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Wednesday, November 17, 2010

Pennichuck executives to get boost in severance packages

Pennichuck Corp. executives will receive three times the amount of severance pay following a sale to the city than if they were fired or quit under other circumstances.

Total severance for the three executives who will lose their jobs when the city takes over is $1.46 million, compared to $467,000 if they had voluntarily resigned or had been fired by Pennichuck, according to documents filed with the U.S. Securities and Exchange Commission.

The city of Nashua reached a historic deal last week to take ownership of Pennichuck, the private company that owns the local water supply. The $200 million deal ended an eminent domain fight that spanned eight years.

When the takeover is final, which could take up to a year, the current CEO, chief financial officer and general counsel will leave the company, Mayor Donnalee Lozeau said.

The severance agreements were approved by the company’s board of directors between 2006 and 2009 to give executives significantly higher severance packages following any sort of “change of control” of the company. They are binding, so the city of Nashua has to pay.

“That’s included in the closing costs,” Lozeau said. “Much like we’re taking on their debt, we’re taking on this.”

Pennichuck Chief Executive Officer Duane Montopoli will receive $810,050 following the sale. His severance otherwise would have been about $300,000. When the sale was announced, Montopoli also received the option to buy another 30,000 shares in the company, in addition to his existing 40,000-share stock option.

Montopoli’s “change of control” severance agreement was negotiated when he was hired in 2006, raising questions about whether the company hired him to sell Pennichuck, rather than operate the water utility.

CFO Thomas Leonard will get $345,273, compared to a traditional severance of $89,298. General counsel and corporate secretary Roland Oliver, who also heads up Pennichuck real estate subsidiary Southwood Corp., will make $306,447, up from $78,498.

The company has similar agreements with other executives, but the city has no immediate plans to eliminate those positions when the deal is complete.

Nashua is poised to pay $29 a share, or $138 million, for Pennichuck Corp., the company that owns Nashua water utility Pennichuck Water Works, two smaller New Hampshire water companies, a water services management company, and a real estate firm.

The city will also take on about $60 million in Pennichuck debt.

The deal needs two-thirds approval from Pennichuck shareholders, three votes of approval from the Board of Aldermen, and approval by the state Public Utilities Commission.

Montopoli said the change of control clause wasn’t designed expressly for the city.

Such provisions are “very common” in executive contracts, he said, the idea being that you don’t want to discourage executives from moving forward with a sale if it’s in the best interest of shareholders.

Alderman at Large Barbara Pressly, a longtime supporter of the city’s attempts to take control of Pennichuck, said she doesn’t like the idea of paying such high severance.

“It says a great deal about their board of directors and their leadership and who they take care of,” she said.

However, the cost was not high enough to change her mind about the deal.

“In order to buy the company, we have to accept whatever they have arranged,” she said. “That certainly wasn’t offensive enough to have me back away from purchasing.”

The city and Pennichuck have battled for control of the water supply since 2002, when Nashua officials initiated eminent domain proceedings after learning Pennichuck planned to sell to an out-of-state company. That sale fell through, but the city moved forward.

The city was also concerned that Pennichuck was selling off land surrounding the watershed for development, and officials said they wanted to own that land to protect the local water supply.

In 2008, the Public Utilities Commission ruled that Nashua could take the utility by eminent domain for $203 million, plus a $40 million mitigation fee for damages to Pennichuck’s sister companies, but the city said that price was too high.

Both sides appealed to the state Supreme Court: Pennichuck wanted the decision reversed and Nashua wanted a lower price. In March, the court backed all of the PUC’s 2008 decisions, which sparked a third round of private settlement negotiations in as many years.

At least initially, the city will continue to run Pennichuck like a private businesses with a city-appointed board of directors as the governing body.

Montopoli will be replaced with a CEO who has yet to be named. Lozeau said that person’s salary has yet to be determined.

“We don’t really know for sure until we find the right person,” she said. “I’m confident that it’s significantly less than what is paid to the current CEO.”

Montopoli made $396,649 last year.

When Leonard, who made $200,768 last year, and Oliver, who made $182,526, leave the company, they will not be replaced.

Three other executives are not expected to lose their jobs. They are:

Executive Vice President Steve Densberger, who made $200,793 in 2009.

President of Regulated Utilities Don Ware, who made $215,121.

Vice President of Administration and Regulatory Affairs Bonnie Hartley, whose 2009 salary was not included in SEC documents filed earlier this year.

The city plans to pay board members a flat fee of $12,000 a year. Current board members made anywhere from $11,000 to $24,000 last year. Each earns a base pay of $10,000 a year, but can make extra by attending meetings and chairing committees.

Ashley Smith can be reached at 594-6446 or asmith@nashuatelegraph.com.