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Shareholder Approval of Borrowings Required. Under Article [IX of Pennichuck’s Articles of
Incorporation, the City, acting in its capacity as Pennichuck’s sole shareholder, must approve:
“(3) any action to (A) create, incur or assume any indebtedness for borrowed
money or guarantee any such indebtedness of any person, (B) issue or sell
any debt securities or warrants or other rights to acquire any debt securities
of the [Pennichuck] Corporation or any of its Subsidiaries, or (C) guarantee
any debt securities of any person.”
Proposed Borrowing from CoBank, ACB.
PEU is a New Hampshire public utility corporation providing retail water service to
approximately 7,300 customers in the New Hampshire towns of Atkinson, Barnstead, Bow,
Chester, Conway, Derry, Exeter, Hooksett, Lee, Litchfield, Londonderry, Middleton, Pelham,
Plaistow, Raymond, Sandown, Tilton, Weare and Windham. PEU is wholly-owned by
Pennichuck which, in turn, is wholly-owned by the City.
PEU has entered into a Master Loan Agreement with CoBank dated as of February 9, 2010 (the
“Master Loan Agreement”), which provides the framework for CoBank to make loans to PEU from
time to time. A copy of the Master Loan Agreement is attached to this letter as Attachment A.
PEU requests the City’s approval for PEU to enter into a term loan with CoBank in an amount up
to $2,200,000 with an amortization period of up to 25 years, with an interest rate to be determined
based on market conditions (currently estimated at approximately 4.75% per annum). A copy of
the term sheet for the term loan with CoBank is attached to this letter as Attachment B.
The CoBank loan will be secured by (i) a security interest in PEU’s equity interest in CoBank
(consisting of PEU’s $69,780 earned equity investment in CoBank from patronage dividends
received since 2010, and PEU’s right to receive future patronage dividends), and (ii) the
unconditional guarantee of PEU’s obligations to CoBank by Pennichuck pursuant to the
Guarantee of Payment (Continuing) dated as of February 9, 2010 between Pennichuck and
CoBank (the “Guaranty Agreement’), a copy of which is attached to this letter as Attachment C.
The proceeds from the CoBank loan will be used to (1) refinance and repay approximately
$1.1 million of intercompany debt owed to Pennichuck by PEU, which was used to fund capital
improvements to the PEU water system infrastructure during 2015, which were not funded by
State of New Hampshire Drinking Water Revolving Loan Fund (SRF) debt, and (2) provide
financing for approximately $1.1 million of PEU’s 2016 capital expenditures and improvements.
The Lender — CoBank, ACB
CoBank is a government sponsored enterprise (“GSE”) owned by its customers, who consist of
agricultural cooperatives, rural energy, communications and water companies and other
