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For assets and liabilities measured at fair value on a recurring basis, the fair value measure-
ment by levels within the fair value hierarchy used as of December 31, 2016 and 2015 were
as follows:

December 31, 2016
(in thousands) Total Level 1 Level 2 Level 3
Liabilities:
Interest rate swap $ (453) $ - $ (453) §$ -
December 31, 2015
(in thousands) Total Level 1 Level 2 Level 3
Assets:
U.S. government bonds $ 17,210 $ 17,210 $ - $ -
Liabilities:
Interest rate swap $ (548) $ - $ (548) §$ -

The carrying value of certain financial instruments included in the accompanying Consoli-
dated Balance Sheets, along with the related fair value, as of December 31, 2016 and 2015
was as follows:

2016 2015
Carrying Fair Carrying Fair

(in thousands) Value Value Value Value
Assets:

U.S. government bonds $ - § - §$ 17,237 $ 17,210
Liabilities:

Long-term debt (210,443) (264,700) (210,172) (211,962)

Interest rate swap liability (453) (453) (548) (548)

The fair value of long-term debt has been determined by discounting the future cash flows
using current market interest rates for similar financial instruments of the same duration. The
fair value for long-term debt shown above does not purport to represent the amounts at which
those debt obligations would be settled. The fair market value of the interest rate swap
represents the estimated cost to terminate this agreement as of December 31, 2016 and 2015
based upon the then-current interest rates and the related credit risk.

The carrying values of our Cash and Cash Equivalents, Accounts Receivable and Accounts
Payable approximate their fair values because of their short maturity dates. The carrying
value of our CIAC approximates its fair value because it is expected that this is the amount
that will be recovered in future rates.

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Note 9 — Income Taxes

The components of the federal and state income tax provision (benefit) as of December 31,
2016 and 2015 were as follows:

(in thousands) 2016 2015
Federal $ 284 $ (79)
State (116) 420
Amortization of investment tax credits (33) (33)
Total $ 135 $ 308
Current $ - $ (1)
Deferred 135 309
Total $ 135 $ 308

The following is a reconciliation between the statutory federal income tax rate and the
effective income tax rate for 2016 and 2015:

2016 2015
Statutory federal rate 34.0% 34.0%
State tax rate, net of federal benefits 5.4% 5.6%
Permanent differences 54.8% -56.8%
Amortization of investment tax credits 3.0% 1.7%
Effective tax rate -12.4% -15.5%

The temporary items that give rise to the net deferred tax liability as of December 31, 2016
and 2015 were as follows:

(in thousands) 2016 2015
Liabilities:
Property-related, net $ 27,599 $ 26,890
Other 563 443
Total liabilities 28,162 27,333
Assets:
Pension accrued liability 1,555 1,426
Net operating loss carryforward 4,480 3,884
Alternative minimum tax credit 476 476
NH Business Enterprise Tax credits 727 369
Other 782 905
8,020 7,060
Less valuation allowance (727) (369)
Total assets 7,293 6,691
Net non-current deferred income tax liability $ 20,869 $ 20,642

27

The Company had a federal net operating loss in 2016 and 2015 in the amounts of
approximately $1.6 million and $3.5 million, respectively. The federal tax benefit of the
cumulative net operating loss is approximately $3.8 million which begins to expire in 2032,
and is included in deferred income taxes in the Consolidated Balance Sheet as of December
31, 2016.

The Company also had a New Hampshire net operating loss in 2016 and 2015 in the amounts
of approximately $2.5 million and $4.4 million, respectively. The New Hampshire tax benefit
of the cumulative net operating loss is approximately $637,000 which begins to expire in
2022, and is included in deferred income taxes in the Consolidated Balance Sheet as of
December 31, 2016.

As of December 31, 2016 and 2015, it is estimated that approximately $476,000 and
$476,000, respectively, of cumulative federal alternative minimum tax credits may be carried
forward indefinitely as a credit against our regular tax liability.

As of December 31, 2016 and 2015, the Company had New Hampshire Business Enterprise
Tax (““NHBET”) credits of approximately $727,000 and $369,000, respectively. NHBET
credits begin to expire in 2017. It is anticipated that these NHBET credits will not be fully
utilized before they expire; therefore, a valuation allowance has been recorded related to
these credits. The valuation allowance increased by $358,000 and $369,000 in the years
ended December 31, 2016 and 2015, respectively.

Investment tax credits resulting from utility plant additions are deferred and amortized. The
unamortized investment tax credits are being amortized through the year 2033.

The Company had a regulatory liability related to income taxes of approximately $760,000
and $781,000 as of December 31, 2016 and 2015, respectively. This represents the estimated
future reduction in revenues associated with deferred taxes which were collected at rates
higher than the currently enacted rates and the amortization of deferred investment tax
credits.

A review of the portfolio of uncertain tax positions was performed. In this regard, an
uncertain tax position represents the expected treatment of a tax position taken in a filed tax
retum, or planned to be taken in a future tax return, that has not been reflected in measuring
income tax expense for financial reporting purposes. As a result of this review, it was
determined that the Company had no material uncertain tax positions, and tax planning
strategies will be used, if required and when possible, to avoid the expiration of any future
net operating loss and/or tax credits.

The Company’s practice is to recognize interest and/or penalties related to income tax
matters in “Other, Net” in the Consolidated Statements of Income. We incurred no interest in
2016 and 2015. We incurred $0 and $3,000 of penalties during the years ended December 31,
2016 and 2015, respectively.

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Note 10 — Debt

Long-term debt as of December 31, 2016 and 2015 consisted of the following:

2016
Unamortized
Debt Issuance
(in thousands) Principal Costs
Unsecured note payable to City of Nashua, 5.75%,
due 12/25/2041 $ 110,970 $ -
Unsecured senior note payable due to an insurance company
7.40%, due March 1, 2021 4,000 36
Unsecured Business Finance Authority:
Revenue Bonds (Series 2015A), interest rates from 4.00% to 5.00%,
due January 1, 2046 20,555 1,614
Revenue Bonds (Series 2015B), 5.00%, due January 1, 2046 2,035 272
Revenue Bonds (Series 2014<A), interest rates from 3.00% to 4.125%,
due January 1, 2045 40,930 2,114
Revenue Bonds (Series 2014B), 4.50%, due January 1, 2045 5,215 123
Unsecured notes payable to bank, floating-rate, due March 1, 2030 3,332 17
Unsecured notes payable to bank, 3.62%, due June 20, 2023 1,505 11
Unsecured notes payable to bank, 4.20%, due December 20, 2041 1,250 7
Unsecured notes payable to bank, 4.83%, due December 20, 2041 950 5
Unsecured notes payable to bank, 4.25%, due June 20, 2033 815 7
Unsecured notes payable to bank, 4.90%, due March 6, 2040 602 38
Unsecured New Hampshire State Revolving Fund (“SRF”) notes (1) 18,284 168
Unamortized debt issuance costs for defeased obligations,
allowed by regulation - 111
Total 210,443 $ 4,523
Less current portion (5,162)
Less unamortized debt issuance costs (4,523)
Total long-term debt, net of current portion
and unamortized debt issuance costs $ 200,758

(1) SRF notes are due through 2035 at interest rates ranging from 1% to 4.488%. These notes are payable in 120 to 240
consecutive monthly installments of principal and interest. The 1% rate applies to construction projects still in process
until the earlier of (i) the date of substantial completion of the improvements, or (ii) various dates specified in the note
(such earlier date being the interest rate change date). Commencing on the interest rate change date, the interest rate
changes to the lower of (i) the rate as stated in the note or (ii) 80% of the established 11 General Obligations Bond
Index published during the specified time period before the interest rate change date.

29

From: Joseph S. Haas [maiito:iosephshaas@hotmail.com]
Sent: Saturday, June 18, 2016 10:4S AM

To: Dowd, Richard; Lovering, Susan; Lavoie, Andrew (Police); Lopez, Thomas; City Clerk Public Folder;
Mayor's Office Email; Caron, June; Clemons, Benjamin; Cookson, Mark; Deane, David; LeBrun, Don;
McCarthy, Brian; McGuinness, Sean; Melizzigolja, Mary; Moriarty, Daniel; O'Brien, Michael (Alderman);
Schoneman, David; Siegel, Ken; Wilshire, Lori

Ce: Dick Marple .

Subject: Did you get this?

!.Did you get this?

2.. Are you going to recommend that your City Clerk not just sit there at these meetings with her
assistant and get reprimanded by me and that of she to do nothing about it?! If she will not call
the C.O.P.S. to enforce the law (RSA Ch. 444:6) to either call/ write +/or visit The "Internal
Revenue Service, 410 Amherst Street, #350, Nashua, N.H. 03060" on her own, then would you
please spur her on, or contact the Police Chief directly (rather than indirectly through her), to get
this Report / "Record" / “account” that is required by the "shall" word in that statute that it
MUST be filed with your City Clerk so that I can go there to read it. [ RSA Ch. 91-A:4,IV

http://www.gencourt.state.nh.us/rsa/html/V1/91-A/91-A-4.htm * J

I'll repeat again that of at: http://www.gencourt.state.nh.us/rsa/html/XLI/444/444-6.htm =" 444:6
Record. -— The holder of the lien shall cause a copy of such notices and an affidavit of service,
with an account of the sale and of the fees and charges thereon, to be recorded in the books of the
town where the sale takes place. A certified copy of the record may be used in evidence. Source.
1865, 4082:1. GS 125:8. GL 139:8, PS 141:8. PL 217:10. RL 264:10.

" Notice the "Source" going back to 1865. WHEN did this McLaughlin group of
Transportation workers under the MAYFLOWER Movers flag first get started with these
auctions? Year 19__? and did they EVER file such a “Record” of an "account"? Surely you
have had #___ such auctions over the years, decades, and now into three centuries!!! by other(s)
too. # WHO and WHEN? plus WHERE? ___ + + Plus: WHEN did your
law-enforcement officers there get so lazy? WHY do you let them of these lien holders continue

to avoid or evade the law!? http://www.merriam-webster.com/dictionarv/avoid = "

Synonym Discussion of avoid

escape, avoid, evade, elude, shun, eschew mean to get away or keep away from something.
escape stresses the fact of getting away or being passed by not necessarily through effort or by
conscious intent <nothing escapes her sharp eyes>. avoid stresses forethought and caution in
keeping clear of danger or difficulty <try to avoid:past errors>. evade implies adroitness,
ingenuity, or lack of scruple in escaping or avoiding <evaded the question by changing the
subject>.

You too in the evading mode? of to what? acknowledge correspondence FINALLY! and then
what? "placed on file"? Come on! Let's get with it. Get with The Program: The LAW! Make
whoever there of in your city has this responsibility to get WHO-ever it is to file this “accopunt"/
"Record" Report and with the written apology that they did FAIL to RSA Ch. 444:3 post it too.

(in thousands)

Unsecured note payable to City of Nashua, 5.75%,
due 12/25/2041

Unsecured senior note payable due to an insurance company
7.40%, due March 1, 2021

Unsecured Business Finance Authority:
Revenue Bonds (Series 2015A), interest rates from 4.00% to 5.00%,
due January 1, 2046
Revenue Bonds (Series 2015B), 5.00%, due January 1, 2046
Revenue Bonds (Series 2014), interest rates from 3.00% to 4.125%,
due January 1, 2045
Revenue Bonds (Series 2014B), 4.50%, due January 1, 2045
Unsecured notes payable to bank, floating-rate, due March 1, 2030
Unsecured notes payable to bank, 3.62%, due June 20, 2023
Unsecured notes payable to bank, 4.25%, due June 20, 2033
Unsecured notes payable to bank, 4.90%, due March 6, 2040
Unsecured New Hampshire State Revolving Fund (“SRF”) notes (1)
Unamortized debt issuance costs for defeased obligations,
allowed by regulation

Total

Less current portion
Less unamortized debt issuance costs

Total long-term debt, net of current portion
and unamortized debt issuance costs

2015

Unamortized
Debt Issuance
Principal Costs
$ 112,864 -
4,400 44
20,555 1,682
2,035 292
41,885 2,277
5,300 127
3,523 19
1,570 12
848 8
616 40
16,576 138
- 130
210,172 4,769
(4,120)
(4,769)
$ 201,283

(1) SRF notes are due through 2035 at interest rates ranging from 1% to 4.488%. These notes are payable in 120 to 240
consecutive monthly installments of principal and interest. The 1% rate applies to construction projects still in process
until the earlier of (i) the date of substantial completion of the improvements, or (ii) various dates specified in the note
(such earlier date being the interest rate change date). Commencing on the interest rate change date, the interest rate
changes to the lower of (i) the rate as stated in the note or (ii) 80% of the established 11 General Obligations Bond
Index published during the specified time period before the interest rate change date.

30

The aggregate principal payment requirements subsequent to December 31, 2016 are as
follows:

(in thousands) Amount

2017 $ 5,162
2018 5,422
2019 5,663
2020 5,932
2021 8,208
2022 and thereafter 180,056
Total $ 210,443

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, 2016 and 2015, Pennichuck Water’s net worth
was $122.1 and $124.6 million, respectively.

The 2014A, 2014B, 2015A and 2015B 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, 2016 and 2015,
Pennichuck Water Works has a Debt to Capital Coverage ratio of 0.5 and 0.4,
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 12 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, 2016 and 2015, this coverage
ratio was 0.4 and 0.4, respectively. Also, the ratio of EBITDA to the Max Amount
Due must be equal to or greater than 1.1; as of December 31, 2016 and 2015, this
ratio was 1.8 and 1.6, respectively.

31

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 NH Public Utilities Commission, 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,
2016 and 2015, the Rate Covenant coverage ratio was 1.93 and 2.10, respectively.

Pennichuck East’s loan agreement for its unsecured notes payable to a bank of $8.5 million
and $6.5 million at December 31, 2016 and 2015, respectively, contains a minimum debt
service coverage ratio requirement of 1.25. At December 31, 2016 and 2015, this ratio was
1.29 and 1.64, respectively. Also, Pennichuck East is required to maintain a maximum ratio
of total debt to total capitalization of 65%; at December 31, 2016 and 2015, this ratio was
56% and 50%, respectively.

The Company’s revolving credit loan facility with TD Bank contains a covenant that requires
the Company to maintain a minimum fixed charge coverage ratio of at least 1.0; at December
31, 2016 and 2015, the fixed charge coverage ratio was 1.05 and 1.07, respectively. The
Company is also required to maintain an equity capitalization ratio of not less than 35%; at
December 31, 2016 and 2015, the equity capitalization ratio was 36% and 37%, respectively.

Under this agreement, the Company is also precluded from declaring or paying dividends, or
making any other payment or distribution of its equity without the bank’s prior written
consent, except for: (1) its obligations under Rate Order No. 25,292 as it pertains to the
Company’s specific obligations under the City Bond Fixed Revenue Requirement
(“CBFRR”) which provides for payments of approximately $707,000 per month of the note
payable to the City of Nashua (the “City’”), and quarterly dividends to the City for the
remainder of this annual obligation, as defined by the order; and (2) a specific allowance,
under Rate Order No. 25,292, whereby the Company is allowed to make distributions to the
City from current earnings and profits in excess of the CBFRR, to provide funds to allow the
City to reimburse itself for the costs incurred by the City relating to its efforts in pursuing the
eminent domain proceedings from January 2002 through August 2009; provided, however,
that such amount shall not exceed $500,000 in any fiscal year, or $5,000,000 in the aggre-
gate, of all such distributions. No special dividend was declared or paid in 2016 or 2015.

Short-term borrowing activity under this revolving credit loan facility for the years ended
December 31, 2016 and 2015 was:

(in thousands) 2016 2015

Established line as of December 31, $ 10,000 $ 10,000
Maximum amount outstanding during period 1,118 229
Average amount outstanding during period 73 1
Amount outstanding as of December 31, - -

Weighted average interest rate during period 2.22% 2.01%
Interest rate as of December 31, 2.251% 1.981%

32

As of December 31, 2016 and 2015, the Company had a $3.3 million and $3.5 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 $3.3 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, 2016. 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, 2016 and 2015, included in our Consolidated
Balance Sheets under “Other Liabilities and Deferred Credits” as “Derivative instrument” was
$453,000 and $548,000, respectively. Changes in the fair value of this derivative were deferred
in accumulated other comprehensive income (loss).

Swap settlements are recorded in the statement of income (loss) with the hedged item as
interest expense. During the years ended December 31, 2016 and 2015, $123,000 and
$144,000, respectively, was reclassified pre-tax from accumulated other comprehensive
income (loss) to interest expense as a result of swap settlements. The Company expects to
reclassify approximately $109,000, pre-tax, from accumulated other comprehensive income
(loss) to interest expense as a result of swap settlements, over the next twelve months.

Note 11 — Accumulated Other Comprehensive Income

The following table presents changes in accumulated other comprehensive income by
component for the years ended December 31, 2016 and 2015:

Interest Rate Contract

(in thousands) 2016 2015
Beginning balance $ 201 §$ 180
Other comprehensive income
before reclassifications (17) (65)
Amounts reclassified from
accumulated other
comprehensive income 74 86
Net current period other
comprehensive income 357 21
Ending balance $ 258 = §$ 201

33

27.

28.

29.

30.

31.

PROHIBITED INTERESTS Professional Engineer shall not allow any officer or employee of the
City of Nashua to have any indirect or direct interest in this contract or the proceeds of this
contract. Professional Engineer warrants that no officer or employee of the City of Nashua has
any direct or indirect interest, whether contractual, noncontractual, financial or otherwise, in this
contract or in the business of Professional Engineer. If any such interest comes to the attention of
Professional Engineer at any time, a full and complete disclosure of the interest shall be
immediately made in writing to the City of Nashua. Professional Engineer also warrants that it
presently has no interest and that it will not acquire any interest, direct or indirect, which would
conflict in any manner or degree with the performance of services required to be performed under
this contract. Professional Engineer further warrants that no person having such an interest shall
be employed in the performance of this contract. If City of Nashua determines that a conflict
exists and was not disclosed to the City of Nashua, it may terminate the contract at will or for
cause in accordance with paragraph 8.

In the event Professional Engineer (or any of its officers, partners, principals, or employees acting
with its authority) is convicted of a crime involving a public official arising out or in connection
with the procurement of work to be done or payments to be made under this contract, City of
Nashua may terminate the contract at will or for cause in accordance with paragraph 8. Upon
termination, Professional Engineer shall refund to the City of Nashua any profits realized under
this contract, and Professional Engineer shall be liable to the City of Nashua for any costs
incurred by the City of Nashua in completing the work described in this contract. At the
discretion of the City of Nashua, these sanctions shall also be applicable to any such conviction
obtained after the expiration or completion of the contract.

Professional Engineer warrants that no gratuities (including, but not limited to, entertamment or
gifts) were offered or given by Professional Engineer to any officer or employee of the City of
Nashua with a view toward securing a contract or securing favorable treatment with respect to the
awarding or amending or making of any determinations with respect to the performance of this
contract. If City of Nashua determines that such gratuities were or offered or given, it may
terminate the contract at will or for cause in accordance with paragraph 8.

The rights and remedies of this section shall in no way be considered for be construed as a waiver
of any other nghts or remedies available to the City of Nashua under this contract or at law.

THIRD PARTY INTERESTS AND LIABILITIES The City of Nashua and Professional Engineer,
including any of their respective agents or employees, shall not be liable to third parties for any
act or omission of the other party. This contract is not intended to create any rights, powers, or
interest in any third party and this agreement is entered into for the exclusive benefit of the City
of Nashua and Professional Engineer.

SURVIVAL OF RIGHTS AND OBLIGATIONS The rights and obligations of the parties that by their
nature survive termination or completion of this contract shall remain in full force and effect.

SEVERABILITY In the event that any provision of this contract is rendered imvalid or
unenforceable by any valid act of Congress or of the New Hampshire legislature or any court of
competent jurisdiction, or is found to be in violation of state statutes or regulations, the invalidity
or unenforceability of any particular provision of this contract shall not affect any other provision,
the contract shall be construed as if such invalid or unenforceable provisions were omitted, and
the parties may renegotiate the invalid or unenforceable provisions for sole purpose of rectifying
the invalidity or unenforceability.

MODIFICATION OF CONTRACT AND ENTIRE AGREEMENT This contract constitutes the entire
contract between the City of Nashua and Professional Engineer. The parties shall not be bound
by or be liable for any statement, representation, promise, inducement, or understanding of any
kind or nature not set forth in this contract. No changes, amendments, or modifications of any

GC 11 of 12