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The aggregate principal payment requirements subsequent to December 31, 2020 are as
follows:

(in thousands) Amount

2021 S 6,018
2022 6,272
2023 7,508
2024 6,721
2025 7,013
2026 and thereafter 211,351
Total S 244,883

Several of Pennichuck Water’s loan agreements contain a covenant that prevents Pennichuck
Water from declaring dividends if Pennichuck Water does not maintain a minimum net
worth of $4.5 million. As of December 31, 2020 and 2019, Pennichuck Water’s net worth was
$103.6 million and $107.4 million, respectively.

The 2014A, 2014B, 2015A, 2015B, 2018A, 2018B, 2019A, 2020A, 2020B and 2020C bonds
were issued under a new bond indenture and loan and trust agreement, established with the
issuance of the 2014 Series Bonds, which contains certain covenant obligations upon
Pennichuck Water, which are as follows:

Debt to Capital Covenant - Pennichuck Water cannot create, issue, incur, assume or
guarantee any short-term debt if (1) the sum of the short-term debt plus its funded debt
(“Debt”) shall exceed 85% of the sum of its short-term debt, funded debt and capital stock
plus surplus accounts (“Capital”), unless the short-term debt issued in excess of the 85%
is subordinated to the Series 2014 bonds. Thereby, the ratio of Debt to Capital must be
equal to or less than 1.0. As of December 31, 2020 and 2019, Pennichuck Water has a
Debt to Capital Coverage ratio of 0.6 and 0.6, respectively.

All Bonds Test - Additionally, Pennichuck Water cannot create, issue, incur, assume or
guarantee any new funded debt, if the total outstanding funded debt (“Total Funded
Debt”) will exceed the sum of MARA (as defined in Note 14 of these consolidated financial
statements) and 85% of its Net Capital Properties (“MARA and Capital Properties”), and
unless net revenues or EBITDA (earnings before interest, taxes, depreciation and
amortization) shall equal or exceed for at least 12 consecutive months out of the 15
months preceding the issuance of the new funded debt by 1.1 times the maximum
amount for which Pennichuck Water will be obligated to pay in any future year (“Max
Amount Due”), as a result of the new funded debt being incurred. Thereby, the ratio of
Total Funded Debt to MARA and Capital Properties must be equal to or less than 1.0; as
of December 31, 2020 and 2019, this coverage ratio was 0.6 and 0.5, respectively. Also,
the ratio of EBITDA to the Max Amount Due must be equal to or greater than 1.1; as of
December 31, 2020 and 2019, this ratio was 2.6 and 1.5, respectively.

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Rate Covenant Test - If during any fiscal year, the EBITDA of Pennichuck Water shall not
equal at least 1.1 times all amounts paid or required to be paid during that year
(“Amounts Paid”), then the Company shall undertake reasonable efforts to initiate a rate-
making proceeding with the NHPUC, to rectify this coverage requirement in the
succeeding fiscal years. Thereby, the ratio of EBITDA to Amounts Paid must be equal to
or greater than 1.1; as of December 31, 2020 and 2019, the Rate Covenant coverage ratio
was 3.57 and 1.98, respectively.

Pennichuck East’s loan agreement for its unsecured notes payable to a bank of $9.2 million
and $8.8 million at December 31, 2020 and 2019, respectively, contains a minimum debt
service coverage ratio requirement of 1.10. At December 31, 2020 and 2019, this ratio was
2.07 and 1.84, respectively.

On September 2, 2020, Pennichuck Water issued approximately $73.6 million of taxable
bonds through the New Hampshire Business Finance Authority to: (1) advance refund and
refinance Pennichuck Water's series 2014A, 2015A, and 2015B bonds; (2) early retire an AULI
bank loan set to mature on March 1, 2021 with a “bullet” maturity due at that date; (3)
complete the replenishment of the Material Operating Expense Revenue Requirement
(MOERR) RSF for Pennichuck Water back to nearly its authorized imprest value; and (4) repay
Pennichuck Water’s Fixed Asset Line of Credit (FALOC) for monies borrowed while awaiting
rate relief from this bonding event and the Pennichuck Water rate case approved by NHPUC
Order No. 26,425. The bond issuance was approved by the Company's Board of Directors and
the Sole Stockholder. This issuance received NHPUC approval in Order No. 26,383 dated July
24, 2020, which authorized up to $75.0 million in bonds.

As of December 31, 2020 and 2019, the Company had a $2.5 million and $2.7 million,
respectively, interest rate swap which qualifies as a derivative. This financial derivative is
designated as a cash flow hedge. This financial instrument is used to mitigate interest rate
risk associated with our outstanding $2.5 million loan which has a floating interest rate
based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.75% as of
December 31, 2020. The combined effect of the LIBOR-based borrowing formula and the
swap produces an “all-in fixed borrowing cost” equal to 5.95%. The fair value of the financial
derivative, as of December 31, 2020 and 2019, included in our Consolidated Balance Sheets
under “Other Liabilities and Deferred Credits” as “Derivative instrument” was $460,000 and
$353,000, respectively. Changes in the fair value of this derivative were deferred in
accumulated other comprehensive income.

Swap settlements are recorded in the statements of income (loss) with the hedged item as
interest expense. During the years ended December 31, 2020 and 2019, $42,000 and $70,000,
respectively, was reclassified pre-tax from accumulated other comprehensive income to
interest expense as a result of swap settlements. The Company expects to reclassify
approximately $94,000, pre-tax, from accumulated other comprehensive income to interest
expense as a result of swap settlements, over the next twelve months.

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12.

Paycheck Protection Program Loan

On May 7, 2020, the Company received loan proceeds in the amount of approximately
$2,543,600 under the Small Business Administration (SBA) PPP. The PPP, established as part
of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was enacted
March 27, 2020, provides for loans to qualifying businesses for amounts up to 2.5 times the
average monthly payroll expenses of the qualifying business. The loan and accrued interest
may be forgiven after eight or twenty-four weeks providing the Company uses the loan
proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains
certain payroll levels. The amount of loan forgiveness will be reduced if the Company
terminates employees or reduces salaries during the eight or twenty-four week period.

Any unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%,
with deferral of payments for the first ten months. The Company intends to use the proceeds
for purposes consistent with the PPP requirements. While the Company currently believes
that its use of the loan proceeds will meet the conditions for forgiveness of the loan, the
Company cannot guarantee that the loan will be forgiven, in whole or in part.

Lines of Credit

In December of 2020, the Company’s existing Working Capital Line of Credit (WCLOC) and
Pennichuck Water ‘s FALOC were renewed. The WCLOC was extended and renewed for an
additional year and a half, expiring on June 30, 2022, whereas the FALOC was extended and
renewed for an additional two and a half years, expiring on June 30, 2023. Additionally, as a
part of the renewal and extension of the FALOC, the capacity of that facility was increased
from $10 million to $12 million, while the Company’s WCLOC remains at $4 million.
Pennichuck East’s Fixed Asset Line of Credit (PEU FALOC) was renewed and extended for an
additional three years on November 24, 2020, expiring on September 30, 2023, at its current
facility level of $3 million. The two Fixed Asset Lines of Credit (FALOC and PEU FALOC) are
used to fund construction work in progress on capital projects, which will be refinanced into
long-term term loan obligations or issued bond indebtedness, annually.

Short-term borrowing activity under the Company’s WCLOC for the years ended
December 31, 2020 and 2019 was:

(in thousands) 2020 2019
Established line as of December 31, S 4,000 S 4,000
Maximum amount outstanding during period 3,006 3,311
Average amount outstanding during period 1,354 934
Amount outstanding as of December 31, 624 2,439
Weighted average interest rate during period 2.47% 3.98%
Interest rate as of December 31, 1.90% 3.55%

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Short-term borrowing activity under Pennichuck Water's FALOC for the years ended
December 31, 2020 and 2019 was:

(in thousands) 2020 2019
Established line as of December 31, S 12,000 S 10,000
Maximum amount outstanding during period 7,223 8,850
Average amount outstanding during period 3,610 4,131
Amount outstanding as of December 31, 4,550 5,848
Weighted average interest rate during period 2.80% 4.07%
Interest rate as of December 31, 1.90% 3.55%

Short-term borrowing activity under Pennichuck East’s FALOC for the years ended
December 31, 2020 and 2019 was:

2020 2019
Established line as of December 31, S 3,000 S 3,000
Maximum amount outstanding during period 1,106 1,894
Average amount outstanding during period 1,022 1,172
Amount outstanding as of December 31, 306 996
Weighted average interest rate during period 2.80% 4.56%
Interest rate as of December 31, 2.15% 3.99%

The Company's revolving credit loan facilities with TD Bank contain certain covenant
obligations upon Pennichuck Water, which are as follows:

Debt to Capital Covenant - Pennichuck Water cannot create, issue, incur, assume or
guarantee any short-term debt if (1) the sum of the short-term debt plus its funded debt
(“Debt”) shall exceed 85% of the sum of its short-term debt, funded debt and capital stock
plus surplus accounts (“Capital”), unless the short-term debt issued in excess of the 85%
is subordinated to the loan facility. Thereby, the ratio of Debt to Capital must be equal to
or less than 1.0. As of December 31, 2020 and 2019, Pennichuck Water has a Debt to
Capital Coverage ratio of 0.6 and 0.6, respectively.

40

All Bonds Test - Additionally, Pennichuck Water cannot create, issue, incur, assume or
guarantee any new funded debt, if the total outstanding funded debt (“Total Funded
Debt”) will exceed the sum of MARA (as defined in Note 14 of these consolidated financial
statements) and 85% of its Net Capital Properties (“MARA and Capital Properties”), and
unless net revenues or EBITDA (earnings before interest, taxes, depreciation and
amortization) shall equal or exceed for at least 12 consecutive months out of the 15
months preceding the issuance of the new funded debt by 1.1 times the maximum
amount for which Pennichuck Water will be obligated to pay in any future year (“Max
Amount Due”), as a result of the new funded debt being incurred. Thereby, the ratio of
Total Funded Debt to MARA and Capital Properties must be equal to or less than 1.0; as
of December 31, 2020 and 2019, this coverage ratio was 0.6 and 0.5, respectively. Also,
the ratio of EBITDA to the Max Amount Due must be equal to or greater than 1.1; as of
December 31, 2020 and 2019 this ratio was 2.6 and 1.5, respectively.

Rate Covenant Test - If during any fiscal year, the EBITDA of Pennichuck Water shall not
equal at least 1.1 times all amounts paid or required to be paid during that year
(“Amounts Paid”), then the Company shail undertake reasonable efforts to initiate a rate-
making proceeding with the NHPUC, to rectify this coverage requirement in the
succeeding fiscal years. Thereby, the ratio of EBITDA to Amounts Paid must be equal to
or greater than 1.1; as of December 31, 2020 and 2019, the Rate Covenant coverage ratio
was 3.57 and 1.98, respectively.

13. Accumulated Other Comprehensive Income

The following table presents changes in accumulated other comprehensive income by
component for the years ended December 31, 2020 and 2019:

Interest Rate Contract

(in thousands) 2020 2019
Beginning balance S 318 86$ 372
Other comprehensive loss before reclassifications (89) (97)

Amounts reclassified from accumulated other

comprehensive income 25 43
Net current period other comprehensive income (64) (54)
Ending balance S 254 =§$ 318

41

os

RESPONSIBLE CHEMISTRY

polydyne.snf.com

Emailed to: osbornen@nashuanh.gov

April 14, 2021.

Ms. Noelle Osborne

City of Nashua

2 Sawmill Road

Nashua, NH 03060

Subject: Polymer Price Quotation

Dear Ms. Osborne:

Palydyne inc. is pleased to offer the following price quotation:

PRODUCT PRICE

PACKAGE

$1.15/LB. DELIVERED*

FULL BULK — 5,000 GAL MIN.

CLARIFLOC® NE-2180
$1.21/LB DELIVERED* LTL BULK - 2,000 GAL MIN,
2300 LB. TOTES
CLARIFLOC® C-6266 $1.21/LB DELIVERED* 2300 LB. TOTES

*Freight/Tariff Surcharge may apply
Quotation Period: Firm through June 30, 2022.

Payment Terms: Net 30 days ~ No Discounts

Thank you for your business, tf you have any questions, feel free to contact Alex Krantz, Sr.
Technical Sales Representative, at (856) 745-1936. Orders may be placed online at:
www.polydyneinc.com/polydyne-online-order-form/ or through our Customer Service
Department at (800) 843-7659. Your Customer Service Representative is Heather James.

Heather's direct extension is 8735.

Best regards,
a

Boy

ey
Sr. Vice-President

SNF Polydyne « 1 Chemical Plant Road » Riceboro, GA 31323 USA « Tel 800.848.7659

14,

The following table presents reclassifications out of accumulated other comprehensive
income for the years ended December 31, 2020 and 2019:

Amounts Reclassified Affected Line Item in
Details about Accumulated Other from Accumulated Other the Statement Where
Comprehensive Income Components Comprehensive Income Net Income is Presented
{in thousands) 2020 2019

Gain on cash flow hedges:
Interest rate contracts $ 42 § 70 Interest expense

(17) (27) Tax expense

Amounts reclassified from accumulated
other comprehensive income $ 25 $ 43 Net of tax

Transaction with the City of Nashua

On January 25, 2012, in full settlement of an ongoing Eminent Domain lawsuit filed by the
City of Nashua (“City”) and with the approval of the NHPUC, the City acquired all of the
outstanding shares of the Company and, thereby, indirect acquisition of its regulated
subsidiaries. The total amount of the acquisition was $150.6 million (“Acquisition Price”) of
which $138.4 million was for the purchase of the outstanding shares, $5.0 million for the
establishment of a Rate Stabilization Fund, $2.6 million for legal and due diligence costs, $2.3
million for severance costs, $1.3 million for underwriting fees, and $1.0 million for bond
discount and issue costs. The entire purchase of $150.6 million was funded by General
Obligation Bonds (“Bonds”) issued by the City of Nashua. The Company is not a party to the
Bonds and has not guaranteed nor is obligated in any manner for the repayment of the Bonds.
The Company remains an independent corporation with an independent Board of Directors,
with the City of Nashua as its sole stockholder.

Pennichuck Water, Pennichuck East, PAC, Service Corporation, and Southwood will continue
as subsidiaries of Pennichuck Corporation and Pennichuck Water, Pennichuck East and PAC
will continue as regulated companies under the jurisdiction of the NHPUC. The terms of the
merger and the requisite accounting and rate-setting mechanisms were agreed to in the
NHPUC Order No. 25,292 (“PUC Order”) dated November 23, 2011.

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Transactions with Related Party — City of Nashua

The Company issued a promissory note to the City of Nashua in the amount of approximately
$120 million to be repaid over a thirty (30) year period with monthly payments of
approximately $707,000, including interest at 5.75%. The Company recorded an additional
amount of approximately $30.6 million as contributed capital. The remaining outstanding
balance of the note payable to the City at December 31, 2020 and 2019 was approximately
$102 million and $105 million, respectively, as disclosed in Note 11 to these consolidated
financial statements. During 2020 and 2019, dividends of approximately $279,000 and
$280,000, respectively, were declared and paid to the City. The dividends paid to the City
during 2020 comprised approximately $279,000 of regular quarterly dividends declared and
paid; and no special dividend was declared or paid in 2020. The dividends paid to the City
during 2019 comprised approximately $280,000 of regular quarterly dividends declared and
paid; and no special dividend was declared or paid in 2019.

Additional ongoing transactions occur in the normal course of business, between the
Company and the City, related to municipal water usage, fire protection and sewer billing
support services, and property taxes related to real property owned by the Company within
the City of Nashua. For the years ended December 31, 2020 and 2019, respectively,
approximately $3.4 million and $3.4 million were paid to the Company by the City for
municipal water consumption, fire protection charges, and sewer billing support services.
Conversely, the Company paid property taxes to the City of Nashua of approximately $2.7
million for the year ended December 31, 2020, and approximately $2.3 million for the year
ended December 31, 2019.

Rate Stabilization Fund — Restricted Cash

As a part of the acquisition, the Company agreed to contribute $5,000,000 of the proceeds
from the settlement transaction to Pennichuck Water, which was used to establish an RSF,
allowing for the maintenance of stable water utility rates and providing a mechanism to
ensure the Company’s continued ability to meet its obligations under the promissory note to
the City, in the event of adverse revenue developments. Restricted cash consists of amounts
set aside in the RSF account and is adjusted monthly as required in the NHPUC Order, as
discussed in Note 1 of these financial statements.

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Municipal Acquisition Regulatory Asset (“MARA”)

Pursuant to the NHPUC Order, the Company established a new Regulatory asset (MARA) which
represents the amount that the Acquisition Price exceeded the net book assets of the
Company’s regulated subsidiaries (Pennichuck Water, Pennichuck East, and PAC) at
December 31, 2011. The initial amount of the MARA was approximately $89 million for the
regulated companies, offset by a non-regulated amount of approximately $4.8 million. The
MARA is to be amortized over a thirty (30) year period in the same manner as the repayment
of debt service for the City’s acquisition bonds. The balance in the MARA at December 31, 2020
was approximately $71.1 million, reduced by the non-regulated credit of approximately $3.9
million.

Aggregate amortization expense for the years ended December 31, 2020 and 2019 totaled
approximately $2,061,000 and $2,006,000, respectively.

The following table represents the total estimated amortization of MARA:

Estimated

Amortization

(in thousands) Expense
2021 $ 2,119
2022 2,183
2023 2,253
2024 2,328
2025 2,409
2026 and thereafter 55,910
Total S 67,202

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15. Segment Reporting

For the years ended December 31, 2020 and 2019, and as of those dates, the following
financial results were generated by the segments of the Company:

(in thousands) 2020 2019
Operating Revenues:
Pennichuck Water $ 36,688 $ 32,280
Pennichuck East 9,805 8,819
Pittsfield Aqueduct 808 775
Subtotal Regulated Segment 47,301 41,874
Service Corporation 2,778 2,893
Other 12 12
Total Operating Revenues $ 50,091 §$ 44,779
Depreciation and Amortization Expense:
Pennichuck Water $ 7,341 $ 7,211
Pennichuck East 1,212 1,239
Pittsfield Aqueduct 116 116
Subtotal Regulated Segment 8,669 8,566
Service Corporation - -
Other (120) (117)
Total Depreciation and Amortization Expense $ 8549 $ 8,449
Operating Income:
Pennichuck Water $ 8,961 $ 5,303
Pennichuck East 1,148 355
Pittsfield Aqueduct 80 62
Subtotal Regulated Segment 10,189 5,720
Service Corporation 119 165
Other 21 -
Total Operating Income $ 10,329 §$ 5,885
Interest Expense:
Pennichuck Water $ 4903 $ 3,517
Pennichuck East 777 937
Pittsfield Aqueduct 40 42
Subtotal Regulated Segment 5,720 4,496
Service Corporation 2 6
Other 6,174 6,670
Total Interest Expense $ 11,896 §$ 11,172

(continued)

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