carrying amount because these financial instruments are non-interest bearing.

Note 3 — Income Taxes

        Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting.

        At December 31, 2001, for state income tax purposes, Artesian Resources had recorded a deferred tax asset of $775,000 to reflect separate company net operating loss carry forwards aggregating approximately $10,000,000. These net operating loss carry forwards will expire if unused between 2002 and 2021. Artesian Resources has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry forwards. The valuation allowance decreased from $685,000 in 2000 to $590,000 in 2001 as a result of utilizing a portion of the net operating losses, which were expected to expire unutilized.

        At December 31, 2001, for federal income tax purposes, there were minimum tax credit carry forwards aggregating approximately $2,464,000 resulting from the payment of alternative minimum tax in current and prior years. These minimum tax credit carry forwards may be carried forward indefinitely to offset future regular federal income taxes. Artesian Resources has not recorded a valuation allowance for these federal tax carry forwards, because the Company believes it is more likely than not those benefits will be realized.

F-19

COMPONENTS OF INCOME TAX EXPENSE:

(in thousands)

		For the Year ended December 31,
		2001			2000			1999
State income taxes
Current		$	(62	)	$	51		$	232
Deferred — current
	Property taxes		—			4			—
	Allowance for bad debts		—			—			(1	)
Deferred — non-current
	Accelerated depreciation		754			267			281
	Rate case expenses		—			(13	)		2
	State net operating loss		(185	)		—			—
	Tax credit carry forwards		—			(1	)		—
	Valuation allowance		(95	)		—			—
	Other		(47	)		63			(79	)
Total state income tax expense		$	365		$	371		$	435

		For the Year ended December 31,
		2001			2000			1999
Federal income taxes
Current		$	532		$	172		$	689
Deferred — current
	Property taxes		—			14			(1	)
	Allowance for bad debts		—			(1	)		(5	)
Deferred — non-current
	Accelerated depreciation		2,690			952			1,004
	Rate case expenses		(13	)		(45	)		8
	Federal tax credit carry forwards		—			4			3
	Amortization of investment tax credits		(31	)		—			—
	Alternative minimum tax		(1,556	)		(83	)		128
	Amortization of regulatory asset for deferred taxes		10			(15	)		—
	Other		187			250			(301	)
Total federal income tax expense		$	1,819		$	1,248		$	1,525

F-20

RECONCILIATION OF EFFECTIVE TAX RATE

		For the Year Ended December 31,
		2001			2000					1999
		Amount		%	Amount			%		Amount			%
		(in thousands)
Reconciliation of effective tax rate
Income before federal and state income taxes less amortization of deferred investment tax credits		$	5,505	100.0	$	4,056		100.0		$	4,926		100.0
Amount computed at statutory rate			1,872	34.0		1,379		34.0			1,675		34.0
Reconciling items
	State income tax-net of federal
	tax benefit		241	4.4		247		6.0			287		5.8
	Other		71	1.3		(7	)	(0.2	)		(2	)	—
Total income tax expense and effective rate		$	2,184	39.7	$	1,619		39.8		$	1,960		39.8

        Deferred income taxes at December 31, 2001, 2000 and 1999 were comprised of the following:

		For the Year Ended December 31,
		2001 Amount			2000 Amount			1999 Amount
		(in thousands)
Deferred tax assets related to:
Federal minimum tax credit carry forwards		$	2,464		$	908		$	825
Federal and state operating loss carry forwards			775			685			671
Bad debt allowance			38			35			34
Valuation allowance			(590	)		(685	)		(671	)
	Total deferred tax assets		2,687			943			859
Deferred tax liabilities related to:
Property, plant and equipment basis differences			(7,993	)		(4,808	)		(3,601	)
Expenses of rate proceedings			(84	)		(97	)		(155	)
Property taxes			(234	)		(235	)		(217	)
Other			(204	)		60			399
	Total deferred tax liabilities		(8,515	)		(5,080	)		(3,574	)
	Net deferred tax liability	$	(5,828	)	$	(4,137	)	$	(2,715	)

F-21

Note 3 — Income Taxes -- (Continued)

        Deferred taxes, which are classified into a net current and non-current balance, are presented in the balance sheet as follows:

		For the Year Ended December 31,
		2001 Amount			2000 Amount			1999 Amount
		(in thousands)
Deferred tax assets related to:
Current deferred tax (liability) asset		$	(229	)	$	94		$	61
Non-current deferred tax liability			(5,660	)		(4,231	)		(2,776	)
Deferred tax asset in other assets			61			—			—
	Net deferred tax liability	$	(5,828	)	$	(4,137	)	$	(2,715	)

Note 4 — Preferred Stock

        Artesian Resources has two classes of preferred stock outstanding. The 7% Prior Preferred stock (on which dividends are cumulative) is redeemable at Artesian Resources' option at $30.00 per share plus accrued dividends. The 9.96% Series Cumulative Prior Preferred stock has annual mandatory redemption requirements and is redeemable at Artesian Resources' option at $25.38 per share through January 31, 2002 and to $25.00 per share on February 1, 2003 and thereafter. The Company chose not to exercise the option to redeem on January 31, 2002. Under mandatory sinking fund provisions, redemptions will aggregate $100,000 (4,000 shares) annually in 2002 through 2004. The Company also has 100,000 shares of $1.00 par value Series Preferred stock authorized but unissued. See the Consolidated Statements of Stockholders' Equity.

        There are 40,000 authorized shares of the 9.96% Series Cumulative Prior Preferred stock with a par value of $25 per share, of which 12,000 and 16,000 shares were outstanding as of December 31, 2001 and 2000, respectively. Cash dividends paid in 2001 and 2000 were $32,000 and $42,000, respectively.

Note 5 — Common Stock and Additional Paid-in Capital

        The Class A Non-Voting Common Stock (Class A Stock) of Artesian Resources trades on the Nasdaq National Market under the symbol ARTNA. The Class B Common Stock of Artesian Resources trades on the Nasdaq Bulletin Board under the symbol ARTNB.

        In 1999, Artesian Resources issued 325,000 shares of Class A Stock at $25.00 per share. Net proceeds from the offering were used to reduce debt incurred to finance investment in utility plant.

        Under Artesian Resources' dividend reinvestment plan, stockholders were issued 9,906, 9,727 and 12,560 shares at fair market value for the reinvestment of $259,000, $233,000 and $283,000 of their cash dividends for the years 2001, 2000 and 1999, respectively.

Note 6 — Debt

        Artesian Water has available unsecured lines of credit, with no financial covenant restrictions, totaling $35.0 million at December 31, 2001, which are renewable annually at the banks' discretion. Borrowings

F-22

under the lines of credit bear interest based on the London Interbank Offering Rate (LIBOR) plus 1.0% for 30, 60, 90, or 180 days or the banks' Federal Funds Rate plus 1.0%, at the option of Artesian Water.

        At December 31, 2001, 2000, and 1999, Artesian Water had $16.1 million, $6.3 million and $7.6 million outstanding under these lines at weighted average interest rates of 2.6%, 7.5% and 6.3%, respectively. The maximum amount outstanding was $16.7 million, $18.8 million and $11.6 million in 2001, 2000, and 1999, respectively. The twelve month average amount outstanding was approximately $14.2 million, $12.8 million and $7.1 million, at weighted average annual interest rates of 4.8%, 7.2% and 6.0% in 2001, 2000, and 1999, respectively.

        On December 29, 2000, Artesian Water issued a $20.0 million, 8.17%, twenty year Series O First Mortgage Bonds to redeem the Series K $7.0 million First Mortgage Bond and to pay down the lines of credit. On December 29, 2020 the Series O First Mortgage Bonds mature.

        On June 17, 1997, Artesian Water issued a $10.0 million, 7.84%, ten year Series M First Mortgage Bond and borrowed $2.5 million against a $5.0 million, ten year Series N First Mortgage Bond to repay the outstanding balance on the lines of credit. On September 18, 1997, Artesian Water borrowed the remaining $2.5 million on the Series N First Mortgage Bond. The $5.0 million, ten year Series N First Mortgage Bond has a fixed interest rate of 7.56%. On February 1, 2003, the Series L 8.03% First Mortgage Bond matures. No other repayments or sinking fund deposits on first mortgage bonds are required over the next five years. As of December 31, 2001 and 2000, substantially all of Artesian Water's utility plant was pledged as security for the First Mortgage Bonds. In addition, the Trust indentures contain covenants which limit long-term debt, including the current portion thereof, to 66.7% of total capitalization including the current portion of the long-term debt, and which, in certain circumstances, could restrict the payment of cash dividends. As of December 31, 2001, however, no dividend restrictions were imposed under these covenants.

        On May 4, 1999, Artesian repurchased 126,353 shares of Class B Common Stock and 24,165 shares of Class A Non-Voting Common Stock from Helena C. Taylor and Ellis D. Taylor in exchange for a promissory note (the Note) in the principal amount of $4,450,000 representing the purchase price of the stock, with a discounted present value of $4,307,000. The Note is payable quarterly, on a calendar basis, over a four-year period and in sixteen equal principal installments of $278,125, which commenced on June 30, 1999. The outstanding balance on the Note bears interest in an amount computed based on the quarterly dividend the Taylors would have received on the stock transferred to Artesian but not yet paid for by Artesian. In addition, the principal installment is adjusted on a quarterly basis to reflect changes in the book value per common share of the Company as reported in its most recent quarterly financial statement distributed to stockholders prior to the quarterly payment. Such amounts, if any, represent contingent purchase price of the stock and will be charged to retained earnings. At December 31, 2001, Artesian had $1,391,000 outstanding under this promissory note.

        On January 31, 2001, Artesian Water Company, Inc. entered into a financing agreement with the Delaware Department of Health and Social Services to borrow funds totaling not more than $4,307,144 from the State's Revolving Loan Fund under an unsecured General Obligation Note. The note bears interest of 4.48% and is payable ratably over twenty years. The effective rate of the loan, including expenses related to the closing, is 4.53%. The funds of $4,307,144 were received in August 2001. The Company used the proceeds of this revolving loan to repay outstanding short-term debt. As such, in December 2000, the Company reclassified $4,307,144 from notes payable to long-term debt on the balance sheet.

F-23

        Long-term debt consisted of:

		December 31,
		2001		2000
		(in thousands)
First Mortgage Bonds
	Series L, 8.03%, due February 1, 2003	$	10,000	$	10,000
	Series M, 7.84%, due December 31, 2007		10,000		10,000
	Series N, 7.56%, due December 31, 2007		5,000		5,000
	Series O, 8.17%, due December 29, 2020		20,000		20,000
			45,000		45,000
Note Payable to Ellis & Helena Taylor			1,391		2,503
State revolving fund loan			4,307
Note Payable					4,307
Capitalized lease obligations					26
			50,698		51,836
Less current maturities			1,328		1,119
		$	49,370	$	50,717

		2002		2003		2004		2005		2006
		(in thousands)
Payments due by period:
Long-term debt		$	—	$	10,000	$	—	$	—	$	—
State revolving fund loan		$	137	$	143	$	150	$	156	$	163
Note payable to Ellis & Helena Taylor		$	1,113	$	278	$	—	$	—	$	—
	Total payments	$	1,250	$	10,421	$	150	$	156	$	163

Note 7 — Non-Utility Operating Revenue and Expenses

        Artesian Wastewater Management, Inc. (Artesian Wastewater) is a non-regulated subsidiary of Artesian Resources, which provides wastewater treatment services in Delaware. On March 12, 1997, Artesian Wastewater became a one-third owner in AquaStructure Delaware, LLC, which designs, builds and/or operates wastewater treatment facilities.

        Non-utility operating revenue consists of $116,000, $43,000 and $40,000 in income received by Artesian Wastewater in 2001, 2000 and 1999.

F-24

        Non-utility operating expenses are as follows:

	2001		2000		1999
	(in thousands)
Artesian Wastewater	$	66	$	33	$	25
Artesian Resources		2		6		12
Artesian Development		—		—		—
Total	$	73	$	39	$	37

Note 8 — Related Party Transactions

        The office building and shop complex utilized by Artesian Water are leased at an average annual rental of $180,000 from a partnership, White Clay Realty, in which certain of Artesian Resources' officers and directors are partners. The lease expires in 2002, with provisions for renewals for two 5-year periods thereafter. Management believes that the payments made to White Clay Realty for the lease of its office building and shop complex and maintenance costs, taxes and other ownership type costs paid are comparable to what Artesian Water would have to pay to unaffiliated parties for similar facilities (See Note 11).

        Artesian Water leased certain parcels of land for water production wells from Glendale Enterprises Limited, a company wholly-owned by Ellis D. Taylor, at an annual rental of $44,000. Renewal of the lease was automatic from year to year unless 60 day's written notice was given by either party before the end of the year's lease. During 2000, Artesian was notified by Glendale Enterprises Limited that it desired to discontinue the lease for the well sites. In its attempt to acquire the property from the lessor, Artesian received a claim from an unrelated third party with regard to lease payments made since 1986. In January 2001, the parties agreed to settle the ownership dispute, the third party withdrew its claim, and Artesian acquired the property.

        Rental expense associated with related party transactions are as follows:

		2001		2000		1999
		(in thousands)
White Clay Realty		$	178	$	179	$	182
Glendale Enterprises			—		—		45
	Total	$	178	$	179	$	227

Note 9 — Stock Compensation Plans

        At December 31, 2001, the Company had two stock-based compensation plans, which are described below. The Company applies APB Opinion No. 25 and related interpretations in accounting for compensation expense under its plans. Accordingly, the aggregate compensation cost that has been charged against income for the two plans was $38,000, $41,000 and $42,000 for 2001, 2000, and 1999, respectively. Had compensation cost for the Company's two plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method required by Statement of

F-25

Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", the Company's net income and net income per common share would have been reduced to the pro-forma amounts indicated below:

		2001		2000		1999
		(in thousands, except per share data)
Net income applicable to common stock
	As reported	$	3,270	$	2,390	$	2,909
	Pro-forma	$	3,140	$	2,299	$	2,782
Basic net income per common share
	As reported	$	1.61	$	1.19	$	1.48
	Pro-forma	$	1.55	$	1.15	$	1.42
Diluted net income per common share
	As reported	$	1.58	$	1.17	$	1.46
	Pro-forma	$	1.52	$	1.12	$	1.39

        In 1992, the Company instituted the 1992 Non-Qualified Stock Option Plan (the 1992 Plan), which was subsequently amended in 1998. Under the 1992 Plan, options to purchase shares of Class A Stock may be granted to employees at prices not less than 85% of the fair market value on the date of grant. Employees who participate and who are not executive officers or directors of the Company may receive options to purchase up to 1,000 shares. Each director or officer who participates in any year may request an option to purchase 3,000 shares of stock. The option price for directors and officers of the Company is 90% of the fair market value on the date of grant. Options granted under this plan to employees who are not executive officers or directors extend for a period of one year. Options granted to officers and directors extend to a period of ten years. All options are exercisable after six months of service from the date of initial grant, and are adjusted for stock dividends and splits. Employees, officers and directors become eligible to exercise options under the 1992 plan, after one year of service to the Company.

        In 1996, the Company instituted the Incentive Stock Option Plan (the ISO Plan), under which the Company may grant options to its key employees and officers for up to 100,000 shares of Class A Stock. Options are granted at the fair market value on the date of grant. The option exercise period shall not exceed ten years from the date of grant and will be determined by the Company for each stock option granted. Options granted will vest in accordance with the terms and conditions determined by the Company and are adjusted for stock dividends and splits.

        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999, respectively: dividend yield of 4.2%, 4.6% and 4.2%; expected volatility of 0.34%, 0.34% and 0.31%; risk free interest rates of 3.16%, 6.17% and 5.08% for the employee options under the 1992 Plan, 4.93%, 6.44% and 5.58% for the director and officer options under the 1992 Plan and 4.93%, 6.69% and 5.58% for the 2001, 2000 and 1999 ISO Plan options respectively; and expected lives of one year for the employee options and five years for the director and officer options under the 1992 Plan for all years, five years for the 2001, and eight years for the 2000 and 1999 ISO Plan options. Shares of common stock have been reserved for future issuance under all of the foregoing options.

F-26

        The following summary reflects changes in the shares of Class A Stock under option:

		2001				2000				1999
		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Plan options
	Outstanding at beginning of year	149,016		$	18.14	127,640		$	17.35	84,057		$	15.21
	Granted	40,361		$	23.78	31,756		$	21.91	49,411		$	20.69
	Exercised	(5,462	)	$	14.95	(3,500	)	$	16.24	(5,359	)	$	23.27
	Canceled	(11,312	)	$	19.44	(6,880	)	$	21.83	(469	)	$	17.30
Outstanding at end of year		172,603		$	19.47	149,016		$	18.14	127,640		$	17.35
Options exercisable at year end		121,207		$	17.78	110,395		$	17.02	87,999		$	16.08
Weighted average fair value of options granted during the year				$	24.42			$	23.17			$	21.21

        The following tables summarize information about employee stock options outstanding at December 31, 2001:

Options Outstanding

Range of Exercise Price	Shares Outstanding at December 31, 2001	Weighted Average Remaining Life	Weighted Average Exercise Price
$12.71-$19.13	80,696	5.65 Years	$15.88
$20.60-$26.84	91,907	7.89 Years	$22.63

Options Exercisable

Range of Exercise Price	Shares Exercisable at December 31, 2001	Weighted Average Exercise Price
$12.71-$17.13	68,696	$15.31
$19.13-$23.13	52,511	$21.02

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Note 10 — Employee Benefit Plans

        401(k) Salary Reduction Plan — Artesian Resources has a defined contribution 401(k) Salary Reduction Plan (the Plan) which covers substantially all employees. Under the terms of the Plan, Artesian Resources contributes 2% of eligible salaries and wages and matches employee contributions up to 6% of gross pay at a rate of 50%. Artesian Resources may, at its option, make additional contributions of up to 3% of eligible salaries and wages. No such additional contributions were made in 2001, 2000 and 1999. Plan expenses, which include Company contributions and administrative fees, for the years 2001, 2000 and 1999, were approximately $310,000, $323,000 and $188,000, respectively.

        Post-retirement Benefit Plan — Artesian Resources has a Post-retirement Benefit Plan (the Benefit Plan), which provides medical and life insurance benefits to certain retired employees. Prior to the amendment of the Benefit Plan, substantially all employees could become eligible for these benefits if they reached retirement age while still working for Artesian Resources.

        Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), requires Artesian Resources to accrue the expected cost of providing post-retirement health care and life insurance benefits as employees render the services necessary to earn the benefits. Artesian Resources elected to defer recognition and amortize its transition obligation over twenty years.

        Artesian Resources recognized an offsetting regulatory asset with respect to the SFAS 106 liability. This asset is recorded based on the Delaware PSC order which permits Artesian Water to continue recovery of postretirement health care and life insurance expense on a pay-as-you-go basis for the remaining eligible employees. Artesian Water anticipates liquidating its SFAS 106 obligation and substantially recovering the expenses in rates over a period of approximately 20 years (based on the age and life expectancy of the remaining eligible participants). Further, expense recovery as a percentage of rates is expected to remain constant over the initial years, and then decline until the obligation is liquidated. Amounts charged to expense were $95,000, $83,000 and $89,000 for 2001, 2000 and 1999, respectively.

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        The following table sets forth the amount recognized in Artesian Resources' Consolidated Balance Sheet for the Benefit Plan as of December 31:

	2001			2000
	(in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	950		$	1,067
Interest cost		70			79
Plan participant contributions		3			3
Actuarial (gain)/loss		71			(109	)
Benefits paid		(86	)		(90	)
Benefit obligation at end of year	$	1,008		$	950
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	0		$	0
Employer contributions		83			87
Plan participant contributions		3			3
Benefits paid		(86	)		(90	)
Fair value of plan assets at end of year	$	0		$	0
Accrued Expense:
Funded status	$	(1,008	)	$	(950	)
Unrecognized net gain		(460	)		(618	)
Unrecognized transition obligation		102			110
Accrued postretirement benefit cost	$	(1,366	)	$	(1,458	)

        For measurement purposes, a 12.0% annual rate of increase in per capita cost of covered health care benefits was assumed for 2001; the rate was assumed to decrease gradually to 5% through the year 2009 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. An increase in the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 2001 by $65,000 and the interest cost component of net periodic post-retirement benefit cost for the year then ended by $5,000.

        The weighted-average discount rate used in determining the accumulated post-retirement benefit obligation was 7.00% and 7.75% for the years ended December 31, 2001 and 2000.

        Supplemental Pension Plan — Effective October 1, 1994, Artesian Water established a Supplemental Pension Plan (the Supplemental Plan) to provide additional retirement benefits to full-time employees hired prior to April 26, 1994. The purpose of the Supplemental Plan is to help employees save for future retiree medical costs, which will be paid by employees. The Supplemental Plan accomplishes this objective by providing additional cash resources to employees upon a termination of employment or retirement, to meet the cost of future medical expenses. Artesian Water has established a contribution based upon each employee's years of service ranging from 2% to 6% of eligible salaries and wages. Artesian Water also

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provides additional benefits to individuals who were over age 50 as of January 1, 1994. These individuals are referred to as the Transition Group. Effective November 1, 1994, individuals eligible for the Transition Group had the opportunity to defer compensation to the Supplemental Plan, and to receive a transition matching contribution for 5 years. Each one-dollar of eligible salaries and wages deferred by the Transition Group was matched with three, four, or five dollars by Artesian Water based on the employee's years of service subject to certain limitations under the federal tax rules. Plan expenses, which include Company contributions and administrative fees, for the years 2001, 2000, and 1999 were approximately $220,000, $177,000 and $267,000, respectively.

Note 11 — Commitments

        The office building and shop complex are leased at an average annual rental of $180,000 from a partnership, White Clay Realty (See Note 8). The lease renewal commenced January 1, 1998, and is being accounted for as an operating lease. The lease expires in 2002, with provisions for renewals for two 5-year periods thereafter.

        In 1995, Artesian Water entered into four 5-year leases for computer equipment and in 1997 Artesian Water entered a 10-year lease for a land easement. Both have been recorded as capital leases. Also in 1997, Artesian Water entered into a 33 year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware.

        During 1996, Artesian Water entered into a 10-year lease commitment for office space. Rent expense for 2001, 2000 and 1999 for the office space was $69,000, $67,000 and $66,000, respectively.

        Future minimum annual rental payments under these lease obligations for the five years subsequent to 2001 are as follows:

	(in thousands)
2002	$	246
2003		72
2004		74
2005		76
2006		13
	$	481

        Artesian Water has two water service interconnection agreements with two neighboring utilities, which require minimum annual purchases. Rates charged under all agreements are subject to change. Effective August 1, 1997, Artesian Water renegotiated the contract with Chester Water Authority to, among other things, reduce the minimum purchase requirements from 1,459 million gallons to 1,095 million gallons annually and to extend the contract through the year 2021. The minimum annual purchase commitments

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for all interconnection agreements for 2002 through 2006 and the aggregate total for the years 2007 through 2021, at current rates, are as follows:

	(in thousands)
2002	$	2,670
2003		2,670
2004		2,677
2005		2,670
2006		2,670
2007 through 2021		35,997
	$	49,354

        Expenses for purchased water were $2,752,000, $2,551,000 and $2,440,000 for the years ended December 31, 2001, 2000, and 1999, respectively.

        In 2001, Artesian Water entered into a 5-year agreement with Allied Painting, Inc. to paint all tanks that are scheduled to be painted in the next 5 years, including those scheduled for 2001. The expenditures committed to in the agreement for the years 2002-2005 are as follows:

	(in thousands)
2002	$	249
2003		249
2004		249
2005		249
	$	996

        Budgeted mandatory utility plant expenditures, due to planned governmental highway projects which require the relocation of Artesian Water's water service mains, expected to be incurred in 2002 through 2006 are as follows:

	(in thousands) (unaudited)
2002	$	1,405
2003		1,700
2004		500
2005		1,200
2006		900
	$	5,705

        The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation.

F-31

Note 12 — Geographic Concentration of Customers

        Artesian Water provides water utility service to customers within its established service territory in portions of Delaware, pursuant to rates filed with and approved by the Delaware PSC. As of December 31, 2001, Artesian Water was serving 66,173 customers.

Note 13 — Rate Proceedings

        On December 5, 2000, Artesian Water filed a petition with the Delaware PSC to implement new rates seeking increased revenues of approximately 22.57% or $6.4 million on an annualized basis. Effective February 3, 2001, Artesian Water was permitted, through temporary rates approved by the Delaware PSC, to collect an increase of $2.5 million on an annualized basis, subject to refund, until permanent rates were approved by the Delaware PSC.

        On June 19, 2001, the Delaware PSC approved a settlement that Artesian Water entered into with Staff of the Delaware Public Service Commission (Staff) and the Division of the Public Advocate (DPA) on June 6, 2001. The parties' stipulated agreement provided for an increase in rates designed to provide the Company an additional $3.7 million in annualized revenues. The settlement, as approved, also allowed the Company a return on equity of 10.5%. The new rates approved by the Delaware PSC became effective July 1, 2001.

Note 14 — Net Income Per Common Share and Book Value Per Common Share

        Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding and potentially dilutive effect of employee stock options.

        The following table summarizes the shares used in computing basic and diluted net income per share:

	Years Ended December 31,
	2001	2000	1999
	(in thousands)
Average common shares outstanding during the period for Basic computation	2,026	2,007	1,961
Dilutive effect of employee stock options	46	37	35
Average common shares outstanding during the period for Diluted computation	2,072	2,044	1,996

        Book value per common share was $16.87, $16.22 and $16.36 at December 31, 2001, 2000, and 1999, respectively. These amounts were computed by dividing stockholders' equity excluding preferred stock by the number of basic weighted average shares of common stock outstanding at the end of each year.

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Note 15 — Selected Consolidated Quarterly Financial Data (Unaudited)

        The following table presents certain historical consolidated statements of operations data for each quarter for the fiscal years ended December 31, 2001 and 2000.

		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
		2001		2000		2001		2000		2001		2000		2001		2000
		(in thousands, except per share data)
Operating revenues		$	6,960	$	6,348	$	7,974	$	7,239	$	8,947	$	7,022	$	8,106	$	6,942
Operating income			1,270		1,073		1,889		1,883		2,549		1,644		1,693		1,611
Net income applicable to common stock			256		235		885		991		1,445		622		684		542
Income per common share
	Basic	$	0.13	$	0.12	$	0.44	$	0.49	$	0.71	$	0.31	$	0.34	$	0.27
	Diluted	$	0.12	$	0.11	$	0.43	$	0.48	$	0.70	$	0.30	$	0.33	$	0.26

Note 16 — Impact of Recent Accounting Pronouncements

        In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Because the Company is regulated, goodwill that is recovered through ratemaking will continue to be amortized. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

        The Company is required to adopt the provisions of Statement 141 immediately, except with regard to business combinations initiated prior to July 1, 2001, and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that is acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized as they were prior to the adoption of Statement 142. Our adoption of this statement will not have a material impact on our financial condition or results of operations.

        In August 2001, the FASB issued statement No. 143, Accounting for Asset Retirement Obligations. Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Statement No. 143 requires recognition of a liability at fair value and an increase to the carrying value of the related asset for any retirement obligation. This amount would then be amortized over the life of the asset. The liability

F-33

would be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows. This statement is effective June 2003. Our adoption of this statement will not have a material impact on our financial condition or results of operations.

        In October 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement No. 144 incorporated the disposal of a business segment into the framework of Statement No. 121. Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The statement also excludes goodwill that was included in Statement No. 121 scope and provided refinement to cash flow estimations for defining any applicable impairment. This Statement is effective January 1, 2002. Our adoption of this statement will not have a material impact on our financial condition or results of operations.

F-34

We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in this prospectus. You must not rely on any unauthorized information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not offer to sell any shares in any jurisdiction where it is unlawful. The information in this prospectus is current as of the date shown on the cover page.

500,000 Shares

Class A Non-Voting Common Stock

PROSPECTUS

JANNEY MONTGOMERY SCOTT LLC
J.J.B. HILLIARD, W.L. LYONS, INC.

                        , 2002

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

        The following is a statement of the various expenses to be borne by us in connection with the issuance and distribution of the shares of Class A Non-Voting Common Stock being registered. All of the amounts are estimates (and assume the Underwriters' over-allotment option is exercised in full) except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee, and the representative's non-accountable expense allowance.

Securities and Exchange Commission registration fee		$	1,748
National Association of Securities Dealers, Inc. filing fee			2,362
Nasdaq National Market Fee			5,750
Representative's non-accountable expense allowance			65,000
Transfer agent, registrar and custodian fees and expenses			5,000
Printing and engraving expenses			31,000
Legal fees and expenses			200,000
Accounting fees and expenses			25,000
Miscellaneous			114,140
	Total expenses	$	450,000

Item 15. Indemnification of Directors and Officers.

        A. Section 145 of the Delaware General Corporation Law ("Section 145") permits indemnification of directors, officers, employees, agents and controlled persons of a corporation under certain conditions and subject to certain limitations. Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or another enterprise if serving at the request of the corporation. Depending on the character of the proceeding, a corporation may indemnify against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. In the case of an action by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court of chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a present or former director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually or reasonably incurred by such person in connection therewith.

        B. As permitted by the Delaware General Corporation Law, we have included a provision in our Restated Certificate of Incorporation, as amended, that, subject to certain limitations, eliminates the ability of Artesian Resources and our stockholders to recover monetary damages from a director of Artesian Resources for breach of fiduciary duty as a director. Article VIII of Artesian Resources' By-Laws

II-1

provides for indemnification of Artesian Resources' directors and officers to the fullest extent authorized by the Delaware General Corporation Law.

        C. Reference is made to Section 8 of the Underwriting Agreement (Exhibit 1 hereto) which provides for indemnification among Artesian Resources and the Underwriters.

        D. As authorized by Section 145 of the Delaware General Corporation Law and Article VIII of Artesian Resources' By-Laws, we maintain, on behalf of our directors and officers, insurance protection against certain liabilities arising out of the discharge of their duties, as well as insurance covering Artesian Resources for indemnification payments made to our directors and officers for certain liabilities. The premiums for such insurance are paid by Artesian Resources.

Item 16. Exhibits.

        The following is a list of exhibits filed as part of this Registration Statement. Where so indicated by footnote, exhibits that were previously filed are incorporated by reference.

Exhibit Number	Exhibit
1	Form of Underwriting Agreement.*
4.1	Specimen copy of stock certificate for shares of Class A Non-Voting Common Stock of the registrant. Incorporated by reference to an exhibit filed with the registrant's Registration Statement on Form S-2 (File No. 333-2776) filed March 27, 1996.
4.2	Fifteenth Supplemental Indenture dated as of December 1, 2000 between Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Form 10-Q for the quarter ended March 31, 2002.**
4.3	Thirteenth and Fourteenth Supplemental Indentures dated as of June 17, 1997 between Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Form 10-Q for the quarter ended June 30, 1997.
4.4	Twelfth Supplemental Indenture dated as of December 5, 1995 between the Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
4.5	Eleventh Supplemental Indenture dated as of February 16, 1993 between Artesian Water Company, Inc., subsidiary of the registrant, and Principal Mutual Life Insurance Company. Incorporated by reference to an exhibit filed with the registrant's Annual Report on Form 10-K for the year ended December 31, 1992.
4.6	Tenth Supplemental Indenture dated as of April 1, 1989 between Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Registration Statement on Form 10 filed April 30, 1990 and as amended by Form 8 filed on June 19, 1990.
5	Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the shares of Class A Non-Voting Common Stock being registered.*
10.1	Amended and Restated Artesian Resources Corporation 1992 Non-Qualified Stock Option Plan, as amended, incorporated by reference to an exhibit filed with the registrant's Form 10-K for the year ended December 31, 2001.†

II-2

10.2	Lease dated as of March 1, 1972 between White Clay Realty Company and Artesian Water Company, Inc., subsidiary of the registrant, incorporated by reference to an exhibit filed with the registrant's Registration Statement on Form 10 filed April 30, 1990 and as amended by Form 8 filed on June 19, 1990.
10.3	Artesian Resources Corporation Cash and Stock Bonus Compensation Plan for Officers incorporated by reference to an exhibit filed with the registrant's Form 10-K for the year ended December 31, 1993.†
10.4	Artesian Resources Corporation Incentive Stock Option Plan incorporated by reference to an exhibit filed with the registrant's Annual Report on Form 10-K for the year ended December 31, 1995.†
10.5	Share Repurchase Agreement dated April 28, 1999 and related Promissory Note dated May 4, 1999 incorporated by reference to an exhibit filed with the registrant's Form 10-Q for the quarter ended March 31, 1999.
10.6	Officer's Medical Reimbursement Plan dated May 27, 1992, incorporated by reference to an exhibit filed with the registrant's Form 10-K for the year ended December 31, 2001.†
23.1	Consent of KPMG LLP.*
23.2	Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5 hereto).*
24.1	Power of Attorney (included on signature page).**

*

Filed herewith.

**

Previously filed.

†

Compensation plans and arrangements for executives and others.

Item 17. Undertakings.

        (a)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

        (b)  The undersigned registrant hereby undertakes that:

        (1)  For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective.

        (2)  For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Newark, Delaware, on May 29, 2002.

ARTESIAN RESOURCES CORPORATION
By:	/s/  DAVID B. SPACHT
	David B. Spacht Vice President, Chief Financial Officer and Treasurer

        Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Name	Capacity	Date
*     Dian C. Taylor	Chair of the Board, Chief Executive Officer and President (principal executive officer)	May 29, 2002
/s/  DAVID B. SPACHT David B. Spacht	Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)	May 29, 2002
*     Kenneth R. Biederman	Director	May 29, 2002
*     John R. Eisenbrey, Jr.	Director	May 29, 2002
*     Norman H. Taylor, Jr.	Director	May 29, 2002
*     William C. Wyer	Director	May 29, 2002

*By:
/s/  DAVID B. SPACHT, as attorney-in-fact       Attorney-in-Fact

II-4

EXHIBIT INDEX

Exhibit Sequential Number	Description
1	Form of Underwriting Agreement.*
4.1	Specimen copy of stock certificate for shares of Class A Non-Voting Common Stock of the registrant. Incorporated by reference to an exhibit filed with the registrant's Registration Statement on Form S-2 (File No. 333-2776) filed March 27, 1996.
4.2	Fifteenth Supplemental Indenture dated as of December 1, 2000 between Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Form 10-Q for the quarter ended March 31, 2002.**
4.3	Thirteenth and Fourteenth Supplemental Indentures dated as of June 17, 1997 between Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Form 10-Q for the quarter ended June 30, 1997.
4.4	Twelfth Supplemental Indenture dated as of December 5, 1995 between the Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
4.5	Eleventh Supplemental Indenture dated as of February 16, 1993 between Artesian Water Company, Inc., subsidiary of the registrant, and Principal Mutual Life Insurance Company. Incorporated by reference to an exhibit filed with the registrant's Annual Report on Form 10-K for the year ended December 31, 1992.
4.6	Tenth Supplemental Indenture dated as of April 1, 1989 between Artesian Water Company, Inc., subsidiary of the registrant, and Wilmington Trust Company, as Trustee. Incorporated by reference to an exhibit filed with the registrant's Registration Statement on Form 10 filed April 30, 1990 and as amended by Form 8 filed on June 19, 1990.
5	Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the shares of Class A Non-Voting Common Stock being registered.*
10.1	Amended and Restated Artesian Resources Corporation 1992 Non-Qualified Stock Option Plan, as amended, incorporated by reference to an exhibit filed with the registrant's Form 10-K for the year ended December 31, 2001.†
10.2	Lease dated as of March 1, 1972 between White Clay Realty Company and Artesian Water Company, Inc., subsidiary of the registrant, incorporated by reference to an exhibit filed with the registrant's Registration Statement on Form 10 filed April 30, 1990 and as amended by Form 8 filed on June 19, 1990.
10.3	Artesian Resources Corporation Cash and Stock Bonus Compensation Plan for Officers incorporated by reference to an exhibit filed with the registrant's Form 10-K for the year ended December 31, 1993.†
10.4	Artesian Resources Corporation Incentive Stock Option Plan incorporated by reference to an exhibit filed with the registrant's Annual Report on Form 10-K for the year ended December 31, 1995.†
10.5	Share Repurchase Agreement dated April 28, 1999 and related Promissory Note dated May 4, 1999 incorporated by reference to an exhibit filed with the registrant's Form 10-Q for the quarter ended March 31, 1999.

10.6	Officer's Medical Reimbursement Plan dated May 27, 1992, incorporated by reference to an exhibit filed with the registrant's Form 10-K for the year ended December 31, 2001.†
23.1	Consent of KPMG LLP.*
23.2	Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5 hereto).*
24.1	Power of Attorney (included on signature page).**

*

Filed herewith.

**

Previously filed.

†

Compensation plans and arrangements for executives and others.

QuickLinks

TABLE OF CONTENTS
PROSPECTUS SUMMARY
Our Company
Our Address and Telephone Number
The Offering
Summary Consolidated Financial Information (In thousands, except per share and operating data)
FORWARD LOOKING STATEMENTS
RISK FACTORS
USE OF PROCEEDS
COMMON STOCK PRICE RANGE AND DIVIDENDS
CAPITALIZATION
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR COMPANY
MANAGEMENT
DESCRIPTION OF CAPITAL STOCK
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
ARTESIAN RESOURCES CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
ARTESIAN RESOURCES CORPORATION CONSOLIDATED BALANCE SHEET (in thousands)
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited) (in thousands, except per share amounts)
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Unaudited) (in thousands)
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (in thousands)
ARTESIAN RESOURCES CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ARTESIAN RESOURCES CORPORATION CONSOLIDATED BALANCE SHEET (in thousands)
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts)
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
ARTESIAN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
ARTESIAN RESOURCES CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
COMPONENTS OF INCOME TAX EXPENSE: (in thousands)
RECONCILIATION OF EFFECTIVE TAX RATE
Part II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
EXHIBIT INDEX

EX-1

                                                                       EXHIBIT 1

                                 500,000 SHARES

                         ARTESIAN RESOURCES CORPORATION

                         CLASS A NON-VOTING COMMON STOCK

                               -------------------

                              UNDERWRITING AGREEMENT

                               -------------------



                                                      Philadelphia, Pennsylvania
                                                                    May __, 2002




JANNEY MONTGOMERY SCOTT LLC
J.J.B. HILLIARD, W.L. LYONS, INC.,
As Representatives of the Several Underwriters Named in Schedule I hereto
c/o Janney Montgomery Scott LLC
1801 Market Street
Philadelphia, PA  19103

Ladies and Gentlemen:

     Artesian Resources Corporation, a Delaware corporation ("Artesian
Resources"), proposes, subject to the terms and conditions stated herein, to
sell to the several Underwriters named in SCHEDULE I hereto (the
"Underwriters"), for whom Janney Montgomery Scott LLC and J.J.B. Hilliard, W.L.
Lyons, Inc. are serving as Representatives (the "Representatives"), an aggregate
of 500,000 shares of Artesian Resources' Class A Non-Voting Common Stock, par
value $1.00 per share ("Class A Common Stock"). The Class A Common Stock to be
sold to the Underwriters by Artesian Resources are referred to herein as the
"Firm Shares." The respective amounts of the Firm Shares to be purchased by the
several Underwriters are set forth opposite their names in SCHEDULE I hereto.
The Firm Shares shall be offered to the public at a public offering price of $__
per Firm Share (the "Offering Price").

     In order to cover over-allotments in the sale of the Firm Shares, the
Underwriters may, at the Underwriters' election and subject to the terms and
conditions stated herein, purchase ratably in proportion to the amounts set
forth opposite their respective names in SCHEDULE I hereto, for the
Underwriters' own accounts up to 75,000 additional shares of Class A Common
Stock from Artesian Resources. Such 75,000 additional shares of Class A Common
Stock are referred to herein as the "Optional Shares." If any Optional Shares
are purchased, the Optional



Shares shall be purchased for offering to the public at the Offering Price and
in accordance with the terms and conditions set forth herein. The Firm Shares
and the Optional Shares are referred to collectively herein as the "Shares."

     Artesian Resources and the Underwriters, intending to be legally bound,
hereby confirm their agreement as follows:

     1. REPRESENTATIONS AND WARRANTIES OF ARTESIAN RESOURCES. Artesian Resources
represents and warrants to, and agrees with, the several Underwriters that:

          (a) Artesian Resources has prepared, in conformity with the
     requirements of the Securities Act of 1933, as amended (the "Act"), and the
     rules and regulations (the "Regulations") of the Securities and Exchange
     Commission (the "SEC") under the Act in effect at all applicable times, and
     has filed with the SEC a registration statement on Form S-2 (File No.
     333-87864) and one or more amendments thereto for the purpose of
     registering the Shares under the Act. Copies of such registration statement
     and any amendments thereto, and all forms of the related prospectus
     contained therein, have been delivered to the Representatives. Any
     preliminary prospectus included in such registration statement or filed
     with the SEC pursuant to Rule 424(a) of the Regulations is hereinafter
     called a "Preliminary Prospectus." The various parts of such registration
     statement, including all exhibits thereto and the information contained in
     the form of a final prospectus filed with the SEC pursuant to Rule 424(b)
     of the Regulations in accordance with Section 5(a) of this Agreement and
     deemed by virtue of Rule 424 of the Regulations to be part of the
     registration statement at the time it was declared effective, each as
     amended at the time the registration statement became effective, including
     the information (if any) deemed to be part of the registration statement at
     the time of effectiveness pursuant to Rule 430A of the Regulations, are
     hereinafter collectively called the "Registration Statement." The final
     prospectus in the form included in the Registration Statement or first
     filed with the SEC pursuant to Rule 424(b) of the Regulations and any
     amendments or supplements thereto, including the information (if any)
     deemed to be part of that prospectus at the time of effectiveness pursuant
     to Rule 430A of the Regulations, is hereinafter called the "Prospectus."
     All references to the Registration Statement, the Preliminary Prospectus
     and the Prospectus include all documents incorporated therein by reference.
     If Artesian Resources has filed an abbreviated registration statement to
     register additional Class A Common Stock pursuant to Rule 462(b) under the
     Act (the "Rule 462 Registration Statement"), then any reference herein to
     the term "Registration Statement" shall be deemed to include such Rule 462
     Registration Statement.

          (b) The Registration Statement has become effective under the Act, and
     the SEC has not issued any stop order suspending the effectiveness of the
     Registration Statement nor has the SEC instituted or, to the knowledge of
     Artesian Resources, threatened to institute proceedings with respect to
     such an order. No stop order suspending the sale of the Shares in any
     jurisdiction designated by the Representatives as provided for in Section
     5(f) hereof has been issued, and no proceedings for that purpose have been
     instituted or, to the knowledge of Artesian Resources, threatened. Artesian
     Resources has complied in all material respects with all requests of the
     SEC, or requests of which Artesian Resources has been advised of any state
     or foreign securities commission in a state or foreign jurisdiction
     designated by the Representatives as provided for in Section 5(f) hereof,
     for additional information to be included in the Registration Statement,
     any Preliminary Prospectus or the Prospectus. The Registration Statement,
     on the


                                       2


     date on which it was declared effective by the SEC (the "Effective Date")
     and when any post-effective amendment thereof shall become effective, and
     the Prospectus, at the time it is filed with the SEC including, if
     applicable, pursuant to Rule 424(b), and on the Closing Date (as defined in
     Section 3 hereof) and any Option Closing Date (as defined in Section 4(b)
     hereof), conformed and will conform in all material respects to all the
     requirements of the Act and the Regulations, and did not and will not, on
     any of such dates, contain any untrue statement of a material fact or omit
     to state a material fact required to be stated therein or necessary to make
     the statements therein not misleading. The preceding sentence does not
     apply to statements in or omissions from the Registration Statement or the
     Prospectus based upon written information furnished to Artesian Resources
     by or on behalf of any Underwriter through the Representatives expressly
     for use therein or the omission of any information regarding the
     Underwriters.

          (c) The documents incorporated by reference into the Prospectus
     pursuant to Item 12 of Form S-2 under the Act, at the time they were filed
     with the SEC, complied in all material respects with the requirements of
     the Securities Exchange Act of 1934, as amended ("Exchange Act") and the
     Exchange Act Regulations and did not contain any untrue statement of
     material fact or omit to state a material fact required to be stated
     therein, or necessary to make the statements therein not misleading.

          (d) There are no legal or governmental proceedings pending or, to the
     knowledge of Artesian Resources, threatened to which Artesian Resources or
     any of its Subsidiaries is a party or to which any of the properties of
     Artesian Resources or any Subsidiary are subject that are required to be
     described in the Registration Statement or the Prospectus and are not so
     described or any statutes, regulations, contracts or other documents that
     are required to be described in the Registration Statement or the
     Prospectus or to be filed as exhibits to the Registration Statement that
     are not described or filed as required.

          (e) Artesian Resources is a corporation duly organized, validly
     existing and in good standing under the laws of the State of Delaware, and
     has the corporate power and authority to own or lease and operate its
     properties and to conduct its current business as described in the
     Prospectus, and to execute, deliver and perform this Agreement. Each of
     Artesian Water Company, Inc., a Delaware corporation ("Artesian Water"),
     Artesian Wastewater Management, Inc., a Delaware corporation ("Artesian
     Wastewater"), Artesian Development Corporation, a Delaware corporation
     ("Artesian Development") and Artesian Water Pennsylvania Inc., a
     Pennsylvania corporation ("Artesian PA") is a wholly owned subsidiary of
     Artesian Resources and, collectively, shall herein be referred to as the
     "Subsidiaries." Each Subsidiary of Artesian Resources has been duly
     incorporated and is an existing corporation in good standing under the laws
     of the jurisdiction of its incorporation, and has the corporate power and
     authority to own or lease and operate its properties and to conduct its
     current business. Artesian Resources and the Subsidiaries are duly
     qualified to do business as foreign corporations, and are in good standing,
     in all jurisdictions in which such qualification is required, except where
     the failure to so qualify would not have a material adverse effect on the
     general affairs, properties, condition (financial or otherwise), results of
     operations, stockholders' equity, business or prospects (collectively, the
     "Business Conditions") of Artesian Resources and the Subsidiaries taken as
     a whole. References to materiality as applicable to the Subsidiaries shall
     mean material to the Business Conditions, operations or assets, as the case
     may be, of the Subsidiaries taken as a whole.


                                       3


          (f) All of the outstanding shares of capital stock of each of the
     Subsidiaries have been duly authorized and validly issued, are fully paid
     and non-assessable and are owned by Artesian Resources free and clear of
     all liens, encumbrances and security interests, except as otherwise
     disclosed in the Prospectus; and no options, warrants or other rights to
     purchase, agreements or other obligations to issue, or other rights to
     convert any obligations into shares of capital stock or ownership interests
     in each of the Subsidiaries or securities convertible into or exchangeable
     for capital stock of, or other ownership interests in any of the
     Subsidiaries are outstanding, except as disclosed in the Prospectus.
     Neither Artesian Resources nor the Subsidiaries owns any stock or other
     interest whatsoever, whether equity or debt, in any corporation,
     partnership or other entity other than Artesian Resources' ownership of the
     Subsidiaries, except that Artesian Wastewater is a member of the limited
     liability company, AquaStructure Delaware, LLC and Artesian Resources is a
     limited partner in the partnership, Environmental Technologies of Delaware,
     L.P.

          (g) This Agreement has been duly authorized, executed and delivered by
     Artesian Resources and constitutes its legal, valid and binding obligation,
     enforceable against Artesian Resources in accordance with its terms, except
     as enforcement may be limited by bankruptcy, insolvency or other similar
     laws affecting the enforcement of creditors' rights generally and subject
     to applicability of general principles of equity and except, as to this
     Agreement, as rights to indemnity and contribution may be limited by
     federal and state securities laws or principles of public policy.

          (h) The execution, delivery and performance of this Agreement and the
     transactions contemplated herein, do not and will not, with or without the
     giving of notice or the lapse of time, or both, (i) conflict with any term
     or provision of Artesian Resources' or the Subsidiaries' respective
     Certificate or Articles of Incorporation, as the case may be, or Bylaws;
     (ii) result in a breach of, constitute a default under, result in the
     termination or modification of, result in the creation or imposition of any
     lien, security interest, charge or encumbrance upon any of the properties
     of Artesian Resources or the Subsidiaries or require any payment by
     Artesian Resources or any of the Subsidiaries or impose any liability on
     Artesian Resources or any of the Subsidiaries pursuant to, any contract,
     indenture, mortgage, deed of trust, commitment or other agreement or
     instrument to which Artesian Resources or any of the Subsidiaries is a
     party or by which any of their respective properties are bound or affected
     other than this Agreement, except where such breach, default, modification,
     termination, lien, security interest, charge, encumbrance, payment or
     liability could not reasonably be expected to have a material adverse
     effect on the Business Conditions of Artesian Resources or its
     Subsidiaries, taken as a whole; (iii) assuming compliance with Blue Sky
     laws and the rules of the National Association of Securities Dealers, Inc.
     (the "NASD") applicable to the offer and sale of the Shares, violate any
     law, rule, regulation, judgment, order or decree of any government or
     governmental agency, instrumentality or court, domestic or foreign, having
     jurisdiction over Artesian Resources or the Subsidiaries or any of their
     respective properties or businesses, except where such violation could not
     reasonably be expected to have a material adverse effect on the Business
     Conditions of Artesian Resources or its Subsidiaries, taken as a whole; or
     (iv) result in a breach, termination or lapse of Artesian Resources' or the
     Subsidiaries' corporate power and authority to own or lease and operate
     their respective properties and conduct their respective businesses, except
     where such breach, termination or lapse could not reasonably be expected to
     have a material adverse effect on the Business Conditions of Artesian
     Resources or its Subsidiaries, taken as a whole.


                                       4


          (i) As of March 31, 2002, Artesian Resources had the following
     authorized, issued and outstanding capital stock: (i) 1,663,262 shares of
     Class A Common Stock; (ii) 391,824 shares of Class B Common Stock, par
     value $1 per share, (iii) 10,868 shares of 7% Prior Preferred Stock, par
     value $25 per share, (iv) 8,000 shares of Cumulative Prior Preferred Stock,
     par value $25 per share, and (v) no shares of Series Preferred Stock, par
     value $1 per share. Artesian Resources will have, as of the issuance of the
     Firm Shares on the Closing Date, the following as adjusted, authorized,
     issue and outstanding capital stock: (i) 2,163,262 shares of Class A Common
     Stock; (ii) 391,824 shares of Class B Common Stock, par value $1 per share,
     (iii) 10,868 shares of 7% Prior Preferred Stock, par value $25 per share,
     (iv) 8,000 shares of Cumulative Prior Preferred Stock, par value $25 per
     share, and (v) no shares of Series Preferred Stock, par value $1 per share.
     On the Effective Date, the Closing Date and any Option Closing Date, there
     will be no options or warrants or other outstanding rights to purchase,
     agreements or obligations to issue or agreements or other rights to convert
     or exchange any obligation or security into, capital stock of Artesian
     Resources or securities convertible into or exchangeable for capital stock
     of Artesian Resources, except as described in the Prospectus or the grant
     of options after the date of the Prospectus under option plans of Artesian
     Resources. The information in the Prospectus insofar as it relates to all
     outstanding options and other rights to acquire securities of Artesian
     Resources as of the dates referred to in the Prospectus is true and correct
     in all material respects.

          (j) The currently outstanding shares of Artesian Resources' capital
     stock have been duly authorized and are validly issued, fully paid and
     non-assessable, and none of such outstanding shares of Artesian Resources'
     capital stock has been issued in violation of any preemptive rights of any
     security holder of Artesian Resources. The holders of the outstanding
     shares of Artesian Resources' capital stock are not subject to personal
     liability solely by reason of being such holders. All previous offers and
     sales of the outstanding shares of Artesian Resources' capital stock made
     by or on behalf of Artesian Resources, whether described in the
     Registration Statement or otherwise, were made in conformity with
     applicable federal, state and foreign securities laws. The authorized
     capital stock of Artesian Resources, including, without limitation, the
     outstanding Common Stock, the Shares being issued, and the outstanding
     options to purchase shares of Common Stock conform in all material respects
     with the descriptions thereof in the Prospectus, and such descriptions
     conform in all material respects with the instruments defining the same.

          (k) When the Shares have been duly delivered against payment therefor
     as contemplated by this Agreement, the Shares will be validly issued, fully
     paid and non-assessable, and the holders thereof will not be subject to
     personal liability solely by reason of being such holders. The certificates
     representing the Shares are in proper legal form under, and conform in all
     respects to the requirements of, the Delaware General Corporation law, as
     amended (the "DGCL"). Neither the filing of the Registration Statement nor
     the offering or sale of Shares as contemplated by this Agreement gives any
     security holder of Artesian Resources any rights for or relating to the
     registration of any Class A Common Stock or any other capital stock of
     Artesian Resources or any rights to convert or have redeemed or otherwise
     receive anything of value with respect to any other security of Artesian
     Resources.

          (l) No consent, approval, authorization, order, registration, license
     or permit of, or filing or registration with, any court, government,
     governmental agency, instrumentality or


                                       5


     other regulatory body or official is required for the valid and legal
     execution, delivery and performance by Artesian Resources of this Agreement
     and the consummation of the transactions contemplated hereby or described
     in the Prospectus, except such as may be required for the registration of
     the Shares under the Act, the Exchange Act, and for compliance with the
     applicable state securities or Blue Sky laws or the Bylaws, rules and other
     pronouncements of the NASD.

          (m) The Class A Common Stock (including the Shares) is registered
     pursuant to Section 12(g) of the Exchange Act. The issued and outstanding
     shares of Class A Common Stock are included for quotation on the Nasdaq
     National Market. Neither Artesian Resources nor, to Artesian Resources'
     knowledge, any other person has taken any action designed to cause, or
     likely to result in, the termination of the registration of the Class A
     Common Stock under the Exchange Act. Artesian Resources has not received
     any notification that the SEC or the NASD is contemplating terminating such
     registration or inclusion.

          (n) The statements in the Registration Statement and Prospectus,
     insofar as they are descriptions of or references to contracts, agreements
     or other documents, are accurate in all material respects and present or
     summarize fairly, in all material respects, the information required to be
     disclosed under the Act or the Regulations, and there are no contracts,
     agreements or other documents, instruments or transactions of any character
     required to be described or referred to in the Registration Statement or
     Prospectus or to be filed as exhibits to the Registration Statement that
     have not been so described, referred to or filed, as required.

          (o) Each contract or other instrument (however characterized or
     described) to which Artesian Resources or any of the Subsidiaries is a
     party or by which any of their respective properties or businesses is bound
     or affected and which is material to the conduct of Artesian Resources', or
     the Subsidiaries' business has been duly and validly executed by Artesian
     Resources or the Subsidiaries, as applicable, and, to the knowledge of
     Artesian Resources, by the other parties thereto. Each such contract or
     other instrument is in full force and effect and is enforceable in all
     material respects against the parties thereto in accordance with its terms,
     except as enforcement may be limited by bankruptcy, insolvency or other
     similar laws affecting the enforcement of creditors' rights generally and
     subject to applicability of general principles of equity, and neither
     Artesian Resources nor any of the Subsidiaries is, and to the knowledge of
     Artesian Resources, no other party is, in default thereunder, except where
     such default would not have a material adverse effect on the Business
     Conditions of Artesian Resources and its Subsidiaries, taken as a whole,
     and no event has occurred that, with the lapse of time or the giving of
     notice, or both, would constitute a default under any such contract or
     other instrument. All necessary consents under such contracts or other
     instruments to the disclosure in the Prospectus with respect thereto have
     been obtained.

          (p) The consolidated financial statements of Artesian Resources
     (including the notes thereto) filed as part of the Prospectus and the
     Registration Statement present fairly, in all material respects, the
     financial position of Artesian Resources as of the respective dates
     thereof, and the results of operations and cash flows of Artesian Resources
     for the periods indicated therein, all in conformity with generally
     accepted accounting principles, except as disclosed therein. The supporting
     notes included in the Registration Statement fairly state in all material
     respects the information required to be stated therein in relation to the
     financial statements taken


                                       6


     as a whole. The financial information included in the Prospectus under the
     captions "Prospectus Summary - Summary Consolidated Financial Information,"
     "Selected Consolidated Financial Information," Use of Proceeds" and
     "Capitalization" presents fairly the information shown therein and has been
     compiled on a basis consistent with that of the financial statements
     included in the Registration Statement. The unaudited pro forma adjustments
     to financial information included in the Registration Statement have been
     properly applied to the historical amounts in the compilation of that
     information to reflect the sale by Artesian Resources of 500,000 shares of
     Class A Common Stock offered thereby at an assumed offering or actual price
     set forth in the Prospectus, and the application of the estimated net
     proceeds therefrom.

          (q) Since the respective dates as of which information is given in the
     Registration Statement and the Prospectus, except as otherwise stated
     therein, there has not been (i) any material adverse change (including,
     whether or not insured against, any material loss or damage to any material
     assets), or development involving a prospective material adverse change, in
     the Business Conditions of Artesian Resources; (ii) any material adverse
     change, loss, reduction, termination or non-renewal of any material
     contract to which Artesian Resources or any of the Subsidiaries is a party;
     (iii) any transaction entered into by Artesian Resources or any of the
     Subsidiaries not in the ordinary course of its business that is material to
     Artesian Resources or any of the Subsidiaries; (iv) any dividend or
     distribution of any kind declared, paid or made by Artesian Resources on
     its capital stock, except for and to the extent described in the
     Prospectus; (v) any liabilities or obligations, direct or indirect,
     incurred by Artesian Resources or any of the Subsidiaries that are material
     to Artesian Resources or any of the Subsidiaries, (vi) any change in the
     capitalization of Artesian Resources or any of the Subsidiaries, other than
     the issuance of shares pursuant to the exercise of options or the grant of
     options under Artesian Resources' stock option plans; or (vii) any change
     in the indebtedness of Artesian Resources or any of the Subsidiaries that
     is material to Artesian Resources or the Subsidiaries. Neither Artesian
     Resources nor the Subsidiaries has any contingent liabilities or
     obligations that are material and that are not expressly disclosed in the
     Prospectus.

          (r) Artesian Resources has not distributed, and will not
     distribute, any offering material in connection with the offering and
     sale of the Shares other than the Registration Statement, a Preliminary
     Prospectus, the Prospectus and other material, if any, permitted by the
     Act and the Regulations. Except for the letter agreement dated May 9,
     2002 between Artesian Resources and Janney Montgomery Scott LLC (the
     "Letter Agreement"), neither Artesian Resources nor any of its officers,
     directors or affiliates has (i) taken, nor shall Artesian Resources or
     such persons take, directly or indirectly, any action designed to, or
     that might be reasonably expected to, cause or result in stabilization
     or manipulation of the price of the Class A Common Stock, or (ii) since
     the filing of the Registration Statement (A) sold, bid for, purchased or
     paid anyone any compensation for soliciting purchases of, the Shares or
     (B) paid or agreed to pay to any person any compensation for soliciting
     another to purchase any other securities of Artesian Resources.

          (s) Artesian Resources and the Subsidiaries have filed with the
     appropriate federal, state and local governmental agencies, and all foreign
     countries and political subdivisions thereof, all material tax returns that
     are required to be filed or have duly obtained extensions of time for the
     filing thereof and have paid all taxes shown on such returns or otherwise
     due and all material assessments received by them to the extent that the
     same have become due, other than those being contested in good faith and
     for which adequate reserves have


                                       7


     been provided. Neither Artesian Resources nor any of the Subsidiaries has
     executed or filed with any taxing authority, foreign or domestic, any
     agreement extending the period for assessment or collection of any income
     or other tax and neither of them is a party to any pending action or
     proceeding by any foreign or domestic governmental agency for the
     assessment or collection of taxes, and no claims for assessment or
     collection of taxes have been asserted against Artesian Resources or any of
     the Subsidiaries that might materially adversely affect the Business
     Conditions of Artesian Resources or any of the Subsidiaries.

          (t) To the knowledge of Artesian Resources, KPMG LLP, which has given
     its report on certain financial statements included as part of the
     Registration Statement, is a firm of independent certified public
     accountants as required by the Act and the Regulations with respect to
     Artesian Resources.

          (u) Neither Artesian Resources nor any of the Subsidiaries is in
     violation of, or in default under, any of the terms or provisions of (i)
     its Certificate or Articles of Incorporation, as the case may be, or Bylaws
     or similar governing instruments and (ii) except where any such default
     would not reasonably be expected to have a material adverse effect on the
     Business Conditions of Artesian Resources or any of the Subsidiaries, (A)
     any indenture, mortgage, deed of trust, contract, commitment or other
     agreement or instrument to which it is a party or by which it or any of its
     assets or properties is bound or affected, (B) any law, rule, regulation,
     judgment, order or decree of any government or governmental agency,
     instrumentality or court, domestic or foreign, having jurisdiction over it
     or any of its properties or business, or (C) any license, permit,
     certification, registration, approval, consent or franchise.

          (v) Except as expressly disclosed in the Prospectus, there are no
     claims, actions, suits, protests, proceedings, arbitrations, investigations
     or inquiries pending before, or, to Artesian Resources' knowledge,
     threatened or contemplated by, any governmental agency, instrumentality,
     court or tribunal, domestic or foreign, or before any private arbitration
     tribunal to which Artesian Resources or any of the Subsidiaries is or may
     be made a party that could reasonably be expected to affect the validity of
     any of the outstanding Class A Common Stock, or that, if determined
     adversely to Artesian Resources or any of the Subsidiaries would, in any
     case or in the aggregate, result in any material adverse change in the
     Business Conditions of Artesian Resources or any of the Subsidiaries, nor
     to Artesian Resources' knowledge is there any reasonable basis for any such
     claim, action, suit, protest, proceeding, arbitration, investigation or
     inquiry. There are no outstanding orders, judgments or decrees of any
     court, governmental agency, instrumentality or other tribunal enjoining
     Artesian Resources or any of the Subsidiaries from, or requiring Artesian
     Resources or any of the Subsidiaries to take or refrain from taking, any
     action, or to which Artesian Resources or any of the Subsidiaries or their
     properties, assets or businesses are bound or subject.

          (w) Each of Artesian Resources and the Subsidiaries owns, or possesses
     adequate rights to use, or can acquire on reasonable terms, all patents,
     patent applications, trademarks, trademark registrations, applications for
     trademark registration, trade names, service marks, licenses, inventions,
     copyrights, know-how (including any unpatented and/or unpatentable
     proprietary or confidential technology, information, systems, design
     methodologies and devices or procedures developed or derived from or for
     Artesian Resources' or the Subsidiaries' business), trade secrets,
     confidential information, processes and formulations and


                                       8


     other proprietary information necessary for, used in, or proposed to be
     used in, the conduct of the business of Artesian Resources and the
     Subsidiaries as described in the Prospectus (collectively, the
     "Intellectual Property"), except where the failure to own or possess or
     otherwise be able to acquire such Intellectual Property would not have a
     material adverse effect on the Business Conditions of Artesian Resources or
     its Subsidiaries, taken as a whole. To Artesian Resources' knowledge,
     neither Artesian Resources nor any of the Subsidiaries has infringed, is
     infringing nor have received any notice of conflict with, the asserted
     rights of others with respect to the Intellectual Property that,
     individually or in the aggregate, if the subject of an unfavorable
     decision, ruling or finding, could materially adversely affect the Business
     Conditions of Artesian Resources or any of the Subsidiaries, and Artesian
     Resources knows of no reasonable basis therefor. To the knowledge of
     Artesian Resources, no other parties have infringed upon or are in conflict
     with any Intellectual Property. Neither Artesian Resources nor any of the
     Subsidiaries is a party to, or bound by, any agreement pursuant to which
     royalties, honorariums or fees are payable by Artesian Resources or any of
     the Subsidiaries to any person by reason of the ownership or use of any
     Intellectual Property.

          (x) Each of Artesian Resources and the Subsidiaries has good and
     marketable title to all property described in the Prospectus as being owned
     by it, free and clear of all liens, security interests, charges or
     encumbrances and the like, except such as are expressly described or
     referred to in the Prospectus or such as do not materially adversely affect
     the Business Conditions or the conduct of the business of Artesian
     Resources and the Subsidiaries as described in the Prospectus. Each of
     Artesian Resources and the Subsidiaries has insured its property against
     loss or damage by fire or other casualty, in amounts reasonably believed by
     Artesian Resources to be adequate, and maintains insurance against such
     other risks as management of Artesian Resources deems appropriate. All real
     and personal property leased by Artesian Resources and the Subsidiaries as
     described or referred to in the Prospectus, is held by Artesian Resources
     and the Subsidiaries as applicable, under valid leases. The executive
     offices and facilities of Artesian Resources and the Subsidiaries (the
     "Premises"), and all operations presently or formerly conducted thereon by
     Artesian Resources or the Subsidiaries or any predecessors thereof, are now
     and, since Artesian Resources or the Subsidiaries began to use such
     Premises, always have been and, to the knowledge of Artesian Resources
     prior to when Artesian Resources or the Subsidiaries began to use such
     Premises, always had been, in compliance with all federal, state and local
     statutes, ordinances, regulations, rules, standards and requirements of
     common law concerning or relating to industrial hygiene and the protection
     of health and the environment (collectively, "the Environmental laws"),
     except to the extent that any failure in such compliance would not
     materially adversely affect the Business Conditions of Artesian Resources
     or the Subsidiaries. To the knowledge of Artesian Resources, the facilities
     of Artesian Resources and the Subsidiaries produce water of sufficient
     quality and quantity to supply the current and planned customers and
     service areas of Artesian Resources and the Subsidiaries, and are not
     subject to any restriction on groundwater withdrawal under any federal,
     state or local law, regulation, rule, order or permit, except as expressly
     described in the Prospectus or as provided in State of Delaware and other
     regulatory agencies' allocation permits and such as do not materially
     adversely affect the Business Conditions or the conduct of the business of
     Artesian Resources and the Subsidiaries as described in the Prospectus. To
     the knowledge of Artesian Resources, there are no conditions on, about,
     beneath or arising from the Premises, in close proximity to the Premises or
     at any other location that might give rise to liability, the imposition of
     a statutory lien or require a "Response," "Removal" or "Remedial


                                       9


     Action," as defined herein, under any of the Environmental laws, or affect
     the quality of the groundwater withdrawn by Artesian Resources or the
     Subsidiaries, and that would materially adversely affect the Business
     Conditions of Artesian Resources, except as described in the Prospectus.
     Except as expressly disclosed in the Prospectus, or which will not
     materially adversely affect the Business Conditions of Artesian Resources
     (i) neither Artesian Resources nor the Subsidiaries has received notice or
     has knowledge of any claim, demand, investigation, regulatory action, suit
     or other action instituted or threatened against Artesian Resources or the
     Subsidiaries or any portion of the Premises or any parcel in close
     proximity to the Premises relating to any of the Environmental laws and
     (ii) neither Artesian Resources nor the Subsidiaries has received any
     notice of material violation, citation, complaint, order, directive,
     request for information or response thereto, notice letter, demand letter
     or compliance schedule to or from any governmental or regulatory agency
     arising out of or in connection with "hazardous substances" (as defined by
     applicable Environmental laws) on, about, beneath, arising from or
     generated at the Premises, near the Premises or at any other location. As
     used in this subsection, the terms "Response," "Removal" and "Remedial
     Action" shall have the respective meanings assigned to such terms under
     Sections 101(23)-101(25) of the Comprehensive Environmental Response,
     Compensation and Liability Act, as amended by the Superfund Amendments and
     Reauthorization Act, 42 U.S.C. 9601(23)-9601(25).

          (y) Each of Artesian Resources and the Subsidiaries maintain a system
     of internal accounting controls sufficient to provide reasonable assurances
     that: (i) transactions are executed in accordance with management's general
     or specific authorization; (ii) transactions are recorded as necessary in
     order to permit preparation of financial statements in accordance with
     generally accepted accounting principles and to maintain accountability for
     assets; (iii) access to assets is permitted only in accordance with
     management's general or specific authorization; and (iv) the recorded
     accountability for assets is compared with existing assets at reasonable
     intervals and appropriate action is taken with respect to any differences.

          (z) Artesian Resources, the Subsidiaries and any Related Employer
     (which for purposes of this Paragraph means any entity that with Artesian
     Resources or the Subsidiaries is a member of a controlled group of
     corporations within the meaning of Section 414(b) of the Internal Revenue
     Code of 1986 as amended (the "Code"), is, individually or collectively, a
     trade or business under common control within the meaning of Section 414(c)
     of the Code, or is a member of the same affiliated service group within the
     meaning of Section 414(m) of the Code) have established, maintain,
     contribute to, are required to contribute to, are a party to, or are bound
     by certain pension, retirement, profit-sharing plans, deferred
     compensation, bonus, or other incentive plans, or medical, vision, dental,
     or other health plans, or life insurance or disability plans, or any other
     employee benefit plans, programs, arrangements, agreements, or
     understandings, some of which are subject to the Employee Retirement Income
     Security Act of 1974 as amended ("ERISA") and the rules and regulations
     thereunder ("Plans"). Any disclosure regarding the Plans required under the
     Act or the Exchange Act has been made in the Prospectus and the documents
     incorporated therein. All Plans that are subject to ERISA are in compliance
     with ERISA, in all material respects, and, to the extent a Plan is intended
     to be tax-qualified within the meaning of Section 401(a) of the Code, such
     Plan is in compliance with the Code in all material respects and is the
     subject of a current favorable determination letter from the Internal
     Revenue Service as to its tax qualification or such Plan has been submitted
     to the Internal Revenue Service for an updated determination letter and
     Artesian Resources expects that


                                       10


     the Internal Revenue Service will issue a favorable determination letter
     with respect to the Plan. No Plan is an employee pension benefit plan that
     is subject to Part 3 of Subtitle B of Title I of ERISA, a defined benefit
     plan subject to Title IV of ERISA, or a multiemployer plan. None of
     Artesian Resources, the Subsidiaries or any Related Employer maintains or
     has maintained retiree life or retiree health insurance plans that are
     employee welfare benefit plans providing for continuing benefit or coverage
     for any employee or any beneficiary of any employee after such employee's
     termination of employment, except as required by Section 4980B of the Code
     and except as disclosed in the Prospectus. No fiduciary or other party in
     interest with respect to any of the Plans has caused any of such Plans to
     engage in a prohibited transaction as defined in Section 406 of ERISA and
     Section 4975 of the Code. As used in this subsection, the terms "defined
     benefit plan," "employee benefit plan," "employee pension benefit plan,"
     "employee welfare benefit plan," "fiduciary" and "multiemployer plan" shall
     have the respective meanings assigned to such terms in Section 3 of ERISA.

          (aa) No labor dispute exists with Artesian Resources' or the
     Subsidiaries' employees, and to Artesian Resources' knowledge, no such
     labor dispute is threatened. Artesian Resources has no knowledge of any
     existing or threatened labor disturbance by the employees of any of the
     principal suppliers, contractors or customers of Artesian Resources or any
     of the Subsidiaries that would materially adversely affect the Business
     Conditions of Artesian Resources or any of the Subsidiaries. None of
     Artesian Resources' or the Subsidiaries' employees is covered by a
     collective bargaining agreement and no union organizing activity exists
     with respect to any of such employees.

          (bb) Neither Artesian Resources nor the Subsidiaries has incurred any
     liability for any finder's fees or similar payments in connection with the
     transactions contemplated herein other than as disclosed in the Prospectus.

          (cc) Artesian Resources is familiar with the Investment Company Act of
     1940, as amended (the "1940 Act"), and the rules and regulations
     thereunder, and has in the past conducted, and Artesian Resources intends
     to conduct, its affairs in such a manner as to ensure that it will not be
     an "investment company" or an entity " controlled" by an investment company
     within the meaning of the 1940 Act and the rules and regulations
     thereunder.

          (dd) Artesian Resources and its Subsidiaries have received all
     permits, licenses, franchises, authorizations, registrations,
     qualifications and approvals (collectively, "Permits") of governmental or
     regulatory authorities as may be required of them to own their properties
     and conduct their businesses in the manner described in the Prospectus,
     subject to such qualifications as may be set forth in the Prospectus,
     except to the extent that failure to receive such Permits would not have a
     material adverse effect on the Business Conditions of Artesian Resources or
     its Subsidiaries; and Artesian Resources and its Subsidiaries have
     fulfilled and performed all of their material obligations with respect to
     such Permits, and no event has occurred which allows or, after notice or
     lapse of time or both, would allow revocation or termination thereof or
     result in any other material impairment of the rights of the holder of any
     such Permit, subject in each case to such qualifications as may be set
     forth in the Prospectus; and, except as described in the Prospectus, such
     Permits contain no restrictions that materially affect the ability of
     Artesian Resources and its Subsidiaries to conduct their businesses.


                                       11


          (ee) No statement, representation, warranty or covenant made by
     Artesian Resources or any of the Subsidiaries in this Agreement or in any
     certificate or document required by this Agreement to be delivered to the
     Representatives is, or as of the Closing Date or any Option Closing Date
     will be, inaccurate, untrue or incorrect in any material respect. No
     transaction has occurred or is proposed between or among Artesian Resources
     or any of the Subsidiaries and any of their respective officers, directors
     or stockholders or any affiliate of the foregoing, or any affiliate of the
     foregoing that is required to be described in and is not described in the
     Registration Statement and the Prospectus.

          (ff) None of Artesian Resources, the Subsidiaries or any officer,
     director, employee, partner, agent or other person acting on behalf of
     Artesian Resources or the Subsidiaries has, directly or indirectly, given
     or agreed to give any money, property or similar benefit or consideration
     to any customer or supplier (including any employee or agent of any
     customer or supplier) or official or employee of any agency or
     instrumentality of any government (foreign or domestic) or political party
     or candidate for office (foreign or domestic) or any other person who was,
     is or in the future may be in a position to affect the Business Conditions
     of Artesian Resources or any of the Subsidiaries or any actual or proposed
     business transaction of Artesian Resources or any of the Subsidiaries that
     (i) could subject Artesian Resources or any of the Subsidiaries to any
     liability (including, but not limited to, the payment of monetary damages)
     or penalty in any civil, criminal or governmental action or proceeding that
     would have a material adverse effect on the Business Conditions of Artesian
     Resources or any of the Subsidiaries or (ii) with respect to Artesian
     Resources, the Subsidiaries, or any officer or director thereof, violates
     any law, rule or regulation to which Artesian Resources or any of the
     Subsidiaries is subject.

     Any certificate signed by any officer of Artesian Resources or any of the
Subsidiaries in such capacity and delivered to the Representatives or to counsel
for the Underwriters pursuant to this Agreement shall be deemed a representation
and warranty by Artesian Resources or the Subsidiaries as the case may be, to
the several Underwriters as to the matters covered thereby.

     2. PURCHASE AND SALE OF FIRM SHARES. On the basis of the representations,
warranties, covenants and agreements contained herein, but subject to the terms
and conditions set forth herein, Artesian Resources shall sell the Firm Shares
to the several Underwriters at the Offering Price less the Underwriting
Discounts and Commissions shown on the cover page of the Prospectus, and the
Underwriters, severally and not jointly, shall purchase from Artesian Resources
on a firm commitment basis, at the Offering Price less the Underwriting
Discounts and Commissions shown on the cover page of the Prospectus, the
respective amounts of the Firm Shares set forth opposite their names on SCHEDULE
I hereto. Except as provided in Sections 4 and 12 hereof, the agreement of each
Underwriter is to purchase only that number of Shares specified with respect to
that Underwriter in SCHEDULE I hereto. The Underwriters shall offer the Shares
to the public as set forth in the Prospectus.

     3. PAYMENT AND DELIVERY. The Firm Shares shall be issued in the form of one
or more fully registered global securities (the "Global Securities") in
book-entry form in such denominations and registered in the name of the nominee
of The Depository Trust Company ("DTC") or in such names as the Representatives
may request upon at least 48 hours' prior


                                       12


notice to Artesian Resources, and shall be delivered by or on behalf of Artesian
Resources to the Representatives for the account of such Underwriter, against
payment by such Underwriter on its behalf of the purchase price therefor by wire
transfer of immediately available funds to such accounts as Artesian Resources
shall designate in writing (with all costs and expenses incurred by the
Underwriters in connection with such settlement in immediately available funds,
including, but not limited to, interest or cost of funds and expenses, to be
borne by Artesian Resources). The closing of the sale and purchase of the Firm
Shares shall be held at the offices of Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, Philadelphia, Pennsylvania for the respective accounts of
the Underwriters. Such payment and delivery will be made at 10:00 a.m.,
Philadelphia, Pennsylvania time, on the third business day after the date of
this Agreement, or at such other time on the same or such other date, not later
than seven business days thereafter as shall be designated in writing by the
Representatives. Such time and date are referred to herein as the "Closing
Date." Artesian Resources shall make the Global Securities representing the Firm
Shares available for examination by the Representatives and counsel for the
Underwriters at the Philadelphia correspondent office of Artesian Resources'
transfer agent not less than one full business day prior to the Closing Date.

     4. OPTION TO PURCHASE OPTIONAL SHARES.

          (a) For the purposes of covering any over-allotments in connection
     with the distribution and sale of the Firm Shares as contemplated by the
     Prospectus, subject to the terms and conditions herein set forth, the
     several Underwriters are hereby granted an option by Artesian Resources to
     purchase all or any part of the Optional Shares (the "Over-allotment
     Option"). The purchase price to be paid for the Optional Shares shall be
     the Offering Price less the Underwriting Discounts and Commissions shown on
     the cover page of the Prospectus. The Over-allotment Option granted hereby
     may be exercised by the Representatives on behalf of the several
     Underwriters as to all or any part of the Optional Shares at any time and
     from time to time within 30 days after the date of the Prospectus. No
     Underwriter shall be under any obligation to purchase any Optional Shares
     prior to an exercise of the Over-allotment Option.

          (b) The Over-allotment Option granted hereby may be exercised by the
     Representatives on behalf of the several Underwriters by giving notice to
     Artesian Resources by a letter sent by registered or certified mail,
     postage prepaid, telex, telegraph, telegram or facsimile (such notice to be
     effective when received), addressed as provided in Section 14 hereof,
     setting forth the number of Optional Shares to be purchased, the date and
     time for delivery of and payment for the Optional Shares and stating that
     the Optional Shares referred to therein are to be used for the purpose of
     covering over-allotments in connection with the distribution and sale of
     the Firm Shares. If such notice is given at least two full business days
     prior to the Closing Date, the date set forth therein for such delivery and
     payment shall be not earlier than the Closing Date. If such notice is given
     after two full business days prior to the Closing Date, the date set forth
     therein for such delivery and payment shall be a date selected by the
     Representatives not later than five full business days after the exercise
     of the Over-allotment Option. The date and time set forth in such a notice
     is referred to herein as an "Option Closing Date," and a closing held
     pursuant to such a notice is referred to herein as an "Option Closing."
     Upon each exercise of the Over-allotment Option, and on the basis of the
     representations, warranties, covenants and agreements herein contained, and
     subject to the terms and conditions herein set forth, the several
     Underwriters shall become severally, but not jointly, obligated to


                                       13


     purchase from Artesian Resources the number of Optional Shares specified in
     each notice of exercise of the Over-allotment option (allocated among them
     in accordance with Section 4(c) hereof).

          (c) The number of Optional Shares to be purchased by each Underwriter
     pursuant to each exercise of the Over-allotment Option shall be the number
     that bears the same ratio to the aggregate number of Optional Shares being
     purchased through such Over-allotment Option exercise as the number of Firm
     Shares opposite the name of such Underwriter in SCHEDULE I hereto bears to
     the total number of all Firm Shares. Notwithstanding the foregoing, the
     number of Optional Shares purchased and sold pursuant to each exercise of
     the Over-allotment Option shall be subject to such adjustment as the
     Representatives may approve to eliminate fractional shares and subject to
     the provisions for the allocation of Optional Shares purchased for the
     purpose of covering over-allotments set forth in the agreement entered into
     by and among the Underwriters in connection herewith (the "Agreement Among
     Underwriters").

          (d) The Optional Shares shall be issued in the form of one or more
     Global Securities in book-entry form in such denominations and registered
     in the name of the nominee of DTC or in such names as the Representatives
     may request upon at least 48 hours' prior notice to Artesian Resources, and
     shall be delivered by or on behalf of Artesian Resources to the
     Representatives for the account of such Underwriter, against payment by
     such Underwriter on its behalf of the purchase price therefor by wire
     transfer of immediately available funds to such accounts as Artesian
     Resources shall designate in writing (with all costs and expenses incurred
     by the Underwriters in connection with such settlement in immediately
     available funds, including, but not limited to, interest or cost of funds
     and expenses, to be borne by Artesian Resources). The closing of the sale
     and purchase of the Optional Shares shall be held at the offices of Ballard
     Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
     Pennsylvania for the respective accounts of the Underwriters. Such payment
     and delivery will be made at 10:00 a.m., Philadelphia, Pennsylvania time,
     on the Option Closing Date. Artesian Resources shall make the Global
     Securities representing the Optional Shares available for examination by
     the Representatives and counsel for the Underwriters at the Philadelphia
     correspondent office of Artesian Resources' transfer agent not less than
     one full business day prior to the Option Closing Date.

     5. CERTAIN COVENANTS AND AGREEMENTS OF ARTESIAN RESOURCES. Artesian
Resources covenants and agrees with the several Underwriters as follows:

          (a) If Rule 430A of the Regulations is employed, Artesian Resources
     will timely file the Prospectus pursuant to and in compliance with Rule
     424(b) of the Regulations and will advise the Representatives of the time
     and manner of such filing.

          (b) Artesian Resources will not file with the SEC, the Prospectus, any
     amendment or supplement to the Prospectus or any amendment to the
     Registration Statement, unless the Representatives have been advised or to
     which the Representatives shall reasonably object after being so advised,
     and will use its best efforts to cause any such amendment to the
     Registration Statement to be declared effective as promptly as possible.
     Upon reasonable request of the Representatives or counsel for the
     Underwriters, Artesian Resources will promptly prepare and file with the
     SEC, in accordance with the Regulations of the SEC, any amendments to the


                                       14


     Registration Statement or amendments or supplements to the Prospectus that
     may be necessary or advisable in connection with the distribution of the
     Shares by the several Underwriters and will use its best efforts to cause
     any such amendment to the Registration Statement to be declared effective
     as promptly as possible. If required, Artesian Resources will file any
     amendment or supplement to the Prospectus with the SEC in the manner and
     within the time period required by Rule 424(b) under the Act. Artesian
     Resources will advise the Representatives, promptly after receiving notice
     thereof, of the time when the Registration Statement or any amendment
     thereof has been filed or declared effective or the Prospectus or any
     amendment or supplement thereto has been filed and will provide evidence to
     the Representatives of each filing or effectiveness.

          (c) Artesian Resources will advise the Representatives immediately,
     and confirm such advice in writing, (i) when any post-effective amendment
     to the Registration Statement is filed with the SEC under Rule 462(c) under
     the Act or otherwise, (ii) any Rule 462(b) Registration Statement is filed,
     (iii) of the receipt of any comments from the SEC concerning the
     Registration Statement, (iv) when any post-effective amendment to the
     Registration Statement becomes effective, or when any supplement to the
     Prospectus or any amended Prospectus has been filed, (v) of any request of
     the SEC for amendment or supplementation of the Registration Statement or
     Prospectus or for additional information, (vi) during the period when the
     Prospectus is required to be delivered under the Act and Regulations, of
     the happening of any event as a result of which the Registration Statement
     or the Prospectus would include an untrue statement of a material fact or
     omit to state a material fact necessary to make the statements therein not
     misleading, (vii) during the period noted in clause (vi) above, of the need
     to amend the Registration Statement or supplement the Prospectus to comply
     with the Act, (viii) of the issuance by the SEC of any stop order
     suspending the effectiveness of the Registration Statement or of any order
     preventing or suspending the use of the Prospectus, and (ix) of the
     suspension of the qualification of any of the Shares for offering or sale
     in any jurisdiction in which the Underwriters intend to make such offers or
     sales, or the initiation or threatening of any proceedings for any of such
     purposes known to Artesian Resources. Artesian Resources will use its best
     efforts to prevent the issuance of any such stop order or of any order
     preventing or suspending such use, and if any such order is issued, to
     obtain as soon as possible the lifting thereof.

          (d) Artesian Resources has delivered to the Representatives, without
     charge, as many copies of each Preliminary Prospectus as the
     Representatives have reasonably requested. Artesian Resources will deliver
     to the Representatives, without charge, from time to time during the period
     when delivery of the Prospectus is required under the Act, such number of
     copies of the Prospectus (as supplemented or amended) as the
     Representatives may reasonably request. Artesian Resources hereby consents
     to the use of such copies of the Preliminary Prospectus and the Prospectus
     for purposes permitted by the Act, the Regulations and the securities or
     Blue Sky laws of the states or foreign jurisdictions in which the Shares
     are offered by the several Underwriters and by all dealers to whom Shares
     may be sold, both in connection with the offering and sale of the Shares
     and for such period of time thereafter as the Prospectus is required by the
     Act to be delivered in connection with sales by any Underwriter or dealer.
     Artesian Resources has furnished or will furnish to the Representatives at
     least one original signed copy of the Registration Statement as originally
     filed and of all amendments and supplements thereto, whether filed before
     or after the Effective Date, at least one copy of all exhibits filed
     therewith and of all consents and certificates of experts, and will deliver
     to the


                                       15


     Representatives such number of conformed copies of the Registration
     Statement, including financial statements and exhibits, and all amendments
     thereto, as the Representatives may reasonably request.

          (e) Artesian Resources will comply with the Act, the Regulations, the
     Exchange Act and the Exchange Act Regulations so as to permit the
     continuance of sales of and dealings in the Shares for as long as may be
     necessary to complete the distribution of the Shares as contemplated
     hereby.

          (f) Artesian Resources will furnish such information and pay such
     filing fees and other expenses as may be required, and otherwise cooperate
     in the registration or qualification of the Shares, or exemption therefrom,
     for offering and sale by the several Underwriters and by dealers under the
     securities or Blue Sky laws of such jurisdictions in which the
     Representatives determine to offer the Shares, after consultation with
     Artesian Resources, and will file such consents to service of process or
     other documents necessary or appropriate in order to effect such
     registration or qualification; provided, however, that no such
     qualification shall be required in any jurisdiction where, solely as a
     result thereof, Artesian Resources would be subject to taxation or
     qualification as a foreign corporation doing business in such jurisdiction
     where it is not now so qualified or to take any action which would subject
     it to service of process in suits, other than those arising out of the
     offering or sale of the Shares, in any jurisdiction where it is not now so
     subject. Artesian Resources will, from time to time, prepare and file such
     statements and reports as are or may be required to continue such
     qualification in effect for so long a period as is required under the laws
     of such jurisdictions for such offering and sale. Artesian Resources will
     furnish such information and pay such filing fees and other expenses as may
     be required, and otherwise cooperate in the inclusion of the Shares for
     quotation on the Nasdaq National Market. Artesian Resources will, from time
     to time, prepare and file such statements and reports as are or may be
     required to continue such qualification in effect for a period of three
     years from the Effective Date.

          (g) Subject to Section 5(b) hereof, in case of any event (occurring at
     any time within the period during which, in the opinion of counsel for the
     Underwriters, a prospectus is required to be delivered under the Act or the
     Regulations), as a result of which any Preliminary Prospectus or the
     Prospectus, as then amended or supplemented, would contain, in the opinion
     of counsel for the Underwriters, an untrue statement of a material fact, or
     omit to state any material fact necessary in order to make the statements
     therein not misleading, or, if it is necessary at any time to amend any
     Preliminary Prospectus or the Prospectus to comply with the Act or the
     Regulations or any applicable securities or Blue Sky laws, Artesian
     Resources promptly will prepare and file with the SEC, and any applicable
     state and foreign securities commission, an amendment, supplement or
     document that will correct such statement or omission or effect such
     compliance and will furnish to the several Underwriters such number of
     copies of such amendments, supplements or documents (in form and substance
     satisfactory to the Representatives and counsel for the Underwriters) as
     the Representatives may reasonably request. For purposes of this Section
     5(g), Artesian Resources will provide such information to the
     Representatives, the Underwriters' counsel and counsel to Artesian
     Resources as shall be necessary to enable such persons to consult with
     Artesian Resources with respect to the need to amend or supplement the
     Registration Statement, Preliminary Prospectus or Prospectus or file


                                       16


     any document, and shall furnish to the Representatives and the
     Underwriters' counsel such further information as each may from time to
     time reasonably request.

          (h) Artesian Resources will make generally available to its security
     holders not later than 45 days after the end of the fiscal quarter first
     occurring after the first anniversary of the Effective Date, an earnings
     statement of Artesian Resources (which need not be audited unless required
     by the Act or the Regulations) that shall comply with Section 11(a) of the
     Act and Rule 158 thereunder and cover a period of at least 12 consecutive
     months.

          (i) For a period of three years from the Effective Date, Artesian
     Resources will deliver to the Representatives and, upon request, to each of
     the Underwriters: (i) a copy of each report or document, including, without
     limitation, reports on Forms 8-K, 10-K and 10-Q (or such similar forms as
     may be designated by the SEC), registration statements and any exhibits
     thereto, filed or furnished to the SEC or any securities exchange or the
     NASD, promptly after the date each such report or document is so filed or
     furnished; (ii) as soon as practicable, copies of any reports or
     communications (financial or other) of Artesian Resources mailed to its
     security holders; and (iii) every material press release in respect of
     Artesian Resources or its affairs that is released or prepared by Artesian
     Resources.

          (j) During the course of the distribution of the Shares, Artesian
     Resources and its Subsidiaries will not and Artesian Resources shall cause
     its officers and directors not to, (i) take, directly or indirectly, any
     action designed to, or that could reasonably be expected to, cause or
     result in stabilization or manipulation of the price of the Common Stock or
     (ii) sell, bid for, purchase or pay anyone any compensation for soliciting
     purchases of, the Shares.

          (k) Artesian Resources has caused each person listed on SCHEDULE II
     hereto to execute an agreement (a "Lock-up Agreement") in form and
     substance satisfactory to the Representatives and the Underwriters' counsel
     which provides that from the date of the Lock-up Agreement and for a period
     of 90 days from the Effective Date, such persons will not, without the
     prior written consent of the Representatives, directly or indirectly, sell,
     offer or contract to sell, pledge, grant any option for sale or purchase
     of, agree to sell or otherwise dispose of (collectively, "Disposition") any
     shares of Common Stock (or any securities convertible into or exercisable
     or exchangeable for any shares of Common Stock) beneficially owned by such
     persons now or on the Effective Date, or with respect to which such persons
     now or on the Effective Date has the power of Disposition, or enter into a
     transaction which would have the same effect, or enter into any swap, hedge
     or other arrangement that transfers, in whole or in part, any of the
     economic consequences of ownership of Common Stock, whether any such
     aforementioned transaction is to be settled by delivery of Common Stock or
     such other securities, in cash or otherwise, or publicly disclose the
     intention to make any such Disposition, or enter into any such transaction,
     swap, hedge or other arrangement. The foregoing agreement shall not apply
     to (i) bona fide gifts of securities provided, the recipient of such gift
     or contribution agrees in writing as a condition precedent to such gift or
     contribution to be bound by the terms thereof, or (ii) transfers of
     securities to affiliates of the transferor if the transfers do not involve
     a public distribution or public offering and provided, the transferee
     agrees in writing as a condition precedent to such transfer to be bound by
     the terms thereof. Artesian Resources has delivered such agreements to the
     Representatives prior to the date of this Agreement.


                                       17


     Appropriate stop transfer instructions will be issued by Artesian Resources
     to the transfer agent for the Common Stock and a copy of such instructions
     will be delivered to the Representatives.

          (l) As of the date of the Lock-up Agreement and for a period of 90
     days after the Effective Date, Artesian Resources will not, without the
     prior written consent of the Representatives, issue or make a Disposition
     of any Common Stock or any securities convertible into or exercisable or
     exchangeable for any Common Stock or enter into a transaction which would
     have the same effect or enter into any swap, hedge or other arrangement
     that transfers, in whole or in part, any of the economic consequences of
     ownership of Common Stock, whether any such aforementioned transaction is
     to be settled by delivery of Common Stock or such other securities, in cash
     or otherwise, or publicly disclose the intention to issue or make any such
     Disposition or enter into any such transaction, swap, hedge or other
     arrangement, except (i) the issuance of Class A Common Stock upon the
     exercise of currently outstanding options and warrants as described in the
     Registration Statement, (ii) the grant of options to purchase Class A
     Common Stock under Artesian Resources' currently outstanding stock option
     plans and the issuance of Class A Common Stock upon the exercise thereof
     and (iii) the issuance of Class A Common Stock under Artesian Resources'
     Dividend Reinvestment Plan and 401(k) Plan. The foregoing agreement shall
     not apply to (i) bona fide gifts of securities provided, the recipient of
     such gift or contribution agrees in writing as a condition precedent to
     such gift or contribution to be bound by the terms thereof, or (ii)
     transfers of securities to affiliates of the transferor if the transfers do
     not involve a public distribution or public offering and provided, the
     transferee agrees in writing as a condition precedent to such transfer to
     be bound by the terms thereof.

          (m) For a period of three years from the Effective Date, Artesian
     Resources will use all reasonable efforts to maintain the listing of the
     Class A Common Stock (including, without limitation, the Shares) on the
     Nasdaq National Market or on a national securities exchange.

          (n) Artesian Resources shall, at its sole cost and expense, supply and
     deliver to the Representatives and the Underwriters' counsel, within a
     reasonable period from the Closing Date, transaction binders in such number
     and in such form and content as the Representatives reasonably request.

          (o) Artesian Resources will use the net proceeds from the sale of the
     Shares to be sold by it hereunder substantially in accordance with the
     description set forth in the Prospectus.

     6. PAYMENT OF FEES AND EXPENSES.

     (a) Whether or not the transactions contemplated by this Agreement are
consummated and regardless of the reason this Agreement is terminated, Artesian
Resources will pay or cause to be paid, and bear or cause to be borne, all costs
and expenses incident to the performance of the obligations of Artesian
Resources under this Agreement, including: (i) the fees and expenses of the
accountants and counsel for Artesian Resources incurred in the preparation of
the Registration Statement and any post-effective amendments thereto (including
financial statements and exhibits), Preliminary Prospectuses and the Prospectus
and any amendments or supplements thereto; (ii) printing and mailing expenses
associated with the


                                       18


Registration Statement and any post-effective amendments thereto, any
Preliminary Prospectus, the Prospectus, this Agreement, the Agreement Among
Underwriters, the Underwriters' Questionnaire, the power of attorney executed by
each of the Underwriters, the Selected Dealer Agreement and related documents
and the Preliminary Blue Sky Memorandum (and any supplement thereto); (iii) the
fees, expenses and all other costs of qualifying the Shares for sale under the
securities or Blue Sky laws of those states or foreign jurisdictions in which
the Shares are to be offered or sold, including the reasonable fees and expenses
of Underwriters' counsel and such local counsel as may have been reasonably
required and retained for such purpose; (iv) the fees, expenses and other costs
of, or incident to, securing any review or approvals by or from the NASD,
including the reasonable fees and expenses of the Underwriters' counsel,
provided that the aggregate fees and expenses for Underwriters' counsel and
local counsel under this clause (iv) and clause (iii) above shall not exceed
$10,000; (v) the filing fees of the SEC; (vi) the cost of furnishing to the
Underwriters copies of the Registration Statement, Preliminary Prospectuses and
Prospectuses as herein provided; (vii) Artesian Resources' travel expenses in
connection with meetings with the brokerage community and institutional
investors; (viii) the costs and expenses associated with settlement in same day
funds (including, but not limited to, interest or cost of funds expenses), if
desired by Artesian Resources; (ix) any fees or costs payable to the Nasdaq
National Market as a result of the offering; (x) the cost of preparing, issuing
and delivery to the Underwriters of any certificates evidencing the Shares; (xi)
the costs and charges of any transfer agent; (xii) the reasonable costs of
advertising the offering; (xiii) all taxes, if any, on the issuance, delivery
and transfer of the Shares sold by Artesian Resources; and (xiv) all other costs
and expenses reasonably incident to the performance of Artesian Resources'
obligations hereunder that are not otherwise specifically provided for in this
Section 6(a); provided, however, that, except as specifically set forth in
Section 6(c) hereof, the Underwriters shall be responsible for their
out-of-pocket expenses, including those associated with meetings with the
brokerage community and institutional investors, other than Artesian Resources'
travel expenses, and the fees and expenses of their counsel for other than with
respect to Blue Sky and NASD matters.

     (b) Artesian Resources shall pay as due any state or foreign registration,
qualification and filing fees and any accountable out-of-pocket disbursements in
connection with such registration, qualification or filing in the states and
foreign jurisdictions in which the Representatives determine to offer or sell
the Shares.

     (c) On the Closing Date, Artesian Resources shall pay the Representatives a
non-accountable expense allowance in the amount of $65,000 in accordance with
the terms of the Letter Agreement.

     (d) If (i) the Underwriters are willing to proceed with the offering, and
the transactions contemplated by this Agreement are not consummated because
Artesian Resources elects not to proceed with the offering for any reason or
(ii) the Representatives terminate this Agreement pursuant to Section 11(b)
hereof, then Artesian Resources will reimburse the Representatives for their
accountable out-of-pocket expenses relating to the offering (including, but
not limited to, the fees and disbursements to its counsel) not to exceed
$150,000.

     7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing


                                       19


Date, and to purchase and pay for any Optional Shares as to which it exercises
its right to purchase under Section 4 on an Option Closing Date, is subject at
the date hereof, the Closing Date and any Option Closing Date to the continuing
accuracy and fulfillment of the representations and warranties of Artesian
Resources, to the performance by Artesian Resources of its covenants and
obligations hereunder, and to the following additional conditions:

     (a) If required by the Regulations, the Prospectus shall have been filed
with the SEC pursuant to Rule 424(b) of the Regulations within the applicable
time period prescribed for such filing by the Regulations. On or prior to the
Closing Date or any Option Closing Date, as the case may be, no stop order or
other order preventing or suspending the effectiveness of the Registration
Statement (including any document incorporated by reference therein) or the sale
of any of the Shares shall have been issued under the Act or any state or
foreign securities law, and no proceedings for that purpose shall have been
initiated or shall be pending or, to the Representatives' knowledge or the
knowledge of Artesian Resources, shall be contemplated by the SEC or by any
authority in any jurisdiction designated by the Representatives pursuant to
Section 5(f) hereof. Any request on the part of the SEC or any state or foreign
securities authority for additional information shall have been complied with to
the reasonable satisfaction of counsel for the Underwriters.

     (b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Shares and the form of
the Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
satisfactory in all material respects to counsel for the Underwriters. Artesian
Resources shall have furnished to such counsel all documents and information
that they may have reasonably requested to enable them to pass upon such
matters. The Representatives shall have received from the Underwriters' counsel,
Ballard Spahr Andrews & Ingersoll, LLP an opinion, dated as of the Closing Date
and any Option Closing Date, as the case may be, and addressed to the
Representatives individually and as representatives of the several Underwriters,
which opinion shall be satisfactory in all respects to the Representatives.

     (c) The Representatives shall have received a copy of an executed Lock-up
Agreement from Artesian Resources and each of the persons listed on SCHEDULE II
hereto.

     (d) On the Closing Date and any Option Closing Date, there shall have been
delivered to the Representatives signed opinions of Morgan, Lewis & Bockius LLP
and Morris Nichols Arsht & Tunnell, counsels for Artesian Resources, dated as of
each such date and addressed to the Representatives individually and as
representatives of the several Underwriters to the effect as is reasonably
satisfactory to the Representatives.

     (e) At the Closing Date and any Option Closing Date: (i) the Registration
Statement and any post-effective amendment thereto and the Prospectus and any
amendments or supplements thereto shall contain all statements that are required
to be stated therein in accordance with the Act and the Regulations and in all
material respects shall conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor any post-effective
amendment thereto nor the Prospectus and any amendments or supplements thereto
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii)


                                       20


since the respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus and any
amendments or supplements thereto, except as otherwise stated therein, there
shall have been no material adverse change in the Business Conditions of
Artesian Resources from that set forth therein, whether or not arising in the
ordinary course of business; (iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus or any
amendment or supplement thereto, there shall have been no event or transaction,
contract or agreement entered into by Artesian Resources or any of the
Subsidiaries other than in the ordinary course of business and as set forth in
the Registration Statement or Prospectus, that has not been, but would be
required to be, set forth in the Registration Statement or Prospectus; (iv)
since the respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus and any
amendments or supplements thereto, there shall have been no material adverse
change, loss, reduction, termination or non-renewal of any contract to which
Artesian Resources or any of the Subsidiaries is a party, that has not been, but
would be required to be set forth in the Registration Statement or Prospectus;
and (v) no action, suit or proceeding at law or in equity shall be pending or
threatened against Artesian Resources or any of the Subsidiaries that would be
required to be set forth in the Prospectus, other than as set forth therein, and
no proceedings shall be pending or threatened against or directly affecting
Artesian Resources or any of the Subsidiaries before or by any federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially adversely affect the Business
Conditions of Artesian Resources.

     (f) The Representatives shall have received at the Closing Date and any
Option Closing Date certificates of the Chief Executive Officer and the Chief
Financial Officer of Artesian Resources dated as of the date of the Closing Date
or Option Closing Date, as the case may be, and addressed to the
Representatives, individually and as representatives of the several
Underwriters, to the effect that (i) the representations and warranties of
Artesian Resources in this Agreement are true and correct, as if made at and as
of the Closing Date or the Option Closing Date, as the case may be, and that
Artesian Resources has complied with all the agreements, fulfilled all the
covenants and satisfied all the conditions on its part to be performed,
fulfilled or satisfied at or prior to the Closing Date or the Option Closing
Date, as the case may be, and (ii) the signers of the certificate have carefully
examined the Registration Statement and the Prospectus and any amendments or
supplements thereto, and the conditions set forth in Section 7 hereof have been
satisfied.

     (g) At the time this Agreement is executed and at the Closing Date and any
Option Closing Date the Representatives shall have received a letter, dated the
date of delivery thereof, addressed to the Representatives, individually and as
representatives of the several Underwriters, in form and substance satisfactory
to the Representatives in all respects (including, without limitation, the
non-material nature of the changes or decreases, if any, referred to in clause
(iii) below) from KPMG LLP:

          (i) confirming they are independent certified public accountants
     within the meaning of the Act and the Regulations, and stating that the
     section of the Registration Statement under the caption "Experts" is
     correct insofar as it relates to them;


                                       21


          (ii) stating that, in their opinion, the consolidated financial
     statements, schedules and notes of Artesian Resources audited by them and
     included in the Registration Statement comply as to form in all material
     respects with the applicable accounting requirements of the Act and the
     Regulations;

          (iii) stating that, on the basis of specified procedures, which
     included a reading of the latest available unaudited interim consolidated
     financial statements of Artesian Resources (with an indication of the date
     of the latest available unaudited interim financial statements), a reading
     of the minutes of the meetings of the stockholders and the Boards of
     Directors of Artesian Resources and the Subsidiaries and the Audit and
     Personnel, Compensation and Benefits Committees of such Boards and
     inquiries to certain officers and other employees of Artesian Resources and
     the Subsidiaries responsible for operational, financial and accounting
     matters and other specified procedures and inquiries, nothing has come to
     their attention that would cause them to believe that at a specified date
     not more than five business days prior to the date of such letter, there
     was any change in the capital stock (other than (1) the issuance of Class A
     Common Stock upon the exercise of currently outstanding options and
     warrants as described in the Prospectus, (2) the grant of options to
     purchase Class A Common Stock under Artesian Resources' currently
     outstanding stock options plans and the issuance of Class A Common Stock
     upon the exercise thereof and (3) the issuance of Class A Common Stock
     under Artesian Resources' Dividend Reinvestment Plan and 401(k) Plan),
     increase in long-term debt of Artesian Resources or any decrease in
     consolidated net current assets or stockholders equity of Artesian
     Resources as compared with the amounts shown in the March 31, 2002 balance
     sheets of Artesian Resources included in the Registration Statement or that
     for the periods from March 31, 2002 to the date of the latest available
     unaudited financial statements of Artesian Resources, if any, and to a
     specified date not more than five days prior to the date of the letter,
     there were any decreases, as compared to the corresponding periods in the
     prior year, in operating income or total or per share amounts of net
     income, except in all instances for changes, decreases or increases that
     the Registration Statement discloses have occurred or may occur and except
     for such other changes, decreases or increases which the Underwriters shall
     in their sole discretion accept.

          (iv) stating that they have compared specific dollar amounts (or
     percentages derived from such dollar amounts), numbers of shares and other
     numerical data and financial information set forth in the Registration
     Statement that have been reasonably specified by the Representatives prior
     to the date of this Agreement (in each case to the extent that such dollar
     amounts, percentages and other information is derived from the general
     accounting records subject to the internal controls of Artesian Resources'
     or the Subsidiaries' accounting systems, or has been derived directly from
     such accounting records by analysis or comparison or has been derived from
     other records and analyses maintained or prepared by Artesian Resources or
     the Subsidiaries) with the results obtained from the application of
     readings, inquiries and other appropriate procedures set forth in the
     letter, and found them to be in agreement.

     All financial statements and schedules included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statement for purposes of this subsection.


                                       22


     (h) All corporate and other proceedings and other matters incident to the
authorization, form and validity of this Agreement and the form of the
Registration Statement and Prospectus and all other legal matters related to
this Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all respects to counsel to the Underwriters. Artesian Resources
shall have furnished to such counsel all documents and information that they
shall have reasonably requested to enable them to pass upon such matters.

     (i) The Shares shall have been included for quotation on the Nasdaq
National Market.

     (j) At the Closing Date and any Option Closing Date, the Representatives
shall have been furnished such additional documents, information and
certificates as they shall have reasonably requested.

     All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Representatives and the Underwriters' counsel.
Artesian Resources shall furnish the Representatives with such conformed copies
of such opinions, certificates, letters and other documents as they shall
reasonably request. If any condition to the Underwriters' obligations hereunder
to be fulfilled prior to or at the Closing Date or any Option Closing Date, as
the case may be, is not fulfilled, the Representatives may on behalf of the
several Underwriters, terminate this Agreement with respect to the Closing Date
or such Option Closing Date, as applicable, or, if they so elect, waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment. Any such termination shall be without liability of the Underwriters
to Artesian Resources.

     8. INDEMNIFICATION AND CONTRIBUTION.

     (a) Artesian Resources shall indemnify and hold harmless each Underwriter,
and each person, if any, who controls each Underwriter within the meaning of the
Act, against any and all loss, liability, claim, damage and expense whatsoever,
including, but not limited to, any and all reasonable expenses incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever or in connection with any investigation or
inquiry of, or action or proceeding that may be brought against, the respective
indemnified parties, arising out of or based upon any breach of Artesian
Resources' representations and warranties made in this Agreement or any untrue
statements or alleged untrue statements of material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, any
application or other document filed in any jurisdiction in order to qualify all
or any part of the Shares under the securities laws thereof or filed with the
SEC or the Nasdaq National Market (in this Section 8 collectively called
"application"), or the omission or alleged omission from any of the foregoing of
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the foregoing
indemnity shall not apply in respect of any statement or omission made in
reliance upon and in conformity with written information furnished to Artesian
Resources by any Underwriter through the Representatives expressly for use in
any Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment or supplement thereto, or in any application or in any communication
to the SEC, as the case may be; and further provided, however, that the


                                       23


indemnification contained in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
liability or expense arising from the sale of the Shares by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus, provided that Artesian Resources has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The obligations of Artesian Resources under
this Section 8(a) will be in addition to any liability Artesian Resources may
otherwise have.

     (b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless Artesian Resources, each of the directors of Artesian Resources, each
of the officers of Artesian Resources who shall have signed the Registration
Statement, and each other person, if any, who controls Artesian Resources within
the meaning of the Act to the same extent as the foregoing indemnities from
Artesian Resources to the several Underwriters, but only with respect to any and
all loss, liability, claim, damage or expense resulting from statements or
omissions, or alleged statements or omissions, if any, made in any Preliminary
Prospectus, Registration Statement or Prospectus or any amendment or supplement
thereof or any application or in any communication to the SEC in reliance upon,
and in conformity with written information furnished to Artesian Resources by
any Underwriter through the Representatives expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment or
supplement thereof or any application or in any communication to the SEC, as the
case may be. The obligations of each Underwriter under this Section 8(b) will be
in addition to any liability which such Underwriter may otherwise have.

     (c) If any action, inquiry, investigation or proceeding is brought against
any person in respect of which indemnification may be sought pursuant to Section
8(a) or (b) or Section 9 hereof, such person (hereinafter called the
"indemnified party") shall, promptly after notification of, or receipt of
service of process for, such action, inquiry, investigation or proceeding,
notify in writing the party or parties against whom indemnification is to be
sought (hereinafter called the "indemnifying party") of the institution of such
action, inquiry, investigation or proceeding. The indemnifying party, upon the
request of the indemnified party, shall assume the defense of such action,
inquiry, investigation or proceeding, including, without limitation, the
employment of counsel (reasonably satisfactory to such indemnified party) and
payment of expenses. No indemnification provided for in Section 8 or Section 9
shall be available to any indemnified party who shall fail to give such notice
if the indemnifying party does not have knowledge of such action, inquiry,
investigation or proceeding to the extent that such indemnifying party has been
materially prejudiced by the failure to give such notice, but the omission to so
notify the indemnifying party shall not relieve the indemnifying party otherwise
than under Section 8 or Section 9. Such indemnified party shall have the right
to employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action or if the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party or if such indemnified party or parties shall have been
advised by counsel that


                                       24


there may be a conflict between the positions of the indemnifying party or
parties and of the indemnified party or parties or that there may be legal
defenses available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or parties, in any of
which events the indemnified party or parties shall be entitled to select
counsel to conduct the defense to the extent determined by such counsel to be
necessary to protect the interests of the indemnified party or parties, and the
reasonable fees and expenses of such counsel shall be borne by the indemnifying
party. The indemnifying party shall be responsible for the fees and
disbursements of only one such counsel so engaged by the indemnified party or
parties. Expenses covered by the indemnification in Section 8 and Section 9, as
the case may be, shall be paid by the indemnifying party as they are incurred by
the indemnified party. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action. Notwithstanding anything in Section 8 or Section 9 to the
contrary, an indemnifying party shall not be liable for any settlement of a
claim effected without its written consent, which consent shall not be
unreasonably withheld.

     (d) If the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under Section 8(a) or (b)
hereof in respect of any losses, liabilities, claims, damages or expenses (or
actions, inquiries, investigations or proceedings in respect thereof) referred
to therein, except by reason of the failure to give notice as required in
Section 8(c) hereof (provided that the indemnifying party does not have
knowledge of the action, inquiry, investigation or proceeding and to the extent
such party has been materially prejudiced by the failure to give such notice),
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, liabilities, claims, damages
or expenses (or actions, inquiries, investigations or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by Artesian Resources on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of Artesian Resources on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, liabilities, claims or expenses (or
actions, inquiries, investigations or proceedings in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by Artesian Resources on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by Artesian Resources bears to the total
underwriting discount and commissions received by the Underwriters, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by Artesian
Resources on the one hand or the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.


                                       25


     Artesian Resources and the Underwriters agree that it would not be just and
equitable if contributions to this Section 8(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, liabilities,
claims, damages or expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), (i) the
provisions of the Agreement Among Underwriters shall govern contribution among
Underwriters, (ii) no Underwriter (except as provided in the Agreement Among
Underwriters) shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, and (iii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their individual underwriting
obligations and not joint.

     9. QUALIFIED INDEPENDENT UNDERWRITER. Artesian Resources hereby confirms
that at its request Janney Montgomery Scott LLC ("JMS") has without compensation
acted as "qualified independent underwriter" (in such capacity, the "QIU")
within the meaning of Rule 2720 of the Conduct Rules of the National Association
of Securities Dealers, Inc. in connection with the offering of the Shares.
Artesian Resources, in accordance with Section 8 hereof, will indemnify and hold
harmless the QIU against any losses, claims, damages or liabilities, joint or
several, to which the QIU may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the QIU's acting (or alleged failing to
act) as such "qualified independent underwriter" and will reimburse the QIU for
any legal or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred.

     10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date. All such
representations, warranties and agreements of the Underwriters and Artesian
Resources, including, without limitation, the indemnity and contribution
agreements contained in Section 8 and Section 9 hereof and the agreements
contained in Sections 6, 10 and 11 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person, and shall survive delivery of the Shares
and termination of this Agreement, whether before or after the Closing Date or
any Option Closing Date.

     11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF.

     (a) This Agreement shall become effective at 10:00 a.m., Philadelphia,
Pennsylvania time, on the first business day following the Effective Date or at
the time of the public offering by the Underwriters of the Shares, whichever is
earlier, except that the provisions


                                       26


of Sections 6, 8, 9, 10 and 11 hereof shall be effective upon execution hereof.
The time of the public offering, for the purpose of this Section 11, shall mean
the time when any of the Shares are first released by the Underwriters for
offering by dealers. The Representatives and Artesian Resources may prevent the
provisions of this Agreement (other than those contained in Sections 6, 8, 9, 10
and 11) hereof from becoming effective without liability of any party to any
other party, except as noted below, by giving the notice indicated in Section
11(c) hereof before the time the other provisions of this Agreement become
effective.

     (b) The Representatives shall have the right to terminate this Agreement at
any time prior to the Closing Date or any Option Closing Date as provided in
Sections 7 and 12 hereof or if any of the following have occurred: (i) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any material adverse change or any development involving a
prospective material adverse change in or affecting the Business Conditions of
Artesian Resources or any of the Subsidiaries, whether or not arising in the
ordinary course of business, that would, in the Representatives' opinion, make
the offering or delivery of the Shares impracticable; (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic, political or financial market conditions if the effect on the
financial markets of the United States of such outbreak, calamity, crisis or
change would, in the Representatives' reasonable opinion, make the offering or
delivery of the Shares impracticable; (iii) any suspension or limitation of
trading generally in securities on the Nasdaq National Market or any setting of
minimum prices for trading or the promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority that in
the Representatives' reasonable opinion materially and adversely affects trading
on such exchange or the over-the-counter market; (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
the Representatives' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of Artesian Resources;
(v) declaration of a banking moratorium by the United States, New York or
Pennsylvania authorities; (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs that in
the Representatives' reasonable opinion has a material adverse effect on the
securities markets in the United States; or (vii) trading in any securities of
Artesian Resources shall have been suspended or halted by the Nasdaq National
Market or the SEC.

     (c) If the Representatives elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11, the
Representatives shall notify Artesian Resources hereof promptly by telephone,
telex, telegraph, telegram or facsimile, confirmed by letter.

     12. DEFAULT BY AN UNDERWRITER.

     (a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Optional Shares hereunder, and if the Firm
Shares or Optional Shares with respect to which such default relates do not
exceed in the aggregate 10% of the number of Firm Shares or Optional Shares, as
the case may be, that all Underwriters have agreed to purchase on the relevant
Closing Date or Option Closing Date, then the Representatives may make
arrangements satisfactory to Artesian Resources for the purchase of such Firm
Shares by


                                       27


other persons, including any of the Underwriters, but if no such arrangements
are made by the relevant Closing Date or Option Closing Date, such Firm Shares
or Optional Shares to which the default relates shall be purchased severally by
the non-defaulting Underwriters in proportion to their respective commitments
hereunder.

     (b) If such default relates to more than 10% of the Firm Shares or Optional
Shares, as the case may be, the Representatives may in their discretion arrange
for another party or parties (including a non-defaulting Underwriter) to
purchase such Firm Shares or Optional Shares to which such default relates, on
the terms contained herein. In the event that the Representatives do not arrange
for the purchase of the Firm Shares or Optional Shares to which a default
relates as provided in this Section 12, this Agreement may be terminated by the
Representatives or by Artesian Resources without liability on the part of the
non-defaulting several Underwriters (except as provided in Section 8 hereof) or
Artesian Resources (except as provided in Sections 6 and 8 hereof); provided
that if such default occurs with respect to Optional Shares after the Closing
Date, this Agreement will not terminate as to the Firm Shares or any Optional
Shares purchased prior to such termination. Nothing herein shall relieve a
defaulting Underwriter of its liability, if any, to the other several
Underwriters and to Artesian Resources for damages occasioned by its default
hereunder.

     (c) If the Firm Shares or Optional Shares to which the default relates are
to be purchased by the non-defaulting Underwriters, or are to be purchased by
another party or parties, the Representatives or Artesian Resources shall have
the right to postpone the Closing Date or any Option Closing Date, as the case
may be, for a reasonable period but not in any event exceeding seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements, and Artesian Resources agrees to file promptly any amendment to
the Registration Statement or supplement to the Prospectus that in the opinion
of counsel for the Underwriters may thereby be made necessary. The terms
"Underwriters" and "Underwriter" as used in this Agreement shall include any
party substituted under this Section 12 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Shares and/or Optional
Shares.

     13. INFORMATION FURNISHED BY UNDERWRITERS. The statement set forth on the
last paragraph at the bottom of the cover page of the Prospectus regarding the
terms of the Offering by the Underwriters, the identity of the Underwriters set
forth in the first paragraph under the heading "Underwriting," the concession
and reallowance figures appearing in the third paragraph under the heading
"Underwriting," the representations with respect to stabilization activities in
the eighth paragraph under the heading "Underwriting," the ninth, tenth and
eleventh paragraphs under the heading "Underwriting" regarding stabilization,
passive market making, syndicate covering transactions, penalty bids and
discretionary authority and the representation that JMS will act as a QIU in
connection with this Offering in the sixteenth paragraph under the heading
"Underwriting" constitute the only written information furnished by reference or
on behalf of any Underwriter referred to in Sections 1(b) and 8 hereof.

     14. NOTICE. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Janney Montgomery Scott LLC, 1801 Market
Street, Philadelphia, Pennsylvania 19103, Attention:


                                       28


Mr. William L. Rulon-Miller, facsimile number (215) 665-6197, with a copy to
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103, Attention: Justin P. Klein, Esquire, facsimile number (215)
864-8999; and if sent to Artesian Resources, shall be mailed, delivered,
telexed, telegrammed, telegraphed or telecopied and confirmed to Artesian
Resources Corporation, 664 Churchmans Road, Newark, Delaware 19702, Attention:
Dian C. Taylor, facsimile number (302) 453-6980, with a copy to Morgan, Lewis &
Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, Attention: Joanne R.
Soslow, Esquire, facsimile number (215) 963-5299.

     15. PARTIES. This Agreement shall inure solely to the benefit of, and shall
be binding upon, the several Underwriters, Artesian Resources and the
controlling persons, directors and officers thereof, and their respective
successors, assigns, heirs and legal representatives, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provision herein
contained. The terms "successors" and "assigns" shall not include any purchaser
of the Shares merely because of such purchase.

     16. DEFINITION OF BUSINESS DAY. For purposes of this Agreement, "business
day" means any day on which the Nasdaq National Market is opened for trading.

     17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.

     18. CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth.

     19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto concerning the subject hereof and supercedes all
prior or contemporaneous oral or written communications with respect hereto,
except for such agreements between the Company and JMS pursuant to the Letter
Agreement; and provided, however, that to the extent that any terms or
provisions of this Agreement may be inconsistent with those contained in the
Letter Agreement, then the terms and provisions of this Agreement shall
control.

                                       29



     If the foregoing correctly sets forth your understanding of our agreement,
please sign and return to Artesian Resources the enclosed duplicate hereof,
whereupon it will become a binding agreement in accordance with its terms.

                                      Very truly yours,

                                      ARTESIAN RESOURCES CORPORATION



                                      By:
                                         ---------------------------------------
                                         David B. Spacht
                                         Vice President, Chief Financial Officer
                                         and Treasurer


The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.

                                                          
JANNEY MONTGOMERY SCOTT LLC                                  J.J.B. HILLIARD, W.L. LYONS, INC.


By:                                                          By:
   --------------------------------------------------            -------------------------------------
     Name:                                                        Name:
     Title:                                                       Title:
     On behalf of each of the Underwriters  named in              On behalf of each of the Underwriters  named in
     Schedule I hereto                                            Schedule I hereto




                                       30


                                   SCHEDULE I

                            Schedule of Underwriters

                                                         NUMBER OF FIRM SHARES
UNDERWRITER                                                 TO BE PURCHASED
- -----------                                              -------------------

Janney Montgomery Scott LLC.........................
                                                            -----------
J.J.B. Hilliard, W.L. Lyons, Inc....................
                                                            -----------
Total...............................................
                                                            ===========






                                   SCHEDULE II

                  Persons Who Are to Deliver Lock-Up Agreements


     Lock-Up Agreements are to be delivered by the following persons and
entities immediately prior to the time the SEC declares the Registration
Statement effective:

Artesian Resources Corporation
Kenneth R. Biederman
Joseph A. DiNunzio
John R. Eisenbrey, Jr.
Bruce P. Kraeuter
John J. Schreppler, II
David B. Spacht
Dian C. Taylor
Hilda Taylor
Norman H. Taylor, Jr.
Louisa Taylor Welcher
John M. Thaeder
William C. Wyer

EX-5

                                                                       EXHIBIT 5

                   [Letterhead of Morgan, Lewis & Bockius LLP]

May 28, 2002

Artesian Resources Corporation
664 Churchmans Road
Newark, DE 19702

Re:   Artesian Resources Corporation Registration Statement on Form S-2 relating
      to shares of Class a Non-Voting Common Stock, $1.00 par value per share
      (File No. 333-87864)
      --------------------------------------------------------------------------

Ladies and Gentlemen:

We have acted as counsel to Artesian Resources Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the
above-referenced registration statement, as amended (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), relating
to the offering and sale by the Company of 575,000 shares (the "Shares") of
Class A Non-Voting Common Stock, $1.00 par value per share, of the Company (the
"Class A Non-Voting Common Stock"), which includes 75,000 shares purchasable by
the underwriters, solely for the purpose of covering over-allotments, if any.

In connection with this opinion, we have examined the Registration Statement,
the Company's Restated Certificate of Incorporation, as amended, the Company's
By-laws, certain of the Company's corporate proceedings as reflected in its
minute books and such other certificates and documents as we have considered
necessary for the purposes of this opinion. In our examination, we have assumed
the genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified,
photostatic or facsimile copies, and the authenticity of the originals of such
copies. As to facts material to our opinion, we have relied upon certificates of
public officials and certificates, documents, statements and other information
provided by officers or other representatives of the Company.

Based upon the foregoing, we are of the opinion that, when issued by the Company
and paid for by the underwriters in the manner contemplated in the Registration
Statement, the Shares will be legally issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to all references to our firm under the heading "Legal Matters" in
the Registration Statement. In giving such consent, we do not thereby admit that
we are acting within the




category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Commission thereunder.

Very truly yours,

/s/ Morgan, Lewis & Bockius LLP

EX-23.1

                                                                    Exhibit 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Artesian Resources Corporation:

We consent to the use of our reports included herein and incorporated by
reference herein and to the reference to our firm under the heading "Experts"
in this registration statement on Form S-2.

                                         /s/ KPMG LLP

Philadelphia, Pennsylvania
May 28, 2002