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City officials announced Friday their intention to purchase Pennichuck Water Works.
Friday, January 27, 2012

Outgoing Pennichuck executives get golden parachutes worth $2.2 million paid by city

NASHUA – A pair of Pennichuck Corp. executives will cash out a combined $1.16 million in publicly funded severance compensation now that the city of Nashua has wrapped up its purchase of the company and its three water utilities.

The lion’s share goes to Duane Montopoli, president and CEO of the privately held Pennichuck Corp., who will depart with $816,000 in severance pay. Steve Densberger, executive vice president of Pennichuck Water Service Corporation, departs the company with $347,000 in severance pay.

Included in the city’s $200 million bill for Pennichuck Corp. is $2.2 million worth of severance packages for executives, including those for Montpoli and Densberger. Three other executives will receive severance pay but will stay with the company for six months to help the city handle the infancy of utility ownership, said John Patenaude, the new CEO of Pennichuck.

These three executives collectively will receive $1.06 million in severance pay. They are:

Bonalyn Hartley, Pennichuck’s vice president of administration and regulatory affairs, will get about $327,000 in severance pay when she eventually departs from the company, Patenaude said.

Thomas Leonard, Pennichuck’s chief financial officer, a senior vice president and treasurer, will receive $391,000 in severance pay when he leaves the company.

Roland Olivier, Pennichuck’s general counsel, corporate secretary and president of its real estate subsidiary, Southwood Corporation, will get $338,000 in severance pay.

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 them with money borrowed through $152 million in bonds.

The severance deals have elicited criticism from many aldermen and Mayor Donnalee Lozeau, but they have said the $2.2 million wasn’t enough to deter the city from controlling its water supply.

“It’s part and parcel when you buy a for-profit, publicly traded company that there is compensation for executives,” Alderman-at-Large Brian McCarthy said.

McCarthy added later, “Compensation is a fact of life. Do I want to pay it? No. Do I think it’s out of the ordinary for corporate transactions? No.”

The city will pay for the bonds largely through water rates, city officials say.

The $152 million bond package also will finance $4.7 million in Pennichuck shares – the true key to owning the company – at a cost of $137.8 million, or $29 a share; $5.3 million in legal and other fees; $5 million for a water rate stabilization fund; and $1.8 million in bond issuance costs.

The overall cost of buying Pennichuck is about $200 million, with the city also assuming $60 million of the company’s debt. Aldermen approved the borrowing of up to $220 million.

In November 2010, when the city and Pennichuck came to terms on an acquisition, Security Exchange Commission documents showed that the severance packages for Montopoli, Leonard and Olivier were three times more costly than they would have been had the three executives quit or left the company under circumstances other than Nashua buying the company.

For instance, Montopoli’s $816,000 severance otherwise would have been about $300,000. When the merger agreement 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.

Leonard will get $391,000, compared to a traditional severance of $89,298. Oliver will make $338,000, up from $78,498.

The Telegraph couldn’t immediately obtain SEC filings that compare contrasting severance amounts for Densberger and Hartley.

For fiscal year 2011, Densberger’s total compensation was $270,091, according to fiscal records. Hartley’s most recent annual compensation was not publicly available, but a Forbes profile of her listed her 2008 compensation at $201,312.

Contrary to assumption, the city wasn’t going to immediately terminate the five executives, Patenaude said.

Montopoli and Densberger helped in the days leading to the city’s acquisition of Pennichuck on Wednesday and will depart Friday, he said.

Hartley, Leonard and Olivier will continue to assist in the transition for about six months, but there are no firm dates on when they will leave, he said.

President of Regulated Utilities Don Ware will stay with Pennichuck under city ownership, Patenaude said.

“We have to be smart about it,” said Patenaude, who is serving as CEO on an interim basis. New leadership will work with the three executives and study how the company ultimately will replace their jobs, he said.

Before serving as a financial consultant to the city as it negotiated the stock purchase of Pennichuck, Patenaude was CFO of Nashua Corp.

When Nashua Corp. “let people go, we covered their institutional knowledge,” Patenaude said. The knowledge of the outgoing Pennichuck executives will similarly be “covered,” as they share their insights on running the company, he said.

“It’s not like these people will be sitting on their hands,” Patenaude said.

A bonus of buying Pennichuck Corp. as a whole, rather than fighting only for Pennichuck Water Works through eminent domain, is that the city can keep most of the company’s staff in place, Lozeau said Wednesday at a ceremony marking the city’s purchase. That uninterrupted flow of service will benefit customers, she said.

Patenaude and Lozeau will meet with the more than 100 employees at Pennichuck’s three water utilities this week to emphasize their importance and make sure they’re comfortable with the transition, he said.

“Local jobs were preserved. We don’t have to find new workers,” Patenaude said. “They’re very good. Nobody ever complained about the service Pennichuck was giving … You always heard the service was great. We don’t have to tinker with that.”

Albert McKeon can be reached at 594-6528 or amckeon@nashuatelegraph.com. Also check out McKeon (@Telegraph_AMcK) on Twitter.