NATIONAL FUEL GAS CO
10-Q, 1999-05-14
NATURAL GAS DISTRIBUTION
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- --------------------------------------------------------------------------------






                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the Quarterly Period Ended March 31, 1999
                                                 --------------


                          Commission File Number 1-3880
                          -----------------------------



                            NATIONAL FUEL GAS COMPANY
             (Exact name of registrant as specified in its charter)


               New Jersey                               13-1086010
               ----------                               ----------
     (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                   Identification No.)

          10 Lafayette Square
           Buffalo, New York                             14203
           -----------------                             -----
(Address of principal executive offices)                (Zip Code)

                                 (716) 857-6980
                                 --------------
              (Registrant's telephone number, including area code)
              ----------------------------------------------------



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES   X    NO
                      -----     -----

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date:

              Common stock, $1 par value, outstanding at April 30, 1999:
              38,700,958 shares.

- --------------------------------------------------------------------------------


<PAGE>



Company or Group of Companies for which Report is Filed:
- --------------------------------------------------------

NATIONAL FUEL GAS COMPANY (Company or Registrant)

SUBSIDIARIES:         National Fuel Gas Distribution Corporation (Distribution
                         Corporation)
                      National Fuel Gas Supply Corporation (Supply Corporation)
                      Seneca Resources Corporation (Seneca)
                      Highland Land & Minerals, Inc. (Highland)
                      Leidy Hub, Inc. (Leidy Hub)
                      Data-Track Account Services, Inc. (Data-Track)
                      National Fuel Resources, Inc. (NFR)
                      Horizon Energy Development, Inc. (Horizon)
                      Upstate Energy, Inc. (Upstate)
                      Niagara Independence Marketing Company (NIM)
                      Seneca Independence Pipeline Company (SIP)
                      Utility Constructors, Inc. (UCI)

                                      INDEX

               Part I. Financial Information                           Page
               -----------------------------                           ----

Item 1.  Financial Statements

             a.   Consolidated Statements of Income and Earnings
                  Reinvested in the Business - Three Months and
                  Six Months Ended March 31, 1999 and 1998             4 - 5

             b.   Consolidated Balance Sheets - March 31, 1999 and
                  September 30, 1998                                   6 - 7

             c.   Consolidated Statements of Cash Flows - Six
                  Months Ended March 31, 1999 and 1998                   8

             d.   Consolidated Statements of Comprehensive
                  Income - Three Months and Six Months
                  Ended March 31, 1999 and 1998                          9

             e.   Notes to Consolidated Financial Statements          10 - 16

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                          17 - 39

Item 3.  Quantitative and Qualitative Disclosures About Market Risk     39

               Part II. Other Information
               --------------------------

Item 1.  Legal Proceedings                                               *

Item 2.  Changes in Securities                                          39

Item 3.  Defaults Upon Senior Securities                                 *

Item 4.  Submission of Matters to a Vote of Security Holders          39 - 40

Item 5.  Other Information                                               *

Item 6.  Exhibits and Reports on Form 8-K                               40

Signature                                                               41

*   The Company has nothing to report under this item.



<PAGE>


Reference to "the Company" in this report means the Registrant or the Registrant
and  its  subsidiaries  collectively,  as  appropriate  in  the  context  of the
disclosure.

This Form 10-Q contains  "forward-looking  statements" as defined by the Private
Securities Litigation Reform Act of 1995.  Forward-looking  statements should be
read  with  the  cautionary  statements  included  in this  Form  10-Q at Item 2
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"   (MD&A),   under  the  heading  "Safe  Harbor  for  Forward-Looking
Statements." Forward-looking statements are all statements other than statements
of historical fact,  including,  without  limitation,  those statements that are
designated with a "1" following the statement,  as well as those statements that
are identified by the use of the words  "anticipates,"  "estimates,"  "expects,"
"intends," "plans," "predicts," "projects," and similar expressions.


<PAGE>


Part I. - Financial Information
- -------------------------------

Item 1.   Financial Statements
          --------------------

                            National Fuel Gas Company
                            -------------------------
                 Consolidated Statements of Income and Earnings
                 ----------------------------------------------
                           Reinvested in the Business
                           --------------------------
                                   (Unaudited)
                                   -----------
                                                        Three Months Ended
                                                            March 31,         
                                                        -------------------
                                                        1999          1998
                                                        ----          ----
(Thousands of Dollars, Except Per
  Common Share Amounts)
INCOME
Operating Revenues                                     $483,404      $456,441
                                                       --------      --------

Operating Expenses
  Purchased Gas                                         201,818       188,874
  Fuel Used in Heat and Electric Generation              17,807        14,176
  Operation                                              77,151        86,323
  Maintenance                                             6,064         6,561
  Property, Franchise and Other Taxes                    30,683        30,680
  Depreciation, Depletion and Amortization               31,726        26,798
  Impairment of Oil and Gas Producing Properties              -       128,996
  Income Taxes - Net                                     34,680        (9,739)
                                                       --------      --------
                                                        399,929       472,669
                                                       --------      --------

Operating Income (Loss)                                  83,475       (16,228)
Other Income                                              1,575        25,594
                                                       --------      --------
Income Before Interest Charges and
  Minority Interest in Foreign Subsidiaries              85,050         9,366
                                                       --------      --------

Interest Charges
  Interest on Long-Term Debt                             16,083        11,115
  Other Interest                                          6,198        17,111
                                                       --------      --------
                                                         22,281        28,226
                                                       --------      --------

Minority Interest in Foreign Subsidiaries                (1,624)       (2,402)
                                                       --------      --------

Net Income (Loss) Available for Common Stock             61,145       (21,262)

EARNINGS REINVESTED IN THE BUSINESS

Balance at January 1                                    448,433       484,431
                                                       --------      --------
                                                        509,578       463,169
Dividends on Common Stock
 (1999 - $.45; 1998 - $.435)                             17,345        16,604
                                                       --------      --------

Balance at March 31                                    $492,233      $446,565
                                                       ========      ========

Earnings (Loss) Per Common Share:
  Basic                                                  $ 1.58        $(0.56)
                                                         ======        ======
  Diluted                                                $ 1.57           N/A
                                                         ======        ======

Weighted Average Common Shares Outstanding:
  Used in Basic Calculation                          38,609,655    38,263,632
                                                     ==========    ==========
  Used In Diluted Calculation                        38,876,685           N/A
                                                     ==========    ==========

N/A - Not applicable due to antidilution

                 See Notes to Consolidated Financial Statements


<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------

                            National Fuel Gas Company
                            -------------------------
                 Consolidated Statements of Income and Earnings
                 ----------------------------------------------
                           Reinvested in the Business
                           --------------------------
                                   (Unaudited)
                                   -----------
                                                          Six Months Ended
                                                              March 31,       
                                                         ------------------
                                                         1999          1998
                                                         ----          ----
(Thousands of Dollars, Except Per
  Common Share Amounts)
INCOME
Operating Revenues                                      $823,826      $827,462
                                                        --------      --------

Operating Expenses
  Purchased Gas                                          312,824       353,141
  Fuel Used in Heat and Electric Generation               37,781        18,510
  Operation                                              152,422       151,837
  Maintenance                                             11,647        12,907
  Property, Franchise and Other Taxes                     52,688        54,891
  Depreciation, Depletion and Amortization                63,575        57,918
  Impairment of Oil and Gas Producing Properties               -       128,996
  Income Taxes - Net                                      52,580        13,210
                                                        --------      --------
                                                         683,517       791,410
                                                        --------      --------
Operating Income                                         140,309        36,052
Other Income                                               6,317        26,762
                                                        --------      --------
Income Before Interest Charges and
  Minority Interest in Foreign Subsidiaries              146,626        62,814
                                                        --------      --------

Interest Charges
  Interest on Long-Term Debt                              33,450        22,562
  Other Interest                                          11,525        21,151
                                                        --------      --------
                                                          44,975        43,713
                                                        --------      --------
Minority Interest in Foreign Subsidiaries                 (2,888)       (2,829)
                                                        --------      --------

Income Before Cumulative Effect                           98,763        16,272
Cumulative Effect of Change in Accounting for Depletion        -        (9,116)
                                                        --------      --------
Net Income Available for Common Stock                     98,763         7,156

EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1                                     428,112       472,595
                                                        --------      --------
                                                         526,875       479,751
Dividends on Common Stock
 (1999 - $.90; 1998 - $.87)                               34,642        33,186
                                                        --------      --------
Balance at March 31                                     $492,233      $446,565
                                                        ========      ========

Basic Earnings Per Common Share:
  Income Before Cumulative Effect                          $2.56        $ 0.43
  Cumulative Effect of Change in Accounting for Depletion      -         (0.24)
                                                           -----        ------
  Net Income Available for Common Stock                    $2.56        $ 0.19
                                                           =====        ======
Diluted Earnings Per Common Share:
  Income Before Cumulative Effect                          $2.54        $ 0.42
  Cumulative Effect of Change in Accounting for Depletion      -         (0.24)
                                                           -----        ------
  Net Income Available for Common Stock                    $2.54        $ 0.18
                                                           =====        ======

Weighted Average Common Shares Outstanding:
  Used in Basic Calculation                           38,568,349    38,230,331
                                                      ==========    ==========
  Used in Diluted Calculation                         38,911,856    38,673,312
                                                      ==========    ==========

                 See Notes to Consolidated Financial Statements


<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


                            National Fuel Gas Company
                            -------------------------
                           Consolidated Balance Sheets
                           ---------------------------

                                                     March 31,
                                                       1999    September 30,
                                                   (Unaudited)      1998
                                                   -----------  ------------
                                                     (Thousands of Dollars)
ASSETS
Property, Plant and Equipment                      $3,244,599    $3,186,853
   Less - Accumulated Depreciation, Depletion
     and Amortization                                 976,052       938,716
                                                   ----------    ----------
                                                    2,268,547     2,248,137
                                                   ----------    ----------
Current Assets
   Cash and Temporary Cash Investments                 34,572        30,437
   Receivables - Net                                  205,393        82,336
   Unbilled Utility Revenue                            38,366        15,403
   Gas Stored Underground                               9,567        31,661
   Materials and Supplies - at average cost            22,153        24,609
   Unrecovered Purchased Gas Costs                          -         6,316
   Prepayments                                         31,279        19,755
                                                   ----------    ----------
                                                      341,330       210,517
                                                   ----------    ----------

Other Assets
   Recoverable Future Taxes                            88,303        88,303
   Unamortized Debt Expense                            22,326        22,295
   Other Regulatory Assets                             41,760        41,735
   Deferred Charges                                     8,957         8,619
   Other                                               77,140        64,853
                                                   ----------    ----------
                                                      238,486       225,805
                                                   ----------    ----------

                                                   $2,848,363    $2,684,459
                                                   ==========    ==========


                 See Notes to Consolidated Financial Statements


<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


                            National Fuel Gas Company
                           Consolidated Balance Sheets


                                                     March 31,
                                                       1999     September 30,
                                                   (Unaudited)      1998 
                                                   -----------  -------------
                                                     (Thousands of Dollars)

CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity
   Common Stock, $1 Par Value
    Authorized  - 200,000,000 Shares; Issued
    and Outstanding - 38,640,515 Shares and
    38,468,795 Shares, Respectively                $   38,641    $   38,469
   Paid in Capital                                    424,240       416,239
   Earnings Reinvested in the Business                492,233       428,112
   Cumulative Translation Adjustment                  (11,780)        7,265
                                                   ----------    ----------
Total Common Stock Equity                             943,334       890,085
Long-Term Debt, Net of Current Portion                724,920       692,669
                                                   ----------    ----------
Total Capitalization                                1,668,254     1,582,754
                                                   ----------    ----------

Minority Interest in Foreign Subsidiaries              23,622        25,479
                                                   ----------    ----------

Current and Accrued Liabilities
   Notes Payable to Banks and
    Commercial paper                                  362,100       326,300
   Current Portion of Long-Term Debt                  160,111       216,929
   Accounts Payable                                    47,213        59,933
   Amounts Payable to Customers                         8,216         5,781
   Other Accruals and Current Liabilities             163,267        80,480
                                                   ----------    ----------
                                                      740,907       689,423
                                                   ----------    ----------

Deferred Credits
   Accumulated Deferred Income Taxes                  273,030       258,222
   Taxes Refundable to Customers                       18,404        18,404
   Unamortized Investment Tax Credit                   11,948        11,372
   Other Deferred Credits                             112,198        98,805
                                                   ----------    ----------
                                                      415,580       386,803
                                                   ----------    ----------
Commitments and Contingencies                               -             -
                                                   ----------    ----------

                                                   $2,848,363    $2,684,459
                                                   ==========    ==========


                 See Notes to Consolidated Financial Statements


<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------

                            National Fuel Gas Company
                            -------------------------
                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)
                                   -----------

                                                          Six Months Ended
                                                              March 31,
                                                         ------------------
                                                         1999          1998
                                                         ----          ----
                                                       (Thousands of Dollars)
OPERATING ACTIVITIES
   Net Income Available for Common Stock               $ 98,763      $  7,156
   Adjustments to Reconcile Net Income to Net Cash
    Provided by Operating Activities:
         Cumulative Effect of Change in Accounting
           for Depletion                                      -         9,116
         Impairment of Oil and Gas Producing Properties       -       128,996
         Depreciation, Depletion and Amortization        63,575        57,918
         Deferred Income Taxes                           18,754       (48,890)
         Minority Interest in Foreign Subsidiaries        2,888         2,829
         Other                                            2,254        (1,074)
         Change in:
           Receivables and Unbilled Utility Revenue    (149,227)     (100,862)
           Gas Stored Underground and Materials and
            Supplies                                     23,778        23,518
           Unrecovered Purchased Gas Costs                6,316          (340)
           Prepayments                                  (11,539)      (19,134)
           Accounts Payable                             (11,436)      (18,249)
           Amounts Payable to Customers                   2,435        (6,812)
           Other Accruals and Current Liabilities        82,734        84,603
           Other Assets                                  (7,762)       (2,798)
           Other Liabilities                             13,531         6,680
                                                       --------      --------
Net Cash Provided by
 Operating Activities                                   135,064       122,657
                                                       --------      --------

INVESTING ACTIVITIES
   Capital Expenditures                                (116,350)     (220,889)
   Investment in Subsidiaries, Net of Cash
     Acquired                                                 -       (75,963)
   Other                                                 (3,543)          353
                                                       --------      --------
Net Cash Used in Investing Activities                  (119,893)     (296,499)
                                                       --------      --------

FINANCING ACTIVITIES
   Change in Notes Payable to Banks and Commercial
    Paper                                                35,800       281,593
   Net Proceeds from Issuance of Long-Term Debt          98,736             -
   Reduction of Long-Term Debt                         (114,334)      (52,323)
   Dividends Paid on Common Stock                       (34,559)      (33,131)
   Proceeds from Issuance of Common Stock                 4,761         2,387
                                                       --------      --------
Net Cash Provided by (Used in)
 Financing Activities                                    (9,596)      198,526
                                                      ---------      --------

Effect of Exchange Rates on Cash                         (1,440)            -
                                                      ---------      --------

Net Increase in Cash and
 Temporary Cash Investments                               4,135        24,684

Cash and Temporary Cash Investments at October 1         30,437        14,039
                                                       --------      --------

Cash and Temporary Cash Investments at March 31        $ 34,572      $ 38,723
                                                       ========      ========

                 See Notes to Consolidated Financial Statements


<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


                            National Fuel Gas Company
                            -------------------------
                 Consolidated Statements of Comprehensive Income
                 -----------------------------------------------
                                   (Unaudited)
                                   -----------

                                                        Three Months Ended
                                                             March 31,
                                                        ------------------
                                                        1999          1998
                                                        ----          ----
                                                      (Thousands of Dollars)

Net Income (Loss) Available for Common Stock          $ 61,145      $(21,262)

Other Comprehensive Income (Loss), Net of Tax:
  Cumulative Translation Adjustment                    (19,175)        3,213
                                                      --------      --------

Comprehensive Income (Loss) Available for
  Common Stock                                        $ 41,970      $(18,049)
                                                      ========      ========



                                                          Six Months Ended
                                                              March 31, 
                                                         ------------------
                                                         1999          1998
                                                         ----          ----
                                                       (Thousands of Dollars)

Net Income Available for Common Stock                 $ 98,763      $  7,156

Other Comprehensive Income (Loss), Net of Tax:
  Cumulative Translation Adjustment                    (19,045)          910
                                                      --------      --------

Comprehensive Income Available for
  Common Stock                                        $ 79,718      $  8,066
                                                      ========      ========



<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


                            National Fuel Gas Company
                            -------------------------

                   Notes to Consolidated Financial Statements
                   ------------------------------------------


Note 1 - Summary of Significant Accounting Policies

Principles of Consolidation.  The consolidated  financial statements include the
accounts of the Company and its majority owned  subsidiaries.  The equity method
is used to account for the Company's investment in minority owned entities.  All
significant  intercompany  balances and transactions  have been eliminated where
appropriate.

           The  preparation  of  the   consolidated   financial   statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Quarterly Earnings.  The Company,  in its opinion,  has included all adjustments
that are  necessary for a fair  statement of the results of  operations  for the
reported  periods.  The  consolidated  financial  statements  and notes thereto,
included herein, should be read in conjunction with the financial statements and
notes for the years ended  September 30, 1998,  1997 and 1996, that are included
in the Company's combined Annual Report to Shareholders/Form  10-K for 1998. The
fiscal 1999 consolidated  financial statements will be examined by the Company's
independent accountants after the end of the fiscal year.

           The  earnings  for the six months  ended March 31, 1999 should not be
taken as a prediction  of earnings for the entire  fiscal year ending  September
30, 1999. Most of the Company's business is seasonal in nature and is influenced
by weather  conditions.  Because of the seasonal nature of the Company's heating
business,  earnings  during the winter months  normally  represent a substantial
part of earnings for the entire fiscal year.  The impact of abnormal  weather on
earnings  during the heating  season is partially  reduced by the operation of a
weather  normalization  clause included in Distribution  Corporation's  New York
tariff.  The weather  normalization  clause is effective for October through May
billings.  Distribution  Corporation's tariff for its Pennsylvania  jurisdiction
does not have a weather normalization clause. In addition,  Supply Corporation's
straight  fixed-variable rate design, which allows for recovery of substantially
all fixed costs in the demand or reservation charge, reduces the earnings impact
of weather fluctuations.

Cumulative  Effect of Change in Accounting.  Effective  October 1, 1997,  Seneca
changed  its  method  of  depletion  for oil and gas  properties  from the gross
revenue method to the units of production method. The units of production method
was applied  retroactively  to prior years to determine  the  cumulative  effect
through  October 1, 1997. This  cumulative  effect reduced  earnings for 1998 by
$9.1 million, net of income tax.



<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


Oil and Gas Exploration and Development Costs. Oil and gas property acquisition,
exploration and development  costs are capitalized under the full-cost method of
accounting as prescribed by the Securities and Exchange Commission (SEC). Due to
significant declines in oil prices in 1998, Seneca's capitalized costs under the
full-cost method of accounting exceeded the full-cost ceiling at March 31, 1998.
Seneca was  required to  recognize an  impairment  of its oil and gas  producing
properties in the quarter ended March 31, 1998.  This charge  amounted to $129.0
million  (pretax)  and reduced  net income for the quarter and six months  ended
March 31, 1998 by $79.1 million ($2.07 per common share, basic; $2.05 per common
share, for the six months ended March 31, 1998, on a diluted basis).

Consolidated  Statements  of  Cash  Flows.  For  purposes  of  the  Consolidated
Statements  of  Cash  Flows,  the  Company  considers  all  highly  liquid  debt
instruments  purchased  with a maturity of generally  three months or less to be
cash  equivalents.  Cash interest payments during the six months ended March 31,
1999 and 1998, amounted to $45.5 million and $30.5 million, respectively. Income
taxes paid during the six months ended March 31, 1999 and 1998 amounted to $18.6
million and $40.4 million,  respectively.  During the six months ended March 31,
1999, the Company  received a $1.0 million refund of taxes and interest from the
Internal  Revenue Service (IRS) stemming from the final settlement of the audits
of years  1977-1994.  During the six months  ended March 31,  1998,  the Company
received a $6.2 million  refund of taxes and interest from the IRS stemming from
the aforementioned settlement.

Reclassification.  Certain prior year amounts have been  reclassified to conform
with current year presentation.

Earnings  per Common  Share.  Basic  earnings  per common  share is  computed by
dividing  income  available for common stock by the weighted  average  number of
common  shares  outstanding  for the period.  Diluted  earnings per common share
reflects  the  potential  dilution  that  could  occur  if  securities  or other
contracts to issue common stock were  exercised or converted  into common stock.
Such  additional  shares are added to the  denominator of the basic earnings per
common  share  calculation  in order to  calculate  diluted  earnings per common
share. The only potentially  dilutive securities the Company has outstanding are
stock options.  The diluted  weighted  average shares  outstanding  shown on the
Consolidated  Statement of Income reflects the potential dilution as a result of
these stock  options.  Such  dilution was  determined  using the Treasury  Stock
Method as required by  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings per Share."



<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


Note 2 - Income Taxes

           The  components  of federal and state  income  taxes  included in the
Consolidated Statement of Income are as follows (in thousands):

                                                           Six Months Ended
                                                               March 31, 
                                                           ----------------
                                                           1999        1998
                                                           ----        ----

Operating Expenses:
  Current Income Taxes -
   Federal                                               $26,213     $52,235
   State                                                   4,513       5,242

  Deferred Income Taxes -
   Federal                                                16,861     (43,750)
   State                                                   1,700      (5,140)

  Foreign Income Taxes                                     3,293       4,623
                                                         -------     -------
                                                          52,580      13,210

Other Income:
  Deferred Investment Tax Credit                            (332)       (305)
Minority Interest in Foreign Subsidiaries                   (832)     (1,457)
Cumulative Effect of Change in Accounting                      -      (5,736)
                                                         -------     -------

Total Income Taxes                                       $51,416     $ 5,712
                                                         =======     =======

           Total  income  taxes as reported  differ  from the amounts  that were
computed by applying the federal  income tax rate to income before income taxes.
The following is a reconciliation of this difference (in thousands):

                                                           Six Months Ended
                                                               March 31, 
                                                           ----------------
                                                           1999        1998
                                                           ----        ----

Net income available for common stock                   $ 98,763    $  7,156
Total income taxes                                        51,416       5,712
                                                        --------    --------

Income before income taxes                              $150,179    $ 12,868
                                                        ========    ========

Income tax expense, computed at
 statutory rate of 35%                                  $ 52,563    $  4,504

Increase (reduction) in taxes resulting from:
  State income taxes                                       4,038          66
  Depreciation                                             1,037       1,225
  Prior years tax adjustment                              (1,309)      3,200
  Foreign tax in excess of (less than)
    statutory rate                                        (2,898)       (107)
  Miscellaneous                                           (2,015)     (3,176)
                                                        --------    --------

  Total Income Taxes                                    $ 51,416    $  5,712
                                                        ========    ========



<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


           Significant  components  of the  Company's  deferred tax  liabilities
(assets) were as follows (in thousands):

                                At March 31, 1999     At September 30, 1998
                                -----------------     ---------------------

Deferred Tax Liabilities:
  Abandonments                       $ 18,797                 $ 15,545
  Excess of tax over book
   depreciation                       138,948                  132,138
  Exploration and
   intangible well
   drilling costs                     160,749                  147,795
  Other                                40,168                   42,109
                                     --------                 --------
    Total Deferred Tax
     Liabilities                      358,662                  337,587
                                     --------                 --------

Deferred Tax Assets:
  Overheads capitalized
   for tax purposes                   (23,999)                 (22,484)
  Other                               (61,633)                 (56,881)
                                     --------                 --------
    Total Deferred Tax
     Assets                           (85,632)                 (79,365)
                                     --------                 --------

    Total Net Deferred
     Income Taxes                    $273,030                 $258,222
                                     ========                 ========

           The primary issues related to Internal  Revenue Service audits of the
Company  for the  years  1977 - 1994 were  settled  during  March  1998 with the
settlement  of  remaining  issues  related to these  same  audits  occurring  in
December  1998. Net income for the six months ended March 31, 1999 and 1998 were
increased by approximately $3.9 and $5.0 million,  respectively,  as a result of
interest, net of tax and other adjustments, related to these settlements.

Note 3 - Capitalization

Common  Stock.  During the six months ended March 31, 1999,  the Company  issued
61,710 shares of common stock under the Company's  section 401(k) Plans,  56,560
shares to participants in the Company's  Dividend  Reinvestment  Plan and 17,568
shares  to  participants   in  the  Company's   Customer  Stock  Purchase  Plan.
Additionally,  35,882  shares of common  stock were issued  under the  Company's
stock option and award plans, including 6,580 shares of restricted stock.

           On December  10,  1998,  615,500  stock  options  were  granted at an
exercise price of $46.0625 per share.

Shareholder Rights Plan. The Company's  shareholder rights plan (the "Plan") was
adopted in 1996,  and is described in the  Company's  combined  Annual Report to
Shareholders/Form  10-K for the fiscal year ended  September  30, 1998 at Note D
(Capitalization) to the financial statements which are found in Item 8. The Plan
has since been  amended,  and is now embodied in an Amended and Restated  Rights
Agreement  which is included in this Form 10-Q as Exhibit 10-2. The amendment of
the Plan was  prompted in part by recent  legal  developments  which called into
question  special voting rights,  particularly in connection with the redemption
of rights issued under shareholder rights plans,  reserved for certain directors
(often  called   "Continuing   Directors"  or,  under  the  Plan,   "Independent
Directors").




<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


           In September  1998, the Company's  Board of Directors  authorized the
amendment of the Plan in several  respects.  First,  all  provisions  conferring
special  voting  rights on  Independent  Directors  for any  decisions  would be
replaced by a requirement  that such decisions be made only upon the affirmative
vote of three-fourths of the entire Board.  Second,  certain  obligations of the
Company under the Plan which may require prior  regulatory  approval would be so
qualified.  Third, the original  ten-year term of the Plan would be extended for
an additional two years.  The Board also authorized the officers to make various
other amendments to the Plan.

           These plan amendments were  implemented  effective April 30, 1999, by
the execution of the Amended and Restated Rights Agreement.

Long-Term  Debt. In February  1999,  the Company  issued $100.0  million of 6.0%
medium-term  notes due to mature in March  2009.  After  deducting  underwriting
discounts  and  commissions,  the net proceeds to the Company  amounted to $98.7
million.  The proceeds of this debt issuance were used to redeem $100.0  million
of 5.58% medium-term notes which matured in March 1999.

           In March 1999,  the Company  redeemed $10.3 million of HarCor Energy,
Inc.'s  (HarCor)  14.875% Senior Secured Notes through an open market  purchase.
HarCor is a wholly-owned subsidiary of Seneca. The total cost of this redemption
was  $11.9  million,  which  included  a  redemption  price of 110% and  accrued
interest.

Note 4 - Derivative Financial Instruments

           Seneca  has  entered  into  certain  price swap  agreements  and call
options to manage a portion of the market risk associated  with  fluctuations in
the price of natural gas and crude oil, thereby  providing more stability to its
operating results. These agreements are not held for trading purposes.

           The price swap agreements call for Seneca to receive monthly payments
from (or make  payment to) other  parties  based upon the  difference  between a
fixed and a variable price as specified by the agreement.  The variable price is
either a crude oil price quoted on the New York Mercantile  Exchange or a quoted
natural gas price in "Inside FERC." These variable prices are highly  correlated
with the market  prices  received  by Seneca for its  natural  gas and crude oil
production.  At March 31,  1999,  Seneca had natural  gas price swap  agreements
covering  a  notional  amount of 15.4 Bcf  extending  through  fiscal  2000 at a
weighted  average  fixed rate of $2.30 per Mcf.  Seneca also had crude oil price
swap agreements  covering a notional amount of 1,282,000 bbls extending  through
calendar  2000 at a fixed  rate of $18.00  per bbl.  On the crude oil price swap
agreements, any payments received by Seneca would be subject to a floor price of
$12.50 per bbl. For calendar  1999,  any payments made by Seneca under the crude
oil price swap agreements  would be calculated as the price  differential  above
$18.00  multiplied by two times the notional  quantity.  For calendar  2000, any
payments  made by Seneca  would  revert to the price  differential  above $18.00
multiplied by the notional quantity.



<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


           At  March  31,  1999,  Seneca  had  natural  gas call  options  (sale
position)  covering a notional amount of 21.7 Bcf extending  through fiscal 2001
at a weighted  average strike price of $2.65 per Mcf.  Seneca had crude oil call
options (sale position)  covering a notional amount of 732,000 bbls for calendar
2000 at a strike price of $18.00 per bbl. Seneca also had crude oil call options
(purchase  position)  covering a notional  amount of  1,832,000  bbls  extending
through fiscal 2000 at a strike price of $20.00 per bbl.

           Seneca had unrecognized  gains of approximately  $1.1 million related
to its derivative financial instruments.

         Seneca recognized gains of $4.4 million and $5.9 million related to its
price swap  agreements  during the quarter and six months  ended March 31, 1999,
respectively.  During the quarter ended March 31, 1998,  Seneca  recognized  net
gains of $0.5 million related to its price swap  agreements.  For the six months
ended March 31, 1998,  Seneca  recognized net losses of $7.8 million  related to
its price swap agreements.  Gains or losses from these price swap agreements are
accrued in  operating  revenues on the  Consolidated  Statement of Income at the
contract settlement dates.

           The  Company is exposed to credit  risk on the price swap  agreements
that  Seneca has  entered  into as well as on the call  options  that Seneca has
purchased.  Credit risk relates to the risk of loss that the Company would incur
as a result of  nonperformance  by Seneca's  counterparties of their contractual
obligations pursuant to the price swap agreements. To mitigate such credit risk,
before entering into a price swap agreement with a new counterparty,  management
performs a credit  check and  prepares a report  indicating  the  results of the
credit  investigation.  This  report  must be  approved  by  Seneca's  board  of
directors after which a Master Swap Agreement is executed between Seneca and the
counterparty.  On an ongoing basis,  periodic reports are prepared by management
to monitor  counterparty  credit exposure.  In the case of the call options that
Seneca  purchased,  the counterparty  selected was one in which Seneca currently
has a  Master  Swap  Agreement,  meaning  that a credit  investigation  had been
completed and continues to be monitored.  Considering  the  procedures in place,
the Company does not anticipate any material  impact to its financial  position,
results  of  operations,  or  cash  flows  as  a  result  of  nonperformance  by
counterparties.

         NFR utilizes exchange-traded futures and options to manage a portion of
the market risk associated  with  fluctuations in the price of natural gas. Such
futures and options are not held for trading  purposes.  At March 31, 1999,  NFR
had natural gas futures  contracts  related to gas purchase and sale commitments
covering  11.8 Bcf of gas on a net  basis  extending  through  fiscal  2000 at a
weighted  average contract price of $2.22 per Mcf. NFR also had sold natural gas
options related to gas purchase and sale commitments  covering 0.3 Bcf of gas on
a net basis extending  through fiscal 2000 at a weighted average strike price of
$2.14 per Mcf.

           Gains or losses  from  natural  gas  futures  are  recorded  in Other
Deferred  Credits on the  Consolidated  Balance Sheet until the hedged commodity
transaction  occurs, at which point they are reflected in operating  revenues in
the Consolidated Statement of Income. At March 31, 1999, NFR had deferred losses
of $1.4 million related to these futures  contracts and options.  NFR recognized
net losses of $4.4 million  related to futures  contracts and options during the
quarter  ended  March 31,  1999.  For the  quarter  ended  March 31,  1998,  NFR
recognized a loss of $25,000.  NFR recognized net losses of $5.4 million related
to futures  contracts  and options for the six months ended March 31, 1999.  For
the six months ended March 31, 1998, NFR recognized net

<PAGE>


Item 1.  Financial Statements (Cont.)
         ----------------------------


gains of $1.4  million.  Since these futures  contracts and options  qualify and
have been  designated  as hedges  these net losses and gains were  substantially
offset by the related commodity transaction.

Note 5 - Commitments and Contingencies

Environmental  Matters.  The  Company is subject to various  federal,  state and
local laws and regulations  relating to the protection of the  environment.  The
Company has established  procedures for the ongoing evaluation of its operations
to  identify  potential  environmental  exposures  and  assure  compliance  with
regulatory policies and procedures.

         It is the Company's policy to accrue estimated  environmental  clean-up
costs  (investigation  and  remediation)  when such  amounts can  reasonably  be
estimated  and it is probable  that the  Company  will be required to incur such
costs.  Distribution  Corporation  has estimated  its clean-up  costs related to
former manufactured gas plant sites and third party waste disposal sites will be
in the range of $10.0 million to $11.0 million. At March 31, 1999,  Distribution
Corporation has recorded the minimum liability of $10.0 million.  The Company is
currently  not  aware  of any  material  additional  exposure  to  environmental
liabilities.  However,  adverse  changes in  environmental  regulations or other
factors could impact the Company.

         In New York and  Pennsylvania,  Distribution  Corporation is recovering
site investigation and remediation costs in rates. Accordingly, the Consolidated
Balance Sheet at March 31, 1999 includes related regulatory assets in the amount
of approximately $12.0 million.

         The Company, in its international  operations in the Czech Republic, is
in the process of constructing new fluidized-bed boilers at the district heating
and power generation plant of Prvni  severozapadni  teplarenska,  a.s. (PSZT) to
comply  with  certain  clean  air  standards  mandated  by  the  Czech  Republic
government.  Capital expenditures related to this construction  incurred by PSZT
for the six months ended March 31, 1999 were  approximately  $13.3  million.  An
additional $19.7 million is budgeted for this  construction for the remainder of
fiscal 1999.

         For further discussion, refer to Note H - Commitments and Contingencies
under the heading  "Environmental  Matters" in Item 8 of the Company's 1998 Form
10-K.

Other.  The Company is involved in  litigation  arising in the normal  course of
business.  The Company is involved in regulatory  matters  arising in the normal
course of business  that involve rate base,  cost of service and  purchased  gas
cost issues. While the resolution of such litigation or regulatory matters could
have a material effect on earnings and cash flows, none of this litigation,  and
none of these regulatory  matters, is expected to have a material adverse effect
on the financial condition of the Company at this time.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations
         ---------------------


RESULTS OF OPERATIONS

Earnings.

           The Company's earnings were $61.1 million,  or $1.58 per common share
($1.57 per common  share on a diluted  basis),  for the quarter  ended March 31,
1999. This compares with a loss of $21.3 million, or $0.56 per common share, for
the quarter ended March 31, 1998.  This loss  includes a non-cash  impairment of
Seneca's oil and gas assets in the amount of $79.1 million (after-tax).  Without
this item,  the earnings for the quarter  ended March 31, 1998,  would have been
$57.8  million,  or $1.51 per common  share ($1.49 per common share on a diluted
basis).

           The Company's earnings were $98.8 million,  or $2.56 per common share
($2.54 per common share on a diluted basis),  for the six months ended March 31,
1999.  This compares  with  earnings of $7.2 million,  or $0.19 per common share
($0.18 per common share on a diluted basis),  for the six months ended March 31,
1998.  Earnings for the six months  ended March 31,  1998,  include the non-cash
impairment  of Seneca's oil and gas assets,  noted above,  as well as a non-cash
cumulative  effect of a change in accounting.  Without these two non-cash items,
earnings for the six months  ended March 31, 1998 would have been $95.4  million
or $2.50 per  common  share  ($2.47 per common  share on a diluted  basis).  The
accounting  change was a change in  depletion  methods for  Seneca's oil and gas
assets,  which had a  negative  $9.1  million  (after-tax),  or $0.24 per common
share, non-cash cumulative effect through October 1, 1997.

Discussion of Quarter Earnings.

         Excluding the non-cash impairment noted above, the increase in earnings
for the current  year's  quarter  compared with the prior year's quarter was the
result of higher earnings in all segments, except the Exploration and Production
segment.

         The Utility segment's earnings are higher mainly due to weather,  which
was on  average  18%  colder  than the  prior  year,  and  lower  operating  and
maintenance  (O&M)  expense.  Despite a rate  reduction  in New York that became
effective  October 1, 1998, as well as a special  reserve to be applied  against
incremental   costs  resulting  from  the  State  of  New  York  Public  Service
Commission's (PSC) gas restructuring  efforts,  the New York Division maintained
earnings about the same as the prior year.  Last year's Utility  segment results
included  the  negative  impact  of  interest  expense  in  connection  with the
settlement of the primary issues of IRS audits of years 1977-1994.

         In the Pipeline and Storage  segment,  earnings are up because of lower
O&M expense and higher  revenue from  unbundled  pipeline  sales and open access
transportation.   The  decrease  in  O&M  expense  relates  mainly  to  reserves
established in the second quarter of fiscal 1998 for preliminary  costs incurred
on proposed pipeline projects,  to a storage loss recorded in the second quarter
of  fiscal  1998 and to lower  benefits  expense  in the  current  quarter.  The
settlement  of the primary  issues of the above noted IRS audits made a positive
contribution to this segment's earnings in the second quarter of last year.




<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         The  International  segment's  increased  earnings came from  Horizon's
investment  in Prvni  severozapadni  teplarenska,  a.s.  (PSZT),  a company with
district heating and power generation  operations located in the Czech Republic.
Horizon initially  invested in PSZT in February 1998, thus the second quarter of
fiscal 1998 reflected only two months of activity.

         The Other  Nonregulated  segment's  earnings  are up  because of higher
earnings in the timber  operations.  In  addition,  this  segment's  natural gas
marketing  operations  experienced  higher  margins  as a  result  of  increased
volumes.

         In the  Exploration  and  Production  segment,  (excluding the non-cash
impairment in the prior year's quarter)  earnings are down primarily  because of
this  segment's  portion of interest  income,  recognized  in last year's second
quarter, related to the previously mentioned settlement of the primary issues of
the IRS audits.  In addition,  earnings  this quarter were hurt again because of
low oil and gas  prices,  which,  after  hedging,  were below the prices for the
prior year's  quarter by $5.15 per barrel (a 32% decline) and $0.12 per thousand
cubic feet (Mcf) (a 5% decline), respectively.

Discussion of Six Month Earnings.

         Excluding both the non-cash  impairment and the cumulative  effect of a
change in accounting from the prior year's period,  the increase in earnings for
the six months ended March 31, 1999, as compared  with the prior year's  period,
was also the result of higher  earnings in all segments,  except the Exploration
and Production  segment.  Although earnings were up in the Utility segment,  the
main reason was because the  settlement  of the primary  issues of IRS audits of
years  1977-1994  had a  negative  impact on  earnings  in the prior  year while
adjustments made relating to the final settlement of these audits had a positive
impact to earnings in the current  year.  Absent the IRS audit items,  operating
results of the Utility segment are actually down from the prior year as slightly
colder weather (which mainly benefits the Pennsylvania  jurisdiction)  and lower
O&M expense were not enough to offset the effects of the New York rate decrease,
the special gas restructuring  reserve and the expense  associated with an early
retirement  offer  effective  in  December  1998.  In the  Pipeline  and Storage
segment, lower O&M expense, even after the early retirement charge, was the main
reason for higher earnings. The International  segment's higher earnings reflect
six months of results from its investment in PSZT, while the prior year's period
only includes two months. Similar to the discussion for the quarter, earnings in
the Other  Nonregulated  segment are higher and the earnings of the  Exploration
and Production segment are down for the year.

           A more detailed  discussion of current period results can be found in
the business segment information that follows.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


OPERATING REVENUES
(in thousands)
<TABLE>
<CAPTION>

                               Three Months Ended            Six Months Ended
                                   March 31,                     March 31,
                            -------------------------    -------------------------
                            1999      1998   % Change    1999      1998   % Change
                            ----      ----   --------    ----      ----   --------
<S>                       <C>       <C>      <C>       <C>       <C>      <C>

 Utility
  Retail Revenues:
   Residential            $255,452  $243,398    5.0    $420,533  $453,134   (7.2)
   Commercial               49,051    51,480   (4.7)     78,231    96,681  (19.1)
   Industrial                5,965     5,247   13.7       9,370    11,659  (19.6)
                          --------  --------           --------  --------
                           310,468   300,125    3.4     508,134   561,474   (9.5)
  Off-System Sales          10,647    16,021  (33.5)     17,496    30,771  (43.1)
  Transportation            27,713    22,337   24.1      46,665    37,514   24.4
  Other                     (3,324)    3,887 (185.5)     (4,641)    3,452 (234.4)
                          --------  --------           --------  --------
                           345,504   342,370    0.9     567,654   633,211  (10.4)
                          --------  --------           --------  --------

 Pipeline and Storage
  Storage Service           15,839    15,984   (0.9)     31,625    32,469   (2.6)
  Transportation            24,443    24,695   (1.0)     47,893    48,463   (1.2)
  Other                      3,830     1,653  131.7       6,688     7,257   (7.8)
                          --------  --------           --------  --------
                            44,112    42,332    4.2      86,206    88,189   (2.2)
                          --------  --------           --------  --------

 Exploration and
  Production                33,660    24,819   35.6      65,288    49,528   31.8
                          --------  --------           --------  --------
 International              40,812    36,351   12.3      81,077    47,940   69.1
                          --------  --------           --------  --------
 Other Nonregulated         46,274    37,149   24.6      75,766    61,326   23.5
                          --------  --------           --------  --------
Less-Intersegment
 Revenues                   26,958    26,580    1.4      52,165    52,732   (1.1)
                          --------  --------           --------  --------

                          $483,404  $456,441    5.9    $823,826  $827,462   (0.4)
                          ========  ========           ========  ========
</TABLE>


OPERATING INCOME (LOSS) BEFORE
INCOME TAXES
(in thousands)
<TABLE>
<CAPTION>

                              Three Months Ended            Six Months Ended
                                  March 31,                     March 31,  
                           -------------------------    -------------------------
                           1999      1998   % Change    1999      1998   % Change
                           ----      ----   --------    ----      ----   --------
<S>                      <C>       <C>       <C>      <C>       <C>       <C>

 Utility                 $ 71,860  $ 72,378   (0.7)   $108,483  $119,854   (9.5)
 Pipeline and Storage      20,549    14,166   45.1      39,377    37,016    6.4
 Exploration and
  Production*               8,917  (119,815) 107.4      17,156  (116,368) 114.7
 International             11,919     6,024   97.9      20,616     6,909  198.4
 Other Nonregulated         5,300     1,870  183.4       8,062     2,943  173.9
 Corporate                   (390)     (590)  33.9        (805)   (1,092)  26.3
                         --------  --------           --------  --------

                         $118,155  $(25,967) 555.0    $192,889  $ 49,262  291.6
                         ========  ========           ========  ========
</TABLE>

*1998 includes non-cash impairment charge of $128,996,000.




<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


SYSTEM NATURAL GAS VOLUMES
(millions of cubic feet-MMcf)
<TABLE>
<CAPTION>

                               Three Months Ended           Six Months Ended
                                   March 31,                    March 31,   
                            ------------------------    -------------------------
                            1999     1998   % Change    1999      1998   % Change
                            ----     ----   --------    ----      ----   --------
<S>                        <C>      <C>      <C>       <C>       <C>      <C>

Utility Gas Sales
  Residential               34,762   31,221   11.3      54,977    56,010   (1.8)
  Commercial                 7,191    7,273   (1.1)     11,130    13,187  (15.6)
  Industrial                 1,385    1,227   12.9       2,231     2,469   (9.6)
  Off-System                 5,195    6,470  (19.7)      7,971    10,948  (27.2)
                           -------  -------            -------   -------
                            48,533   46,191    5.1      76,309    82,614   (7.6)
                           -------  -------            -------   -------

Non-Utility Gas Sales
  Production(in
   equivalent MMcf)         14,622    9,563   52.9      28,849    20,453   41.1
                           -------  -------            -------   -------

Total Gas Sales             63,155   55,754   13.3     105,158   103,067    2.0
                           -------  -------            -------   -------

Transportation
  Utility                   23,061   20,682   11.5      38,030    35,332    7.6
  Pipeline and Storage     108,567  101,490    7.0     190,106   195,893   (3.0)
  Nonregulated                  67        -     NM         321       276   16.3
                           -------  -------            -------   -------
                           131,695  122,172    7.8     228,457   231,501   (1.3)
                           -------  -------            -------   -------

Marketing Volumes           12,938    9,339   38.5      20,338    14,520   40.1
                           -------  -------            -------   -------

Less-Inter and
Intrasegment Volumes:
  Transportation            66,878   58,351   14.6     109,651   102,743    6.7
  Production                   877    1,064  (17.6)      1,860     2,058   (9.6)
                           -------  -------            -------   -------
                            67,755   59,415   14.0     111,511   104,801    6.4
                           -------  -------            -------   -------

Total System Natural Gas
 Volumes                   140,033  127,850    9.5     242,442   244,287   (0.8)
                           =======  =======            =======   =======
</TABLE>

NM = Not meaningful.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


Utility.

         Operating  revenues for the Utility segment  increased $3.1 million for
the quarter  ended March 31, 1999,  as compared with the same period a year ago.
This  increase  reflects  the fact that  this  quarter   combined  gas sales and
transportation  revenues  increased $10.3 million while other operating revenues
decreased $7.2 million.

          The increase in gas sales and transportation  revenues for the quarter
is  primarily  the  result of colder  weather  in the  current  year  quarter as
compared  to the prior  year  quarter,  offset  in part by a  general  base rate
decrease in the New York jurisdiction  effective October 1, 1998.  Increased gas
revenues  reflects the recovery of higher gas costs,  which resulted from higher
volumes  sold (a 2.3 billion  cubic feet (Bcf)  increase  for the quarter  ended
March 31, 1999) partly offset by a decrease in the average cost of purchased gas
($3.35 per Mcf and $3.77 per Mcf during the  quarter  ended  March 31,  1999 and
1998,  respectively).  While  gas sales  have  increased  from the  prior  year,
primarily due to colder weather, volumes sold have been lowered by the migration
of certain retail customers to  transportation  service in both the New York and
Pennsylvania jurisdictions,  as a result of new aggregator services. See further
discussion of restructuring in the Utility  segment's  service  territory in the
"Rate Matters" section that follows.

         Other operating  revenues  decreased $7.2 million for the quarter ended
March 31, 1999, compared to the prior year's quarter,  due to a $3.2 million gas
restructuring  reserve  reducing revenue in the quarter ended March 31, 1999 and
$6.0 million of revenue  related to an IRS audit  settlement in the prior year's
quarter,  offset in part by a $2.0 million refund provision also recorded in the
prior year's quarters.  The gas  restructuring  reserve is to be applied against
incremental costs resulting from the PSC's gas restructuring  efforts (the PSC's
gas  restructuring  efforts are further  discussed in the "Rate Matters" section
that follows).  The $6.0 million of revenue related to the IRS audits represents
the rate recovery of interest expense as allowed by the New York rate settlement
of July 1996. The refund provision  recorded in the prior year's quarter was for
a 50%  sharing  with  customers  of  earnings  over a  predetermined  amount  in
accordance with the New York rate settlement of July 1996. These three items are
included  in the  "Other"  category  in the  Utility  section  of the  Operating
Revenues table above.

         Operating  revenues for the Utility segment decreased $65.6 million for
the six months  ended March 31,  1999,  as compared  with the same period a year
ago. This decrease is made up of combined gas sales and transportation  revenue,
which are down $57.5 million and other operating  revenue,  which decreased $8.1
million.

         The decrease in gas revenues  primarily  reflects the recovery of lower
gas costs which  resulted  from a decrease in gas sales (a 6.3 Bcf  decrease for
the six months  ended  March 31,  1999) and a decrease  in the  average  cost of
purchased gas ($3.55 per Mcf and $4.11 per Mcf during the six months ended March
31, 1999 and 1998,  respectively),  as well as the general base rate decrease in
the New York  jurisdiction  effective October 1, 1998. The decrease in gas sales
also  reflects,   in  part,  the  migration  of  certain  retail   customers  to
transportation service in both the New York and Pennsylvania jurisdictions, as a
result of new aggregator  services.  See further  discussion of restructuring in
the Utility  segment's  service  territory  in the "Rate  Matters"  section that
follows.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         Other  operating  revenues  decreased  $8.1  million for the six months
ended March 31, 1999, compared with the six months ended March 31, 1998 due to a
$4.9 million gas restructuring reserve reducing revenue in the current six month
period,  $6.0 million of revenue  recorded in 1998 as a result of the settlement
of IRS audits and $0.5 million of a revenue reduction in the current year due to
a final IRS audit settlement,  offset in part by a $3.1 million refund provision
recorded in the prior year's six-month period.

         Operating income before income taxes for the Utility segment  decreased
$0.5 million for the quarter  ended March 31, 1999 compared to the same period a
year ago.  Excluding  the $6.0  million of rate  recovery  of  interest  expense
related  to the IRS  audits  for the 1998  quarter,  as noted  above  (this rate
recovery is offset 100% by interest expense, included below the operating income
line), the Utility  segment's pretax operating income increased $5.5 million for
the quarter  ended  March 31,  1999.  This  increase  for the  quarter  resulted
primarily from the revenue increases, as discussed above, and a reduction in O&M
expense.  The  positive  impact  of  the  colder  weather  was  greatest  in the
Pennsylvania   jurisdiction   since   Pennsylvania   does  not  have  a  weather
normalization  clause (WNC).  The decrease in O&M expense  relates  primarily to
benefit and labor expense reduction.

         Operating income before income taxes for the Utility segment  decreased
$11.4  million for the six months ended March 31, 1999,  as compared to the same
period a year ago.  Excluding  the $6.0  million of rate  recovery  of  interest
expense  related to the IRS audits in 1998, as well as $0.5 million of a revenue
reduction in 1999 due to a final IRS audit settlement, as noted above (this rate
recovery is offset 100% by interest expense, included below the operating income
line), the Utility  segment's pretax operating income decreased $4.9 million for
the six months ended March 31, 1999.  This decrease in pretax  operating  income
resulted primarily from the revenue reduction as discussed above, offset in part
by lower O&M expense.  The lower O&M expense is primarily  due to lower  benefit
and labor  costs,  despite  the costs  associated  with an early  retirement  in
December 1998.

Degree Days

  Three Months Ended March 31:
  ----------------------------
                                              Percent (Warmer) Colder
                                                    in 1999 Than
                         Normal    1999    1998   Normal    1998
- ---------------------------------------------------------------------

  Buffalo                3,405    3,277   2,785   (3.8)     17.7
  Erie                   3,198    3,026   2,547   (5.4)     18.8

  Six Months Ended March 31:
  --------------------------

  Buffalo                5,665    5,248   5,079   (7.4)      3.3
  Erie                   5,243    4,758   4,643   (9.3)      2.5 
- ---------------------------------------------------------------------




<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


Pipeline and Storage.

         Operating  income  before  income  taxes for the  Pipeline  and Storage
segment  increased  $6.4 million and $2.4 million for the quarter and six months
ended March 31,  1999,  respectively,  as compared  with the same periods a year
ago. For the quarter, the increase is primarily  attributable to lower O&M costs
and  higher   revenues   from   unbundled   pipeline   sales  and  open   access
transportation.  In the previous year's quarter,  reserves were  established for
preliminary survey and investigation costs associated with the Niagara Expansion
and Green  Canyon  projects.  In addition in the quarter  ended March 31,  1998,
Supply  Corporation  recognized  a base gas loss at its Zoar storage  field.  In
total,  these three items amounted to $3.7 million,  pretax. O&M expense is also
down due to lower benefit costs in the current quarter.

         The increase in operating income before income taxes for the six months
ended March 31, 1999, is primarily attributable to lower O&M expense,  offset in
part  by  lower  revenues  from   unbundled   pipeline  sales  and  open  access
transportation.  The reduction in O&M is  attributable  to the reserves and base
gas loss  recorded in 1998,  as discussed  above,  and lower benefit costs (even
after the charge for the early retirement in December 1998).  Partly  offsetting
these  reductions in O&M was the reversal of a reserve for a storage  project in
the first quarter of 1998.

         While  transportation  volumes in this  segment  increased  7.1 Bcf and
decreased 5.8 Bcf, respectively,  for the quarter and six months ended March 31,
1999,  the change in volumes did not have a significant  impact on earnings as a
result of Supply Corporation's straight fixed-variable (SFV) rate design.

Early Retirement Offer.

         On March 26, 1999,  the Company made an early  retirement  offer to its
Pennsylvania  operating  employees' union in both  Distribution  Corporation and
Supply Corporation. Of the 61 people eligible, 30 accepted. The early retirement
offer will result in a charge to earnings of approximately  $1.0 to $1.5 million
in the third quarter of fiscal 1999.

Exploration and Production.

         Operating income before income taxes from the Company's Exploration and
Production  segment  increased  $128.7  million for the quarter  ended March 31,
1999,  compared with the same period a year ago. Excluding the prior year's $129
million non-cash  impairment of this segment's oil and gas assets,  as discussed
previously,  operating  income  before  income taxes  decreased  $0.3 million as
compared with the prior year's quarter.  This decrease  resulted  primarily from
lower oil and gas  prices,  which after  hedging,  were below the prices for the
prior year's quarter by $5.15 per bbl and $0.12 per Mcf,  respectively.  Despite
lower prices, oil and gas revenues,  after hedging, were up because of increased
production. This production increase came mainly from the properties acquired in
the  HarCor  Energy,  Inc.  (HarCor),  Whittier  Trust  Company  (Whittier)  and
Bakersfield  Energy  Resources (BER)  acquisitions in the prior year.  There was
also  increased  production  in the Gulf  Coast,  primarily  new  production  at
Vermilion  309,  Galveston  239 and West Cameron 540,  combined  with  increased
production at High Island 194.  However,  the increased  revenues were more than
offset by higher depletion  expense and lease operating  costs.  Lease operating
costs  increased  primarily  in the  West  Coast  Division  as a  result  of the
additional leases acquired from HarCor, BER and Whittier in the prior year.


<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         For the six months ended March 31, 1999, operating income before income
taxes for the  Exploration  and Production  segment  increased  $133.5  million,
compared with the same period a year ago.  Excluding  the $129 million  non-cash
impairment  of this  segment's  oil and gas  assets,  as  discussed  previously,
operating  income  before  income taxes for the six months ended March 31, 1999,
increased  $4.5  million as compared  with the prior  year's same  period.  This
increase  on a  year-to-date  basis,  was  mainly  caused by higher  oil and gas
production,  due  to the  acquisitions  on the  West  Coast  in  1998,  and  new
production on certain Gulf Coast  properties.  However,  lower oil prices,  even
after hedging,  and higher lease  operating  costs and depletion  expense partly
offset by the positive impacts of this higher production.

PRODUCTION VOLUMES

Exploration and Production.
                               Three Months Ended         Six Months Ended
                                    March 31,                 March 31,   
                             -----------------------   -----------------------
                             1999     1998  % Change   1999     1998  % Change
                             ----     ----  --------   ----     ----  --------
Gas Production - (MMcf)
  Gulf Coast                 6,507    5,860   11.0    12,941   12,701    1.9
  West Coast                   985      157  527.4     1,789      412  334.2
  Appalachia                 1,154    1,276   (9.6)    2,311    2,484   (7.0)
                            ------   ------           ------   ------
                             8,646    7,293   18.6    17,041   15,597    9.3
                            ======   ======           ======   ======

Oil Production - (Thousands of Barrels)
  Gulf Coast                   337      296   13.9       670      610    9.8
  West Coast                   657       80  721.3     1,293      194  566.5
  Appalachia                     2        2     -          5        5     -
                               ---      ---            -----    -----
                               996      378  163.5     1,968      809  143.3
                               ===      ===            =====    =====


AVERAGE PRICES

Exploration and Production.

                               Three Months Ended         Six Months Ended
                                    March 31,                 March 31,    
                             -----------------------   -----------------------
                             1999     1998  % Change   1999     1998  % Change
                             ----     ----  --------   ----     ----  --------
Average Gas Price/Mcf
  Gulf Coast                 $1.73    $2.27  (23.8)    $1.86    $2.68  (30.6)
  West Coast                 $1.85    $1.69    9.5     $2.09    $2.13   (1.9)
  Appalachia                 $2.53    $3.10  (18.4)    $2.47    $3.06  (19.3)
  Weighted Average           $1.85    $2.40  (22.9)    $1.97    $2.73  (27.8)
  Weighted Average After
    Hedging                  $2.26    $2.38   (5.0)    $2.21    $2.21      -

Average Oil Price/bbl
  Gulf Coast                $11.67   $14.83  (21.3)   $11.76   $16.98  (30.7)
  West Coast                $ 9.09   $11.81  (23.0)   $ 8.96   $14.20  (36.9)
  Appalachia                $11.45   $15.80  (27.5)   $12.31   $17.93  (31.3)
  Weighted Average          $ 9.97   $14.19  (29.7)   $ 9.92   $16.32  (39.2)
  Weighted Average After
    Hedging                 $10.83   $15.98  (32.2)   $10.83   $16.62  (34.8)



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         Seneca has  entered  into  certain  price swap  agreements  to manage a
portion of the market risk associated with  fluctuations in the price of natural
gas and crude oil,  thereby  providing more  stability to its operating  results
(refer to the  "Market  Risk  Sensitive  Instruments"  section  of this Item for
further  discussion).  The following  summarizes Seneca's settlements under such
price swap agreements:

<TABLE>
<CAPTION>
                                           Three Months Ended         Six Months Ended
                                                March 31,                  March 31,           
                                           ------------------         ----------------         
(thousands of dollars)                      1999         1998          1999        1998
                                            ----         ----          ----        ----
<S>                                        <C>           <C>         <C>        <C> 

Natural Gas Price Swap Agreements:
  Notional Quantities -
   Equivalent Bcf                             5.5          5.7         11.3        13.1
  Gain (Loss)                              $3,512        ($136)      $4,130     ($8,085)

Crude Oil Price Swap Agreements:
  Notional Quantities -
   Equivalent bbls                        180,000      219,000      315,000     453,000
  Gain (Loss)                                $855         $677       $1,791        $239
</TABLE>


International

         Operating  income  before  income taxes for the  International  segment
increased  $5.9  million and $13.7  million  for the quarter and the  six-months
ended March 31, 1999,  respectively,  compared with the same periods a year ago.
These  increases,  as well as the  revenue  increases  shown  in the  "Operating
Revenue" table above and the "Heat and Electric Revenues" table below,  resulted
primarily from the operations of PSZT, a district  heating and power  generation
plant located in the northern part of the Czech Republic. Horizon first acquired
75.3% of the  outstanding  shares of PSZT in February  1998 and  currently  owns
86.2%. The quarter and six months ended March 31, 1998 reflected only two months
of operating revenues and income for PSZT.

         The following table summarizes the heating and electricity sales of the
International  segment for the  quarter and six months  ended March 31, 1999 and
1998, respectively:

Heating and Electric Volumes
                                     Three Months Ended      Six Months Ended
                                         March 31,              March 31,     
                                     1999        1998        1999       1998
                                     ----        ----        ----       ----

   Heating (Gigajoules)           4,464,875   3,830,849   8,443,772  4,861,030
   Electricity (Megawatt hours)     311,588     230,479     617,869    243,355

Heating and Electric Revenues
                                    Three Months Ended       Six Months Ended
                                         March 31,              March 31,
 (in thousands)                      1999        1998        1999       1998
                                     ----        ----        ----       ----

   Heating                         $31,256     $25,832     $60,297    $33,706
   Electricity                     $ 9,765     $ 5,696     $19,678    $ 6,080




<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


Other Nonregulated.

         Operating  income  before  income  taxes  associated  with this segment
increased  $3.4  million  and $5.1  million,  respectively,  for the quarter and
six-months ended March 31, 1999,  compared with the same periods a year ago. The
increases can be attributed  primarily to improved  performance in the Company's
timber operations and energy marketing subsidiary.  The increased performance in
the timber operations resulted from the 1998 purchase of timber property and two
lumber mills.  The increased  performance of NFR, the Company's energy marketing
subsidiary, was the result of increased volumes and margins.

Income Taxes.

         Income taxes increased  $44.4 million and $39.4 million,  respectively,
for the quarter and six months ended March 31, 1999, primarily as a result of an
increase in pretax income (pretax income before cumulative  effect,  for the six
months ended March 31, 1998). For further  discussion of income taxes,  refer to
"Note 2 Income Taxes" in Part I, Item 1 of this report.

Other Income.

         Other income  decreased $24.0 million and $20.4 million,  respectively,
for the quarter and six months ended March 31, 1999, mainly due to $18.5 million
of interest  income  resulting from the previously  mentioned  settlement of IRS
audits in March 1998. For the six months ended March 31, 1999, this decrease was
partly  offset by $3.1 of interest  income in December 1998 related to the final
settlement of the IRS audits. In addition,  Other Income for the quarter and six
month period ended March 31, 1998 included a gain of approximately  $2.3 million
associated  with U.S.  dollar  denominated  debt carried on the balance sheet of
PSZT until  December  1998,  at which time it was  converted  to a Czech  koruna
denominated loan.

Interest Charges.

         Interest on long-term debt increased $5.0 million and $10.9 million for
the quarter and six months ending March 31, 1999,  respectively,  mainly because
of a higher average amount of long-term  debt  outstanding  compared to the same
periods a year ago. Long-term  balances have grown  significantly as a result of
last year's  acquisitions of Severoceske  teplarny,  a.s. (SCT),  PSZT,  HarCor,
Whittier and BER.

         Other interest decreased $10.9 million and $9.6 million for the quarter
and  six-month  period,  respectively,  mainly as a result of  interest  expense
related to the previously  mentioned  settlement of IRS audits.  The quarter and
six months  ended  March 31, 1998  included  $11.7  million of interest  expense
related to these IRS audits.  The six months  ended  March 31,  1999  includes a
reduction of interest expense of $2.6 million related to the final settlement of
these  audits.  Higher  interest  on  short-term  debt  during the  quarter  and
six-month periods,  due mainly to higher average  outstanding  balances,  partly
offset the decreases related to the IRS audits.




<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


CAPITAL RESOURCES AND LIQUIDITY

         The Company's primary sources of cash during the six-month period ended
March 31, 1999,  consisted of cash provided by operating  activities,  long-term
debt and  short-term  bank  loans  and  commercial  paper.  These  sources  were
supplemented  by issuances of common stock under the Company's stock and benefit
plans.

Operating Cash Flow.

         Internally  generated  cash from operating  activities  consists of net
income  available for common  stock,  adjusted for non-cash  expenses,  non-cash
income and changes in operating assets and  liabilities.  Non-cash items include
depreciation,  depletion  and  amortization,  deferred  income  taxes,  minority
interest  in  foreign   subsidiaries   and   allowance  for  funds  used  during
construction.  For the six months  ended  March 31,  1998,  non-cash  items also
included the  cumulative  effect of a change in accounting for depletion and the
impairment of oil and gas producing properties.

         Cash  provided by operating  activities in the Utility and the Pipeline
and Storage segments may vary substantially from period to period because of the
impact of rate cases. In the Utility segment, pipeline company refunds, over- or
under-recovered  purchased gas costs and weather also significantly  impact cash
flow.  The  Company  considers   pipeline  company  refunds  and  over-recovered
purchased gas costs as a substitute  for  short-term  borrowings.  The impact of
weather  on cash  flow is  tempered  in the  Utility  segment's  New  York  rate
jurisdiction  by its WNC and in the  Pipeline  and  Storage  segment  by  Supply
Corporation's SFV rate design.

         Because  of the  seasonal  nature of the  Company's  heating  business,
revenues  are  relatively  high  during  the  six  months  ended  March  31  and
receivables and unbilled utility revenue historically increase from September to
March because of winter weather.

         The storage gas inventory normally declines during the first and second
quarters  of the  fiscal  year and is  replenished  during  the third and fourth
quarters.  For storage gas inventory accounted for under the last-in,  first-out
(LIFO)  method,  the current cost of  replacing  gas  withdrawn  from storage is
recorded  in  the  Consolidated  Statement  of  Income  and a  reserve  for  gas
replacement is recorded in the Consolidated  Balance Sheet and is included under
the caption "Other Accruals and Current Liabilities." Such reserve is reduced as
the inventory is replenished.

         Net cash provided by operating  activities  totaled  $135.1 million for
the six months ended March 31, 1999, an increase of $12.4 million  compared with
$122.7 million  provided by operating  activities for the six months ended March
31, 1998.  The Utility  segment  accounted  for the majority of this increase as
lower cash payments for gas purchases  and  operation and  maintenance  expenses
more than offset lower cash receipts from gas sales and transportation  service.
Partly offsetting the increase experienced by the Utility segment was a decrease
to cash  provided by operating  activities  in the  Exploration  and  Production
segment.  The Exploration and Production segment  experienced a decrease to cash
provided by operating  activities  primarily  because of an increase in interest
payments  combined with higher  operating  costs.  These  decreases to cash were
partly  offset by the positive cash flow  associated  with the  Exploration  and
Production segment's hedging transactions.

<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


Investing Cash Flow.

Capital Expenditures and Other Investing Activities
- ---------------------------------------------------

         Capital  expenditures  represent the  Company's  additions to property,
plant and equipment  and are exclusive of  investments  in  corporations  (stock
acquisitions)  and/or  partnerships.  Such investments are treated separately in
the  Statements  of Cash Flows and further  discussed in the segment  discussion
below.

         The Company's capital expenditures and other investments totaled $116.4
million  during  the six  months  ended  March 31,  1999.  The  following  table
summarizes the Company's capital  expenditures and other investments by business
segment:

(in millions)
- -------------
                                                  Other            Total
                                 Capital       Investments        Capital
                               Expenditures      through     Expenditures and
                             through 3/31/99     3/31/99     Other Investments 
                             ---------------     -------     ----------------- 

   Utility                       $ 19.2           $ -             $ 19.2
   Pipeline and Storage            12.6             3.6             16.2
   Exploration and Production      64.5             -               64.5
   International                   16.0             -               16.0
   Other Nonregulated               4.1             -                4.1
                                 ------           -----           ------
                                 $116.4           $ 3.6           $120.0
                                 ======           =====           ======

Utility
- -------

           The  majority  of the  Utility  capital  expenditures  were  made for
replacement  of mains and main  extensions,  as well as for the  replacement  of
service lines.

Pipeline and Storage
- --------------------

           The majority of the Pipeline and Storage  capital  expenditures  were
made  for  additions,   improvements,   and   replacements   to  this  segment's
transmission and storage systems.

           During the six month  period,  SIP made a $3.6 million  investment in
Independence  Pipeline  Company,  a Delaware general  partnership,  bringing its
total  investment  through  March  31,  1999 to $9.1  million.  This  investment
represents a one-third  partnership  interest.  The investment has been financed
with short-term borrowings. Independence Pipeline Company intends to build a 370
mile natural gas pipeline (Independence Pipeline Project) from Defiance, Ohio to
Leidy,  Pennsylvania at an estimated cost of $675 million.1 If the  Independence
Pipeline  Project  is not  constructed,  SIP's  share of the  development  costs
(including SIP's investment in Independence  Pipeline  Company) is estimated not
to exceed $9.0 to $13.0 million.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


Exploration and Production
- --------------------------

           The Exploration and Production segment's capital expenditures for the
six months  ended  March 31,  1999  included  approximately  $40.8  million  for
Seneca's  offshore program in the Gulf of Mexico,  including  offshore  drilling
expenditures,  offshore construction, lease acquisition costs and geological and
geophysical  expenditures.  Offshore drilling was concentrated on Vermilion 309,
Galveston 239,  Vermilion 253, Brazos 414S,  Brazos 375 and Brazos 376. Offshore
construction  occurred  primarily  at  Vermilion  309 and West  Delta 78.  Lease
acquisition costs resulted from successful  bidding on six state of Texas tracts
and five federal  lease blocks in the Gulf of Mexico.  Offshore  geological  and
geophysical expenditures were made for purchases of 3-D seismic data.

         The remaining $23.7 million of capital  expenditures  included  onshore
drilling,  construction and  recompletion  costs for wells located in Louisiana,
Texas,  Alabama and  California as well as onshore  geological  and  geophysical
costs,  including  the  purchase  of certain  3-D  seismic  data and fixed asset
purchases.  The onshore capital expenditures were concentrated on the California
properties acquired through the Whittier and BER asset purchases, as well as the
HarCor stock purchase,  all of which occurred in 1998.  Another area of emphasis
included the Thomas Ranch #1-H Well in Grimes County, Texas.

         Currently,  the Company  intends to spend an  additional  $30.0 million
beyond the original  1999 capital  expenditure  budget of $92.0  million for the
Exploration  and  Production  segment.1  The  additional  $30.0  million will be
primarily for development drilling and facilities construction,  with particular
emphasis being the remaining development of Vermilion 309.1

International
- -------------

         The majority of the  International  segment capital  expenditures  were
made by PSZT for the construction of new  fluidized-bed  boilers at its district
heating and power  generation plant to comply with stricter clean air standards.
Short-term  borrowings  and cash  from  operations  were used to  finance  these
capital expenditures.

Other Nonregulated
- ------------------

           Other Nonregulated capital  expenditures  consisted primarily of land
and timber purchases for Seneca's timber operations, as well as the installation
of new equipment for Highland's sawmill and kiln operations.

           The capital  expenditure  programs of the Company's  subsidiaries are
under   continuous   review.   The  amounts  are  subject  to  modification  for
opportunities  in the natural gas industry such as the acquisition of attractive
oil and gas properties or storage  facilities and the expansion of  transmission
line  capacities.  While the  majority  of capital  expenditures  in the Utility
segment are  necessitated by the continued need for replacement and upgrading of
mains and service  lines,  the magnitude of future capital  expenditures  in the
Company's  other  business  segments  depends,  to a large  degree,  upon market
conditions.1


<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


Financing Cash Flow.

         Consolidated  short-term  debt  increased by $35.8  million  during the
first six months of fiscal 1999.  The Company  continues to consider  short-term
bank  loans and  commercial  paper  important  sources  of cash for  temporarily
financing   capital   expenditures   and  investments  in  corporations   and/or
partnerships,   gas-in-storage  inventory,   unrecovered  purchased  gas  costs,
exploration  and  development  expenditures  and other working capital needs. In
addition,  the Company  considers  pipeline  company refunds and  over-recovered
purchased gas costs as a substitute for short-term  debt.  Fluctuations in these
items can have a significant impact on the amount and timing of short-term debt.

           In  February   1999,  the  Company  issued  $100.0  million  of  6.0%
medium-term  notes due to mature in March  2009.  After  deducting  underwriting
discounts  and  commissions,  the net proceeds to the Company  amounted to $98.7
million.  The proceeds of this debt issuance were used to redeem $100.0  million
of 5.58% medium-term notes which matured in March 1999.

           In March 1999, the Company redeemed $10.3 million of HarCor's 14.875%
Senior  Secured  Notes through an open market  purchase.  The total cost of this
redemption  was $11.9  million,  which  included a redemption  price of 110% and
accrued interest. The Company used short-term debt to finance this redemption.

           At March 31,  1999,  the  Company  had $100.0  million of  debentures
and/or  medium-term notes remaining unissued and registered with the SEC under a
shelf  registration filed pursuant to the Securities Act of 1933. In March 1998,
the  Company  obtained  authorization  from the SEC,  under the  Public  Utility
Holding  Company  Act of  1935,  to  issue,  in the  aggregate,  long-term  debt
securities  and equity  securities  amounting to $2.0 billion during the order's
authorization period, which extends to December 31, 2002.

           The Company  anticipates  issuing up to $250  million of  medium-term
notes  during the third and fourth  quarters of fiscal  1999.1 The  intention of
these  issuances is to repay  certain  outstanding  short-term  debt,  to retire
certain  outstanding  medium-term  notes and to redeem the  remaining  amount of
HarCor's Senior Secured Notes.1

           The Company's present  liquidity  position is believed to be adequate
to satisfy  known  demands.1  Under the  Company's  covenants  contained  in its
indenture  covering  long-term  debt, at March 31, 1999,  the Company would have
been  permitted  to  issue up to a  maximum  of  $506.0  million  in  additional
long-term  unsecured  indebtedness,  at  projected  market  interest  rates.  In
addition,  at March 31,  1999,  the Company had  regulatory  authorizations  and
unused  short-term  credit  lines  that  would  have  permitted  it to borrow an
additional $387.9 million of short-term debt.

           The amounts and timing of the issuance and sale of debt and/or equity
securities will depend on market conditions, regulatory authorizations,  and the
requirements of the Company.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


           The Company is involved in litigation arising in the normal course of
business.  The Company is involved in regulatory  matters  arising in the normal
course of business  that involve rate base,  cost of service and  purchased  gas
cost issues,  among other things.  While the  resolution  of such  litigation or
regulatory  matters  could have a material  effect on earnings and cash flows in
the year of resolution,  none of this  litigation  and none of these  regulatory
matters are  expected  to change  materially  the  Company's  present  liquidity
position,  nor have a material adverse effect on the financial  condition of the
Company at this time.1

Market Risk Sensitive Instruments.

         For a discussion of market risk sensitive instruments, refer to "Market
Risk Sensitive Instruments" in Item 7 and Item 2 of the Company's 1998 Form 10-K
and  December  1998 Form  10-Q,  respectively.  There  have  been no  subsequent
material changes to the Company's exposure to market risk sensitive instruments.


RATE MATTERS

Utility Operation.

New York Jurisdiction

         On October  21,  1998,  the PSC  approved a rate plan for  Distribution
Corporation for the period  beginning  October 1, 1998 and ending  September 30,
2000.  The  plan  is the  result  of a  settlement  agreement  entered  into  by
Distribution  Corporation,  Staff for the PSC (Staff),  Multiple Intervenors (an
advocate  for large  industrial  customers)  and the State  Consumer  Protection
Board.  Under the plan,  Distribution  Corporation's  rates are  reduced by $7.2
million, or 1.1%. In addition, customers will receive up to $6.0 million in bill
credits,   disbursed  volumetrically  over  the  two  year  term,  reflecting  a
predetermined  share of excess  earnings  under a 1996  settlement.  An  allowed
return on equity of 12%, above which 50% of additional  earnings are shared with
the customers,  is maintained from the 1996 settlement.  Finally,  the rate plan
also  provides that $7.2 million of 1999 revenues will be set aside in a special
reserve to be  applied  against  Distribution  Corporation's  incremental  costs
resulting from the PSC's gas restructuring effort further described below.

         On November 3, 1998, the PSC issued its Policy Statement Concerning the
                                                 -------------------------------
Future of the  Natural  Gas  Industry  in New York  State and Order  Terminating
- --------------------------------------------------------------------------------

Capacity  Assignment  (Policy  Statement).  The Policy  Statement sets forth the
- --------------------
PSC's  "vision" on "how best to ensure a  competitive  market for natural gas in
New York." That vision includes the following goals:

         (1)  Effective   competition  in  the  gas  supply  market  for  retail
              customers;

         (2)  Downward pressure on customer gas prices;

         (3)  Increased customer choice of gas suppliers and service options;

         (4)  A provider of last resort (not necessarily the utility);

         (5)  Continuation  of reliable  service and  maintenance  of operations
              procedures that treat all participants fairly;

         (6)  Sufficient and accurate information for customers to use in making
              informed decisions;


<PAGE>



Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         (7)  The availability of information that permits adequate oversight of
              the market to ensure fair competition; and

         (8)  Coordination  of Federal and State  policies  affecting gas supply
              and distribution in New York State.

         The Policy Statement  provides that the most effective way to establish
a competitive market in gas supply is "for local distribution companies to cease
selling gas." The PSC hopes to accomplish  that objective over a  three-to-seven
year transition  period,  taking into account  "statutory  requirements" and the
individual needs of each local distribution company (LDC).1 The Policy Statement
directs Staff to schedule "discussions" with each LDC on an "individualized plan
that would effectuate our vision." In preparation for negotiations, LDCs will be
required to address issues such as a strategy to hold new capacity  contracts to
a minimum,  a long-term rate plan with a goal of reducing or freezing rates, and
a plan for  further  unbundling.  In  addition,  Staff  was  instructed  to hold
collaborative sessions with multiple parties to discuss generic issues including
reliability and market power regulation.

         As  of  February   1,  1999,   Staff  has   convened  a  multitude   of
collaboratives,  proceedings  and  discussions  on various  issues  relating  to
restructuring,  including  reliability  of service,  billing and  allocation  of
stranded  costs.  Distribution  Corporation  is  participating  in all facets of
Staff's effort.

         The PSC's Order  Terminating  Capacity  Assignment,  included  with the
                   ----------------------------------------
Policy  Statement,  directed the state's LDCs to file  proposed  tariffs,  by no
later than February 1, 1999,  revising the current  requirement  that  marketers
take  assignment of an  allocation  of upstream  capacity for each customer that
elects to purchase  gas from a marketer  other than the LDC.  Although the order
states that the so-called "mandatory  assignment" feature of aggregation service
is  terminated  effective  April 1, 1999,  LDCs are permitted to show that their
individual circumstances may warrant continuation of the requirement.  The order
also  recognizes  that  LDCs  with  intermediate  pipelines,  like  Distribution
Corporation,  could present  "unique cost and  reliability  issues which require
further  consideration." The order provides that to the extent all or part of an
LDC's  mandatory  assignment  authority  is indeed  terminated,  there will be a
reasonable opportunity to recover stranded costs.

         On February 1, 1999,  Distribution  Corporation  filed  revised  tariff
sheets  in  compliance   with  the  Order   Terminating   Capacity   Assignment.
                                    -------------------------------------------
Distribution  Corporation's  compliance  filing is  designed  to comply with the
PSC's  directives  and operate in the same manner as the company's  "System Wide
Energy Select" program approved for the Pennsylvania Division (described below).
In an order issued on March 24, 1999, the PSC rejected  portions of the February
1,  1999  compliance  filing  without  prejudice,   and  directed   Distribution
Corporation to submit revised tariff sheets, effective April 1, 1999, to adopt a
new capacity option for retail  marketers.  The new capacity  option  eliminates
long line capacity upstream of Supply Corporation from the "mandatory  capacity"
requirement  described  above.  This  change,  effective  April 1, 1999,  allows
marketers to choose alternate capacity paths, if available,  from the production
area to Supply  Corporation's city gate. Marketers will continue to be obligated
to take release of Distribution  Corporation's storage and transmission capacity
on Supply Corporation.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         To the extent any stranded  pipeline  costs are  generated by the above
proposal,  they would be recovered in their entirety from firm service customers
through a "transition surcharge" mechanism.1

         The effective date for the compliance filing was April 1, 1999.

         On March 17, 1999, the PSC issued an order in Case 98-G-0122  directing
the state's  LDCs to file a uniform,  basic  gas-for-electric-generation-service
tariff to  replace  tariffs  filed  pursuant  to the PSC's  1991  Bypass  Policy
Statement.  Distribution  Corporation  serves a number of  generation  customers
under tariffs designed  pursuant to the 1991 Bypass Policy  Statement.  Although
existing  contracts  for service  would not be  disturbed  by the March 17, 1999
order,  future contracts would be negotiated under the terms of the new, uniform
tariff. Distribution Corporation filed for rehearing of the PSC's order, arguing
that (1) the PSC erred by not exempting upstate utilities in highly  competitive
territories  from the requirement to file a uniform tariff;  (2) rate components
in the  uniform  tariff  were  not  properly  designed  or  adopted;  and  (3) a
prohibition  against  negotiating  rates with  affiliated  generators  should be
reconsidered to prevent bypass.  Distribution  Corporation  cannot  ascertain an
outcome at this time.

Pennsylvania Jurisdiction

         Distribution  Corporation  currently  does not have a rate case on file
with  the  Pennsylvania  Public  Utility  Commission  (PaPUC).  Management  will
continue to monitor its financial  position in the Pennsylvania  jurisdiction to
determine the necessity of filing a rate case in the future.

           Effective October 1, 1997, Distribution Corporation commenced a PaPUC
approved  customer  choice pilot program  called Energy  Select.  Energy Select,
which lasted until April 1, 1999, allowed  approximately 19,000 small commercial
and  residential  customers of  Distribution  Corporation in the greater Sharon,
Pennsylvania  area  to  purchase  gas  supplies  from  qualified,  participating
non-utility suppliers (or marketers) of gas. Distribution  Corporation was not a
supplier of gas in this pilot.  Under Energy  Select,  Distribution  Corporation
delivered the gas to the  customer's  home or business and remained  responsible
for reading customer  meters,  the safety and maintenance of its pipeline system
and responding to gas  emergencies.  NFR was a participating  supplier in Energy
Select.

         On February 11,  1999,  Distribution  Corporation's  System Wide Energy
Select  tariff was approved by the PaPUC for an  effective  date of February 12,
1999.  This  program  is  intended  to expand the Energy  Select  pilot  program
described above to apply across Distribution  Corporation's  entire Pennsylvania
service  territory.  The plan borrows many  features of the Energy Select pilot,
but several important changes were adopted. Most significantly,  the new program
includes  Distribution   Corporation  as  a  choice  for  retail  consumers,  in
furtherance of Distribution  Corporation's  objective to remain a merchant. Also
departing from the pilot scheme,  Distribution  Corporation  resumes its role as
provider of last resort,  and maintains  customer contact by providing a billing
service  on its own  behalf  and,  as an option,  for  participating  marketers.
Finally,  the System Wide Energy  Select  program  addresses  upstream  capacity
requirements  in a manner  substantially  similar  to the  method  proposed  for
Distribution Corporation's New York compliance filing, described above.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         A gas  restructuring  bill (Senate Bill No. 943) was  introduced in the
Pennsylvania General Assembly in 1997 proposing to amend the Public Utility Code
to allow all retail  customers,  including  residential,  the  ability to choose
their own gas  supplier.  Senate Bill No. 943 has not yet been enacted into law.
However, in December 1997, the Chairman of the PaPUC convened a collaborative of
gas industry  interests to develop a consensus bill using Senate Bill No. 943 as
the starting  point.  As a member of the utility  interest  group,  Distribution
Corporation   is  and  will  continue  to  be  an  active   participant  in  the
collaborative.1  Distribution  Corporation is not able to predict the outcome of
the bill.

         Base  rate   adjustments   in  both  the  New  York  and   Pennsylvania
jurisdictions do not reflect the recovery of purchased gas costs. Such costs are
recovered  through  operation of the  purchased  gas  adjustment  clauses of the
appropriate regulatory authorities.

Pipeline and Storage.

         Supply Corporation currently does not have a rate case on file with the
Federal Energy Regulatory  Commission (FERC). Its last case was settled with the
FERC in February 1996. As part of that settlement, Supply Corporation agreed not
to seek recovery of revenues related to certain  terminated service from storage
customers until April 1, 2000, as long as the terminations were not greater than
approximately  30%  of the  terminable  service.  Supply  Corporation  has  been
successful  in marketing and obtaining  executed  contracts for such  terminated
storage service (at discounted rates) and expects to continue obtaining executed
contracts for additional terminated storage service as it arises.1

OTHER MATTERS

Environmental Matters.

         The  Company is subject  to various  federal,  state and local laws and
regulations  relating  to the  protection  of the  environment.  The Company has
established  procedures for the ongoing evaluation of its operations to identify
potential environmental exposures and assure compliance with regulatory policies
and procedures.

         It is the Company's policy to accrue estimated  environmental  clean-up
costs  (investigation  and  remediation)  when such  amounts can  reasonably  be
estimated  and it is probable  that the  Company  will be required to incur such
costs.  Distribution  Corporation  has estimated  its clean-up  costs related to
former manufactured gas plant sites and third party waste disposal sites will be
in the range of $10.0 million to $11.0 million.1 At March 31, 1999, Distribution
Corporation has recorded the minimum liability of $10.0 million.  The Company is
currently  not  aware  of any  material  additional  exposure  to  environmental
liabilities.  However,  adverse  changes in  environmental  regulations or other
factors could impact the Company.

         In New York and  Pennsylvania,  Distribution  Corporation is recovering
site investigation and remediation costs in rates. Accordingly, the Consolidated
Balance Sheet at March 31, 1990 includes related regulatory assets in the amount
of approximately $12.0 million.



<PAGE>



Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         The Company, in its international  operations in the Czech Republic, is
in the process of constructing new fluidized-bed boilers at the district heating
and power  generation  plant of PSZT to comply with certain  clean air standards
mandated by the Czech Republic government.  Capital expenditures related to this
construction  incurred  by PSZT for the six  months  ended  March 31,  1999 were
approximately  $13.3 million.  An additional  $19.7 million is budgeted for this
construction for the rest of fiscal 1999.

         For further discussion, refer to Note H - Commitments and Contingencies
under the heading  "Environmental  Matters" in Item 8 of the Company's 1998 Form
10-K.

Year 2000 Readiness Disclosure.
         Numerous  media  reports  have  heightened   concern  that  information
technology  computer systems,  software programs and  semiconductors  may not be
capable of  recognizing  dates after the Year 2000 because such systems use only
two digits to refer to a  particular  year.  Such  systems may read dates in the
Year 2000 and thereafter as if those dates represent the year 1900 or thereafter
and, in certain instances, such systems may fail to function properly.

State of Readiness
         The  Company  reports  that the  majority  of its systems are Year 2000
ready,  and that the few  remaining  systems  (i.e.  primarily  those  for which
implementation  was  deferred  until  after the  1998-1999  heating  season) are
expected to be Year 2000 ready by June 30, 1999.1 Following the completion of an
early-impact  analysis  study,  a formal  project  manager  at the  Company  was
designated  to  spearhead  the Year 2000  remediation  effort.  The  methodology
adopted  by the  Company  to address  the Year 2000  issue is a  combination  of
methods  recommended by respected  industry  consultants and efforts tailored to
meet the Company's  specific needs.  The Company's Year 2000 plan addresses five
primary areas.

A. Mainframe  Corporate  Business  Applications  Developed and Maintained by the
Company:  A detailed  plan and impact  analysis  was  conducted  in 1996-1997 to
determine the extent of Year 2000 implications on the Company's  mainframe-based
computer systems. The remediation and testing in this area have been completed.

B. Personal Computer Business  Applications  Software Developed and Supported by
the Company:  The Company has  retained a consulting  firm to perform a detailed
impact analysis of the personal computer business  application systems supported
by the Company's  Information Services  Department.  The firm has corrected Year
2000 problems identified by its analysis. Certain applications identified by the
consulting firm as potentially  problematic  have been retired and replaced with
Year 2000  compliant  applications.  The required  changes and testing for these
applications are complete.

C.  Vendor-Supplied  Software,  Hardware,  and Services for  Corporate  Business
Applications  Supported by the Company:  This  category  includes all  mainframe
infrastructure products as well as all PC client / server software and hardware.
The  Company  has sent  letters  to its  vendors  asking if their  products  and
services  will  continue to perform as  expected  after  January 1, 2000.  These
vendors are responsible for approximately  200 products and services  associated
with corporate computer applications. The Company has

<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


received  responses from all vendors which the Company  believes supply critical
hardware, software, date-sensitive embedded chips and related computer services.
The  Company   expects  to   complete   testing   and   implementation   of  the
vendor-supplied Year 2000 compliant products and services by July 31, 1999.1

D.  Vendor-Supplied  Products and Services Used on a Corporate Wide Basis:  This
category  includes the critical  products and services that are used by multiple
departments within the Company including all products  containing embedded chips
which  might be date  sensitive.  The  Company  has sent  letters to the primary
vendors who provide these products and services to the Company,  requesting Year
2000  compliance   plans.   The  Company  is  monitoring   their  responses  and
incorporating  them into the Company's overall Year 2000 project and contingency
plans.  The  Company  expects to  complete  testing  and  implementation  of the
products and services of these vendors by May 31, 1999 (reference is made to the
"Risks" section below).1

E. User-Department  Maintained Business  Applications:  The Company uses certain
business   software   applications   that  were   either   built   in-house   or
vendor-supplied  and  subsequently  maintained by individual  departments of the
Company.  The  scope  of such  applications  includes,  but is not  limited  to,
spreadsheets,  databases,  vendor  provided  products  and services and embedded
process  controls.  A  corporate  wide Year 2000 task  force is in place and has
established  a process to identify and resolve Year 2000  problems in this area.
This task force meets on a monthly basis to coordinate  ongoing  activities  and
report on the project status.  Providers of critical  products and services have
been  identified  and the Company has sent  letters  requesting  their Year 2000
compliance  plans.  Responses are being monitored and incorporated into the Year
2000 planning of the various  departments.  All  applications and services under
this category are Year 2000 ready.

Cost
         The cost of upgrading  both vendor  supplied and  internally  developed
systems and services is being  expensed as incurred.  Management  estimates that
such cost will total  approximately  $2.3 million,  of which  approximately $1.8
million has been incurred to date and $0.5 million remains to be spent.1

Risks
         The  Company's  main  concern  is  to  ensure  the  safe  and  reliable
production  and  delivery  of natural gas and  Company-provided  services to its
customers.  Based on the efforts discussed above, the Company expects to be able
to operate its own facilities without interruption and continue normal operation
in Year 2000 and beyond.1  However,  the Company has no control over the systems
and services  used by third parties with whom it  interfaces.  While the Company
has placed its major  third  parties on notice that the  Company  expects  their
products and services to perform as expected  after January 1, 2000, the Company
cannot predict with accuracy the actual adverse consequences to the Company that
could result if such third parties are not Year 2000  compliant.1 The widespread
failure  of   electric,   telecommunication,   and  upstream  gas  supply  could
potentially affect gas service to utility customers, and the Company is pursuing
contingency plans to avoid such disruptions.

           The  majority of the devices  which  control the  Company's  physical
delivery  system are not  susceptible to Year 2000 problems  because they do not
contain  micro-processors.  The Company has conducted an extensive review of its
existing  micro-processors  (embedded technology) and has replaced non-Year 2000
compliant hardware.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


         Distribution  Corporation  is subject to regulatory  review by both the
PSC and the PaPUC. Both of these regulatory bodies have issued orders concerning
the  Year  2000  issue,  and  both  have  established  dates  in 1999  by  which
jurisdictional  utilities must have taken the necessary steps to ensure that its
critical  systems are Year 2000  ready.  In the event  Distribution  Corporation
fails to meet  the  requirements  of  those  orders,  it may be  subject  to the
imposition of fines or formal enforcement actions by the regulatory bodies.

Contingency Planning
           The Company  formed its  Corporate  Year 2000 task force in mid-1997.
The primary  function of this group is to: (1) raise  awareness of the Year 2000
issue within the Company, (2) facilitate  identification and remediation of Year
2000  potential  problems  within the Company,  and (3)  facilitate  and develop
corporate  contingency  plans.  The group is comprised of middle to senior level
managers  and  Company  executives.  The  Company's  main  thrust at  present in
contingency planning is identification and prioritization of the potential risks
posed by Year 2000 failures  outside of the Company's  control.  All departments
and subsidiaries  have submitted lists of potential  risks,  which are now being
prioritized,  in  relation  to the  overall  corporation,  in the order of human
safety,  reliability/delivery  of Company services and administrative  services.
The Company has existing disaster/contingency plans to deal with operational gas
supply or delivery problems,  loss of the corporate data center, and loss of the
corporate customer telephone centers.  These plans are being reviewed to address
failures  resulting from Year 2000 problems created or occurring  outside of the
Company (i.e. loss of electricity, telephone service, etc.). The Company expects
to have its Year 2000 contingency  plans completed by  mid-September  1999.1 The
Company  has  selected  this date as  opposed  to one in early  1999 so that the
contingency  plans are current and operational and that the Company will be able
to use them immediately, if required.1

Safe Harbor for Forward-Looking Statements
           The Company is including the following  cautionary  statement in this
Form 10-Q to make applicable and take advantage of the safe harbor provisions of
the Private  Securities  Litigation  Reform Act of 1995 for any  forward-looking
statements  made by, or on behalf of, the  Company.  Forward-looking  statements
include  statements  concerning plans,  objectives,  goals,  strategies,  future
events or performance, and underlying assumptions and other statements which are
other than  statements of historical  facts.  From time to time, the Company may
publish or otherwise make available  forward-looking  statements of this nature.
All such  subsequent  forward-looking  statements,  whether  written or oral and
whether made by or on behalf of the  Company,  are also  expressly  qualified by
these cautionary  statements.  Certain  statements  contained herein,  including
without  limitation  those which are designated with a "1", are  forward-looking
statements and  accordingly  involve risks and  uncertainties  which could cause
actual  results or outcomes to differ  materially  from those  expressed  in the
forward-looking  statements. The forward-looking statements contained herein are
based on various  assumptions,  many of which are based,  in turn,  upon further
assumptions.  The Company's expectations,  beliefs and projections are expressed
in good  faith and are  believed  by the  Company  to have a  reasonable  basis,
including, without limitation,  management's examination of historical operating
trends,  data  contained in the Company's  records and other data available from
third  parties,  but there can be no assurance that  management's  expectations,
beliefs or projections will result

<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


or be  achieved  or  accomplished.  In  addition  to other  factors  and matters
discussed  elsewhere  herein,  the following are important  factors that, in the
view of the Company,  could cause actual results to differ materially from those
discussed in the forward-looking statements:

 1.      Changes  in  economic  conditions,  demographic  patterns  and  weather
         conditions

 2.      Changes in the availability and/or price of natural gas and oil

 3.      Inability to obtain new customers or retain existing ones

 4.      Significant changes in competitive factors affecting the Company

 5.      Governmental/regulatory   actions  and  initiatives,   including  those
         affecting  financings,  allowed  rates  of  return,  industry  and rate
         structure, franchise renewal, and environmental/safety requirements
 
 6.      Unanticipated  impacts of restructuring  initiatives in the natural gas
         and electric industries

 7.      Significant  changes from  expectations in actual capital  expenditures
         and operating expenses and unanticipated project delays

 8.      Occurrences  affecting  the  Company's  ability  to obtain  funds  from
         operations,  debt or equity to finance needed capital  expenditures and
         other investments

 9.      Ability to  successfully  identify  and  finance  oil and gas  property
         acquisitions  and  ability to  operate  existing  and any  subsequently
         acquired properties

10.      Ability to successfully  identify,  drill for and produce  economically
         viable natural gas and oil reserves

11.      Changes  in the  availability  and/or  price  of  derivative  financial
         instruments

12.      Inability of the various  counterparties to meet their obligations with
         respect to the Company's financial instruments

13.      Regarding  foreign  operations - changes in foreign  trade and monetary
         policies, laws and regulations related to foreign operations, political
         and  governmental  changes,  inflation  and exchange  rates,  taxes and
         operating conditions

14.      Significant  changes in tax rates or policies or in rates of  inflation
         or interest

15.      Significant  changes in the Company's  relationship  with its employees
         and the potential  adverse effects if labor disputes or grievances were
         to occur

16.      Changes  in  accounting  principles  and/or  the  application  of  such
         principles to the Company


<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations (Cont.)
         -----------------------------


17.      Unanticipated  problems  related to the  Company's  internal  Year 2000
         initiative as well as potential adverse  consequences  related to third
         party Year 2000 compliance.

         The Company  disclaims  any  obligation  to update any  forward-looking
statements to reflect events or circumstances after the date hereof.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

Refer  to  the  "Market  Rate  Sensitive   Instruments"  section  in  Item  2  -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.


Part II.  Other Information
- --------  -----------------

Item 2.  Changes in Securities
         ---------------------

         On January 4,  1999,  the  Company  issued 700  unregistered  shares of
Company common stock to the seven non-employee  directors of the Company.  These
shares  were  issued as  partial  consideration  for the  directors'  service as
directors  during the quarter  ended March 31, 1999,  pursuant to the  Company's
Retainer Policy for Non-Employee Directors.

         These transactions were exempt from registration by Section 4(2) of the
Securities  Act of 1933, as amended,  as  transactions  not involving any public
offering.

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

         The Annual  Meeting of  Shareholders  of National  Fuel Gas Company was
held on February 18, 1999. At that meeting,  the shareholders elected directors,
appointed independent accountants and rejected a shareholder proposal.

         The total votes were as follows:


                                              Against                  Broker
                                   For      or Withheld    Abstain   Non-Votes
                                ----------  -----------    -------   ---------
  (i) Election of directors
      to serve for a three-
      year term:
       - Robert T. Brady        32,995,578     883,944           -           -
       - William J. Hill        32,913,298     966,224           -           -
       - Bernard J. Kennedy     32,921,850     957,672           -           -

         Directors whose term of office continued after the meeting:

         Term expiring in 2000:  Eugene T. Mann, George L. Mazanec and George H.
                  Schofield.

         Term expiring in 2001:  Philip C. Ackerman, James V. Glynn and Bernard
                  S. Lee.


<PAGE>


Item 4.  Submission of Matters to a Vote of Security Holders (Cont.)
         -----------------------------------------------------------


                                              Against                  Broker
                                   For      or Withheld    Abstain   Non-Votes
                                ----------  -----------    -------   ---------

 (ii) Appointment of
      PricewaterhouseCoopers
      LLP as independent
      accountants               33,297,456     346,998     235,068           -

(iii) A shareholder
      proposed resolution
      regarding the Company's
      Stock Plans                4,461,906  22,748,220   1,279,029   5,390,367

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         (a)     Exhibits

                 Exhibit
                 Number             Description of Exhibit
                 ------             ----------------------

                  (10)              Material Contracts

                  10.1              Amendment to the  National  Fuel Gas Company
                                    Deferred  Compensation  Plan, dated February
                                    18, 1999.

                  10.2              Amended and Restated Rights Agreement, dated
                                    as of April 30, 1999,  between National Fuel
                                    Gas Company and HSBC Bank USA.

                  (12)              Statements regarding Computation of Ratios:

                                    Ratio of Earnings  to Fixed  Charges for the
                                    Twelve  Months  Ended March 31, 1999 and the
                                    Fiscal  Years  Ended   September   30,  1994
                                    through 1998.

                  (27)              Financial Data Schedules

                  27.1              Financial  Data  Schedule for the Six Months
                                    Ended March 31, 1999.

                  27.2              Amended  Financial Data Schedule for the Six
                                    Months Ended March 31, 1998.

                  (99)              National   Fuel  Gas  Company   Consolidated
                                    Statement  of Income for the  Twelve  Months
                                    Ended March 31, 1999 and 1998.

         (b)     Reports on Form 8-K

                                    None


<PAGE>


                                    SIGNATURE
                                    ---------




         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            NATIONAL FUEL GAS COMPANY
                                            -------------------------
                                                   (Registrant)





                                             /s/Joseph P. Pawlowski 
                                             --------------------------
                                            Joseph P. Pawlowski
                                            Treasurer and
                                            Principal Accounting Officer













Date:  May 14, 1999
       ------------


<PAGE>


                                  EXHIBIT INDEX
                                   (Form 10Q)

Exhibit 10.1               Amendment  to the  National  Fuel  Gas  Company
                           Deferred Compensation Plan, dated February 18, 1999.

Exhibit 10.2               Amended and Restated Rights Agreement,  dated as
                           of April 30, 1999,  between National Fuel Gas Company
                           and HSBC Bank USA.

Exhibit 12                 Statements regarding Computation of Ratios:

                           Ratio of  Earnings  to Fixed  Charges  for the Twelve
                           Months  Ended  March 31,  1999 and the  Fiscal  Years
                           Ended September 30, 1994 through 1998.

Exhibit 27.1               Financial Data Schedule for the Six Months Ended
                           March 31, 1999.

Exhibit 27.2               Amended  Financial  Data  Schedule  for the Six
                           Months Ended March 31, 1998.

Exhibit 99                 National Fuel Gas Company  Consolidated  Statement
                           of Income for the Twelve  Months Ended March 31, 1999
                           and 1998.





                                AMENDMENT TO THE
                            NATIONAL FUEL GAS COMPANY
                           DEFERRED COMPENSATION PLAN


         I, B. J.  Kennedy,  pursuant  to  resolutions  adopted  by the Board of
Directors of National Fuel Gas Company on February 18, 1999,  do hereby  execute
the following  amendment to the National Fuel Gas Company Deferred  Compensation
Plan (the "DCP"), effective February 18, 1999 for all cycles of the DCP.

         1.   A new Section 1.5 is hereby added to the DCP,  which shall read as
              follows:

                  "1.5  "Change in Control" shall mean

                  (a) either (1)  receipt by the Company of a report on Schedule
                      13D,  or an  amendment  to such a report,  filed  with the
                      Securities  and  Exchange  Commission  pursuant to Section
                      13(d) of the  Securities  Exchange  Act of 1934 (the "1934
                      Act")  disclosing that any person (as such term is used in
                      Section  13(d)  of  the  1934  Act)  ("Person"),   is  the
                      beneficial owner,  directly or indirectly,  of twenty (20)
                      percent or more of the outstanding stock of the Company or
                      (2) actual knowledge by the Company of facts,  which would
                      require any Person to file such a report on Schedule  13D,
                      or to make an amendment to such a report, with the SEC (or
                      would be required to file such a report or amendment  upon
                      the lapse of the  applicable  period of time  specified in
                      Section 13(d) of the 1934 Act) disclosing that such Person
                      is the beneficial owner, directly or indirectly, of twenty
                      (20)  percent  or more  of the  outstanding  stock  of the
                      Company;

                  (b) purchase  by any  Person,  other  than  the  Company  or a
                      wholly-owned  subsidiary  of the  Company,  or an employee
                      benefit plan  sponsored or  maintained by the Company or a
                      wholly owned subsidiary of the Company, of shares pursuant
                      to a tender or exchange  offer to acquire any stock of the
                      Company (or securities  convertible  into stock) for cash,
                      securities or any other consideration provided that, after
                      consummation  of the offer,  such Person is the beneficial
                      owner (as  defined  in Rule  13d-3  under  the 1934  Act),
                      directly or indirectly,  of twenty (20) percent or more of
                      the  outstanding  stock  of  the  Company  (calculated  as
                      provided  in  paragraph  (d) of Rule 13 d-3 under the 1934
                      Act in the case of rights to acquire stock);

                  (c) approval  by the  shareholders  of the  Company of (1) any
                      consolidation  or  merger  of the  Company  in  which  the
                      Company is not the continuing or surviving  corporation or
                      pursuant to which shares of stock of the Company  would be
                      converted into cash,  securities or other property,  other
                      than a  consolidation  or merger of the  Company  in which
                      holders   of   its   stock   immediately   prior   to  the
                      consolidation  or  merger  have   substantially  the  same
                      proportionate  ownership of common stock of the  surviving
                      corporation  immediately after the consolidation or merger
                      as immediately  before, or (2) any consolidation or merger
                      in  which  the  Company  is the  continuing  or  surviving
                      corporation  but in which the common  shareholders  of the
                      Company  immediately  prior to the consolidation or merger
                      do not hold at least a majority of the outstanding  common
                      stock of the continuing or surviving  corporation  (except
                      where  such  holders  of  common  stock  hold  at  least a
                      majority of the common stock of the corporation which owns
                      all of the common stock of the Company),  or (3) any sale,
                      lease, exchange or other transfer (in one transaction or a
                      series of related  transactions)  of all or  substantially
                      all the assets of the Company; or

                  (d) a change in the  majority  of the  members of the Board of
                      directors of the Company  within a 24-month  period unless
                      the election or  nomination  for election by the Company's
                      shareholders of each new director was approved by the vote
                      of at least  two-thirds  of the  directors  then  still in
                      office who were in office at the beginning of the 24-month
                      period."

         2.   Former  Sections  1.5 through 1.22 and Section 1.24 of the DCP are
              hereby redesignated as Sections 1.6 through 1.23 and Section 1.25,
              respectively.

         3.   Former  Section  1.23 of the DCP is hereby  amended to  constitute
              Section 1.24 and shall read as follows:

                  "1.24  "Termination of Employment" shall mean the cessation of
                          -------------------------
                  employment with the Company, voluntarily or involuntarily, for
                  any reason other than death or Retirement."

         4.   Article  7  of  the  DCP  is  hereby  relabeled   "Termination  of
              Employment," and is amended and restated to read as follows:

                  "7.1  Termination of Employment  Prior to a Change in Control.
                        -------------------------------------------------------
                  If a Participant incurs a Termination of Employment,  and such
                  termination  occurs  prior  to  a  Change  in  Control,   such
                  Participant  shall receive any  undistributed  Savings Account
                  balance, and his or her Retirement Account balance, as soon as
                  reasonably practicable  thereafter,  in the form of a lump sum
                  payment,  but shall  forfeit his or her  Accumulation  Account
                  balance, if any.

                  7.2  Termination of Employment  After a Change in Control,  or
                       ---------------------------------------------------------
                  Death of the Participant  While  Employed.  If the Participant
                  -----------------------------------------
                  incurs a Termination of Employment  after a Change in Control,
                  or dies at any  time  during  his or her  employment  with the
                  Company,  such Participant (or his or her  Beneficiary)  shall
                  receive any undistributed  Savings Account balance, his or her
                  Retirement  Account  balance,  and  his  or  her  Accumulation
                  Account  balance (if any), as soon as  reasonably  practicable
                  thereafter, in the form of a lump sum payment.

                  7.3 Retirement.  If the Participant  Retires at any time, such
                      ----------
                  Participant  shall receive any  undistributed  Savings Account
                  balance  in  accordance   with  Article  5,  and  his  or  her
                  Retirement  Account  and  Accumulation   Account  balances  in
                  accordance with Article 6."

         5.   In all other respects, the DCP shall remain unchanged.


                                     NATIONAL FUEL GAS COMPANY



  As of 2/18/99                      /s/  B. J. Kennedy  
  -------------                      --------------------------------------
  Dated                              B. J. Kennedy
                                     President, Chief Executive Officer and
                                     Chairman of the Board of Directors















NATIONAL FUEL GAS COMPANY
and
HSBC BANK USA, Rights Agent
RIGHTS AGREEMENT
Amended and Restated as of April 30, 1999





























JRP/rights.cln


<PAGE>


                                TABLE OF CONTENTS

                                                                           Page
RIGHTS   AGREEMENT
Section 1.               Certain Definitions.............................    2
Section 2.               Appointment of Rights Agent.....................    6
Section 3.               Issue of Right Certificates.....................    6
Section 4.               Form of Right Certificates......................    8
Section 5.               Countersignature and Registration...............    9
Section 6.               Transfer, Split Up, Combination and
                         Exchange of Right Certificates;
                         Mutilated, Destroyed, Lost or Stolen
                         Right Certificates..............................   10
Section 7.               Exercise of Rights; Purchase Price;
                         Expiration Date of Rights.......................   10
Section 8.               Cancellation and Destruction of
                         Right Certificates..............................   12
Section 9.               Reservation and Availability of
                         Shares of Common Stock..........................   12
Section 10.              Common Stock Record Date........................   14
Section 11.              Adjustment of Purchase Price, Number
                         of Shares or Number of Rights...................   14
Section 12.              Certificate of Adjusted Purchase
                         Price or Number of Shares.......................   21
Section 13.              Consolidation, Merger or Sale or
                         Transfer of Assets or Earning Power.............   21
Section 14.              Fractional Rights and Fractional
                         Shares..........................................   23
Section 15.              Rights of Action................................   24
Section 16.              Agreement of Right Holders......................   24
Section 17.              Right Certificate Holder Not Deemed a
                         Stockholder.....................................   25
Section 18.              Concerning the Rights Agent.....................   25
Section 19.              Merger or Consolidation or Change of
                         Name of Rights Agent............................   26
Section 20.              Duties of Rights Agent..........................   27
Section 21.              Change of Rights Agent..........................   29
Section 22.              Issuance of New Right Certificates..............   30
Section 23.              Redemption and Termination......................   30
Section 24.              Exchange........................................   31
Section 25.              Notice of Certain Events........................   32
Section 26.              Notices.........................................   32
Section 27.              Supplements and Amendments......................   33


<PAGE>


Section 28.              Successors......................................   34
Section 29.              Determinations and Actions by the
                         Board of Directors..............................   34
Section 30.              Benefits  of  This  Agreement...................   34
Section 31.              Severability....................................   34
Section 32.              Governing Law...................................   35
Section 33.              Counterparts....................................   35
Section 34.              Descriptive Headings............................   35

Exhibit  A - Form of Right Certificate...................................  A-1
          Form of Assignment.............................................  A-5
          Certificate....................................................  A-6
          Notice.........................................................  A-7
          Form of Election to Purchase...................................  A-8
Exhibit B - Summary of Rights to Purchase
          Common Stock...................................................  B-1


<PAGE>



                      AMENDED AND RESTATED RIGHTS AGREEMENT


                  This AMENDED AND RESTATED RIGHTS AGREEMENT,  dated as of April
30, 1999 (the  "Agreement"),  between  NATIONAL  FUEL GAS COMPANY,  a New Jersey
corporation (the "Company"),  and HSBC BANK USA, a trust company organized under
the laws of the State of New York,  formerly  known as Marine  Midland Bank (the
"Rights Agent").

                               W I T N E S S E T H

                  WHEREAS,  the  Company  and the Rights  Agent have  heretofore
entered  into that  certain  Rights  Agreement,  dated as of June 12,  1996 (the
"Original Agreement"); and

                  WHEREAS,  the Board of  Directors  of the Company on March 19,
1996 ("Rights  Dividend  Declaration  Date")  authorized and declared a dividend
distribution (the  "Distribution")  of one Right for each share of Common Stock,
$1.00 par value, of the Company (the "Common Stock") outstanding at the close of
business on July 31, 1996 (the "Record  Date"),  the record date  established by
the Board of Directors on June 13, 1996; and

                  WHEREAS, on the Rights Dividend Declaration Date, the Board of
Directors  further  authorized  and  directed the issuance of one Right (as such
number may be adjusted  pursuant to the  provisions of Section 11(i) hereof) for
each share of Common Stock issued (whether  originally  issued or delivered from
the  Company's  treasury  stock)  between the Record Date and the earlier of the
Distribution  Date  or the  Expiration  Date  (as  such  terms  are  hereinafter
defined),  each Right initially  representing the right to purchase  one-half of
one  share of  Common  Stock,  upon the  terms  and  subject  to the  conditions
hereinafter set forth (the "Rights"); and

                  WHEREAS, pursuant to Section 27 of the Original Agreement, the
Company is authorized to amend the Original  Agreement from time to time and, so
long as its interests are not adversely  affected thereby,  the Rights Agent has
undertaken to execute any such amendment; and

                  WHEREAS,  the Board of Directors of the Company has determined
that it is necessary  and  desirable  that the Original  Agreement be amended in
certain respects; and

                  WHEREAS,  the Rights Agent has determined  that the amendments
to the  Original  Agreement  proposed  by the  Company  and  reflected  in  this
Agreement  (i) are in  compliance  with the terms of Section 27 of the  Original
Agreement and (ii) will not adversely affect its interests thereunder;

                  WHEREAS,  the Company and the Rights  Agent have agreed  that,
for ease and  convenience  of  reference,  it is desirable to  incorporate  such
amendments  into an  instrument  which  restates in its  entirety  the  Original
Agreement, as so amended;


                  NOW,  THEREFORE,  in  consideration  of the  premises  and the
mutual agreements herein set forth, the parties hereby agree as follows:

                  Section  1.   Certain   Definitions.   For  purposes  of  this
Agreement, the following terms have the meanings indicated:

                  (a) "Acquiring  Person" shall mean any Person (as such term is
hereinafter  defined) who or which,  together with all Affiliates and Associates
(as such terms are hereinafter  defined) of such Person, shall be the Beneficial
Owner  (as such  term is  hereinafter  defined)  of  securities  of the  Company
constituting  a Substantial  Block (as such term is  hereinafter  defined),  but
shall not include (i) the Company,  any  Subsidiary (as such term is hereinafter
defined) of the  Company,  any  employee  benefit  plan of the Company or of any
Subsidiary of the Company or any Person  organized,  appointed or established by
the Company or any Subsidiary of the Company for or pursuant to the terms of any
such plan,  (ii) any  Person  who or which,  together  with all  Affiliates  and
Associates of such Person,  becomes the Beneficial Owner of a Substantial  Block
solely as a result of a change in the aggregate number of shares of Voting Stock
(as such term is hereinafter  defined)  outstanding since the last date on which
such Person  acquired  Beneficial  Ownership  of any shares of the Voting  Stock
constituting  all or a portion of such  Substantial  Block; and (iii) any Person
who or which,  together  with all  Affiliates  and  Associates  of such  Person,
becomes the  Beneficial  Owner of a  Substantial  Block in the good faith belief
that such  acquisition  would not (x) cause such Person and its  Affiliates  and
Associates to become the Beneficial Owner of a Substantial Block and such Person
relied in good faith in computing the percentage of its voting power on publicly
filed reports or documents of the Company which are inaccurate or out-of-date or
(y)  otherwise  cause a  Distribution  Date or the  adjustment  provided  for in
Section  11(a) to  occur.  Notwithstanding  clause  (ii) or  (iii) of the  prior
sentence,  if any Person that is not an Acquiring Person due to such clause (ii)
or (iii) does not cease to be the Beneficial Owner of a Substantial Block by the
close  of  business  on the  fifth  Business  Day (as such  term is  hereinafter
defined)  after  notice  from the  Company  (the date of notice  being the first
Business Day) that such Person is the Beneficial  Owner of a Substantial  Block,
such  Person  shall,  at the end of such five  Business  Day  period,  become an
Acquiring  Person (and such  clause (ii) or (iii) shall no longer  apply to such
Person). For purposes of this definition,  the determination  whether any Person
acted in "good faith" shall be conclusively determined by the Board of Directors
of the Company,  acting by the vote  required to redeem the Rights under Section
23.

                  (b) "Act"  shall have the  meaning  set forth in Section  9(c)
hereof.

                  (c)  "Adjustment  Shares"  shall have the meaning set forth in
Section 11(a)(ii) hereof.

                  (d)  "Affiliate"  and  "Associate"  shall have the  respective
meanings  ascribed  to such  terms  in  Rule  12b-2  of the  General  Rules  and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date hereof.

                  (e)  "Agreement"  shall  have  the  meaning  set  forth in the
introduction hereto. 

                  (f) A Person  shall be deemed the  "Beneficial  Owner" of, and
shall be deemed to "beneficially own," any securities:

                         (i)  which  such   Person  or  any  of  such   Person's
Affiliates  or  Associates  has,  directly or  indirectly,  the right to acquire
(whether such right is exercisable immediately or only after the passage of time
or upon the occurrence of an event)  pursuant to any  agreement,  arrangement or
understanding  (whether or not in writing),  or upon the exercise of  conversion
rights,  exchange rights, rights,  warrants or options, or otherwise;  provided,
however,  that a Person  shall not be deemed  the  "Beneficial  Owner" of, or to
"beneficially  own," (1)  securities  tendered  pursuant to a tender or exchange
offer made by such Person or any of such Person's Affiliates or Associates until
such tendered  securities are accepted for purchase or exchange,  (2) securities
issuable  upon  exercise  of Rights  at any time  prior to the  occurrence  of a
Triggering  Event  (as such  term is  hereinafter  defined),  or (3)  securities
issuable upon  exercise of Rights from and after the  occurrence of a Triggering
Event,  which  Rights  were  acquired  by such  Person  or any of such  Person's
Affiliates or Associates prior to the  Distribution  Date or pursuant to Section
3(a) hereof  ("Original  Rights")  or  pursuant  to Section  11(i) or Section 22
hereof in connection with an adjustment made with respect to Original Rights; or

                         (ii)  which  such  Person  or  any  of  such   Person's
Affiliates  or  Associates  has,  directly or  indirectly,  the right to vote or
dispose of or has  "beneficial  ownership"  of (as  determined  pursuant to Rule
13d-3 of the General Rules and  Regulations  under the Exchange Act),  including
pursuant  to any  agreement,  arrangement  or  understanding  (whether or not in
writing);  provided,  however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially  own," any security under this  subparagraph (ii)
if the agreement,  arrangement or understanding to vote such security (1) arises
solely  from a revocable  proxy  given in response to a public  proxy or consent
solicitation  made pursuant to, and in accordance with, the applicable rules and
regulations  of the Exchange Act and (2) is not then  reportable on Schedule 13D
under the Exchange Act (or any comparable or successor report); or

                         (iii)  which  are  beneficially   owned,   directly  or
indirectly,  by any other Person with which such Person or any of such  Person's
Affiliates  or  Associates  has  any  agreement,  arrangement  or  understanding
(whether  or not in  writing)  for the  purpose of  acquiring,  holding,  voting
(except   pursuant  to  a  revocable  proxy  as  described  in  the  proviso  to
subparagraph  (ii) of this  paragraph (f)) or disposing of any securities of the
Company.

Notwithstanding the foregoing,  nothing contained in this definition shall cause
a Person  ordinarily  engaged in business as an  underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially  own," any securities acquired in
a bona fide firm commitment  underwriting pursuant to an underwriting  agreement
with the Company.

                  (g)  "Business  Day" shall mean any day other than a Saturday,
Sunday,  or a day on which  banking  institutions  in the  State of New York are
authorized or obligated by law or executive order to close.

                  (h)  "Certification"  shall  have  the  meaning  set  forth in
Section 18 hereof.

                  (i) "Close of business" on any given day shall mean 5:00 P.M.,
Buffalo, New York time, on such day; provided,  however, that if such day is not
a Business  Day, it shall mean 5:00 P.M.,  Buffalo,  New York time,  on the next
succeeding Business Day.

                  (j) "Common  Stock," when used with  reference to the Company,
shall mean the shares of common stock, $1.00 par value, of the Company.  "Common
Stock," when used with  reference  to any Person  other than the Company,  shall
mean  either the  capital  stock with the  greatest  voting  power of such other
Person  or,  if such  Person is a  Subsidiary  of  another  Person,  the  equity
securities  or other  equity  interest  having  power to  control  or direct the
management of such Person.

                  (k) "Common Stock Equivalent" shall have the meaning set forth
in Section 11(a)(iii).

                  (l)  "Company"  shall  have  the  meaning  set  forth  in  the
introduction hereto.

                  (m) "Current Market Price" shall have the meaning set forth in
Section 11(d) hereof.

                  (n)  "Current  Value"  shall  have the  meaning  set  forth in
Section 11(a)(iii) hereof.

                  (o)  "Distribution"  shall have the  meaning  set forth in the
recitals hereto.

                  (p)  "Distribution  Date"  shall have the meaning set forth in
Section 3(a) hereof.

                  (q) "Equivalent Common Stock" shall have the meaning set forth
in Section 11(b) hereof.

                  (r)  "Exchange  Act" shall have the  meaning  set forth in the
definitions of "Affiliate" and "Associate" above.

                  (s)  "Exchange  Ratio"  shall  have the  meaning  set forth in
Section 24(a) hereof.

                  (t)  "Expiration  Date"  shall have the  meaning  set forth in
Section 7(a) hereof.

                  (u) "Final  Expiration  Date" shall have the meaning set forth
in Section 7(a) hereof.

                  (v) [Intentionally omitted]

                  (w) "Original  Rights" shall have the meaning set forth in the
definition of "Beneficial Owner" above.

                  (x) "Person"  shall mean any  individual,  firm,  corporation,
limited liability company,  partnership (general, limited or limited liability),
trust or other entity,  and shall include any successor (by merger or otherwise)
of such entity.

                  (y)  "Principal  Party"  shall have the  meaning  set forth in
Section 13(b) hereof.

                  (z)  "Purchase  Price"  shall  have the  meaning  set forth in
Section 4(a) hereof.

                  (aa)  "Record  Date"  shall have the  meaning set forth in the
recitals hereto.

                  (bb)  "Redemption  Price"  shall have the meaning set forth in
Section 23(a) hereof.

                  (cc) "Right  Certificate"  shall have the meaning set forth in
Section 3(a) hereof.

                  (dd) "Rights" shall have the meaning set forth in the recitals
hereto.

                  (ee)  "Rights  Agent"  shall have the meaning set forth in the
introduction hereto.

                  (ff) "Rights Dividend Declaration Date" shall have the meaning
set forth in the recitals hereto.

                  (gg) "Section  11(a)(ii) Event" shall mean any event described
in Section 11(a)(ii).

                  (hh) "Section  11(a)(ii)  Trigger Date" shall have the meaning
set forth in Section 11(a)(iii).

                  (ii)  "Section  13 Event"  shall mean any event  described  in
Section 13(a).

                  (jj)  "Shares  Acquisition  Date" shall mean the first date of
public announcement  (which, for purposes of this definition,  includes a report
filed  pursuant  to  Section  13(d) of the  Exchange  Act) by the  Company or an
Acquiring Person that an Acquiring Person has become such.

                  (kk)  "Spread"  shall  have the  meaning  set forth in Section
11(a)(iii) hereof.

                  (ll)  "Subsidiary"  shall mean,  with reference to any Person,
any  corporation  (or other entity) of which an amount of voting  securities (or
comparable ownership  interests)  sufficient to elect at least a majority of the
directors (or comparable  individuals) of such  corporation (or other entity) is
beneficially  owned or otherwise  controlled,  directly or  indirectly,  by such
Person.

                  (mm)  "Substantial  Block"  shall  mean a number  of shares of
Voting  Stock  which  have  10% or more of the  aggregate  voting  power  of all
outstanding shares of Voting Stock.

                  (nn) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.

                  (oo)  "Summary of Rights"  shall have the meaning set forth in
Section 3(b) hereof.

                  (pp) "Trading Day" shall have the meaning set forth in Section
11(d) hereof.

                  (qq) "Triggering Event" shall mean any Section 11(a)(ii) Event
or Section 13 Event.

                  (rr)  "Voting  Stock,"  as of the  date of any  determination,
shall mean the shares of Common Stock, $1.00 par value, then outstanding and any
other  shares  of  capital  stock of the  Company  which  are  entitled  to vote
generally in the election of directors.

                  Section 2.  Appointment  of Rights Agent.  The Company  hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms  and  conditions   hereof,  and  the  Rights  Agent  hereby  accepts  such
appointment.  The Company shall act as Co-Rights Agent and may from time to time
appoint such other  Co-Rights  Agents as it may deem necessary or desirable upon
ten calendar  days' written  notice to the Rights  Agent.  In no event shall the
Rights  Agent  have  any  duty to  supervise  or in any way be  liable  for such
Co-Rights Agents.

                  Section 3. Issue of Right Certificates.  (a) Until the earlier
of (i) the  close of  business  on the  tenth  calendar  day  after  the  Shares
Acquisition Date (or, if the tenth day after the Shares  Acquisition Date occurs
before the Record  Date,  the close of business on the Record  Date) or (ii) the
close of business on the tenth  calendar day after the date of the  commencement
of, or of the first public  announcement  of the  intention of any Person (other
than the Company,  any Subsidiary of the Company,  any employee  benefit plan of
the  Company  or of any  Subsidiary  of the  Company  or any  Person  organized,
appointed or  established by the Company or any Subsidiary of the Company for or
pursuant to the terms of any such plan) to commence,  a tender or exchange offer
if, upon consummation thereof, such Person would become an Acquiring Person (the
earlier of the dates in subsection (i) and (ii) hereof being herein  referred to
as the  "Distribution  Date") (x) the Rights will be  evidenced  (subject to the
provisions  of  paragraph  (b) of this  Section 3) by the  certificates  for the
Common Stock  registered  in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be Right Certificates) and
not by  separate  Right  Certificates,  and  (y)  the  right  to  receive  Right
Certificates will be transferable only in connection with the transfer of Common
Stock.  As soon as  practicable  after  receipt by the  Rights  Agent of written
notice from the  Company of the  Distribution  Date,  the Rights  Agent,  at the
Company's  expense,  will send by  first-class,  postage  prepaid  mail, to each
record  holder of Common  Stock as of the close of business on the  Distribution
Date, at the address of such holder shown on the records of the Company, a Right
Certificate,   in  substantially   the  form  of  Exhibit  A  hereto  (a  "Right
Certificate"),  evidencing  one  Right for each  share of Common  Stock so held,
subject to adjustment  as provided  herein.  As of the  Distribution  Date,  the
Rights will be evidenced solely by such Right Certificates.

                  (b) As soon as  practicable  following  the Record  Date,  the
Company  will send a copy of a Summary of Rights to Purchase  Common  Stock,  in
substantially  the form attached  hereto as Exhibit B (the "Summary of Rights"),
by  first-class,  postage prepaid mail, to each record holder of Common Stock as
of the close of business on the Record Date, at the address of such holder shown
on the records of the  Company.  With respect to  certificates  for Common Stock
outstanding as of the Record Date, until the Distribution  Date, the Rights will
be evidenced by such  certificates for Common Stock, and the registered  holders
of Common Stock shall also be the registered  holders of the associated  Rights.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the  surrender  for  transfer  of any  of  the  certificates  for  Common  Stock
outstanding on the Record Date shall also  constitute the transfer of the Rights
associated with Common Stock represented by such certificate.

                  (c) Rights  shall be issued in respect of all shares of Common
Stock issued after the Record Date but prior to the earlier of the  Distribution
Date or the  Expiration  Date (as such term is  defined  in  Section  7), or, in
certain  circumstances  provided  in Section 22 hereof,  after the  Distribution
Date. Certificates representing such shares of Common Stock shall have impressed
on, printed on, written on or otherwise affixed to them the following legend:

                  This   certificate   also   evidences  and
          entitles  the holder  hereof to certain  Rights as
          set forth in a Rights  Agreement  between National
          Fuel  Gas   Company   and  Marine   Midland   Bank
          (subsequently  known as HSBC Bank USA) dated as of
          June 12, 1996, as amended or restated from time to
          time (the "Rights Agreement"),  the terms of which
          are hereby  incorporated herein by reference and a
          copy  of  which  is  on  file  at  the   principal
          executive  offices of National  Fuel Gas  Company.
          Under certain  circumstances,  as set forth in the
          Rights Agreement, such Rights will be evidenced by
          separate   certificates  and  will  no  longer  be
          evidenced by this  certificate.  National Fuel Gas
          Company   will   mail  to  the   holder   of  this
          certificate  a copy of the Rights  Agreement as in
          effect  on the  date  of  mailing  without  charge
          within  five  Business  Days  after  receipt  of a
          written    request    therefor.    Under   certain
          circumstances  set forth in the Rights  Agreement,
          Rights  beneficially  owned by an Acquiring Person
          may become null and void.

                  After the due execution of any supplement or amendment to this
Agreement in accordance  with the terms hereof,  the reference to this Agreement
in the foregoing  legend shall mean the Agreement as so supplemented or amended.
Until the Distribution Date, the Rights associated with Common Stock represented
by  certificates  containing  the  foregoing  legend  shall be evidenced by such
certificates  alone, and the surrender for transfer of any of such  certificates
shall also  constitute the transfer of the Rights  associated  with Common Stock
represented  by such  certificates.  In the event that the Company  purchases or
acquires  any  shares of Common  Stock  after the  Record  Date but prior to the
Distribution  Date, any Rights associated with such Common Stock shall be deemed
canceled  and retired so that the Company  shall not be entitled to exercise any
Rights  associated  with  the  shares  of  Common  Stock  which  are  no  longer
outstanding.  The failure to print the foregoing legend on any such Common Stock
certificate  or any  other  defect  therein  shall  not  affect  in  any  manner
whatsoever the application or  interpretation  of the provisions of Section 7(e)
hereof.

                  Section  4.  Form  of  Right   Certificates.   (a)  The  Right
Certificates  (and the forms of election to purchase shares and of assignment to
be printed on the reverse thereof) shall be substantially  the same as Exhibit A
hereto  and may  have  such  marks of  identification  or  designation  and such
legends,  summaries  or  endorsements  printed  thereon as the  Company may deem
appropriate and as are not  inconsistent  with the provisions of this Agreement,
or as may be  required  to comply  with any  applicable  law or with any rule or
regulation  made  pursuant  thereto or with any rule or  regulation of any stock
exchange  on which the Rights may from time to time be listed,  or to conform to
usage. The Right Certificates shall be in machine-printable format and in a form
reasonably  satisfactory  to the  Rights  Agent.  Subject to the  provisions  of
Section 11 and Section 22 hereof, the Right Certificates,  whenever distributed,
shall be dated as of the Record Date (or, with respect to Rights  appurtenant to
shares  of  Common  Stock  issued  or, in the case of  Company  treasury  stock,
delivered  thereafter,  dated as of the date of  issuance  or  delivery  of such
shares),  shall  show the date of  countersignature,  and on  their  face  shall
entitle the holders  thereof to purchase  such number of shares of Common  Stock
(or following a Triggering Event, other securities, cash or other assets, as the
case may be) as shall be set forth  therein at the price set forth therein (such
exercise price per share of Common Stock, the "Purchase Price"),  but the number
of such shares and the Purchase Price shall be subject to adjustment as provided
herein.

                  (b) Any Right  Certificate  issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring  Person,  (ii) a transferee
of an Acquiring  Person (or of any such  Associate or  Affiliate)  who becomes a
transferee  after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring  Person  (or of  any  such  Associate  or  Affiliate)  who  becomes  a
transferee prior to or concurrently  with the Acquiring Person becoming such and
receives  such  Rights  pursuant  to either (A) a transfer  (whether  or not for
consideration)  from the Acquiring Person to holders of equity interests in such
Acquiring  Person  or to any  Person  with whom such  Acquiring  Person  has any
continuing agreement,  arrangement or understanding  (whether or not in writing)
regarding the transferred  Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan,  arrangement  or  understanding
(whether  or not in  writing)  which has as a  primary  purpose  or  effect  the
avoidance of Section 7(e) hereof;  and any Right Certificate  issued pursuant to
Section  6 or  Section  11  hereof,  upon  transfer,  exchange,  replacement  or
adjustment of any other Right  Certificate  referred to in this sentence,  shall
contain (to the extent feasible) the following legend, modified as applicable to
apply to such Person:

                  The  Rights   represented  by  this  Right
                  Certificate are or were beneficially owned
                  by a Person who was or became an Acquiring
                  Person or an  Affiliate or Associate of an
                  Acquiring   Person   (as  such  terms  are
                  defined   in   the   Rights    Agreement).
                  Accordingly,  this Right  Certificate  and
                  the Rights  represented  hereby may become
                  null   and   void  in  the   circumstances
                  specified   in   Section   7(e)   of  such
                  Agreement.

                  Section  5.  Countersignature  and  Registration.   The  Right
Certificates shall be executed on behalf of the Company by one of its authorized
officers either manually or by facsimile signature. The Right Certificates shall
be countersigned by an authorized  signatory of the Rights Agent either manually
or by  facsimile  signature  and shall not be valid  for any  purpose  unless so
countersigned.  In case any  officer of the Company who shall have signed any of
the Right  Certificates  shall cease to be such  officer of the  Company  before
countersignature  by the Rights  Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent,
issued  and  delivered  with the same  force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the Company;
and any Right  Certificate  may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Right  Certificate,  shall be a
proper  officer of the Company to sign such Right  Certificate,  although at the
date of the  execution of this Rights  Agreement any such person was not such an
officer.

                  In case any authorized signatory of the Rights Agent who shall
have  countersigned  any  of the  Right  Certificates  shall  cease  to be  such
signatory before delivery by the Company, such Right Certificates, nevertheless,
may be issued and  delivered  by the  Company  with the same force and effect as
though the person who countersigned such Right Certificates had not ceased to be
such signatory; and any Right Certificates may be countersigned on behalf of the
Rights  Agent by any person who, at the actual date of the  countersignature  of
such Right  Certificate,  shall be a proper  signatory  of the  Rights  Agent to
countersign  such Right  Certificate,  although at the date of the  execution of
this Rights Agreement any such person was not such a signatory.

                  Following the Distribution Date, the Rights Agent will keep or
cause  to be  kept,  at its  office  designated  for  such  purpose,  books  for
registration and transfer of the Right Certificates issued hereunder. Such books
shall  show the names  and  addresses  of the  respective  holders  of the Right
Certificates  issued  hereunder,  the number of Rights  evidenced on its face by
each of the Right  Certificates,  the date of each of the Right Certificates and
the date of countersignature of each of the Right Certificates.

                  Section 6.  Transfer,  Split Up,  Combination  and Exchange of
Right  Certificates;  Mutilated,  Destroyed,  Lost or Stolen Right Certificates.
Subject to the  provisions of Section 14 hereof,  at any time after the close of
business on the  Distribution  Date, and at or prior to the close of business on
the  Expiration  Date,  any  Right  Certificate  or  Right  Certificates  may be
transferred,  split up,  combined or exchanged for another Right  Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
shares of Common Stock (or following a Triggering Event, other securities,  cash
or  other  assets,  as the  case  may  be) as the  Right  Certificate  or  Right
Certificates  surrendered  then  entitled  such  holder  (or,  in the  case of a
transfer,  such former holder) to purchase.  Any registered  holder  desiring to
transfer,  split  up,  combine  or  exchange  any  Right  Certificate  or  Right
Certificates  shall make such request in writing  delivered to the Rights Agent,
and  shall  surrender  the  Right  Certificate  or  Right   Certificates  to  be
transferred,  split up,  combined or exchanged at the office of the Rights Agent
designated for such purpose, along with a signature guarantee and such other and
further  documentation as the Rights Agent may reasonably  request.  Neither the
Rights Agent nor the Company  shall be  obligated to take any action  whatsoever
with respect to the transfer of any such surrendered Right Certificate until the
registered  holder shall have completed and signed the certificate  contained in
the form of assignment on the reverse side of such Right  Certificate  and shall
have provided such additional evidence, as the Company shall reasonably request,
of the  identity of the  Beneficial  Owner,  Affiliates  or  Associates  of such
Beneficial Owner or holder, or of any other Person with which such holder or any
of such holder's  Affiliates or Associates  has any  agreement,  arrangement  or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting or disposing of  securities  of the Company.  Thereupon  the Rights Agent
shall,  subject to Section 14 and Section 20(k) hereof,  countersign and deliver
to the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so  requested.  The  Company may  require  payment  from a Right
Certificates  holder of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection  with any transfer,  split up,  combination or
exchange of Right Certificates.

                  Upon  receipt by the Company and the Rights  Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security  reasonably  satisfactory to them, along with a signature guarantee and
such other and further documentation as the Rights Agent may reasonably request,
and if  requested by the  Company,  reimbursement  to the Company and the Rights
Agent of all reasonable expenses  incidental thereto,  and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right  Certificate of like tenor to the Rights Agent
for delivery to the registered  owner in lieu of the Right  Certificate so lost,
stolen, destroyed or mutilated.

                  Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.  (a) Subject to Section 7(e)  hereof,  the  registered  holder of any
Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided   herein,   including,   without   limitation,   the   restrictions  on
exercisability  set forth in  Sections  9 (c),  11 (a) (iii), 23 (a) and 24 (b)
hereof)  in  whole or in part at any  time  after  the  Distribution  Date  upon
surrender of the Right Certificate, with the form of election to purchase on the
reverse side thereof duly executed, to the Rights Agent at the designated office
of the Rights Agent,  together with payment of the aggregate  Purchase Price for
the total number of shares of Common Stock (or other  securities,  cash or other
assets, as the case may be) as to which the Rights are then  exercisable,  at or
prior to the  earliest of (i) the close of business on July 31, 2008 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section  23  hereof  or (iii)  the  time at which  all  exercisable  Rights  are
exchanged  as provided in Section 24 hereof,  (such  earliest  date being herein
referred to as the "Expiration Date").

                  (b) The  Purchase  Price for each full  share of Common  Stock
pursuant to the exercise of a Right shall initially be $130.00 (being $65.00 per
half share of Common Stock), shall be subject to adjustment from time to time as
provided in Sections  11 and 13 hereof and shall be payable in  accordance  with
paragraph (c) below.

                  (c)  Upon   receipt  of  a  Right   Certificate   representing
exercisable  Rights,  with the form of election to purchase and the  certificate
duly executed and  completed,  accompanied  by payment of the Purchase Price for
the number of shares of Common Stock (or other securities, cash or other assets,
as the case  may be) to be  purchased  and an  amount  equal  to any  applicable
transfer  tax,  the Rights  Agent  shall  thereupon,  subject to Section  20(k),
promptly (i) requisition  from the Company  certificates for the total number of
shares of Common Stock to be purchased, (ii) when appropriate,  requisition from
the  Company  the amount of cash to be paid in lieu of  issuance  of  fractional
shares in  accordance  with Section 14,  (iii)  promptly  after  receipt of such
certificates,  cause  the  same to be  delivered  to or upon  the  order  of the
registered holder of such Right Certificate, registered in such name or names as
may be  designated  by such  holder  and (iv) when  appropriate,  after  receipt
promptly  deliver such payment to or upon the order of the registered  holder of
such  Right  Certificate.  The  payment  of the  Purchase  Price must be made by
certified  bank check or bank draft or money  order  payable to the order of the
Company or the Rights Agent. In the event that the Company is obligated to issue
securities,  distribute  property or make payment pursuant to section 11(a)(iii)
hereof, the Company will make all arrangements necessary so that check, property
or securities are available for issuance,  distribution or payment by the Rights
Agent, if and when appropriate.

                  (d) In case the  registered  holder of any  Right  Certificate
shall  exercise  less  than  all  the  Rights  evidenced  thereby,  a new  Right
Certificate  evidencing  Rights  equivalent to the Rights remaining  unexercised
shall be issued  by the  Rights  Agent to the  registered  holder of such  Right
Certificate  or to his duly  authorized  assigns,  subject to the  provisions of
Section 14 hereof.

                  (e)   Notwithstanding   anything  in  this  Agreement  to  the
contrary,  from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights  beneficially  owned  by (i)  an  Acquiring  Person  or an  Associate  or
Affiliate of an Acquiring  Person,  (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person  becomes such,  or (iii) a transferee  of an Acquiring  Person (or of any
such Associate or Affiliate) who becomes a transferee  prior to or  concurrently
with the Acquiring  Person  becoming  such and receives such Rights  pursuant to
either (A) a transfer  (whether  or not for  consideration)  from the  Acquiring
Person to holders of equity  interests in such Acquiring Person or to any Person
which whom the Acquiring  Person has any  continuing  agreement,  arrangement or
understanding  (whether or not in writing)  regarding the transferred  Rights or
(B) a transfer  which the Board of  Directors of the Company has  determined  is
part of a plan,  arrangement or understanding  (whether or not in writing) which
has as a primary  purpose or effect the  avoidance of this section  7(e),  shall
become null and void  without  any  further  action and no holder of such Rights
shall have any rights whatsoever with respect to such Rights,  whether under any
provision of this  Agreement or otherwise.  The Company shall use all reasonable
efforts to insure that the  provisions  of this  Section  7(e) and Section  4(b)
hereof are  complied  with,  but shall have no  liability to any holder of Right
Certificates   or  other  Person  as  a  result  of  its  failure  to  make  any
determinations  with respect to an Acquiring  Person,  or any of its Affiliates,
Associates or transferees hereunder.

                  (f)   Notwithstanding   anything  in  this  Agreement  to  the
contrary,  neither  the  Rights  Agent nor the  Company  shall be  obligated  to
undertake any action with respect to a registered  holder upon the occurrence of
any  purported  exercise as set forth in this  Section 7 unless such  registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse  side of the Right  Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial  Owner,  Affiliates or Associates of such  Beneficial
Owner or holder,  or of any other  Person  with which such holder or any of such
holder's   Affiliates  or  Associates   has  any   agreement,   arrangement   or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting or  disposing  of any  securities  of the  Company as the  Company  shall
reasonably request.

                  Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise,  transfer, split
up,  combination or exchange  shall,  if surrendered to the Company or to any of
its agents,  be delivered to the Rights  Agent for  cancellation  or in canceled
form, or, if  surrendered  to the Rights Agent,  shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement.  The Company shall deliver to
the Rights Agent for cancellation and retirement,  and the Rights Agent shall so
cancel and retire,  any other  Right  Certificate  purchased  or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

                  Section 9.  Reservation  and  Availability of Shares of Common
Stock.  (a) The Company  covenants and agrees that it will use every  reasonable
effort to reserve and make available out of its  authorized and unissued  shares
of Common Stock (and following the occurrence of a Triggering  Event, out of its
authorized and unissued other  securities),  or out of its authorized and issued
shares of Common Stock (and, following the occurrence of a Triggering Event, out
of its authorized and issued other securities) held in its treasury,  the number
of shares of Common Stock (and,  following the occurrence of a Triggering Event,
other  securities) that will be sufficient to permit the exercise in full of all
outstanding  Rights (it being  understood  that any of the  foregoing  shares or
securities  may also be  reserved  for other  purposes)  or will take such other
steps as are  appropriate to assure that the number of such shares or securities
(or  their  equivalents)  sufficient  to  permit  the  exercise  in  full of all
outstanding  Rights will be available upon such exercise.  The Company shall use
every  reasonable  effort  to  obtain,  as soon  as  practicable  following  the
occurrence of a Triggering Event (to the extent not theretofore obtained),  such
regulatory  approvals  and take such other action as may be necessary  for it to
issue and/or sell securities purchasable upon the exercise of the Rights.

                  (b) So long as the shares of Common Stock (and,  following the
occurrence of a Triggering Event,  other securities)  issuable upon the exercise
of Rights may be listed on any national securities  exchange,  the Company shall
use its best  efforts to cause,  from and after  such time as the Rights  become
exercisable (but only to the extent that it is reasonably likely that the Rights
will be exercised),  all shares  reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.

                  (c) The  Company  shall use its best  efforts to (i) file,  as
soon as practicable following the first occurrence of a Section 11(a)(ii) Event,
or as soon as  required  by law,  as the case may be, a  registration  statement
under the  Securities  Act of 1933, as amended (the "Act"),  with respect to the
securities  purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such  registration  statement to become  effective as soon as  practicable
after  such  filing,  and (iii)  cause  such  registration  statement  to remain
effective  (with a prospectus at all times meeting the  requirements of the Act)
until  the  earlier  of (A) the  date  as of  which  the  Rights  are no  longer
exercisable for such  securities,  and (B) the Expiration Date. The Company will
also  take  such  action  as may be  appropriate  under the blue sky laws of the
various states. The Company may temporarily suspend, for a period of time not to
exceed  ninety  (90) days  after  the date set forth in clause  (i) of the first
sentence of this  Section  9(c),  the  exercisability  of the Rights in order to
prepare and file such registration  statement and permit it to become effective.
Upon any such  suspension,  the Company  shall issue a public  announcement  and
shall give  simultaneous  written  notice to the Rights  Agent  stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement and notice to the Rights Agent at such time as the suspension is no
longer  in  effect.  Notwithstanding  any  provision  of this  Agreement  to the
contrary,  the Rights shall not be  exercisable in any  jurisdiction  unless the
requisite qualifications in such jurisdiction shall have been obtained.

                  (d) The  Company  covenants  and agrees  that it will take all
such action as may be  necessary  to ensure that all shares of Common Stock (and
following the occurrence of a Triggering Event, other securities) delivered upon
exercise of Rights shall, at the time of delivery of the  certificates  for such
shares  (subject  to  payment  of the  Purchase  Price),  be  duly  and  validly
authorized and issued and fully paid and nonassessable.

                  (e) The Company further  covenants and agrees that it will pay
when due and payable any and all  federal and state  transfer  taxes and charges
which may be  payable  in  respect  of the  issuance  or  delivery  of the Right
Certificates or of any shares of the Common Stock (or other  securities,  as the
case may be) upon the exercise of Rights.  The Company  shall not,  however,  be
required  (a) to pay any  transfer  tax which may be  payable  in respect of any
transfer  involved in the  transfer or  delivery  of Right  Certificates  or the
issuance or delivery of certificates for Common Stock (or other  securities,  as
the case may be) in a name other than that of the registered holder of the Right
Certificate  evidencing  Rights  surrendered  for  exercise  or (b) to  issue or
deliver  any  certificates  for a number of  shares  of  Common  Stock (or other
securities,  as the case may be) upon the  exercise of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate  at the time of surrender) or until it has been  established  to the
Company's satisfaction that no such tax is due.

                  Section 10.  Common Stock  Record  Date.  Each Person in whose
name any  certificate  for any  number  of  shares  of  Common  Stock  (or other
securities,  as the case may be) is issued upon the exercise of Rights shall for
all  purposes  be deemed to have  become  the  holder of record of the shares of
Common Stock (or other securities,  as the case may be) represented  thereby on,
and such  certificate  shall be dated the date upon which the Right  Certificate
evidencing  such Rights was duly  surrendered  and payment of the Purchase Price
(and  any  applicable  transfer  taxes)  was  made  and  shall  show the date of
countersignature;  provided,  however,  that if the date of such  surrender  and
payment is a date upon which Common Stock (or other securities,  as the case may
be)  transfer  books of the Company are closed,  such Person  shall be deemed to
have become the record holder of such shares on, and such  certificate  shall be
dated,  the next  succeeding  Business  Day on which the Common  Stock (or other
securities, as the case may be) transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby,  the holder of a Right Certificate
shall not be entitled to any rights of a stockholder of the Company with respect
to  shares  for  which  the  Rights  shall be  exercisable,  including,  without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive  rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.

                  Section 11. Adjustment of Purchase Price,  Number of Shares or
Number of Rights. The Purchase Price, the number of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.

                  (a) (i) In the event the  Company  shall at any time after the
date of this  Agreement  (A) declare a dividend on the Common  Stock  payable in
shares of the Common  Stock,  (B) subdivide the  outstanding  Common Stock,  (C)
combine  the  outstanding  Common  Stock into a smaller  number of shares or (D)
issue any shares of its  capital  stock in a  reclassification  of Common  Stock
(including  any such  reclassification  in connection  with a  consolidation  or
merger in which the Company is the continuing or surviving corporation),  except
as  otherwise  provided in this  Section  11(a) and  Section  7(e)  hereof,  the
Purchase  Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Common Stock or capital stock,  as the case may be,
issuable on such date, shall be  proportionately  adjusted so that the holder of
any Right exercised  after such time shall be entitled to receive,  upon payment
of the Purchase Price then in effect, the aggregate number and kind of shares of
capital stock which, if such Right had been exercised  immediately prior to such
date and at a time when Common Stock (or other securities) transfer books of the
Company  were  open,  he or she would have  owned  upon such  exercise  and been
entitled  to receive by virtue of such  dividend,  subdivision,  combination  or
reclassification.  If an event occurs which would  require an  adjustment  under
both this Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in
this Section  11(a)(i)  shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).

                       (ii)  Subject  to Section  24 of this  Agreement,  in the
event any Person, alone or together with its Affiliates and Associates,  becomes
at any time after the Rights  Dividend  Declaration  Date,  an Acquiring  Person
except as the result of a transaction  set forth in Section 13(a) hereof,  then,
prior to the later of (x) the date on which the  Company's  rights of redemption
pursuant  to Section  23(a)  expire,  or (y) five (5) days after the date of the
first occurrence of a Section 11(a)(ii) Event, proper provision shall be made so
that each holder of a Right,  except as provided in Section 7(e)  hereof,  shall
thereafter  have a right to receive,  upon exercise  thereof at the then current
Purchase Price in accordance  with the terms of this  Agreement,  such number of
shares of Common Stock of the Company as shall equal the result  obtained by (x)
multiplying the then current  Purchase Price for a full share of Common Stock by
the number of shares of Common Stock for which a Right is then  exercisable  and
dividing that product by (y) 50% of the Current Market Price per share of Common
Stock of the Company  (determined  pursuant to Section 11(d)) on the date of the
occurrence of the event described above in this  subparagraph  (ii) (such number
of shares is hereinafter referred to as the "Adjustment Shares"),  provided that
the Purchase Price and the number of Adjustment Shares shall be further adjusted
as provided in this Agreement to reflect any events  occurring after the date of
such first occurrence.

                       (iii) If (x) the number of shares of Common  Stock  which
are authorized by the Company's certificate of incorporation but not outstanding
or reserved for issuance for purposes  other than upon exercise of the Rights is
not  sufficient to permit the exercise in full of the Rights in accordance  with
the foregoing  subparagraph (ii), or (y) any regulatory  approvals necessary for
the issuance of such Common Stock have not been obtained by the Company,  or (z)
the  issuance of Common Stock of the Company  shall not then be permitted  under
the  Company's   certificate   of   incorporation   or  any  applicable  law  or
administrative or judicial  regulation or order, the Company shall (A) determine
the excess of (1) the value of the Adjustment  Shares issuable upon the exercise
of a Right (the "Current  Value") over (2) the Purchase Price (such excess,  the
"Spread"),  and (B) with respect to each Right,  but subject to Section 9 hereof
and,  if and to the  extent  required,  to the  receipt  by the  Company  of any
necessary  regulatory  approvals,  make adequate provision to substitute for the
Adjustment  Shares,  upon  exercise of the Rights and payment of the  applicable
Purchase  Price,  (1) cash,  (2) a reduction  in the Purchase  Price,  (3) other
equity  securities  of the Company  (including,  without  limitation,  shares of
preferred  stock which the Board of  Directors of the Company has deemed to have
the same  value as shares of  Common  Stock  (such  shares of  preferred  stock,
"Common Stock  Equivalents")),  (4) debt  securities  of the Company,  (5) other
assets, or (6) any combination of the foregoing, having an aggregate value equal
to the Current  Value,  where such  aggregate  value has been  determined by the
Board of  Directors  of the  Company  based  upon  the  advice  of a  nationally
recognized  investment  banking  firm  selected by the Board of Directors of the
Company;  provided,  however,  that if the Company  shall not have made adequate
provision to deliver value  pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii) Event and
(y) the date on which the  Company's  rights of  redemption  pursuant to Section
23(a) expire (the later of (x) and (y) being  referred to herein as the "Section
11(a)(ii) Trigger Date"),  then the Company shall be obligated to deliver,  upon
the  surrender  for  exercise  of a Right and without  requiring  payment of the
Purchase Price,  shares of Common Stock (to the extent  available and subject to
receipt by the  Company of any  necessary  regulatory  approvals)  and then,  if
necessary,  cash,  which shares and/or cash have an aggregate value equal to the
Spread.  If the Board of Directors of the Company shall  determine in good faith
that it is likely that  sufficient  additional  shares of Common  Stock could be
authorized  for  issuance  upon  exercise  in full of the  Rights  and  that any
necessary regulatory  approvals for such issuance could be obtained,  the thirty
(30) day period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section  11(a)(ii)  Trigger  Date, in order
that the Company may seek  stockholder  approval for the  authorization  of such
additional  shares  and/or  regulatory   approvals  for  the  issuance  of  such
additional  shares  (such  period,  as it may  be  extended,  the  "Substitution
Period").  To the extent  that the Company  determines  that some action need be
taken and/or  additional  regulatory  approvals  obtained  pursuant to the first
and/or  second  sentences  of this  subparagraph  (iii),  the  Company (x) shall
provide,  subject to Section 7(e) hereof, that such action shall apply uniformly
to all outstanding  Rights, and (y) may suspend the exercisability of the Rights
until  the  expiration  of  the  Substitution   Period  in  order  to  seek  any
authorization of additional shares, to obtain any required regulatory  approvals
and/or to decide the  appropriate  form of  distribution  to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension,  the  Company  shall  issue a public  announcement  and  shall  give
concurrent written notice to the Rights Agent stating that the exercisability of
the Rights has been temporarily suspended,  as well as a public announcement and
notice  to the  Rights  Agent at such  time as the  suspension  is no  longer in
effect.  For purposes of this subparagraph  (iii), the value of the Common Stock
shall be the Current  Market  Price (as  determined  pursuant  to Section  11(d)
hereof) per share of Common  Stock on the Section 11 (a) (ii)  Trigger  Date and
the value of any Common Stock  Equivalent  shall be deemed to be the same as the
value of Common  Stock on such date.  The  Company  shall give the Rights  Agent
notice of the selection of any Common Stock Equivalent  under this  subparagraph
(iii).

                  (b) In case  the  Company  shall  fix a  record  date  for the
issuance of rights, options or warrants to all holders of Common Stock entitling
them (for a period  expiring  within 45 calendar days after such record date) to
subscribe for or purchase Common Stock (or securities  having  substantially the
same  rights,   privileges  and  preferences  as  the  shares  of  Common  Stock
("Equivalent  Common  Stock") or  convertible  into Common  Stock or  Equivalent
Common  Stock) at a price per share of Common Stock or  Equivalent  Common Stock
(or having a conversion  price per share, if a security  convertible into Common
Stock or Equivalent Common Stock) less than the Current Market Price (as defined
in Section  11(d) per share of Common Stock or Equivalent  Common Stock,  as the
case may be) on such record date,  the Purchase Price to be in effect after such
record date shall be  determined  by  multiplying  the Purchase  Price in effect
immediately  prior to such  record date by a  fraction,  of which the  numerator
shall be the number of shares of Common  Stock  outstanding  on such record date
plus the number of shares of Common Stock or  Equivalent  Common Stock which the
aggregate  offering  price of the total  number  of  shares  of Common  Stock or
Equivalent  Common  Stock  so  to  be  offered  (and/or  the  aggregate  initial
conversion price of the convertible  securities so to be offered) would purchase
at such Current Market Price and of which the denominator shall be the number of
shares  of Common  Stock  outstanding  on such  record  date plus the  number of
additional  shares of Common Stock and/or  Equivalent Common Stock to be offered
for subscription or purchase (or into which the convertible  securities so to be
offered are initially convertible).  In case such subscription price may be paid
by delivery of consideration  part or all of which shall be in a form other than
cash,  the value of such  consideration  shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent. Shares of Common Stock owned by or held
for the account of the Company shall not be deemed  outstanding  for the purpose
of any such  computation.  Such adjustment shall be made  successively  whenever
such a record  date is fixed;  and in the event  that such  rights,  options  or
warrants  are not so issued,  the  Purchase  Price  shall be  adjusted to be the
Purchase  Price  which  would then be in effect if such record date had not been
fixed.

                  (c) In case the Company shall fix a record date for the making
of  a  distribution  to  all  holders  of  Common  Stock   (including  any  such
distribution  made in  connection  with a  consolidation  or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular  periodic cash dividend or a dividend payable in
Common Stock) or subscription rights or warrants (excluding those referred to in
Section 11(b)),  the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect  immediately  prior to
such  record  date by a fraction,  of which the  numerator  shall be the Current
Market  Price per share of Common  Stock (as  defined in Section  11(d)) on such
record  date,  less the fair market  value (as  determined  in good faith by the
Board of Directors of the Company,  whose  determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription  rights or warrants
applicable  to one share of Common Stock and of which the  denominator  shall be
such Current Market Price per share of Common Stock.  Such adjustments  shall be
made  successively  whenever such a record date is fixed;  and in the event that
such  distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase  Price which would then be in effect if such record date had not
been fixed.

                  (d) For the purpose of any computation  hereunder,  other than
computations made pursuant to Section 11(a)(iii), the "Current Market Price" per
share of Common Stock on any date shall be deemed to be the average of the daily
closing  prices per share of such Common  Stock for the thirty (30)  consecutive
Trading  Days  (as such  term is  hereinafter  defined  in this  paragraph  (d))
immediately  prior to such date and, for purposes of computations  made pursuant
to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock
on any date shall be deemed to be the  average of the daily  closing  prices per
share of such Common Stock for the ten (10) consecutive Trading Days immediately
following  such date;  provided,  however,  that in the event  that the  Current
Market Price per share of Common Stock is determined during the period following
the  announcement  by the  issuer  of such  Common  Stock of (A) a  dividend  or
distribution  on such Common  Stock  payable in shares of such  Common  Stock or
securities  convertible into shares of such Common Stock (other than the Rights)
or (B) any subdivision,  combination or  reclassification  of such Common Stock,
and prior to the  expiration  of the  requisite 30 Trading Day or 10 Trading Day
period,  as set forth above,  after the  ex-dividend  date for such  dividend or
distribution   or  the  record  date  for  such   subdivision,   combination  or
reclassification, then, and in each such case, the Current Market Price shall be
appropriately  adjusted to take into account  ex-dividend  trading.  The closing
price for each day shall be the last sale  price,  regular  way,  or, in case no
such sale takes  place on such day,  the  average of the  closing  bid and asked
prices,  regular way, in either case as reported in the  principal  consolidated
transaction  reporting  system with respect to securities  listed or admitted to
trading on the New York Stock Exchange or, if the shares of the Common Stock are
not listed or admitted to trading on the New York Stock Exchange, as reported in
the  principal  consolidated   transaction  reporting  system  with  respect  to
securities  listed on the principal  national  securities  exchange on which the
shares of the Common  Stock are listed or  admitted to trading or, if the shares
of the Common  Stock are not  listed or  admitted  to  trading  on any  national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers,  Inc. Automated Quotation System
("NASDAQ")  or such other system then in use, or, if on any such date the shares
of Common Stock are not quoted by such organization,  the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in Common Stock  selected by the Board of  Directors  of the Company.  If on any
such date no market maker is making a market in the Common Stock, the fair value
of such shares on such date shall be as  determined by the Board of Directors of
the Company upon the advice of a  nationally-recognized,  independent investment
banking firm selected by the Board of Directors,  whose  determination  shall be
described in a statement filed with the Rights Agent and shall be conclusive for
all  purposes.  The term  "Trading  Day" shall mean a day on which the principal
national  securities  exchange on which the shares of Common Stock are listed or
admitted to trading is open for the transaction of business or, if the shares of
Common  Stock are not listed or admitted to trading on any  national  securities
exchange,  a Monday,  Tuesday,  Wednesday,  Thursday or Friday on which  banking
institutions  in the State of New York are not authorized or obligated by law or
executive  order to close.  If the Common Stock is not  publicly  held or not so
listed or traded, "Current Market Price" per share shall mean the fair value per
share as  determined by the Board of Directors of the Company upon the advice of
a  nationally-recognized,  independent  investment  banking firm selected by the
Board of Directors,  whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes.

                  (e)  Anything  herein  to  the  contrary  notwithstanding,  no
adjustment in the Purchase Price shall be required unless such adjustment  would
require an increase or decrease of at least 1% in such price; provided, however,
that any  adjustments  which by reason of this Section 11(e) are not required to
be made  shall be carried  forward  and taken  into  account  in any  subsequent
adjustment.  All calculations under this Section 11 shall be made to the nearest
cent  or  to  the   nearest   ten-thousandth   of  a  share  of  Common   Stock.
Notwithstanding  the  first  sentence  of this  Section  11(e),  any  adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the  transaction  which mandates such  adjustment or (ii)
the Expiration Date.

                  (f) If, as a result of an adjustment  made pursuant to Section
11(a) or Section  13(a),  the  holder of any Right  thereafter  exercised  shall
become  entitled  to receive  any shares of capital  stock  other than shares of
Common  Stock,  thereafter  the number of such other shares so  receivable  upon
exercise  of any  Right and the  Purchase  Price  thereof  shall be  subject  to
adjustment  from time to time in a manner and on terms as nearly  equivalent  as
practicable  to the  provisions  with respect to the Common  Stock  contained in
Section 11(a) through (p),  inclusive,  and the provisions of Sections 7, 9, 10,
13 and 14 with  respect to Common  Stock  shall  apply on like terms to any such
other shares.

                  (g) All Rights originally issued by the Company  subsequent to
any adjustment  made to the Purchase Price hereunder shall evidence the right to
purchase,  at the adjusted  Purchase Price, the number of shares of Common Stock
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

                  (h) Unless the Company  shall have  exercised  its election as
provided in Section  11(i),  upon each  adjustment  of the  Purchase  Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to  purchase,  at the  adjusted  Purchase  Price,  that  number  of shares
(calculated to the nearest tenth-thousandth) obtained by (i) multiplying (x) the
number of shares covered by a Right  immediately prior to this adjustment by (y)
the  Purchase  Price  in  effect  immediately  prior to such  adjustment  of the
Purchase  Price and (ii) dividing the product so obtained by the Purchase  Price
in effect immediately after such adjustment of the Purchase Price.

                  (i)  The  Company  may  elect  on or  after  the  date  of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of shares of Common Stock  purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be  exercisable  for the number of shares of Common Stock
for which a Right was exercisable  immediately  prior to such  adjustment.  Each
Right held of record  prior to such  adjustment  of the  number of Rights  shall
become that number of Rights (calculated to the nearest ten-thousandth) obtained
by dividing the Purchase Price in effect  immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect  immediately after the adjustment
of the Purchase Price.  The Company shall make a public  announcement  and shall
give  simultaneous  written notice to the Rights Agent of its election to adjust
the number of Rights,  indicating the record date for the adjustment to be made.
This record date may be the date on which the Purchase  Price is adjusted or any
day thereafter,  but, if the Right  Certificates  have been issued,  shall be at
least  10  days  later  than  the  date of the  public  announcement.  If  Right
Certificates  have been  issued,  upon each  adjustment  of the number of Rights
pursuant  to  this   subparagraph   (i),  the  Company  shall,  as  promptly  as
practicable,  cause to be distributed to holders of Right  Certificates  on such
record date Right Certificates evidencing, subject to Section 14, the additional
Rights to which such holders  shall be entitled as a result of such  adjustment,
or, at the option of the Company,  shall cause to be distributed to such holders
of record in substitution  and replacement  for the Right  Certificates  held by
such holders prior to the date of  adjustment,  and upon surrender  thereof,  if
required by the Company,  new Right  Certificates  evidencing  all the Rights to
which such holders shall be entitled after such adjustment.  Right  Certificates
so to be distributed  shall be issued,  executed and countersigned in the manner
provided for herein (and may bear,  at the option of the  Company,  the adjusted
Purchase Price) and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.

                  (j)  Irrespective  of any adjustment or change in the Purchase
Price or the number of shares of Common Stock  issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express  the  Purchase  Price  per share and the  number  of shares  which  were
expressed in the initial Right Certificates issued hereunder.

                  (k) Before  taking any action that would  cause an  adjustment
reducing  the  Purchase  Price  below the then par value,  if any, of a share of
Common Stock  issuable upon  exercise of the Rights,  the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company  may  validly  and legally  issue such number of fully paid and
nonassessable shares of such Common Stock at such adjusted Purchase Price.

                  (l) In any case in which this Section 11 shall require that an
adjustment  in the  Purchase  Price be made  effective as of a record date for a
specified  event,  the Company may elect to defer until the  occurrence  of such
event the issuance to the holder of any Right  exercised  after such record date
of the number of shares of Common Stock and other capital stock or securities of
the Company,  if any,  issuable  upon such exercise over and above the number of
shares of Common Stock and other capital stock or securities of the Company,  if
any,  issuable upon such  exercise on the basis of the Purchase  Price in effect
prior to such adjustment;  provided,  however, that the Company shall deliver to
such holder a due bill or other appropriate  instrument evidencing such holder's
right to  receive  such  additional  shares  upon the  occurrence  of the  event
requiring such adjustment.

                  (m)   Anything   in   this   Section   11  to   the   contrary
notwithstanding,  the Company  shall be entitled to make such  reductions in the
Purchase  Price,  in addition to those  adjustments  expressly  required by this
Section  11, as and to the extent  that the Board of  Directors  of the  Company
shall determine to be advisable in order that any  consolidation  or subdivision
of shares of Common  Stock,  issuance  wholly  for cash of any  shares of Common
Stock at less than the Current  Market  Price,  issuance  wholly for cash of the
Common  Stock or  securities  which  by  their  terms  are  convertible  into or
exchangeable for Common Stock, stock dividends or issuance of rights, options or
warrants  referred  to  hereinabove  in this  Section 11  hereafter  made by the
Company  to  holders  of  its  Common   Stock  shall  not  be  taxable  to  such
stockholders.

                  (n)  The  Company   covenants  and  agrees  that,   after  the
Distribution  Date,  it will not,  except as permitted by Sections 23, 24 and 27
hereof,  take (nor will it permit any of its Subsidiaries to take) any action if
at the time such action is taken it is reasonably  foreseeable  that such action
will diminish  substantially or otherwise  eliminate the benefits intended to be
afforded by the Rights.

                  (o) The Company covenants and agrees that it shall not, at any
time after the  Distribution  Date, (i) consolidate with any other Person (other
than a Subsidiary  of the Company in a transaction  which  complies with Section
11(n)), (ii) merge with or into any other Person (other than a Subsidiary of the
Company in a transaction  which complies with Section  11(n)),  or (iii) sell or
transfer (or permit any of its Subsidiaries to sell or transfer), in one or more
transactions, assets or earning power aggregating more than 50% of the assets or
earning  power of the  Company  and its  Subsidiaries  (taken as a whole) to any
other Person or Persons (other than the Company  and/or any of its  Subsidiaries
in one or more transactions each of which complies with Section 11(n)) if (x) at
the time of or immediately  after such  consolidation,  merger or sale there are
any  rights,   warrants  or  other  instruments  or  securities  outstanding  or
agreements in effect which would  substantially  diminish or otherwise eliminate
the  benefits   intended  to  be  afforded  by  the  Rights  or  (y)  prior  to,
simultaneously with or immediately after such consolidation, merger or sale, the
stockholders of the Person who constitutes,  or would constitute, the "Principal
Party" for purposes of Section 13(a) hereof shall have  received a  distribution
of  Rights  previously  owned  by  such  Person  or any of  its  Affiliates  and
Associates.

                  (p)   Notwithstanding   anything  in  this  Agreement  to  the
contrary, prior to the Distribution Date, the Company may, in lieu of making any
adjustment to the Purchase Price,  the number of shares of Common Stock eligible
for  purchase  on  exercise  of each Right or the number of Rights  outstanding,
which adjustment would otherwise be required by Section 11(a)(i),  11(b), 11(c),
11(h) or 11(i), make such other equitable  adjustment or adjustments  thereto as
the  Board  of  Directors  (whose   determination  shall  be  conclusive)  deems
appropriate in the circumstances and not inconsistent with the objectives of the
Board of Directors in adopting this Agreement and such Sections.

                  Section 12.  Certificate of Adjusted  Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Sections 11 and 13, the
Company shall (a) promptly prepare a certificate  setting forth such adjustment,
a brief  statement of the facts  accounting for such adjustment and the adjusted
Purchase  Price,  (b) promptly file with the Rights Agent and with each transfer
agent  for the  Common  Stock a copy of such  certificate  and (c)  mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
26. The Rights Agent shall be fully protected in relying on any such certificate
and on any adjustment therein contained.

                  Section  13.  Consolidation,  Merger  or Sale or  Transfer  of
Assets or Earning Power. (a) In the event that, following the Shares Acquisition
Date,  directly or indirectly,  (x) the Company shall consolidate with, or merge
with or into,  any other  Person  (other than a  Subsidiary  of the Company in a
transaction  which complies with Section 11(n)) and the Company shall not be the
continuing or surviving  corporation of such  consolidation  or merger,  (y) any
Person (other than a Subsidiary of the Company in a transaction  which  complies
with Section  11(n)) shall  consolidate,  merge with or into the Company and the
Company shall be the continuing or surviving  corporation of such  consolidation
or merger and in connection with such  consolidation  or merger,  all or part of
the  Common  Stock  shall  be  changed  into or  exchanged  for  stock  or other
securities of any other Person or cash or any other property, or (z) the Company
shall sell or otherwise  transfer (or one or more of its Subsidiaries shall sell
or otherwise  transfer),  in one or more  transactions,  assets or earning power
aggregating  more than 50% of the assets or earning power of the Company and its
Subsidiaries  (taken as a whole) to any other Person or Persons  (other than the
Company or any of its  Subsidiaries  in one or more  transactions  each of which
complies  with  Section  11(n)  hereof),  then,  and in each such  case,  proper
provision  shall be made so that (i) each holder of a Right  (except as provided
in Section 7(e)) shall  thereafter have the right to receive,  upon the exercise
thereof at the then current  Purchase Price in accordance with the terms of this
Agreement,  such number of validly issued, fully paid,  nonassessable and freely
tradable shares of Common Stock of the Principal Party (as hereinafter  defined)
, not subject to any liens,  encumbrances,  rights of call or first refusal,  or
other adverse claims as shall be equal to the result obtained by (1) multiplying
the then current  Purchase  Price for a full share of Common Stock by the number
of shares of Common Stock for which a Right is exercisable  immediately prior to
the first  occurrence  of a Section 13 Event (or, if a Section  11(a) (ii) Event
has occurred  prior to the first  occurrence of a Section 13 Event,  multiplying
the number of such shares for which a Right was exercisable immediately prior to
the first  occurrence of a Section 11(a) (ii) Event by the Purchase  Price for a
full  share  of  Common  Stock  in  effect   immediately  prior  to  such  first
occurrence), and dividing that product (which, following the first occurrence of
a Section 13 Event,  shall be referred to as the "Purchase Price" for each Right
and for all purposes of this  Agreement) by (2) 50% of the Current  Market Price
per share of the Common Stock of such Principal Party  (determined in the manner
described in Section 11 (d) ) on the date of consummation of such consolidation,
merger,  sale or transfer;  (ii) the Principal Party shall  thereafter be liable
for, and shall assume,  by virtue of such Section 13 Event,  all the obligations
and duties of the Company  pursuant to this Agreement;  (iii) the term "Company"
shall  thereafter  be  deemed  to  refer  to  such  Principal  Party,  it  being
specifically  intended that the provisions of Section 11 shall  thereafter apply
to such  Principal  Party,  (iv) such  Principal  Party  shall  take such  steps
(including, but not limited to, the reservation of a sufficient number of shares
of its  Common  Stock in  accordance  with  Section 9) in  connection  with such
consummation  as may be  necessary  to assure that the  provisions  hereof shall
thereafter be  applicable,  as nearly as  reasonably  may be, in relation to the
shares of its Common  Stock  thereafter  deliverable  upon the  exercise  of the
Rights, and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.

                  (b) "Principal Party" shall mean

                         (1) in the case of any transaction  described in (x) or
(y) of the first sentence of Section 13(a), the Person that is the issuer of any
securities  into which  shares of Common  Stock of the Company are  converted in
such merger or  consolidation  and, if no securities  are so issued,  the Person
that is the other party to the merger or consolidation; and

                         (2) in the case of any transaction  described in (z) of
the first sentence in Section 13(a),  the Person that is the party receiving the
greatest  portion of the assets or earning  power  transferred  pursuant to such
transaction or transactions;  provided,  however,  that in any such case, (x) if
the  Common  Stock  of  such  Person  is not at  such  time  and  has  not  been
continuously  over the preceding  12-month period registered under Section 12 of
the Exchange Act, and such Person is a direct or indirect  Subsidiary of another
corporation the Common Stock of which is and has been so registered,  "Principal
Party"  shall  refer  to such  other  corporation  and (y) if such  Person  is a
Subsidiary,  directly or indirectly,  of more than one  corporation,  the Common
Stocks  of two or more of which  are and  have  been so  registered,  "Principal
Party" shall refer to whichever of such corporations is the issuer of the Common
Stock having the greatest market value.

                         (3) The  Company  shall not  consummate  any Section 13
Event unless the  Principal  Party shall have a sufficient  number of authorized
shares of its Common  Stock  which are  neither  outstanding  nor  reserved  for
issuance to permit the  exercise in full of the Rights in  accordance  with this
Section 13 and unless prior thereto the Company and such  Principal  Party shall
have  executed  and  delivered  to the  Rights  Agent a  supplemental  agreement
providing for the terms set forth in  paragraphs  (a) and (b) of this Section 13
and  further  providing  that,  as soon as  practicable  after  the  date of any
consolidation,  merger  or sale of assets  mentioned  in  paragraph  (a) of this
Section 13, the Principal Party

                              (i) will prepare and file a registration statement
under the Act with  respect to the Rights and the  securities  purchasable  upon
exercise  of the Rights on an  appropriate  form,  will use its best  efforts to
cause such  registration  statement to become  effective as soon as  practicable
after  such  filing and will use its best  efforts  to cause  such  registration
statement  to remain  effective  (with a  prospectus  at all times  meeting  the
requirements of the Act) until the Expiration Date; and

                              (ii)  will   deliver  to  holders  of  the  Rights
historical  financial  statements  for  the  Principal  Party  and  each  of its
Affiliates  which comply in all respects with the  requirements for registration
on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive Section 13
Events.  In the event that a Section 13 Event  shall occur at any time after the
occurrence of a Section  11(a)(ii)  Event, the Rights which have not theretofore
been exercised shall  thereafter  become  exercisable in the manner described in
Section 13(a).

                  Section 14. Fractional Rights and Fractional  Shares.  (a) The
Company  shall not be required  to issue  fractions  of Rights or to  distribute
Right Certificates which evidence  fractional Rights. In lieu of such fractional
Rights,   the  Company  shall  pay  to  the  registered  holders  of  the  Right
Certificates  with regard to which such  fractional  Rights  would  otherwise be
issuable  an amount in cash equal to the same  fraction  of the  current  market
value of a whole  Right.  For the purposes of this  Section  14(a),  the current
market  value of a whole Right shall be the closing  price of the Rights for the
Trading Day immediately  prior to the date on which such fractional Rights would
have been  otherwise  issuable.  The closing price for any day shall be the last
sale price,  regular  way, or, in case no such sale takes place on such day, the
average of the  closing  bid and asked  prices,  regular  way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities  listed or admitted to trading on the New York Stock  Exchange or,
if the  Rights  are not  listed or  admitted  to  trading  on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national  securities exchange
on which the Rights are listed or  admitted to trading or, if the Rights are not
listed or  admitted to trading on any  national  securities  exchange,  the last
quoted  price or, if not so  quoted,  the  average of the high bid and low asked
prices in the  over-the-counter  market,  as  reported  by NASDAQ or such  other
system  then in use,  or, if on any such date the  Rights  are not quoted by any
such organization,  the average of the closing bid and asked prices as furnished
by a  professional  market maker  making a market in the Rights  selected by the
Board of Directors  of the Company.  If on any such date no such market maker is
making a market in the  Rights,  the fair value of the  Rights on such date,  as
determined  in good faith by the Board of  Directors  of the  Company,  shall be
used.

                  (b) The Company  shall not be required to issue  fractions  of
shares of Common Stock or Common Stock  Equivalents upon exercise or exchange of
the Rights or to distribute  certificates  which evidence  fractional shares. In
lieu of  fractional  shares of Common  Stock or Common  Stock  Equivalents,  the
Company may pay to the registered  holders of Right Certificates at the time the
Rights evidenced thereby are exercised or exchanged as herein provided an amount
in cash equal to the same  fraction of the current  market value of Common Stock
or Common Stock  Equivalents.  For purposes of this Section  14(b),  the current
market value of one share of Common Stock shall be the closing  price of a share
of Common Stock (as  determined  pursuant to Section  11(d)) for the Trading Day
immediately prior to the date of such exercise or exchange,  as the case may be,
and the current market value of any Common Stock Equivalent shall be the same as
the current market value of the Common Stock on such date.

                  (c) The  holder  of a Right  by the  acceptance  of the  Right
expressly  waives his right to receive any  fractional  Rights or any fractional
shares upon  exercise or exchange of a Right,  except as otherwise  permitted by
this Section 14.

                  Section 15. Rights of Action.  All rights of action in respect
of this Agreement are vested in the respective  registered  holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock);  and any registered holder of any Right Certificate (or, prior to
the Distribution  Date, of the Common Stock),  without the consent of the Rights
Agent  or of the  holder  of any  other  Right  Certificate  (or,  prior  to the
Distribution Date, of the Common Stock),  may, in his own behalf and for his own
benefit,  enforce, and may institute and maintain any suit, action or proceeding
against  the Company to enforce,  or  otherwise  act in respect of, his right to
exercise the Rights  evidenced by such Right  Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing
or  any  remedies  available  to  the  holders  of  Rights,  it is  specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the  obligations  hereunder and  injunctive  relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.

                  Section 16.  Agreement  of Right  Holders.  Every  holder of a
Right by accepting  the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:

                  (a)  prior  to the  Distribution  Date,  the  Rights  will  be
transferable only in connection with the transfer of the Common Stock;

                  (b) after the Distribution  Date, the Right  Certificates will
be transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent  designated  for such  purpose,  duly endorsed or
accompanied by a proper  instrument of transfer and with the  appropriate  forms
and certificates fully executed, along with a signature guarantee and such other
and further documentation as the Rights Agent may reasonably request;

                  (c) subject to Section 6 and Section 7(f) hereof,  the Company
and the  Rights  Agent  may deem and treat  the  Person in whose  name the Right
Certificate  (or, prior to the  Distribution  Date, the associated  Common Stock
certificate)  is  registered  as the  absolute  owner  thereof and of the Rights
evidenced thereby  (notwithstanding any notations of ownership or writing on the
Right  Certificates or the associated  Common Stock  certificate  made by anyone
other than the  Company or the Rights  Agent)  for all  purposes  whatever,  and
neither the Company nor the Rights  Agent shall be affected by any notice to the
contrary;

                  (d)   notwithstanding   anything  in  this  Agreement  to  the
contrary,  neither the Company nor the Rights Agent shall have any  liability to
any holder of a Right or other  Person as a result of its  inability  to perform
any of its  obligations  under this  Agreement by reason of any  preliminary  or
permanent  injunction  or other  order,  decree or  ruling  issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission,  or any statute,  rule, regulation or executive order promulgated
or enacted by any governmental  authority,  prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Company must use its
best  efforts  to have any such  order,  decree  or ruling  lifted or  otherwise
overturned as soon as possible.

                  Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote,  receive
dividends  or be deemed  for any  purpose  the holder of the number of shares of
Common  Stock or any other  securities  of the  Company  that may at any time be
issuable on the exercise of the Rights represented  thereby,  nor shall anything
contained  herein or in any Right  Certificate  be  construed to confer upon the
holder of any Right Certificate,  as such, any of the rights of a stockholder of
the  Company  or any right to vote for the  election  of  directors  or upon any
matter submitted to stockholders at any meeting thereof,  or to give or withhold
consent to any  corporate  action,  or to receive  notice of  meetings  or other
actions affecting stockholders (except as provided in Section 25), or to receive
dividends  or  subscription  rights,  or  otherwise,  until  the Right or Rights
evidenced by such Right  Certificate  shall have been exercised or exchanged for
Common Stock in accordance with the provisions hereof.

                  Section 18.  Concerning  the Rights Agent.  The agreements set
forth in this Section 18 shall  survive  termination  of the  Agreement  and the
payments of all amounts hereunder. The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other  disbursements  incurred in the  administration  and execution of this
Agreement and the exercise and performance of its duties hereunder.  The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless  against,
any loss,  liability  or  expense,  incurred  without  negligence,  bad faith or
willful  misconduct on the part of the Rights Agent  (including  the  reasonable
fees and expenses of counsel),  for anything done or omitted by the Rights Agent
in  connection  with  the  acceptance  and  administration  of  this  Agreement,
including the costs and expenses of defending  against any claim of liability in
the premises.

                  The  Rights  Agent  shall  be  protected  and  shall  incur no
liability  for or in respect of any action  taken,  suffered or omitted by it in
connection with its  administration of this Agreement in reliance upon any Right
Certificate or certificate for Common Stock or other  securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, instruction, adjustment notice, certificate,
statement,  or other  paper or  document  believed by it to be genuine and to be
signed, executed and, where necessary,  verified or acknowledged,  by the proper
Person or Persons.

                  In  addition  to the  foregoing,  the  Rights  Agent  shall be
protected  and shall incur no liability  for, or in respect of, any action taken
or omitted by it in  connection  with its  administration  of this  Agreement in
reliance upon (i) the proper execution of the certification appended to the Form
of Assignment and the Form of Election to Purchase included as part of Exhibit B
hereto  (the  "Certification"),  unless  the  Rights  Agent  shall  have  actual
knowledge  that,  as  executed,   the   Certification  is  untrue  or  (ii)  the
non-execution  or failure  to  complete  the  Certification  including,  without
limitation,  any  refusal  to honor  any  otherwise  permissible  assignment  or
election by reason of such nonexecution or failure.

                  Section  19.  Merger  or  Consolidation  or  Change of Name of
Rights  Agent.  Any  corporation  into which the Rights  Agent or any  successor
Rights  Agent  may be  merged  or  with  which  it may be  consolidated,  or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor  Rights Agent,
shall be the  successor  to the Rights  Agent under this  Agreement  without the
execution  or filing of any paper or any  further  act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor  Rights Agent under the  provisions of Section 21. In case at the
time such  successor  Rights Agent shall  succeed to the agency  created by this
Agreement,  any of the Right  Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor  so  countersigned;  and in  case  at  that  time  any of the  Right
Certificates shall not have been  countersigned,  any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor  Rights Agent;  and in all such cases such
Right  Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

                  In case at any  time  the name of the  Rights  Agent  shall be
changed  and at  such  time  any of  the  Right  Certificates  shall  have  been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right  Certificates  so  countersigned;  and in
case  at  that  time  any  of  the  Right   Certificates  shall  not  have  been
countersigned,  the Rights Agent may countersign such Right Certificates  either
in its prior  name or in its  changed  name;  and in all such  cases  such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.

                  Section  20.  Duties  of  Rights   Agent.   The  Rights  Agent
undertakes  the  duties  and  obligations  imposed  by this  Agreement  upon the
following terms and  conditions,  by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:

                  (a) The Rights Agent may consult  with legal  counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete  authorization  and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.

                  (b)  Whenever  in the  performance  of its  duties  under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or  established by the Company prior to taking or suffering any
action hereunder,  such fact or matter (unless other evidence in respect thereof
be herein  specifically  prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
President,  any Senior Vice President,  any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

                  (c) The Rights  Agent shall be liable  hereunder  only for its
own negligence, bad faith or willful misconduct. The issuance or non-issuance of
a Right  Certificate or Common Stock or other security  issued in lieu of Common
Stock in accordance with  instructions  given to the Rights Agent by the Company
pursuant to Section  20(k) hereof or in  accordance  with the terms hereof shall
not constitute negligence, bad faith or willful misconduct.

                  (d) The Rights  Agent  shall not be liable for or by reason of
any of the statements of fact or recitals  contained in this Agreement or in the
Right  Certificates  (except  its  countersignature  thereof)  or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.

                  (e) The Rights Agent shall not be under any  responsibility in
respect of the validity of this  Agreement or the execution and delivery  hereof
(except  the due  execution  hereof by the  Rights  Agent) or in  respect of the
validity or  execution  of any Right  Certificate  (except its  countersignature
thereof);  nor shall it be  responsible  for any  breach by the  Company  of any
covenant or condition  contained in this Agreement or in any Right  Certificate;
nor shall it be responsible for any adjustment  required under the provisions of
Section 11 or 13 or  responsible  for the  manner,  method or amount of any such
adjustment or the  ascertaining of the existence of facts that would require any
such  adjustment  (except with  respect to the  exercise of Rights  evidenced by
Right Certificates after actual notice of any such adjustment);  nor shall it by
any act  hereunder  be deemed to make any  representation  or warranty as to the
authorization or reservation of any shares of Common Stock to be issued pursuant
to this Agreement or any Right Certificate or as to whether any shares of Common
Stock will,  when  issued,  be validly  authorized  and  issued,  fully paid and
nonassessable.

                  (f)  The  Company  agrees  that  it  will  perform,   execute,
acknowledge and deliver,  or cause to be performed,  executed,  acknowledged and
delivered,  all such further and other acts,  instruments  and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.

                  (g) The Rights  Agent is hereby  authorized  and  directed  to
accept  instructions with respect to the performance of its duties hereunder and
certificates  delivered  pursuant  to any  provision  hereof from any one of the
Chairman  of the Board,  the  President,  any Senior  Vice  President,  any Vice
President,  the Secretary or the Treasurer of the Company,  and is authorized to
apply to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with  instructions of any such officer.  An application
by the  Rights  Agent for  instructions  may set  forth in  writing  any  action
proposed to be taken or omitted by the Rights  Agent with  respect to its duties
and  obligations  under this  Agreement  and the date on and/or after which such
action  shall be taken,  and the Rights Agent shall not be liable for any action
taken or omitted in accordance with a proposal  included in any such application
on or after the date  specified  therein  (which date shall not be less than one
Business Day after the Company receives such application) without the consent of
the Company  unless,  prior to taking or omitting such action,  the Rights Agent
has received written  instructions in response to an application  specifying the
actions to be taken or omitted.

                  (h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the  Company  may be  interested,  or  contract  with or lend money to the
Company, or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.

                  (i) The  Rights  Agent may  execute  and  exercise  any of the
rights or powers  hereby  vested in it or perform any duty  hereunder  either by
itself or by or through its attorneys or agents,  and the Rights Agent shall not
be answerable or accountable for any act, default,  neglect or misconduct of any
such attorneys or agents or for any loss to the Company  resulting from any such
act, default, neglect or misconduct; provided, however, that reasonable care was
exercised in the selection thereof.

                  (j) No provision of this  Agreement  shall  require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the  performance  of any of its duties  hereunder  or in the  exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds  or  adequate  indemnification  against  such  risk  or  liability  is not
reasonably assured to it.

                  (k) If, with respect to any Right  Certificate  surrendered to
the Rights Agent for exercise or transfer,  the certificate attached to the form
of  assignment  or form of election to purchase,  as the case may be, either has
not been  completed or does not  indicate an  affirmative  response,  the Rights
Agent shall not take any further action with respect to such requested  exercise
or transfer  without first  consulting  the Company.  The Company shall give the
Rights Agent prompt written  instructions as to the action to be taken regarding
the Right Certificates involved. The Rights Agent shall not be liable for acting
in accordance with such instructions.

                  Section 21.  Change of Rights  Agent.  The Rights Agent or any
successor  Rights Agent may resign and be discharged  from its duties under this
Agreement  upon  thirty  (30) days'  notice in writing  mailed to the Company by
registered or certified mail, and, at the Company's  expense,  to the holders of
the Right  Certificates  by first class mail.  The Company may remove the Rights
Agent or any  successor  Rights  Agent upon thirty (30) days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock by registered or certified  mail, and to
the holders of the Right  Certificates by first-class  mail. If the Rights Agent
shall resign or be removed or shall otherwise  become  incapable of acting,  the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after giving notice
of such removal or after it has been notified in writing of such  resignation or
incapacity by the resigning or incapacitated  Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company),  then the Company shall become the temporary  Rights
Agent and the registered  holder of any Right Certificate may apply to any court
of  competent  jurisdiction  for the  appointment  of a new  Rights  Agent.  Any
successor  Rights  Agent,  whether  appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New York (or of any other  state of the United  States
so  long  as  such  corporation  is  authorized  to  do  business  as a  banking
institution  in the State of New York),  in good  standing,  having a  principal
office in the State of New York, which is authorized under such laws to exercise
corporate  trust powers,  is subject to supervision or examination by federal or
state  authority,  and has at the  time of its  appointment  as  Rights  Agent a
combined  capital and surplus of at least $25 million.  After  appointment,  the
successor Rights Agent shall be vested with the same powers,  rights, duties and
responsibilities  as if it had been  originally  named as Rights  Agent  without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the  purpose.  Not later than the  effective  date of any such  appointment  the
Company shall file notice thereof in writing with the  predecessor  Rights Agent
and each  transfer  agent of the  Common  Stock,  and mail a notice  thereof  in
writing to the registered holders of the Right Certificates. Failure to give any
notice  provided for in this Section 21, however,  or any defect therein,  shall
not affect the legality or validity of the  resignation or removal of the Rights
Agent or the  appointment  of the successor  Rights  Agent,  as the case may be.
Predecessor  Rights  Agent shall be  released  and  discharged  from any and all
further responsibility incurred after its termination as Rights Agent.

                  Section   22.    Issuance    of   New   Right    Certificates.
Notwithstanding  any of the provisions of this Agreement or of the Rights to the
contrary,  the  Company  may,  at  its  option,  issue  new  Right  Certificates
evidencing  Rights in such form as may be approved by its Board of  Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other  securities  or  property  purchasable  under the Right
Certificates  made in  accordance  with the  provisions  of this  Agreement.  In
addition,  in  connection  with the  issuance or sale of shares of Common  Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights,  the Company (a) shall, with respect to shares of Common Stock so issued
or sold  pursuant to the exercise of stock options or under any employee plan or
arrangement,  or  upon  the  exercise,  conversion  or  exchange  of  securities
hereinafter  issued by the  Company,  and (b) may, in any other case,  if deemed
necessary or appropriate  by the Board of Directors of the Company,  issue Right
Certificates  representing  the appropriate  number of Rights in connection with
such issuance or sale;  provided,  however,  that (i) no such Right  Certificate
shall be issued if,  and to the extent  that,  the  Company  shall be advised by
counsel that such issuance would create a significant  risk of material  adverse
tax  consequences  to the  Company or the Person to whom such Right  Certificate
would be issued,  and (ii) no such Right  Certificate shall be issued if, and to
the extent that,  appropriate  adjustment shall otherwise have been made in lieu
of the issuance thereof.

                  Section  23.  Redemption  and  Termination.  (a) The  Board of
Directors of the Company,  upon the  affirmative  vote of  three-fourths  of the
entire Board of Directors,  may, at its option, at any time prior to the earlier
of (x) the close of business on the tenth day following  the Shares  Acquisition
Date (or if the Shares  Acquisition Date shall have occurred prior to the Record
Date, the close of business on the tenth day following the Record Date),  or (y)
the  Final  Expiration  Date,  redeem  all but not  less  than  all of the  then
outstanding  Rights at a  redemption  price of $.01 per  Right as  appropriately
adjusted  to reflect any stock  split,  stock  dividend  or similar  transaction
occurring  after  the date  hereof  (such  redemption  price  being  hereinafter
referred to as the "Redemption  Price"), and the Company may, at its option, pay
the  Redemption  Price  either in shares of its  Common  Stock  (valued at their
Current Market Price as defined in Section 11(d) on the date of the redemption),
other securities,  cash or other assets.  Notwithstanding  anything contained in
this Agreement to the contrary,  the Rights shall not be  exercisable  after the
first  occurrence of a Section  11(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired.

                  (b) In deciding whether or not to exercise the Company's right
of redemption hereunder, the Board of Directors of the Company shall act in good
faith,  in a manner they  reasonably  believe to be in the best interests of the
Company and with such care, including  reasonable inquiry,  skill and diligence,
as a person of ordinary prudence would use under similar circumstances, and they
may consider the long-term and short-term  effects of any action upon employees,
customers and creditors of the Company and upon  communities in which offices or
other  establishments  of the  Company  are  located,  and all  other  pertinent
factors.

                  (c)  Immediately  upon the action of the Board of Directors of
the Company  ordering  the  redemption  of the  Rights,  and without any further
action and without any notice,  the right to exercise the Rights will  terminate
and the only right  thereafter  of the holders of Rights shall be to receive the
Redemption  Price for each  Right  held.  Within 10 days after the action of the
Board of Directors ordering the redemption of the Rights, the Company shall give
notice of such  redemption  to the  holders  of the then  outstanding  Rights by
mailing  such notice to the Rights  Agent and to all such  holders at their last
addresses as they appear upon the  registry  books of the Rights Agent or, prior
to the  Distribution  Date, on the registry  books of the Transfer Agent for the
Common Stock.  Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption  will state the method by which the payment of the  Redemption  Price
will be made.  Neither the Company nor any of its  Affiliates or Associates  may
redeem, acquire or purchase for value any Rights at any time in any manner other
than  that  specifically  set  forth  in this  Section  23,  and  other  than in
connection with the repurchase of Common Stock prior to the Distribution Date.

                  Section  24.  Exchange.  (a) The  Board  of  Directors  of the
Company,  upon the  affirmative  vote of  three-fourths  of the entire  Board of
Directors,  may,  at its option but subject to the receipt by the Company of any
required regulatory  approvals,  at any time and from time to time on or after a
Section  11(a)(ii)  Event,  exchange  all or part of the  then  outstanding  and
exercisable  Rights  (which  shall not  include  Rights  that have  become  void
pursuant to the provisions of Section 7(e) hereof) for shares of Common Stock at
an exchange ratio of one share of Common Stock per Right, appropriately adjusted
to reflect any stock  split,  stock  dividend or similar  transaction  occurring
after the date of this Agreement (such exchange ratio being hereinafter referred
to as the "Exchange Ratio").

                  (b)  Immediately  upon the action of the Board of Directors of
the Company  ordering the exchange of any Rights  pursuant to subsection  (a) of
this Section 24 and without any further action and without any notice, the right
to exercise  such Rights  shall  terminate  and the only right  thereafter  of a
holder of such Rights  shall be to receive that number of shares of Common Stock
equal  to the  number  of such  Rights  held by such  holder  multiplied  by the
Exchange  Ratio.  The Company  shall  promptly  give  public  notice of any such
exchange;  provided,  however,  that the failure to give, or any defect in, such
notice  shall not affect the  validity of such  exchange.  The Company  promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein  provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange will be effected and, in the event of any
partial  exchange,  the number of Rights  which will be  exchanged.  Any partial
exchange  shall be effected  pro rata based on the number of Rights  (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.

                  (c) In the event that there shall not be sufficient  shares of
Common Stock issued but not  outstanding,  or authorized  but unissued to permit
any exchange of Rights as  contemplated  in accordance with this Section 24, the
Company  shall take all such action as may be necessary to authorize  additional
shares of Common Stock or for  issuance  upon  exchange of the Rights,  subject,
however, to Section 24(d) hereof.

                  (d) In any exchange  pursuant to this Section 24, the Company,
at its  option  but  subject  to the  receipt  by the  Company  of any  required
regulatory approvals,  may substitute for any share of Common Stock exchangeable
for a Right (i) Common Stock  Equivalents,  (ii) cash,  (iii) debt securities of
the Company, (iv) other assets, or (v) any combination of the foregoing,  having
an aggregate value which  three-fourths  of the entire Board of Directors of the
Company shall have  determined  in good faith to be equal to the Current  Market
Price of one share of Common Stock (determined pursuant to Section 11(d) hereof)
on the Trading Day immediately  preceding the date of exchange  pursuant to this
Section 24.

                  Section  25.  Notice of Certain  Events.  In case the  Company
shall  propose  at any  time  following  the  Distribution  Date  (a) to pay any
dividend payable in stock of any class to the holders of Common Stock or to make
any other  distribution  to the  holders of Common  Stock  (other than a regular
periodic cash  dividend),  or (b) to offer to the holders of Common Stock rights
or warrants to  subscribe  for or to purchase  any  additional  shares of Common
Stock or  shares  of  stock of any  class or any  other  securities,  rights  or
options,  or (c) to effect any  reclassification  of Common  Stock (other than a
reclassification involving only the subdivision of outstanding Common Stock), or
(d) to effect any  consolidation  or merger into or with any other Person (other
than a Subsidiary  of the Company in a transaction  which  complies with Section
11(n) hereof), or to effect any sale or other transfer (or to permit one or more
of its  Subsidiaries  to  effect  any  sale or other  transfer),  in one or more
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries  (taken as a whole) to, any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more  transactions  each of
which  complies with Section 11(n)  hereof),  or (e) to effect the  liquidation,
dissolution  or winding up of the Company,  then, in each such case, the Company
shall give to the Rights Agent and to each holder of a Right, in accordance with
Section 26, a notice of such  proposed  action,  which shall  specify the record
date for the purposes of such stock dividend,  distribution of rights or Rights,
or the  date  on  which  such  reclassification,  consolidation,  merger,  sale,
transfer, liquidation,  dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Stock, if any such date is
to be fixed, and such notice shall be so given in the case of any action covered
by clause (a) or (b) above at least  twenty  (20) days prior to the record  date
for determining  holders of the Common Stock for purposes of such action, and in
the case of any such other action,  at least twenty (20)) days prior to the date
of the taking of such proposed  action or the date of  participation  therein by
the holders of the Common Stock, whichever shall be the earlier.

                  In case a Section  11(a)(ii)  Event shall occur,  then, in any
such case,  the  Company  shall as soon as  practicable  thereafter  give to the
Rights  Agent  and to each  holder of a Right,  to the  extent  feasible  and in
accordance with Section 26 a notice of the occurrence of such event, which shall
specify the event and the  consequences  of the event to holders of Rights under
Section 11(a)(ii).

                  Section 26.  Notices.  Notices or demands  authorized  by this
Agreement  to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently  given or made if sent by
first-class mail,  postage prepaid,  addressed (unless and until another address
is filed in writing with the Rights Agent) as follows:

                           National Fuel Gas Company
                           10 Lafayette Square
                           Buffalo, New York 14203
                           Attention: Corporate Secretary

Subject to the provisions of Section 21, any notice or demand  authorized  by
this  Agreement to be given or made by the Company or by the holder of any Right
Certificate  to or on the Rights  Agent shall be  sufficiently  given or made if
sent by first-class mail,  postage prepaid,  addressed (until another address is
filed in writing with the Company) as follows:

                                    HSBC Bank USA
                                    140 Broadway
                                    12th Floor
                                    Issuer Services
                                    New York, New York  10005-1180

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Company or the  Rights  Agent to the  holder of any Right  Certificate  shall be
sufficiently  given  or  made  if sent by  first-class  mail,  postage  prepaid,
addressed  to such holder at the address of such holder as shown on the registry
books of the Company.

                  Section 27.  Supplements and Amendments.  Prior to the earlier
of the  Distribution  Date or the  Shares  Acquisition  Date and  subject to the
penultimate  sentence  of this  Section  27, the  Company  may from time to time
supplement  or amend this  Agreement  in writing  without  the  approval  of any
holders of Right  Certificates;  provided that any such  supplement or amendment
shall have been approved by the affirmative  vote of three-fourths of the entire
Board of Directors.  From and after the earlier of the Distribution  Date or the
Shares Acquisition Date, and subject to the penultimate sentence of this Section
27,  the  Company,  pursuant  to a  like  three-fourths  vote  of its  Board  of
Directors,  may from time to time  supplement or amend this Agreement in writing
without the approval of any holders of Right  Certificates  in order (i) to cure
any  ambiguity,  (ii) to correct or supplement  any provision  contained  herein
which may be defective or inconsistent with any other provisions  herein,  (iii)
to lengthen the time period  during  which the Rights may be redeemed  following
the Shares  Acquisition Date for up to an additional twenty days beyond the time
period  set  forth in  Section  23 (a),  or (iv) to  change  or  supplement  the
provisions  hereunder  in any manner  which the  Company may deem  necessary  or
desirable and which shall not  adversely  affect the interests of the holders of
Right Certificates  (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person).  Upon the delivery of a certificate from an appropriate
officer of the Company which states that the proposed supplement or amendment is
in compliance  with the terms of this Section 27, the Rights Agent shall execute
such  supplement or amendment  unless the Rights Agent shall have  determined in
good  faith  that such  supplement  or  amendment  would  adversely  affect  its
interests  under this Agreement.  Notwithstanding  anything in this Agreement to
the  contrary,  no  supplement  or  amendment  shall  be  made on or  after  the
Distribution Date which changes the Redemption Price, the Final Expiration Date,
the Purchase  Price or the number of shares of Common Stock for which a Right is
then  exercisable.  Prior to the earlier of the Shares  Acquisition  Date or the
Distribution  Date,  the  interests  of the  holders  of Rights  shall be deemed
coincident with the interests of the holders of Common Stock.

                  Section 28.  Successors.  All the covenants and  provisions of
this  Agreement  by or for the benefit of the Company or the Rights  Agent shall
bind and  inure  to the  benefit  of their  respective  successors  and  assigns
hereunder.

                  Section  29.  Determinations  and  Actions  by  the  Board  of
Directors.  For all purposes of this Agreement, any calculation of the number of
shares of  Common  Stock  outstanding  at any  particular  time,  including  for
purposes of determining the particular  percentage of such outstanding shares of
Common  Stock of which any  Person  is the  Beneficial  owner,  shall be made in
accordance with the provisions of Rule  13d-3(d)(1)(i)  of the General Rules and
Regulations  under the Exchange Act. The Board of Directors of the Company shall
have the  exclusive  power and  authority to  administer  this  Agreement and to
exercise all rights and powers specifically granted to the Board or the Company,
or as may be necessary or advisable  in the  administration  of this  Agreement,
including,  without  limitation,  the  right  and  power  to (i)  interpret  the
provisions of this Agreement,  and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including a determination
to redeem or not  redeem  the  Rights or to amend  the  Agreement);  and,  where
specifically    prescribed   herein,    such   Board   actions,    calculations,
interpretations and determinations  shall be undertaken or made only pursuant to
the affirmative vote of three-fourths of the entire Board of Directors. All such
actions,  calculations,  interpretations and determinations  (including, for the
purpose of clause (ii) below, all omissions with respect to the foregoing) which
are done or made by the Board in good faith, shall (i) be final,  conclusive and
binding on the Company,  the Rights Agent, the holders of the Right Certificates
and all other  parties,  and (ii) not subject the Board to any  liability to the
holders of the Right Certificates.

                  Section  30.  Benefits  of  This  Agreement.  Nothing  in this
Agreement  shall be construed to give to any Person other than the Company,  the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim  under  this  Agreement;  but  this  Agreement  shall  be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date,  registered holders
of the Common Stock).

                  Section 31. Severability. If any term, provision, covenant, or
restriction  of this Agreement is held by a court of competent  jurisdiction  or
other  authority  to be invalid,  void or  unenforceable,  the  remainder of the
terms, provisions,  covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected,  impaired or invalidated;
provided,  however,  that  notwithstanding  anything  in this  Agreement  to the
contrary, if any such term,  provision,  covenant or restriction is held by such
court  or  authority  to be  invalid,  void or  unenforceable  and the  Board of
Directors of the Company determines in its good faith judgment that severing the
invalid  language  from this  Agreement  would  adversely  affect the purpose or
effect of this  Agreement,  the right of  redemption  set forth in  Section  23,
hereof,  if then  expired,  shall be  reinstated  and shall not expire until the
close of business on the tenth day following the date of such  determination  by
the Board of Directors.

                  Section  32.  Governing  Law.  This  Agreement  and each Right
Certificate  issued  hereunder  shall be deemed to be a contract  made under the
laws of the State of  Delaware  and for all  purposes  shall be  governed by and
construed in accordance  with the laws of such State  applicable to contracts to
be made and performed  entirely within such State.  Notwithstanding  anything to
the contrary  contained  herein,  any dispute  regarding the carrying out of its
obligations  hereunder  by the Rights Agent shall be governed by the laws of New
York.

                  Section 33.  Counterparts.  This  Agreement may be executed in
any number of counterparts and each of such counterparts  shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

                  Section 34. Descriptive Headings.  Descriptive headings of the
several  Sections of this Agreement are inserted for convenience  only and shall
not  control or affect  the  meaning or  construction  of any of the  provisions
hereof.




                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement  to be duly  executed  and  their  respective  corporate  seals  to be
hereunto affixed and attested, all as of the day and year first above written.

[SEAL]
                                  NATIONAL FUEL GAS COMPANY



                                  By:/s/Philip C. Ackerman
                                     -----------------------------
                                  Name: Philip C. Ackerman
                                  Title:   Senior Vice President

Attest:/s/Anna Marie Cellino
       -----------------------
By:                                         
        Name: Anna Marie Cellino                              
        Title: Secretary                              




[SEAL]
                                  HSBC BANK USA



                                  By:/s/Peter S. Wolfrath
                                     ---------------------------
                                  Name: Peter S. Wolfrath
                                  Title: Assistant Vice President


Attest:
       
By:    /s/Anthony R. Bufinsky 
       ------------------------                                    
        Name: Anthony R. Bufinsky                              
        Title: Corporate Trust Officer                              




<PAGE>



                                                                    EXHIBIT A


[Form of Right Certificate]
Certificate No. R-                                        ____________ Rights


NOT  EXERCISABLE  AFTER  JULY 31,  2008 OR EARLIER  IF NOTICE OF  REDEMPTION  OR
EXCHANGE IS GIVEN.  THE RIGHTS ARE SUBJECT TO  REDEMPTION,  AT THE OPTION OF THE
COMPANY,  AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT.  UNDER CERTAIN  CIRCUMSTANCES,  RIGHTS MAY NOT BE EXERCISABLE AND THE
RIGHTS AGREEMENT MAY BE AMENDED WITHOUT THE APPROVAL OF THE RIGHTS OWNERS.

NATIONAL FUEL GAS COMPANY

Right Certificate


         This certifies that,  or registered assigns, is the registered owner of
the number of Rights set forth above,  each of which entitles the owner thereof,
subject to the terms, provisions and conditions of the Rights Agreement dated as
of June 12,  1996,  as the same may from time to time be amended  in  accordance
with its terms (as amended,  the "Rights  Agreement")  between National Fuel Gas
Company,  a New Jersey  corporation (the "Company") and  _______________________
(the  "Rights  Agent"),  to  purchase  from the  Company  at any time  after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M. (Buffalo,  New York time) on July 31, 2008 at the designated office of
the Rights Agent, or its successors as Rights Agent, in _____________, New York,
one-half of one fully paid,  nonassessable  share of the Common Stock, $1.00 par
value (the "Common Stock"),  of the Company,  at a purchase price of $130.00 per
share (the "Purchase Price"), being $65.00 per half share, upon presentation and
surrender  of this Right  Certificate  with the Form of Election to Purchase and
related  certificate  duly executed,  along with a signature  guarantee and such
other and further  documentation as the Rights Agent may reasonably request. The
number of Rights  evidenced by this Right  Certificate (and the number of shares
which may be purchased upon exercise  thereof) set forth above, and the Purchase
Price per share  set  forth  above,  are the  number  and  Purchase  Price as of
___________________,  based on the Common Stock of the Company as constituted at
such date.



A-1



<PAGE>



                  Upon the occurrence of a Section 11(a)(ii) Event (as such term
is defined  in the Rights  Agreement),  if the  Rights  evidenced  by this Right
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring  Person (as such terms are defined in the Rights
Agreement),   (ii) a  transferee  of any such  Acquiring  Person,  Associate  or
Affiliate,  or  (iii)  under  certain  circumstances  specified  in  the  Rights
Agreement, a transferee of a person who after such transfer, became an Acquiring
Person,  such Rights shall become null and void and no holder  hereof shall have
any right with  respect to such  Rights  from and after the  occurrence  of such
Section 11(a)(ii) Event.

                  As provided in the Rights  Agreement,  the Purchase  Price and
the number and kind of shares of Common  Stock  (or,  in certain  circumstances,
other  securities)  which  may be  purchased  upon the  exercise  of the  Rights
evidenced by this Right  Certificate are subject to modification  and adjustment
upon the happening of certain events,  including Triggering Events (as such term
is defined in the Rights Agreement).

                  This  Right  Certificate  is  subject  to all  of  the  terms,
provisions and conditions of the Rights Agreement,  which terms,  provisions and
conditions  are hereby  incorporated  herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations,  duties and immunities hereunder
of the Rights  Agent,  the Company  and the  holders of the Right  Certificates.
Copies of the Rights Agreement are on file at the above-mentioned  office of the
Rights Agent, and at the executive offices of the Company.

                  This  Right   Certificate,   with  or  without   other   Right
Certificates, upon surrender at the designated office of the Rights Agent, along
with a  signature  guarantee  and such other and  further  documentation  as the
Rights  Agent  may  reasonably  request,  may be  exchanged  for  another  Right
Certificate  or Right  Certificates  of like  tenor and date  evidencing  Rights
entitling  the holder to  purchase a like  aggregate  number of shares of Common
Stock as the Rights  evidenced by the Right  Certificate  or Right  Certificates
surrendered  shall  have  entitled  such  holder  to  purchase.  If  this  Right
Certificate  shall be exercised in part, the holder shall be entitled to receive
upon  surrender  hereof,  along with a  signature  guarantee  and such other and
further documentation as the Rights Agent may reasonably request,  another Right
Certificate or Right Certificates for the number of whole Rights not exercised.

A-2



<PAGE>




                  Subject to the provisions of the Rights Agreement,  the Rights
evidenced by this  Certificate  (a) may be redeemed by the Company at its option
at a  redemption  price of $.01 per Right  prior to the  earlier of the close of
business on (i) the tenth day following the Shares Acquisition Date and (ii) the
Final  Expiration Date or (b) may be exchanged in whole or in part for shares of
Common Stock and/or other securities, cash or other assets of the Company deemed
to have the same  value as shares of Common  Stock,  at any time after a Section
11(a)(ii) Event. The Rights Agreement may be amended without the approval of the
holders of the Rights as and to the extent set forth therein.

                  No  fractional  shares of Common Stock will be issued upon the
exercise  or  exchange  of any Right or  Rights  evidenced  hereby,  but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.

                  No holder of this Right  Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Common Stock
or of any other  securities  of the Company which may at any time be issuable on
the exercise  hereof,  nor shall anything  contained in the Rights  Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a  stockholder  of the  Company  or any  right  to vote for the  election  of
directors or upon any matter  submitted to stockholders at any meeting  thereof,
or to give or withhold consent to any corporate  action, or to receive notice of
meetings  or other  actions  affecting  stockholders  (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights  evidenced by this Right  Certificate  shall have been
exercised or exchanged for Common Stock as provided in the Rights Agreement.

                  This Right  Certificate  shall not be valid or obligatory  for
any purpose until it shall have been countersigned by the Rights Agent.

A-3



<PAGE>


                  WITNESS the facsimile  signature of the proper officers of the
Company and its corporate seal. Dated as of _____________________.





[SEAL]                                  NATIONAL FUEL GAS COMPANY

                                        By:____________________________
                                            Name
                                            Title

ATTEST:



By: _______________________________    
     Name:
     Title:


                                        Countersigned:


                                        -----------------------,
                                        as Rights Agent


                                        By:_________________________
                                           Authorized Signature


                                        Date:

A-4



<PAGE>



[Form of Reverse Side of Right Certificate]

FORM OF ASSIGNMENT

- ----------------------

(To be executed by the registered  holder if such holder desires to transfer the
Right Certificates.)


                                    FOR VALUE RECEIVED _________________  hereby

sells, assigns and transfers unto ______________________________________________
                                  (please print name and address of transferee)

this Right Certificate, together with all right, title and interest therein, and
does hereby  irrevocably  constitute and appoint  _______________  Attorney,  to
transfer the within Right Certificate on the books of the within-named  Company,
with full power of substitution.

Dated:_____________________

                                              
_____________________________ Signature

Signature Guaranteed:

(Signatures must be guaranteed.)

A-5


<PAGE>



CERTIFICATE

______________________


                           The  undersigned  hereby  certifies  by checking  the
appropriate space that:

                  Exercising  this  Right  Certificate  will ____ will not _____
enable the undersigned,  its Affiliates,  its Associates and/or any other Person
with which the undersigned or any of the undersigned's  Affiliates or Associates
has any agreement,  arrangement or understanding (whether or not in writing) for
the purpose of  acquiring,  holding,  voting or disposing of  securities  of the
Company to obtain,  individually  or in the aggregate,  beneficial  ownership of
Common Stock or other  securities that have 10% or more of the aggregate  voting
power of the outstanding  shares of the Common Stock and other securities having
voting power.


Dated: ___________________        ___________________________
                                  Signature

Signature Guaranteed:

(Signatures must be guaranteed.)

A-6





<PAGE>


NOTICE

         The  signature  to  the  foregoing   Assignment  and  Certificate  must
correspond  to the name as written  upon the face of this Right  Certificate  in
every particular, without alteration or enlargement or any change whatsoever.

A-7


<PAGE>


FORM OF ELECTION TO PURCHASE

(To be executed  if holder  desires to exercise  Rights  evidenced  by the Right
Certificate.)


To National Fuel Gas Company:

         The undersigned hereby irrevocably elects to exercise __________ Rights
represented  by this Right  Certificate  to purchase  the shares of Common Stock
issuable  upon the  exercise  of such  Rights (or such other  securities  of the
Company or of any other  Person  which may be issuable  upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of:

Please insert social security or other taxpayer identifying number

- ------------------------------------------------------------------------------
(Please print name and address)

         If such number of Rights shall not be all the Rights  evidenced by this
Right  Certificate,  a new Right  Certificate for the balance  remaining of such
Rights shall be registered in the name of and delivered to:


Please insert social security or other taxpayer identifying number

- ------------------------------------------------------------------------------
(Please print name and address)

- ------------------------------------------------------------------------------

Dated: ___________, ____


- ---------------------------------
Signature


Signature Guaranteed:
(Signatures must be guaranteed.)

A-8


<PAGE>


SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK                    EXHIBIT B

                  On March 19,  1996,  the Board of Directors  (the  "Board") of
National Fuel Gas Company (the  "Company")  authorized the Company to enter into
the  Rights  Agreement,  dated  as  of  June  12,  1996  (the  "Original  Rights
Agreement"),  between the Company and Marine  Midland Bank, as rights agent.  In
connection therewith,  the Board authorized and declared a dividend distribution
of one right  (collectively,  the "Rights") for each outstanding share of Common
Stock,  $1.00 par value,  of the  Company  (the  "Common  Stock").  Rights  were
distributed to the holders of record of Common Stock outstanding at the close of
business on July 31, 1996 (the "Record  Date"),  the record date  established by
the  Board on June 13,  1996.  Each  Right  entitles  the  registered  holder to
purchase from the Company one-half of a share of Common Stock at a price of $130
per share  (the  "Purchase  Price"),  being  $65.00 per half  share,  subject to
adjustment.

                  On September 17, 1998, the Board approved  certain  amendments
to the Original  Rights  Agreement and  authorized  the Company to enter into an
Amended and Restated Rights Agreement to reflect those amendments.  On April 30,
1999, the Company entered into the Amended and Restated Rights Agreement,  dated
as of April 30, 1999 (the Original  Rights  Agreement,  as amended and restated,
being hereinafter  referred to as the "Rights  Agreement"),  with HSBC Bank USA,
(formerly known as Marine Midland Bank),  as rights agent.  Among the amendments
made to the Original Rights  Agreement are (i) a two-year  extension of the term
of the Rights  Agreement to July 31,  2008,  (ii) the  qualification  of certain
obligations  of the  Company  under the Rights  Agreement  by  reference  to any
regulatory approvals that may be required in connection therewith,  and (iii) in
connection  with the voting  standard  required  under the Rights  Agreement for
certain Board actions, the substitution of the affirmative vote of three-fourths
of the entire  Board for the  "Independent  Director"  vote  required  under the
Original Rights Agreement.

Currently, the Rights are attached to all Common Stock certificates representing
shares  presently  outstanding and the Rights will be attached to any new Common
Stock certificates representing shares hereafter issued.

Distribution Date; Transfer of Rights
- -------------------------------------

         Until  the  earlier  to occur of (i) ten days  following  the date (the
"Shares  Acquisition Date") of the public announcement that a person or group of
affiliated  or  associated  persons (an  "Acquiring  Person") has  acquired,  or
obtained  the right to acquire,  beneficial  ownership  of Common Stock or other
voting securities  ("Voting Stock") that have 10% or more of the voting power of
the  outstanding  shares  of  Voting  Stock  or  (ii)  ten  days  following  the
commencement  or announcement of an intention to make a tender offer or exchange
offer the  consummation  of which  would  result in such  person  acquiring,  or
obtaining the right to acquire,  beneficial ownership of Voting Stock having 10%
or more of the voting power of the outstanding shares of


B-1


<PAGE>


Voting Stock (the earlier of such dates being called the  "Distribution  Date"),
the Rights will be evidenced,  with respect to any of the Company's Common Stock
certificates   outstanding   as  of  the  Record  Date,  by  such  Common  Stock
certificate.  The Rights Agreement  provides that, until the Distribution  Date,
the Rights will be  transferred  with and only with the Company's  Common Stock.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
new Common Stock certificates  issued after the Record Date upon transfer or new
issuance of the Company's Common Stock will contain a notation incorporating the
Rights  Agreement  by  reference.   Until  the  Distribution  Date  (or  earlier
redemption or  expiration  of the Rights),  the surrender for transfer of any of
the Company's Common Stock  certificates  outstanding as of the Record Date will
also  constitute  the  transfer of the Rights  associated  with the Common Stock
represented  by  such  certificate.   As  soon  as  practicable   following  the
Distribution  Date,   separate   certificates   evidencing  the  Rights  ("Right
Certificates") will be mailed to holders of record of the Company's Common Stock
as of the close of business on the  Distribution  Date and such  separate  Right
Certificates alone will evidence the Rights.

         The Rights are not exercisable until the Distribution  Date. The Rights
will expire at the close of Business on July 31, 2008,  unless earlier  redeemed
or exchanged by the Company as described below.

Exercise of Rights for Common Stock of the Company
- --------------------------------------------------

         Subject to redemption or exchange of the Rights,  at any time following
the Distribution  Date, each holder of a Right will thereafter have the right to
receive,  upon  exercise,  Common  Stock (or,  in certain  circumstances,  cash,
property or other  securities of the Company)  having a value equal to two times
the  Purchase  Price of the Right  then in  effect.  Notwithstanding  any of the
foregoing,  following the occurrence of such event set forth in this  paragraph,
all Rights that are, or (under  certain  circumstances  specified  in the Rights
Agreement)  were,  beneficially  owned by any Acquiring  Person will be null and
void.

Exercise of Rights for Shares of the Acquiring Company
- ------------------------------------------------------

         In the event that, at any time following the Shares  Acquisition  Date,
(i)  the  Company  is  acquired  in  a  merger  or  other  business  combination
transaction,  or (ii) 50% or more of the  Company's  assets or earning  power is
sold or transferred, each holder of a Right (except Rights which previously have
been voided as set forth above) shall thereafter have the right to receive, upon
exercise,  Common  Stock of the  acquiring  company  having a value equal to two
times the Purchase Price of the Right then in effect.


B-2



<PAGE>



Adjustments to Purchase Price
- -----------------------------

         The Purchase  Price  payable,  and the number of shares of Common Stock
(or other  securities,  as the case may be) issuable upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision,  combination or  reclassification  of,
the Common Stock,  (ii) upon the grant to holders of the Common Stock of certain
rights or warrants to  subscribe  for or purchase  shares of the Common Stock or
convertible  securities at less than the then Current Market Price of the Common
Stock or (iii) upon the distribution to holders of the Common Stock of evidences
of  indebtedness  or  assets  (excluding  regular  periodic  cash  dividends  or
dividends  payable in the Common  Stock) or of  subscription  rights or warrants
(other than those referred to above).  Prior to the Distribution Date, the Board
of  Directors  of the Company may make such  equitable  adjustments  as it deems
appropriate in the circumstances in lieu of any adjustment otherwise required by
the foregoing.

         With certain  exceptions,  no adjustment in the Purchase  Price will be
required  until the earlier of (i) three years from the date of the event giving
rise to such adjustment or (ii) the time at which cumulative adjustments require
an  adjustment of at least 1% in such Purchase  Price.  No fractional  shares of
Common Stock will be issued and, in lieu thereof,  an adjustment in cash will be
made based on the  market  price of the Common  Stock on the last  trading  date
prior to the date of exercise.

Redemption and Exchange of Rights
- ---------------------------------

         At any time prior to 5:00 P.M. Buffalo,  New York time on the tenth day
following  the Shares  Acquisition  Date,  the  Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the  "Redemption  Price").
The decision to redeem shall require the affirmative  vote of  three-fourths  of
the  entire  Board of  Directors.  Immediately  upon the  action of the Board of
Directors of the Company  electing to redeem the Rights,  the Company shall make
announcement  thereof,  and upon such  action,  the right to exercise the Rights
will  terminate  and the only right of the  holders of Rights will be to receive
the Redemption Price.

         At any time  after the  occurrence  of the  event  set forth  under the
heading "Exercise of Rights for Common Stock of the Company" above, the Board of
Directors,  acting by the affirmative  vote of three-fourths of the entire Board
of  Directors,  may exchange the Rights (other than Rights owned by an Acquiring
Person,  which have become void),  in whole or in part, at an exchange  ratio of
one share of Common Stock, and/or other securities,  cash or other assets deemed
to have the same  value as one share of Common  Stock,  per  Right,  subject  to
adjustment.


B-3


<PAGE>


         Until a Right is exercised or exchanged  for Common  Stock,  the holder
thereof,  as  such,  will  have  no  rights  as a  stockholder  of the  Company,
including,  without limitation, the right to vote or to receive dividends. While
the  distribution  of the Rights will not be taxable to  stockholders  or to the
Company,  stockholders may, depending upon the circumstances,  recognize taxable
income in the event that the Rights become exercisable for Common Stock or other
consideration  of the  Company or for the stock of the  Acquiring  Person as set
forth above, or are exchanged as provided in the preceding paragraph.

Amendments to Terms of the Rights
- ---------------------------------

         Any of the  provisions  of the Rights  Agreement  may be amended by the
Board of  Directors  of the  Company  without  the consent of the holders of the
Rights  prior to the  Distribution  Date;  provided  that any such  amendment is
approved  by the  affirmative  vote of  three-fourths  of the  entire  Board  of
Directors.  Thereafter, the provisions of the Rights Agreement may be amended by
the Board of Directors,  acting by a like  three-fourths  vote, in order to cure
any  ambiguity,  defect  or  inconsistency,  or to  make  changes  which  do not
adversely  affect the interests of holders of Rights  (excluding the interest of
any Acquiring Person); provided, however, that no supplement or amendment may be
made on or after the Distribution  Date which changes those provisions  relating
to the principal  economic terms of the Rights. The Board of Directors may also,
by a  like  three-fourths  vote,  extend  the  redemption  period  for  up to an
additional 20 days.



         A copy of the Rights  Agreement has been filed with the  Securities and
Exchange Commission as an Exhibit to a Registration  Statement on Form 8-A dated
June 12, 1996. A copy of the Rights  Agreement is available  free of charge from
the  Company.  This  summary  description  of the Rights  does not purport to be
complete and is qualified in its entirety by reference to the Rights  Agreement,
which is hereby incorporated herein by reference.

B-4






<PAGE>





                             CERTIFICATE PURSUANT TO
                       SECTION 27 OF THE RIGHTS AGREEMENT



         Pursuant  to Section 27 of the Rights  Agreement,  dated as of June 12,
1996 (the "Rights  Agreement"),  by and between National Fuel Gas Company, a New
Jersey corporation (the "Company"),  and HSBC Bank USA, formerly known as Marine
Midland  Bank,  as Rights Agent (the "Rights  Agent"),  the  undersigned  hereby
certifies to the Rights Agent that:

            (i) He is duly elected and acting Assistant Secretary of the Company
and is duly authorized to make this certification on its behalf;

           (ii)  Attached  hereto is a true,  correct  and  complete  copy of an
Amended  and  Restated  Rights  Agreement,  dated  as of  April  30,  1999  (the
"Amendment");

         (iii) The Amendment has been duly  authorized by the Board of Directors
of the  Company,  has been duly  executed  on behalf  of the  Company  by a duly
authorized  officer,  and is in  compliance  with the terms of Section 27 of the
Rights Agreement.


         IN WITNESS WHEREOF,  the undersigned has duly executed this certificate
as of the 22nd day of April, 1999.




                                      NATIONAL FUEL GAS COMPANY



                                      By: ____________________________
                                          James R. Peterson
                                          Assistant Secretary


<PAGE>












                                                     April 22, 1999





HSBC Bank USA
140 Broadway
12th Floor
Corporate Trust Services
New York NY  10005-1180

                  RE:      NATIONAL FUEL GAS COMPANY
                           AND HSBC BANK USA
                           Rights Agreement
                           Amended and Restated as of April 30, 1999

Gentlemen:

                  Enclosed  are two  originals of the Rights  Agreement  between
National  Fuel Gas  Company  and HSBC Bank USA.  Please have an office sign both
originals and return one to me. Pursuant to Section 27 of the Rights  Agreement,
I am also enclosing a signed certificate.


                                                     Very truly yours,



                                                     James R. Peterson



Enc.




<TABLE>
<CAPTION>


                                                                                                                    EXHIBIT 12
                                                                         COMPUTATION OF RATIO OF          
                                                                        EARNINGS TO FIXED CHARGES
                                                                                 UNAUDITED

                                         Twelve Months                  Fiscal Year Ended September 30
                                             Ended             -------------------------------------------------------      
                                          March 31, 1999       1998          1997       1996       1995      1994
<S>                                             <C>            <C>          <C>         <C>       <C>       <C> 
                                        ------------------------------------------------------------------------------
                                                                         (Thousands of Dollars)

EARNINGS:


Income Before Interest Charges  and Minority   
  Interest in Foreign Subsidiaries (2)          $201,828       $118,085     $169,783    $159,599  $128,061  $127,885
Allowance for Borrowed Funds Used in 
   Construction                                      272            110          346         205       195       209
Federal Income Tax                                16,084         43,626       57,807      55,148    30,522    36,630
State Income Tax                                   5,906          6,635        7,067       7,266     4,905     6,309
Deferred Inc. Taxes - Net (3)                     41,411        (26,237)       3,800       3,907     8,452     4,853
Investment Tax Credit - Net                         (698)          (663)        (665)       (665)     (672)     (682)
Rentals (1)                                        4,269          4,672        5,328       5,640     5,422     5,730
                                                --------        -------     --------    --------  --------  --------

                                                $269,072        $146,228    $243,466    $231,100  $176,885  $180,934
                                                ========        ========    ========    ========  ========  ========

FIXED CHARGES:

Interest & Amortization of Premium and
   Discount of Funded Debt                       $63,724         $53,154     $42,131     $40,872   $40,896   $36,699
Interest on Commercial Paper and
   Short-Term Notes Payable                       17,372          13,605       8,808       7,872     6,745     5,599
Other Interest (2)                                 3,936          16,919       4,502       6,389     4,721     3,361
Rentals (1)                                        4,269           4,672       5,328       5,640     5,422     5,730
                                                 -------         -------     -------     -------   -------   -------

                                                 $89,301         $88,350     $60,769     $60,773   $57,784   $51,389
                                                 =======         =======     =======     =======   =======   =======

RATIO OF EARNINGS TO FIXED CHARGES                  3.01            1.66        4.01        3.80      3.06      3.52

</TABLE>

Notes: 

   (1) Rentals  shown above  represent  the  portion of all rentals  (other than
       delay rentals) deemed representative of the interest factor.

   (2) Twelve months ended March 31, 1999  and, fiscal 1998,  1997, 1996, 1995
       and 1994 reflect the reclassification of $1,786,  $1,716, $1,716, $1,716,
       $1,716 and $1,674, representing  the loss on reacquired debt amortized
       during each period, from Other Interest Charges to Operation Expense.

   (3) Deferred  Income  Taxes - Net for fiscal  1998 and 1994 exclude the
       cumulative effect of changes in accounting.

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                                                           <C>
<PERIOD-TYPE>                                                 06-MOS
<FISCAL-YEAR-END>                                             SEP-30-1999
<PERIOD-START>                                                OCT-01-1998
<PERIOD-END>                                                  MAR-31-1999
<BOOK-VALUE>                                                     PER-BOOK
<TOTAL-NET-UTILITY-PLANT>                                       2,268,547
<OTHER-PROPERTY-AND-INVEST>                                             0
<TOTAL-CURRENT-ASSETS>                                            341,330
<TOTAL-DEFERRED-CHARGES>                                            8,957
<OTHER-ASSETS>                                                    229,529
<TOTAL-ASSETS>                                                  2,848,363
<COMMON>                                                           38,641
<CAPITAL-SURPLUS-PAID-IN>                                         424,240
<RETAINED-EARNINGS>                                               492,233
<TOTAL-COMMON-STOCKHOLDERS-EQ>                                    943,334
                                                   0
                                                             0
<LONG-TERM-DEBT-NET>                                              724,920
<SHORT-TERM-NOTES>                                                212,100
<LONG-TERM-NOTES-PAYABLE>                                               0
<COMMERCIAL-PAPER-OBLIGATIONS>                                    150,000
<LONG-TERM-DEBT-CURRENT-PORT>                                     160,111
                                               0
<CAPITAL-LEASE-OBLIGATIONS>                                             0
<LEASES-CURRENT>                                                        0
<OTHER-ITEMS-CAPITAL-AND-LIAB>                                    657,898
<TOT-CAPITALIZATION-AND-LIAB>                                   2,848,363
<GROSS-OPERATING-REVENUE>                                         823,826
<INCOME-TAX-EXPENSE>                                               52,580
<OTHER-OPERATING-EXPENSES>                                        630,937
<TOTAL-OPERATING-EXPENSES>                                        683,517
<OPERATING-INCOME-LOSS>                                           140,309
<OTHER-INCOME-NET>                                                  6,317
<INCOME-BEFORE-INTEREST-EXPEN>                                    146,626
<TOTAL-INTEREST-EXPENSE>                                           44,975
<NET-INCOME>                                                       98,763
                                             0
<EARNINGS-AVAILABLE-FOR-COMM>                                      98,763
<COMMON-STOCK-DIVIDENDS>                                           34,642
<TOTAL-INTEREST-ON-BONDS>                                               0
<CASH-FLOW-OPERATIONS>                                            135,064
<EPS-PRIMARY>                                                        2.56
<EPS-DILUTED>                                                        2.54




</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
       
<S>                                                                <C>
<PERIOD-TYPE>                                                      06-MOS
<FISCAL-YEAR-END>                                                  SEP-30-1998
<PERIOD-START>                                                     OCT-01-1997
<PERIOD-END>                                                       MAR-31-1998
<BOOK-VALUE>                                                          PER-BOOK
<TOTAL-NET-UTILITY-PLANT>                                            2,012,069
<OTHER-PROPERTY-AND-INVEST>                                                  0
<TOTAL-CURRENT-ASSETS>                                                 351,380
<TOTAL-DEFERRED-CHARGES>                                                 6,912
<OTHER-ASSETS>                                                         236,178
<TOTAL-ASSETS>                                                       2,606,539
<COMMON>                                                                38,298
<CAPITAL-SURPLUS-PAID-IN>                                              408,703
<RETAINED-EARNINGS>                                                    446,565
<TOTAL-COMMON-STOCKHOLDERS-EQ>                                         892,391
                                                        0
                                                                  0
<LONG-TERM-DEBT-NET>                                                   543,410
<SHORT-TERM-NOTES>                                                     283,235
<LONG-TERM-NOTES-PAYABLE>                                                    0
<COMMERCIAL-PAPER-OBLIGATIONS>                                          95,000
<LONG-TERM-DEBT-CURRENT-PORT>                                          153,572
                                                    0
<CAPITAL-LEASE-OBLIGATIONS>                                                  0
<LEASES-CURRENT>                                                             0
<OTHER-ITEMS-CAPITAL-AND-LIAB>                                         638,931
<TOT-CAPITALIZATION-AND-LIAB>                                        2,606,539
<GROSS-OPERATING-REVENUE>                                              827,462
<INCOME-TAX-EXPENSE>                                                    13,210
<OTHER-OPERATING-EXPENSES>                                             778,200
<TOTAL-OPERATING-EXPENSES>                                             791,410
<OPERATING-INCOME-LOSS>                                                 36,052
<OTHER-INCOME-NET>                                                      26,762
<INCOME-BEFORE-INTEREST-EXPEN>                                          62,814
<TOTAL-INTEREST-EXPENSE>                                                43,713
<NET-INCOME>                                                             7,156
                                                  0
<EARNINGS-AVAILABLE-FOR-COMM>                                            7,156
<COMMON-STOCK-DIVIDENDS>                                                33,186
<TOTAL-INTEREST-ON-BONDS>                                                    0
<CASH-FLOW-OPERATIONS>                                                 122,657
<EPS-PRIMARY>                                                              .19
<EPS-DILUTED>                                                              .18
        




</TABLE>

Exhibit 99
Form 10-Q
March 31, 1999


                                                       NATIONAL FUEL GAS
                                               CONSOLIDATED STATEMENT OF INCOME
                                                         (UNAUDITED)


                                                   Twelve Months Ended
                                                         March 31,
                                                   --------------------

                                                   1999            1998
(Thousands of Dollars, Except Per
  Common Share Amounts)

INCOME
Operating Revenues                                $1,238,157      $1,231,077
                                                  ----------      ----------

Operating Expenses
  Purchased Gas                                      401,429         466,087
  Fuel Used in Heat and Electric Generation           57,108          18,510
  Operation                                          288,352         274,895
  Maintenance                                         24,532          26,638
  Property, Franchise and Other Taxes                 90,614          95,207
  Depreciation, Depletion and Amortization           124,537         113,883
  Impairment of Oil & Gas Producing Properties             -         128,996
  Income Taxes - Net                                  63,396          25,471
                                                  ----------      ----------
                                                   1,049,968       1,149,687
                                                  ----------      ----------

Operation Income                                     188,189          81,390
Other Income                                          15,425          28,637
                                                  ----------      ----------
Income Before Interest Charges and
  Minority Interest in Foreign Subsidiary            203,614         110,027
                                                  ----------      ----------

Interest Charges
  Interest on Long-Term Debt                          63,723          44,336
  Other Interest                                      22,822          27,601
                                                  ----------      ----------
                                                      86,545          71,937
                                                  ----------      ----------
Minority Interest in Foreign Subsidiary               (2,273)         (2,829)
                                                  ----------      ----------
Income Before Cumulative Effect                      114,796          35,261

Cumulative Effect of Change in Accounting for 
  Depletion                                                -          (9,116)
                                                  ----------      ----------

Net Income Available for Common Stock             $  114,796      $   26,145
                                                  ==========      ==========

Basic Earnings (Loss) Per Common Share
    Income Before Cumulative Effect               $    2.98       $    0.92
    Cumulative Effect fo Change in Accounting
      for Depletion                                       -           (0.24)
                                                  ---------       ---------
    Net Income Available for Common Stock         $    2.98       $    0.68
                                                  =========       =========

Diluted Earnings (Loss) Per Common Share
    Income Before Cumulative Effect               $    2.96       $    0.91
    Cumulative Effect of Change in Accounting
      for Depletion                                       -           (0.24)
                                                  ---------       ---------
    Net Income Available for Common Stock         $    2.96       $    0.67
                                                  =========       =========

Weighted Average Common Shares Outstanding
    Used in Basic Calculation                    38,484,952      38,188,112
                                                 ==========      ==========
    Used in Diluted Calculation                  38,822,817      38,591,405
                                                 ==========      ==========



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