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a PENNICHUCK:

PROXY CARD
PENNICHUCK CORPORATION

PROXY for Annual Meeting of Sole Shareholder - May 5, 2018

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 Crowne Plaza, 2 Somerset Parkway, Nashua,
New Hampshire, on Saturday, May 5, 2018 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 David P. Bernier, Stephen D. Genest and Thomas J. Leonard as directors,
each for a three-year term, and until their successors are elected and qualified.

For Against
David P. Bernier CI CJ
Stephen D. Genest CJ CJ
Thomas J. Leonard CO C

Authorized Signature:

CITY OF NASHUA, NEW HAMPSHIRE (Sole Shareholder)

By: Date:

Name:

Title:

This Proxy Card is Valid Only When Signed and Dated

VO PENNICHUCK?’

March 27, 2018

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 5,
2018 at the Crowne Plaza, 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.

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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 28,400 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 7,900 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 services for 3 communities; billing, collection and customer services for 3 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 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 117 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

Ble

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, 2017 are attached to this report.

_($ Millions)
4h Quarter _ Year-to-Date
2017 2016 2017 2016

Revenues $ 9.7 $ 8.8 $ 40.9 $ 42.7
Operating Expenses (9.0) (8.3) (35.4) (33.9)
Operating Income 0.7 0.5 5.5 8.8
Interest Expense (2.7) (2.8) (10.8) (10.8)
Other Income _ - - 0.9
Pre-Tax Income (Loss) (2.0) (2.2) (5.3) (1.1)
Income Tax Provision (Benefit) 1.5 (0.1) Ll 0.1
Net Income (Loss) (3.5) (2.1) (6.4) (1.2)
Dividends Paid to the Shareholder 0.1 0.1 0.3 0.3
Earnings Before Interest, Taxes,

Depreciation and Amortization (EBITDA) 2.7 2.3 13.3 16.3

Consolidated revenues for the fourth quarter increased by $0.9 million from

$8.8 million in 2016 to $9.7 million in 2017. The increase can be attributable to the
November 7, 2017 PUC Order No. 26,070 for Pennichuck Water Works, Inc. which
approved a permanent rate increase of 3.12% on a bills-rendered basis effective
December 7, 2016, and a step increase of 7.69% which was effective as of the date
of the order, November 7, 2017. Pennichuck Water Works also experienced a slight
increase in water usage in the fourth quarter in 2017 over 2016, as well.

Consolidated year-to-date revenues decreased from $42.7 million in 2016 to

$40.9 million in 2017. Revenues from the regulated utilities decreased primarily due
to lower consumption in 2017, as compared to 2016, as the prior year experienced
higher consumption levels due to the dry weather patterns throughout the summer
months, as the drought that began in mid-2015 persisted through 2016 and into the
very early part of 2017.

Consolidated operating expenses increased by $0.7 million for the fourth quarter of 2017,
over the same quarter in 2016. The increase is primarily related to increases in property
taxes and higher depreciation costs associated with ongoing capital investments.

Consolidated operating expenses increased by $1.5 million, for the full year, from 2016
to 2017, mainly due to higher maintenance related costs, increased depreciation costs,
property taxes, and pension and labor related costs.

Interest expense remained flat in 2017 when compared to 2016 due to lower than
anticipated capital expenditures in 2017. This was a result of unanticipated deviations
in project timing and/or deferrals of project start-up, for the just completed construction
season.

Pre-tax loss for the fourth quarter decreased to $2.0 million in 2017 versus $2.2 million
in 2016, due to an increase in revenues which was offset by increased operating
expenses, primarily property taxes and depreciation costs, year-over-year.

The pre-tax loss for the year increased from $1.1 million in 2016 to $5.3 million in
2017 due to the $1.8 million in lower revenues discussed previously, as well as the non-
repetitive nature of the $0.9 million in Other Income in 2016, which was primarily
related to the sale of the former distribution facility in 2016. These reductions in
revenues and other income, coupled with the increased operating costs year-over-year,
result in the greater pre-tax loss in 2017.

Dividends paid to the sole shareholder in both 2017 and 2016 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 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 impact of the 2017 Tax Cuts and Jobs Act which made broad and complex changes
to the U.S. tax code which included: (1) reducing the U.S. federal corporate tax rate
from 35% to 21%; (2) elimination of the corporate alternative minimum tax (AMT) and
changing how existing AMT credits can be realized; (3) changing the rules related to
usage and limitation of net operating loss carryforward; and (4) changing the rules
related to the limitation of interest expense deductions. Therefore, the year-to-date
results reflect a tax provision of approximately -20.8% of pre-tax income for 2017,
compared to the statutory tax rate expense of 39.4%.

Earnings Before Interest, Taxes, Depreciation and Amortization increased in the fourth
quarter from $2.3 million in 2016 to $2.7 million in 2017 due to increased revenues as
discussed previously, offset by operating expense variations (excluding depreciation
and interest).

Earnings Before Interest, Taxes, Depreciation and Amortization for 2017 decreased
from 2016 by approximately $3.0 million, again due to: (1) lower revenues earned
year-over-year, (2) the income associated with the “one time” sale of the former
distribution facility in 2016, and (3) operating expense increases, excluding interest
expense.

The Contract Sum shall include all items and services necessary for the proper execution and
completion of the Work.

ARTICLE 5 — INSURANCE AND INDEMNIFICATION

CONTRACTOR shall carry and maintain in effect during the performance of services under this
contract:

>» General liability insurance in the amount of $1,000,000 per occurrence; $2,000,000 aggregate;
>» Motor Vehicle Liability: $1,000,000 Combined Single Limit;
*Coverage must include all owned, non-owned and hired vehicles.

» Workers’ Compensation Coverage in compliance with the State of NH Statutes,
$100,000/$500,000/$ 100,000.

CONTRACTOR and SUBCONTRACTORs at every tier will fully comply with NH RSA
Chapter 281-A, “Workers’ Compensation”.

The parties agree that CONTRACTOR shall have the status of and shall perform all work under this
contract as an independent CONTRACTOR, maintaining control over all its consultants, sub
consultants, CONTRACTORs, or SUBCONTRACTORs. The only contractual relationship created
by this contract is between the OWNER and CONTRACTOR, and nothing in this contract shall
create any contractual relationship between the OWNER and CONTRACTOR’s consultants, sub
consultants, CONTRACTORs, or SUBCONTRACTORs. The parties also agree that
CONTRACTOR is not an OWNER employee and that there shall be no:

Withholding of income taxes by the City:

Industrial insurance coverage provided by the City;

Participation in group insurance plans which may be available to employees of the City;
Participation or contributions by either the independent CONTRACTOR or the OWNER to
the public employee’s retirement system;

Accumulation of vacation leave or sick leave provided by the City;

6. Unemployment compensation coverage provided by the City.

be he

Un

CONTRACTOR will provide the OWNER with certificates of insurance for coverage as listed below
and endorsements affecting coverage required by the contract within ten calendar days after the
OWNER issues the Notice of Award. The OWNER requires thirty days written notice of
cancellation or material change in coverage. The certificates and endorsements for each insurance
policy must be signed by a person authorized by the insurer and who is licensed by the State of New
Hampshire. General Liability and Auto Liability policies must name the OWNER as an
additional insured and reflect on the certificate of insurance. CONTRACTOR is responsible for
filing updated certificates of insurance with the OWNER's Risk Management Department during the
life of the contract.

» All deductibles and self-insured retentions shall be fully disclosed in the certificate(s) of
insurance,

> If aggregate limits of less than $2,000,000 are imposed on bodily injury and property damage,
CONTRACTOR must maintain umbrella liability insurance of at least $1,000,000. All
aggregates must be fully disclosed on the required certificate of insurance.

AG-3

Unaudited Cash Flow Statement

Cash Flow on a GAAP basis for the fourth quarter of 2017 as compared to the fourth quarter of

2016, and the year-to-date 2017 versus 2016, are as follows:

Operating Activities:

Net Income (Loss)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
- Depreciation and Amortization
Provision for Deferred Taxes
Gain on Disposition of Property
Other
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable
(Increase) Decrease in Inventory
(Increase) Decrease in Other Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Liabilities

Net Cash Provided by (Used in) Operating Activities
Investing Activities:

Purchases of Property, Plant & Equipment,
including the Debt Component of AFUDC

(Increase) Decrease in Restricted Cash/Investments

Proceeds from Sale of Property

Change in Deferred Land Costs

Net Cash Provided by (Used in) Investing Activities
Financing Activities:

Borrowings (Repayments) on Line of Credit
Payments on Long-term Debt

Contributions in Aid of Construction
Proceeds from Long-term Borrowings

Debt Issuance Costs

Dividends Paid

Net Cash Provided by (Used in) Financing Activities

Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period

($000’s)
Quarter Ended Year-to-Date
December 31, December 31, December 31, December 31,
2017 2016 2017 2016
$ (3.547) $ (2,108) $ (6,441) $ (1,240)
2,034 1,837 7,838 6,986
(7,668) (61) (8,054) 190
(31) (529) (31) (529)
14 (30) (41) (137)
1,021 1,004 387 (1,584)
(12) 16 62 46
(1,977) (2,274) (876) (273)
(2,213) 3,220 (4,755) 4.480
11,13] 2,020 9,648 2,794
(1,248) 3,095 _ (2,263) 10,733
(2,641) (8,043) (7,716) (21,886)
(1,274) 532 5,856 11,410
- 311 37 946
(8) - (8) 7
(3,923) (7,200) (1,831) (9,523)
5,296 - 5,574 -
(803) (737) (5,209) (4,227)
42 33 60 58
972 1,893 2,475 4,498
- (2) 21 (59)
(70) (70) (279) (280)
5,437 L117 2,642 (10)
266 (2,988) (1,452) 1,200
728 5.434 2,446 1,246
994 $_2,446 $_ 994 $_ 2,446

Cash and Cash Equivalents at End of Period

Balance Sheet ($000’s)
As of As of
December 31, 2017 December 31, 2016
(Audited) (Audited)
Assets
Property, Plant & Equipment, Net $ 210,498 $ 201.698

Current Assets:

Cash 994 2,446
Restricted Cash 4,953 6,530
Investments — 2014 and 2015 Bond Project Funds 3,288 7,568
Accounts Receivable 5,699 6,086
Inventory 604 666
Other Current Assets “°*’ 2,257 2,047
Total Current Assets 17,795 25,343
Other Assets:
Acquisition Premium ‘°*? 73,227 75,144
Other Assets 13,271 12.410
Total Other Assets 86,498 87,554
TOTAL ASSETS $ 314,791 $ 314,595

Shareholders’ Equity and Liabilities

Shareholders’ Equity $ _ 13,905 $ _20.578
Bonds, Notes and Mortgages 197,905 200,758

Current Liabilities:

Line of Credit 5,574 -
Current Portion of Long-Term Debt 5,575 5162
Other Current Liabilities 4,292 9,798
Total Current Liabilities 15,441 14,960

Other Long-Term Liabilities:

CIAC, net 47,458 40,364
Deferred Income Taxes 12,847 20,869
Accrued Pension Liability ‘°°’ 9,792 9,010
Other Long-Term Liabilities 17,443 8.056
Total Other Long-Term Liabilities 87,540 78,299
TOTAL SHAREHOLDERS’ EQUITY AND $ 314,791 $ 314,595

LIABILITIES

Notes to Balance Sheet

Note 1 (Other Current Assets) - At December 31, 2017, approximately $1.1 million of this
balance is comprised of prepaid property taxes, which will be expensed in the first quarter of
2018, relating to taxes paid in November and December of 2017 for the second half of the
property tax year ended March 31, 2018.

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 2017, approximately $1.1 million was contributed into
the Pension Plan, while approximately $.6 million in benefit payments were made to participants
and approximately $2.4 million of investment gains and appreciation was added to the plan.

Capital Expenditures

Capital expenditures in the fourth quarter of 2017 were $2.9 million compared to $8.1 million
in the fourth quarter of 2016. For the year 2017, capital expenditures were $8.0 million as
compared to $20.8 million in 2016.

The major expenditures for 2017 were as follows:

Amherst St. Area Main Improvements $ 1,144,000
Main St. Area Main Replacements Phase 1 $ 800,000
Meter Replacements $ 561,000
Asset Management / GIS / DPaC $ 544,000
City Sewer Project - Main Replacements $ 416,000
PWW-PEU Interconnection Design & Evaluation $ 348,000
Route 101 Widening, Bedford $ 263,000
Maple Hills Water Main Improvement, Derry $ 248,000

Rate Case — Pennichuck Water Works, Inc.

On September 23, 2016, Pennichuck Water Works, Inc. (“PWW”) filed a request with the New
Hampshire Public Utilities Commission (“NHPUC”) for a rate increase of 17.21% over its
current rates for the test year 2015, for which 7.86% was related to a permanent rate increase,
and 9.35% was related to a prospective step increase (associated with capital investments and
other allowable expenditures in the twelve months following the test year). The overall
requested rate increase is 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, as a part of the rate case filing, PWW requested
that a temporary rate increase of 6.21% be granted as a subset of the final permanent rate

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increase, with the intention that this temporary rate increase would be approved very early in
2017. In spite of this 6.21% temporary rate request, the Company, NHPUC Staff and the Office
of Consumer Advocate agreed to a temporary rate increase at “current rates,” and as such, there
was no impact on ratepayers for any temporary rate increases during 2017.

The request for the overall permanent rate increase was based upon increases in PWW’s
operating costs since the last allowed rate increase in 2010/2011 (for the 2009 test year), as well
as revenues needed to pay the debt service on over $40 million of infrastructure replacements
made since PWW’s last rate case, with those dollars being invested in its real property assets,
distribution and treatment systems, and other necessary capital items, to ensure continued
compliance with the Safe Drinking Water Act and prudent ongoing replacement of aging
infrastructure to properly maintain the Company’s operating systems.

On November 7, 2017, the PUC issued Order No. 26,070 approving a permanent rate increase of
3.12% and a 7.69% step increase for its customers. The permanent rate increase is effective ona
“bills-rendered” basis on and after December 7, 2016. The step increase is effective as of the
date of the order, November 7, 2017.

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 21.24% over its current rates for the test
year 2016, for which 20.08% of this increase is related to a permanent rate increase and 1.16% 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 is 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 will 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 of 13.70% be granted as a subset of the
final permanent rate increase, with the intention that this temporary rate increase would be
approved in early 2018, and with permanent rates being set in the summer or fall of 2018.

The last general rate increase for PEU was in 2014, based upon 2012 as a test year. Since then,
PEU’s operating expenses have increased ratably, and for some items like local property taxes,
well above the rate of inflation. Additionally, since the beginning of 2013, the Company has
borrowed and invested over $7.5 million in new capital assets to serve its customers through
ongoing investments in infrastructure replacements and system improvements. The rate increase
being requested will allow PEU to pay the debt service attributable to these new capital
investments, pay its necessary operating costs, and continue to meet the needs of its customers
now and into the future. —

Water Infrastructure and Conservation Adjustment (WICA)

On January 31, 2017, Pennichuck Water Works, Inc. filed a petition with the New Hampshire
Public Utilities Commission (NHPUC) to approve a Water Infrastructure and Conservation
Adjustment (WICA) surcharge to be effective June 1, 2017, approve proposed 2017 WICA