U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
----- -----
Commission file number 0-18552
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Pennichuck Corporation
- ----------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New Hampshire 02-0177370
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Four Water Street, Nashua, New Hampshire 03061
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(603) 882-5191
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(Issuer's telephone number)
Not applicable
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $1.00 Par Value -- 1,739,223 shares as of November 1, 1999
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------- -----------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income--
Nine months and quarter ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows--
Nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements--
September 30, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-13
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
- ----------
</TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1999 (In thousands) 1998
---------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Land $ 999 $ 999
Buildings and equipment 78,683 75,352
Construction work in progress 471 296
----------------------------------------
80,153 76,647
Less accumulated depreciation 19,380 18,258
----------------------------------------
60,773 58,389
Current Assets
Cash and cash equivalents 3,392 3,602
Accounts receivable, net 2,868 2,331
Inventory 322 320
Other current assets 91 522
----------------------------------------
6,673 6,775
Other Assets
Land development costs 3,557 3,029
Deferred charges, net 2,229 2,170
Investment in real estate partnerships 408 475
----------------------------------------
TOTAL ASSETS $73,640 $70,838
========================================
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stock-par value $1 per share $ 1,743 $ 1,714
Paid in capital 14,195 13,821
Retained earnings 10,266 9,335
Treasury stock, at cost (172) (59)
----------------------------------------
26,032 24,811
Minority Interest 299 314
Long Term Debt, less current portion 28,014 28,002
Current Liabilities
Current portion of long term debt 183 183
Accounts payable 425 568
Accrued interest payable 463 350
Other accrued liabilities 1,626 766
----------------------------------------
2,697 1,867
Other Liabilities
Contributions in aid of construction 10,113 9,509
Other liabilities and deferred credits 6,485 6,335
----------------------------------------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $73,640 $70,838
========================================
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1999 1998 1999 1998
------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Water utility operations $4,794 $4,626 $12,641 $11,136
Real estate operations and other 337 1,778 1,092 2,157
---------------------------------------------
5,131 6,404 13,733 13,293
Operating expenses
Water utility operations 3,067 2,700 8,451 7,194
Real estate operations and other 167 1,319 486 1,454
---------------------------------------------
3,234 4,019 8,937 8,648
Operating income 1,897 2,385 4,796 4,645
Interest and other income 41 4 130 29
Interest expense (506) (599) (1,519) (1,681)
---------------------------------------------
Income before income taxes 1,432 1,790 3,407 2,993
Provision for income taxes 559 700 1,319 1,157
---------------------------------------------
Net income before minority interest 873 1,090 2,088 1,836
Minority interest in income (loss) of 3 41 (15) 41
Westwood Park, LLC
---------------------------------------------
Net income $ 870 $1,049 $ 2,103 $ 1,795
=============================================
Net income per common share:
Basic $ .50 $ .85 $ 1.21 $ 1.46
Diluted $ .50 $ .84 $ 1.20 $ 1.44
Weighted average number of
shares outstanding:
Basic 1,749,252 1,233,797 1,740,983 1,229,604
Diluted 1,759,287 1,248,460 1,751,018 1,242,801
Dividends paid per common share $ .23 $ .19 $ .68 $ .57
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
1999 1998
-----------------
(in thousands)
<S> <C> <C>
CASH PROVIDED (USED) BY:
Operating Activities $2,103 $1,795
Net income
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,544 1,306
Deferred income taxes 68 68
Change in working capital 781 287
-----------------
4,496 3,456
Investing Activities:
Purchase of property, plant and
equipment and other assets (4,395) (10,518)
Increase in contributions in aid of
construction 766 234
(Increase) decrease in other (208) 555
-----------------
(3,837) (9,729)
Financing Activities:
Payments on long-term debt (82) (1,159)
Proceeds from issuance of long-term debt 94 8,032
Payment of common dividends (1,172) (701)
Proceeds from dividend reinvestment plan
and other 291 182
-----------------
(869) 6,354
(DECREASE) IN CASH (210) 81
CASH AT BEGINNING OF PERIOD 3,602 448
-----------------
CASH AT END OF PERIOD $3,392 $ 529
=================
</TABLE>
Supplemental Cash Flow Information. Interest paid was $1,362,000 and
$1,335,000 for the nine months ended September 30, 1999 and 1998,
respectively. Income taxes paid were $632,000 and $414,000 for the nine
months ended September 30, 1999 and 1998, respectively.
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Item 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month and nine month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999. The Balance Sheet amounts shown under the
December 31, 1998 column have been derived from the audited financial
statements of the Company as contained in its Annual Report to Shareholders.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1998.
NOTE B - EARNINGS PER SHARE
Diluted earnings per share were computed by dividing actual net income by
the adjusted weighted average number of shares of common stock which include
the effect of any dilutive unexercised stock options.
PART I. Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
The financial position of Pennichuck Corporation (the "Company") and its
wholly-owned operating subsidiaries, Pennichuck Water Works, Inc.
("Pennichuck"), Pittsfield Aqueduct Company, Inc. ("Pittsfield"), Pennichuck
East Utility, Inc. ("Pennichuck East"), Pennichuck Water Service Corporation
(the "Service Corporation") and The Southwood Corporation ("Southwood") is
shown in the accompanying Condensed Consolidated Balance Sheets.
During the first nine months of 1999, our cash needs for operations, capital
projects and dividends were funded primarily by the operating cash flow from
our subsidiaries. We were able to generate approximately $4.5 million in
consolidated operating cash flow for the nine months ended September 30,
1999, consisting of net income and non-cash charges of $3.7 million plus
$781,000 of working capital generated during that period. Typically, our
cash needs peak during the second and third quarters due to capital
expenditures related to the construction activity of our water utilities. At
September 30, 1999, our Company's cash and cash equivalents on hand
decreased by $210,000 to $3.39 million, which is currently held in short-
term money market investments. These funds represent the unexpended proceeds
from a $9.4 million public equity offering which we completed in late
November 1998. We expect to use this cash to fund any future acquisitions
and any cash flow deficiencies during the remainder of 1999 and in 2000
which may result from our continued investment in capital projects.
We also maintain a revolving credit agreement (the "agreement") with Fleet
Bank-NH ("Fleet"). The agreement, as amended, allows us to borrow up to $2.5
million at interest rates tied to Fleet's cost of funds or LIBOR, whichever
is lower. At September 30, 1999, there were no borrowings outstanding under
this agreement.
The Company's consolidated capital budget for 1999 consists of approximately
$4.4 million for various projects of our three operating utilities. Of that
amount, we expect to spend
(i) $1.18 million for replacement of our aging infrastructure,
(ii) $1.9 million for new distribution lines and storage,
(iii) $760,000 for water treatment and supply, and
(iv) the remainder on technology-related upgrades to our operating
and administrative systems.
So far in 1999, we have added approximately $3.96 million in new plant, of
which $764,000 has been in the form of contributions in aid of construction
from area developers. We believe that our operating cash flow, together with
a portion of available short-term investments, will be sufficient to fund
our remaining 1999 capital expenditure program, cash dividends and required
principal payments.
Besides the change in our cash accounts from December 31, 1998 to September
30, 1999, other major changes in our financial position were (i) an increase
of $537,000 in "Accounts receivable" reflecting increased billed and
unbilled revenues as further explained in "Results of Operations" below,
(ii) a decrease of $431,000 in "Other current assets" resulting from prepaid
property taxes which were amortized and charged against our earnings during
1999 and (iii) an increase of $860,000 in "Other current liabilities"
comprised principally of $498,000 of accrued property and income taxes and
$110,000 of additional retainage amounts due on construction projects at
September 30, 1999.
At September 30, 1999, consolidated retained earnings increased to $10.27
million, or by $931,000 from the beginning of the year. This increase is due
to consolidated net income of $2.1 million earned during the first nine
months of 1999 less a payout of $1.17 million in common dividends.
Results of Operations -- Three Months Ended September 30, 1999 Compared to
Three Months Ended September 30, 1998
For the three months ended September 30, 1999, consolidated net income was
$870,000, or $.50 per share compared to $1.05 million, or $.85 per share for
the same period in 1998. For 1999, the basic and diluted earnings per share
calculations include the dilutive effect of an additional 483,000 new common
shares which were issued by the Company in its November 1998 common equity
offering. Consolidated revenues for the third quarter decreased from $6.4
million in 1998 to $5.13 million in 1999, principally as a result of a major
land sale in September 1998 by one of our real estate development
partnerships as discussed further below.
Our consolidated revenues are generally seasonal due to the overall
significance of the water sales of Pennichuck, Pennichuck East and
Pittsfield as a percent of consolidated revenues. Water revenues are
typically at their lowest point during the first and fourth quarters of the
calendar year while water revenues in the second and third quarters tend to
be greater as a result of increased water consumption during the late spring
and summer months. In addition, the Company's consolidated revenues may be
significantly affected by sales of major real estate parcels which may occur
from time to time.
Water Utility Operations
- ------------------------
Utility operating revenues for the three months ended September 30, 1999
increased to $4.79 million or a 3.6% increase over the same period in 1998
as shown in the table below broken out by each of our regulated water
utilities:
<TABLE>
<CAPTION>
1999 1998 Change
---- ---- ------
<S> <C> <C> <C>
Pennichuck $3,964,000 3,783,000 181,000
Pennichuck East 724,000 698,000 26,000
Pittsfield 106,000 145,000 (39,000)
--------------------------------------
Total $4,794,000 $4,626,000 $168,000
======================================
</TABLE>
The increase in water revenues in the third quarter of 1999 over the same
quarter last year is generally attributable to:
* additional revenues of $154,000 within Pennichuck's core system
reflecting increased consumption during the quarter,
* a 6.4% increase in the number of community system customers which
provided an additional $51,000 of water revenues and
* an increase of $27,000 in other operating revenues
Offsetting the revenue increases in Pennichuck and Pennichuck East, however,
was a 27% decline in utility revenues from our Pittsfield subsidiary. That
decline resulted from a 4% decrease in rates effective in December 1998 and
an overall decline in consumption during the quarter of approximately 4.4%.
During the third quarter of 1999, none of our water companies had any rate
proceedings pending before the New Hampshire Public Utilities Commission.
Total utility operating expenses, which include production, distribution
system maintenance, administrative, depreciation and taxes other than income
taxes were $3.07 million for the three months ended September 30, 1999, or
an increase of $367,000 over the same period last year. That increase in
comprised chiefly of:
* $96,000 of additional property taxes resulting from our utilities'
investment of approximately $3.7 million in new plant during 1998,
* $47,000 of additional depreciation expense related to last year's
plant additions,
* $35,000 of additional electric costs incurred at Pennichuck's
supplemental Merrimack River pumping facility needed to maintain
the adequacy of its source of supply and
* $90,000 of increased general and administrative costs resulting
primarily from wage and benefit increases over last year.
Real Estate Operations and Other
- --------------------------------
Revenues from our real estate and other activities (principally contract
operations) were $179,000 and $160,000, respectively, for the three months
ended September 30, 1999. For the same period last year, real estate and
other revenues were $1.61million and $163,000, respectively. Last year's
real estate revenues included $1.38 million from the sale of land by
Westwood Park LLC ("Westwood"), of which Southwood is a 60% owner.
Of our real estate revenues for the third quarter of 1999, $175,000 was
provided by the sale of nine homes through our residential joint venture,
known as Heron Cove LLC ("Heron Cove") in which Southwood is a 50% owner.
Heron Cove was formed for the construction and sale of 87 homes and under
the terms of the partnership agreement, Southwood has conveyed its ownership
in the land to the partnership in exchange for a non-interest bearing note
from the partnership secured by a second mortgage on the real estate
conveyed. As of September 30, 1999, twenty three homes had been sold and the
partnership has purchase and sale agreements for the construction and sale
of 12 additional homes.
Other operating revenues of $160,000 for the quarter ended September 30,
1999 did not change significantly from the same quarter in 1998. These
revenues consist chiefly of fees charged by our Service Corporation under
various operations and billing contracts with local municipalities as well
as rental income from several tower leases.
The operating expenses associated with our real estate and other activities
for the third quarter of 1999 were approximately $167,000, or $1.15 million
less than in 1998. Of that decrease, approximately $1.1 million relates to
the allocable land and infrastructure costs for the major land parcel that
Westwood sold in the third quarter of 1998. Real estate expenses during the
third quarter of 1999 were $12,000, comprised chiefly of property taxes and
allocable charges from the Company. Expenses relating to our contract and
other operations for the three months ended September 30, 1999 were
approximately $124,000.
Results of Operations -- Nine Months Ended September 30, 1999 Compared to
Nine Months Ended September 30, 1998
For the nine month period ended September 30, 1999, consolidated net income
increased 17% to $2.1 million from $1.79 million for the same period in
1998. Basic earnings per share, however, decreased to $1.21 for the nine
months ended September 30, 1999 from $1.46 last year. For 1999, the basic
and diluted earnings per share calculations include the dilutive effect of
an additional 483,000 new common shares which were issued by the Company in
its November 1998 common equity offering.
The year-to-date consolidated revenues in 1999 were $13.73 million,
representing a $440,000, or 3.3%, increase over last year. As discussed
below, the increase is principally attributable to growth in each of the
Company's utility operations.
Water Utility Operations
- ------------------------
Utility operating revenues for the first nine months of 1999 totaled $12.64
million -- a $1.5 million increase over the same period in 1998. For the
nine months ended September 30, 1999, approximately 82%, 16% and 2% of the
total utility operating revenues were generated by Pennichuck, Pennichuck
East and Pittsfield, respectively.
The principal reasons for our utility revenue growth were:
* additional revenues of $556,000 in 1999 from Pennichuck East which
began its operations in April 1998,
* additional billed revenues of approximately $450,000 from a 16.8%
rate increase granted to Pennichuck which became effective on
April 1, 1998 and
* additional revenues of approximately $700,000 resulting from a 6%
increase in water consumption within Pennichuck's core and
community systems due to the unusually hot and dry months of June
and July 1999.
The utility operating expenses increased by $1.26 million, or 17.5%, to
$8.45 million for the nine months ended September 30, 1999. That increase is
primarily comprised of (i) $240,000 of operations and maintenance costs
relating to the addition of Pennichuck East which began operations in April
1998, (ii) $236,000 of additional depreciation expense and $339,000 of
additional property taxes recognized by our three utilities for the first
nine months of 1999 as a result of their $3.7 million investment in plant
assets during 1998 and (iii) approximately $284,000 of additional production
and treatment costs incurred during 1999 due to the increased pumpage
discussed earlier. The combined utility operating expenses as a percentage
of combined utility revenues increased from 64.6% to 66.9% for the nine
months ended September 30, 1998 and 1999, respectively.
Real Estate and Other Operations
- --------------------------------
For the nine months ended September 30, 1999 and 1998, revenues from real
estate and other activities totaled $1.1 million and $2.16 million,
respectively. Of those amounts, approximately $640,000 and $1.82 million
relate to real estate revenues earned during the comparative periods.
Southwood revenues thus far in 1999 include (i) $529,000 in partnership
revenues earned through its residential joint ventures and (ii) $66,000 of
option fee income earned under a development option agreement with a
regional developer. We also sold a one-half interest in a land parcel to a
local developer which resulted in a $72,000 pretax gain for Southwood in the
first quarter of 1999. Subsequently, we conveyed our remaining interest in
that land parcel to a limited liability corporation - Heron Cove Office Park
I ("HECOP I") in which Southwood is a 50% owner. HECOP I owns a 39,000
square foot office building which is partially occupied by a local developer
and the remaining space is expected to be leased to third parties.
As discussed earlier, last year's real estate revenues include approximately
$1.38 million from the sale of a major tract of land by Westwood, a
commercial development joint venture with a regional developer formed in
1998. Westwood currently owns approximately 378 acres of land in Nashua
which is zoned for commercial and industrial use. Westwood's operating loss
for the first nine months of 1999 was $23,000, resulting primarily from real
estate taxes and interest on an outstanding construction loan.
Revenues from other operating activities during the nine months ended
September 30, 1999 include $388,000 for contract operations performed by the
Service Corporation and $64,000 for miscellaneous lease and rental income.
For the same period in 1998, revenues of the Service Corporation were
approximately $335,000 consisting of $270,000 in contract operations income
and $65,000 of sundry revenues. The 1999 increase over 1998 resulted
primarily from an operations and maintenance contract entered into with the
Town of Hudson, New Hampshire in April 1998.
The operating expenses associated with our real estate and other non-utility
activities decreased from $1.45 million in 1998 to $486,000 in 1999. Of that
decrease, $1.1 million relates to the allocated land and development costs
associated with the 1998 Westwood land sale discussed earlier. The non-
utility operating costs thus far in 1999 are principally comprised of (i)
$311,000 for contract operations and other services, (ii) $56,000 of
property taxes on Southwood's landholdings and (iii) $74,000 for property
management and other costs associated with Southwood's real estate
activities.
Other Accounting Issues
Year 2000 Issue
- ---------------
The Company has performed an exhaustive review of its hardware and software
systems in order to determine the level of readiness to meet the next
millennium. Because the Company owns some operating assets which pre-date
1900, it has 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 project planning, the Company identified mission-critical
applications and implemented a 5 year plan in early 1994 to replace or
upgrade for both hardware and software. The Company's central computer
platform, consisting primarily of its minicomputer server, is completely
Year 2000 ready. Additionally, all of the Company's software applications
have been evaluated to identify any Year 2000 problems, their importance to
Company operations and efficiencies to be gained with newer and updated
software. A software development schedule was created based on this risk
assessment with the most critical applications being implemented first. At
this time, the Company's NT network, financial accounting, work order and
inventory, billing, customer service information and meter management, human
resources and SCADA management systems are Year 2000 ready.
We have identified and contacted 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. For any vendors or customers who are determined to be critical to our
operations, we have developed a disaster recovery plan containing
alternative actions plans in the event of vendor non-compliance. We
anticipate having all critical resource alternative plans in place by the
end of 1999.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES:
The Company maintains a stock option plan for the benefit of its officers
and key employees. Under the plan, incentive stock options may be granted to
acquire shares of the Company's common stock, $1.00 par value, at an
exercise price equal to the closing sale price of the Company's common stock
on the date of the grant. During the period covered by this report, 14,625
shares of common stock were sold pursuant to the exercise of options under
the plan. The offer and sale of shares of common stock under the plan is
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 3(a)(11) thereof, as (i) the Company is
incorporated under the laws of and does business within the State of New
Hampshire and (ii) all employees receiving and exercising stock option
grants are residents of the State of New Hampshire. The shares acquired
pursuant to such exercise are restricted from transfer for one year
following the date of acquisition.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 10.15 Amendment Agreement dated August 24, 1999 to
Amended and Restated Revolving Line of Credit
Agreement dated March 23, 1994 between Pennichuck
Corporation, Pennichuck Water Works, Inc. and Fleet
Bank-NH
(b) No reports on Form 8-K were filed during the third quarter of
1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Pennichuck Corporation
------------------------------
(Registrant)
Date: November 10, 1999 /s/ Maurice L. Arel
----------------- ------------------------------
Maurice L. Arel, President and
Principal Executive Officer
Date: November 10, 1999 /s/ Charles J. Staab
----------------- ------------------------------
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
12
Exhibit 10.15
AMENDMENT AGREEMENT
This Amendment Agreement ("Agreement") is entered into as of the 24th
day of August, 1999, by and among PENNICHUCK CORPORATION, a New Hampshire
corporation with an address of 4 Water Street, Nashua, New Hampshire 03060
(the "Borrower"), PENNICHUCK WATER WORKS, INC., a New Hampshire corporation
with an address of 4 Water Street, Nashua, New Hampshire 03060 (the
"Guarantor"), and FLEET BANK - NH, a bank incorporated under the laws of
the State of New Hampshire with a principal place of business at 1155 Elm
Street, Manchester, New Hampshire 03101.
W I T N E S S E T H :
WHEREAS, the Bank and the Borrower entered into a Loan Agreement
dated October 2, 1991 establishing a Revolving Line of Credit Loan (the
"Loan" or the "Line of Credit") in the amount up to $4,500,000 in favor of
the Borrower, as amended and modified by agreements dated on or about June
4, 1993, March 23, 1994, May 4, 1995, July 31, 1996 and March 18, 1998 (the
"Loan Agreement");
WHEREAS, the Guarantor executed a Limited Guaranty Agreement dated as
of March 23, 1994, as amended and ratified, in which it guaranteed the
payment of the Loan as governed by and limited in said Limited Guaranty
Agreement (the "Limited Guaranty Agreement");
WHEREAS, the parties have executed certain documents and instruments
in connection with the Loan (collectively the "Loan Documents"); and
WHEREAS, the Borrower, the Guarantor and the Bank have agreed to
amend the Loan Documents to, among other things, reduce the maximum amount
of the Line of Credit to $2,500,000 and amend the period of loan commitment
under the Line of Credit to June 30, 2001.
NOW, THEREFORE, in consideration of the foregoing and mutual
covenants and agreements therein contained, the receipt and adequacy of
which is hereby acknowledged, the parties covenant, stipulate and agree as
follows:
1. Representations and Warranties of the Borrower and the
Guarantor. Each of the Borrower and the Guarantor represents and
warrants to the Bank as follows:
(a) The representations, warranties and covenants of the
Borrower and the Guarantor made in the Loan Documents remain
true and accurate and are hereby reaffirmed as of the date
hereof.
(b) Each of the Borrower and the Guarantor has
performed, in all material respects, all obligations to be
performed by it to date under the Loan Documents and no event
of default exists thereunder.
(c) Each of the Borrower and the Guarantor is a
corporation duly organized, qualified and existing in good
standing under the laws of the State of New Hampshire and is
duly qualified to do business in all jurisdictions in which the
character of the property owned by or the nature of its
activities causes such qualification to be necessary.
(d) The execution, delivery and performance of this
Agreement and the documents relating hereto (the "Amendment
Documents") are within the power of the Borrower and the
Guarantor and are not in contravention of law, of either of the
Borrower's or the Guarantor's Articles of Incorporation, By-
laws or the terms of any other documents, agreements or
undertaking to which either the Borrower or the Guarantor is a
party or by which either the Borrower or the Guarantor is
bound. No approval of any person, corporation, governmental
body or other entity not provided herewith is a prerequisite to
the execution, delivery and performance by the Borrower or the
Guarantor of the Amendment Documents or any of the documents
submitted to the Bank in connection with the Amendment
Documents, or upon execution by the Bank to ensure the validity
or enforceability thereof.
(e) When executed on behalf of the Borrower and the
Guarantor, the Amendment Documents will constitute the legally
binding obligations of the Borrower and the Guarantor,
enforceable in accordance with their terms; provided, that the
enforceability of any provisions in the Amendment Documents, or
of any rights granted to the Bank pursuant thereto may be
subject to and affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights
of creditors generally and that the right of the Bank to
specifically enforce any provisions of the Amendment Documents
is subject to general principles of equity.
2. Amendment to Loan Agreement. The Loan Agreement is hereby
amended as follows:
(a) The Loan Agreement is hereby amended by deleting the
amount "Four Million Five Hundred Thousand Dollars
($4,500,000)" appearing in the fifth and sixth lines of Article
IIA and replacing the amount with "Two Million Five Hundred
Thousand Dollars ($2,500,000).
(b) The phrase "June 30, 2000" appearing in the tenth
and eleventh lines of Article II C of the Loan Agreement is
hereby deleted and replaced with "June 30, 2001".
(c) Article VII of the Loan Agreement is hereby amended
by inserting the following new Paragraph P at the end thereof:
"P. Year 2000 Representation. The Borrower has
reviewed the "Year 2000 Risk" (that is the risk
that computer applications used by the Borrower
and/or its suppliers, vendors and customers may
be unable to recognize and perform without
error date-sensitive functions involving
certain dates prior to and any date after
December 31, 1999) and represents that it is
taking such action as may be necessary to
ensure that the Year 2000 Risk will not
adversely affect its business operations and/or
financial condition."
(d) Article VIII is hereby amended by inserting the
following new Paragraph N at the end of said Article VIII:
"N. Line of Credit Balance. The Borrower shall
maintain a Debit Balance, as defined in the
Line of Credit Note, of not more than the
maximum principal sum provided for in such Note
or under this Agreement at any time."
(e) Paragraph J of Article XII of the Loan Agreement is
hereby amended by deleting the paragraph in its entirety and
replacing it with the following:
"J. Assignment by the Bank. The Bank shall have the
unrestricted right at any time or from time to
time, and without the Borrower's or any
Guarantor's consent, to assign all or any
portion of its rights and obligations hereunder
to one or more banks or other financial
institutions (each, an "Assignee"), and the
Borrower and each Guarantor agrees that it
shall execute, or cause to be executed, such
documents, including without limitation,
amendments to this Agreement and to any other
documents, instruments and agreements executed
in connection herewith as the Bank shall deem
necessary to effect the foregoing. In
addition, at the request of the Bank and any
such Assignee, the Borrower shall issue one or
more new promissory notes, as applicable, to
any such Assignee and, if the Bank has retained
any of its rights and obligations hereunder
following such assignment, to the Bank, which
new promissory notes shall be issued in
replacement of, but not in discharge of, the
liability evidenced by the promissory note held
by the Bank prior to such assignment and shall
reflect the amount of the respective
commitments and loans held by such Assignee and
the Bank after giving effect to such
assignment. Upon the execution and delivery of
appropriate assignment documentation,
amendments and any other documentation required
by the Bank in connection with such assignment,
and the payment by Assignee of the purchase
price agreed to by the Bank, and such Assignee,
such Assignee shall be a party to this
Agreement and shall have all of the rights and
obligations of the Bank hereunder (and under
any and all other guaranties, documents,
instruments and agreements executed in
connection herewith) to the extent that such
rights and obligations have been assigned by
the Bank pursuant to the assignment
documentation between the Bank and such
Assignee, and the Bank shall be released from
its obligations hereunder and thereunder to a
corresponding extent."
(f) Article XII of the Loan Agreement is hereby further
amended by adding the following new Paragraphs at the end of
said Article XII:
"P. Pledge to Reserve. The Bank may at any time
pledge all or any portion of its rights under
the Loan Documents including any portion of the
promissory note to any of the twelve (12)
Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or enforcement thereof
shall release the Bank from its obligations
under any of the Loan Documents nor provide the
Bank with any additional rights hereunder nor
adversely affect the terms of the Loan.
Q. Usury. All agreements between the Borrower and
the Bank are hereby expressly limited so that
in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the
indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to
the Bank for the use or the forbearance of the
indebtedness evidenced hereby exceed the
maximum permissible under applicable law. As
used herein, the term "applicable law" shall
mean the law in effect as of the date hereof
provided, however, that in the event there is a
change in the law which results in a higher
permissible rate of interest, then the Note
shall be governed by such new law as of its
effective date. In this regard, it is
expressly agreed that it is the intent of the
Borrower and the Bank in the execution,
delivery and acceptance of this Amendment to
contract in strict compliance with the laws of
the State of New Hampshire from time to time in
effect. If, under or from any circumstances
whatsoever, fulfillment of any provision hereof
or of any of the Loan Documents at the time of
performance of such provision shall be due,
shall involve transcending the limit of such
validity prescribed by applicable law, then the
obligation to be fulfilled shall automatically
be reduced to the limits of such validity, and
if under or from circumstances whatsoever the
Bank should ever receive as interest an amount
which would exceed the highest lawful rate,
such amount which would be excessive interest
shall be applied to the reduction of the
principal balance evidenced hereby and not to
the payment of interest. This provision shall
control every other provision of all agreements
between the Borrower and the Bank.
R. Payments. All payments required under this
Loan Agreement, the Note or any other Loan
Document shall be in lawful money of the United
States in immediately available funds. The due
dates of all payments required under the Loan
Agreement, the Note or any other Loan Document
are subject to adjustment in accordance with
the Modified Following Business Day Convention.
Modified Following Business Day Convention
means the convention for adjusting any relevant
date if it would otherwise fall on a day that
is not a Business Day to the date that will be
the first following day that is a Business Day
(unless that day falls in the next calendar
month, in which case that date will be the
first preceding day that is a Business Day).
Business Day means, in respect to any date that
is specified in the Loan Agreement or the Note
to be subject to adjustment in accordance with
applicable Modified Following Business Day
Convention, a day on which commercial banks
settle payments in (a) London, if the payment
obligation is calculated by reference to any
LIBOR Rate or (b) New York, if the payment
obligation is calculated by reference to the
Prime Rate, but not including Saturdays,
Sundays, legal holidays or any day on which
banking institutions are required or authorized
to close.
S. Upon receipt of an affidavit of an officer of
the Bank as to the loss, theft, destruction or
mutilation of the Note or any other Loan
Document which is not of public record, and, in
the case of any such loss, theft, destruction
or mutilation, upon cancellation of such Note
or other Loan Document, the Borrower will
issue, in lieu thereof, a replacement note or
other security document in the same principal
amount thereof and otherwise of like tenor.
T. THE BORROWER, THE GUARANTOR AND THE BANK
MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THE
LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENTS
CONTEMPLATED TO BE EXECUTED IN CONNECTION
HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO
ACCEPT THE NOTE AND MAKE THE LOAN."
3. Amendment to Amended and Restated Revolving Credit
Promissory Note. The Amended and Restated Revolving Promissory Note
made payable by the Borrower to the Bank in the principal amount of
$4,500,000 dated March 23, 1994, as amended (the "Note") is hereby
further amended as follows:
(a) The maximum principal amount of the Note is hereby
reduced to Two Million Five Hundred Thousand Dollars
($2,500,000).
(b) In accordance with the Loan Agreement, the Line of
Credit is hereby renewed until June 30, 2001.
(c) All other terms and conditions of the Note except as
amended hereby, are ratified and confirmed.
4. Guarantor Consent. By execution hereof, the Guarantor
consents to this Agreement and the transactions contemplated hereby
and acknowledges and agrees that its guaranty under the Limited
Guaranty Agreement applies to all amounts advanced or to be advanced
under the Loan Agreement, the Note and all Loan Documents, as
amended, in accordance with the terms of the Limited Guaranty
Agreement.
5. Conditions Precedent. The obligations of the Bank
hereunder are subject to delivery by the Borrower and the Guarantor
to the Bank of this Agreement and all other documents set forth on
the Closing Agenda attached hereto as Exhibit A.
6. Loan Documents. The Borrower and the Guarantor shall
deliver this Agreement to the Bank and this Agreement shall be
included in the term "the Loan Documents" in the Loan Agreement. The
collateral granted to the Bank therein, including without limitation,
the Limited Guaranty Agreement, shall continue to secure the Loan as
set forth in the Loan Documents, as amended hereby.
7. Future References. All references to the Loan Documents
shall hereinafter refer to such documents as amended.
8. Continuing Effect. The provisions of the Loan Document, as
modified herein, shall remain in full force and effect in accordance
with their terms and are hereby ratified and confirmed.
9. General. (a) The Borrower and the Guarantor shall execute
and deliver such additional documents and do such other acts as the
Bank may reasonably require to implement the intent of this Agreement
fully.
(b) The Borrower shall pay all costs and expenses,
including, but not limited to, attorneys' fees incurred by the
Bank in connection with this Agreement. The Bank, at its
option, but without any obligation to do so, may advance funds
to pay any such costs and expenses that are the obligation of
the Borrower and all such funds advanced shall bear interest at
the highest rate provided in the Loan Documents.
(c) This Agreement may be executed in several
counterparts by the Borrower, the Bank and any obligor or
guarantor of the Loan Agreement, each of which shall be deemed
an original but all of which together shall constitute one and
the same Agreement.
IN WITNESS WHEREOF, the Bank, the Borrower and the Guarantor have
executed this agreement by their duly authorized officers as of the date
set forth above.
FLEET BANK - NH
___________________________ By:_________________________________
Witness Roger J. Archambault, Its Duly
Authorized Vice President
PENNICHUCK CORPORATION
___________________________ By:_________________________________
Witness Charles J. Staab, Its Duly
Authorized Vice President
PENNICHUCK WATER WORKS, INC.
___________________________ By:_________________________________
Witness Charles J. Staab, Its Duly
Authorized Vice President
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this __ day of
August, 1999 by Roger J. Archambault, duly authorized Vice President of
FLEET BANK - NH, a bank incorporated under the laws of the State of New
Hampshire, on behalf of same.
____________________________________
Justice of the Peace/Notary Public
My Commission Expires:
Notary Seal
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this __ day of
August, 1999 by Charles J. Staab, duly authorized Vice President of
PENNICHUCK CORPORATION, a New Hampshire corporation, on behalf of same.
____________________________________
Justice of the Peace/Notary Public
My Commission Expires:
Notary Seal
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this __ day of
August, 1999 by Charles J. Staab, duly authorized Vice President of
PENNICHUCK WATER WORKS, INC., a New Hampshire corporation, on behalf of
same.
____________________________________
Justice of the Peace/Notary Public
My Commission Expires:
Notary Seal
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,392,000
<SECURITIES> 0
<RECEIVABLES> 2,898,000
<ALLOWANCES> (30,000)
<INVENTORY> 322,000
<CURRENT-ASSETS> 6,673,000
<PP&E> 80,153,000
<DEPRECIATION> (19,380,000)
<TOTAL-ASSETS> 73,640,000
<CURRENT-LIABILITIES> 2,697,000
<BONDS> 28,014,000
0
0
<COMMON> 1,743,000
<OTHER-SE> 24,289,000
<TOTAL-LIABILITY-AND-EQUITY> 73,640,000
<SALES> 0
<TOTAL-REVENUES> 13,733,000
<CGS> 0
<TOTAL-COSTS> 8,937,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,519,000
<INCOME-PRETAX> 3,407,000
<INCOME-TAX> 1,319,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,103,000
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.20
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