Search

Each Committee has adopted a written Charter which sets forth its purpose, membership,
duties and responsibilities. A copy of each Charter can be found on the Company’s website at
www. pennichuck.com, under the “Board of Directors” caption, under the “Corporate
Governance” heading.

The current members of the Board Committees are as follows:

Audit, Finance and Risk Committee

James P. Dore, Chairman
Paul A. Indeglia

Thomas J. Leonard

John D. McGrath

James McMahon

Communications Committee

Jay N. Lustig, Chairman
C. George Bower
Thomas J, Leonard
Preston J. Stanley, Jr.

Compensation and Benefits Committee

Stephen D. Genest, Chairman
David P. Bernier

C. George Bower

Elizabeth A. Dunn

Thomas J. Leonard

Jay N. Lustig

Nominating and Governance Committee

Paul A. Indeglia, Chairman
Elizabeth A. Dunn
Stephen D. Genest
Thomas J. Leonard

Preston J. Stanley, Jr.

Audit, Finance and Risk Committee, The Audit, Finance and Risk Committee is responsible for
the appointment, compensation and retention of the independent auditors; preapproval of all
audit and non-audit services to be provided by the independent auditors: review and approval of
all related party transactions; review and evaluation of the qualifications, performance and
independence of the lead partner of the independent auditors: oversight of the integrity of the
Company’s financial statements; oversight of Company financing activities; oversight of the
policies and procedures established to assess, monitor and control operational and financial risk;

and oversight of the Company’s insurance programs. The Audit, Finance and Risk Committee
held four meetings in 2015.

Communications Committee. The Communications Committee is responsible for the
development and assistance with the policies and strategies of external communications between
the Board, the Company and the Sole Shareholder, other stakeholders, and the public, as needed.
The Communications Committee held two meetings in 2015.

Compensation and Benefits Committee. The Compensation and Benefits Committee is
responsible for annually reviewing and approving corporate goals and objectives relevant to
Chief Executive Officer compensation; evaluating the Chief Executive Officer’s performance in
light of those goals and objectives, and determining and recommending to the Board of Directors
the Chief Executive Officer’s compensation based on evaluation of performance; reviewing and
approving executive salaries; reviewing and approving any employment agreements, special
compensation and benefits, or severance arrangements as they pertain to executive officers other
than the Chief Executive Officer; overseeing the Company’s compensation and benefit policies;
and establishing, terminating or amending existing compensation and employee benefit plans.
The Compensation and Benefits Committee held ten meetings in 2015.

Nominating and Governance Committee. The Nominating and Governance Committee is
responsible for identifying individuals qualified to become Board members; recommending to
the Board the persons to be nominated by the Board for election as directors at the Annual
Meeting of Sole Shareholder; developing and recommending to the Board of Directors a set of
corporate governance principles; and overseeing an annual self-evaluation of the Board. The
Nominating and Governance Committee held four meetings in 2015.

As part of the nomination process, during 2015, the Nominating and Governance Committee
reviewed the current composition of the Board as a whole, and reviewed the qualifications and
performance of the incumbent directors who are up for re-election to the Board in 2016. The
Nominating and Governance Committee is authorized to retain advisors and consultants and to
compensate them for their services. The Nominating and Governance Committee did not retain
such advisors or consultants during 2015,

The Nominating and Governance Committee considers whether to nominate any candidate for
director in accordance with the criteria set forth in its Charter, subject to the restrictions set forth
in the Company’s By-Laws. These criteria include the candidate’s integrity, business acumen,
knowledge of the Company’s business and industry, experience, diligence, conflicts of interest,
and the ability to act in the interests of the Sole Shareholder. The Committee does not assign
specific weights to particular criteria and no particular criterion is a prerequisite for each
prospective nominee. The backgrounds and qualifications of the Company’s directors,
considered as a group, should provide a composite mix of experience, knowledge and abilities
that will allow the Board of Directors to fulfill its responsibilities,

Senior Management. The members of the Company’s Senior Management team are as follows:

Larry D. Goodhue, Chief Executive Officer, Chief Financial Officer and Treasurer

Mr. Goodhue has been the Chief Executive Officer of Pennichuck Corporation and its
subsidiaries since November 6, 2015, and the Chief Financial Officer and Treasurer since
March 2012, He was Controller from December 2006 to November 2015. Mr. Goodhue
served as a financial consultant to Metrobility Optical Systems, Inc. from July 2006 to
October 2006 and to Pennichuck Corporation from October 2006 to November 2006. From
October 2005 to June 2006, he was the Vice President of Finance and Administration for
Metrobility Optical Systems, Inc. and the Corporate Controller from September 2000 to
September 2005. From May 2000 to August 2000, he served as Acting Chief Operating
Officer for Annalee Mobilitee Dolls, Inc. and was the Controller from January 1998 to April
2000. Mr. Goodhue holds a Bachelor of Science degree in Business Administration from
Merrimack College. Mr. Goodhue’s current annual salary is $190,000.

Donald L. Ware, Chief Operating Officer

Mr. Ware has been the Chief Operating Officer of Pennichuck Corporation since

January 27, 2012. He was the Senior Vice President of Operations and Engineering of
Pennichuck Corporation from 2004 to January 2012, and Chief Engineer and Vice
President from 1995 to 2004. Mr. Ware is also the Chief Operating Officer and Executive
Vice President of Pennichuck Water Works, Inc. and the Company’s other water utilities.
From 1986 to 1995, Mr. Ware was General Manager for the Augusta Water District in
Augusta, Maine. Mr. Ware holds a Bachelor of Science degree in Civil Engineering

from Bucknell University and a Master of Business Administration degree from the
Whittemore Business School at the University of New Hampshire. Mr. Ware’s current
annual salary is $187,563.

Summary of Proposal to be Voted Upon at the Annual Meeting

PROPOSAL 1 - ELECTION OF DIRECTORS

On March 24, 2016, the Company’s Board of Directors took action to recommend that the Sole
Shareholder elect C. George Bower, Jay N. Lustig, John D. McGrath and Preston J. Stanley, Jr.
as directors, each for a three-year term and until their successors are elected and qualified.

Mr. Lustig, Mr. McGrath and Mr. Stanley have been directors of the Company since January
2012; Mr. Bower has been a director of the Company since November 2014.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THESE
FOUR NOMINEES.

Information regarding the professional backgrounds for each nominee follows:

Nominees for Director:

C. George Bower

Dr. Bower has been the Principal of ESRA Consulting, LLC, a professional consulting
practice concentrated on the development of safety, health and environmental programs,
from 1994 to present. From 1992 to 1994, Dr. Bower was President of National Soils, Inc.,
an applied technology company specializing in the development and management of
industrial facilities and waste treatment operations. He was Senior Associate and Chief
Scientist of Environmental Science and Engineering, Inc. from 1988 to 1992. Dr. Bower
holds a Bachelor of Science degree in Social Sciences from Lock Haven University; a
Master’s degree in Transportation Safety from the University of Central Missouri; and a
Ph.D. from Michigan State University.

Jay N. Lustig

Mr. Lustig has been the Chief Executive Officer of Scientific Solutions, Inc., a research
and development company in Nashua, New Hampshire, since October 2014. He has also
been a Financial Advisor and Insurance Representative with MassMutual since March
2013, and was a Financial Advisor with Edward Jones Investments from September 2012
to March 2013. Mr. Lustig was the Chief Operating Officer of Scientific Solutions, Inc.
from September 2009 to February 2012, and Director of Business Development from June
2001 to September 2009. Prior to 2001, Mr. Lustig was the Product Manager/Sales for
Pacific Packaging Products in Wilmington, Massachusetts. Mr. Lustig holds a Bachelor’s
degree in Business Administration from the University of Massachusetts-Amherst.

John D. McGrath

Mr. McGrath has been a Project Executive for Methuen Construction Co., Inc., in Salem,
New Hampshire, since February 2016, and was a Project Manager from 2007 to February
2016. From 1999 to 2007, Mr. McGrath was a Project Engineer for Barletta Engineering
Corporation in Canton, Massachusetts. Mr. McGrath has spent more than 13 years
managing projects specifically related to the rehabilitation, upgrade and construction of
water and wastewater facilities. Mr. McGrath holds a Bachelor of Science degree in Civil
and Environmental Engineering from Northeastern University.

Preston J. Stanley, Jr.

Mr. Stanley has been the Owner and Manager of Stanley Iron Works in Nashua, New
Hampshire, since 1982. From 1961 to 1982, Mr, Stanley served in various positions with
Ingersoll Rand in Nashua, New Hampshire, including Service Center Manager, Manager of
Materials, and Project Engineer and Supervisor. Mr. Stanley holds a Bachelor of Science
degree in Mechanical Engineering and a Master’s degree in Business and Economics from

the University of Maine.

=
EZ PENNICHUCK
Ae

PROXY CARD
PENNICHUCK CORPORATION

PROXY for Annual Meeting of Sole Shareholder - May 7, 2016

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The Sole Shareholder, the City of Nashua, New Hampshire, hereby appoints LARRY D. GOODHUE or DONALD
L. WARE, as proxies to represent and vote as designated hereon, all shares of common stock of Pennichuck
Corporation (the “Company”) which the Sole Shareholder would be entitled to vote if personally present at the
Annual Meeting of Sole Shareholder of the Company to be held at the Courtyard Marriott, 2200 Southwood Drive,
Nashua, New Hampshire, on Saturday, May 7, 2016 at 9:00 a.m. The shares represented by this proxy will be
voted as directed by the Sole Shareholder.

The Board of Directors recommends a vote “FOR” each of the nominees named in Proposal 1.

Proposal 1:

To elect C. George Bower, Jay N. Lustig, John D. McGrath and Preston J. Stanley,
Jr., as directors, each for a three-year term, and until their successors are elected

and qualified.
For Against
C. George Bower O O
Jay N. Lustig O 0
John D. McGrath O CO)
Preston J. Stanley, Jr. O CJ
Authorized Signature:

CITY OF NASHUA, NEW HAMPSHIRE (Sole Shareholder)

By: Date:

Name:
Title:

This Proxy Card is Valid Only When Signed and Dated

a
2 PENNICHUCK

March 29, 2016

ANNUAL REPORT TO THE SOLE SHAREHOLDER

Dear Shareholder:

The Annual Meeting of Pennichuck Corporation will be held at 9:00 a.m. on Saturday, May 7,
2016 at the Courtyard Marriott, 2200 Southwood Drive, Nashua, New Hampshire.

Background on the City’s Acquisition and Our Corporate Structure. The City’s acquisition of
the shares of Pennichuck Corporation was completed on January 25, 2012. As part of the
acquisition, the corporate structure of Pennichuck Corporation and its subsidiaries was retained.
Under the structure, the City of Nashua is the sole shareholder of Pennichuck Corporation.
Under the Company’s By-Laws, the City in its capacity as shareholder makes its decisions
through actions by its Board of Aldermen, in accordance with the City’s Charter. No single
person — the Mayor or any individual member of the Board of Aldermen - is him or herself.a
shareholder; rather, the entity of the City itself is the sole shareholder of Pennichuck Corporation
represented by the Board of Aldermen and the Mayor.

Pennichuck continues to own five corporate subsidiaries, including three regulated utilities
(Pennichuck Water Works, Inc., Pennichuck East Utility, Inc., and Pittsfield Aqueduct Company,
Inc.), an unregulated service company (Pennichuck Water Service Corporation), and a real estate
holding company (The Southwood Corporation).

As unanimously approved by the City’s Board of Aldermen at the time of the acquisition, the
corporate structure was retained for several reasons.

First, the City’s Mayor and Board of Aldermen desired to maintain some stability and continuity
for all of the customers and employees of the Pennichuck companies. Retaining the existing
corporate structure minimized the need for any radical changes to the utility companies and
operations and encouraged support by all of the communities served by the utilities.

-2-

Second, retaining the corporate structure provided continuity for the regulatory and financial
Status of the companies and their respective businesses. The New Hampshire Public Utilities
Commission continues to provide regulatory oversight for the utility companies, and banks,
lenders and other contract parties continue to be able to rely on existing contracts and other rules
with respect to financing and other operations.

Third, the Mayor and Board of Aldermen unanimously agreed to establish a corporate
governance system for the purposes of managing Pennichuck Corporation. This corporate
governance system relies upon well-established principles of corporate law, and is established
pursuant to Pennichuck Corporation’s Articles of Incorporation and By-Laws, as adopted by the
City and the Company at the time of the acquisition pursuant to the Merger Agreement.

This well-known corporate governance model, which incorporates well-established principles
regarding fiduciary obligations of board members, was structured to provide assurances to the
City’s rating agencies, potential lenders, the New Hampshire Public Utilities Commission and
the many communities we serve that decisions are based on sound business and financial
analysis, and in a manner that minimizes political considerations.

Operations, Communities and Customers. Our companies provide water service to a wide
range of communities and customers.

Pennichuck Water Works, Inc. provides water service to approximately 28,000 customers in
11 communities which include Amherst, Bedford, Derry, Epping, Hollis, Merrimack, Milford,
Nashua, Newmarket, Plaistow and Salem.

Pennichuck East Utility, Inc. provides water service to approximately 7,300 customers in
19 communities which include Atkinson, Barnstead, Bow, Chester, Conway, Derry, Exeter,
Hooksett, Lee, Litchfield, Londonderry, Middleton, Pelham, Plaistow, Raymond, Sandown,
Tilton, Weare and Windham.

Pittsfield Aqueduct Company, Inc. provides water service to approximately 600 customers in
Pittsfield.

Pennichuck Water Service Corporation provides service in connection with the management
of water services for two communities; billing, collection and customer services for

three communities; and water meter testing services, as well as contracted water services at
various levels for approximately 85 small independently owned water systems.

The Southwood Corporation owns various parcels of land in the Town of Merrimack.

The Company’s mission is to be a premier supplier of water in New Hampshire by providing
reliable, high quality and affordable water in sufficient quantities and be New England’s premier
supplier of water related contract services by providing high quality solutions to meet our
customers’ needs. Strategies supporting the mission have been developed relative to our water
resources, employees, financing, customer services and Company assets. These strategies
together with the goals and plans to support the strategies are available on the Company’s
website, www.pennichuck.com, under the “Company Reports” caption.

-3-

The Company currently has 114 employees. The employees are committed to supporting the
Company’s mission. Each of our managers has goals and objectives to support the strategies
supporting the mission. Pennichuck is an Equal Opportunity/A ffirmative Action Employer. It is
the policy of the Company to hire, train, promote, and otherwise provide terms and conditions of
employment without regard to race, color, religion, sex, sexual orientation, gender identity,
national origin, ancestry, age, marital status, pregnancy, disability or veteran status. All
employment and promotion decisions are based solely on valid requirements, in accordance with
the principles of equal employment opportunity and affirmative action.

Financial Performance During the Last Year. The Company’s audited consolidated financial

statements for the year ended December 31, 2015 are attached to this report.

($ Millions)
4tn Quarter Year-to-Date
2015 2014 2015 2014
Revenues $8.9 $ 8.2 $ 40.8 $ 38.8
Operating Expenses (8.1) (7.2) (32.0) (29.9)
Operating Income 0.8 1.0 8.8 8.9
Interest Expense (3.1) (2.6) (10.9) (10.1)
Other Income 0.1 - 0.1 -
Pre-Tax Income (Loss) (2.2) (1.6) (2.0) (1.2)
Income Tax Expense (Benefit) 0.3 0.6 0.3 0.6
Net Income (Loss) (2.5) (2.2) (2.3) (1.8)
Dividends Paid to the Shareholder 0.1 0.1 0.3 0.3
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) — 2.7 2.6 15.4 15.2

¢ Consolidated revenues for the fourth quarter increased by $0.7 million from
$8.2 million in 2014 to $8.9 million in 2015. The increase is primarily
attributable to higher water usage for Pennichuck Water Works, Inc.

¢ Consolidated year-to-date revenues increased from $38.8 million in 2014 to $40.8
million in 2015. Revenues from the regulated utilities increased primarily due to
increased consumption in 2015 resulting from the dry weather patterns during the
summer months.

¢ Consolidated operating expenses increased by $0.9 million for the fourth quarter
of 2015, over the same quarter in 2014. The increase is related to higher water
treatment and production costs related to higher year-over-year consumption, as
well as increases in property taxes and higher depreciation costs associated with
ongoing capital investments.

e Consolidated operating expenses increased by $2.1 million from 2014 to 2015
mainly due to higher water treatment and production costs related to higher
consumption levels, depreciation adjustments, property taxes, and pension and
labor related costs.

-4-

An increase in interest expense from 2014 to 2015 of approximately $0.8 million
is primarily due to the increased financed amounts for capital projects.

Pre-tax loss for the fourth quarter increased from $1.6 million in 2014 to

$2.2 million in 2015 due to an increase in interest cost associated with the
financing of capital projects, as well as the increase in operating expenses, offset _
by the higher year-over-year revenues.

The pre-tax loss for the year increased from $1.2 million in 2014 to $2.0 million
in 2015 due to overall increased operating and interest expenses, offset by higher
revenues.

Dividends paid to the sole shareholder in both 2014 and 2015 were consistent
with, and were paid pursuant to, the CBFRR structure provided for in the New
Hampshire Public Utilities Commission’s Order approving the City’s ownership
of the Company.

Income Tax Expense in the current year reflects the tax treatment for the
Municipal Acquisition Regulatory Asset, which is not deductible for tax purposes.
Therefore, the year-to-date results reflect a tax provision of approximately -15%
of pre-tax income compared to the statutory tax rate expense of 39.6%.

Earnings Before Interest, Taxes, Depreciation and Amortization increased in the
fourth quarter from $2.6 million in 2014 to $2.7 million in 2015 due to higher
revenues, offset by operating expense variations (excluding depreciation and
interest),

Earnings Before Interest, Taxes, Depreciation and Amortization for 2015
increased slightly over 2014 by approximately $0.2 million, again due to higher
revenues earned year-over-year, offset by operating expense increases, excluding
depreciation and interest expenses.

Unaudited Cash Flow Statement

Cash Flow on a GAAP basis for the fourth quarter of 2015 as compared to the fourth quarter of

2014, and the year-to-date 2015 versus 2014, are as follows:

($000’s)

Quarter Ended Year-to-Date
December 31, December 31, December 3!, December 31,
2015 2014 2015 2014
Operating Activities:
Net Income (Loss) $ (2,473) $ (2,236) $_(2,.292) $ (1,775)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,132 1,664 6,804 6,426
Provision for Deferred Taxes 244 633 294 606
Other 9 2 (24) 2
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 2,030 1,576 129 (195)
(Increase) Decrease in Inventory 53 29 90 18
(Increase) Decrease in Other Assets (831) (2,317) 550 (1,124)
Increase (Decrease) in Accounts Payable 23 (158) (152) 557
Increase (Decrease) in Other Liabilities 1,145 3,506 1,166 2,833
Net Cash Provided by (Used in) Operating Activities _ 2,332 2,699 6,565 7.348
Investing Activities:
Purchases of Property, Plant & Equipment,
including the Debt Component of AFUDC (5,215) (3,405) (13,866) (8,585)
(Increase) Decrease in Restricted Cash/Investments (5,436) (40,301) 20,328 (40,273)
Change in Deferred Land Costs - : (4) :
Net Cash Provided by (Used in) Investing Activities (10,651) (43,706) 6,458 (48.858)
Financing Activities:
Borrowings (Repayments) on Line of Credit - (3,166) - (1,966)
Payments on Long-term Debt (16,849) (637) (42,485) (3,036)
Contributions in Aid of Construction 117 37 133 78
Proceeds from Long-term Borrowings 23,730 48,695 28,098 49,935
Debt Issuance Costs (95) (1,018) (232) (1,275)
Dividends Paid (71) (69) (278) (277)
Net Cash Provided by (Used in) Financing Activities 6,832 43,842 (14,764) 43.459
Increase (Decrease) in Cash and Cash Equivalents (1,486) 2,835 (1,741) 1,949
Cash and Cash Equivalents at Beginning of Period 2,732 152 2.987 1,038
Cash and Cash Equivalents at End of Period $_1,246 $..2,987 $ _L246 $ 2987