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Jay N. Lustig
(Director Since: January 2012)

Mr. Lustig is currently the President/CEO of Scientific Solutions, Inc., a small research and
development defense contractor in Nashua, NH. Mr. Lustig has C-level management
experience working with a variety of engineering disciplines, business development
experience and also financial service industry experience. Prior to working in the defense
sector, he was a Product Manager for Pacific Packaging in Wilmington, MA. Mr. Lustig is
a graduate of the Isenberg School of Business at the University of Massachusetts-Amherst.
He and his wife have been residents of Nashua for the past thirty-six years.

John D. McGrath
(Director Since: January 2012)

Mr. McGrath has been a Project Executive for Methuen Construction Co., Inc., in Plaistow,
NH, 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, MA. 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.

Deborah Novotny
(Director Since: N/A)

Ms. Novotny has been a Commercial Lender and Senior Vice President of Enterprise Bank
in Nashua, NH, since June 2013. From April 2007 to June 2013, Ms. Novotny was a
Business Banker and Vice President for Peoples United Bank in Nashua, NH, and from
May 1995 to April 2007, Ms. Novotny was a Business Development and Sales Manager
and Vice President for TD Bank in Nashua, NH. Ms. Novotny has held many positions
with non-profit organizations over the years, including past President of the Nashua Rotary
Club, Board member and past President of the Nashua Boys & Girls Club, Board member
of the Nashua Education Foundation, member of the Allocation Committee of the United
Way of Greater Nashua, Board Member of Marguerite’s Place, member of the City of
Nashua Business & Industrial Development Authority, and past president of the Nashua
Adult Learning Center.

Preston J. Stanley, Jr.
(Director Since: January 2012)

Mr. Stanley has been the Owner and Manager of Stanley Iron Works in Nashua, NH, since
1982. From 1961 to 1982, Mr. Stanley served in various positions with Ingersoll Rand in
Nashua, NH, 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.

COPY — FOR INFORMATION ONLY

Ve. PENNIGHUCK?

PROXY CARD
PENNICHUCK CORPORATION

PROXY for Annual! Meeting of Sole Shareholder - May 4, 2019

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 DoubleTree by Hilton, 2 Somerset Parkway, Nashua, NH, on

Saturday, May 4, 2019 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. to
the Pennichuck Corporation Board of Directors, as Class A directors, each for a three-year
term, and until their successors are elected and qualified; and to elect Deborah Novotny to
the Pennichuck Corporation Board of Directors, as a Class B director, for a one-year term,
and until her successor is elected and qualified.

For Against
C. George Bower O O
Jay N. Lustig O O
John D. McGrath O O
Deborah Novotny O O
Preston J. Stanley, Jr. O O

Authorized Signature:

CITY OF NASHUA, NEW HAMPSHIRE (Sole Shareholder)

By: Date:

Name:

Title:

This Proxy Card is Valid Only When Signed and Dated

Amounts recognized in regulatory assets for the DB and OPEB Plans that have not yet been
recognized as components of net periodic benefit cost of the following as of December 31,
2015:

(in thousands) DB Plan OPEB Plans
Net actuarial (gain)/loss $ 6,658 $ 433
Prior service cost - (196)
Regulatory asset $6,658 $ 237

Amounts recognized in regulatory assets for the DB and OPEB Plans that have not yet been
recognized as components of net periodic benefit cost of the following as of December 31,
2014:

(in thousands) DB Plan OPEB Plans
Net actuarial loss $ 6,668 $ 28

Prior service cost - (213)
Regulatory asset $ 6,668 $ (185)

The key assumptions used to value benefit obligations and calculate net periodic benefit cost
for our DB and OPEB Plans include the following:
2015 2014

Discount rate for net periodic benefit cost, beginning of year 3.85% 4.84%
Discount rate for benefit obligations, end of year (a) 4.21% 3.85%
Expected return on plan assets for the period (net of investment expenses) 7.50% 7.50%
Rate of compensation increase, beginning of year 2.75% 2.75%
Healthcare cost trend rate (applicable only to OPEB Plans) 8.50% 9.00%

(a) An increase or decrease in the discount rate of 0.5% would result in a change in the funded status as of December 31, 2015, for
the DB Plan and the OPEB Plans of approximately $1.7 million and $244 thousand, respectively,

The estimated net actuarial loss for our DB Plan that will be amortized in 2016 from the
regulatory assets into net periodic benefit costs is $341,000. The estimated net actuarial gain
and prior service cost for our OPEB Plans that will be amortized in 2016 from the regulatory
assets into net periodic benefit costs is $(6,000).

In establishing its investment policy, our Company has considered the fact that the DB Plan
is a major retirement vehicle for its employees and the basic goal underlying the establish-
ment of the policy is to provide that the assets of the DB Plan are invested in accordance with
the asset allocation range targets to achieve our expected return on DB Plan assets. Our
Company’s investment strategy applies to its OPEB Plans as well as the DB Plan. Our
expected long-term rate of return on DB Plan and OPEB Plan assets is based on the Plans’
expected asset allocation, expected returns on various classes of Plan assets, as well as
historical returns.

20

V2, PENNICHUCK’”

March 25, 2019

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 4,
2019 at the DoubleTree by Hilton, 2 Somerset Parkway, 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.

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 tor the purposes of managing Pennichuck Corporation. his corporate

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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 28,750 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 8,100 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 640 customers in
Pittsfield.

Pennichuck Water Service Corporation provides service in connection with the management of
water operations services for 2 communities; water operations, billing, collection and customer
services for 2 communities; billing services for 4 communities; and water meter testing services,
as well as contracted water services at various levels, for approximately 64 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 corporate mission have been developed relative to our water resources,
employees, financing, customer services and Company assets. These strategies are available on the
Company’s website, www.pennichuck.com, under the “Management and Financial Information”
caption, and the sub-caption of “Strategic Plan.”

The Company currently has 124 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/Affirmative Action Employer. It is
the policy of the Company to hire, train, promote, and otherwise provide terms and conditions of
employment without regatd tu race, colut, religion, sex, sexual orientation, gender identity,

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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, 2018 are attached to this report.

($ Millions)
4 Quarter Year-to-Date
2018 2017 2018 2017

Revenues $10.7 $ 9.7 $ 45.3 $ 40.9
Operating Expenses (9.4) (9.0) (38.1) (35.4)
Operating Income 1.3 0.7 7.2 5.5
Interest Expense (2.8) (2.7) (10.9) (10.8)
Other Income ae - - -
Pre-Tax Income (Loss) (1.5) (2.0) (3.7) (5.3)
Income Tax Provision (Benefit) 17 1.5 1.6 1.1
Net Income (Loss) (3.2) (3.5) (5.3) (6.4)
Dividends Paid to the Shareholder 0.1 0.1 0.3 0.3
Earnings Before Interest, Taxes,

Depreciation and Amortization (EBITDA) 3.5 2.7 15.4 13.3

Consolidated revenues for the fourth quarter increased by $1.0 million from

$9.7 million in 2017 to $10.7 million in 2018. The increase is primarily attributable
to the October 4, 2018 PUC Order No. 26,179 for Pennichuck East Utility, Inc.
which approved an overall permanent rate increase of 17.86%, which already
included a temporary rate increase of 12.24%, which was approved on May 31, 2018
as a Subset of the new permanent rates, and a 1.43% step increase earned on a
forward-looking basis for bills-rendered on or after November 16, 2018.

Consolidated year-to-date revenues increased from $40.9 million in 2017 to

$45.3 million in 2018, an increase of 10.8%. Revenues from the regulated utilities
increased primarily due to: (1) the full-year inpact of the Pennichuck Water Works,
Inc. Permanent and Step increase which was approved on November 7, 2017,
totaling 10.81%, by the New Hampshire Public Utilities Commission (NHPUC) on
Order No. 26,070, (2) the Pennichuck East Utility, Inc. permanent rate increase of
17.86%, described in detail in the preceding paragraph, and (3) the Service Company
experiencing increases in overall revenues despite the loss of one large service
contract at the end of June 2018, which was offset by the addition of another new
significant service contract in early 2018, in addition to increases in unplanned
revenue activities for a number of the operating contracts during the year.

Consolidated operating expenses increased by $0.4 million for the fourth quarter of 2018,
over the same quarter in 2017. The increase is primarily related to labor related costs,
inflationary increases, higher maintenance related costs, production costs, and higher
depreciation costs associated with ongoing capital investments.

-4.

Consolidated operating expenses increased by $2.7 million, or 7.6%, for the full year,
from 2017 to 2018, mainly due to higher maintenance related costs, production costs,
increased depreciation costs, and labor related costs.

Interest expense increased slightly in 2018 when compared to 2017 due to interest costs
associated with the additional financed amounts for capital projects which have been
incurred for ongoing infrastructure replacement, in conformity with the Company’s key
mission objectives.

Pre-tax loss for the fourth quarter decreased to $1.5 million in 2018 versus $2.0 million
in 2017, due to the increase in revenues which was offset by increased operating
expenses, primarily maintenance and production related, and depreciation costs, year-
over-year.

The pre-tax loss for the year decreased from $5.3 million in 2017 to $3.7 million in
2018, or 30.2%, due to the $4.4 million in increased revenues discussed previously,
offset by the increased operating costs year-over-year, which resulted in the lower pre-
tax loss in 2018.

Dividends paid to the sole shareholder in both 2018 and 2017 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.

The Income Tax Provision in the current year reflects the tax accounting for the
amortization of the Municipal Acquisition Regulatory Asset, which is not deductible
for tax purposes, and as such, constitutes a permanent difference in the deductibility of
those amortization expenses for tax purposes, as opposed to their inclusion in the
GAAP based financial statements. The Income Tax Provision (Benefit) also reflects
the taxation of CIAC as income for Regulated Water Utilities, due to the elimination of
an exemption allowed prior to the passage of the 20/7 Tax Cuts and Jobs Act (“TCJA”)
which made broad and complex changes to the U.S. tax code. A tariff change request is
in process with the NH Public Utilities Commission, requesting the implementation of a
“gross up” component related to this newly taxable element of the Company’s ongoing
business operations, in order to mitigate further impacts of the TCJA for this item going
forward, as it relates to rate payer shared costs. Due to these two significant items, the
year-to-date results reflect a tax provision of approximately -47.1% of pre-tax income
for 2018, compared to the statutory tax rate expense of 27.24%,

Earnings Before Interest, Taxes, Depreciation and Amortization increased in the fourth
quarter from $2.7 million in 2017 to $3.5 million in 2018, or 29.6%, due to increased
revenues as discussed previously, offset by operating expense variations (excluding
interest).

Earnings Before Interest, Taxes, Depreciation and Amortization for 2018 increased
from 2017 by approximately $2.1 million, or 15.8%, again due to higher revenues
earned year-over-year, offset by operating expense increases, excluding interest
expense.

Unaudited Cash Flow Statement

Cash Flow on a GAAP basis for the fourth quarter of 2018 as compared to the fourth quarter of
2017, and the year-to-date 2018 versus 2017, are as follows:

($000’s)
Quarter Ended Year-to-Date
December 31, December 31, December 31, December 31,
2018 2017 2018 2017
Operating Activities:
Net Income (Loss) $ (3,229) $ (3,547) — $ (5.282) $ (6.441)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,154 2,034 8,196 7,838
Provision for Deferred Taxes 1,316 (7,668) 1,206 (8,054)
(Gain) on Disposition of Property (115) (31) (115) (31)
Other (17) 14 (54) (41)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 1,486 1,021 (649) 387
(Increase) Decrease in Inventory (20) (12) (7) 62
(Increase) Decrease in Other Assets (951) (1,977) (206) (876)
Increase (Decrease) in Accounts Payable 3,513 (2,213) 3,817 (4,755)
Increase (Decrease) in Other Liabilities 1,458 11,13] 1,110 9,648
Net Cash Provided by (Used in) Operating Activities 5,595 (1,248) 8.016 (2,263)
Investing Activities:
Purchases of Property, Plant & Equipment,
including the Debt Component of AFUDC (6,571) (2,617) (13,790) (7,692)
(Increase) Decrease in Restricted Cash/Investments 0 0 0 0
Proceeds from Sale of Property 119 - 119 37
Change in Deferred Land Costs 0 (8) (19) (8)
Net Cash Provided by (Used in) Investing Activities (6.452) (2,625) (13,690) (7,663)
Financing Activities:
Borrowings (Repayments) on Line of Credit 2,168 5,296 1,052 5,574
Payments on Long-term Debt (886) (803) (5,614) (5,209)
Contributions in Aid of Construction 296 18 696 36
Proceeds from Long-term Borrowings 406 972 8,493 2,475
Debt Issuance Costs 5 - 43} 21
Dividends Paid (70) (70) (280) (279)
Net Cash Provided by (Used in) Financing Activities 1,919 5,413 4.778 2,618
Increase (Decrease) in Cash and Cash Equivalents 1,062 1,540 (896) (7,308)
Cash and Cash Equivalents at Beginning of Period 7,218 7,696 9,236 16,544

Cash and Cash Equivalents at End of Period $ _ 8,310 $ _ 9,236 $8340 $_ 9.23

Balance Sheet ($000’s)
As of As of
December 31, 2018 December 31, 2017
(Audited) (Audited)
Assets
Property, Plant & Equipment, Net $ 221,860 $ 210,498

Current Assets:

Cash 1,575 994
Restricted Cash 3,428 4,954
Investments ~ Bond Project Funds 3,337 3,288
Accounts Receivable 6,348 5,698
Inventory 611 604
Other Current Assets N° ! 1,631 2.257
Total Current Assets 16,930 17,795
Other Assets:
Acquisition Premium ‘°°? 71,268 73,227
Other Assets 13,075 13,271
Total Other Assets 84.343 86,498
TOTAL ASSETS $ 323,133 $ 314,791
Shareholders’ Equity and Liabilities
Shareholders’ Equity $ _ 8,410 $ _ 13,905
Bonds, Notes and Mortgages 200,225 197,905
Current Liabilities:
Line of Credit 6,626 5,574
Current Portion of Long-Term Debt 6,019 5,575
Other Current Liabilities 8.388 4,292
Total Current Liabilities 21,033 15,441
Other Long-Term Liabilities:
CIAC, net 51,961 47,458
Deferred Income Taxes 14,110 12,847
Accrued Pension Liability 8°"? 10,021 9,792
Other Long-Term Liabilities 17,373 17,443
Total Other Long-Term Liabilities 93,465 87,540
TOTAL SHAREHOLDERS’ EQUITY AND $ 323,133 $ 314,791

LIABILITIES

Notes to Balance Sheet

Note | (Other Current Assets) — At December 31, 2018, approximately $1.0 million of this
balance is comprised of prepaid property taxes, which will be expensed in the first quarter of
2019, relating to taxes paid in November and December of 2018 for the second half of the
property tax year ended March 31, 2019.

Note 2 (Acquisition Premium) — In accordance with GAAP, the Acquisition Premium is being
written-off over the 30-year life of the principal of the City Acquisition Debt.

Note 3 (Accrued Pension Liability) - During 2018, approximately $1.1 million was contributed into
the Pension Plan, while approximately $.6 million in benefit payments were made to participants,
and approximately $0.9 million of investment losses were recorded, attributed to changes in market
values.

Capital Expenditures

Capital expenditures in the fourth quarter of 2018 were $6.6 million compared to $2.9 million
in the fourth quarter of 2017. For the year 2018, capital expenditures were $13.6 million as
compared to $8.0 million in 2017.

The major expenditures for 2018 were as follows:

PWW-PEU Interconnection $ 2,980,000
Kinsley St. Main Replacements $ 694,000
Taylor St. Main Replacements — Phase 2 $ 651,000
Factory St. Main Replacements $ 603,000
Asset Management $ 387,000
Brady Ave./Maple Hills, Derry Main Replacements $ 372,000
Marshall St. Main Replacements $ 355,000
PWW-PEU Interconnection — Station Bidding & Const. $ 339,000
Meter Replacements $ 314,000

Rate Case - Pennichuck East Utility, Inc.

On October 18, 2017, Pennichuck East Utility, Inc. (“PEU”) filed a request with the Public
Utilities Commission (“NHPUC’) for a rate increase of 20.78% over its current rates for the test
year 2016, for which 19.36% of this increase is related to a permanent rate increase and 1.42% is
related to a prospective step increase (associated with capital investments and other allowable
expenditures in the twelve months following the test year). The overall rate increase was subject
to the normal regulatory filing process with the NHPUC, as followed for all prior rate case
filings, and as such, the final permanent rate increase granted would be effective retroactive back
to the filing date, once approved by the NHPUC. The step increase, once approved and granted,
would be earned on a forward-looking basis, as of the date of the order granting such increase.

In addition, PEU requested that a temporary rate increase af 12.24% be granted as a subset of the