Registration No. 333-65527
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PENNICHUCK CORPORATION
(Exact name of registrant as specified in its charter)
New Hampshire 02-0177370
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
4 Water Street
Nashua, New Hampshire 03060
(603) 882-5191
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Charles J. Staab, Vice President
Treasurer and Chief Financial Officer
Pennichuck Corporation
Four Water Street
Nashua, New Hampshire 03060
(603) 882-5191
<PAGE> 1
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Denis J. Maloney, Esquire John L. Gillis, Jr., Esquire
Gallagher, Callahan & Gartrell, P.A. Armstrong, Teasdale, Schlafly & Davis
214 North Main Street, P.O. Box 1415 One Metropolitan Square, Suite 2600
Concord, New Hampshire 03302-1415 St. Louis, Missouri 63102-2740
(603) 228-1181 (314) 621-5070
Approximate date of commencement of proposed sale to the public: As
soon as practicable on or 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. [ ]
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. [ ]
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. [ ] __________
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. [ ] __________
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. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
Title of each Proposed Proposed
class of maximum maximum
securities offering aggregate Amount of
to be Amount to be price per offering registration
registered registered(1) share(2) price(2) fee(3)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$1.00 par value 483,000 $23.50 $11,350,500 $3,348.00
- -----------------------------------------------------------------------------
<PAGE> 2
<FN>
<F1> This registration statement covers the maximum number of shares of
registrant's common stock that may be issued in the offering described
herein, inclusive of the 63,000 shares that may be sold subject to the
exercise of the Underwriters' over-allotment option.
<F2> Estimated solely for the purpose of calculating the registration fee
and computed in accordance with Rule 457(c) of the Securities and
Exchange Commission under the Securities Act of 1933, based on the
last sales price of the common stock of the registrant on October 7,
1998 on the OTC Bulletin Board of $23.50 per share and the maximum
number of shares registered hereby.
<F3> Previously Paid.
</FN>
</TABLE>
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 or until the registration
statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Public Offering
Prospectus
[LOGO]
PENNICHUCK CORPORATION
420,000 Shares of Common Stock
$_____ per share
_____________
Pennichuck Corporation We operate regulated water utility
4 Water Street companies in central and southern
Nashua, New Hampshire 03060 New Hampshire, a non-regulated water
services company and a real estate
development company.
<PAGE> 3
The Offering We are a public company. Our common
stock is quoted on the Nasdaq National
Market System under the symbol
Per Share Total "PNNW." On November 2, 1998, the last
--------- ----- reported sale price was $22.00.
Public Price $ $
Underwriter
Discounts $ $
Proceeds to Company $ $
We have granted the Underwriters a
30 day option on the same terms
and conditions set forth above
to purchase up to 63,000
additional shares of common stock
to cover over-allotments, if any.
____________________
An investment in the common stock involves certain risks. See "Risk
Factors" beginning on page ____.
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.
____________________
These shares are offered subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, subject to approval of counsel, the right
to reject any order in whole or in part and certain other conditions. It is
expected that the delivery of certificates representing the shares of
common stock will be made at the offices of Edward D. Jones & Co., L.P. in
St. Louis, Missouri, on or about November __, 1998.
Edward D. Jones & Co., L.P.
This Prospectus is dated November __, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary
Risk Factors
Use of Proceeds and Capital Expenditures
<PAGE> 4
Capitalization
Selected Financial Information
The Company
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Management of the Company
Security Ownership of Management
Description of Company Capital Stock
Market Prices and Dividend Information
Underwriting
Legal Matters
Experts
Indemnification
Where You Can Find More Information
Incorporation of Certain Documents by Reference
Index to Consolidated Financial Statements F-1
</TABLE>
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SEC RULES PERMIT THE
UNDERWRITERS TO ENGAGE IN TRANSACTIONS THAT STABILIZE THE PRICE OF OUR
COMMON STOCK. THESE TRANSACTIONS MAY INCLUDE PURCHASES FOR THE PURPOSE OF
FIXING OR MAINTAINING THE PRICE OF THE COMMON STOCK AT A LEVEL THAT IS
HIGHER THAN THE MARKET WOULD DICTATE IN THE ABSENCE OF SUCH TRANSACTIONS.
IN CONNECTION WITH THIS OFFERING THE UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 103 UNDER THE SECURITIES ACT OF 1933. SEE "UNDERWRITING".
[Map of Service Territory
served by our water operations]
SUMMARY
This summary highlights selected information from this document and
may not contain all the information that is important to you. We have
adjusted all information in this Prospectus to reflect the 3-for-2 stock
split of the common stock that occurred on September 1, 1998. Unless
otherwise indicated, we have assumed in presenting information about
outstanding shares of common stock, including per share information, that
the Underwriters' over-allotment option will not be exercised. To
<PAGE> 5
understand the offering fully and for a more complete description of the
legal terms of the offering, you should read carefully this entire document,
including the "Risk Factors" section, and the documents we have referred you
to. See "Where You Can Find More Information." (Page ___).
The Company
Our primary business is gathering and distributing water as regulated
public utilities in the central and southern portions of the state of New
Hampshire. We also provide non-regulated water-related services. We also
own, develop and manage real estate. Our regulated water utility
subsidiaries furnish water services to over 26,000 customers. When we refer
to the Company in this document, we generally mean Pennichuck Corporation
and its subsidiaries: Pennichuck Water Works, Inc. ("Pennichuck"),
Pennichuck East Utility, Inc. ("Pennichuck East"), Pittsfield Aqueduct
Company, Inc. ("Pittsfield"), Pennichuck Water Service Corporation ("Service
Corporation") and The Southwood Corporation ("Southwood"). Our principal
office is located at 4 Water Street, Nashua, New Hampshire 03060 and our
telephone number is (603) 882-5191.
Our Strategy
We plan to continue our strategy to increase our customer base through
expansion within our existing service areas and we will continue to consider
acquisitions of other water utility systems in new areas when opportunities
arise. We anticipate continuing our non-regulated activities in the areas
of operating and maintaining water systems and real estate development and
we plan to pursue new activities in these areas when and if attractive
opportunities present themselves. We are not currently involved in any
negotiations to acquire other utility systems.
Recent Developments
We increased our customer base by 20% in 1998 by acquiring Pennichuck
East and Pittsfield. Each of these companies is regulated by the New
Hampshire Public Utilities Commission ("NHPUC") as a public water utility.
The Service Corporation also began this year to provide operations and
maintenance contract services to the Town of Hudson, a large municipal water
system located in southern New Hampshire. Southwood has recently formed a
joint venture to develop a residential community in southern New Hampshire.
The Offering
<TABLE>
<S> <C>
Common stock offered 420,000 shares(1)
Common stock to be outstanding
after offering 1,641,523(2)
Nasdaq National Market System symbol PNNW
Latest 52-week range of sales
prices (through November 2, 1998) $12.00 to $26.625
Annualized dividend rate $.88 per share(3)
<PAGE> 6
Use of proceeds We will use the funds received in the
offering to retire short-term bank
borrowings and to pay-down our revolving
credit facility. We incurred this debt to
partially pay for our recent acquisition of
utility properties, and for utility plant
construction. Remaining proceeds will be
used for future capital expenditures,
working capital and general corporate
purposes.
Risk factors You should read the "Risk Factors" section,
beginning on page ____, as well as other
cautionary statements throughout this
Prospectus, to ensure you understand the
risks associated with an investment in our
common stock.
<FN>
___________________
<F1> Assumes the Underwriters' over-allotment option is not exercised.
<F2> Excludes shares issued after September 30, 1998 pursuant to the
Company's Dividend Reinvestment and Common Stock Purchase Plan (the
"Reinvestment Plan") and the Company's Employee Stock Option Plan (the
"Option Plan"). Pursuant to the Company's Reinvestment Plan, the
Company registered 200,000 shares of its common stock; as of September
30, 1998, there were 124,313 shares still available for issue. On
September 30, 1998, employees of the Company held options to purchase
a total of 46,688 shares of common stock under the Option Plan.
<F3> Based on the quarterly dividend of $.22 per share. See "Market Prices
and Dividend Information."
</FN>
</TABLE>
Summary Financial and Operating Information
(In thousands, except per share amounts) (1)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Twelve Months Ended
------------------ ---------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues:
Utility Revenues $11,136 $8,652 $11,415 $10,908 $11,003
Real Estate and Other 2,157 416 640 1,509 697
Operating Income $ 4,645 $2,964 $ 3,717 $ 3,708 $ 3,577
<PAGE> 7
Net Income $ 1,795 $1,037 $ 1,207 $ 1,289 $ 1,148
Per Share Data:
Basic Earnings Per Share $ 1.46 $ .87 $ 1.01 $ 1.09 $ 1.00
Dividends Per Share $ .57 $ .51 $ .68 $ .65 $ .57
Book Value Per Share $ 12.99 $12.08 $ 12.07 $ 11.78 $ 11.33
Operating Data:
Total Water Pumpage
(millions of gallons) 3,694 3,589 4,576 4,490 4,669
Total Customers 26,443 20,902 21,037 20,805 20,622
<FN>
___________________
<F1> Prior year amounts have been re-stated for the Pittsfield
merger which has been accounted for under the pooling-of-interests
method.
</FN>
</TABLE>
RISK FACTORS
You should carefully consider the following factors, any one of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Water Business
Our main sources of revenues and earnings are our water utility
operations. The water supply and distribution industry is subject to
regulations and uncertainties which affect the Company and our stock price
in varying degrees.
Rate Regulation. Pennichuck, Pennichuck East and Pittsfield
are regulated by the NHPUC with respect to the rates we charge our
customers for water and the amount of our capital and debt financing. The
profitability of our water operations is largely dependent on the timeliness
and adequacy of rate relief allowed by the NHPUC.
Regulatory Lag. The NHPUC generally provides our water utilities with
the opportunity to earn a rate of return on our capital invested in property
used to serve our customers. However, a delay, known as "regulatory lag"
normally occurs between the time capital is invested and the effective date
of increased water rates which reflect that investment.
Water Quality Concerns; Changes in Regulatory Standards. Water
utility companies are always subject to certain water quality risks related
to environmental contamination. Our water systems have water treatment and
alternate water source and storage facilities available as short-term
sources of supply in the event of contamination of one of our water sources.
While our treated water currently meets or exceeds all standards set by
federal and state authorities, it is possible that new or stricter standards
could be imposed that will raise our operating costs significantly.
Although these costs would likely be recovered in the form of higher rates,
<PAGE> 8
there can be no assurance that the NHPUC would approve a rate increase to
recover such costs.
Impact of Weather and Seasonal Demands. The demand for our water and
our revenues is impacted by weather and is seasonal in nature. Normally,
our most profitable quarters are the second and third calendar year quarters
due to increased water consumption during the late spring and summer months.
Demand is normally lower during cool, wet springs and summers than it is
during warm, hot springs and summers.
Dependence on Certain Industrial Customers. Approximately 27% of our
operating revenues are derived from commercial and industrial customers.
Pennichuck's largest water customer is responsible for about 13% of its
daily average demand. In the short term, our profitability would be
adversely impacted were that customer to significantly reduce its water
requirements in the future or if our other commercial and industrial
customers materially reduce their use of our water. In this case, we would
seek the approval of the NHPUC to increase the rates of our remaining
customers to recover any lost revenues from the loss of such major
industrial customers. Any increase in our rates and improvement in our
profitability from a loss of a major customer could take at least 12 months
to realize, an example of regulatory lag. In addition, there can be no
assurance that the NHPUC would approve such a rate increase request.
Real Estate Business
Development Risks. Southwood, our real estate subsidiary, owns
approximately 201 acres of real estate which is planned for development.
The demand and prices for Southwood's real estate are dependent upon
interest rates and construction costs as well as general economic
conditions.
Carrying Costs. Real estate assets are subject to ongoing maintenance
costs and property taxes. Reductions in demand for our properties may cause
us to continue to incur operating costs without any offsetting income.
Dividends
Limitations on Our Ability to Pay Dividends. Our ability to pay
dividends is materially dependent on the earnings of our operating
subsidiaries, principally our water operations. We have paid
dividends each year since at least 1915. The amount of dividends paid per
common share has increased each year since 1993. The amount of future
dividends is at the discretion of our Board of Directors and principally
depends upon the Company's earnings, financial condition, the capital
requirements of our operating subsidiaries and other factors, including
the adequacy of rate relief granted by the NHPUC to the Company's water
utility subsidiaries. Certain bond and note agreements involving Pennichuck,
the Company's principal subsidiary, among other things, impose restrictions
on the payment of declarations of dividends by Pennichuck to the Company.
Under Pennichuck's most restrictive covenant, approximately $3.7 million of
Pennichuck's retained earnings was unrestricted for payment or declaration
of common dividends to the Company at December 31, 1997. There is no
assurance that the Company will continue to pay dividends on shares of
common stock, and if paid, the timing and amount of such dividends.
<PAGE> 9
Operations
Year 2000. We continue to review our computer systems and those of
our vendors to determine our level of readiness for the next century. We
have identified our critical applications and implemented a plan to replace
or upgrade necessary hardware or software, including our financial
accounting, billing, customer service and meter management services. We are
currently identifying those vendors who provide date dependent information
and customers who are material to our operations to ensure they have taken
steps to comply with this issue. We intend to develop a disaster recovery
plan detailing alternatives available in the event a vendor or user of
Company information or a significant customer is not compliant with Year
2000 issues. There can be no assurance of the adequacy of the manner in
which third parties have addressed this issue. Although we do not
anticipate material problems in complying with Year 2000 issues, we cannot
provide assurance that we will be in compliance by January 1, 2000.
USE OF PROCEEDS AND CAPITAL EXPENDITURES
Our net proceeds from the sale of the 420,000 shares of common stock
is estimated to be $7,590,000 ($8,748,000 if the Underwriters' option to
purchase additional shares of common stock is exercised in full) after
deducting the expenses of the offering. We plan to use $5.5 million of
these proceeds to reduce our short-term note payable and to pay-down our
revolving loan facility, which at September 30, 1998 were $3.0 million and
$2.5 million, respectively. We will use the remaining proceeds for future
capital expenditures, working capital and general corporate purposes.
We used the short-term note payable for our purchase of certain water
utility assets for Pennichuck East. The note is subject to an interest rate
swap agreement, bears a fixed interest rate of 6.20%, and is due in April
2000.
We use our revolving credit facility to provide funds for general
operating purposes and to fund our capital expenditures on an interim basis.
The capital expenditures were primarily for ongoing replacement and
upgrading of existing facilities, system extensions and acquisition and
development of a new water utility system. Our capital expenditures were
approximately $6.0 million, $3.2 million and $2.7 million in fiscal years
1997, 1996 and 1995, respectively. We estimate capital expenditures for
fiscal 1998 will be approximately $3.6 million. We estimate our capital
expenditures for fiscal 1999 at approximately $4.5 million and these funds
will be primarily used for replacing our aging infrastructure, new main
extensions and improvement of our treatment plant facilities.
Capital expenditures are financed through internally generated funds
and short-term borrowings. Such short-term borrowings have traditionally
been replaced from time to time with long-term debt financings, the amount
and types of which depend upon our capital needs and market conditions.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 and as adjusted to give effect to the sale of the common
<PAGE> 10
stock and the application of net proceeds as described under "USE OF
PROCEEDS." The following should be read in conjunction with the Financial
Statements and the Notes thereto of the Company which are included in this
Prospectus. See "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
As of September 30, 1998
---------------------------------------------------------
Actual As Adjusted
---------------------- -------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Long-term Debt, excluding
current portion:
Fleet, Revolving Loan Facility $ 2,500,000 $ -
Fleet, 6.20% Note, due 4-1-00 3,000,000 -
Other Long-Term Debt 27,950,995 27,950,995
----------- -----------
Total Long-Term Debt,
excluding current portion 33,450,995 67.8% $27,950,995(1) 54.4%
Common Equity:
Common Stock 1,225,957 1,645,957(2)
Additional Paid in Capital 5,407,020 12,577,020(2)
Retained Earnings 9,293,424 9,293,424
Treasury Stock (59,240) (59,240)
----------- -----------
Total Common Equity 15,867,161 32.2% 23,457,161 45.6%
Total Capitalization $49,318,156 100.0% $51,408,156 100.0%
=========== ===== =========== =====
<FN>
___________________
<F1> Reflects repayment of Fleet debt with net proceeds from the sale of the
common stock.
<F2> Reflects the sale of 420,000 common shares at an assumed offering price
of $19.50 per share, less estimated offering costs of $600,000.
</FN>
</TABLE>
THE COMPANY
Overview
We are a holding company based in Nashua, New Hampshire. Our
principal operating subsidiaries are engaged primarily in the collection,
storage, treatment, distribution and sale of potable water throughout
southern and central New Hampshire. These subsidiary corporations,
Pennichuck, Pennichuck East and Pittsfield, are each engaged in business as
a regulated public utility, subject to the jurisdiction of the NHPUC. We
collectively serve approximately 24,300 residential and 2,000 commercial and
industrial customers. We were formed in 1983 following the reorganization
of Pennichuck Water Works, which was first established in 1852, into a
dedicated water utility. At the same time several tracts of land, formerly
<PAGE> 11
held for watershed protection purposes, were transferred to Southwood.
Southwood is involved in the development of commercial and residential real
estate. We also conduct non-regulated, water-related management services
and contract operations through another subsidiary, the Service Corporation.
Forward Looking Statements
This Prospectus contains and each document incorporated by reference
herein may contain "forward-looking" statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about our beliefs and expectations are forward-
looking statements. These statements are subject to potential risks and
uncertainties and, therefore, actual results may differ materially. We
undertake no obligation to update publicly any forward-looking statements
whether as a result of new information, future events or otherwise.
Our Water Business
Pennichuck is franchised by the NHPUC to gather and distribute
water in the City of Nashua, New Hampshire and in portions of the towns
of Amherst, Bedford, Derry, Epping, Hollis, Merrimack, Milford and
Plaistow, New Hampshire. Pennichuck has transmission mains which
directly interconnect its core system in Nashua with the surrounding
towns of Amherst, Hudson, Merrimack and Milford. Our core system, which
services 19,972 customers, accounts for 97% of Pennichuck's revenues and
96% of its combined plant in service. Its franchises in the remaining
towns consist of stand-alone satellite water systems serving 1,065
customers. Pennichuck has no competition in its core franchise area.
Currently, approximately 25% of its water revenues are derived from
commercial and industrial customers and approximately 54% from
residential customers, with the balance being derived from fire
protection and other billings to municipalities, principally the City of
Nashua.
Pennichuck East was organized in 1998 to acquire certain water
utility assets from the Town of Hudson, New Hampshire, following Hudson's
acquisition of those assets from an investor-owned water utility which
previously served the Town of Hudson and surrounding communities.
Pennichuck East is franchised to gather and distribute water in the New
Hampshire towns of Litchfield, Pelham, Windham, Londonderry, Derry,
Raymond and Hooksett, which are areas adjacent to the service franchise
served by Pennichuck. The water utility assets owned by Pennichuck East
consist principally of water transmission and distribution mains,
hydrants, wells, pump stations and pumping equipment, water services and
meters, easements and certain tracts of land. Pennichuck East serves
approximately 3,600 customers and annual revenues are estimated to be
$2.3 million.
Pittsfield serves approximately 650 customers in and around
Pittsfield, New Hampshire with anticipated annual revenues of
approximately $405,000.
Regulation
Our water utilities are regulated by the NHPUC with respect to
their rates, securities issues and service. New Hampshire law provides
<PAGE> 12
that utilities are entitled to charge rates which permit them to earn a
reasonable return on the cost of the property employed in serving its
customers, less accrued depreciation and contributed capital ("Rate
Base"). The cost of capital permanently employed by a utility in its
utility business marks the minimum rate of return which a utility is
lawfully entitled to earn on its Rate Base. Pennichuck's currently
approved water rates are based on a March 1998 NHPUC order resulting from
its latest approved rate case. Pennichuck is authorized an overall rate
of return of 8.34% on an approved rate base of approximately $34.61
million. Pennichuck East is authorized an overall rate of return of
8.37% on an approved rate base of approximately $7.5 million. Pittsfield
is authorized an overall rate of return of approximately ten percent on
an approved rate base of approximately $1.6 million.
Our utilities are subject to the water quality regulations issued
by the United States Environmental Protection Agency ("EPA"). The EPA is
required to periodically set new maximum contaminant levels for certain
chemicals as required by the federal Safe Drinking Water Act ("SDWA").
The quality of our treated water currently meets or exceeds all standards
set by the EPA and we do not anticipate that any significant capital
expenditures for regulatory compliance will be required in the next three
years given the present water quality standards set by the SDWA. The
reauthorization of the SDWA by Congress in 1996 may lead to stricter
monitoring standards which may require additional operating costs for the
Company. It is expected that any additional monitoring and testing costs
arising from EPA mandates should eventually be recouped through water
rates.
Other Operations
The Company formed the Service Corporation to conduct its non-
regulated, water-related activities. Its activities include providing
contract operations and maintenance, water testing and billing services
to municipalities. In 1998, the Service Corporation entered into an
agreement with the Town of Hudson, New Hampshire to provide operations
and maintenance contract services to the Town with respect to the water
utility assets it acquired from an investor-owned water utility.
Southwood, the Company's real estate subsidiary, was organized for
the purpose of owning, developing, selling and managing approximately
1,340 acres of undeveloped land in Nashua and Merrimack, New Hampshire
formerly owned by Pennichuck Water Works for watershed protection purposes.
Since 1988, Southwood has been involved in the planning and
development of two major office parks, Southwood Business Park and
Southwood Corporate Park, located in Nashua, New Hampshire. At the end
of 1996, Southwood sold its last remaining lot in the Southwood Business
Park to the State of New Hampshire. Southwood still owns approximately
47 acres of land in the Southwood Corporate Park which is zoned for
commercial use. In July 1995, Southwood entered into an option agreement
with a regional real estate developer ("the Developer") for the remaining
acreage in Southwood Corporate Park. Under that agreement, the Developer
pays to Southwood an option fee each year equal to the annual carrying
costs associated with that land. The option agreement is for a minimum
term of five years.
<PAGE> 13
In September 1997, Southwood and the Developer formed Westwood Park
LLC ("Westwood"), to develop a 404 acre tract of land in northwest Nashua
presently zoned for park-industrial use. Southwood conveyed the land to
Westwood in exchange for a 60% interest in Westwood. In April 1996,
Southwood entered into a joint venture known as Bowers Pond LLC
("Bowers") for the development of a 46 unit residential development.
Under the terms of the joint venture agreement, Southwood conveyed the
related land parcel to Bowers in exchange for a non-interest bearing note
secured by a second mortgage on the real estate conveyed. Southwood holds
a 50% interest in this joint venture. As of September 30, 1998, 41 homes had
been constructed and sold; 4 of the remaining lots are subject to purchase
contracts. Southwood has recently formed a joint venture to develop and
build another joint venture, Heron Cove, an 87-unit, single-family community
located in Merrimack, New Hampshire.
Our Properties
Office Buildings
The Company owns a three story, 11,616 square foot building located
in downtown Nashua, New Hampshire which it and its subsidiaries occupy.
We also own a separate building in Nashua which serves as an operations
center and storage facility for our construction and maintenance
activities.
Water Supply Facilities
Pennichuck's principal properties are located in Nashua, New
Hampshire, with the exception of several source-of-supply land tracts
which are located in the towns of Amherst, Merrimack and Hollis, New
Hampshire. In addition, Pennichuck owns four impounding dams which are
situated on the Nashua and Merrimack border.
The location and general character of Pennichuck's principal plant
and other materially important physical properties are as follows:
1. Holt Pond, Bowers Pond, Harris Pond and Supply Pond and related
impounding dams comprise the chief source of water supply in Nashua and
Merrimack, New Hampshire.
2. An Infilco Degremont treatment plant using physical chemical
removal of suspended solids and sand filtration with a rated capacity of
35 million gallons per day, located in Nashua, New Hampshire.
3. A water intake plant and pumping facility located on the
Merrimack River in Merrimack. This 20 million gallon per day supplemental
water supply source provides an additional source of water
during dry summer periods and will provide a long-term supply for
Pennichuck's service area.
4. Approximately 672 acres of land located in Nashua and Merrimack
which are owned and held for watershed and reservoir purposes.
5. Ten water storage reservoirs having a total storage capacity of
23.1 million gallons, six of which are located in Nashua, two in Amherst,
one in Bedford and one in Hollis, New Hampshire.
<PAGE> 14
The source of supply for Pennichuck East is a well system owned by
the Town of Hudson in Litchfield, New Hampshire. Pennichuck East has
entered into a long-term water supply agreement to obtain water from this
well system.
Pittsfield owns Berry Pond located in the vicinity of its water
treatment facility in Pittsfield, New Hampshire, which serves as its
source of supply.
Water Distribution Facilities
The distribution facilities of our regulated water companies
consist of the following:
<TABLE>
<CAPTION>
Pennichuck Pennichuck East Pittsfield
---------- --------------- ----------
<S> <C> <C> <C>
Transmission & Distribution
Mains (in miles) 315 103 13
Services 21,037 4,108 615
Meters 21,145 3,511 614
Hydrants 2,124 333 70
</TABLE>
Land Held for Future Development
Following Pennichuck Water Works' reorganization in 1984 into a
holding company structure, approximately 1,088 acres were transferred to
Southwood. Since 1984, Southwood has sold or transferred approximately
779 acres of land to third parties or to participating joint ventures.
The Company has transferred 499 acres of watershed protection land to
Pennichuck since 1984 and currently holds 425 acres of land which have
not been transferred to Pennichuck or Southwood due to access limitations
which restrict the ability to subdivide and transfer that land. Of that
acreage, approximately 242 acres are available for buffer and alternate
use.
Based on vegetation, topographical, wetland and hydrological
studies, Southwood has subdivided its remaining 309 acres into buffer
(non-developable) and alternate use (developable) designations, resulting
in an approximate breakout of 108 and 201 acres, respectively. Of the
approximately 201 acres of alternate use land, 102 acres are located
primarily in the northwestern section of Nashua, New Hampshire and 99 acres
are located in the western and southerly portions of Merrimack, New Hampshire.
The following table summarizes of the current approved zoning for Southwood's
alternate use land:
<TABLE>
<CAPTION>
Nashua, NH Merrimack, NH Total
---------- ------------- -----
<PAGE> 15
<S> <C> <C> <C>
Residential 55 -- 55
Industrial 47 99 146
--- -- ---
Total Alternate Use Acreage 102 99 201
=== == ===
</TABLE>
Presently, 47 acres of Southwood's alternative-use land in Nashua are
available for immediate development. The remainder of Southwood's
landholdings in both Nashua and Merrimack are classified under "Current Use"
status, which means that we pay property taxes based on the property's actual
use and not its highest or best use.
Our Employees
We employ 65 full-time and four part-time employees. Of these,
there are 34 management and clerical employees who are non-union. The
remaining employees are members of the United Steelworkers Union. Our
union contract was re-negotiated in February 1997, and has been extended
through February 2002. In the opinion of management, employee relations
are satisfactory.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected consolidated historical data
regarding the Company's operating results and financial position for and
at the periods indicated. This financial data should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Twelve Months Ended December 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues $13,293,149 $ 9,068,254 $12,055,517 $12,417,216 $11,700,480 $10,429,960 $ 9,903,631
Net income 1,795,306 1,037,235 1,207,023 1,289,018 1,147,603 997,919 849,505
Net income aplicable to
common stock 1,795,306 1,037,235 1,207,023 1,289,018 1,147,603 965,842 771,130
Earnings per share:
Basic $ 1.46 $ 0.87 $ 1.01 $ 1.09 $ 1.00 $ 0.84 $ 0.67
Diluted $ 1.44 $ 0.86 $ 1.00 $ 1.09 $ 0.99 $ 0.84 $ 0.67
Weighted average shares:
Basic 1,229,604 1,198,207 1,200,287 1,178,883 1,148,610 1,146,240 1,143,663
Diluted 1,242,801 1,212,273 1,207,173 1,183,455 1,152,110 1,151,572 1,145,939
<PAGE> 16
Dividends per common share $ 0.57 $ 0.51 $ 0.68 $ 0.65 $ 0.57 $ 0.48 $ 0.41
Balance Sheet Data:
Total Assets $66,991,338 $56,829,404 $57,240,449 $51,357,135 $49,136,429 $47,718,718 $46,609,472
Utility plant, net 56,676,070 47,920,328 48,290,696 43,721,028 41,779,771 40,314,725 39,021,087
Total common equity 15,867,161 14,554,722 14,589,345 14,048,337 13,058,213 12,614,050 12,044,809
Redeemable preferred stock - - - - - - 681,000
Long-term debt including
current portion 33,550,995 25,860,163 26,677,618 21,945,603 21,028,011 17,031,530 17,262,699
<FN>
___________________
<F1> Prior year amounts have been restated for Pittsfield which has
been accounted for under the pooling-of-interests method.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
In Management's Discussion and Analysis we explain the general
financial condition and the results of operations for the Company and its
operating subsidiaries including:
* What factors affect our business,
* What our earnings and costs were in the first nine months of 1998
and in 1997 and 1996,
* Why those earnings and costs were different from the year before,
* Where our earnings come from,
* How all of this affects our overall financial condition,
* What our expenditures for capital projects were in 1996 and 1997
and what we expect them to be in 1998, and
* Where cash will come from to pay for future capital expenditures.
As you read Management's Discussion and Analysis, please refer to our
Consolidated Financial Statements contained in this Prospectus.
Results of Operations
In this section, we discuss our interim 1998 and our 1997,1996 and
1995 results of operations and the factors affecting them. We begin with
a general overview of our earnings per share (EPS) generated by our
businesses and a discussion of an accounting change we recently made that
affects our historical financial statements.
Total Earnings per Share of Common Stock
<TABLE>
<CAPTION>
<PAGE> 17
Nine Months Ended Twelve Months Ended
September 30 December 31
1998 1997 1997 1996 1995
----------------- ----------------------
<S> <C> <C> <C> <C> <C>
Water Utility Operations $1.22 $.75 $ .83 $ .91 $1.19
Real Estate and
other Operations .24 .12 .18 .18 (.19)
----------------- -----------------------
Consolidated EPS $1.46 $.87 $1.01 $1.09 $1.00
================= =======================
</TABLE>
Restatement for Merger with Pittsfield
- --------------------------------------
On January 30, 1998, we merged with Pittsfield by exchanging 49,428 of
our shares for substantially all of the outstanding common stock of
Pittsfield. We used the pooling-of-interests method to account for this
merger. This methodology requires us to add Pittsfield's historical
financial statements with our historical financial statements for all
periods which are shown prior to January 30, 1998. As you read Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the Consolidated Financial Statements, you should understand that all of the
previous financial reports that we have issued have been restated to include
the effect of Pittsfield for those years.
You will notice that our consolidated net income and earnings per
share actually decreased from $1.09 in 1996 to $1.01 in 1997, which is not
indicative of the expected trend in future earnings of our Company. That
decrease is primarily because of a one-time charge of approximately $.07 per
share against our 1997 earnings per share. That charge related to certain
merger and other one-time costs of Pittsfield which were written off in the
fourth quarter of 1997. The inclusion of Pittsfield's financial data did not
have a material impact on any other aspects of the consolidated financial
statements of our Company.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
- -------------------------------------------------------------------
In this section, we discuss the factors that affected our earnings for
the first nine months of 1998 and 1997. Our consolidated revenues are
generally seasonal due to the overall significance of the water sales of our
water utility business as a percent of consolidated revenues. Water revenues
are typically at their lowest point during the first and fourth quarters of
the calendar year. However, water revenues in the second and third quarters
tend to be greater because of increased water consumption by our residential
customers during the late spring and summer months. In addition, our
consolidated revenues are significantly affected by sales of major real
estate parcels which may occur from time to time (see discussion below).
For the nine month period that ended on September 30, 1998, our
consolidated net income was nearly $1.8 million, or $1.46 per common share
compared to $1.04 million or $.87 per common share for the same period in
<PAGE> 18
1997. The consolidated revenues from all of our business activities thus far
in 1998 were $13.3 million, representing a $4.23 million, or 46.6%, increase
over last year. As we discuss below, that increase in consolidated operating
revenues is principally attributable to:
* our water utility operations which now include the operating
activities of Pennichuck and our two new subsidiaries, Pennichuck
East and Pittsfield; and
* a major land sale which occurred in the third quarter of 1998.
Water Utility Operations
The operating revenues from our water utility operations totaled $11.1
million for the first nine months of 1998. Compared to the same period in
1997, this represents a $2.5 million increase in water revenues. There are
several reasons for that increase:
* First, our largest water utility, Pennichuck, was granted a
permanent rate increase of approximately 16.8% by the NHPUC
effective on April 1, 1998. Beginning on that date, we were
authorized to increase our rates on water billings to our
customers. Through the first nine months of 1998, our water
utility revenues include approximately $950,000 relating to
that rate increase.
* Second, Pittsfield's revenues more than doubled from $160,000 in
1997 to $352,000 thus far in 1998. The 120% increase in
Pittsfield's revenues resulted from a 101% rate increase which
was approved by the NHPUC in December 1997. We were granted that
increase in rates principally to allow us to recover the costs
associated with a $900,000 water treatment facility completed in
October 1997.
* The third major factor affecting our increased water revenues
was the addition of our newly created water subsidiary,
Pennichuck East. As we discuss in more detail in "Note H -
Subsequent Event -- Acquisition" in the Notes to Consolidated
Financial Statements, Pennichuck East was formed in April 1998
and serves approximately 3,600 customers in southern New
Hampshire. Pennichuck East contributed approximately $1.24 million
in water revenues during its first six months of operations in 1998.
The actual expenses of operating our water utility businesses include such
broad categories as:
* water treatment and purification,
* pumping and other distribution system functions,
* general and administrative functions,
* depreciation on existing operating assets, and
* taxes other than income taxes.
On a combined basis, those utility operating expenses increased by
$1.2 million to $7.2 million for the nine months ended September 30, 1998.
The principal reasons for that increase were:
* $691,000 relating to the addition of Pennichuck East during the
second and third quarters of 1998,
<PAGE> 19
* $210,000 of additional depreciation expense resulting from a
higher composite depreciation rate which we began using on April 1,
1998 (from 2.15% to 2.44%) and nearly $6 million of new plant
assets, and
* $156,000 of additional water treatment and miscellaneous
administrative expenses incurred in the first nine months of 1998
over the same period in 1997.
Contract Operations
In April 1998, the Service Corporation signed a five year contract
with the neighboring Town of Hudson, New Hampshire ("Hudson"). We will
provide certain operations and maintenance functions for Hudson in exchange
for a fixed monthly fee as agreed upon by us and Hudson. So far in 1998,
revenues from this contract and other non-regulated operating activities
have totaled $295,000. For the same period in 1997, revenues from our
Service Corporation were approximately $57,000 consisting of $43,000 from
contract operations and $14,000 of sundry leases and rents.
Real Estate Operations
For the nine months ended September 30, 1998 and 1997, we recognized
revenues from our real estate business activities of $1.82 million and
$312,000, respectively. Real estate revenues in the third quarter of 1998
include $1.3 million from the sale of land by Westwood Park LLC, of which
Southwood is a 60% owner. In addition, Southwood has recognized $442,000 in
revenues earned through its Bowers Pond LLC joint venture and $66,000 of
option fee income earned under a development option agreement with a regional
developer.
The operating expenses associated with our real estate activities have
increased from $107,000 in 1997 to $1.23 million in 1998. Of that increase,
approximately $1.1 million relates to the allocable land and infrastructure
costs for the major land parcel that we sold in the third quarter of 1998.
The remaining expenses are primarily for property taxes on Southwood's real
estate holdings which for the first nine months of 1998 were $57,000 compared
to $75,000 in same period of 1997.
Results of Operations - 1997 Compared to 1996
- ---------------------------------------------
For the year ended December 31, 1997, our restated consolidated net
income was $1.2 million, or $1.01 per share, compared to $1.3 million, or
$1.09 per share, in 1996. That decline was a result of certain one-time
merger costs recorded by Pittsfield and the write-off of certain Pittsfield
deferred charges during the fourth quarter of 1997. We also had two major
real estate sales in 1996 which provided us with $1.0 million of real estate
revenues and we did not have any such major land sales in 1997.
Water Utility Operations
Our water utility businesses provided us with operating revenues of
$11.4 million for 1997 which is a 4.7% increase over 1996. This increase
resulted primarily from:
* a 5.1% temporary rate increase granted to Pennichuck,
* a 3.6% increase in water consumption, and
<PAGE> 20
* a 1.1% increase in new customers.
The increase in consumption reflects a drier and warmer than normal third
quarter which we experienced in 1997 compared to 1996 and a 3.6% increase in
industrial and commercial consumption within Pennichuck's core system.
In May 1997, we filed a petition with the NHPUC requesting authority
to increase Pennichuck's water rates by approximately 18%. We believed that
this was necessary because Pennichuck's actual overall rate of return had
declined below its then authorized rate of return of 8.81%. Our rate of
return declined primarily because:
* $4.5 million in additional investment in operating assets has
been made since our last rate increase in 1994, and
* We experienced increased operating costs totaling nearly
$300,000 for property taxes and water treatment expenses
incurred in 1996 and 1997.
In August 1997, the NHPUC granted Pennichuck's request for a temporary
rate increase resulting in approximately $175,000 of additional revenues
which we realized in 1997. In February 1998, the NHPUC approved a permanent
rate increase of 16.8% which we expect will provide approximately $1.7
million of additional revenues on an annualized basis.
In December 1997, the NHPUC granted a 101% increase in Pittsfield's
water rates to recover the operating and capital costs associated with the
construction of its new water treatment facility which became operational in
October 1997. On an annualized basis, that rate increase represents
approximately $200,000 of additional revenues which are expected to be
billed and collected during calendar year 1998.
The operating expenses of our water utility businesses increased 5.5%
from $7.7 million in 1996 to $8.1 million in 1997. The increased
operating expenses were principally due to:
* A $211,000 increase in additional treatment and production costs
incurred at Pennichuck's main water treatment facility in
Nashua, New Hampshire,
* A tripling in unit rates charged by the City of Nashua for the
treatment plant by-products and sludge generated by the plant and
ultimately introduced into the City's sewer treatment system
($154,000 in 1997 compared to $89,000 in 1996),
* Electrical and other power costs associated with Pennichuck's
treatment plant and outlying pumping stations increased by
nearly $39,000 over 1996, reflecting a 5.25% increase in per
kilowatt charges incurred during 1997, and
* Depreciation and property taxes related to $5.3 million of new
investment increased by $75,000 and $32,000 for calendar years
1997 and 1996, respectively.
In addition, during the fourth quarter of 1997, the NHPUC disallowed
approximately $88,000 of deferred expenses and miscellaneous studies which
Pittsfield had incurred. Since those costs will not be recoverable through
future rates, they were written off in December 1997.
Contract Operations
<PAGE> 21
The Service Corporation was a 50% partner in a joint venture with a
regional water engineering firm from July 1, 1995 to June 30, 1998. The
purpose of the joint venture was to provide water-related operations and
maintenance contract services to municipalities, especially those which may
have financial difficulty complying with the required provisions of the
SDWA. Contract operation and public-private partnerships provide viable
alternatives for such municipalities. During 1997, the joint venture
provided operations and maintenance contract services to the Town of
Cohasset, Massachusetts which included the operation of its water treatment
plant and distribution system. Although the revenues from this partnership
were not material, the joint venture was not successful in renewing this
three year contract, which expired on June 30, 1998. For the twelve months
ended December 31, 1997, the Service Corporation had revenues of
approximately $66,000 resulting in pretax income of $19,000.
Real Estate Operations
Southwood generated revenues of $514,000 for the year ended December
31, 1997 which was a significant decrease of $806,533 from 1996. Results in
1996 included sales of Southwood's last two parcels in Southwood Business
Park totaling $1.0 million. Southwood did not have any major land sales in
1997.
Southwood is a 50% partner in Bowers Pond LLP -- a joint venture for
the construction and sale of 46 homes. We recorded approximately $408,000 of
revenues in 1997 for this project compared to $208,000 in 1996. At the end
of 1997, there were 22 lots still unsold in that development, of which we
expect to sell 17 in 1998.
Other revenues from our real estate-related activities during 1997
included approximately $92,000 of option income earned under a September
1995 development agreement with a regional developer with respect to 47
acres in the Southwood Corporate Park.
The operating expenses of Southwood totaled $198,000 for 1997, a
$784,000 decrease from 1996. In 1996, we recorded $730,000 of
infrastructure costs attributable to the 1996 Southwood Business Park land
sales discussed above. The major components of Southwood's operating
expenses are property taxes and property management costs. In 1997, those
expenses were approximately $80,000 and $23,000, respectively. Property
taxes for 1997 increased $24,000 over 1996 principally due to the receipt of
certain tax abatements from the City of Nashua during 1996. There were no
significant adjustments to Southwood's property assessments during 1997.
Results of Operations - 1996 Compared to 1995
- ---------------------------------------------
The following table compares our consolidated net income for 1996 to 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income $1.3 million $1.1 million
Earnings per share $1.09 $1.00
<PAGE> 22
</TABLE>
For 1996, our consolidated revenues increased to $12.4 million, which
was a 6.1% increase over the previous year. Water revenues decreased by
$96,000 in 1996 compared to 1995, while revenues from our real estate and
other operations increased by $812,000 for reasons discussed in further
detail below.
Water Utility Operations
Water revenues from our utility businesses in 1996 decreased to $10.9
million, representing almost a 1% decline from 1995 primarily because of:
* a 3.1% decline in water consumption within Pennichuck's core
system,
* damper and cooler conditions experienced during 1996,
* a 3% decline in industrial consumption reflecting a weak economy
in the manufacturing sector during that year.
Total rainfall in our franchise territory in 1996 exceeded rainfall in all
but three years since 1900. Consistent with recent years, Pennichuck
realized a modest 1.2% growth rate in new customers within its core and
community water system franchises.
For the twelve months ended December 31, 1996, Pennichuck's operating
expenses were $7.7 million, a 6.1% increase over 1995. Our costs for
treatment and production totaled $1.7 million for 1996, which was a $57,000
increase from 1995. That was caused primarily by an $83,000 increase in
chemical and sludge removal costs. Those increased production costs,
however, were partially offset by $67,000 in reduced power costs as a result
of a 3.8% decrease in 1996 pumpage. Our distribution and maintenance
expenses in 1996 increased by $103,000 over 1995 reflecting an aggressive
preventive maintenance program for services and gate valves which we
undertook in 1996. Other significant changes in operating costs included a
$77,000 increase in depreciation expense reflecting our increased investment
in operating assets and a $104,000 increase in property taxes resulting from
reassessments of Pennichuck 's property during 1995 and additional taxable
property placed in service during 1996.
Real Estate and Other Operations
For the twelve months ended December 31, 1996, revenues from our real
estate and other activities increased to $1.5 million compared to $697,000
in 1995. That increase is attributable to several significant real estate
transactions which occurred during 1996 as discussed further below.
Our 1996 revenues included two major land sales in Southwood Business
Park for a total of $1.0 million, net of commissions. Also included in real
estate revenues for 1996 was approximately $208,000 from the sale of
residential homes by the Bowers Pond LLC joint venture. There were no such
residential partnership activities during 1995.
Southwood's operating expenses were approximately $982,000 in 1996 and
included $730,000 of allocable infrastructure costs associated with the two
land sales discussed previously. Also included in real estate operating
expenses are property taxes totaling $56,000 and $187,000 in 1996 and 1995,
respectively. Gross real estate taxes levied on Southwood's landholdings in
1996 totaled approximately $106,000 but were offset by the receipt of
approximately $50,000 from the City of Nashua relating to the settlement of
<PAGE> 23
the prior year's property tax abatements. In addition, we obtained a $1.8
million reduction in the assessed valuation of Southwood's property located
in Southwood Corporate Park from the City of Nashua.
In May 1996, NYNEX Corporation ("NYNEX"), which had been a partner
with Southwood in 555 Aeyers Mills Associates, sold its one half interest in
that partnership to us for $204,000. That partnership was originally formed
to develop, construct and lease an office building on a 7 acre site owned by
the partnership. The entire ownership interest in that parcel is now shared
equally between Southwood and the Company and the total investment in that
parcel is $319,000. That parcel is also included within the 47 acres under
the development option agreement discussed earlier and is classified under
"Deferred land costs" in the accompanying Consolidated Balance Sheets.
Liquidity and Financial Condition
In the following paragraphs, we discuss the financial condition of the
Company and its wholly-owned subsidiaries. This discussion focuses primarily
on the changes in our consolidated balance sheet accounts from December 31,
1997 to September 30, 1998 and on the adequacy of capital needed for our
business activities.
The primary source of cash which we need for normal operating
activities, capital projects and dividend payments to our shareowners is the
operating cash flow which we generate from day to day activities. However,
during those periods where operating cash flow is not sufficient, we borrow
funds under a revolving loan facility (the "Loan Agreement") with our bank,
Fleet Bank-NH ("Fleet"). The Loan Agreement allows us to borrow up to $4.5
million at interest rates tied to Fleet's cost of funds or LIBOR, whichever
is lower. At September 30, 1998, we had borrowed $2.5 million under the Loan
Agreement and the average interest rate of those borrowings was 6.93%. The
maturity date of all amounts borrowed under the Loan Agreement, or to be
borrowed in the next 14 months, is June 30, 2000. As a result, we have
classified our outstanding bank borrowings at September 30, 1998 under the
caption of "Long Term Debt" in the Consolidated Balance Sheets.
During the first quarter of 1998, we refinanced a $1.1 million
mortgage note issued by Pittsfield to a local bank using the Loan Agreement.
On April 24, 1998, we refinanced $1.5 million of outstanding indebtedness
under the Loan Agreement into a seven year note. The note is payable interest
only for seven years at a fixed rate of 6.50% and is secured by, among other
things, the guarantees of Southwood and the Service Corporation.
As we discuss in Note H - Subsequent Event -- Acquisition in the Notes
to the Consolidated Financial Statements, we purchased Pennichuck East's
assets with the proceeds of two bank loans totaling $7.5 million. Those
loans of $4.5 million and $3.0 million are for terms of 7 years and 2 years,
respectively, and are classified as "Long term Debt" in the Consolidated
Balance Sheet at September 30, 1998. In connection with these two notes, we
entered into certain interest rate swap agreements which fix the interest
rates at 6.50% and 6.20%, respectively, for the term on these notes.
Our capital expenditures totaled $6.0 million and $3.2 million in 1997
and 1996, respectively. For 1998, we expect that our total expenditures for
capital projects will be approximately $3.6 million. Practically all of our
<PAGE> 24
planned capital expenditures in 1998 are for projects relating to our water
utility business. Those projects include:
* the replacement of 8,800 linear feet of pre-1900 distribution
mains,
* the addition of more efficient motor starters on Pennichuck's
major electric pumps at its treatment plant,
* the reconstruction of one of Pennichuck's dams, and
* the relocation of distribution mains to accommodate ongoing
State highway construction projects.
The remaining items in the Company's 1998 capital budget reflect
expenditures for ongoing, routine investment in new meters, services,
distribution mains and hydrants.
For the first nine months of 1998, we have invested nearly $2.65 million
in capital projects. That amount does not include the purchase of $7.5 million
water utility assets by Pennichuck East in April 1998. For the rest of 1998,
we expect that the cash flow from our normal operating activities, together
with available short-term borrowings from our bank, will be sufficient to
fund the remaining planned capital expenditures.
The Consolidated Balance Sheet at September 30, 1998 also reflects a
line item captioned "Minority interest" totaling $314,000. This represents a
40% interest held by a third party in Westwood Park LLC ("Westwood"), a real
estate development venture. Southwood owns the remaining 60% majority
interest in Westwood, whose financial statements are included in the
accompanying consolidated financial statements at September 30, 1998. In May
1998, Westwood sold a tract of land to a third party for approximately $1.3
million. The terms of that sale required Westwood to use the sales proceeds
to construct the necessary access road and infrastructure for the purchaser.
The gain from this sale was recognized in the third quarter of 1998 when the
infrastructure work was completed. We have recorded the unexpended cash from
this sale in the line item captioned "Restricted Cash" at September 30, 1998.
We offer a Dividend Reinvestment and Common Stock Purchase program
which is available to our shareholders and our residential New Hampshire
customers. Under this program, our shareholders may reinvest all or a
portion of their common dividends into shares of common stock at a 5%
discount from prevailing market prices. We also accept optional cash
payments to purchase additional shares at 100% of the prevailing market
prices. Since its inception in 1993, this program has provided us with
$840,000 of additional common equity.
Environmental Matters
Our water utility subsidiaries are subject to the water quality
regulations set forth by the United States Environmental Protection Agency
("EPA") and the New Hampshire Department of Environmental Services. The EPA
is required to periodically set new maximum contaminant levels for certain
chemicals as required by the federal Safe Drinking Water Act ("SDWA"). The
quality of our treated water currently meets or exceeds all standards set by
the EPA and we do not anticipate that any significant capital expenditures
for regulatory compliance will be required in the next three years given the
present water quality standards set by the SDWA. However, the re-
authorization of the SDWA by Congress in 1996 will lead to increased
monitoring standards which may require additional operating costs for us. It
<PAGE> 25
is expected that any additional monitoring and testing costs arising from
EPA mandates should eventually be recouped through water rates.
Year 2000 Issue
We have performed an exhaustive review of our hardware and software
systems in order to determine the level of readiness to meet the next
millenium. Because we own some operating assets which pre-date 1900, we have
been aware of the potential Year 2000 problem well before the recent
publicity and in fact, 8 digit dates have been a requirement for all in-
house software developed since 1987. The Year 2000 issue has also been
addressed and included in all computer migration and upgrades since 1990.
As part of our Year 2000 project planning, the Company identified
mission-critical applications and implemented a 5 year plan in early 1994 to
replace or upgrade both hardware and software. Our central computer
platform, consisting primarily of minicomputer servers, is not completely
Year 2000 ready. However, those servers that are not Year 2000 ready are
expected to be retired and replaced with Year 2000 ready servers within the
next 12 months.
Additionally, all of our software applications have been evaluated to
identify any Year 2000 problems, their importance to our operations and
efficiencies to be gained with newer and updated software. A software
development schedule has been created based on this risk assessment with the
most critical applications being implemented first. At this time, our NT
network, financial accounting, billing, customer service information and
meter management, human resources and SCADA management systems are Year 2000
ready. Our remaining software systems for work orders, inventory control,
and various maintenance programs are 90% compliant and are expected to be
fully ready by the end of 1998.
We are currently in the process of identifying all external vendors
who provide and/or require date dependent information and those customers
who are material to our operations to ensure that they will be in compliance
with the Year 2000 issue. Once identified, we will contact each vendor and
significant customer to determine its Year 2000 status. For any vendors or
customers who are determined to be critical to our operations, we will
develop a disaster recovery plan containing alternative action plans in the
event of vendor non-compliance. We anticipate having all critical resource
alternative plans in place by May 1999.
New Accounting Standards
We adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" for the year ended December 31, 1997. This
accounting statement replaces primary earnings per share with basic earnings
per share. Basic earnings per share is calculated by dividing earnings
available to common shareholders by the weighted average shares outstanding.
SFAS No. 128 also requires us to present diluted earnings per share, which
is calculated similarly to fully-diluted earnings per share.
During the second quarter of 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
<PAGE> 26
Although adoption of these two Statements is not required until fiscal years
beginning after December 15, 1997, we do not believe that our Company will
be materially affected by the new reporting standards set forth in those
Statements.
In June 1998, the Financial Accounting Standards Board also issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Although SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999, we have not yet evaluated or determined the impact,
timing or method of adoption of this accounting statement.
Effects of Inflation
The effects of inflation on the utility operations of the consolidated
group are not material since the NHPUC allows most prudent and reasonable
cost increases to be recouped through increased water rates. It should be
noted that a regulatory lag exists from the time that the utility incurs
higher costs to the time that it is allowed to bill revenues sufficient to
cover these cost increases. In times of high inflation, this lag could have
a detrimental effect on the profitability of our water utility companies and
the Company. Conversely, during periods of lower inflation and lower
interest rates, the rates of return granted by the NHPUC have tended to be
reduced reflecting that lower inflation and interest rate environment.
There can be no assurance that the NHPUC will approve rate increases to
recover any future increased operational costs.
Legal Proceedings
We are involved in ordinary and routine litigation or rate making
proceedings incidental to our business. We believe that the resolution of
these matters will not adversely affect our business, consolidated financial
condition or our operating results.
MANAGEMENT OF THE COMPANY
Directors
Our Board of Directors consists of nine members. The Articles of
Incorporation classify the directors into three classes, each serving for
three years, with one class being elected each year.
The following table sets forth information concerning the nine persons
serving on the Board of Directors.
<TABLE>
<CAPTION>
Other
Director Year Present Position
of Company Term Will With
Name (1) Age Since Expire Company
- ----------------------------------------------------------------------
<S> <C> <C> <C> <S>
Maurice L. Arel 61 1984 2000 President and
Chief Executive
Officer
Joseph A. Bellavance 59 1983 2000 --
Charles E. Clough 68 1968 2001 --
<PAGE> 27
Stephen J. Densberger 48 1986 1999 Executive
Vice President
Robert P. Keller 60 1983 2000 --
John R. Kreick 54 1998 2001 --
Hannah M. McCarthy 52 1994 1999 --
Martha E. O'Neill 41 1998 2001 --
Charles J. Staab 49 1986 1999 Vice President-
Treasurer
<FN>
___________________
<F1> Except for Messrs. Densberger and Staab, all directors are also
directors of the Company's wholly-owned subsidiaries, Pennichuck and
Southwood. Mr. Densberger is a director of Pennichuck. Messrs. Arel,
Densberger and Staab are also directors and officers of the Company's
other wholly-owned subsidiaries, Pennichuck East, Pittsfield and the
Service Corporation.
</FN>
</TABLE>
The business experience of each of the directors of the Company during
the last five years, and certain other pertinent information, is as follows:
Maurice L. Arel - Mr. Arel has served as President, Chief Executive
Officer and a director of the Company since October 1984. Mr. Arel also
serves as President, Chief Executive Officer and a director of Pennichuck,
Southwood and Service Corporation. He is Chairman and a director of
Pittsfield. He is the former Mayor of the City of Nashua, having served
from 1977 to 1984. He received his Bachelor of Arts degree in Chemistry
from St. Anselm College and his Master of Science degree in Physical
Chemistry from St. John's University. He is a Commissioner of the Nashua
Police Department, a director of Fleet Bank - NH and Blue Cross/Blue Shield
of New Hampshire, a Trustee of St. Anselm College of Manchester, New
Hampshire and a member of the Board of Trustees of the Public Library of
Nashua. He serves as a member of the National Drinking Water Advisory
Council to the Administrator of the federal Environmental Protection Agency.
He is a member of the National Association of Water Companies, the American
Chemical Society, the American Water Works Association and the New England
Water Works Association.
Joseph A. Bellavance - Mr. Bellavance is President and General Manager
of Bellavance Beverage Company, Inc. and President of Bellavance Realty
Corporation, both of Nashua. He received his Bachelor of Science degree in
Business Administration from the University of New Hampshire. He is a
director of the New Hampshire Wholesale Beverage Association, "New Hampshire
The Beautiful," and a member of the American Legion and the Nashua Rotary
Club.
Charles E. Clough - Mr. Clough is currently President of Freedom
Partners, LLC. He holds a Master of Business Administration degree from the
Amos Tuck School of Business and was affiliated with Nashua Corporation from
1957 until 1995. Mr. Clough also serves as a director of Hitchiner
Manufacturing Company, Inc. of Milford, New Hampshire.
Stephen J. Densberger - Mr. Densberger is Executive Vice President of
the Company and has been affiliated with the Company since 1974. Mr.
Densberger was the Treasurer of the Company from 1978 to 1983. He holds a
Master of Business Administration degree from the Whittemore School of
<PAGE> 28
Business and Economics of the University of New Hampshire. He is past
President of the New Hampshire Water Works Association, past President of
the New England Water Works Association, and is a member of the City of
Nashua Board of Aldermen. Mr. Densberger also serves as Executive Vice
President of Pennichuck and as Vice President of Southwood and Service
Corporation. He is a director and President of Pittsfield and of Pennichuck
East and a director of Service Corporation.
Robert P. Keller - Mr. Keller is a Certified Public Accountant. From
April 27, 1990 until October 10, 1991 he served as President and Chief
Executive officer of Dartmouth Bank of Manchester, New Hampshire and from
October 10, 1991 until June 6, 1994, as President and Chief Executive
Officer of New Dartmouth Bank, also of Manchester, New Hampshire. From
August 22, 1994 until March 15, 1995, he served as President and Chief
Executive Officer of Independent Bancorp of Arizona, Inc. of Phoenix,
Arizona and Chairman and Chief Executive Officer of Caliber Bank, also of
Phoenix, Arizona. Since June 1995, he has served as President and Chief
Executive Officer of Dartmouth Capital Group, Inc., and since September 30,
1995, as President and Chief Executive Officer of Eldorado Bancshares, Inc.
and Chairman, President and Chief Executive Officer of Eldorado Bank of
Laguna Hills, California. He is also a director of White Mountains
Holdings, Inc. and Haverford Industries, Inc.
John R. Kreick - Dr. Kreick served as President of Sanders Associates
and as a vice president of the Lockheed Martin Corporation from January 1988
until March 1998. Dr. Kreick received his Bachelor of Science degree in
physics from the University of Michigan in 1965. As a Rackman graduate
fellow, he worked at University's Space Physics Research Laboratory and
received his Masters of Science degree in physics in 1966. He received his
Ph.D. in theoretical physics from the University of Michigan in 1969 and he
holds eight patents in infrared and electro-optical technology. Dr. Kreick
is a member of the National Research Council's Commission of Physical
Sciences, Mathematics and Applications; a trustee of Rivier College; a
member of the board of directors of the New England Council; and has served
on numerous Department of Defense panels and committees. In 1993, Dr. Kreick
received the Electronic Warfare Association's highest award - the Gold Medal
of Electronic Warfare and a recipient of Aviation Week magazine's Aerospace
Laurels Award for his long-term contributions to electronic warfare.
Hannah M. McCarthy - Ms. McCarthy is President of Daniel Webster
College in Nashua, New Hampshire, a position which she has held since June,
1980. She earned her BA at Simmons College, and has done graduate work at
Rivier College and New Hampshire College. Ms. McCarthy serves as a director
of the New Hampshire College and University Council and the Boys & Girls
Club of Nashua.
Martha E. O'Neill - Ms. O'Neill has been practicing as an attorney
with the law firm of Clancy & O'Neill, P. A. in Nashua since 1982. She is a
graduate of Wellesley College and Georgetown University Law Center. Ms.
O'Neill serves on the Rivier College Board of Trustees, Rivier College
Paralegal Department Advisory Board, Mary A. Sweeney Home Board of Trustees,
Charles H. Nutt Surgical Hospital Board and the Boys & Girls Club of
Greater Nashua, Inc. Charitable Foundation Board of Trustees.
Charles J. Staab - Mr. Staab is Vice President, Treasurer and Chief
Financial Officer of the Company and has been Treasurer since 1983. He
holds a Master of Business Administration degree from Rivier College, and is
a Certified Public Accountant. He is a member of the Finance Committee of
<PAGE> 29
the National Association of Water Companies, a member of the Board of
Directors of the Nashua YMCA and the Nashua Center for Economic Development.
He is a past director of the Nashua Children's Association and the United
Way of Greater Nashua, and former President of the Northern New England
chapter of the Financial Executives Institute. Mr. Staab also serves as Vice
President and Treasurer of Pennichuck and Southwood. He is treasurer and a
director of the Service Corporation, Pennichuck East and Pittsfield.
Executive Officers
The following sets forth the business experience and certain other
pertinent information concerning our executive officers who do not serve on
our Board of Directors.
Bonalyn J. Hartley - Ms. Hartley has been with the Company since 1979
and was elected Vice President-Controller of the Company, Pennichuck and
Southwood in 1991. She is also Controller and a director of the Service
Corporation, Pennichuck East and Pittsfield. She is a graduate of Rivier
College with a Bachelor of Science degree in Business Management. Ms.
Hartley serves as a trustee of the Southern New Hampshire Regional Medical
Center and as a director of the Rivier College Alumni Association. She is
also a director of the New England Chapter of the National Association of
Water Companies and a member of the New England Water Works Association. Ms.
Hartley is 53 years old.
Donald L. Ware - Mr. Ware is Vice President of Engineering for the
Company. He joined the Company in April 1995 and also serves as the Vice
President of Engineering for Pennichuck and Southwood. He is also a vice
president and director of Service Corporation, Pennichuck East and
Pittsfield. Prior to joining the Company, Mr. Ware was the general manager
of the Augusta Water District in Augusta, Maine. He holds a Bachelor of
Science degree in Civil Engineering from Bucknell University and is a
licensed professional engineer in New Hampshire, Massachusetts and Maine.
Mr. Ware is 41 years old.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to shares of
the Company's common stock beneficially owned by each director, and by all
directors and officers as a group, as of September 30, 1998:
<TABLE>
<CAPTION>
Amount and % of Common
Nature of Stock Out-
Beneficial standing (if
Name of Beneficial Owner Ownership(1)(3) more than (1%)(2)
------------------------ --------------- -----------------
<S> <C> <C>
Maurice L. Arel(3)(5) 28,159 2.2%
Joseph A. Bellavance(3)(4) 9,912 --
Charles E. Clough 15,871 1.3%
Stephen J. Densberger(3)(5) 10,680 --
Robert P. Keller 1,168 --
<PAGE> 30
John R. Kreick (3) 153 --
Hannah M. McCarthy 150 --
Martha E. O'Neill(6) 17,026 1.3%
Charles J. Staab(3)(5) 9,330 --
All directors and
officers as a group
(12 persons) (3)(5) 103,916 8.2%
<FN>
___________________
<F1> Shares beneficially owned means shares over which a person exercises
sole or shared voting or investment power or shares of which a person
has the right to acquire beneficial ownership within 60 days of
September 30, 1998. Unless otherwise noted, the individuals and group
above have sole voting and investment power with respect to shares
beneficially owned.
<F2> Calculation of percentages is based upon a total of 1,268,231 shares,
which total includes shares outstanding and entitled to vote of
1,221,523, plus 46,688 shares which have not been issued but which may
be issued within 60 days of September 30, 1998 if persons having
rights to exercise stock options within such period exercise such
rights.
<F3> The individuals and group noted above have sole voting and investment
power with respect to shares beneficially owned, except as stated in
notes (4) through (6) below and except that voting and investment
power is shared as follows: Mr. Arel - 3,761 shares, Mr. Bellavance -
4,179 shares, Mr. Densberger - 1,905 shares, Mr. Kreick - 153 shares,
Mr. Staab - 2,130 shares, and non-director officers as a group - 1,514
shares.
<F4> Mr. Bellavance disclaims beneficial ownership of 1,483 of these
shares.
<F5> Includes shares subject to previously granted but unexercised stock
options which officers have a right to acquire within 60 days of
September 30, 1998. Mr. Arel holds options to acquire 12,000 shares,
Mr. Densberger holds options to acquire 7,500 shares, Mr. Staab holds
options to acquire 6,300 shares and the officers of the Company as a
group hold options to acquire a total of 34,650 shares within 60 days
of September 30, 1998.
<F6> Includes 8,217 shares owned by the Charles H. Nutt Surgical Hospital
Trust, of which Ms. O'Neill is a trustee. Ms. O'Neill shares voting
and investment power with the other Trustees over these shares. Ms.
O'Neill disclaims beneficial ownership of these shares.
</FN>
</TABLE>
DESCRIPTION OF COMPANY CAPITAL STOCK
General
The Company is authorized to issue 2,400,000 shares of common stock,
par value $1.00 per share; and, 15,000 shares of preferred stock, par value
$100.00 per share, and 100,000 shares of preferred stock, no par value
<PAGE> 31
(collectively, "Preferred Stock"). On September 30, 1998, 1,221,523 shares
of common stock were issued and outstanding, options to acquire 46,688
shares of common stock were outstanding, and no shares of Preferred Stock
were issued and outstanding.
Common Stock
Each holder of common stock is entitled to one vote per share for all
purposes and does not have the right to cumulate his votes in the election
of directors. Subject to preferences that may be applicable to any
outstanding Preferred Stock, each holder of common stock is entitled to
receive such dividends as may be declared by the Board of Directors in its
discretion from funds that are legally available for the payment of
dividends. In the event of a liquidation, dissolution or winding up of the
Company, each holder of common stock will be entitled to share in the assets
of the Company pro rata in accordance with his holdings, after payment of
liabilities and the liquidation preference of any outstanding Preferred
Stock. The common stock has no preemptive rights. Except as otherwise
determined by the Board of Directors or by applicable law, all voting rights
are presently vested exclusively in the holders of the common stock.
Preferred Stock
The Company's Board of Directors is authorized to issue shares of
Preferred Stock in one or more series and to fix the voting powers,
designations, preferences or other rights of the shares of each such series
and the qualifications, limitations and restrictions thereon.
Certain Anti-takeover Provisions
Certain provisions of the Company's Articles of Incorporation and
Bylaws may be considered to have an "anti-takeover" effect. A discussion of
these provisions follows.
Classified Board of Directors. Pursuant to the Articles of
Incorporation and Bylaws, the Board of Directors is divided into three
classes with staggered terms, each class comprising approximately one third
of the members of the Board. The classification of directors will have the
effect of making it more difficult for shareholders to change the
composition of the Board in a relatively short period of time. At least two
annual meetings of shareholders, instead of one, will generally be required
to effect a change in a majority of the Board. This delay will provide the
Board with additional time to evaluate proposed takeover efforts and other
extraordinary corporate transactions, to consider appropriate alternatives
to such proposals and to act in what it believes to be the best interests of
the shareholders. The classification of directors could have the effect of
discouraging a third party from making a tender offer or otherwise
attempting to obtain control of the Company.
Authorized Shares. The Articles of Incorporation authorizes the
issuance of 2,400,000 shares of common stock and 115,000 shares of Preferred
Stock. The shares of common stock and Preferred Stock were authorized in an
amount greater than intended to be issued to provide the Company's Board of
Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may
also be used by the Board of Directors to deter future attempts to gain
<PAGE> 32
control of the Company. The Board of Directors has sole authority to
determine the terms of any one or more series of Preferred Stock, including
voting rights, conversion rates, and liquidation preferences. As a result
of the ability to fix voting rights for a series of Preferred Stock, the
Board has the power to issue a series of Preferred Stock to persons friendly
to management in order to attempt to block a post-tender offer merger or
other transaction by which a third party seeks control, and thereby assist
management to retain its control of the Company.
Dividend Reinvestment
The Company has a Dividend Reinvestment and Common Stock Purchase Plan
("DRIP") under which participating shareholders may have cash dividends on
all or a portion of their shares of common stock automatically reinvested in
newly issued shares of common stock and may invest at the same time up to an
additional $12,000 per calendar year in newly issued shares of common stock
as outlined in the DRIP. Under the DRIP, participating shareholders may
purchase shares of common stock at 95% of market value with reinvested
dividends and at 100% of market value for additional purchases. No
commission or service charge is paid by participants in connection with any
of their purchases under the DRIP.
MARKET PRICES AND DIVIDEND INFORMATION
The common stock is traded on the Nasdaq National Market System ("NMS")
under the symbol "PNNW." The common stock traded on the over-the-counter
market and was quoted on the OTC Bulletin Board from December 1997 until
October 1998, on the Nasdaq NMS from May 1996 until December 1997 and on the
Nasdaq Small Cap Market prior to May 1996.
The following table sets forth the high and low sales prices per share
of common stock as reported on the Nasdaq NMS, the OTC Bulletin Board or
the Nasdaq Small Cap Market and the dividends per share declared by the
Company during those periods.
<TABLE>
<CAPTION>
Dividends
Period High Low Declared
- --------------------------------------------------------------------
<S> <C> <C> <C>
1998
- --------------------------------------------------------------------
Fourth Quarter (through November 2) $26.63 $19.75 $.22
- --------------------------------------------------------------------
Third Quarter 20.50 15.00 .19
- --------------------------------------------------------------------
Second Quarter 16.00 15.00 .19
- --------------------------------------------------------------------
First Quarter 16.00 12.00 .19
- --------------------------------------------------------------------
<PAGE> 33
1997
- --------------------------------------------------------------------
Fourth Quarter $13.33 $12.09 $.17
- --------------------------------------------------------------------
Third Quarter 13.50 12.00 .17
- --------------------------------------------------------------------
Second Quarter 13.00 10.33 .17
- --------------------------------------------------------------------
First Quarter 12.00 10.33 .17
- --------------------------------------------------------------------
1996
- --------------------------------------------------------------------
Fourth Quarter $13.25 $10.33 $.17
- --------------------------------------------------------------------
Third Quarter 13.92 12.00 .17
- --------------------------------------------------------------------
Second Quarter 14.00 11.33 .16
- --------------------------------------------------------------------
First Quarter 14.67 11.50 .15
- --------------------------------------------------------------------
1995
- --------------------------------------------------------------------
Fourth Quarter $13.67 $11.33 $.15
- --------------------------------------------------------------------
Third Quarter 11.50 9.17 .14
- --------------------------------------------------------------------
Second Quarter 10.33 8.83 .14
- --------------------------------------------------------------------
First Quarter 10.67 10.00 .14
- --------------------------------------------------------------------
</TABLE>
On November 2, 1998 the last reported sales price for the common stock
on the Nasdaq NMS was $22.00 per share. On November 2, 1998, there
were approximately 750 holders of record of the 1,221,523 shares of common
stock outstanding.
The Company has paid dividends each year since at least 1915. The
current annualized dividend rate is $.88 per share, based upon the quarterly
dividend of $.22 per share declared on October 9, 1998. The amount of
dividends paid per share has been increased each year since 1993. The
amount of future dividends will be at the discretion of the Company's Board
of Directors and will depend upon the Company's earnings, financial
condition, capital requirements, certain limitations and rights and other
factors, including adequacy of rate relief granted by the NHPUC to the
Company's water utility subsidiaries.
Certain bond and note agreements involving Pennichuck require,
among other things, restrictions on the payment or declaration of dividends
by Pennichuck to the Company. Under Pennichuck's most restrictive covenant,
approximately $3,745,000 of Pennichuck's retained earnings was unrestricted
for payment or declaration of common dividends to the Company at
December 31, 1997.
<PAGE> 34
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement, the Company has agreed to sell to each of the Underwriters
listed below, and the Underwriters, for whom Edward D. Jones & Co., L.P.
is acting as representative (the "Representative"), have severally
agreed to purchase from the Company, the respective number of shares of
common stock set forth opposite their names below.
Underwriters Number of Shares
- ------------ ----------------
Edward D. Jones & Co., L.P.
-------
Total 420,000
=======
The Underwriting Agreement provides that the obligations of the
several Underwriters to pay for and accept delivery of the common stock are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of
the shares of the common stock offered hereby if any are taken (other than
shares of common stock covered by the over-allotment option described
below).
The Representative has advised the Company that the Underwriters
propose to offer the common stock being purchased by them directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and may offer the common stock to certain dealers at such
price, less a concession of not in excess of $ per share and that the
Underwriters and such dealers may reallow a concession of not in excess of
$ per share to certain brokers or other dealers. The public offering
price and concessions and reallowances to dealers may be changed by the
Representative after the commencement of the offering.
The offering of the common stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of common stock in
whole or in part.
The Company has granted to the Underwriters an option for 30 days to
purchase (at the common stock Public Price less the Underwriter Discounts
shown on the cover page of this Prospectus) up to 63,000 additional shares
of common stock. The Underwriters may exercise such option only to cover
over-allotments of shares of common stock made in connection with the sale
of the shares offered hereby.
In connection with this offering and in compliance with applicable
law, the Underwriters may over-allot (i.e., sell more common stock than is
set forth on the cover page of this Prospectus) and may effect transactions
which stabilize, maintain or otherwise affect the market price of the common
stock at levels above those which might otherwise prevail in the open
market. Such transactions may include placing bids for the common stock
or effecting purchases of the common stock for the purpose of pegging,
<PAGE> 35
fixing or maintaining the price of the 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 lieu of or in addition to open market purchases. The Underwriters
are not required to engage in any of these activities and any such activities,
if commenced, may be discontinued at any time.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the common stock. In
addition, neither the Company nor the Underwriters make any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The Company has agreed to indemnify the Underwriters and persons who
control the Underwriters against certain liabilities that may be incurred in
connection with the offering contemplated hereby, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments
the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters in connection with the validity of the common
stock offered hereby will be passed upon for the Company by Gallagher,
Callahan & Gartrell, P.A., Concord, New Hampshire. Certain legal matters
will be passed upon for the Underwriters by Armstrong, Teasdale, Schlafly &
Davis, St. Louis, Missouri.
EXPERTS
The financial statements of the Company included in this Prospectus
and the financial statement schedule included in the Registration Statement
of which this Prospectus forms a part, have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
Our Company files annual, quarterly and current reports, proxy
statements and other information with the Commission. You may read and copy
any reports, statements or other information we file at the Commission's
public reference room at the offices of the Commission, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the Commission.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our filings with the Commission
are also available to the public on the Commission Internet site
(http://www.sec.gov.).
The Company filed a Registration Statement on Form S-2 to register
with the Commission the common stock offered hereby. This Prospectus is
part of that Registration Statement. As allowed by Commission rules, this
<PAGE> 36
Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The Company also maintains a site on the Internet
(http://www.pennichuck.com) which contains information about the Company and
its subsidiaries.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" information
into this Prospectus, which means that we can disclose important information
to you by referring you to another document filed separately with the
Commission. The information incorporated by reference is deemed to be part
of this Prospectus, except for any information superseded by information in
this Prospectus. This Prospectus incorporates by reference the documents
set forth below that we have previously filed with the Commission. These
documents contain important information about our Company and its finances.
<TABLE>
<CAPTION>
Company Filings (File No. 0-18552) Period
- --------------------------------- ------
<S> <C>
Annual Report on Form 10-KSB Year ended December 31, 1997
Quarterly Reports on Form 10-QSB Quarters ended March 31, 1998;
June 30, 1998 and September 30, 1998
Current Reports on Form 8-K Filed April 24, 1998; June 19, 1998
and August 20, 1998
</TABLE>
If you are a stockholder, we have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
Commission. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically
incorporated by reference an exhibit in this Prospectus. Stockholders may
obtain documents incorporated by reference in this Prospectus by requesting
them in writing or by telephone at the following address:
Stockholder Relations
Pennichuck Corporation
4 Water Street
P.O. Box 448
Nashua, New Hampshire 03061
Telephone number (603) 882-5191
PENNICHUCK CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<PAGE> 37
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997 and 1996 (audited) F-3
Consolidated Statements of Income for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) and the Fiscal Years
Ended December 31, 1997, 1996 and 1995 (audited) F-5
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 30, 1998 (unaudited) and the
Fiscal Years Ended December 31, 1997, 1996 and 1995
(audited) F-6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (unaudited) and the Fiscal
Years Ended December 31, 1997, 1996 and 1995 (audited) F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Pennichuck Corporation:
We have audited the accompanying consolidated balance sheets of Pennichuck
Corporation and subsidiaries (a New Hampshire corporation) as of December
31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pennichuck
Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 3, 1998 (except with respect
to the matter discussed in Note I, as
to which the date is September 1, 1998)
<PAGE> 38
CONSOLIDATED BALANCE SHEETS
PENNICHUCK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30 December 31
1998 1997 1996
------------------------------------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Property, Plant and Equipment
Land $ 1,329,636 $ 424,421 $ 422,417
Buildings 22,287,541 19,539,208 15,869,343
Equipment 53,225,490 45,414,514 43,063,562
Construction work in progress 511,551 139,511 298,905
-----------------------------------------
77,354,218 65,517,654 59,654,227
Less accumulated depreciation (19,963,333) (16,561,266) (15,244,953)
-----------------------------------------
57,390,885 48,956,388 44,409,274
Current Assets
Cash 529,110 447,921 345,978
Restricted cash 874,694 905,768 --
Accounts receivable, net of reserves of
$25,000 in 1998, 1997 and 1996 1,358,088 671,086 1,211,544
Unbilled revenue 1,465,000 1,083,800 1,015,000
Refundable income taxes 12,971 62,848
Materials and supplies, at cost 360,515 207,832 244,391
Prepaid expenses and other current assets 101,755 484,429 387,721
-----------------------------------------
4,689,162 3,813,807 3,267,482
Other Assets
Deferred land costs 2,304,935 2,408,321 2,412,374
Deferred charges and other assets 2,187,383 1,751,722 1,114,313
Investment in real estate partnerships 418,973 310,211 153,692
-----------------------------------------
4,911,291 4,470,254 3,680,379
$66,991,338 $57,240,449 $51,357,135
=========================================
Stockholders' Equity and Liabilities
Stockholders' Equity
Common stock-$1 par value - authorized
2,400,000 shares; issued 1,225,957 shares
in 1998, 1,213,001 shares in 1997 and
1,196,841 shares in 1996 $ 1,225,957 $ 1,213,001 $ 1,196,841
Additional paid in capital 5,407,020 5,229,727 5,104,477
Retained earnings 9,293,424 8,199,557 7,799,959
-----------------------------------------
15,926,401 14,642,285 14,101,277
<PAGE> 39
Less cost of 4,434 shares of
common stock in treasury in 1998 and
3,962 shares in 1997 and 1996 (59,240) (52,940) (52,940)
-----------------------------------------
15,867,161 14,589,345 14,048,337
Minority Interest 313,959 -- --
Preferred stock, no par value, 100,000
shares authorized, no shares issued in
1998, 1997 and 1996 -- --
Long-Term Debt, Less Current Portion 33,450,995 26,577,618 21,126,853
Current Liabilities
Current portion of long-term debt 100,000 100,000 818,750
Accounts payable 404,070 408,022 278,943
Accrued interest payable 481,062 350,597 329,951
Other current liabilities 1,781,978 927,378 774,740
-----------------------------------------
2,767,110 1,785,997 2,202,384
Commitments and Contingencies
Deferred Credits and Other Reserves
Deferred income taxes 2,831,079 2,763,579 2,280,074
Deferred investment tax credits 1,139,577 1,164,354 1,197,390
Regulatory liability 1,217,040 1,217,040 1,247,756
Customer advances and other liabilities 291,750 162,951 244,487
-----------------------------------------
5,479,446 5,307,924 4,969,707
Contributions in Aid of Construction 9,112,667 8,979,565 9,009,854
-----------------------------------------
$66,991,338 $57,240,449 $51,357,135
=========================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
PENNICHUCK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended September 30 Year Ended December 31
1998 1997 1997 1996 1995
------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Water utility operations $11,136,224 $8,652,431 $11,415,065 $10,907,679 $11,003,037
Real estate and other operations 2,156,925 415,823 640,452 1,509,537 697,443
----------------------------------------------------------------------
<PAGE> 40
13,293,149 9,068,254 12,055,517 12,417,216 11,700,480
Operating expenses
Water utility operations 7,194,130 5,994,743 8,148,894 7,726,897 7,283,463
Real estate and other operations 1,453,844 109,213 189,817 982,293 839,622
----------------------------------------------------------------------
8,647,974 6,103,956 8,338,711 8,709,190 8,123,085
Operating Income 4,645,175 2,964,298 3,716,806 3,708,026 3,577,395
Other income 28,771 34,916 42,277 9,183 6,876
Interest expense (1,680,900) (1,325,177) (1,812,091) (1,645,254) (1,719,720)
----------------------------------------------------------------------
Income Before Provision for
Income Taxes 2,993,047 1,674,037 1,946,992 2,071,955 1,864,551
Provision for Income Taxes 1,157,244 636,802 739,969 782,937 716,948
----------------------------------------------------------------------
Net Income Before Minority Interest 1,835,803 1,037,235 1,207,023 1,289,018 1,147,603
Minority Interest in Earnings of
Westwood Park LLC (40,497) -- -- -- --
----------------------------------------------------------------------
Net Income $ 1,795,306 $1,037,235 $ 1,207,023 $ 1,289,018 $ 1,147,603
======================================================================
Earnings Per Common Share:
Basic $ 1.46 $ .87 $ 1.01 $ 1.09 $ 1.00
Diluted $ 1.44 $ .86 $ 1.00 $ 1.09 $ .99
Weighted Average Shares Outstanding
Basic 1,229,604 1,198,207 1,200,287 1,178,883 1,148,610
Diluted 1,242,801 1,212,273 1,207,173 1,183,455 1,152,110
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PENNICHUCK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Common Additional
Stock- Stock- Paid - in Retained Treasury
Shares Amount Capital Earnings Stock
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 1,149,353 $1,149,353 $4,693,327 $6,789,874 $(18,504)
Net income 1,147,603
Dividend reinvestment plan 7,591 7,591 67,128
<PAGE> 41
Common dividends
declared - $.57 per share (661,169)
Common equity issuance costs (84,915)
Exercise of stock options 60 60 440
Repurchase of 3,037
common shares (32,575)
--------------------------------------------------------------
Balances at
December 31, 1995 1,157,004 1,157,004 4,675,980 7,276,308 (51,079)
Net income 1,289,018
Dividend reinvestment plan 39,327 39,327 426,337
Common dividends
declared - $.65 per share (765,367)
Common equity issuance costs (1,770)
Exercise of stock options 510 510 3,930
Repurchase of 153 common shares (1,861)
--------------------------------------------------------------
Balances at December 31, 1996 1,196,841 1,196,841 5,104,477 7,799,959 (52,940)
Net income 1,207,023
Dividend reinvestment plan 14,585 14,585 147,625
Common dividends declared --
$.68 per share (807,425)
Common equity issuance costs (34,300)
Exercise of stock options 1,575 1,575 11,925
--------------------------------------------------------------
Balances at December 31, 1997 1,213,001 $1,213,001 $5,229,727 $8,199,557 $(52,940)
Net income 1,795,306
Dividend reinvestment plan 9,170 9,170 129,084
Common dividends declared --
$.57 per share (701,439)
Exercise of stock options 4,328 4,328 33,085 (6,300)
Retirement of repurchased shares (465) (465) (5,248)
Directors' deferred
compensation plan 20,372
--------------------------------------------------------------
Balances at September 30, 1998
(unaudited) 1,225,957 $1,225,957 $5,407,020 $9,293,424 $(59,240)
==============================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PENNICHUCK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended September 30 Year Ended December 31
1998 1997 1997 1996 1995
-----------------------------------------------------------------------
(unaudited)
<PAGE> 42
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income $1,795,306 $1,043,182 $1,207,023 $1,289,018 $1,147,603
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,331,156 1,013,862 1,486,655 1,246,410 1,162,899
Amortization of deferred
investment tax credits (24,777) (24,777) (33,036) (33,036) (33,036)
Provision for deferred
income taxes 67,500 70,200 483,505 493,293 245,025
Changes in assets and liabilities:
Accounts receivable and
unbilled revenue (1,068,204) 97,651 470,458 (384,858) (356,818)
Refundable income taxes 26,469 72,011 36,499 (48,757) 35,087
Materials and supplies (152,684) 10,246 36,559 (4,606) (19,123)
Prepaid expenses 382,674 275,439 (83,330) 7,067 (268)
Deferred charges and
other assets (750,949) (505,423) (824,553) (253,658) (365,971)
Accounts payable and
accrued expenses 926,854 1,052,609 282,663 (247,680) 717,308
Other 171,557 (95,710) (91,352) 311,438 745,885
------------------------------------------------------------------
Net cash provided by operating activities 2,704,902 3,009,290 2,971,091 2,374,631 3,278,591
Investing Activities:
Purchase of property & equipment (9,767,416) (5,218,442) (5,974,194) (3,224,742) (2,668,840)
Contributions in aid of construction 234,186 101,384 101,665 467,577 537,134
(Increase) decrease in restricted cash 31,074 (1,252,293) (905,768) -- --
(Increase) decrease in investment in real
estate partnerships 210,597 (61,674) (156,851) (36,877) 7,489
------------------------------------------------------------------
Net cash used in investing activities (9,291,559) (6,431,025) (6,935,148) (2,794,042) (2,124,217)
Financing Activities:
Proceeds from long-term borrowings 9,212,439 5,035,163 5,197,618 8,000,000 --
Payments on long-term debt (1,159,062) (850,603) (950,603) (6,124,635) (156,338)
Increase in minority interest 313,959 -- -- -- --
Net (decrease) increase in notes payable
to bank (1,180,000) (270,000) 485,000 (1,100,000) (350,000)
Dividends paid (701,439) (597,450) (807,425) (765,367) (661,169)
Proceeds from dividend reinvestment
plan and other, net 181,949 96,141 141,410 466,474 (42,272)
------------------------------------------------------------------
Net cash provided by (used in)
financing activities 6,667,846 3,413,251 4,066,000 476,472 (1,209,779)
Increase (decrease) in cash 81,189 (8,484) 101,943 57,061 (55,405)
Cash at beginning of period 447,921 345,978 345,978 288,917 344,322
------------------------------------------------------------------
Cash at end of period $ 529,110 $ 337,494 $ 447,921 $ 345,978 $ 288,917
==================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 43
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies of Pennichuck Corporation and subsidiaries
are as follows:
Basis of Presentation: The financial statements include the accounts of
Pennichuck Corporation, an investor-owned holding company (the "Company")
and its subsidiaries, Pennichuck Water Works, Inc. ("Pennichuck"),
Pittsfield Aqueduct Company, Inc. ("Pittsfield"), The Southwood Corporation
("Southwood") and Pennichuck Water Service Corporation (the "Service
Corporation").
Interim Financial Statements: The financial statements as of September 30,
1998 and for the nine month periods ended September 30, 1998 and 1997 are
unaudited but, in the opinion of management, reflect all adjustments of a
normal recurring nature necessary for a fair presentation of results for
these interim periods. The results of operations for the nine month period
ended September 30, 1998 are not necessarily indicative of the results to be
expected for the entire year due to, among other things, the seasonal nature
of the water business and the effect of timing of the real estate transactions.
Nature of Operations: Pennichuck and Pittsfield (collectively referred to as
the "Company's utility subsidiaries") are engaged principally in the
gathering and distribution of potable water to approximately 26,400
customers in southern and central New Hampshire. Southwood owns, manages and
develops real estate. PWSC is involved in non-regulated, water-related
services and operations.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These may affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Property, Plant and Equipment: Property, plant and equipment, which includes
principally the water utility assets of the Company's utility subsidiaries,
is recorded at cost plus an allowance for funds used during construction
("AFUDC") on major additions. The provision for depreciation is computed on
the straight-line method over the estimated useful lives of the assets
including property funded with contributions in aid of construction. The
useful lives range from six to ninety years and the average composite
depreciation rate was 2.29% and 2.21% in 1997 and 1996, respectively.
Maintenance, repairs and minor improvements are charged to expense as
incurred. Improvements which significantly increase the value of property,
plant and equipment are capitalized.
Allowance for Funds Used During Construction ("AFUDC"): AFUDC represents a
non-cash credit to income with a corresponding charge to plant in service.
AFUDC amounts reflect the cost of borrowed funds and, if applicable, equity
<PAGE> 44
capital when used to fund major plant construction projects. Such AFUDC
amounts were immaterial for 1997, 1996 and 1995.
Revenues: Standard charges for water utility services to customers are
recorded as revenue, based upon meter readings. Estimates of unbilled
service revenues are recorded in the period the services are provided.
Provision is made in the financial statements for estimated uncollectible
accounts.
Deferred Charges and Other Assets: Deferred charges include certain
regulatory assets and costs of obtaining debt financing. Regulatory assets
are amortized over periods being recovered through authorized rates. Debt
expenses are amortized over the term of the related bonds and notes.
Regulatory Assets: The Company's utility subsidiaries are subject to the
provisions of Statement of Financial Accounting Standard ("SFAS") 71,
"Accounting for the Effects of Certain Types of Regulations". Pennichuck and
Pittsfield have recorded certain regulatory assets in cases where the New
Hampshire Public Utilities Commission (the "NHPUC") has permitted, or is
expected to permit, recovery of these costs over future periods. Included in
deferred charges and other assets are regulatory assets totaling $541,714
and $268,385 at December 31, 1997 and 1996, respectively.
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long Lived Assets and Long Lived Assets to
be Disposed of." This statement imposes a stricter criterion for regulatory
assets by requiring that such assets be probable of recovery at each balance
sheet date. The Company adopted this standard on January 1, 1996 and the
adoption did not have a material impact on the financial position or the
results of operations based on the current regulatory structure under which
the Company's utility subsidiaries operate.
Deferred Land Costs: Included in deferred land costs are Southwood's
original basis in its landholdings and developmental costs for its Corporate
Park. Deferred land costs are stated at the lower of cost or market.
Investment in Partnership: Southwood is a 50 percent general partner in a
land development project and has sold a certain parcel of land to the
partnership in exchange for a promissory note. Revenues relating to the sale
of this parcel are deferred until the lots are ultimately sold to third
parties. Real estate transactions are presented using the cost recovery
method. Under this method, any deferred gain and related note receivable are
offset for financial statement purposes. Southwood's investment in this
partnership is recorded using the equity method of accounting. As of
December 31, 1997 and 1996, that note receivable balance was $440,000 and
$540,000, respectively, which was offset by the deferred gain of
approximately $433,000 and $532,000 in 1997 and 1996, respectively.
Income Taxes: The provision for federal and state income taxes is based on
income reported in the financial statements, adjusted for items not
recognized for income tax purposes. Provisions for deferred income taxes are
recognized for accelerated depreciation and other temporary differences.
Investment credits previously realized for income tax purposes are amortized
for financial statement purposes over the life of the property giving rise
to the credit.
Customer Advances and Contributions in Aid of Construction ("CIAC"): Under
construction contracts with real estate developers and others, Pennichuck
receives advances for the costs of new main installation. In accordance with
<PAGE> 45
its tariff provisions, Pennichuck makes refunds on a portion of the advances
as new customers attach to the main over periods generally not exceeding
five years. Customer advances which are no longer refundable are transferred
to the CIAC account. The CIAC account and related plant asset are amortized
over the life of the property. Pennichuck also credits to CIAC the fair
market value of developer installed mains and any excess of fair market
value over the cost of community water systems purchased from developers.
Earnings Per Share:
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share for the twelve months ended December
31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Twelve Months Ended
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Basic earnings per share $ 1.01 $ 1.09 $ 1.00
Dilutive effect of unexercised stock options (.01) - (.01)
--------------------------------------
Diluted earnings per share $ 1.00 $ 1.09 $ .99
======================================
Numerator:
Basic net income $1,207,023 $1,289,018 $1,147,603
======================================
Diluted net income $1,207,023 $1,289,018 $1,147,603
======================================
Denominator:
Basic weighted average shares outstanding 1,200,287 1,178,883 1,148,610
Dilutive effect of unexercised stock options 6,886 4,572 3,500
--------------------------------------
Diluted weighted average shares outstanding 1,207,173 1,183,455 1,152,110
======================================
</TABLE>
NOTE B - INCOME TAXES
The components of the federal and state income tax provision at December 31
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Federal $599,533 $642,444 $573,501
State 173,472 173,529 176,483
Amortization of investment tax credits (33,036) (33,036) (33,036)
--------------------------------
$739,969 $782,937 $716,948
================================
<PAGE> 46
Currently payable $245,139 $341,942 $504,590
Deferred 494,830 440,995 212,358
--------------------------------
$739,969 $782,937 $716,948
================================
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the effective income tax rate for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------
<S> <C> <C> <C>
Statutory federal rate 34.0% 34.0% 34.0%
State tax rate, net of federal benefit 5.6 5.6 6.3
Amortization of investment tax credits (1.6) (1.8) (1.9)
-----------------------
Effective tax rate 38.0% 37.8% 38.4%
=======================
</TABLE>
The Company made income tax payments of $353,000, $403,000 and $435,000 in
1997, 1996 and 1995, respectively.
The Company has $384,289 and $344,144 of alternative minimum tax credits
available at December 31, 1997 and 1996, respectively. These credits may be
carried forward indefinitely to offset future regular tax and are recorded
as a reduction to accumulated deferred income taxes.
The Company has a regulatory liability related to income taxes of $1,217,040
and $1,247,756 at December 31, 1997 and 1996, respectively. This represents
the amount of deferred taxes recorded at rates higher than currently enacted
rates and the impact of deferred investment tax credits on future revenue.
The liability is being amortized consistent with the Company's ratemaking
treatment.
The temporary items that give rise to the net deferred tax liability at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
Liabilities:
Property related $4,899,468 $4,483,590
Other 254,542 192,792
------------------------
5,154,010 4,676,382
Assets:
Investment tax credits 710,343 741,059
Regulatory liability 197,282 197,282
Alternative minimum tax carry forward 384,289 344,144
<PAGE> 47
Prepaid taxes on contributions in aid
of construction 912,328 940,154
Other 204,234 188,114
------------------------
2,408,476 2,410,753
Net Deferred Tax Liabilities $2,745,534 $2,265,629
========================
</TABLE>
NOTE C - DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Unsecured notes payable to various
insurance companies:
9.10%, due April 1, 2005 $ 3,500,000 $ 3,500,000
7.40%, due March 1, 2021 8,000,000 8,000,000
8.95% due August 1, 1997 -- 718,750
Unsecured Industrial Development
Authority Revenue Bond (1988 Series),
7.50%, due July 1, 2018 1,300,000 1,300,000
Unsecured Business Finance Authority
1994 Revenue Bond (Series A), 6.35%,
due December 1, 2019 3,060,000 3,120,000
Unsecured Business Finance Authority
1994 Revenue Bond (Series B), 6.45%,
due December 1, 2016 1,940,000 1,980,000
Unsecured Business Finance Authority
1997 Revenue Bond, 6.30%, due
May 1, 2022 4,000,000 --
Unsecured notes payable and line of
credit revolving loan facility at
rates ranging from 7.44% to 8.50%
due May 31, 1999 3,680,000 3,195,000
Mortgage note payable to bank, 10% due
December 6, 2004 -- 131,853
Mortgage note payable to bank, 10%, due
January 31, 2008 1,141,792 --
Capitalized lease obligation 55,826 --
--------------------------
26,677,618 21,945,603
Less current portion 100,000 818,750
--------------------------
<PAGE> 48
$26,577,618 $21,126,853
==========================
</TABLE>
The 1994 Series A and B Bonds are not subject to optional redemption until
2004 at which time they may be redeemed in whole or in part at a premium not
to exceed 2% and may be redeemed at par on or after December 1, 2008. The
notes and bonds payable require periodic interest payments (either monthly
or semi-annually) which are based on the outstanding principal balances. The
aggregate principal payment requirements subsequent to December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998 $ 100,000
1999 3,863,000
2000 333,000
2001 333,000
2002 316,826
2003 and thereafter 21,731,792
</TABLE>
The note and bond agreements require, among other things, the maintenance of
certain financial ratios and restrict the payment or declaration of
dividends by Pennichuck. Under Pennichuck's most restrictive covenant,
cumulative common dividend payments or declarations by Pennichuck subsequent
to December 31, 1989 are limited to cumulative net income earned after that
date plus $1,000,000. At December 31, 1997, approximately $3,745,000 of
Pennichuck's retained earnings was unrestricted for payment or declaration
of common dividends.
During 1997, 1996 and 1995, the Company paid interest of $1,759,000,
$1,482,000 and $1,697,000, respectively.
The Company has available a $4,500,000 unsecured, revolving credit facility
with a bank, of which $3,680,000 was outstanding at December 31, 1997.
Outstanding borrowings under this facility are due on June 30, 2000. The
interest rates on the outstanding borrowings are based on the bank's cost of
funds and LIBOR, as defined, and ranged from 7.44% to 8.50% at December 31,
1997. During 1997, the weighted average interest rate on borrowings under
this facility of the Company was 7.75% and 7.74% during 1996.
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial instruments included in the accompanying
Consolidated Balance Sheet as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Carrying Value Fair Value
----------------------------
<S> <C> <C>
Long-term debt $26,677,618 $28,121,416
</TABLE>
<PAGE> 49
There are no quoted market prices for the Company's various long-term debt
issues and thus, their fair values have been determined based on quoted
market prices for securities similar in nature and in remaining maturities.
The fair values shown above do not purport to represent the amounts at which
those obligations would be settled.
The carrying values of the Company's cash, restricted cash, notes payable
and line of credit to the bank at December 31, 1997 approximate their fair
values because of the short maturity dates of those financial instruments.
NOTE E - BENEFIT PLANS
Pension Plan
The Company has a defined benefit pension plan covering substantially all
full-time employees. The benefits are formula-based, giving consideration to
both past and future service. The Company's funding policy is to contribute
annually up to the maximum amount deductible for federal tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$2,014,577 in 1997 and
$1,789,383 in 1996 $ 2,023,847 $ 1,796,966
==========================
Projected benefit obligation for service
rendered to date $(2,451,150) $(2,185,580)
Plan assets at a fair value (insurance contracts) 2,656,625 2,228,687
--------------------------
Plan assets in excess of projected
benefit obligation 205,475 43,107
Prior service costs 8,306 9,091
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions 64,854 161,450
Unrecognized net transition asset (124,679) (138,486)
--------------------------
Prepaid pension cost included in
Deferred charges and other assets $ 153,956 $ 75,162
==========================
</TABLE>
Net pension cost for 1997, 1996 and 1995 includes the following components:
<PAGE> 50
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $138,996 $126,933 $114,948
Interest cost on projected
benefit obligation 163,290 145,325 126,765
Actual return on plan assets (200,193) (149,411) (152,954)
Amortization of (gains)
and deferrals (11,596) (47,956) (13,022)
--------------------------------
Net periodic pension cost $ 90,497 $ 74,891 $ 75,737
================================
</TABLE>
For the years ended December 31, 1997 and 1996, the actuarial present value
of the projected benefit obligation was determined using a discount rate of
7.5 percent and an assumed rate of increase in future compensation levels of
5 percent in 1997 and 1996. The expected long-term rate of return on plan
assets was 9 percent in 1997, 1996 and 1995.
Salary Deferral Plan
In addition, the Company has a salary deferral plan covering substantially
all full-time employees. Under this plan, the Company matches 100% of the
first 3% of the employee's salary contributed to the plan. The matching
employer's contributions were $68,103, $61,882 and $62,287, respectively,
for 1997, 1996 and 1995.
Other Postretirement Benefits
The Company provides postretirement medical benefits to current and retired
employees, which are payable upon reaching normal retirement date. Future
benefits payable to current employees are capped based on the actual
percentage of wage and salary increases earned from the plan inception date
to normal retirement date. The accumulated benefit obligation, unrecognized
transition obligation and net periodic postretirement benefit cost for the
years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Current active employees $(300,339) $(268,303)
Retirees (198,457) (192,853)
-----------------------
Total (498,796) (461,156)
Plan assets at fair value 0 0
-----------------------
Funded status (underfunded) (498,796) (461,156)
<PAGE> 51
Unrecognized net (gain) (124,289) (129,883)
Unrecognized prior service cost 139,100 153,600
Unrecognized transition obligation 153,500 184,400
-----------------------
Accrued postretirement
benefit cost $(330,485) $(253,039)
=======================
Service cost $ 22,478 $ 22,129
Interest cost 33,928 31,452
Amortization of prior service cost 14,500 14,500
Amortization of transition obligation 30,900 30,900
Amortization of unrecognized (gains) (4,385) (4,282)
-----------------------
$ 97,421 $ 94,699
=======================
</TABLE>
The Company is presently allowed to recover a portion of the postretirement
benefits relating to active employees and retirees in its rates. To
calculate the estimated accumulated benefit obligation for 1997 and 1996,
the Company has assumed a discount rate of 7.5 percent and a maximum medical
care cost trend rate of 5 percent, which is the projected annual increase in
future compensation levels. A one percent increase in the assumed health
care cost trend rate would have increased the postretirement benefit cost by
$14,495 and the accumulated postretirement benefit obligation by $92,550 in
1997.
NOTE F - STOCK BASED COMPENSATION PLANS
The Company has a stock option plan for officers and key employees which
provides for incentive options. The Company accounts for the plan under APB
Opinion No. 25, under which no compensation cost has been recognized in the
Consolidated Statements of Income. On a pro forma basis, the Company's net
income and earnings per share would have been reduced to the following
amounts had compensation cost for the plan been determined consistent with
SFAS No. 123, "Accounting for Stock Based Compensation."
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
Net income:
As reported $1,207,023 $1,289,018
Pro forma $1,200,626 $1,277,778
Earnings per share:
As reported $ 1.01 $ 1.09
Pro forma $ 1.00 $ 1.08
</TABLE>
Because the methodology proscribed by SFAS 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. At December 31, 1997, all options which had been granted were
<PAGE> 52
exercisable and 75,000 share were available for future grants under the plan
as shown in the following table:
<TABLE>
<CAPTION>
Reserved Options Price Per
Shares Outstanding Share
---------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 41,160 16,950 $8.33-$10.00
Granted 12,000 $10.00
Expired (41,160)
Exercised (60) $ 8.33
Additional shares reserved 75,000 -0-
--------------------
Balance at December 31, 1995 75,000 28,890 $8.33-$10.00
Granted 6,788 $11.50
Expired
Exercised (510) $8.33-$11.50
--------------------
Balance at December 31, 1996 75,000 35,168 $8.33-$11.50
Granted 6,788 $10.83
Expired --
Exercised (1,575) $8.33-$10.83
--------------------
Balance at December 31, 1997 75,000 40,381 $8.33-$11.50
======
</TABLE>
Of the 40,381 options outstanding at December 31, 1997, 4,290 have an
exercise price of $8.33 and a remaining contractual life of less than one
year; 22,725 shares have an exercise price of $10.00 and a remaining life of
1 to 2 years; 6,728 shares have an exercise price of $11.50 and a remaining
life of 8 years; and 6,638 shares have an exercise price of $10.83 and a
remaining life of 9 years. Shares acquired pursuant to such options are
subject to a restriction against transfer for a period of twelve months
after acquisition by the employee. The fair value of each option grant is
estimated on the date of grant using the Black-Sholes option pricing model
with the following assumptions used for grants in 1997 and 1996,
respectively: risk-free interest rates of 6.3% and 5.5%; expected dividend
yields of 5.4% and 5.2%; expected lives of 5 years; and expected volatility
of 22% and 34%.
In September 1997, the Company amended its deferred compensation plan for
its directors. Under the terms of the amended plan, directors may elect to
receive their directors' fees in common shares of the Company or in cash
upon either attaining age 70 or retirement from the board of directors. As
of December 31, 1997, 12,779 common shares of the Company had been reserved
for issuance under this plan.
NOTE G - Merger of the Company and Pittsfield Aqueduct Company
On January 30, 1998, Pittsfield Aqueduct Company ("Pittsfield") was merged
with and into the Company through the issuance of 49,428 shares of
Pennichuck Corporation which were exchanged for substantially all of the
outstanding common shares of Pittsfield. The merger has been accounted for
<PAGE> 53
as a pooling-of-interests. Accordingly, the Company's financial statements
have been restated to include the results of Pittsfield for all periods
presented.
The combined and separate results of the Company and Pittsfield during the
periods preceding and after the merger were as follows:
<TABLE>
<CAPTION>
Consolidated
Pennichuck
Corporation Pittsfield Combined
----------------------------------------
<S> <C> <C> <C>
Nine months ended September 30, 1998:
Operating revenues $12,940,867 $352,282 $13,293,149
Net income $ 1,734,963 $ 60,343 $ 1,795,306
Year ended December 31, 1997:
Operating revenues $11,840,700 $214,817 $12,055,517
Net income $ 1,290,091 $(83,068) $ 1,207,023
Year ended December 31, 1996:
Operating revenues $12,202,688 $214,528 $12,417,216
Net income $ 1,238,485 $ 50,533 $ 1,289,018
Year ended December 31, 1995:
Operating revenues $11,486,183 $214,297 $11,700,480
Net income $ 1,094,970 $ 64,903 $ 1,147,603
</TABLE>
NOTE H - SUBSEQUENT EVENT-ACQUISITION
On November 5, 1997, the Company entered into an Agreement of Purchase and
Sale of Assets with the Town of Hudson, New Hampshire (the "Town") whereby
the Company agreed to purchase from the Town certain water utility assets
located outside of the Town's municipal jurisdiction for $7.5 million. This
purchase occurred in April 1998 once those assets, in addition to certain
water utility assets located within the Town, were purchased by the Town
from an investor-owned water utility currently serving the Town and certain
surrounding communities. Those assets purchased by the Company were
transferred into a new, wholly-owned, operating subsidiary of the Company,
Pennichuck East Utility, Inc. which is regulated entity similar to
Pennichuck and Pittsfield. As a result of this purchase, the Company has
added approximately 3,600 customers to its existing customer base and the
annual revenues from these added customers is estimated to be $2.3 million.
All regulatory approvals relating to this transaction have been received at
this time.
In order to fund this purchase from the Town, the Company obtained permanent
debt financing from its bank. The $7.5 million financing consists of two
notes with maturities of 2 and 7 years. In connection with this debt, the
Company has entered into two interest rate swap agreements which fix the
<PAGE> 54
interest rates at 6.20% and 6.50%, respectively. These notes are secured
by the operating assets of the new operating subsidiary.
In addition, the Service Corporation and the Town entered into a long-term
contract whereby the Service Corporation will provide certain operations and
maintenance functions for the Town in exchange for an annual fee. The initial
term of this agreement is for five years with options to renew thereafter.
NOTE I - STOCK SPLIT
On August 7, 1998, the Company's Board of Directors declared a three for two
stock split effected in the form of a stock dividend payable on September 1,
1998 to shareholders of record on August 18, 1998. The Company's retained
earnings have been charged for the aggregate par value of the shares issued
as a dividend and such aggregate par value has been transferred to the
Company's common stock account for all periods presented in the financial
statements.
NOTE J - BUSINESS SEGMENT INFORMATION
Pennichuck Corporation's operating activities are grouped into two primary
business segments as follows:
Water utility - Involved in the collection, treatment and distribution of
potable water for domestic, industrial, commercial and fire protection
service in the City of Nashua and certain surrounding communities in
southern and central New Hampshire.
Real estate - Involved in the ownership, development, management and sale of
industrial and residential property in Nashua and Merrimack, New Hampshire.
The tables below present information about Pennichuck Corporation's two
primary business segments for the years ended December 31, 1997, 1996 and
1995. The "Other" category includes the sundry activities of the Company and
the Service Corporation.
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Operating revenues:
Water utility $11,415,065 $10,907,679 $11,003,037
Real Estate 514,143 1,320,676 631,181
Other 126,309 188,861 66,262
-----------------------------------------
Total operating revenues $12,055,517 $12,417,216 $11,700,480
=========================================
Operating income (loss):
Water utility $ 3,266,171 $ 3,180,782 $ 3,684,726
Real estate 316,411 421,025 (190,425)
Other 134,224 106,219 83,094
-----------------------------------------
Total operating income $ 3,716,806 $ 3,708,026 $ 3,577,395
=========================================
<PAGE> 55
Capital additions:
Water utility $ 5,974,194 $ 3,205,211 $ 2,650,100
Real estate -- -- --
Other 19,531 18,740
-----------------------------------------
Total capital additions $ 5,974,194 $ 3,224,742 $ 2,668,840
=========================================
Identifiable assets:
Water utility $53,331,333 $45,894,108 $45,058,034
Real estate 2,554,608 3,223,048 3,036,524
Other 1,354,508 2,239,979 1,041,871
-----------------------------------------
Total identifiable assets $57,240,449 $51,357,135 $49,136,429
=========================================
Depreciation and amortization expense:
Water utility $ 1,452,757 $ 1,217,038 $ 1,132,833
Real estate 4,385 -- --
Other 29,513 29,372 30,066
-----------------------------------------
Total depreciation and
amortization expense $ 1,486,655 $ 1,246,410 $ 1,162,899
=========================================
</TABLE>
The operating revenues within each business segment are sales to
unaffiliated customers. Operating income (loss) is defined as segment
revenues less operating expenses including allocable Parent Company expenses
attributable to each business segment as shown below.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Allocated parent expenses:
Water utility $345,785 $273,983 $308,130
Real estate and other 50,970 39,823 23,507
--------------------------------
Total allocated parent expenses $396,755 $313,806 $331,637
================================
</TABLE>
Within the water utility business segment, one customer accounted for over
10 percent of total operating revenues. During 1997, 1996, and 1995, Pennichuck
recorded $1,693,000, $1,685,000, and $1,683,000, respectively, in water
revenues which were derived from fire protection and other billings to the
City of Nashua.
<PAGE> 56
NOTE K - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
1998
Operating Revenues $2,916 $3,973 $6,404
Operating Income 849 1,411 2,385
Net Income 236 510 1,049
Earnings Per Share $ .29 $ .32 $ .85
1997
Operating Revenues $2,551 $2,946 $3,571 $2,988
Operating Income 593 961 1,411 752
Net Income 122 326 589 170
Earnings Per Share $ .10 $ .27 $ .49 $ .15
1996
Operating Revenues $2,961 $2,780 $3,161 $3,515
Operating Income 546 948 1,049 1,165
Net Income 79 347 396 467
Earnings Per Share $ .07 $ .29 $ .33 $ .40
</TABLE>
420,000 Shares
Pennichuck Corporation
Common Stock
(Par Value $1.00 Per Share)
<PAGE> 57
PROSPECTUS
Edward D. Jones & Co., L.P.
November __, 1998
No person is authorized with any offering made hereby to give any
information or to make any representation not contained in this Prospectus,
and if given or made, such information or representation must not be relied
upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the common stock offered hereby, nor
does it constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby to any person in any jurisdiction in which
it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made hereunder shall
under any circumstances create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
-------------------------------------------
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities hereunder other
than underwriting discounts and commissions.
Registration Fee $ 3,348
Nasdaq National Market
Listing Fee 38,750
NASD Filing Fees 1,675
Printing, Postage and Mailing 25,000
Issuer's Legal Fees and Expenses 30,000
Blue Sky Fees and Expenses 2,000
Accountants' Fees and Expenses 30,000
<PAGE> 58
Transfer Agent's Fees 2,500
Miscellaneous 5,000
--------
TOTAL $138,233
___________________
Item 15. Indemnification of Directors and Officers
-----------------------------------------
Chapter 293-A:8.51 of the New Hampshire Business Corporation Act
("NHBCA") provides that a corporation may indemnify an individual made a
party to a proceeding because he is or was a director, against liability
incurred in the proceeding if: (1) he conducted himself in good faith; and
(2) he reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests,
and (ii) in all other cases, that his conduct was at least not opposed to
its best interests; and (3) in the case of any criminal proceeding, he had
no reasonable cause to believe his conduct was unlawful. A corporation may
not indemnify a director under said Section of the NHBCA: (1) in connection
with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the Corporation; or, (2) in connection with
any other proceeding charging improper personal benefit to him, whether or
not involving action in his official capacity, in which he was adjudged
liable on the basis that personal benefit was improperly received by him.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which he was a party because he is or
was a director of the corporation against reasonable expenses incurred by
him in connection with the proceeding. NHBCA, RSA 293-A:8.52.
The registrant's By-Laws contain the following provision with respect
to indemnification of directors and officers.
Article V of the Company's Bylaws provides that 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 or
administrative or investigative, other than an action by or in the right of
the Company, by reason of the fact that he or she is or was a director,
officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified by the Company against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with the action, suit or proceeding; provided,
however, that no person shall be indemnified unless he or she acted in good
faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Company; and provided, further, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to
<PAGE> 59
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Such Bylaw further provides that the Company shall have the power 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 or suit by or in the
right of the Company to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including attorney's
fees, actually and reasonably incurred by him in connection with the defense
or settlement of the action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Company and except that no indemnification shall be made in respect
of any claim, issue or matter as to which the person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of
the case, the person is fairly and reasonably entitled to indemnity for
expenses which the court shall deem proper.
To the extent that a director, officer, employee or agent of the
Company has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to hereinabove, or in defense of any
claim, issue or matter based hereinabove, he shall be indemnified against
expenses, including attorney's fees, actually and reasonably incurred by him
in connection therewith.
Such Bylaw further provides that any such indemnification, unless
ordered by a court, shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth hereinabove. This
determination shall be made: (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to the action,
suit or proceeding; or (ii) by independent legal counsel in a written
opinion if such quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested directors so directs; or (iii) by the shareholders.
Expenses, including attorney's fees, incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of
the final disposition of the action, suit or proceeding as authorized in the
manner provided hereinabove, upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay the amount unless it
shall ultimately be determined that he is entitled to be indemnified by the
Company as authorized under the Bylaws.
Such Bylaw further provides that the foregoing right of
indemnification shall not be deemed exclusive of any other rights to which
such person may be entitled under any Bylaw, agreement, vote of shareholders
or disinterested directors or otherwise, both as to actions in his official
capacity and as to actions in another capacity while holding office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of that person.
There are directors' and officers' liability insurance policies
presently outstanding which insure directors and officers of the Company.
<PAGE> 60
The policies cover losses for which the Company shall be required or
permitted by law to indemnify directors and officers and which result from
claims made against such directors or officers based upon the commission of
wrongful acts in the performance of their duties and for which they are not
indemnified by the Company. The losses covered by the policies are subject
to certain exclusions and do not include fines or penalties imposed by law
or other matters deemed uninsurable under the law.
Item 16. Exhibits
--------
The exhibits filed as part of this Registration Statement are as
follows (filed herewith unless otherwise noted):
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of
Pennichuck Corporation (Filed as
Exhibit 3.1 to the Company's 1990
Form 10-K Report and incorporated
herein by reference)
3.2 Articles of Amendment to the Articles
of Incorporation of Pennichuck
Corporation (Filed as Exhibit 3.2 to
the Company's 1994 Form 10-KSB Report
and incorporated herein by reference)
3.3 Amended and Restated Bylaws of Pennichuck
Corporation (Filed as Exhibit 3.3 to
the Company's 1995 second quarter
Form 10-QSB Report and incorporated
herein by reference)
5.1 Opinion of Gallagher, Callahan & Gartrell, P.A.
with respect to legality*
10.1 1985 Stock Option Plan (Filed as Exhibit 10.1
to the Company's registration statement on Form 10
filed in April 1990 and incorporated herein by reference)
10.2 Deferred Compensation Program for Directors of
Pennichuck Corporation (Filed as Exhibit 10.2 to the
Company's 1997 Form 10-KSB Report and incorporated
herein by reference)
10.3 Amended Line of Credit Agreement dated October 2, 1991
between Pennichuck Corporation and Fleet Bank-NH
(Filed as Exhibit 10.7 to the Company's 1991 Form 10-K
Report and incorporated herein by reference)
<PAGE> 61
10.4 Second Amendment dated March 23, 1994 to Line of
Credit Agreement between Pennichuck Corporation
and Fleet Bank-NH dated October 2, 1991 (Filed as
Exhibit 10.7 to the Company's 1994 first quarter
Form 10-QSB Report and incorporated herein by reference)
10.5 Amended and Restated Revolving Line of Credit Loan
Agreement dated March 23, 1994 between Pennnichuck
Corporation and Fleet Bank-NH
(Filed as Exhibit 10.8 to the Company's 1994 second
quarter Form 10-QSB Report and incorporated herein
by reference)
10.6 Insurance Funded Deferred Compensation Agreement
dated June 13, 1994 (Filed as Exhibit 10.9 to the
Company's 1994 second quarter Form 10-QSB Report and
incorporated herein by reference)
10.7 Amendment Agreement dated May 4, 1995 to Amended and
Restated Revolving Line of Credit Loan Agreement dated
March 23, 1994 between Pennichuck Corporation and Fleet
Bank-NH (Filed as Exhibit 10.8 to the Company's 1995
second quarter Form 10-QSB Report and incorporated
herein by reference)
10.8 1995 Incentive Stock Option Plan (Filed as Exhibit 10.9
to the Company's 1995 second quarter Form 10-QSB Report
and incorporated herein by reference)
10.9 Amendment Agreement dated July 31, 1996 to Amended
and Restated Revolving Line of Credit Loan Agreement dated
March 23, 1994 between Pennichuck Corporation and
Fleet Bank-NH (Filed as Exhibit 10.10 to the
Company's 1996 third quarter Form 10-QSB Report and
incorporated herein by reference)
10.10 Amendment Agreement dated March 18, 1998 to Amended
and Restated Revolving Line of Credit Loan Agreement dated
March 23, 1994 between Pennichuck Corporation and Fleet
Bank-NH (Filed as Exhibit 10.10 to the Company's 1998 first
quarter Form 10-QSB report and incorporated herein by
reference)
10.11 Loan Agreement dated April 8, 1998 between Pennichuck
Corporation, Pennichuck East Utility, Inc. and Fleet Bank-
NH (Filed as Exhibit 10.11 to the Company's 1998 second
quarter Form 10-QSB report and incorporated herein by
reference)
10.12 Amendment Agreement dated April 24, 1998 to Loan
Agreement dated April 8, 1998 between Pennichuck
Corporation, Pennichuck East Utility, Inc., The Southwood
Corporation, Pennichuck Water Service Corporation and
Fleet Bank-NH (Filed as Exhibit 10.12 to the Company's
1998 second quarter Form 10-QSB report and incorporated
herein by reference)
23.1 Consent of Arthur Andersen LLP
<PAGE> 62
23.2 Consent of Gallagher, Callahan &
Gartrell, P.A. (included in their
opinion filed as Exhibit 5.1, and incorporated
herein by reference)*
24.1 Power of Attorney*
99.1 Financial Statement Schedule*
* Previously filed.
Item 17. Undertakings
------------
The undersigned registrant hereby agrees:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b)if, in the aggregate, the
changes in the volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change in such
information in the registration statement;
provided, however, that (a)(i) and (a)(ii) will not apply if the
information required to be included in a post-effective amendment
thereby is contained in periodic reports filed pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
<PAGE> 63
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, (1) the information omitted from the form of
prospectus filed as a 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 shall
be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) 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;
(e) That 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 provisions described
under Item 15 above, 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 Act 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 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, 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 Pre-Effective Amendment No. 1 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Nashua, State of New Hampshire on November 5, 1998.
PENNICHUCK CORPORATION
(Registrant)
By: /s/ Maurice L. Arel
------------------------
Name: Maurice L. Arel
Title: President
<PAGE> 64
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Pre-Effective Amendment No. 1 to the registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Maurice L. Arel President, Chief November 5, 1998
- --------------------------- Executive Officer and
Maurice L. Arel Director
(Principal Executive
Officer)
* Executive Vice November 5, 1998
- --------------------------- President and Director
Stephen J. Densberger
* Vice President, November 5, 1998
- --------------------------- Treasurer, Chief
Charles J. Staab Financial Officer
and Director
(Principal Financial
Officer)
* Vice President, November 5, 1998
- --------------------------- Controller and Chief
Bonalyn J. Hartley Accounting Officer
(Principal Accounting
Officer)
* Director November 5, 1998
- ---------------------------
Joseph A. Bellavance
* Director November 5, 1998
- ---------------------------
Charles E. Clough
* Director November 5, 1998
- ---------------------------
Hannah M. McCarthy
* Director November 5, 1998
- ---------------------------
Robert P. Keller
<PAGE> 65
* Director November 5, 1998
- ---------------------------
John R. Kreick
* Director November 5, 1998
- ---------------------------
Martha E. O'Neill
* By /s/ Maurice L. Arel
----------------------------------
Maurice L. Arel, Attorney-in-Fact
EXHIBIT 1.1
EXHIBIT 1.1
420,000 SHARES OF COMMON STOCK
OF
PENNICHUCK CORPORATION
UNDERWRITING AGREEMENT
----------------------
November ___, 1998
Edward D. Jones & Co., L.P.
12555 Manchester Road
St. Louis, Missouri 63131
Dear Sirs:
Pennichuck Corporation, a New Hampshire corporation (the "Company"),
confirms its agreement with Edward D. Jones & Co., L.P. (the "Underwriter") as
follows:
1. Description of Shares. The Company proposes to issue and sell to
the Underwriter 420,000 shares of the common stock, par value $1.00 per share
("Common Stock") of the Company (such 420,000 shares are hereinafter sometimes
referred to as the "Firm Shares"). In addition, solely for the purpose of
covering over-allotments, the Company proposes to grant the Underwriter the
option to purchase up to an additional 63,000 shares of Common Stock (the
<PAGE> 66
"Option Shares"). The Firm Shares and the Option Shares are hereinafter
sometimes referred to collectively as the "Shares." The Shares are more fully
described in the Registration Statement and Prospectus hereinafter defined.
2. Representations and Warranties of the Company. The Company
represents, warrants and agrees that:
(a) The Company meets the requirements for use of Form S-2 under
the Securities Act of 1933, as amended (the "Act") and has prepared and
filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-2 (Registration Statement No. 333-
65527) relating to the Shares and the offering thereof in accordance
with the Act and has filed such amendments thereto as may have been
required to the date hereof. The registration statement has been
prepared in conformity with the requirements of the Act and the rules
and regulations thereunder (the "Rules and Regulations"). Copies of
that registration statement as amended to date have been delivered by
the Company to you as the Underwriter. As used in this Agreement,
"Preliminary Prospectus" means each prospectus included in that
registration statement, or amendments of such registration statement or
prospectus, before that registration statement, as so amended, became
effective under the Act and any prospectus filed by the Company with the
consent of the Underwriter pursuant to Rule 424(a) of the Rules and
Regulations and the documents incorporated by reference in such
preliminary prospectus. "Registration Statement" means that
registration statement including the prospectus, exhibits and financial
statements, and all documents incorporated by reference therein,
including any information deemed by virtue of Rule 430A(a)(3) of the
Rules and Regulations to be part of such Registration Statement, as of
the time such registration statement or post-effective amendment became
effective under the Act; and "Prospectus" means the prospectus filed
with the Commission by the Company with the consent of the Underwriter
pursuant to Rule 424(b) of the Rules and Regulations, unless no such
Rule 424(b) Prospectus is filed, in which case it shall mean the
Prospectus filed as part of the last Registration Statement filed on or
before the effective date thereof. The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
(b) Each Preliminary Prospectus, at the time of the filing
thereof, did not 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, in light of the circumstances in which
made, not misleading; provided that no representation or warranty is
made as to information contained in or omitted from any Preliminary
Prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter specifically
for inclusion therein. The Registration Statement has been declared
effective by the Commission.
(c) The Registration Statement and the Prospectus in all
material respects: (i) complied as of the date the Registration became
effective, (ii) comply as of the date hereof and (iii) will comply as
of the Closing Date, as hereinafter defined, with the requirements of
the Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission under such Acts;
the Registration Statement and any amendment thereof, at the time it
became effective, did not contain an untrue statement of a material
act or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the
<PAGE> 67
Prospectus, at the time the Registration Statement became effective did
not, as of the date hereof does not and as of the Closing Date will not,
contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
Paragraph 0 shall not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by the
Underwriter expressly for use in the Registration Statement or the
Prospectus.
(d) 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 Commission, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder (the "Exchange Act Rules and Regulations"), comply
in all material respects with the requirements of the Exchange Act and
the Exchange Act Rules and Regulations and did not 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, in
the light of the circumstances under which they are made, not
misleading.
(e) Arthur Andersen LLP, the accountants whose report appears in
the Prospectus, are independent public accountants as required by the
Act and the Rules and Regulations.
(f) The consolidated financial statements of the Company and its
subsidiaries filed as part of the Registration Statement or included in
any Preliminary Prospectus or the Prospectus present fairly, and the
financial statements included in any amendment or supplement to the
Prospectus will present fairly, the financial condition and results of
operations of the Company and its subsidiaries, at the dates and for the
periods indicated, and have been, and in the case of financial
statements included in any amendment or supplement to the Prospectus
will be, prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved. No other financial statements are required to be set forth in
the Registration Statement or the Prospectus under the Act or the Rules
and Regulations thereunder.
(g) Except as described in or contemplated by the Registration
Statement and the Prospectus, subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries (as defined
in Paragraph 0) has incurred any material liability or obligation,
direct or contingent, or entered into any material transaction, whether
or not in the ordinary course of business, and there has not been any
material change on a consolidated basis in the Company"s capital stock,
or any material increase in the long-term debt of the Company or any of
its subsidiaries, or any issuance of options, warrants, convertible
securities or other rights to purchase capital stock of such entity, or
any material adverse change in, or any adverse development which
materially affects, the business, properties, financial condition,
results of operations, or prospects of the Company and its
subsidiariestaken as a whole.
<PAGE> 68
(h) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing and in good standing under the laws of
its jurisdiction of incorporation, and the Company and each of its
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which their respective
ownership of property or the conduct of their respective businesses
requires such qualification and wherein the failure to be so qualified
would have a material adverse effect on the business of the Company and
each of its subsidiaries, and have all power and authority necessary to
own or hold their properties and to conduct the business in which they
are engaged. All outstanding shares of capital stock of the
subsidiaries of the Company are owned directly or indirectly by the
Company and are validly authorized, issued and outstanding, fully paid
and non-assessable with no personal liability attaching to the ownership
thereof, and all of such shares are owned free and clear of any lien,
pledge or encumbrance or any claim of any third party, with the
exception of the shares that have been pledged by the Company to Fleet
Bank - NH ("Fleet") pursuant to that certain Loan Agreement entered into
by and between the Company, Pennichuck East Utility, Inc.and Fleet dated
April 8, 1998.
(i) The authorized and outstanding capitalization of the Company
as of September 30, 1998 was as set forth in the Registration Statement
and the Prospectus, and there have been no changes in the authorized or
outstanding capitalization of the Company since September 30, 1998
except as contemplated by the Registration Statement and the Prospectus.
When the Shares have been issued, delivered and paid for in the manner
herein described, the Shares will be fully paid, duly issued and non-
assessable; the Shares conform to all statements relating thereto in the
Registration Statement, and holders of the Shares will not be entitled
to preemptive rights.
(j) The filing of the Registration Statement and the execution
and delivery by the Company of this Agreement, and the consummation of
the transactions contemplated hereby and thereby, have been duly
authorized by the board of directors of the Company, and all necessary
corporate action to authorize and approve the same has been taken. This
Agreement has been duly executed and delivered by the Company and is a
valid and legally binding obligation of the Company.
(k) The Company and its subsidiaries have good and marketable
title to, or valid and enforceable leasehold interests in, all items of
real and personal property which are material to the business of the
Company and its subsidiaries taken as a whole, free and clear of all
liens, encumbrances and claims (other than the liens disclosed in the
Prospectus) which might materially interfere with the conduct of the
business of the Company and its subsidiaries taken as a whole.
(l) Except to the extent disclosed in the Prospectus, neither the
Company, nor any of its subsidiaries, is in violation of its corporate
charter or bylaws or in default under any obligation, agreement,
covenant or condition contained in any mortgage or other material
contract, lease, note, indenture or instrument to which it is a party or
by which it may be bound, the effect of which violation or default would
be material to the Company and its subsidiaries taken as a whole, or is
in violation in any material respect of any law, ordinance, governmental
rule, regulation or court decree to which it or its property may be
subject the effect of which violation would be material to the Company
and its subsidiaries taken as a whole, or has failed to obtain any
<PAGE> 69
material license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or to
the conduct of its business; and the execution, delivery and performance
of this Agreement by the Company, the sale of the Shares and the
consummation of the transactions contemplated by this Agreement will not
conflict with, result in the creation or imposition of any lien, charge
or encumbrance upon any of the properties or assets of the Company
pursuant to the terms of, or constitute a breach of or default under,
any agreement, indenture or instrument to which the Company is a party,
or by which the Company is bound, or result in a violation of the
corporate charter or bylaws of the Company or any law or ordinance to
which the Company or its properties may be subject or of any order, rule
or regulation of any court or governmental agency having jurisdiction
over the Company or its properties, except for conflicts, breaches,
violations or defaults which would be immaterial to the business and
operations of the Company and its subsidiaries taken as a whole and
which would not affect the validity or enforceability of this Agreement
or otherwise adversely affect the rights, duties or obligations of the
Underwriter or the holders of the Shares.
(m) No approval or consent of any governmental body, other than
as may be required under the Act or in connection or compliance with the
provisions of the securities or "blue sky" laws of any jurisdiction, is
legally required for the carrying out by the Company of the provisions
of this Agreement.
(n) Except as described in the Registration Statement and the
Prospectus, there is no litigation or governmental proceeding pending
or, to the knowledge of the Company threatened against the Company or
any of its subsidiaries which, if adversely resolved, could reasonably
be expected to result in any material adverse change in the business,
properties, financial condition, results of operations or prospects of
the Company and its subsidiaries taken as a whole or which is required
to be disclosed in the Registration Statement or the Prospectus.
(o) There are no contracts or other documents which are required
to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations which have not been filed as exhibits to the
Registration Statement.
(p) The Company and each of its subsidiaries have sufficient
authority under statutory provisions or by grant of franchises or
permits by municipalities or counties to conduct in all material
respects their respective businesses as presently conducted and as
described in the Registration Statement and Prospectus.
(q) Except as set forth in the Registration Statement and the
Prospectus, the Company and its subsidiaries are in compliance with all
applicable existing federal, state and local laws and regulations
relating to protection of human health or the environment or imposing
liability or standards of conduct concerning any Hazardous Material
("Environmental Laws"), except for such instances of noncompliance
which, either singly or in the aggregate, would not have a material
adverse effect on the condition (financial or otherwise), results of
operations or properties of the Company and its subsidiaries, taken as a
whole. The term "Hazardous Material" means (i) any "hazardous
substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (ii) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act, as
<PAGE> 70
amended, (iii) any petroleum or petroleum product, (iv) any
polychlorinated biphenyl and (v) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other law relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical, material, waste or
substance.
(r) No material labor dispute with the employees of the Company
or any of its subsidiaries exists or, to the knowledge of the Company,
is imminent; and the Company knows of no existing or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors which might reasonably be expected to
result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company and its subsidiaries taken as a whole.
(s) Each of the Company and its subsidiaries owns, possesses or
has the right to use all material licenses, trademarks, patents, patent
rights, inventions, copyrights, service marks and trade names presently
employed by it in connection with the businesses now operated by it, and
neither the Company nor any of its subsidiaries has received any notice
of infringement of or conflict with asserted rights of others with
respect to any of the foregoing.
(t) The Company and its subsidiaries maintain insurance covering
their properties, operations, personnel and businesses which insures
against such losses and risks as are adequate in accordance with its
reasonable business judgment to protect the Company and its subsidiaries
and their businesses. Neither the Company nor any of its subsidiaries
has received notice from any insurer or agent of such insurer that
substantial capital improvements or other expenditures will have to be
made in order to continue such insurance. All such insurance is
outstanding and duly in force on the date hereof and will be outstanding
and duly in force on the Closing Date.
(u) Neither the Company nor any of its subsidiaries is an
"investment company" or an entity "controlled" by an "investment
company," as such terms are defined in the Investment Company Act of
1940, as amended.
(v) The Company and each of its subsidiaries have all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and have made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use their respective properties and assets and to conduct their
respective businesses in the manner described in the Prospectus, except
to the extent that the failure to obtain or file would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriter shall be deemed a representation and
warranty by the Company to the Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell to the Underwriter,
<PAGE> 71
and the Underwriter agrees to purchase the Firm Shares from the Company. The
purchase price for the Firm Shares will be an amount equal to the initial
public offering price for the Shares as set forth in the Prospectus (the
"Share Public Offering Price"), less 5% of the Share Public Offering Price.
Delivery of the Firm Shares, in definitive form, and payment therefor,
shall be made at 10:00 A.M., St. Louis time, on the fourth business day after
the Registration Statement shall have been declared effective by the
Commission, or on such later date and time as may be agreed upon in writing
between the Underwriter and the Company, such day and time of delivery and
payment being herein called the "Closing Date." On the Closing Date, the Firm
Shares shall be delivered by the Company to the Underwriter at The Depository
Trust Company in New York, New York, against payment of the purchase price
therefor in funds immediately available to the order of the Company. The
Company agrees to make available to the Underwriter for inspection and
packaging in New York, New York, at least one full business day prior to the
Closing Date, certificates for the Shares so to be delivered in good delivery
form and in such denominations and registered in such names as the Underwriter
shall have requested, all such requests to have been made in writing at least
one full business day prior to the Closing Date.
In addition, on the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the Underwriter the option to purchase all or a
portion of the Option Shares as may be necessary to cover over-allotments, at
the Share Public Offering Price, less 5% of the Share Public Offering Price.
This option may be exercised only to cover over-allotments in the sale of Firm
Shares by the Underwriter. This option may be exercised at any time (but not
more than once) on or before the thirtieth day following the effective date of
the Registration Statement by written notice by you to the Company. Such
notice shall set forth the number of Option Shares as to which the option is
being exercised, and the date and time, as reasonably determined by the
Underwriter, when the Option Shares are to be delivered (such date and time
being herein sometimes referred to as the "Additional Closing Date");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date nor earlier than the third business day after the date on
which the option shall have been exercised nor later than the eighth business
day after the day on which the option shall have been exercised, unless
otherwise agreed by the parties.
Payment for the Option Shares shall be made in immediately available
funds, payable to the order of the Company, at the offices of the Company, or
such other place as shall be agreed upon between us, against delivery of the
Option Shares to the Underwriter through the facilities of The Depository
Trust Company for the account of the Underwriter.
Certificates for the Option Shares shall be in such denominations and
registered in such names as requested in writing by the Underwriter at least
two business days prior to the Additional Closing Date.
4. Covenants. The Company covenants and agrees with the Underwriter:
(a) To furnish promptly to the Underwriter and counsel for the
Underwriter one signed copy of the Registration Statement as originally
filed, and of each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith.
(b) To deliver promptly to the Underwriter such number of
conformed copies of the Registration Statement as originally filed and
<PAGE> 72
each amendment thereto (excluding exhibits other than this Agreement)
and of each Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus as the Underwriter may reasonably request.
(c) To file promptly with the Commission the Prospectus pursuant
to Rule 424(b) of the Rules and Regulations and to file with the
Commission any amendment to the Registration Statement or the Prospectus
or any supplement to the Prospectus that may, in the reasonable judgment
of the Company or the Underwriter, be required by the Act or requested
by the Commission and approved by the Underwriter.
(d) Prior to filing with the Commission any amendment to the
Registration Statement or amendment or supplement to the Prospectus, or
to filing any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Underwriter and counsel
for the Underwriter and obtain the consent of the Underwriter to
the filing (which consent will not be unreasonably withheld).
(e) To use its best efforts to cause any required post-effective
amendment to the Registration Statement to become effective and to
advise the Underwriter promptly (i) when any post-effective amendment to
the Registration Statement becomes effective, (ii) of any request or
proposed request by the Commission for an amendment to the Registration
Statement, an amendment or a supplement to the Prospectus or for any
additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the initiation or threat of any stop order proceeding, (iv) of receipt
by the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threat of any proceeding for that purpose, and (v) of the
happening of any event which makes untrue any statement of a material
fact made in the Registration Statement or the Prospectus, or which
requires the making of a change in the Registration Statement or the
Prospectus in order to make any material statement therein not
misleading.
(f) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall
be necessary to amend or supplement the Registration Statement or the
Prospectus to comply with the Act or the Exchange Act or the rules and
regulations of the Commission under such Acts, the Company promptly will
prepare and file with the Commission, subject to Paragraph 0, an
amendment or supplement which will correct such statement or omission or
an amendment which will effect such compliance.
(g) If the Commission shall issue a stop order suspending the
effectiveness of the Registration Statement, to make every reasonable
effort to obtain the lifting of that order at the earliest possible
time.
(h) As soon as practicable after the effective date of the
Registration Statement, to make generally available to its security
holders and to deliver to the Underwriter an earnings statement,
conforming with the requirements of Section 11(a) of the Act, covering a
period of at least twelve months beginning after the effective date of
<PAGE> 73
the Registration Statement, provided that the Company may comply with
this Paragraph 0 by complying with the safe harbor provisions of Rule
158 of the Rules and Regulations.
(i) For a period of three years from the effective date of the
Registration Statement, to furnish to the Underwriter copies of all
reports to shareholders and all reports, filings and financial
statements furnished by the Company to any securities exchange pursuant
to requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder.
(j) To endeavor to qualify the Shares for offer and sale under
the securities laws of such jurisdictions as the Underwriter may
reasonably request, provided that no such qualification shall be
required if as a result thereof the Company would be required to qualify
as a foreign corporation, subject itself to general taxation or would be
made subject to service of general process, in each case in any
jurisdiction in which it is not so qualified or subject; and to maintain
such qualifications in effect so long as required for the distribution
of the Shares and to arrange for the determination of the legality of
the Shares for purchase by institutional investors.
(k) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company
will pay (i) the costs incident to the sale and delivery of the Shares
and any taxes payable in that connection; (ii) the costs incident to the
preparation, printing and filing under the Act of the Registration
Statement, any Preliminary Prospectus, the Prospectus and any
amendments, supplements and exhibits thereto; (iii) the costs of
distributing the Registration Statement as originally filed and each
amendment thereto and any post-effective amendments thereof (including
exhibits), any Preliminary Prospectus, the Prospectus, and any amendment
or supplement to the Prospectus; (iv) the costs, if any, of printing and
distributing this Agreement; (v) the costs of filings incident to
securing any required review by the National Association of Securities
Dealers, Inc.; (vi) the fees and expenses of qualifying the Shares under
the securities laws of the several jurisdictions as provided in this
Paragraph 0 and of preparing and printing a Blue Sky Memorandum
(including related fees and expenses of counsel to the Underwriter);
(vii) the cost of printing the certificates for the Shares; (viii) the
fees and expenses of the Company"s accountants and counsel; and (ix) all
other costs and expenses incident to the performance of the obligations
of the Company under this Agreement; provided, however, that except as
provided in sub-parts (v) and (vi) of this Paragraph 0 and in Paragraph
0, the Underwriter shall pay its own costs and expenses, including the
fees and expenses of its counsel, any transfer taxes on the Shares which
it may sell and the expenses of advertising any offering of the Shares
made by the Underwriter.
(l) Until the termination of the offering of the Shares, to file
timely all documents, and any amendments to previously filed documents,
required to be filed by it pursuant to the Exchange Act.
(m) To apply the net proceeds of the Shares as set forth in the
Prospectus.
(n) For a period of 60 days after the effective date of the
Registration Statement the Company will not, without the prior written
<PAGE> 74
consent of Edward D. Jones & Co., L.P., directly or indirectly sell,
contract to sell or otherwise dispose of any shares of the Company"s
Common Stock or rights to acquire such shares, except for the Shares
sold hereunder and except pursuant to (i) stock option plans or in
connection with other incentive compensation arrangements, or (ii) the
exercise of warrants, and the Company will use its best efforts to
obtain a similar agreement from each of its directors and executive
officers listed in the Prospectus.
5. Conditions of Underwriter"s Obligations. The obligations of the
Underwriter hereunder are subject to the accuracy, when made and on the
Closing Date, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed to the extent
required by the Act or the Rules and Regulations; at or before the
Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and prior to that time no
stop order proceeding nor any order directed at any document
incorporated by reference in the Prospectus shall have been initiated
or, to the knowledge of the Company, threatened by the Commission, and
no challenge shall have been made to any document incorporated by
reference in the Prospectus; any request of the Commission for inclusion
of additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with; and the Company
shall not have filed with the Commission the Prospectus or any amendment
or supplement to the Registration Statement or the Prospectus without
the consent of the Underwriter.
(b) The Underwriter shall not have discovered and disclosed to
the Company on or prior to the Closing Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the reasonable opinion
of the Underwriter or Armstrong, Teasdale, Schlafly, & Davis, counsel
for the Underwriter, is material or omits to state a fact that, in the
reasonable opinion of the Underwriter or such counsel, is material and
is required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Shares, the
form of the Registration Statement and the Prospectus, other than
financial statements and other financial data, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby shall be satisfactory in all reasonable respects to Armstrong,
Teasdale, Schlafly, & Davis, counsel for the Underwriter; and the
Company shall have furnished to such counsel all documents and
information that such counsel may reasonably request to enable them to
pass upon such matters.
(d) Gallagher, Callahan & Gartrell, P.A., as counsel to the
Company, shall have furnished to the Underwriter their opinion,
addressed to the Underwriter and dated the Closing Date, to the effect
that:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing and in good standing under
the laws of its jurisdiction of incorporation, is duly qualified
<PAGE> 75
to do business and in good standing as a foreign corporation in
each jurisdiction in which its ownership of property or conduct of
business requires such qualification and wherein the failure to be
so qualified would have a material adverse effect on the business
of the Company or such subsidiary, and has all corporate power and
authority necessary to own or hold its properties and conduct the
business in which it is engaged as described in the Prospectus.
(ii) All of the outstanding shares of Common Stock of the
Company (including the Shares) have been duly authorized and
validly issued, are fully paid and non-assessable and conform to
the description thereof in the Prospectus; and the shareholders of
the Company have no preemptive rights with respect to the Shares
being issued and sold by the Company hereunder.
(iii) All corporate action required to have been taken by
the Company for the due and proper authorization, issuance, sale
and delivery of the Shares, has been validly and sufficiently
taken, and the Shares have been duly authorized, validly issued
and are non-assessable.
(iv) To the knowledge of such counsel based upon
communications with representatives of the Commission, (A) the
Registration Statement is effective under the Act, and (B) the
Prospectus was timely filed with the Commission as required. To
the knowledge of such counsel, (C) no stop order suspending the
effectiveness of the Registration Statement has been issued, and
(D) no proceeding for that purpose is pending or threatened by the
Commission.
(v) To the knowledge of such counsel, (A) no order directed
to any document incorporated by reference in the Prospectus has
been issued, and (B) no challenge has been made to the accuracy or
adequacy of any such document.
(vi) The Registration Statement and the Prospectus and each
amendment or supplement, if any, thereto comply as to form in all
material respects with the requirements of the Act and the Rules
and Regulations (except that no opinion need be expressed as to
the financial statements or financial data contained therein).
(vii) The statements made in the Prospectus, insofar as
they purport to summarize the provisions of statutes, legal and
overnmental proceedings, contracts or other documents specifically
referred to therein are accurate and fairly present the
information called for with respect thereto by Form S-2 under the
Act (except that no opinion need be expressed as to financial
statements or financial or statistical data continued therein).
(viii) To such counsel"s knowledge, except as disclosed in
the Prospectus, there is no litigation or any governmental
proceeding pending or threatened against the Company or any of its
subsidiaries which could have a material adverse effect on the
Company and its subsidiaries taken as a whole or which is required
to be disclosed in the Registration Statement or the Prospectus.
(ix) To such counsel"s knowledge, there are no contracts or
other documents which are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations
<PAGE> 76
which have not been filed as exhibits to the Registration
Statement as permitted by the Rules and Regulations.
(x) To such counsel"s knowledge, neither the Company nor
any of its subsidiaries is in violation of its corporate charter
or bylaws, or in default under any agreement, indenture or
instrument, the effect of which violation or default would be
material to the Company and its subsidiaries taken as a whole, or
is in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property may be subject or, except as disclosed in the Prospectus,
has failed to obtain any material license, permit, certificate,
franchise or other governmental authorization or permit necessary
to the ownership of its property or to the conduct of its
business.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company. The Agreement and the transactions
contemplated by this Agreement will not conflict with any
agreement of the Company or its subsidiaries known to counsel,
will not create a lien or encumbrance upon any property of the
Company or its subsidiaries, will not violate the articles of
incorporation or bylaws of the Company or its subsidiaries and
will not violate any law or governmental ordinance, order or
regulation, except to the extent that such conflict, lien,
encumbrance or violation would have no material adverse effect on
the Company and its subsidiaries taken as a whole.
(xii) No approval or consent of any governmental body,
other than as may be required in connection or compliance with the
provisions of the securities or "blue sky" laws of any
jurisdiction, is legally required for the issue and sale of the
Shares by the Company or for the carrying out by the Company of
the provisions of this Agreement.
(xiii) No approval by the New Hampshire Public Utilities
Commission is legally required for the issue and sale of the
Shares by the Company or for the carrying out by the Company of
the provisions of this Agreement.
Such counsel also shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel has participated in
conferences with your representatives and counsel for the Underwriter, and
with officers and representatives of the Company, at which conferences the
contents of the Registration Statement and Prospectus were discussed, reviewed
and revised. On the basis of the information which was developed in the
course thereof, considered in light of such counsel"s understanding of
applicable law and the experience gained by such counsel thereunder, such
counsel shall confirm that nothing came to such counsel"s attention that would
lead such counsel to believe that either the Registration Statement or
Prospectus or any amendment or supplement thereto (other than the financial
statements and notes thereto, or any related schedules therein, as to which
such counsel need express no opinion) contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e) On the Closing Date, there shall have been furnished to you a
certificate, dated such date, from the Company, signed on behalf of the
<PAGE> 77
Company by the President and Chief Executive Officer and the Treasurer
and Chief Financial Officer, stating that to the knowledge of the
officers signing such certificate:
(i) The representations, warranties and agreements of the
Company in Paragraph 0 are true and correct as of such date; the
Company has complied with all its agreements contained herein;
and the conditions set forth in Paragraph 0 have been fulfilled;
(ii) Neither the Registration Statement, as of its
effective date, nor the Prospectus, as of its date, included any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and since the effective date of
the Registration Statement, no event has occurred which should
have been set forth in a supplement to or amendment of the
Prospectus which has not been set forth in such a supplement or
amendment; and
(iii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for
that purpose have been instituted or are pending or threatened,
under the Act.
(f) On the date of this Agreement and on the Closing Date, Arthur
Andersen LLP, shall have furnished to you letters dated such dates
substantially in the form of a draft of such letter previously
delivered to you.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not
have been any change specified in the letter referred to in Paragraph 0
which makes it impractical or inadvisable in the reasonable judgment of
the Underwriter to proceed with the public offering or delivery of the
Shares as contemplated by the Prospectus.
(h) The Underwriter shall have received from Armstrong, Teasdale,
Schlafly & Davis, counsel for the Underwriter, such opinion or
opinions, dated the Closing Date, with respect to the issuance and sale
of the Shares, the Registration Statement, the Prospectus, and other
related matters as the Underwriter may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to the Underwriter and Armstrong, Teasdale, Schlafly & Davis,
counsel for the Underwriter.
If any of the conditions specified in this Paragraph 0 shall not have
been fulfilled when and as provided in this Agreement, or if any of the
opinions or certificates mentioned above or elsewhere in this Agreement shall
not be in all material respects reasonably satisfactory in form and substance
to the Underwriter and its counsel, this Agreement and all obligations of the
Underwriter hereunder may be canceled at, or at any time prior to, the Closing
Date by the Underwriter.
<PAGE> 78
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning
of the Act from and against any loss, claim, damage or liability, joint
or several, and any action in respect thereof, to which the Underwriter
or any such controlling person may become subject, under the Act or
otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus,
the Registration Statement, the Prospectus, or the Registration
Statement or Prospectus as amended or supplemented, or arises out of, or
is based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse the Underwriter
and each such controlling person for any legal and other expenses
reasonably incurred by the Underwriter or such controlling person for
any legal and other expenses reasonably incurred by the Underwriter or
such controlling person in investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus or in the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by the Underwriter
specifically for inclusion therein; and provided further that as to any
Preliminary Prospectus this indemnity agreement shall not inure to the
benefit of the Underwriter or any person controlling the Underwriter on
account of any loss, claim, damage, liability or action arising from the
sale of Shares to any person by the Underwriter if the Underwriter
failed to send or give a copy of any Prospectus, as the same may be
amended or supplemented, to that person within the time required by the
Act, and the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact in such
Preliminary Prospectus was corrected in such Prospectus, unless such
failure resulted from non-compliance by the Company with Paragraph 0
hereof. The foregoing indemnity is in addition to any liability which
the Company may otherwise have to the Underwriter or any controlling
person of the Underwriter.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, its directors and officers who signed the Registration
Statement and any person who controls the Company within the meaning of
the Act from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under
the Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, the Prospectus or the
Registration Statement or Prospectus as amended or supplemented, or
arises out of, or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to
the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by the Underwriter
<PAGE> 79
specifically for inclusion therein, and shall reimburse the Company and
its directors, officers and controlling persons for any legal and other
expenses reasonably incurred by the Company or any such director,
officer or controlling person in investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action.
The foregoing indemnity agreement is in addition to any liability which
the Underwriter may otherwise have to the Company.
(c) Promptly after receipt by an indemnified party under this
Paragraph 0 of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Paragraph 0, notify the
indemnifying party in writing of the claim or the commencement of that
action, provided that the failure to notify the indemnifying party shall
not relieve it from any liability which it may have to an indemnified
party otherwise than under this Paragraph 0. If any such claim or
action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the
indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified
party under this Paragraph 0 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with the proviso to the
next preceding sentence, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest between
the indemnifying party and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying party shall not
have the right to direct the defense of such action on behalf of the
indemnified party), (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of
commencement of the action or (iv) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of
the indemnifying party.
(d) If the indemnification provided for in this Paragraph 0 shall
for any reason be unavailable to an indemnified party under Paragraph 0
or 0 in respect of any loss, claim, damage or liability, or any action
in respect thereof, referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such
loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriter on
the other from the offering of the Shares or (ii) if the allocation
<PAGE> 80
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriter on the other with respect to
the statements or omissions which resulted in such loss, claim, damage
or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriter on the other hand with
respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Shares (before deducting
expenses) received by the Company bears to the total underwriting
discounts and commissions received by the Underwriter with respect to
such offering, 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 whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriter, the intent of
the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this Paragraph 0 were to be
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Paragraph 0 shall be deemed to
include, for purposes of this Paragraph 0, 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 Paragraph 0, the Underwriter shall not be
required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to
the public was offered to the public exceeds the amount of any damages
which the Underwriter has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. 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.
(e) The Underwriter confirms that the statements with respect to
the public offering of the Shares set forth on the cover page of, and
under the caption "Underwriting" in, the Prospectus are correct and
were furnished in writing to the Company by the Underwriter for
inclusion in the Registration Statement and the Prospectus.
(f) The agreements contained in this Paragraph 0 and the
representations, warranties and agreements of the Company contained in
Paragraphs 0 and 0 shall survive the delivery of the Shares and shall
remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf
of any indemnified party.
7. Termination by the Underwriter. The obligations of the Underwriter
hereunder may be terminated by the Underwriter, in its absolute discretion, by
notice given to and received by the Company prior to delivery of and payment
for the Shares, if prior to that time (a)(i) the Company shall have failed,
refused or been unable to perform any agreement on its part to be performed
hereunder, (ii) any other condition to the Underwriter"s obligations hereunder
is not fulfilled, (iii) the Company sustains a loss, whether or not insured,
<PAGE> 81
by reason of fire, flood, accident or other calamity, which, in the reasonable
opinion of the Underwriter, substantially affects the value of the properties
of the Company or which materially interferes with the operation of the
business of the Company, (iv) trading generally shall have been suspended or
materially limited on or by the New York Stock Exchange or American Stock
Exchange or the National Association of Securities Dealers or trading in any
securities of the Company shall have been suspended by any securities exchange
or in the over the counter market, (v) a banking moratorium is declared by the
United States, or by New York, Missouri or New Hampshire state authorities,
(vi) an outbreak of major hostilities or other national or international
calamity occurs, (vii) any action is taken by any government in respect of its
monetary affairs which, in the reasonable opinion of the Underwriter, has a
material adverse effect on the United States securities markets, or (viii)
there is a pending or threatened material legal or governmental proceeding
against the Company, other than proceedings described in the Registration
Statement or amendments or supplements thereto delivered to the Underwriter
prior to the execution of this Agreement, which in the reasonable opinion of
the Underwriter has a material adverse effect upon the Company, and (b) with
respect to the events specified in clauses (a)(i) through (a)(iii) hereof,
such event singly or together with other such events makes it, in your
reasonable judgment, impractical to market the Shares on the terms and in the
manner contemplated in the Prospectus.
8. Termination by the Company. The obligation of the Company to
deliver the Shares upon payment therefor shall be subject to the following
conditions:
On the Closing Date no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for that purpose
shall then be pending before, or threatened by, the Commission.
In case any of the conditions specified above in this Paragraph 8 shall
not have been fulfilled, this Agreement may be terminated by the Company by
delivering written notice of termination to the Underwriter. Any such
termination shall be without liability of any party to any other party except
to the extent provided in Paragraph 0 and Paragraph 9 hereof.
9. Expenses Following Termination. If the sale of Shares provided for
herein is not consummated because of any refusal, inability or failure on the
part of the Company to comply with any of the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company shall be unable
to perform all its obligations under this Agreement, the Company shall not be
liable to the Underwriter for damages arising out of the transactions covered
by this Agreement, provided however that (i) the Company shall remain liable
to the extent provided in Paragraphs 0, 0 and 0 hereof and (ii) except where
termination occurs pursuant to Section 8 hereof, the Company shall pay the
out-of-pocket expenses incurred by the Underwriter in contemplation of the
performance by it of its obligations hereunder, including the fees and
disbursements of its counsel and travel, postage, telegraph and telephone
expenses. In no event will the Company be required to reimburse the
Underwriter pursuant to subsection (ii) of the preceding sentence in an amount
greater than $40,000.00.
10. Notices. The Company shall be entitled to act and rely upon any
request, consent, notice or agreement given or made by the Underwriter. Any
notice to the Underwriter shall be sufficient if given in writing or by
telecopy addressed to Edward D. Jones & Co., L.P., 12555 Manchester Road, St.
Louis, Missouri 63131, Attention: James A. Krekeler; any notice to the
Company shall be sufficient if given in writing or by telecopy addressed to
<PAGE> 82
the Company at: Four Water Street, Nashua, New Hampshire 03060 (Attention:
Charles J. Staab).
11. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors.
This Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that (a) the representations, warranties,
indemnities and agreements of the Company contained in this Agreement shall
also be deemed to be for the benefit of the person or persons, if any, who
control the Underwriter within the meaning of Section 15 of the Act, and (b)
the indemnities and agreements of the Underwriter contained in Paragraph 6 of
this Agreement shall be deemed to be for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement
and any person controlling the Company. Nothing in this Agreement is intended
or shall be construed to give any person other than the persons referred to in
this paragraph any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
12. Defined Terms. For purposes of this Agreement, (a) "business day"
means any day on which the New York Stock Exchange is open for trading, and
(b) "subsidiary" shall have the meaning set forth in Rule 405 of the Rules and
Regulations.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns
and the officers and directors and controlling persons referred to in
Paragraph 6 hereof, and no other person will have any right or obligation
hereunder. The term "successors and assigns" as used in this Agreement shall
not include any purchaser, as such purchaser, of any of the Shares from the
Underwriter.
14. Counterparts. This Agreement may be executed in multiple
counterparts, all of which, when taken together, shall constitute one and the
same agreement among the parties to such counterparts.
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri.
If the foregoing correctly sets forth the agreement between the Company
and the Underwriter, please indicate your acceptance in the space provided for
that purpose.
Very truly yours,
PENNICHUCK CORPORATION
By:_________________________
Name:_______________________
Title:______________________
Accepted:
EDWARD D. JONES & CO., L.P.
By:_____________________________
James A. Krekeler
Principal
<PAGE> 83
EXHIBIT 23.1
CONSENT OF PUBLIC ACCOUNTANTS
To Pennichuck Corporation:
As independent pubic accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this Registration Statement on Form S-2 and related Prospectus of Pennichuck
Corporation.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 3, 1998
<PAGE> 84
