<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 11, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Schedule 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
PENNSYLVANIA ENTERPRISES, INC.
(NAME OF ISSUER AND PERSON FILING STATEMENT)
COMMON STOCK, NO PAR VALUE, STATED VALUE $10.00 PER SHARE
(Title of Class of Securities)
708720107
(CUSIP Number of Class of Securities)
THOMAS J. WARD
SECRETARY
PENNSYLVANIA ENTERPRISES, INC.
WILKES-BARRE CENTER
39 PUBLIC SQUARE
WILKES-BARRE, PENNSYLVANIA 18711
(717) 829-8843
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and
Communications on Behalf of the Person Filing the Statement)
COPY TO:
GARETT J. ALBERT
HUGHES HUBBARD & REED
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
(212) 837-6000
MARCH 11, 1996
(Date Tender Offer First Published, Sent Or Given To Security Holders)
Calculation of Filing Fee
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Transaction Valuation* .. Amount of Filing Fee
$78,000,000.............. $15,600
</TABLE>
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 2,000,000
shares at $39.00 per share.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Pennsylvania Enterprises, Inc., a Pennsylvania
corporation (the "Company"), and the address of its principal executive offices
is Wilkes-Barre Center, 39 Public Square, Wilkes-Barre, Pennsylvania 18711.
(b) This Schedule relates to the offer by the Company to purchase up to
2,000,000 shares (or such lesser number of shares as are properly tendered) of
its Common Stock, no par value, stated value $10.00 per share (the "Shares")
(including the associated common stock purchase rights issued pursuant to the
Rights Agreement, dated as of April 26, 1995, between the Company and Chemical
Bank, as Rights Agent), at a price not greater than $39.00 nor less than $37.00
per Share, net to the seller in cash, all upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated March 11, 1996 (the "Offer
to Purchase"), and the related Letter of Transmittal (which together constitute
the "Offer"), copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively. As of March 7, 1996, the Company had issued and outstanding
5,792,921 Shares and had reserved for issuance upon exercise of outstanding
stock options 32,600 Shares. Directors and executive officers of the Company and
any of its affiliates may participate in the Offer on the same basis as the
Company's other stockholders, although the Company has been advised that no
director or executive officer of the Company or any of its affiliates intends to
tender Shares pursuant to the Offer. The information set forth on the cover page
and under "Introduction" and "The Offer-Purpose of the Offer; Certain Effects of
the Offer" in Section 9 of the Offer to Purchase is incorporated herein by
reference.
(c) The information set forth on the cover page, and under "Introduction" and
"The Offer-Price Range of Shares; Dividends" in Section 8 of the Offer to
Purchase is incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth under "The Offer-Source and Amount of Funds" in
Section 11 and "The Offer-Certain Information Concerning the Company" in Section
10 of the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a) through (j) The information set forth under "The Offer-Purpose of the
Offer; Certain Effects of the Offer" in Section 9 of the Offer to Purchase is
incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth under "The Offer-Transactions and Agreements
Concerning Shares" in Section 12 of the Offer to Purchase is incorporated herein
by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES
The information set forth under "The Offer-Transactions and Agreements
Concerning Shares" in Section 12 of the Offer to Purchase is incorporated herein
by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Introduction" and "The Offer-Fees and
Expenses" in Section 15 of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a) and (b) The information set forth under "The Offer-Certain Information
Concerning the Company-Summary Consolidated Historical Financial Information"
and "The Offer-Certain Information Concerning the Company-Summary Unaudited Pro
Forma Consolidated Financial
1
<PAGE>
Information" in Section 10 of the Offer to Purchase is incorporated herein by
reference and the information set forth on pages 28 through 55 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, filed as
Exhibit (g) hereto, is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) None
(b) None
(c) The information set forth under "The Offer-Purpose of the Offer; Certain
Effects of the Offer" in Section 9 of the Offer to Purchase is incorporated
herein by reference.
(d) None.
(e) The Information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Form of Offer to Purchase, dated March 11, 1996.
(a)(2) Form of Letter of Transmittal together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(3) Form of Letter to Stockholders of the Company from Dean T. Casaday,
President and Chief Executive Officer of the Company, dated March 11, 1996.
(a)(4) Form of Notice of Guaranteed Delivery.
(a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees, dated March 11, 1996.
(a)(6) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(7) Form of Memorandum to Participants in the Dividend Reinvestment and
Stock Purchase Plan, dated March 11, 1996, with Election Form.
(a)(8) Form of Memorandum to Participants in the Savings Plan, dated March
11, 1996, with Election Form.
(a)(9) Form of Notice to Participants in the Pennsylvania Enterprises, Inc.
Employees' Savings Plan who Transferred to Pennsylvania-American Water Company,
with Election Form A and Election Form B.
(a)(10) Form of Summary Advertisement, dated March 12, 1996.
(a)(11) Form of Press Release issued by the Company, dated March 11, 1996.
(b) Not applicable.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
(g) Pages 28 through 55 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
2
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Pennsylvania Enterprises, Inc.
By: /s/ John F. Kell, Jr.
-------------------------------------
Name: John F. Kell, Jr.
Title: Vice President, Financial Services
Dated: March 11, 1996
3
<PAGE>
INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
<S> <C>
(a)(1) Form of Offer to Purchase, dated March 11, 1996.
(a)(2) Form of Letter of Transmittal together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form
W-9.
(a)(3) Form of Letter to Stockholders of the Company from Dean T. Casaday,
President and Chief Executive Officer of the Company, dated March
11, 1996.
(a)(4) Form of Notice of Guaranteed Delivery.
(a)(5) Form of Letter to Brokers, Dealers Commercial Banks, Trust
Companies and Other Nominees, dated March 11, 1996.
(a)(6) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(7) Form of Memorandum to Participants in the Dividend Reinvestment and
Stock Purchase Plan, dated March 11, 1996, with Election Form.
(a)(8) Form of Memorandum to Participants in the Savings Plan, dated March
11, 1996, with Election Form.
(a)(9) Form of Notice to Participants in the Pennsylvania Enterprises,
Inc. Employees' Savings Plan who Transferred to
Pennsylvania-American Water Company, with Election Form A and
Election Form B.
(a)(10) Form of Summary Advertisement, dated March 12, 1996.
(a)(11) Form of Press Release issued by the Company, dated March 11, 1996.
(g) Pages 28 to 55 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
</TABLE>
4
<PAGE>
PENNSYLVANIA ENTERPRISES, INC.
OFFER TO PURCHASE FOR CASH
UP TO 2,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT GREATER THAN $39.00
NOR LESS THAN $37.00 PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
______________
Pennsylvania Enterprises, Inc., a Pennsylvania corporation (the "Company"),
invites its stockholders to tender shares of its Common Stock, no par value,
stated $10.00 per share (the "Shares") (including the associated common stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as
of April 26, 1995, between the Company and Chemical Bank, as the Rights Agent),
at prices not greater than $39.00 nor less than $37.00 per Share, net to the
seller in cash, specified by such stockholders, upon the terms and subject to
the conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer"). Unless the context otherwise requires, all
references to Shares shall include the associated Rights. The Company will
determine a single per Share price (not greater than $39.00 nor less that $37.00
per Share) (the "Purchase Price") that it will pay for the Shares validly
tendered pursuant to the Offer and not withdrawn, taking into account the number
of Shares so tendered and the prices specified by the tendering stockholders.
The Company will select the Purchase Price that will enable it to purchase
2,000,000 Shares (or such lesser number of Shares as are validly tendered at
prices not greater than $39.00 nor less than $37.00 per Share) pursuant to the
Offer. The Company will purchase all Shares validly tendered at prices at or
below the Purchase Price and not withdrawn, upon the terms and subject to the
conditions of the Offer, including the provisions thereof relating to proration
and conditional tenders described herein. Shares tendered at prices in excess of
the Purchase Price and Shares not purchased because of proration and conditional
tenders will be returned. Stockholders must complete the section of the Letter
of Transmittal relating to the price at which they are tendering Shares in order
to validly tender Shares.
_______________
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $.55 per Share to be paid by the Company on March 15,
1996, to holders of record on March 1, 1996, regardless of when such tender is
made. Shares tendered and purchased by the Company will not be entitled to any
dividends in respect of any later dividend periods.
______________
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7.
______________
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her Shares
should either (1) complete and sign the Letter of Transmittal or a photocopy
thereof in accordance with the instructions in the Letter of Transmittal, mail
or deliver it and any other required documents to the Depositary, and either
deliver the certificates for Shares to the Depositary along with the Letter of
Transmittal or deliver such Shares pursuant to the procedure for book-entry
transfer set forth in Section 3 hereof or (2) request his or her broker, dealer,
commercial bank, trust company or nominee to effect the transaction for him or
her. A stockholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or nominee must contact such broker, dealer,
commercial bank, trust company or nominee if he or she desires to tender such
Shares. Any stockholder who desires to tender Shares and whose certificates for
such Shares are not immediately available, or who cannot comply in a timely
manner with the procedure for book-entry transfer, should tender such Shares by
following the procedures for guaranteed delivery set forth in Section 3 hereof.
Stockholders who are participants in the Company's Dividend Reinvestment and
Stock Purchase Plan or Employees' Savings Plan cannot use the Letter of
Transmittal to tender Shares held in accounts under such plans, but must use the
election forms attached to the "Memorandum to Participants in the Dividend
Reinvestment and Stock Purchase Plan" and "Memorandum to Participants in the
Savings Plan," respectively, as a substitute for the Letter of Transmittal to
tender Shares held in such accounts. See discussion set forth under "Dividend
Reinvestment Plan" and "Savings Plan" in Section 3 hereof.
______________
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT
PRICE. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR
EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS
AFFILIATES INTENDS TO TENDER SHARES
PURSUANT TO THE OFFER.
_____________
The Shares are listed and traded on the New York Stock Exchange (the "NYSE").
On March 8, 1996, the last full trading day prior to the commencement of the
Offer, the last reported sale price of the Shares on the NYSE Composite Tape was
$38.375 per Share. Stockholders are urged to obtain current market quotations
for the Shares.
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent at the address and telephone number set forth
on the back cover of this Offer to Purchase.
THE DEALER MANAGER FOR THE OFFER IS:
LEGG MASON WOOD WALKER
INCORPORATED
March 11, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- -----
<S> <C>
SUMMARY........................................................... i
INTRODUCTION...................................................... 1
THE OFFER......................................................... 2
1. Number of Shares; Proration.................................. 2
2. Tenders by Holders of Fewer Than 100 Shares.................. 4
3. Procedure for Tendering Shares............................... 4
4. Withdrawal Rights............................................ 7
5. Acceptance for Payment of Shares and Payment of Purchase
Price........................................................ 8
6. Conditional Tender of Shares................................. 8
7. Certain Conditions of the Offer.............................. 9
8. Price Range of Shares; Dividends............................. 11
9. Purpose of the Offer; Certain Effects of the Offer........... 13
10. Certain Information Concerning the Company................... 15
11. Source and Amount of Funds................................... 21
12. Transactions and Agreements Concerning Shares................ 22
13. Certain Federal Income Tax Consequences...................... 22
14. Extension of Tender Period; Termination; Amendments.......... 26
15. Fees and Expenses............................................ 26
16. Miscellaneous................................................ 27
</TABLE>
<PAGE>
SUMMARY
This general summary is provided solely for the convenience of holders of
Shares and is qualified in its entirety by reference to the full text of and the
more specific details contained in this Offer to Purchase and the related Letter
of Transmittal and any amendments hereto and thereto. Capitalized terms used in
this summary without definition shall have the meaning ascribed to such terms in
the Offer to Purchase.
<TABLE>
<CAPTION>
<S> <C>
The Company ................. Pennsylvania Enterprises, Inc.
The Shares .................. Shares of the Company's Common Stock, no par
value, stated value $10.00 per share.
Number of Shares Sought ..... 2,000,000 of the 5,792,921 Shares outstanding as
of March 7,1996.
Purchase Price .............. The Company will select a single Purchase Price
which will be not greater than $39.00 nor less
than $37.00 per Share. All Shares purchased by
the Company will be purchased at the Purchase
Price even if tendered at or below the Purchase
Price. Each stockholder desiring to tender Shares
must specify in the Letter of Transmittal the
minimum price (not greater than $39.00 nor less
than $37.00 per Share) at which such stockholder
is willing to have his or her Shares purchased by
the Company. Stockholders wishing to maximize the
possibility that their Shares will be purchased
at the Purchase Price may check the box on the
Letter of Transmittal marked "Shares Tendered At
Purchase Price Determined By Dutch Auction."
Checking this box may result in a purchase of the
Shares so tendered at the minimum price of
$37.00.
Expiration Date of Offer .... Monday, April 8, 1996, at 5:00 p.m., New York
City time, unless extended by the Company.
How to Tender Shares ........ See Section 3. For further information, call the
Information How to Agent or consult your broker
for assistance.
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Odd Lot Owners .......... There will be no proration of Shares tendered by
any stockholder beneficially owning less than 100
Shares as of the close of business on March 7,
1996, or, in the case of Shares allocated to a
Savings Plan account, as of the close of business
on January 1, 1996, who tenders all such Shares and
completes the box captioned "Odd Lots" on the
Letter of Transmittal and, if applicable, the
Notice of Guaranteed Delivery or, in the case of
Shares held in a Dividend Reinvestment Plan
account, completes the box captioned "Odd Lots" on
the election form attached to the "Memorandum to
Participants in the Dividend Reinvestment and Stock
Purchase Plan." Shares allocated to a Savings Plan
account will be included in the aggregate number of
Shares beneficially owned by any stockholder for
purposes of determining who beneficially owns less
than 100 Shares. However, the "odd lot" preference
described above will not apply to such Shares, and
such Shares will be subject to proration.
Stockholders tendering Odd Lots will avoid the
payment of brokerage commissions and the applicable
odd lot discount payable in a sale of Shares in a
transaction effected on a securities exchange.
Withdrawal Rights ........ Tendered Shares may be withdrawn at any time until
the Expiration Date of the Offer and, unless
previously purchased, after May 3, 1996. See
Section 4.
Purpose of Offer ........ The Company is making the Offer as one of the
recapitalizations being undertaken in connection
with the sale on February 16, 1996, by the Company
and Pennsylvania Gas and Water Company, a
wholly-owned subsidiary of the Company which is now
known as PG Energy Inc. ("PGE"), of PGE's
regulated water operations and certain related
assets (the "Sale of the Water Business"). The
Company believes that the Offer and the other
recapitalizations will have a positive effect on
the Company's and PGE's financial and capital
ratios, credit rating, earnings per share, dividend
payout and payout ratio and stock price. In
addition, the repurchase of Shares pursuant to the
Offer will adjust the Company's capital structure
to a level more appropriate to the size and nature
of its operations after the Sale of the Water
Business. See Section 9.
Market Price of Shares ... On March 8, 1996, the last reported sale price of
the Shares on the NYSE Composite Tape was $38.375
per Share. See Section 8.
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dividends ................ Shares tendered and purchased by the Company will be
entitled to the regular quarterly cash dividend of
$0.55 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996,
regardless of when such tender is made. Shares
tendered and purchased by the Company will not be
entitled to any dividends in respect of any later
dividend periods. See Section 8.
Brokerage Commissions ... Not payable by stockholders.
Stock Transfer Tax ....... None, except as provided in Instruction 7 of the
Letter of Transmittal.
Payment Date ............. Promptly as practicable after the Expiration Date of
the Offer.
Further Information ...... Any questions, requests for assistance or requests
for additional copies of this Offer to Purchase,
the Letter of Transmittal or other tender offer
materials may be directed to D.F. King & Co., Inc.,
77 Water Street, New York, New York 10005, Tel:
(800) 714-3313 (toll free).
</TABLE>
iii
<PAGE>
To the Holders of Common Stock of
Pennsylvania Enterprises, Inc.:
INTRODUCTION
Pennsylvania Enterprises, Inc., a Pennsylvania corporation (the "Company"),
invites its stockholders to tender shares of its Common Stock, no par value,
stated value $10.00 per share (the "Shares") (including the associated common
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of April 26, 1995, between the Company and Chemical Bank, as the Rights
Agent), at prices not greater than $39.00 nor less than $37.00 per Share, net to
the seller in cash, specified by such stockholders, upon the terms and subject
to the conditions set forth herein and in the related Letter of Transmittal
(which together constitute the "Offer"). Unless the context otherwise requires,
all references to Shares shall include the associated Rights.
The Company will determine a single per Share price (not greater than $39.00
nor less than $37.00 per Share) (the "Purchase Price") that it will pay for the
Shares validly tendered pursuant to the Offer and not withdrawn, taking into
account the number of Shares so tendered and the prices specified by tendering
stockholders. The Company will select the Purchase Price that will enable it to
purchase 2,000,000 Shares (or such lesser number of Shares as is validly
tendered at prices not greater than $39.00 nor less than $37.00 per Share)
pursuant to the Offer. The Company will purchase all Shares validly tendered at
prices at or below the Purchase Price and not withdrawn on or prior to the
Expiration Date (as defined in Section 1), upon the terms and subject to the
conditions of the Offer, including the provisions relating to proration and
conditional tenders described below. The Purchase Price will be paid in cash,
net to the seller, with respect to all Shares purchased. Shares tendered at
prices in excess of the Purchase Price and Shares not purchased because of
proration or conditional tenders will be returned.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 7.
Tendering stockholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to Instruction 7 of the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by the Company. The Company will
pay all charges and expenses of Legg Mason Wood Walker, Incorporated (the
"Dealer Manager"), Chemical Mellon Shareholder Services, L.L.C. (the
"Depositary") and D.F. King & Co., Inc. (the "Information Agent") incurred in
connection with the Offer. See Section 15. HOWEVER, ANY TENDERING STOCKHOLDER OR
OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS
INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO A REQUIRED FEDERAL
INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PAYMENTS PAYABLE TO SUCH
STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTIONS 3 AND 13.
Stockholders who are participants in the Company's Dividend Reinvestment and
Stock Purchase Plan (the "Dividend Reinvestment Plan") may instruct Chemical
Bank, as administrator of the Dividend Reinvestment Plan, to tender part or all
of the Shares attributed to such participant's account and in each case must
specify the price or prices at which such Shares are to be tendered. See Section
3. Shares held in a Dividend Reinvestment Plan account as to which Chemical Bank
has not received timely instructions shall not be tendered. See Section 3.
Shares held in a Dividend Reinvestment Plan account will be included in the
calculation of the aggregate number of Shares beneficially owned by any
stockholder for purposes of determining Odd Lot Owners (as defined in Section
1).
The Company's Employees's Savings Plan (the "Savings Plan") holds Shares
(approximately 2.2% of the outstanding Shares) in accounts for participants in
the Savings Plan. PNC Bank, N.A. (the "Savings Plan Trustee") serves as trustee
for the Savings Plan. Under the terms of the Savings Plan, a participant may
instruct the Savings Plan Trustee to tender all or part of Shares allocated to
one or more of the participant's accounts. Participants must specify the price
at which such Shares are to be tendered. See Section 3. Shares allocated to a
participant's account as to which the Savings Plan
<PAGE>
Trustee has not received timely instructions from such participant shall not be
tendered. See Section 3. Shares allocated to a Savings Plan account will be
included in the calculation of the aggregate number of Shares beneficially owned
by any stockholder for purposes of determining Odd Lot Owners. However, the
special "odd lot" preference will not apply to such Shares and such Shares shall
be subject to proration. See Sections 1 and 2. Unallocated Shares held in the
Savings Plan will be tendered by the Savings Plan Trustee in the same proportion
as were tendered Shares credited to participant accounts as to which participant
instructions to tender have been timely received.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS
BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS
AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
As of March 7, 1996, the Company had issued and outstanding 5,792,921 Shares
and had reserved for issuance upon exercise of outstanding stock options 32,600
Shares. As of March 7, 1996, there were approximately 7,800 holders of record of
Shares. The 2,000,000 Shares that the Company is offering to purchase represent
approximately 34.5% of the Shares then outstanding, or approximately 34.3% on a
fully diluted basis (assuming the exercise of all outstanding stock options).
A tender of Shares pursuant to the Offer will include a tender of the
associated Rights. No separate consideration will be paid for such Rights.
See Section 8.
The Shares are listed and traded on the New York Stock Exchange ("NYSE"). The
Shares trade under the symbol "PNT." See Section 8. STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
THE OFFER
1. NUMBER OF SHARES; PRORATION.
Upon the terms and subject to the conditions described herein and in the
Letter of Transmittal, the Company will purchase up to 2,000,000 Shares that are
validly tendered on or prior to the Expiration Date (and not properly withdrawn
in accordance with Section 4) at a price (determined in the manner set forth
below) not greater than $39.00 nor less than $37.00 per Share. The later of 5:00
p.m., New York City time, on Monday, April 8, 1996, or the latest time and date
to which the Offer is extended, is referred to herein as the "Expiration Date."
If the Offer is oversubscribed as described below, only Shares tendered at or
below the Purchase Price on or prior to the Expiration Date will be eligible for
proration.
The Company will determine the Purchase Price taking into account the number
of Shares so tendered and the prices specified by tendering stockholders. The
Company will select the Purchase Price that will enable it to purchase 2,000,000
Shares (or such lesser number of Shares as is validly tendered and not withdrawn
at prices not greater than $39.00 nor less than $37.00 per Share) pursuant to
the Offer. The Company reserves the right to purchase more than 2,000,000 Shares
pursuant to the Offer, but does not currently plan to do so. The Offer is not
conditioned on any minimum number of Shares being tendered.
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $0.55 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
In accordance with Instruction 5 of the Letter of Transmittal, each
stockholder who wishes to tender Shares must specify the price (not greater than
$39.00 nor less than $37.00 per Share) at which such stockholder is willing to
have the Company purchase such Shares. As promptly as practicable
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following the Expiration Date, the Company will determine the Purchase Price
(not greater than $39.00 nor less than $37.00 per Share) that it will pay for
Shares validly tendered pursuant to the Offer, taking into account the number of
Shares so tendered and the prices specified by tendering stockholders. All
Shares not purchased pursuant to the Offer, including Shares tendered at prices
greater than the Purchase Price and Shares not purchased because of proration or
conditional tenders, will be returned to the tendering stockholders at the
Company's expense as promptly as practicable following the Expiration Date.
Upon the terms and subject to the conditions of the Offer, if 2,000,000 or
fewer Shares have been validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, the Company will purchase all such
Shares (including fractional Shares). Upon the terms and subject to the
conditions of the Offer, if more than 2,000,000 Shares have been validly
tendered at or below the Purchase Price and not withdrawn on or prior to the
Expiration Date, the Company will purchase Shares in the following order of
priority:
(a) all Shares (excluding Shares allocated to a Savings Plan account) validly
tendered at or below the Purchase Price and not withdrawn on or prior to the
Expiration Date by any stockholder (an "Odd Lot Owner") who owned beneficially
an aggregate of fewer than 100 Shares (including any Shares held in the Dividend
Reinvestment Plan and the Savings Plan and fractional Shares) as of the close of
business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan
account, as of the close of business on January 1, 1996, and who validly tenders
all of such Shares (partial and conditional tenders will not qualify for this
preference) and completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, the Notice of Guaranteed Delivery or, in the
case of Shares held in a Dividend Reinvestment Plan account, completes the box
captioned "Odd Lots" on the election form attached to the "Memorandum to
Participants in the Dividend Reinvestment and Stock Purchase Plan";
(b) after purchase of all of the foregoing Shares, all Shares conditionally
and validly tendered in accordance with Section 6, for which the condition was
satisfied, and all other Shares unconditionally and validly tendered at or below
the Purchase Price and not withdrawn on or prior to the Expiration Date on a pro
rata basis, if necessary (with appropriate adjustments to avoid purchases of
fractional Shares, other than Shares held in the Dividend Reinvestment Plan and
the Savings Plan); and
(c) if necessary, Shares conditionally tendered, for which the condition was
not satisfied, at or below the Purchase Price and not withdrawn on or prior to
the Expiration Date, selected by random lot in accordance with Section 6.
If proration of tendered Shares is required, because of the difficulty in
determining the number of Shares validly tendered (including Shares tendered by
the guaranteed delivery procedure described in Section 3) and as a result of the
"odd lot" procedure described in Section 2 (the "Odd Lot Procedure") and the
conditional tender procedure described in Section 6, the Company does not expect
that it would be able to announce the final proration factor or to commence
payment for any Shares purchased pursuant to the Offer until approximately seven
NYSE trading days after the Expiration Date. Proration of Shares, other than
Shares tendered pursuant to the Odd Lot Procedure, will be based on the ratio of
the number of Shares to be purchased by the Company pursuant to the Offer, other
than Shares purchased pursuant to the Odd Lot Procedure, to the total number of
Shares tendered by all stockholders, other than Shares tendered pursuant to the
Odd Lot Procedure, at or below the Purchase Price. This ratio will be applied to
all Shares tendered by each stockholder, other than Shares tendered pursuant to
the Odd Lot Procedure, to determine the number of Shares that will be purchased
from each stockholder pursuant to the Offer. Preliminary results of proration
will be announced by press release as promptly as practicable after the
Expiration Date. Holders of Shares may obtain such preliminary information from
the Dealer Manager or the Information Agent and may also be able to obtain such
information from their brokers. For a discussion of certain federal income tax
consequences, see Section 13.
THE COMPANY EXPRESSLY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO PURCHASE
ADDITIONAL SHARES PURSUANT TO THE OFFER OR TO DECREASE THE NUMBER OF SHARES
BEING SOUGHT PURSUANT TO THE OFFER. If (i) the
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Company increases or decreases the price to be paid for Shares, increases the
number of Shares being sought and such increase in the number of Shares being
sought exceeds 2% of the outstanding Shares or decreases the number of Shares
being sought and (ii) the Offer is scheduled to expire at any time earlier than
the expiration of a period ending on the tenth business day from, and including,
the date that notice of such increase or decrease is first published, sent or
given in the manner described in Section 14, the Offer will be extended until
the expiration of ten business days from the date of publication of such notice.
The Company also expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary.
See Section 14. There can be no assurance, however, that the Company will
exercise its right to extend the Offer.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Copies of this Offer to Purchase and the Letter of Transmittal are being
mailed to record holders of Shares and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
Company's stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
2. TENDERS BY HOLDERS OF FEWER THAN 100 SHARES.
All Shares (excluding Shares allocated to a Savings Plan account) validly
tendered at or below the Purchase Price and not withdrawn on or prior to the
Expiration Date by or on behalf of persons who each owned beneficially an
aggregate of fewer than 100 Shares (including Shares held in the Dividend
Reinvestment Plan and the Savings Plan and fractional Shares) as of the close of
business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan
account, as of the close of business on January 1, 1996, will be accepted before
proration, if any, of the purchase of other tendered Shares. See Section 1.
Partial or conditional tenders will not qualify for this preference, and it is
not available to beneficial holders of 100 or more Shares, even if such holders
have separate stock certificates for fewer than 100 Shares. By accepting the
Offer, an Odd Lot Owner will avoid the payment of brokerage commissions and the
applicable odd lot discount payable in a sale of such Shares in a transaction
effected on a securities exchange.
As of March 7, 1996, there were approximately 7,800 holders of record of
Shares. Approximately 54.9% of these holders of record held individually fewer
than 100 Shares and held in the aggregate approximately 110,000 Shares. Because
of the large number of Shares held in the names of brokers and nominees, the
Company is unable to estimate the number of beneficial owners of fewer than 100
Shares or the aggregate number of Shares they own. Any Odd Lot Owner wishing to
tender all of his Shares free of proration pursuant to this Section must
complete the box captioned "Odd Lots" on the Letter of Transmittal and, if
applicable, on the Notice of Guaranteed Delivery or, in the case of Shares held
in a Dividend Reinvestment Plan account, complete the box captioned "Odd Lots"
on the election form attached to the "Memorandum to Participants in the Dividend
Reinvestment and Stock Purchase Plan."
3. PROCEDURE FOR TENDERING SHARES.
Proper Tender of Shares. To tender Shares validly pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal or
photocopy thereof, together with any required signature guarantees and any other
documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (i) certificates for the Shares to be tendered must be
received by the Depositary at one of such addresses or (ii) such Shares must be
delivered pursuant to the procedures for book-entry transfer
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described below (and a confirmation of such delivery received by the
Depositary), in each case on or prior to the Expiration Date, or (b) the
tendering holder of Shares must comply with the guaranteed delivery procedure
described below.
IN ACCORDANCE WITH INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL, IN ORDER TO
TENDER SHARES PURSUANT TO THE OFFER, A STOCKHOLDER MUST INDICATE IN THE SECTION
CAPTIONED "PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED" ON
THE LETTER OF TRANSMITTAL THE PRICE (IN MULTIPLES OF $0.125) AT WHICH SUCH
SHARES ARE BEING TENDERED. Stockholders wishing to tender Shares at more than
one price must complete separate Letters of Transmittal for each price at which
such Shares are being tendered. The same Shares cannot be tendered at more than
one price. FOR A TENDER OF SHARES TO BE VALID, A PRICE BOX, BUT ONLY ONE PRICE
BOX, ON EACH LETTER OF TRANSMITTAL MUST BE CHECKED. Stockholders wishing to
maximize the possibility that their Shares will be purchased at the Purchase
Price may check the box on the Letter of Transmittal marked "Shares Tendered at
Purchase Price Determined by Dutch Auction." Checking this box may result in a
purchase of the Shares so tendered at the minimum price of $37.00.
Book-Entry Transfer. The Depositary will establish an account with respect to
the Shares at The Depository Trust Company and the Philadelphia Depository Trust
Company (collectively referred to as the "Book-Entry Transfer Facilities") for
purposes of the Offer within two business days after the date of this Offer to
Purchase, and any financial institution that is a participant in the system of
any Book-Entry Transfer Facility may make delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the procedures of such Book-Entry Transfer Facility.
Although delivery of Shares may be effected through book-entry transfer, a
properly completed and duly executed Letter of Transmittal or photocopy thereof,
together with any required signature guarantees and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase on or prior to
the Expiration Date, or the tendering holder of Shares must comply with the
guaranteed delivery procedure described below. Delivery of the Letter of
Transmittal and any other required documents to a Book-Entry Transfer Facility
does not constitute delivery to the Depositary.
Signature Guarantees. Except as otherwise provided below, all signatures on a
Letter of Transmittal must be guaranteed by a firm that is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (each of the foregoing being
referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal
need not be guaranteed if (a) the Letter of Transmittal is signed by the
registered holder of the Shares tendered therewith and such holder has not
completed the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of Transmittal or (b) such Shares
are tendered for the account of an Eligible Institution. See Instructions 1 and
6 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and cannot deliver certificates for such Shares and all other required
documents to the Depositary on or prior to the Expiration Date or the procedure
for book-entry transfer cannot be complied with in a timely manner, such Shares
may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company (with any required
signature guarantees) is received by the Depositary as provided below on or
prior to the Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), together with a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by the Letter of Transmittal, are received by the Depositary no
later than 5:00 p.m., New York City time, on the third NYSE trading day after
the date of execution of the Notice of Guaranteed Delivery.
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The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Depositary and must include a guarantee by
an Eligible Institution in the form set forth in such Notice.
The method of delivery of Shares and all other required documents is at the
option and risk of the tendering stockholder. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases sufficient time should be allowed to assure timely delivery.
Federal Backup Withholding. To avoid federal income tax backup withholding
equal to 31% of the gross payments made pursuant to the Offer, each stockholder
must notify the Depositary of such stockholder's correct taxpayer
identification number and provide certain other information by properly
completing the Substitute Form W-9 included in the Letter of Transmittal.
Foreign stockholders (as defined in Section 13) may be required to submit a
properly completed Form W-8, certifying non-United States status, in order to
avoid backup withholding. In addition, foreign stockholders may be subject to
30% (or lower treaty rate) withholding on gross payments received pursuant to
the Offer (as discussed in Section 13). For a discussion of certain federal
income tax consequences to tendering stockholders, see Section 13. Each
stockholder is urged to consult with his or her own tax advisor.
Determination of Validity. All questions as to the Purchase Price, the form
of documents and the validity, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be determined by the
Company, in its sole discretion, and its determination shall be final and
binding. The Company reserves the absolute right to reject any or all tenders of
Shares that it determines are not in proper form or the acceptance for payment
of or payment for Shares that may, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any defect or
irregularity in any tender of Shares. None of the Company, the Dealer Manager,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice.
Rule 14e-4. It is a violation of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), for a person to tender
Shares for his or her own account unless, at the time of tender and at the end
of the proration period or period during which Shares are accepted by lot
(including any extensions thereof), the person so tendering (i) has a net long
position equal to or greater than the amount of (x) Shares tendered or (y) other
securities immediately convertible into, exercisable, or exchangeable for the
amount of Shares tendered and will acquire such Shares for tender by conversion,
exercise or exchange of such other securities and (ii) will cause such Shares to
be delivered in accordance with the terms of the Offer. Rule 14e-4 provides a
similar restriction applicable to the tender or guarantee of a tender on behalf
of another person. The tender of Shares pursuant to any one of the procedures
described above will constitute the tendering stockholder's representation and
warranty that (i) such stockholder has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Exchange Act,
and (ii) the tender of such Shares complies with Rule 14e-4. The Company's
acceptance for payment of Shares tendered pursuant to the Offer will constitute
a binding agreement between the tendering stockholder and the Company upon the
terms and subject to the conditions of the Offer.
Dividend Reinvestment Plan. A stockholder participating in the Dividend
Reinvestment Plan who wishes to have Chemical Bank, which administers the
Dividend Reinvestment Plan, tender Shares held in such participant's account
in this plan should complete the election form attached to the "Memorandum to
Participants in the Dividend Reinvestment and Stock Purchase Plan" distributed
to such participants together with this Offer to Purchase. To ensure that a
tender of Shares held in a Dividend Reinvestment account will be effective, a
tendering stockholder should forward a properly completed tender election form
to Chemical Bank in ample time for Chemical Bank to submit a tender on such
stockholder's behalf on or prior to the Expiration Date. Participants in the
Dividend Reinvestment Plan are urged to read carefully the "Memorandum to
Participants in the Dividend Reinvestment and Stock Purchase Plan" before
completing the tender election form. Any Dividend Reinvestment Plan Shares
tendered but not purchased will be returned to the participant's Dividend
Reinvestment Plan account. If a participant tenders all of his or her Shares
held in a Dividend
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Reinvestment Plan account and all such Shares are purchased by the Company
pursuant to the Offer, such tender will be deemed to be authorization and
written notice to Chemical Bank of termination of such stockholder's
participation in the Dividend Reinvestment Plan, subject to a stockholder's
right to recommence participation in accordance with the terms of the Dividend
Reinvestment Plan.
Savings Plan. A participant in the Savings Plan who wishes to have PNC Bank,
N.A., the Savings Plan Trustee, tender shares allocated to such participant's
Savings Plan account(s) should complete the election form attached to the
"Memorandum to Participants in the Savings Plan" distributed to such
participants together with this Offer to Purchase. A participant in the Savings
Plan who has transferred to Pennsylvania-American Water Company should complete
the election form attached to the "Memorandum to Participants in the Savings
Plan" distributed to such participants together with this Offer to Purchase as
well as Election Form A or Election Form B which is attached to the Notice to
Participants in the Pennsylvania Enterprises, Inc. Employees' Savings Plan Who
Transferred Employment to Pennsylvania-American Water Company. To ensure that a
tender of Shares allocated to a stockholder's Savings Plan accounts will be
effective, a tendering stockholder should forward a properly completed tender
election form to the Savings Plan Trustee in ample time for the Savings Plan
Trustee to submit a tender on such stockholder's behalf on or prior to the
Expiration Date. Participants in the Savings Plan are urged to read carefully
the "Memorandum to Participants in the Savings Plan" before completing the
tender election form. Any Savings Plan Shares tendered but not purchased will be
returned to the participant's Savings Plan account(s).
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after May 3, 1996, unless theretofore accepted for
payment as provided in this Offer to Purchase. If the Company extends the period
of time during which the Offer is open, is delayed in accepting for payment or
paying for Shares or is unable to accept for payment or pay for Shares pursuant
to the Offer for any reason, then, without prejudice to the Company's rights
under the Offer, the Depositary may, on behalf of the Company, retain all Shares
tendered, and such Shares may not be withdrawn except as otherwise provided in
this Section 4, subject to Rule 13e-4(f)(5) under the Exchange Act, which
provides that the issuer making the tender offer shall either pay the
consideration offered, or return the tendered securities promptly after the
termination or withdrawal of the tender offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of this Offer to Purchase and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution (except in the case of Shares tendered by an Eligible Institution)
must be submitted prior to the release of such Shares. In addition, such notice
must specify, in the case of Shares tendered by delivery of certificates, the
name of the registered holder (if different from that of the tendering
stockholder) and the serial numbers shown on the particular certificates
evidencing the Shares to be withdrawn or, in the case of Shares tendered by
book-entry transfer, the name and number of the account at one of the Book-Entry
Transfer Facilities to be credited with the withdrawn Shares. Withdrawals may
not be rescinded, and Shares withdrawn will thereafter be deemed not validly
tendered for purposes of the Offer. However, withdrawn Shares may be retendered
by again following one of the procedures described in Section 3 at any time
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding. None of the Company, the Dealer
Manager, the Depositary, the Information Agent or any other person will be under
any duty to give notification of any defect or irregularity in any notice of
withdrawal or incur any liability for failure to give any such notification.
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5. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer and as promptly as
practicable after the Expiration Date, the Company will determine the Purchase
Price, taking into account the number of Shares tendered and the prices
specified by tendering stockholders, announce the Purchase Price, and will
(subject to the proration and conditional tender provisions of the Offer) accept
for payment and pay for Shares validly tendered at or below the Purchase Price.
Thereafter, payment for all Shares validly tendered on or prior to the
Expiration Date and accepted for payment pursuant to the Offer will be made by
the Depositary by check as promptly as practicable. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for Shares (or of a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), a properly completed and duly executed Letter
of Transmittal or photocopy thereof, and any other required documents.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares that are validly tendered and not
withdrawn as, if and when it gives oral or written notice to the Depositary of
its acceptance for payment of such Shares. The Company will pay for Shares that
it has purchased pursuant to the Offer by depositing the Purchase Price therefor
with the Depositary. The Depositary will act as agent for tendering stockholders
for the purpose of receiving payment from the Company and transmitting payment
to tendering stockholders. Under no circumstances will interest be paid on
amounts to be paid to tendering stockholders, regardless of any delay in making
such payment.
Certificates for all Shares not purchased will be returned (or, in the case
of Shares tendered by book-entry transfer, such Shares will be credited to an
account maintained with a Book-Entry Transfer Facility) as promptly as
practicable without expense to the tendering stockholder.
Payment for Shares may be delayed in the event of difficulty in determining
the number of Shares properly tendered or if proration is required. See Section
1. In addition, if certain events occur, the Company may not be obligated to
purchase Shares pursuant to the Offer. See Section 7.
The Company will pay or cause to be paid any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the Purchase Price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder, or if tendered Shares are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of any stock transfer taxes (whether imposed on the registered
holder, such other person or otherwise) payable on account of the transfer to
such person will be deducted from the Purchase Price unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted. See
Instruction 7 of the Letter of Transmittal.
6. CONDITIONAL TENDER OF SHARES.
Under certain circumstances and subject to the exceptions set forth in
Section 1, the Company may prorate the number of Shares purchased pursuant to
the Offer. As discussed in Section 13, the number of Shares to be purchased from
a particular stockholder might affect the tax treatment of such purchase to such
stockholder and such stockholder's decision whether to tender. Each
stockholder is urged to consult with his or her own tax advisor. Accordingly, a
stockholder may tender Shares subject to the condition that a specified minimum
number of such holder's Shares tendered pursuant to a Letter of Transmittal,
Notice of Guaranteed Delivery, "Memorandum to Participants in the Dividend
Reinvestment and Stock Purchase Plan" or "Memorandum to Participants in the
Savings Plan" must be purchased if any such Shares so tendered are purchased,
and any stockholder desiring to make such a conditional tender must so indicate
in the box captioned "Conditional Tender" in such Letter of Transmittal and, if
applicable, the Notice of Guaranteed Delivery or, in the case of Shares held in
a Dividend Reinvestment Plan account or a Savings Plan account, in the
"Memorandum to Participants in the Dividend Reinvestment and Stock Purchase
Plan" or "Memorandum to Participants in the Savings Plan," respectively.
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Any tendering stockholder wishing to make a conditional tender must calculate
and appropriately indicate such minimum number of Shares. If the effect of
accepting tenders on a pro rata basis would be to reduce the number of Shares to
be purchased from any stockholder below the minimum number so specified, such
tender will automatically be regarded as withdrawn (except as provided in the
next paragraph). All Shares tendered by such a stockholder pursuant to a Letter
of Transmittal or Notice of Guaranteed Delivery will be returned as promptly as
practicable thereafter.
If conditional tenders would otherwise be so regarded as withdrawn and would
cause the total number of Shares to be purchased to fall below 2,000,000, then,
to the extent feasible, the Company will select enough of such conditional
tenders that would otherwise have been so withdrawn to permit the Company to
purchase 2,000,000 Shares. In selecting among such conditional tenders, the
Company will select by lot and will limit its purchase in each case to the
designated minimum number of Shares to be purchased.
7. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of the Offer, the Company will not be
required to accept for payment or pay for any Shares tendered, and may terminate
or amend the Offer or may postpone (subject to the requirements of the Exchange
Act for prompt payment for or return of Shares) the acceptance for payment of,
or the purchase of and payment for, Shares tendered, if at any time on or after
March 11, 1996, and before the time of payment for any such Shares (whether any
Shares have theretofore been accepted for payment, purchased or paid for
pursuant to the Offer) any of the following events shall have occurred (or shall
have been determined by the Company in its sole judgment to have occurred)
regardless of the circumstances giving rise thereto (including any action or
omission to act by the Company):
(a) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, or
before any court, authority, agency or tribunal that (i) challenges the
acquisition of Shares pursuant to the Offer or otherwise in any manner
relates to or affects the Offer, (ii) challenges the acquisition by PG Energy
Inc. ("PGE"), a wholly-owned subsidiary of the Company formerly known as
Pennsylvania Gas and Water Company, of shares of PGE's 4.10% Cumulative
Preferred Stock (the "4.10% Preferred Shares") pursuant to PGE's Offer to
Purchase, dated March 11, 1996, concerning such 4.10% Preferred Shares (the
"4.10% Preferred Offer") or otherwise in any manner relates to or affects the
4.10% Preferred Offer, (iii) challenges the acquisition by PGE of its
Depositary Preferred Shares (the "Depositary Preferred Shares"), each
representing a one-fourth interest in a share of its 9% Cumulative Preferred
Stock, pursuant to PGE's Offer to Purchase, dated March 11, 1996, concerning
such Depositary Preferred Shares (the "Depositary Preferred Offer") or
otherwise in any manner relates to or affects the Depositary Preferred Offer,
or (iv) in the sole judgment of the Company, could materially and adversely
affect the business, condition (financial or other), income, operations or
prospects of the Company and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the business
of the Company or any of its subsidiaries or materially impair the
contemplated benefits of the Offer to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, withdrawn or abrogated or any statute, rule, regulation,
judgment, order or injunction threatened, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the Offer,
the 4.10% Preferred Offer or the Depositary Preferred Offer, or to the
Company or any of its subsidiaries, by any legislative body, court,
authority, agency or tribunal which, in the Company's sole judgment, would
or might directly or indirectly (i) make the acceptance for payment of, or
payment for, some or all of the Shares, the 4.10% Preferred Shares or the
Depositary Preferred Shares illegal or otherwise restrict or prohibit
consummation of the Offer, (ii) delay or restrict the ability of the Company
or PGE, or render the Company or PGE unable, to accept for payment or pay for
some or all of the Shares, the 4.10% Preferred Shares or the Depositary
Preferred Shares, as the case may be, (iii) materially impair the
contemplated benefits
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of the Offer to the Company or of the 4.10% Preferred Offer or the Depositary
Preferred Offer to PGE or (iv) materially affect the business, condition
(financial or other), income, operations or prospects of the Company or any
of its subsidiaries or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or any of its
subsidiaries;
(c) it shall have been publicly disclosed or the Company shall have
learned that (i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) has acquired or proposes to acquire beneficial
ownership of more than 5% of the outstanding Shares whether through the
acquisition of stock, the formation of a group, the grant of any option or
right, or otherwise (other than as disclosed in a Schedule 13D or 13G (or an
amendment thereto) on file with the Securities and Exchange Commission (the
"Commission") on March 8, 1996), (ii) any such person or group that on or
prior to March 8, 1996, had filed such a Schedule with the Commission
thereafter shall have acquired or shall propose to acquire whether through
the acquisition of stock, the formation of a group, the grant of any option
or right, or otherwise, beneficial ownership of additional Shares
representing 2% or more of the outstanding Shares, (iii) any new group shall
have been formed which beneficially owns more than 5% of the outstanding
Shares, or (iv) any person, entity or group shall have filed a Notification
and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 or made a public announcement reflecting an intent to acquire the
Company or any or its subsidiaries or any of their respective assets or
securities;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market, (ii) any significant decline in the market
price of the Shares or in the general level of market prices of equity
securities in the United States or abroad, (iii) any change in the general
political, market, economic or financial condition in the United States or
abroad that could have a material adverse effect on the Company's business,
condition (financial or other), income, operations, prospects or ability to
obtain financing generally or the trading in the Shares, (iv) the declaration
of a banking moratorium or any suspension of payments in respect of banks in
the United States or any limitation on, or any event which, in the
Company's sole judgment, might affect the extension of credit by lending
institutions in the United States, (v) the commencement of a war, armed
hostilities or other international or national crisis directly or indirectly
involving the United States or (vi) in the case of any of the foregoing
existing at the time of the commencement of the Offer, in the Company's
sole judgment, a material acceleration or worsening thereof;
(e) a tender or exchange offer with respect to some or all of the Shares
(other than the Offer), or a merger, acquisition or other business
combination proposal for the Company or any subsidiary, shall have been
proposed, announced or made by a person other than the Company;
(f) there shall have occurred any event or events that have resulted in,
or may in the sole judgment of the Company result in, an actual or threatened
change in the business, condition (financial or other), income, operations,
stock ownership or prospects of the Company or any of its subsidiaries, or
materially impair the contemplated benefits of the Offer to the Company; or
(g) (i) Moody's Investors Service, Inc. or Standard & Poor's
Corporation shall have downgraded or withdrawn the rating accorded any
securities of the Company or PGE or (ii) Moody's Investors Service, Inc. or
Standard & Poor's Corporation shall have publicly announced that it has
under surveillance or review, with possible negative implications, its rating
of any securities of the Company or PGE;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payment.
Any of the foregoing conditions may be waived by the Company, in whole or in
part, at any time and from time to time in its sole discretion. The failure by
the Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Any determination
by the Company concerning the events described above will be final and binding
on all parties.
10
<PAGE>
8. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are listed and traded on the NYSE. The following table sets forth
the high and low closing sales prices of the Shares on the NYSE Composite Tape
and the cash dividends per Share for the quarters indicated.
<TABLE>
<CAPTION>
CASH DIVIDENDS
YEAR HIGH LOW PER SHARE
- ----------------------------------- --------- --------- ----------------
<S> <C> <C> <C>
1994:
1st Quarter...................... $33.000 $29.250 $0.55
2nd Quarter...................... $30.875 $29.000 $0.55
3rd Quarter...................... $31.875 $29.375 $0.55
4th Quarter...................... $30.125 $26.875 $0.55
1995:
1st Quarter...................... $31.375 $27.125 $0.55
2nd Quarter...................... $34.000 $30.625 $0.55
3rd Quarter...................... $34.625 $30.750 $0.55
4th Quarter...................... $38.125 $34.250 $0.55
1996:
1st Quarter (through March 8,
1996)........................... $40.000 $36.625 $0.55 (1)
__________
<FN>
(1) On January 15, 1996, the Company declared a dividend of $0.55 per common
share for the first quarter of 1996. The dividend is to be paid on March 15,
1996, to holders of record on March 1, 1996.
</FN>
</TABLE>
On March 8, 1996, the last NYSE trading day prior to the commencement of the
Offer, the last reported sale price of the Shares on the NYSE Composite Tape was
$38.375 per Share. Stockholders are urged to obtain current market quotations
for the Shares.
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $0.55 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividends periods.
Under the Company's Shareholder Rights Plan, every outstanding Share and
every Share issuable by the Company (until certain events occur) includes a
Right. Pursuant to a Rights Agreement, dated as of April 26, 1995 (the "Rights
Agreement"), between the Company and Chemical Bank, as the Rights Agent, each
Right entitles the registered holder to purchase from the Company one-half of a
Share. No less than two Rights, and only integral multiples of two Rights, may
be exercised at any time by holders of Rights at a price of $100.00 per Share
(equivalent to $50.00 for each one-half of a Share), subject to adjustment.
The Rights are not exercisable until the Distribution Date (as defined below)
and will expire at the close of business on May 16, 2005, unless earlier
redeemed or exchanged by the Company. Prior to the Distribution Date, the Rights
will be evidenced by the Shares and cannot be traded separately from such
Shares. The Rights will separate from the Shares and a Distribution Date will
occur upon the earlier of (a) 10 days following a public announcement that a
person or group of affiliated or associated persons has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
Shares (an "Acquiring Person"), or (b) 10 business days (or such later date as
may be determined by action of the Board of Directors of the Company prior to
such time as any person or group becomes an Acquiring Person) following the
commencement of a tender offer or exchange offer if, upon consummation thereof,
any person or group would be an Acquiring Person (the earlier of such dates
being called the "Distribution Date"). The date of announcement of the existence
of an Acquiring Person referred to in clause (a) above is hereinafter referred
to as the "Share Acquisition Date." The Rights will not become exercisable or
separately tradeable as a result of the Offer.
11
<PAGE>
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, the Rights Agreement provides that proper provision
shall be made so that each holder of two Rights, except as provided below, shall
thereafter have the right to receive, upon exercise, Shares (or in certain
circumstances, Common Stock Equivalents (as such term is defined in the Rights
Agreement)) having a value equal to two times the exercise price of two Rights.
Upon the occurrence of the event described in the preceding sentence, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate (as
such terms are defined in the Rights Agreement) 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 the Acquiring Person has any
continuing agreement, arrangement or understanding 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 which has as a
primary purpose or effect the avoidance of the Rights Agreement, 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 the Rights Agreement or otherwise.
At any time after the occurrence of the event described in the first sentence
of the preceding paragraph and prior to the acquisition by any person or group
of affiliated or associated persons of 50% or more of the outstanding Shares,
the Board of Directors of the Company may exchange the Rights (except Rights
which previously have been voided as described above), in whole, but not in
part, at an exchange ratio of one Share (or in certain circumstances, one Common
Stock Equivalent) per Right.
In the event that, following the earlier of the Distribution Date and the
Share Acquisition Date, (i) the Company engages in a merger or other business
combination transaction in which the Company is not the surviving corporation,
(ii) the Company engages in a merger or other business combination transaction
with another person in which the Company is the surviving corporation, but in
which its shares are changed or exchanged, or (iii) more than 50% of the
Company's assets or earning power is sold or transferred (other than the sale
on February 16, 1996, by the Company and PGE, of substantially all of PGE's
water operations to Pennsylvania-American Water Company, a wholly-owned
subsidiary of American Water Works Company, Inc. (the "Sale of the Water
Business")), the Rights Agreement provides that proper provision shall be made
so that each holder of two Rights (except Rights which previously have been
voided as described above) shall thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of two Rights, common stock
of the acquiring company having a value equal to two times the exercise price of
two Rights.
At any time prior to such time as any person or group of affiliated or
associated persons becomes an Acquiring Person, the Board of Directors of the
Company may redeem the Rights in whole, but not in part, at a price of $.005 per
Right, subject to adjustment (the "Redemption Price"). Immediately upon the
action of the Board of Directors of the Company ordering the redemption of the
Rights (or at such later time as the Board of Directors may establish for the
effectiveness of such redemption), the Rights will terminate and the only right
of the holders of Rights will be to receive the Redemption Price.
Until the Distribution Date (or earlier redemption, exchange or expiration of
the Rights), the surrender for transfer of any certificates for Shares (such as
pursuant to the Offer) will also constitute the transfer of the Rights
associated with the Shares represented by such certificate. The foregoing
description of the Rights is qualified in its entirety by reference to the
Rights Agreement, a copy of which has been included as an exhibit to the
Company's Registration Statement on Form 8-A dated May 10, 1995, filed with
the Commission. Such reports and exhibits may be obtained from the Commission in
the manner provided in Section 16.
12
<PAGE>
9. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.
The Offer is one of the recapitalizations being undertaken in connection with
the Sale of the Water Business. See "The Offer-Certain Information Concerning
the Company-Summary Unaudited Pro Forma Consolidated Financial Information" for
a description of the other recapitalizations. The Company believes that the
Offer and the other recapitalizations will have a positive effect on the
Company's and PGE's financial and capital ratios, credit rating, earnings
per share, dividend payout and payout ratio and stock price. In addition, the
repurchase of Shares pursuant to the Offer will adjust the Company's capital
structure to a level more appropriate to the size and nature of its operations
after the Sale of the Water Business.
The Offer will afford to stockholders who are considering the sale of all or
a portion of their Shares the opportunity to determine the price at which they
are willing to sell their Shares and, in the event the Company accepts such
Shares for purchase, to dispose of Shares without the usual transaction costs
associated with a market sale, including brokerage commissions. The Offer will
also allow qualifying stockholders owning beneficially fewer than 100 Shares to
avoid the applicable odd lot discount payable on a sale of Shares in a
transaction effected on a securities exchange. Correspondingly, the costs to the
Company for servicing the accounts of Odd Lot Owners will be reduced. See
Section 2.
If the aggregate purchase price of Shares purchased pursuant to the Offer and
related costs (together with the net reduction in consolidated net worth
associated with the other recapitalizations being undertaken in connection with
the Sale of the Water Business) exceeds approximately $53.0 million, the
Company's consolidated net worth, based on its consolidated net worth as of
December 31, 1995, would fall below the $110.0 million that the Company is
required to maintain by the Indenture, dated as of June 15, 1992, as
supplemented (the "Indenture"), relating to its 10.125% Senior Notes due June
15, 1999 (the "Senior Notes"). Failure to maintain this minimum net worth at the
end of two consecutive quarters will constitute an "Event of Default" under the
Indenture if the Company does not cure such failure within 60 days after receipt
of notice from the trustee under the Indenture or from holders of at least 25%
in principal amount of the outstanding Senior Notes. If an Event of Default
occurs, the trustee may, and the trustee shall upon the request of the holders
of at least 25% in principal amount of the outstanding Senior Notes, declare the
principal of and accrued and unpaid interest to the date of acceleration on the
Senior Notes due and payable. Before the failure to maintain the minimum net
worth becomes an "Event of Default," the Company intends to elect to be released
from certain provisions of the Indenture ("covenant defeasance"), including the
covenant to maintain such minimum net worth, so that any omission to comply with
such covenant will not constitute an Event of Default. To effect covenant
defeasance, the Company must make an irrevocable deposit with the trustee, in
trust for such purpose, of money and/or U.S. Government Obligations (as defined
in the Indenture) which through the payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and interest on the Senior Notes to the date for redemption of
the Senior Notes (June 15, 1997) plus 91 days (or, under certain circumstances,
such longer period as may be determined) during which no bankruptcy or
insolvency petition shall have been filed by or against the Company. Part of the
proceeds from the Sale of the Water Business will be used to make the required
deposit with the trustee.
If fewer than 2,000,000 Shares are purchased pursuant to the Offer, the
Company may repurchase the remainder of such Shares on the open market, in
privately negotiated transactions or otherwise. In the future, the Company also
may determine to purchase additional Shares on the open market, in privately
negotiated transactions, through one or more tender offers or otherwise. Any
such purchases may be on the same terms or on terms which are more or less
favorable to stockholders than the terms of the Offer. However, Rule 13e-4 under
the Exchange Act prohibits the Company and its affiliates from purchasing any
Shares, other than pursuant to the Offer, until at least ten business days after
the Expiration Date. Any future purchases of Shares by the Company would depend
on many factors, including the market price of the Shares, the Company's
business and financial position, and general economic and market conditions.
13
<PAGE>
Shares that the Company acquires pursuant to the Offer will become authorized
but unissued Shares and will be available for issuance by the Company without
further stockholder action (except as may be required by applicable law or the
rules of the securities exchanges on which the Shares are listed). Such Shares
could be issued without stockholder approval for, among other things,
acquisitions, the raising of additional capital for use in the Company's
business, stock dividends or in connection with employee stock, stock option and
other plans, or a combination thereof. The Company has no current plans for the
Shares it may acquire pursuant to the Offer or any other authorized but unissued
Shares.
As of March 7, 1996, the Company had issued and outstanding 5,792,921 Shares
and had reserved for issuance upon exercise of outstanding stock options 32,600
Shares. The 2,000,000 Shares that the Company is offering to purchase represent
approximately 34.5% of the Shares then outstanding. As of March 7, 1996, all
directors and executive officers of the Company as a group owned beneficially an
aggregate of 437,102 Shares (including an aggregate of 25,300 Shares that may be
acquired pursuant to the exercise of outstanding stock options exercisable
within 60 days of the date hereof). The Company has been advised that no
director or executive officer of the Company or any of its affiliates intends to
tender Shares pursuant to the Offer. If the Company purchases 2,000,000 Shares
pursuant to the Offer and no director or executive officer of the Company
tenders Shares, the percentage of outstanding Shares owned beneficially by all
of the Company's directors and executive officers as a group would increase to
approximately 11.4% of the Shares then outstanding (including for this purpose,
Shares that may be acquired by such directors and executive officers pursuant to
the exercise of outstanding stock options exercisable within 60 days of the date
hereof).
Except as disclosed in this Offer to Purchase (see "The Offer-Certain
Information Concerning the Company-Summary Unaudited Pro Forma Consolidated
Financial Information"), the Company has no plans or proposals which relate to
or would result in: (a) the acquisition by any person of additional securities
of the Company or the disposition of securities of the Company except that the
Company may, from time to time, repurchase Shares which Shares will be issued in
connection with the Dividend Reinvestment Plan and the Savings Plan; (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries; (c) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries; (d) any change in the present Board of Directors or management of
the Company; (e) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company; (f) any other material change in
the Company's corporate structure or business; (g) any change in the
Company's Restated Articles of Incorporation or Bylaws or any actions which
may impede the acquisition of control of the Company by any person; (h) a class
of equity security of the Company being delisted from a national securities
exchange; (i) a class of equity security of the Company becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(j) the suspension of the Company's obligation to file reports pursuant to
Section 15(d) of the Exchange Act.
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and is likely to reduce the
number of holders of Shares. Nonetheless, the Company anticipates that there
will still be a sufficient number of Shares outstanding and publicly traded
following the Offer to ensure a continued trading market in the Shares. Based on
the published guidelines of the NYSE, the Company does not believe that its
purchase of Shares pursuant to the Offer will cause its remaining Shares to be
delisted from such exchange.
The Shares are currently "margin securities" under the rules of the Federal
Reserve Board. This has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. The Company believes that,
following the repurchase of Shares pursuant to the Offer, the Shares will
continue to be "margin securities" for purposes of the Federal Reserve Board's
margin regulations.
The Shares are registered under the Exchange Act, which requires, among other
things, that the Company furnish certain information to its stockholders and the
Commission and comply with the Commission's proxy rules in connection with
meetings of the Company's stockholders. The Company believes that its purchase
of Shares pursuant to the Offer will not result in the Shares becoming eligible
for deregistration under the Exchange Act.
14
<PAGE>
Stockholders who determine not to accept the Offer or whose Shares are not
purchased in the Offer will realize an increase in their percentage ownership
interest in the Company and thus, in the Company's future earnings and assets.
Because of the smaller number of Shares outstanding after consummation of the
Offer, increases or decreases in net earnings will result in proportionately
greater increases or decreases in earnings per Share. See Section 10.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS
BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS
AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
10. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a holding company with two groups of subsidiaries. One group,
regulated by the Pennsylvania Public Utility Commission ("PPUC"), consists of
PGE, the Company's principal subsidiary, which provides natural gas served to
approximately 141,800 customers in ten counties in northeastern Pennsylvania.
The other group of subsidiaries, consisting of Pennsylvania Energy Resources,
Inc., Theta Land Corporation and Pennsylvania Energy Marketing Company, is not
regulated by the PPUC.
The Company's principal executive offices are located at Wilkes-Barre
Center, 39 Public Square, Wilkes-Barre, PA 18711, and its telephone number is
(717) 829-8843.
Recent Developments
On February 16, 1996, the Company and PGE sold substantially all of PGE's
water operations to Pennsylvania-American Water Company, a wholly-owned
subsidiary of American Water Works Company, Inc., for approximately $413.5
million (including debt assumed), subject to certain post-closing adjustments.
These operations had provided water service to approximately 133,400 customers.
See "-Summary Unaudited Pro Forma Consolidated Financial Information" below.
Effective as of December 4, 1995, Pennsylvania Energy Resources, Inc., a
wholly-owned subsidiary of the Company, acquired all of the outstanding stock of
Keystone Pipeline Services, Inc. (formerly known as Ford Bacon & Davis Sealants
Inc.) from Ford, Bacon & Davis Companies, Inc., a wholly-owned subsidiary of
Deutsche Babcock Technologies, Inc. Keystone Pipeline Services, Inc. is engaged
in distribution pipeline construction, maintenance and rehabilitation.
Summary Consolidated Historical Financial Information
The following selected financial information for each of the years ended
December 31, 1995, and December 31, 1994, has been derived from the Company's
audited consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (the "1995 10-K"),
which reflect PGE's water utility operations as "discontinued operations"
effective March 31, 1995. The following selected historical financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, such audited consolidated financial statements and the related
notes which are incorporated herein by reference. The 1995 10-K may be obtained
from or inspected at the offices of the Commission in the manner set forth in
Section 16.
15
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS, PER SHARE
AMOUNTS AND SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
----------- ------------
<S> <C> <C>
Income Statement Data:
Operating revenues .................................. $ 152,756 $ 167,992
Cost of gas......................................... 84,372 98,653
----------- ------------
Operating margin..................................... 68,384 69,339
Other operating expenses............................. 47,850 48,852
----------- ------------
Operating income..................................... 20,534 20,487
Other income, net.................................... 763 258
----------- ------------
Income before interest charges....................... 21,297 20,745
Interest charges..................................... 15,413 13,793
----------- ------------
Income from continuing operations.................... 5,884 6,952
Income (loss) with respect to discontinued
operations.......................................... (3,834) 10,504
----------- ------------
Income before subsidiary's preferred stock dividends. 2,050 17,456
Subsidiary's preferred stock dividends............... 2,763 4,639
----------- ------------
Net income applicable to common stock ............... $ (713) $ 12,817
=========== ============
Common stock:
Earnings per share of common stock ................. $ (0.12) $ 2.17
=========== ============
Weighted average number of shares outstanding....... 5,729,436 5,456,568
=========== ============
Ratio of earnings to fixed charges(1)................ 1.64 1.83
=========== ============
________
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges,
earnings are defined as the sum of pre-tax income plus fixed charges. Fixed
charges consist of all interest expense (before allowance for borrowed funds
used during construction), one-third of rent expense (which approximates the
interest component of such expense), and amortization of debt expense.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Balance Sheet Data:
ASSETS
Utility plant ...................................... $295,895 $284,080
Accumulated depreciation .......................... (76,882) (74,408)
----------- -----------
Net utility plant .................................. 219,013 209,672
Other property and investments ..................... 7,142 3,481
Current assets ..................................... 58,155 62,066
Deferred charges ................................... 35,658 46,017
Net assets of discontinued operations .............. 204,250 203,196
----------- -----------
Total assets ....................................... $524,218 $524,432
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' investment ................... $162,739 $172,012
Preferred stock - .................................
Not subject to mandatory redemption, net ......... 33,615 33,615
Subject to mandatory redemption .................. 1,680 1,760
Long-term debt .................................... 106,706 220,705
----------- -----------
304,740 428,092
----------- -----------
Current liabilities:
Current portion of long-term debt and preferred
stock subject to mandatory redemption ............ 116,081 3,290
Notes payable ..................................... 10,180 --
Other ............................................. 29,103 31,836
----------- -----------
155,364 35,126
----------- -----------
Deferred credits ................................... 64,114 61,214
----------- -----------
Total capitalization and liabilities ............... $524,218 $524,432
=========== ===========
Shareholders' equity per common share outstanding .. $ 28.14 $ 30.97
=========== ===========
</TABLE>
16
<PAGE>
Summary Unaudited Pro Forma Consolidated Financial Information
The following Summary Unaudited Pro Forma Consolidated Balance Sheet and
Summary Unaudited Pro Forma Consolidated Statement of Income have been prepared
based on the Company's consolidated balance sheet as of December 31, 1995, and
the related consolidated statement of income for the year then ended, each as
adjusted to reflect the Sale of the Water Business on February 16, 1996, and the
use of the cash proceeds therefrom of $210.0 million (after the payment of an
estimated $56.7 million of federal and state income taxes on the sale) for the
purchase of Shares pursuant to the Offer and the other purposes described in
Note 3 to the Notes to Summary Unaudited Pro Forma Consolidated Balance Sheet.
Pursuant to the Asset Purchase Agreement relating to the Sale of the Water
Business, the purchase price is subject to post-closing adjustment in certain
cases. The summary unaudited pro forma consolidated financial statements also
reflect certain other assumptions and related transactions as described in the
notes to such statements.
The Summary Unaudited Pro Forma Consolidated Statement of Income reflects the
results of the Company's continuing operations as if the Sale of the Water
Business and the use of the proceeds therefrom, including the purchase of Shares
pursuant to the Offer, had taken place at the beginning of the period. The
Summary Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1995,
reflects the financial position of the Company as if such transactions had
occurred on that date. Each of the Company's Summary Unaudited Pro Forma
Consolidated Statement of Income and Summary Unaudited Pro Forma Consolidated
Balance Sheet include estimates which may differ from the results ultimately
incurred.
The summary unaudited pro forma consolidated financial statements have been
included herein as required by the rules of the Commission and are for
comparative purposes only. They should be read in conjunction with the summary
consolidated historical financial information and do not purport to be
indicative of the results that would actually have been obtained had the Sale of
the Water Business, the purchase of Shares pursuant to the Offer and the other
related transactions described in the notes to such statements been effected on
the dates indicated or the results that may be obtained in the future.
Certain statements made below relating to plans, conditions, objectives and
economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Exchange Act, and each is
subject to factors that could cause actual results to differ from those in the
forward-looking statement.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS, PER SHARE AMOUNTS
AND SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Assuming A $39 Per Share Purchase Price Assuming A $37 Per Share Purchase Price
------------------------------------------- -------------------------------------------
Pro Forma Pro Forma
Historical Adjustments(1) Pro Forma Historical Adjustments(1) PRO FORMA
------------- --------------- ------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues............... $ 152,756 $ -- $ 152,756 $ 152,756 $ -- $ 152,756
Cost of gas..................... 84,372 -- 84,372 84,372 -- 84,372
------------- -------------- ---------- ----------- --------------- ---------
Operating margin................. 68,384 -- 68,384 68,384 -- 68,384
Operating expenses............... 47,850 2,049 (2) 49,899 47,850 2,049 (2) 49,899
------------- --------------- --------- ----------- --------------- ---------
Operating income................. 20,534 (2,049) 18,485 20,534 (2,049) 18,485
Other income, net................ 763 -- 763 763 -- 763
------------- --------------- --------- ----------- --------------- ---------
Income before interest charges .. 21,297 (2,049) 19,248 21,297 (2,049) 19,248
------------- --------------- --------- ----------- --------------- ---------
Interest charges:
Interest on long-term debt...... 13,663 (4,928)(2) 8,735 13,663 (4,928)(2) 8,735
Other interest.................. 1,750 (10)(2) 1,740 1,750 (10)(2) 1,740
------------- --------------- --------- ----------- --------------- ---------
Total interest charges......... 15,413 (4,938) 10,475 15,413 (4,938) 10,475
------------- -------------- --------- ----------- --------------- ---------
Income from continuing
operations
before subsidiary's preferred
stock dividends................. 5,884 2,889 8,773 5,884 2,889 8,773
Subsidiary's preferred stock
dividends....................... 2,763 (2,353)(3) 410 2,763 (2,353)(3) 410
------------- -------------- -------- ----------- --------------- ---------
Income from continuing
operations
applicable to common stock...... $ 3,121 $ 5,242 $ 8,363 $ 3,121 $ 5,242 $ 8,363
============= =============== ========= =========== =============== =========
Common stock:
Earnings per share of common
stock from continuing
operations..................... $ 0.55 $ 2.24 $ 0.55 $ 2.24
============= ========= ============ =========
Weighted average number of
shares outstanding............. 5,729,436 (2,000,000)(4) 3,729,436 5,729,436 (2,000,000)(4) 3,729,436
============= ================ ========= ============ =============== ==========
Ratio of earnings from
continuing
operations to fixed charges(5).. 1.64 2.39 1.64 2.39
============= ======== ============ ==========
Shareholder's equity per common
share outstanding............... $ 28.14 $ 21.83 $ 28.14 $ 22.89
============= ========= ============ ===========
</TABLE>
See accompanying notes to summary unaudited pro forma consolidated statement of
income.
18
<PAGE>
NOTES TO SUMMARY UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(1) Adjustments assume that the Sale of the Water Business and the application
of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, each took place at the beginning of the period.
(2) Represents the adjustments to interest on long-term debt and amortization of
debt expense, and the related income tax effect, necessary to reflect the
interest on indebtedness outstanding during the period after (a) application
of proceeds from the Sale of the Water Business to (i) repay a $50.0 million
bank loan ("the Bridge Loan"), the proceeds of which were used to redeem
$50.0 million principal amount of PGE's 9.57% Series First Mortgage Bonds
on October 13, 1995, (ii) repay $10.9 million of PGE's bank borrowings,
and (iii) defease the $30.0 million principal amount of the Company's
10.125% Senior Notes (the "10.125% Senior Notes") (see Section 9) and (b)
the redemption in connection with the Sale of the Water Business and
pursuant to annual sinking fund requirements of the $3.5 million principal
amount of PGE's 8% Series First Mortgage Bonds outstanding as of January
1, 1995. The adjustments to interest on long-term debt may be summarized as
follows:
<TABLE>
<CAPTION>
ASSUMING A $39 PER ASSUMING A $37 PER
SHARE SHARE
PURCHASE PRICE PURCHASE PRICE
-------------------- ---------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Interest on long-term debt for the twelve months ended
December 31, 1995:
Allocated to continuing operations, as per accompanying
summary unaudited pro forma consolidated statement of
income ................................................. $ 13,663 $ 13,663
Allocated to discontinued operations .................... 12,848 12,848
-------- --------
26,511 26,511
Deduct:
Interest on debt assumed by Pennsylvania-American Water
Company ................................................. $9,529 $9,529
Interest on debt redeemed or repaid in connection with
Sale of the Water Business
9.57% Series First Mortgage Bonds ...................... 3,748 3,748
10.125% Senior Notes ................................... 3,037 3,037
Bank borrowings ........................................ 719 719
Bridge Loan ............................................ 716 716
8% Series First Mortgage Bonds ......................... 147 (17,896) 147 (17,896)
-------- ---------
Add:
Interest on PGE's bank borrowings to reflect the
redemption of PGE's 8%
Series First Mortgage Bonds as
if it occurred at the beginning of the period ........... 120 120
----------- ----------
Pro forma interest on long-term debt, as per accompanying
summary unaudited pro forma consolidated statement of
income .................................................. $ 8,735 $ 8,735
=========== ===========
<FN>
(3) Represents elimination of preferred stock dividends of $2,025,000 and
$328,000 to reflect the repurchase of 225,000 shares of PGE's 9%
Cumulative Preferred Stock and 80,000 shares of PGE's 4.10% Cumulative
Preferred Stock, respectively, with proceeds from the Sale of the Water
Business.
(4) Represents the reduction in the number of shares of the Company's common
stock outstanding resulting from the application of the proceeds from the
Sale of the Water Business to repurchase 2,000,000 shares of the Company's
common stock.
(5) For purposes of computing the ratio of earnings from continuing operations
to fixed charges, earnings are defined as the sum of pre-tax income plus
fixed charges. Fixed charges consist of all interest expense (before
allowance for borrowed funds used during construction), one-third of rent
expense (which approximates the interest component of such expense) and
amortization of debt expense.
</FN>
</TABLE>
19
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSUMING A $39 PER SHARE PURCHASE PRICE ASSUMING A $37 PER SHARE PURCHASE PRICE
------------------------------------------ ------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA HISTORICAL ADJUSTMENTS(1) PRO FORMA
------------- --------------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Utility plant ...................... $295,895 $ -- $295,895 $295,895 $ -- $295,895
Accumulated depreciation .......... (76,882) -- (76,882) (76,882) -- (76,882)
------------- --------------- ------------ ------------- --------------- ------------
Net utility plant .................. 219,013 -- 219,013 219,013 -- 219,013
Other property and investments...... 7,142 -- 7,142 7,142 -- 7,142
Current assets...................... 58,155 266,670 (2a) 58,155 266,670 (2a)
(56,710)(2c) (56,710)(2c)
(209,960)(3) (209,960)(3)
1,500 (3d) 1,500 (3d)
3,763 (3j) 63,418 7,763 (3j) 67,418
Deferred charges.................... 35,658 -- 35,658 35,658 0 35,658
Net assets of discontinued
operations......................... 204,250 (204,250)(2e) -- 204,250 (204,250)(2e) --
------------- --------------- ------------ ------------- --------------- ------------
Total assets........................ $524,218 $ (198,987) $325,231 $524,218 $ (194,987) $329,231
============= =============== ============ ============= =============== ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders|Al investment....$162,739 $ (790)(2b) $162,739 $ (790)(2b)
(78,000)(3a) (74,000)(3a)
(1,800)(3b) (1,800)(3b)
4,000 (3c) 4,000 (3c)
(722)(4) (722)(4)
(61)(5) (61)(5)
(2,750)(3e) $ 82,616 (2,750)(3e) $ 86,616
Preferred stock--
Not subject to mandatory
redemption, net ................. 33,615 (22,500)(3b) 33,615 (22,500)(3b)
(8,000)(3c) (8,000)(3c)
1,247 (4) 4,362 1,247 (4) 4,362
Subject to mandatory redemption .. 1,680 -- 1,680 1,680 -- 1,680
Long-term debt..................... 106,706 (30,000)(3d) 106,706 (30,000)(3d)
94 (5) 76,800 94 (5) 76,800
------------- --------------- ------------ ------------- --------------- ------------
304,740 (139,282) 165,458 304,740 (135,282) 169,458
------------- --------------- ------------ ------------- --------------- ------------
Current liabilities:
Current portion of long-term debt
and preferred stock subject to
mandatory redemption.............. 116,081 (10,861)(3g) 116,081 (10,861)(3g)
(50,000)(3f) (50,000)(3f)
-- 55,220 -- 55,220
Notes payable...................... 10,180 -- 10,180 10,180 -- 10,180
Other.............................. 29,103 6,500 (2d) 29,103 6,500 (2d)
(5,947)(3h) (5,947)(3h)
(525)(4) (525)(4)
(33)(5) 29,098 (33)(5) 29,098
------------- --------------- ------------ ------------- --------------- ------------
155,364 (60,866) 94,498 155,364 (60,866) 94,498
------------- --------------- ------------ ------------- --------------- ------------
Deferred credits.................... 64,114 1,161 (3i) 65,275 64,114 1,161 (3i) 65,275
------------- --------------- ------------ ------------- --------------- ------------
Total capitalization and liabilities $524,218 $ (198,987) $325,231 $524,218 $ (194,987) $329,231
============= =============== ============ ============= =============== ============
</TABLE>
20
<PAGE>
NOTES TO SUMMARY UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1995
(1) Adjustments assume that the Sale of the Water Business and the application
of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, each took place as of the date of the balance sheet.
(2) Represents (a) receipt of cash proceeds of $266.7 million from the Sale of
the Water Business, (b) elimination from common shareholders|Al investment
of the $790,000 of estimated income from PGE's water operations during the
period from January 1, 1996, to February 16, 1996, the date on which the
water operations were sold to Pennsylvania-American Water Company, that was
reflected as of December 31, 1995, as an element of income with respect to
discontinued operations, (c) payment of the estimated federal and state
income tax liability of $56.7 million on the Sale of the Water Business, (d)
recording of the $6.5 million premium of the purchase price over the book
value of the assets acquired by Pennsylvania-American Water Company as a
credit to other current liabilities, the account to which it was charged as
of December 31, 1995, as an offset against the liability for the estimated
expenses on the Sale of the Water Business and (e) elimination of the $204.3
million of net assets of the water operations.
(3) Reflects the application of the proceeds from the Sale of the Water Business
of $210.0 million, after the payment of the estimated federal and state
income tax liability of $56.7 million on the Sale of the Water Business, in
the following manner: (a) the repurchase (for aggregate considerations of
$78.0 million or $74.0 million to the extent Shares are purchased pursuant
to the Offer at $39.00 per Share or $37.00 per Share, respectively) of
2,000,000 shares of the Company's common stock, (b) the repurchase (for an
aggregate consideration of $24.3 million) of 225,000 shares of PGE's 9%
Cumulative Preferred Stock (having an aggregate book value of $22.5 million)
at a price of $108.00 per share, which includes a premium of $8.00 per share
($1.8 million in the aggregate), (c) the repurchase (for an aggregate
consideration of $4.0 million) of 80,000 shares of PGE's 4.10% Cumulative
Preferred Stock (having an aggregate book value of $8.0 million) at a price
of $50.00 per share, which reflects a $4.0 million aggregate ($50.00 per
share) discount from book value, (d) the defeasance of the $30.0 million
principal amount of the Company's 10.125% Senior Notes at a total cost of
$31.5 million, (e) payment of $2.8 million of costs in connection with the
repurchase of the Shares and PGE's preferred stock (which will vary
depending on the number of shares repurchased), (f) the repayment of the
Bridge Loan, the proceeds of which were used to redeem $50.0million
principal amount of PGE's 9.57% Series First Mortgage Bonds on October 13,
1995, (g) repayment of $10.9 million of PGE's bank borrowings, (h) payment
of $5.9 million of transaction costs relative to the Sale of the Water
Business, (i) recording of the $1.2 million net tax benefit resulting from
transaction costs and the premium over book value on the Sale of the Water
Business and (j) the addition of the remaining proceeds of $3.8 million or
$7.8 million to the Company's cash accounts to the extent Shares are
purchased at $39.00 per Share or $37.00 per Share, respectively. The
repurchases and costs referred to in items (a), (b), (c) and (e) involve
voluntary sales to PGE and the Company by holders of PGE securities and the
shares. Therefore, the number and price of the securities purchased and the
related expenses may vary depending on market conditions at the time of the
repurchases.
(4) Reflects the write-off of $1.2 million ($722,000 after related income tax
benefits of $525,000) of issuance costs relative to the 225,000 shares of
PGE's 9% Cumulative Preferred Stock which PGE intends to repurchase with
proceeds from the Sale of the Water Business.
(5) Reflects the write-off of $94,000 ($61,000 after related income tax benefits
of $33,000) of the unamortized discount on issuance of the 10.125% Senior
Notes.
11. SOURCE AND AMOUNT OF FUNDS.
Assuming that the Company purchases 2,000,000 Shares pursuant to the Offer at
a price of $39.00 per Share, the total amount required by the Company to
purchase such Shares will be $78,000,000, exclusive of fees and other expenses.
The Company expects to fund the purchase of such Shares from
21
<PAGE>
part of the proceeds from the repurchase by PGE of 2,297,297 shares of its
common stock from the Company for an approximate repurchase price of
$85,000,000. See "The Offer-Certain Information Concerning the Company-Summary
Unaudited Pro Forma Consolidated Financial Information" for a description of the
other recapitalizations being considered or effected in connection with the Sale
of the Water Business. PGE will fund such repurchase from part of the proceeds
from the Sale of the Water Business. See Section 10.
12. TRANSACTIONS AND AGREEMENTS CONCERNING SHARES.
Based upon the Company's records and upon information provided to the
Company by its directors and executive officers, neither the Company nor, to the
Company's knowledge, any of its associates, subsidiaries, directors, executive
officers or any associate of any such director or executive officer, or any
director or executive officer of its subsidiaries, has engaged in any
transactions involving the Shares during the 40 business days preceding the date
hereof. Except for outstanding options to purchase Shares, neither the Company
nor, to the Company's knowledge, any of its directors or executive officers is
a party to any contract, arrangement, understanding or relationship relating
directly or indirectly to the Offer with any other person with respect to the
Shares.
13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
In General. The following summary is a general discussion of certain United
States federal income tax consequences relating to the Offer. This summary does
not discuss any aspects of state, local, foreign or other tax laws. The summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"), and
existing final, temporary and proposed Treasury Regulations, Revenue Rulings and
judicial decisions, all of which are subject to prospective and retroactive
changes. The summary deals only with Shares held as capital assets within the
meaning of Section 1221 of the Code and does not address tax consequences that
may be relevant to investors in special tax situations, such as certain
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities or currencies, stockholders who have acquired their Shares upon
the exercise of options or otherwise as compensation, or stockholders holding
the Shares as part of a conversion transaction, as part of a hedge or hedging
transaction, or as a position in a straddle for tax purposes. The Company will
not seek a ruling from the Internal Revenue Service (the "IRS") with regard to
the tax matters discussed below. Accordingly, each stockholder should consult
its own tax advisor with regard to the Offer and the application of United
States federal income tax laws, as well as the laws of any state, local or
foreign taxing jurisdiction, to its particular situation.
Characterization of the Sale. A sale of Shares by a stockholder of the
Company pursuant to the Offer will be a taxable transaction for United States
federal income tax purposes and may also be a taxable transaction under
applicable state, local and foreign tax laws. The United States federal income
tax consequences to a stockholder may vary depending upon the stockholder's
particular facts and circumstances. Under Section 302 of the Code, a sale of
Shares by a stockholder to the Company pursuant to the Offer will be treated as
a "sale or exchange" of such Shares for United States federal income tax
purposes (rather than as a distribution by the Company with respect to the
Shares held by the tendering stockholder) if the receipt of cash upon such sale
(i) is "substantially disproportionate" with respect to the stockholder, (ii)
results in a "complete termination" of the stockholder's interest in the
Company, or (iii) is "not essentially equivalent to a dividend" with respect to
the stockholder. These tests (the "Section 302 tests") are explained more fully
below.
If any of the Section 302 tests is satisfied, and the sale of the Shares is
therefore treated as a "sale or exchange" of such Shares for United States
federal income tax purposes, the tendering stockholder will recognize capital
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the
Shares sold pursuant to the Offer. Any such gain or loss will be long-term
capital gain or loss if the Shares have been held for more than one year.
If none of the Section 302 tests is satisfied and the Company has sufficient
current and accumulated earnings and profits, the tendering stockholder will be
treated as having received a dividend includible in
22
<PAGE>
gross income in an amount equal to the entire amount of cash received by the
stockholder pursuant to the Offer (without reduction for the tax basis of the
Shares sold pursuant to the Offer), no loss will be recognized, and (subject to
reduction as described below for corporate stockholders eligible for the
dividends-received deduction) the tendering stockholder's basis in the Shares
sold pursuant to the Offer will be added to such stockholder's basis in its
remaining Shares, if any. No assurance can be given that any of the Section 302
tests will be satisfied as to any particular stockholder, and thus no assurance
can be given that any particular stockholder will not be treated as having
received a dividend taxable as ordinary income. If the sale of Shares is not
treated as a sale or exchange for federal income tax purposes, any cash received
for Shares pursuant to the Offer in excess of the Company's earnings and
profits will be treated, first, as a nontaxable return of capital to the extent
of the stockholder's basis for such stockholder's Shares, and, thereafter,
as capital gain, to the extent it exceeds such basis.
Constructive Ownership of Stock. In determining whether any of the Section
302 tests is satisfied, stockholders must take into account not only the Shares
which are actually owned by the stockholder, but also Shares which are
constructively owned by the stockholder within the meaning of Section 318 of the
Code. Under Section 318 of the Code, a stockholder may constructively own Shares
actually owned, and in some cases constructively owned, by certain related
individuals or entities in which the stockholder has an interest, or, in the
case of stockholders that are entities, by certain individuals or entities that
have an interest in the stockholder, and Shares which the stockholder has the
right to acquire by exercise of an option or by conversion. Contemporaneous
dispositions or acquisitions of Shares by a stockholder or related individuals
or entities may be deemed to be part of a single integrated transaction which
will be taken into account in determining whether any of the Section 302 tests
has been satisfied. EACH STOCKHOLDER SHOULD BE AWARE THAT BECAUSE PRORATION MAY
OCCUR IN THE OFFER, EVEN IF ALL THE SHARES ACTUALLY AND CONSTRUCTIVELY OWNED BY
A STOCKHOLDER ARE TENDERED PURSUANT TO THE OFFER, FEWER THAN ALL OF SUCH SHARES
MAY BE PURCHASED BY THE COMPANY. THUS, PRORATION MAY AFFECT WHETHER A SALE BY A
STOCKHOLDER PURSUANT TO THE OFFER WILL MEET ANY OF THE SECTION 302 TESTS. See
Section 6 for information regarding each stockholder's option to make a
conditional tender of a minimum number of Shares. A stockholder should consult
its own tax advisor regarding whether to make a conditional tender of a minimum
number of Shares, and the appropriate calculation thereof.
Section 302 Tests. One of the following tests must be satisfied in order for
the sale of Shares pursuant to the Offer to be treated as a sale or exchange for
federal income tax purposes.
a. Substantially Disproportionate Test. The receipt of cash by a
stockholder will be "substantially disproportionate" if the percentage of the
outstanding Shares actually and constructively owned by the stockholder
immediately following the sale of Shares pursuant to the Offer (treating as
not outstanding all Shares purchased pursuant to the Offer) is less than 80%
of the percentage of the outstanding Shares actually and constructively owned
by such stockholder immediately before the sale of Shares pursuant to the
Offer (treating as outstanding all Shares purchased pursuant to the Offer).
Stockholders should consult their tax advisors with respect to the
application of the "substantially disproportionate" test to their particular
situation.
b. Complete Termination Test. The receipt of cash by a stockholder will
be a "complete termination" of the stockholder's interest if either (i) all
of the Shares actually and constructively owned by the stockholder are sold
pursuant to the Offer, or (ii) all of the Shares actually owned by the
stockholder are sold pursuant to the Offer and, with respect to the Shares
constructively owned by the stockholder which are not sold pursuant to the
Offer, the stockholder is eligible to waive (and effectively waives)
constructive ownership of all such Shares under procedures described in
Section 302(c) of the Code. Stockholders considering making such a waiver
should do so in consultation with their tax advisors.
c. Not Essentially Equivalent to a Dividend Test. Even if the receipt of
cash by a stockholder fails to satisfy the "substantially disproportionate"
test or the "complete termination" test, a stockholder may nevertheless
satisfy the "not essentially equivalent to a dividend" test if the
stockholder's sale of Shares pursuant to the Offer results in a "meaningful
reduction" in the stockholder's proportionate interest in the Company.
Whether the receipt of cash by a stockholder will be "not essentially
equivalent to a dividend" will depend upon the stockholder's particular
23
<PAGE>
facts and circumstances. The IRS has indicated in published rulings that even
a small reduction in the proportionate interest of a small minority
stockholder in a publicly held corporation who exercises no control over
corporate affairs may constitute such a "meaningful reduction." The IRS held
in Rev. Rul. 76-385, 1976-2 C.B. 92, that a reduction in the percentage
ownership interest of a stockholder in a publicly held corporation from
.0001118% to .0001081% (a reduction to 96.7% of the stockholder's prior
percentage ownership interest) would constitute a "meaningful reduction."
Stockholders expecting to rely on the "not essentially equivalent to a
dividend" test should consult their own tax advisors as to its application in
their particular situation.
Corporate Stockholder Dividend Treatment. Under current law, if a sale of
Shares by a corporate stockholder is treated as a dividend, the corporate
stockholder may be entitled to claim a deduction equal to 70% of the dividend
under Section 243 of the Code, subject to applicable limitations. Corporate
stockholders should consider the effect of Section 246(c) of the Code, which
disallows the 70% dividends-received deduction with respect to stock that is
held for 45 days or less. For this purpose, the length of time a taxpayer is
deemed to have held stock may be reduced by periods during which the
taxpayer's risk of loss with respect to the stock is diminished by reason of
the existence of certain options or other transactions. Moreover, under Section
246A of the Code, if a corporate stockholder has incurred indebtedness directly
attributable to an investment in Shares, the 70% dividends-received deduction
may be reduced by a percentage generally computed based on the amount of such
indebtedness and the total adjusted tax basis in the Shares. In addition,
because it is expected that the redemption of Shares will not be pro rata with
respect to all stockholders, any amount received by a corporate stockholder
pursuant to the Offer that is treated as a dividend will likely constitute an
"extraordinary dividend" under Section 1059 of the Code (except as may otherwise
be provided in regulations yet to be promulgated by the Treasury Department).
Accordingly, a corporate stockholder would be required under Section 1059(a) of
the Code to reduce its basis (but not below zero) in its Shares by the non-taxed
portion of the extraordinary dividend (i.e., the portion of the dividend for
which a deduction is allowed), and, if such portion exceeds the stockholder's
tax basis for its Shares, to treat the excess as gain from the sale of such
Shares in the year in which a sale or disposition of such Shares occurs. The
basis reduction rules of Section 1059 also generally apply to dividends which
exceed a threshold percentage of a stockholder's basis in its stock, unless
the stockholder has held its stock for more than two years before the
announcement date of such dividend. For purposes of applying Section 1059, all
dividends received by a stockholder and having their ex-dividend dates within an
85-day period (expanded to a 365-day period, in the case of dividends received
in such period that in the aggregate exceed 20% of the stockholder's adjusted
tax basis in the Shares) are aggregated. Corporate stockholders should consult
their own tax advisors as to the application of Section 1059 of the Code to the
Offer, and to any dividends which may be paid with respect to the Shares, as
well as the effect of pending legislation discussed below.
Foreign Stockholders. The Company will withhold United States federal income
tax at a rate of 30% from the gross proceeds paid pursuant to the Offer to a
foreign stockholder or his agent, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or that an exemption
from withholding is applicable because such gross proceeds are effectively
connected with the conduct of a trade or business by the foreign stockholder
within the United States. For this purpose, a foreign stockholder is any
stockholder that is not (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) any
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
Generally, the determination of whether a reduced rate of withholding is
applicable is made by reference to a foreign stockholder's address or to a
properly completed Form 1001 furnished by the stockholder, and the determination
of whether an exemption from withholding is available on the grounds that gross
proceeds paid to a foreign stockholder are effectively connected with a United
States trade or business is made on the basis of a properly completed Form 4224
furnished by the stockholder. The Company will determine a foreign
stockholder's eligibility for a reduced rate of, or exemption from,
withholding by reference to the stockholder's address and any Forms 1001 or
4224 submitted to the Company by a foreign stockholder unless facts and
circumstances indicate that such
24
reliance is not warranted or unless applicable law requires some other method
for determining whether a reduced rate of withholding is applicable. These forms
can be obtained from the Company.
A foreign stockholder with respect to whom tax has been withheld may be
eligible to obtain a refund of all or a portion of the withheld tax if the
stockholder satisfied one of the Section 302 tests for capital gain treatment or
is otherwise able to establish that no tax or a reduced amount of tax was due.
Foreign stockholders are urged to consult their own tax advisors regarding the
application of United States federal income tax withholding, including
eligibility for a withholding tax reduction or exemption and the refund
procedure.
Backup Withholding. See Section 3 with respect to the application of United
States federal income tax backup withholding.
Legislative Proposals.
(a) Capital Gains: The Revenue Reconciliation Act of 1995, as passed by
Congress and vetoed by the President, includes a reduction in the tax on net
long-term capital gains for both individuals and corporations. Under the bill,
individual taxpayers would be permitted a deduction for 50% of net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses). In addition, the deduction for net long-term capital losses could not
exceed 50% of the excess of net long-term capital losses over net short-term
capital gains. Corporations would be subject to a maximum tax rate of 28% on
their net capital gains. These reductions in the effective capital gains tax
rates generally would be effective for transactions occurring after 1994. It is
uncertain whether capital gains relief ultimately will be adopted and, if
adopted, what form such relief will take or what the effective date will be.
(b) Corporate dividends-received deduction: The Revenue Reconciliation Act of
1995, as passed by Congress and vetoed by the President, and the President's
budget proposal would amend Section 1059 of the Code to require corporate
stockholders to recognize gain immediately whenever the non-taxed portion of an
extraordinary dividend exceeds the basis of stock with respect to which the
dividend is received. Such legislation would also cause any amount characterized
as a dividend due to the Section 318 option attribution rules to be treated as
an extraordinary dividend under Section 1059 (with the legislation's gain
recognition rule applied by taking into account only the basis of the stock
redeemed). The legislation generally is proposed to be effective for redemptions
after May 3, 1995. It is uncertain whether such proposals will be adopted and,
if adopted, what form such legislation will take.
In addition, the President's budget proposal (but not the Revenue
Reconciliation Act of 1995 as passed by Congress) would generally reduce the
dividends-received deduction under Section 243 of the Code from 70% to 50% and
would require the 46-day holding period of Section 246(c) of the Code to be
satisfied over a period immediately before and/or after the taxpayer becomes
entitled to receive the dividend. Both of these provisions would apply to
dividends paid after January 31, 1996.
The impact of pending and future budget and tax legislation on the United
States federal tax system, including possible effects on taxation of the Offer,
is uncertain. Stockholders are advised to consult their own tax advisors as to
these matters.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON,
AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER.
NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE
OFFER, THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED ABOVE AND
THE EFFECT OF TAX LEGISLATIVE PROPOSALS.
25
<PAGE>
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary.
There can be no assurance, however, that the Company will exercise its right to
extend the Offer. During any such extension, all Shares previously tendered will
remain subject to the Offer, except to the extent that such Shares may be
withdrawn as set forth in Section 4. The Company also expressly reserves the
right, in its sole discretion, (i) to terminate the Offer and not accept for
payment any Shares not theretofore accepted for payment or, subject to Rule
13e-4(f)(5) under the Exchange Act, which requires the Company either to pay the
consideration offered or to return the Shares tendered promptly after the
termination or withdrawal of the Offer, to postpone payment for Shares upon the
occurrence of any of the conditions specified in Section 7 hereof by giving oral
or written notice of such termination to the Depositary and making a public
announcement thereof and (ii) at any time or from time to time, to amend the
Offer in any respect. Amendments to the Offer may be effected by public
announcement. Without limiting the manner in which the Company may choose to
make public announcement of any termination or amendment, the Company shall have
no obligation (except as otherwise required by applicable law) to publish,
advertise or otherwise communicate any such public announcement, other than by
making a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the Offer, in which case the Company shall have
no obligation to publish, advertise or otherwise communicate such announcement
other than by issuing a notice of such extension by press release or other
public announcement, which notice shall be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Material changes to information previously provided to holders
of the Shares in this Offer or in documents furnished subsequent thereto will be
disseminated to holders of Shares in compliance with Rule 13e-4(e)(2)
promulgated under the Exchange Act.
If the Company materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price,
change in dealer's soliciting fee or change in percentage of securities
sought) will depend on the facts and circumstances, including the relative
materiality of such terms or information. In a published release, the Commission
has stated that in its view, an offer should remain open for a minimum of five
business days from the date that notice of such a material change is first
published, sent or given. The Offer will continue or be extended for at least
ten business days from the time the Company publishes, sends or gives to holders
of Shares a notice that it will (a) increase or decrease the price it will pay
for Shares or the amount of the dealer's soliciting fee or (b) increase
(except for an increase not exceeding 2% of the outstanding Shares) or decrease
the number of Shares it seeks.
15. FEES AND EXPENSES.
Legg Mason Wood Walker, Incorporated will act as Dealer Manager for the
Company in connection with the Offer. The Company has agreed to pay the Dealer
Manager, upon acceptance for payment of Shares pursuant to the Offer, a fee of
$0.15 per Share purchased by the Company pursuant to the Offer. The Dealer
Manager will also be reimbursed by the Company for its reasonable out-of-pocket
expenses and will be indemnified against certain liabilities and expenses,
including liabilities under the federal securities laws, in connection with the
Offer.
The Dealer Manager has rendered, is currently rendering and is expected to
continue to render various investment banking and other advisory services to the
Company. It has received, and will continue to receive, customary compensation
from the Company for such services.
The Company will pay a solicitation fee of $0.50 per Share for any Shares
tendered and accepted for payment and paid for pursuant to the Offer, covered by
a Letter of Transmittal which designates, as having solicited and obtained the
tender, the name of (i) any broker or dealer in securities, including the Dealer
Manager in its capacity as a broker or dealer, who is a member of any national
securities
26
<PAGE>
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as though it
were an NASD member, or (iii) any bank or trust company (each of which is
referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a
Soliciting Dealer if such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a depositing holder (other than itself). No
such fee shall be payable to a Soliciting Dealer with respect to Shares tendered
for such Soliciting Dealer's own account. No broker, dealer, bank, trust
company or fiduciary shall be deemed to be the agent of the Company, the
Depositary, the Information Agent or the Dealer Manager for purposes of the
Offer.
The Company has retained Chemical Mellon Shareholder Services, L.L.C. as
Depositary and D.F. King & Co., Inc. as Information Agent in connection with the
Offer. The Information Agent may contact stockholders by mail, telephone,
facsimile transmission and personal interviews, and mayrequest brokers, dealers
and other nominee stockholders to forward materials relating to the Offer to
beneficial owners. The Depositary and the Information Agent will receive
reasonable and customary compensation for their services and will also be
reimbursed for certain out-of-pocket expenses. The Company has agreed to
indemnify the Depositary and the Information Agent against certain liabilities,
including certain liabilities under the federal securities laws, in connection
with the Offer. Neither the Information Agent nor the Depositary has been
retained to make solicitations or recommendations in connection with the Offer.
Certain directors or executive officers of the Company may, from time to
time, contact stockholders to provide them with information regarding the Offer.
Such directors and executive officers will not make any recommendation to any
stockholder as to whether to tender all or any Shares and will not solicit the
tender of any Shares. The Company will not compensate any director or executive
officer for this service.
Other than as described above, the Company will not pay any solicitation fees
to any broker, dealer, bank, trust company or other person for any Shares
purchased in connection with the Offer. The Company will reimburse such persons
for customary handling and mailing expenses incurred in connection with the
Offer.
The Company will pay all stock transfer taxes, if any, payable on account of
the acquisition of the Shares by the Company pursuant to the Offer, except in
certain circumstances where special payment or delivery procedures are utilized
pursuant to Instruction 7 of the Letter of Transmittal.
16. MISCELLANEOUS.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. Certain information as of particular dates concerning the
Company's directors and officers, their remuneration, options granted to them,
the principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is filed with the Commission. The
Company has also filed an Issuer Tender Offer Statement on Schedule 13E-4 with
the Commission, which includes certain additional information relating to the
Offer. Such reports, as well as such other material, may be inspected and copies
may be obtained at the Commission's public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. 20549, and should also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's Public Reference Section
at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and otherinformation also should be available for inspection at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company's Schedule 13E-4 may not be available at the Commission's
regional offices.
27
<PAGE>
The Offer is being made to all holders of Shares. The Company is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by the Dealer Manager or one or more
registered brokers or dealers licensed under the laws of such jurisdictions.
PENNSYLVANIA ENTERPRISES, INC.
March 11, 1996
28
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted from Eligible
Institutions. The Letter of Transmittal and certificates for Shares should be
sent or delivered by each stockholder of the Company or his or her broker,
dealer, bank or trust company to the Depositary at one of its addresses set
forth below.
The Depositary:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
TO: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal or other tender
offer materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact
their local broker, dealer, commercial bank or trust company for assistance
concerning the Offer.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
(410) 528-2231
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
PENNSYLVANIA ENTERPRISES, INC.
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 11, 1996
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE
OFFER IS EXTENDED.
TO: Chemical Mellon Shareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
SHARES TENDERED
(ATTACH ADDITIONAL LIST, IF NECESSARY) PRINT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
<S> <C> <C> <C>
TOTAL NUMBER OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES (PLEASE FILL IN EXACTLY AS NAME(S)
NUMBER(S)* CERTIFICATE(S)* TENDERED** APPEAR(S) ON CERTIFICATE(S))
TOTAL SHARES:
<FN>
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented
by any certificate delivered to the Depositary are being tendered. See
Instruction 4.
</FN>
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used if certificates are to be forwarded
herewith or if delivery of Shares (as defined below) is to be made by book-entry
transfer to the Depositary's account at The Depository Trust Company ("DTC")
or the Philadelphia Depository Trust Company ("PDTC") (hereinafter collectively
referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth in Section 6 of the Offer to Purchase (as defined below).
Stockholders who cannot deliver their Shares and all other documents required
hereby to the Depositary by the Expiration Date (as defined in the Offer to
Purchase) must tender their Shares pursuant to the guaranteed delivery procedure
set forth in Section 6 of the Offer to Purchase. See Instruction 2. Delivery of
documents to the Company or to a Book-Entry Transfer Facility does not
constitute a valid delivery.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________________________
Check Applicable Box: [ ] DTC [ ] PDTC
Account No. _______________________________________________________________
Transaction Code No. ______________________________________________________
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s) _______________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution that Guaranteed Delivery ______________________________
If delivery is by book-entry transfer:
Name of Tendering Institution _____________________________________________
Account No. at [ ] DTC [ ] PDTC
Transaction Code No.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Pennsylvania Enterprises, Inc., a
Pennsylvania corporation (the "Company"), the above-described shares of its
Common Stock, no par value, stated value $10.00 per share (the "Shares")
(including the associated common stock purchase rights (the "Rights) issued
pursuant to the Rights Agreement, dated as of April 26, 1995, between the
Company and Chemical Bank, as the Rights Agent), pursuant to the Company's
offer to purchase up to 2,000,000 Shares at a price per Share hereinafter set
forth, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated March 11, 1996 (the "Offer to
Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Offer"). Unless the context
otherwise requires, all references to Shares shall include the associated
Rights.
Subject to, and effective upon, acceptance for payment of and payment for the
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby (and
any and all other Shares or other securities issued or issuable in respect
thereof on or after March 16, 1996 (collectively, "Distributions")) and
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares and all Distributions, or transfer ownership of
such Shares and all Distributions on the account books maintained by any of the
Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Shares and all Distributions for registration and
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Depositary or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby and all Distributions.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (i) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Offer.
The undersigned understands that the Company will determine a single per
Share price (not greater than $39.00 nor less than $37.00 per Share) (the
"Purchase Price") that it will pay for Shares validly tendered and not withdrawn
pursuant to the Offer taking into account the number of Shares so tendered and
the prices specified that will enable it to purchase 2,000,000 Shares (or such
lesser number
3
<PAGE>
of Shares as are validly tendered at prices not greater than $39.00 nor less
than $37.00 per Share) pursuant to the Offer. The undersigned understands that
tenders of Shares pursuant to any one of the procedures described in Section 2
or 3 of the Offer to Purchase and in the instructions hereto will constitute an
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Offer. The undersigned also understands that unless the
Rights are redeemed or become separately transferable in accordance with their
terms, by tendering Shares the undersigned will also be tendering the associated
Rights and that no separate consideration will be paid for such Rights.
Unless otherwise indicated under "Special Payment Instructions," please issue
the check for the Purchase Price of any Shares purchased, and/or return any
Shares not tendered or not purchased, in the name(s) of the undersigned (and, in
the case of Shares tendered by book-entry transfer, by credit to the account at
the Book-Entry Transfer Facility designated above). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check for the
Purchase Price of any Shares purchased and/or any certificates for Shares not
tendered or not purchased (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the Purchase Price of
any Shares purchased and/or return any Shares not tendered or not purchased in
the name(s) of, and mail said check and/or any certificates to, the person(s) so
indicated. The undersigned recognizes that the Company has no obligation,
pursuant to the "Special Payment Instructions," to transfer any Shares from the
name of the registered holder(s) thereof if the Company does not accept for
payment any of the Shares so tendered.
4
<PAGE>
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
(SEE INSTRUCTION 5)
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR
IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES.
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having the Company
purchase all the Shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this one box INSTEAD OF
ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is
willing to accept the Purchase Price resulting from the Dutch auction tender
process. This action could result in receiving a price per Share as low as
$37.00 or as high as $39.00.
______________________________ OR ______________________________
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ ] $37.000 [ ] $37.500 [ ] $38.000 [ ] $38.500
[ ] $37.125 [ ] $37.625 [ ] $38.125 [ ] $38.625
[ ] $37.250 [ ] $37.750 [ ] $38.250 [ ] $38.750
[ ] $37.375 [ ] $37.875 [ ] $38.375 [ ] $38.875
[ ] $39.000
</TABLE>
ODD LOTS
(SEE INSTRUCTION 9)
This section is to be completed ONLY if shares are being tendered by or on
behalf of a person owning beneficially an aggregate of fewer than 100 Shares as
of the close of business on March 7, 1996, or, in the case of Shares allocated
to a Savings Plan account, as of the close of business on January 1, 1996.
The undersigned either (check one box):
[ ] was the beneficial owner of an aggregate of fewer than 100 Shares
(including Shares held in the Dividend Reinvestment Plan and the Savings
Plan (as such terms are defined in the Offer to Purchase)) as of the close
of business on March 7, 1996, or, in the case of Shares allocated to a
Savings Plan account, as of the close of business on January 1, 1996, all of
which are being tendered, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tendering, for the beneficial owners thereof, Shares with respect to
which it is the record owner, and (ii) believes, based upon representations
made to it by each such beneficial owner, that such beneficial owner owned
beneficially an aggregate of fewer than 100 Shares (including Shares held in
the Dividend Reinvestment Plan and the Savings Plan) as of the close of
business on March 7, 1996, or, in the case of Shares allocated to a Savings
Plan account, as of the close of business on January 1, 1996, and is
tendering all of such Shares.
5
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 6, 7 AND 8)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or certificates for Shares not tendered or not purchased are to be issued in
the name of someone other than the undersigned.
Issue [ ] check and/or [ ] certificate(s) to:
Name ___________________________________________________________
________________________________________________________________
(Please Print)
Address _____________________________________________________________
(Include Zip Code)
________________________________________________________________
(Taxpayer Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 6, 7 AND 8)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or the certificates for Shares not tendered or not purchased are to be
mailed to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail [ ] check and/or [ ] certificate(s) to:
Name ________________________________________________________________
_____________________________________________________________________
(Please Print)
Address _____________________________________________________________
(Include Zip Code)
CONDITIONAL TENDER
A tendering stockholder may condition his or her tender of Shares upon the
purchase by the Company of a specified minimum number of the Shares tendered
hereby, all as described in the Offer to Purchase, particularly in Section 6
thereof. Unless at least such minimum number of Shares is purchased by the
Company pursuant to the terms of the Offer, none of the Shares tendered hereby
will be purchased. It is the tendering stockholder's responsibility to
calculate such minimum number of Shares, and each stockholder is urged to
consult his or her own tax advisor. Unless this box has been completed and a
minimum specified, the tender will be deemed unconditional.
Minimum number of Shares that must be purchased, if any are purchased:
_____________ Shares
6
<PAGE>
SOLICITED TENDERS
(SEE INSTRUCTION 12)
The Company will pay to any Soliciting Dealer, as defined in Instruction 12,
a solicitation fee of $0.50 per Share for each Share tendered and purchased
pursuant to the Offer.
The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm:__________________________________________________________________-
(Please Print)
Name of Individual Broker or Financial Consultant:______________________________
Identification Number (if known):_______________________________________________
Address:________________________________________________________________________
(Include Zip Code)
The following to be completed ONLY if customer's Shares held in nominee
name are tendered.
Name of Beneficial Owner Number of Shares Tendered
(Attach additional list if necessary)
_______________________ ___________________________
_______________________ ___________________________
_______________________ ___________________________
The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitation; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it
has used no soliciting materials other than those furnished by the Company; and
(iv) if it is a foreign broker or dealer not eligible for membership in the
National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to
conform to the NASD's Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer's returning a Notice of Solicited Tenders to the Depositary.
7
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
________________________________________________________________________________
Signature(s) of Owner(s)
________________________________________________________________________________
Dated: _________________, 1996
Name(s) ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. ____________________________________________________
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 5.
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm ___________________________________________________________________
Authorized Signature ___________________________________________________________
Dated: ____________________, 1996
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, for purposes of this document, shall include any participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of Shares) tendered herewith and such holder(s) have not completed
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 6.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or if delivery
of Shares is to be made by book-entry transfer pursuant to the procedures set
forth in Section 3 of the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth on the front page of this Letter of Transmittal
on or prior to the Expiration Date (as defined in the Offer to Purchase).
Stockholders who cannot deliver their Shares and all other required documents to
the Depositary on or prior to the Expiration Date must tender their Shares
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by
or through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by the Company
(with any required signature guarantees) must be received by the Depositary on
or prior to the Expiration Date and (c) the certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by this Letter of Transmittal must be received by the Depositary within
three New York Stock Exchange, Inc. trading days after the date of execution of
such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to
Purchase.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE
SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
Except as specifically permitted by Section 6 of the Offer to Purchase, no
alternative or contingent tenders will be accepted. Fractional Shares will be
purchased, unless proration of tendered Shares is required (in which case
fractional Shares held by participants in the Dividend Reinvestment Plan and the
Savings Plan (as such terms are defined in the Offer to Purchase) will be
purchased). See Section 1 of the Offer to Purchase. By executing this Letter of
Transmittal (or a photocopy thereof), the tendering stockholder waives any right
to receive any notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares that are to
be tendered in the box entitled "Number of Shares Tendered." In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, as
9
<PAGE>
promptly as practicable following the expiration or termination of the Offer.
All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to be
validly tendered, the stockholder must check the box indicating the price per
Share at which he or she is tendering Shares under "Price (In Dollars) Per Share
at Which Shares Are Being Tendered" on this Letter of Transmittal. Only one box
may be checked. If more than one box is checked or if no box is checked, there
is no valid tender of Shares. A stockholder wishing to tender portions of his or
her Share holdings at different prices must complete a separate Letter of
Transmittal for each price at which he or she wishes to tender each such portion
of his or her Shares. The same Shares cannot be tendered (unless previously
validly withdrawn as provided in Section 4 of the Offer to Purchase) at more
than one price. Stockholders wishing to maximize the possibility that their
Shares will be purchased at the relevant Purchase Price may check the box on the
Letter of Transmittal marked "Shares Tendered at Purchase Price Determined by
Dutch Auction." Checking this box may result in a purchase price of the Shares
so tendered at the minimum price of $37.00.
6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
hereby, the signature(s) must correspond with the name(s) as written on the face
of the certificates without alteration, enlargement or any change whatsoever.
If any of the Shares hereby are held of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the Purchase Price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s). Signatures on any such certificates or
stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Shares tendered hereby, certificates must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name(s) of the registered holder(s) appear(s) on the certificates for such
Shares. Signature(s) on any such certificates or stock powers must be guaranteed
by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or its
order pursuant to the Offer. If, however, payment of the Purchase Price is to be
made to, or Shares not tendered or not purchased are to be registered in the
name of, any person other than the registered holder(s), or if tendered Shares
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s), such other person or otherwise) payable on account
of the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Section 5 of the Offer to Purchase.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase
Price of any Shares purchased is to be issued in the name of, and/or any Shares
not tendered or not purchased are to be returned to, a person other than the
person(s) signing this Letter of Transmittal or if the check and/or
10
<PAGE>
any certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown below the signature of the person(s) signing this
Letter of Transmittal, then the boxes captioned "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such stockholder at the Book-Entry Transfer Facility from which such transfer
was made.
9. ODD LOTS. As described in the Offer to Purchase, if more than 2,000,000
Shares have been validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, the Company will purchase first
all Shares (excluding Shares held in a Savings Plan account) validly tendered at
or below the Purchase Price and not withdrawn on or prior to the Expiration Date
by any stockholder (an "Odd Lot Owner") who owned beneficially an aggregate of
fewer than 100 Shares (including any Shares held in the Dividend Reinvestment
Plan and the Savings Plan and fractional shares) as of the close of business on
March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as
of the close of business on January 1, 1996, and who validly tenders all of such
Shares (partial and conditional tenders will not qualify for this preference)
and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if
applicable, the Notice of Guaranteed Delivery.
10. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required
to provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or in the case of certain foreign stockholders, a properly
completed Form W-8. Failure to provide the information on either Substitute Form
W-9 or Form W-8 may subject the tendering stockholder to 31% federal income tax
backup withholding on the payment of the Purchase Price. The box in Part 2 of
Substitute Form W-9 may be checked if the tendering stockholder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future. If the box in Part 2 is checked and the Depositary is not
provided with a TIN by the time of payment, the Depositary will withhold 31% on
all payments of the Purchase Price thereafter until a TIN is provided to the
Depositary.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests
for assistance may be directed to the Information Agent at the telephone number
and address listed below. Requests for additional copies of the Offer to
Purchase, this Letter of Transmittal or other tender offer materials may be
directed to the Information Agent and such copies will be furnished promptly at
the Company's expense. Stockholders may also contact their local broker,
dealer, commercial bank or trust company for assistance concerning the Offer.
12. SOLICITED TENDERS. The Company will pay a solicitation fee of $0.50 per
Share for any Shares tendered and accepted for payment and paid for pursuant to
the Offer, covered by the Letter of Transmittal which designates, in the box
captioned "Solicited Tenders," as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a dealer or broker, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as though it
were an NASD member, or (iii) any bank or trust company (each of which is
referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a
Soliciting Dealer with respect to the tender of Shares by a holder unless the
Letter of Transmittal accompanying such tender designates such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer if such Soliciting
Dealer is required for any reason to transfer the amount of such fee to a
depositing holder (other than itself). No such fee shall be payable to a
Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's
own account. No broker, dealer, bank, trust company or fiduciary shall be deemed
to be the agent of the Company, the Depositary, the Information Agent or the
Dealer Manager for purposes of the Offer.
13. IRREGULARITIES. All questions as to the Purchase Price, the form of
documents and the validity, eligibility (including time of receipt) and
acceptance of any tender of Shares will be determined by the Company, in its
sole discretion, and its determination shall be final and binding. The Company
reserves
11
<PAGE>
the absolute right to reject any or all tenders of Shares that it determines are
not in proper form or the acceptance for payment of or payment for Shares that
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any of the conditions to the Offer or any
defect or irregularity in any tender of Shares and the Company's
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. None of the Company, the Dealer Manager, the
Depositary, the Information Agent or any other person shall be under any duty to
give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured or
waived.
14. DIVIDEND REINVESTMENT PLAN. If a tendering stockholder desires to have
tendered pursuant to the Offer Shares which such stockholder has accumulated
through March 7, 1996, under the Dividend Reinvestment Plan, the election form
included in the "Memorandum to Participants in the Dividend Reinvestment and
Stock Purchase Plan" should be completed in lieu of this Letter of Transmittal
with respect to such Shares. A participant in the Dividend Reinvestment Plan may
complete only one such election form. If a participant submits more than one
election form, the participant will be deemed to have elected to tender all
Shares which such participant has accumulated under the Dividend Reinvestment
Plan through March 7, 1996 at the lowest of the prices specified in such
election forms.
If a stockholder authorizes a tender of his or her Shares held in the
Dividend Reinvestment Plan, all such Shares held in such stockholder's
Dividend Reinvestment Plan account, including fractional Shares, will be
tendered, unless otherwise specified in the election form.
If a participant tenders all of his or her Shares held in a Dividend
Reinvestment Plan account and all such Shares are purchased by the Company
pursuant to the Offer, such tender will be deemed to be authorization and
written notice to Chemical Bank, which administers the Dividend Reinvestment
Plan, of termination of such stockholder's participation in the Dividend
Reinvestment Plan, subject to a stockholder's right to recommence participation
in accordance with the terms of the Dividend Reinvestment Plan.
In the event that the election form included in the "Memorandum to
Participants in the Dividend Reinvestment and Stock Purchase Plan" is not
completed, no Shares held in the tendering stockholder's Dividend Reinvestment
Plan account will be tendered.
SAVINGS PLAN. If a tendering stockholder desires to have tendered pursuant to
the Offer Shares which such stockholder has credited to his or her account as of
January 1, 1996, under the Savings Plan, the election form included in the
"Memorandum to Participants in the Savings Plan" should be completed in lieu of
this Letter of Transmittal with respect to such Shares. A participant in the
Savings Plan may complete only one such election form. If a participant submits
more than one election form, the participant will be deemed to have elected to
tender all Shares which have been credited to the account of such participant
under the Savings Plan as of January 1, 1996, at the lowest of the prices
specified in such election forms.
If a stockholder authorizes a tender of his or her Shares held in the Savings
Plan, all such Shares allocated to such stockholder's Savings Plan account(s),
including fractional Shares, will be tendered, unless otherwise specified in the
election form.
In the event that the election form included in the "Memorandum to
Participants in the Savings Plan" is not completed, no Shares allocated to the
tendering stockholder's Savings Plan account(s) will be tendered.
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or in the
case of certain foreign stockholders, a properly completed Form W-8. If such
stockholder is an individual, the TIN is his or her social security number. For
businesses and other entities, the number is the employer identification number.
If the Depositary is not provided with the
12
<PAGE>
correct TIN or properly completed Form W-8, the stockholder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, payments that
are made to such stockholder with respect to Shares purchased pursuant to the
Offer may be subject to backup withholding. The Form W-8 can be obtained from
the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is required
to withhold 31% of any payments made to the stockholder. Backup withholding is
not an additional tax. Rather, the federal income tax liability of persons
subject to federal income tax backup withholding will be reduced by the amount
of the tax withheld. If withholding results in an overpayment of taxes, a refund
may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9
is correct and that (1) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign stockholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security number
or employer identification number of the registered owner of the Shares. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A PHOTOCOPY THEREOF) TOGETHER WITH
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE
(AS DEFINED IN THE OFFER TO PURCHASE).
13
<PAGE>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number (TIN) and
Certification
________________________________________________________________________________
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW.
- --------------------------------------------------------------------------------
NAME
(Please Print)
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
________________________________________________________________________________
TIN ________________________
Social Security Number or Employer
Identification Number
Part 2
AWAITING
TIN [ ]
________________________________________________________________________________
Part 3--CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or a TIN
has not been issued to me but I have mailed or delivered an application to
receive a TIN or intend to do so in the near future), (2) I am not subject to
backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has notified me that
I am no longer subject to backup withholding and (3) all other information
provided on this form is true, correct and complete.
SIGNATURE ______________________________________ DATE__________________________
You must cross out item (2) above if you have been notified by the IRS that your
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the Purchase Price made to me thereafter will be withheld
until I provide a number.
Signature ________________________________________ Date: ________________, 1996
14
<PAGE>
The Information Agent:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 EAST REDWOOD STREET, 6TH FLOOR
BALTIMORE, MD 21202
(410) 528-2231
15
<PAGE>
[PEI LETTERHEAD]
March 11, 1996
Dear Stockholder:
Pennsylvania Enterprises, Inc. is offering to purchase up to 2,000,000 shares
of its common stock (representing approximately 34.5% of the currently
outstanding shares), at a price not greater than $39.00 nor less than $37.00 per
share. The Company is conducting the offer through a procedure commonly referred
to as a "dutch auction." This procedure allows you to select the price within
that range at which you are willing to sell all or a portion of your shares to
the Company.
Based upon the number of shares tendered and the prices specified by the
tendering stockholders, the Company will determine the single per-share price
within that range that will allow it to buy 2,000,000 shares (or such lesser
number of shares that are properly tendered). All of the shares that are
properly tendered at prices at or below that purchase price (and are not
withdrawn) will -- subject to possible proration, conditional tender and
provisions relating to the tender of "odd lots" -- be purchased for cash at that
purchase price, net to the selling stockholder. All other shares that have been
tendered and not purchased will be returned to the stockholder.
If you do not wish to participate in the offer, you do not need to take any
action.
The offer is explained in detail in the enclosed Offer to Purchase and Letter
of Transmittal. If you want to tender your shares, the instructions on how to do
so are also explained in detail in the enclosed materials. I encourage you to
read these materials carefully before making any decision with respect to the
offer.
Neither the Company nor its Board of Directors makes any recommendation to
any stockholder whether to tender all or any shares. Neither I nor any other
director or executive officer intends to tender shares pursuant to the offer.
Sincerely,
/s/Dean T. Casaday
------------------------------
Dean T. Casaday
President and Chief Executive Officer
<PAGE>
PENNSYLVANIA ENTERPRISES, INC.
NOTICE OF GUARANTEED DELIVERY
OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for the shares of Common
Stock of Pennsylvania Enterprises, Inc. are not immediately available, if the
procedure for book-entry transfer cannot be completed on a timely basis, or if
time will not permit all other documents required by the Letter of Transmittal
to be delivered to the Depositary on or prior to the Expiration Date (as defined
in Section 1 of the Offer to Purchase defined below). Such form may be delivered
by hand or transmitted by mail, or (for Eligible Institutions only) by facsimile
transmission, to the Depositary. See Section 3 of the Offer to Purchase. THE
ELIGIBLE INSTITUTION, WHICH COMPLETES THIS FORM, MUST COMMUNICATE THE GUARANTEE
TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL AND CERTIFICATES
FOR SHARES TO THE DEPOSITARY WITHIN THE TIME SHOWN HEREIN. FAILURE TO DO SO
COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION.
To: Chemical Mellon SHareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: .................... By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 .......... (201) 296-4100 New York, NY 10271
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Pennsylvania Enterprises, Inc., a
Pennsylvania corporation (the "Company"), at the price per Share indicated
below, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated March 11, 1996 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute the
"Offer"), receipt of which is hereby acknowledged, the number of shares of
Common Stock, no par value, stated value $10.00 per share (the "Shares")
(including the associated common stock purchase rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of April 26, 1995, between the
Company and Chemical Bank, as Rights Agent), of the Company listed below,
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase.
Number of Shares:
__________________________________ _________________________________________
Certificate Nos.: (if available) Signature(s)
__________________________________ _________________________________________
Names(s) (Please Print)
__________________________________
If Shares will be tendered by
book-entry transfer:
Name of Tendering Institution: ________________________________________
Address
__________________________________ _________________________________________
Account No. _______ at (check one) _________________________________________
Area Code and Telephone Number
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
2
<PAGE>
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR
IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES.
STOCKHOLDERS WHO DESIRE TO TENDER SHARES AT MORE THAN
ONE PRICE MUST COMPLETE A SEPARATE ELECTION FORM FOR EACH
PRICE AT WHICH SHARES ARE TENDERED.
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having the Company
purchase all the Shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this one box INSTEAD OF
ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is
willing to accept the Purchase Price resulting from the Dutch auction
tender process. This action could result in receiving a price per Share as
low as $37.00 or as high as $39.00.
_______________________ OR ________________________
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ ] $37.000 [ ] $37.500 [ ] $38.000 [ ] $38.500
[ ] $37.125 [ ] $37.625 [ ] $38.125 [ ] $38.625
[ ] $37.250 [ ] $37.750 [ ] $38.250 [ ] $38.750
[ ] $37.375 [ ] $37.875 [ ] $38.375 [ ] $38.875
[ ] $39.000
</TABLE>
3
<PAGE>
CONDITIONAL TENDER
UNLESS THIS BOX HAS BEEN COMPLETED AND A MINIMUM SPECIFIED, THE TENDER
WILL BE DEEMED UNCONDITIONAL (see Sections 6 and 13 of the Offer to
Purchase).
Minimum number of Shares that must be purchased, if any are purchased:
______________ Shares
ODD LOTS
To be completed ONLY if Shares are being tendered by or on behalf of persons
owning beneficially an aggregate of fewer than 100 Shares (including Shares held
in the Dividend Reinvestment Plan and the Savings Plan (as such terms are
defined in the Offer to Purchase) and fractional Shares) as of the close of
business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan
account, as of the close of business on January 1, 1996.
The undersigned either (check one):
[ ] was the beneficial owner o f an aggregate of fewer than 100 Shares
(including Shares held in the Dividend Reinvestment Plan and the Savings
Plan and fractional Shares) as of the close of business on March 7, 1996,
or, in the case of Shares allocated to a Savings Plan account, as of the
close of business on January 1, 1996, all of which are tendered, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tende ring, for the beneficial owners thereof, Shares with respect to
which it is the record owner, and (ii) believes, based upon representations
made to it by each such beneficial owner, that such beneficial owner owned
an aggregate of fewer than 100 Shares (including Shares held in the Dividend
Reinvestment Plan and the Savings Plan and fractional Shares) as of the
close of business on March 7, 1996, or, in the case of Shares allocated to a
Savings Plan account, as of the close of business on January 1, 1996, and is
tendering all of such Shares.
4
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national securities
exchange or the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States,
guarantees (a) that the above-named person(s) has a net long position in the
Shares (and associated Rights) being tendered within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended, (b) that such
tender of Shares complies with Rule 14e-4 and (c) delivery to the Depositary at
one of its addresses set forth above certificate(s) for the Shares tendered
hereby, in proper form for transfer, or a confirmation of the book-entry
transfer of the Shares tendered hereby into the Depositary's account at The
Depository Trust Company or the Philadelphia Depository Trust Company, in each
case together with a properly completed and duly executed Letter(s) of
Transmittal (or facsimile(s) thereof), with any required signature guarantee(s)
and any other required documents, all within three business days after the date
hereof.
__________________________________ _________________________________________
Name of Firm Authorized Signature
__________________________________ _________________________________________
Address Name
__________________________________ _________________________________________
City, State, Zip Code Title
__________________________________
Area Code and Telephone Number
Dated: _____________________, 1996
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM.
YOUR STOCK CERTIFICATES MUST BE SENT WITH
THE LETTER OF TRANSMITTAL.
5
<PAGE>
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
PENNSYLVANIA ENTERPRISES, INC.
OFFER TO PURCHASE FOR CASH
UP TO 2,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE
OFFER IS EXTENDED.
March 11, 1996
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
In our capacity as Dealer Manager (the "Dealer Manager"), we are enclosing
the material listed below relating to the offer of Pennsylvania Enterprises,
Inc., a Pennsylvania corporation (the "Company"), to purchase up to 2,000,000
shares of its Common Stock, no par value, stated value $10.00 per share (the
"Shares") (including the associated common stock purchase rights issued pursuant
to the Rights Agreement, dated as of April 26, 1995, between the Company and
Chemical Bank, as the Rights Agent), at prices not greater than $39.00 nor less
than $37.00 per Share, net to the seller in cash, specified by tendering
stockholders, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated March 11, 1996 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which together constitute the "Offer"). The
Company will determine a single price (not greater than $39.00 nor less than
$37.00 per Share) that it will pay for Shares validly tendered pursuant to the
Offer (the "Purchase Price"), taking into account the number of Shares so
tendered and the prices specified by tendering stockholders. The Company will
select the Purchase Price that will enable it to purchase 2,000,000 Shares (or
such lesser number of Shares as are validly tendered at prices not greater than
$39.00 nor less than $37.00 per Share) pursuant to the Offer. The Company will
purchase all Shares validly tendered at prices at or below the Purchase Price
and not withdrawn, upon the terms and subject to the conditions of the Offer,
including the provisions relating to proration and conditional tenders described
in the Offer to Purchase.
The Purchase Price will be paid in cash, net to the seller, with respect to
all Shares purchased. Shares tendered at prices in excess of the Purchase Price
and Shares not purchased because of proration and conditional tenders will be
returned.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. The Offer is, however, subject to other conditions. See Section 7 of
the Offer to Purchase.
We are asking you to contact your clients for whom you hold Shares registered
in your name (or in the name of your nominee) or who hold Shares registered in
their own names. Please bring the Offer to their attention as promptly as
possible.
The Company will pay a solicitation fee of $0.50 per Share for any Shares
tendered and accepted for payment pursuant to the Offer covered by a Letter of
Transmittal which designates, as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a broker or dealer, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign
1
<PAGE>
broker or dealer not eligible for membership in the NASD which agrees to conform
to the NASD's Rules of Fair Practice in soliciting tenders outside the United
States to the same extent as though it were an NASD member, or (iii) any bank or
trust company (each of which is referred to herein as a "Soliciting Dealer"). No
such fee shall be payable to a Soliciting Dealer with respect to the tender of
Shares by a holder unless the Letter of Transmittal accompanying such tender
designates such Soliciting Dealer. No such fee shall be payable to a Soliciting
Dealer if such Soliciting Dealer is required for any reason to transfer the
amount of such fee to a depositing holder (other than itself). No such fee shall
be payable to a Soliciting Dealer with respect to Shares tendered for such
Soliciting Dealer's own account. No broker, dealer, bank, trust company or
fiduciary shall be deemed to be the agent of the Company, the Depositary (as
defined below), the Dealer Manager or the Information Agent for purposes of the
Offer.
The Company will also, upon request, reimburse Soliciting Dealers for
reasonable and customary handling and mailing expenses incurred by them in
forwarding materials relating to the Offer to their customers. The Company will
pay all stock transfer taxes applicable to its purchase of Shares pursuant to
the Offer, subject to Instruction 7 of the Letter of Transmittal.
In order for a Soliciting Dealer to receive a solicitation fee, Chemical
Mellon Shareholder Services, L.L.C., as Depositary (the "Depositary") must have
received from such Soliciting Dealer a properly completed and duly executed
Notice of Solicited Tenders in the form attached hereto (or facsimile thereof)
within five business days after the expiration of the Offer.
For your information and for forwarding to your clients, we are enclosing the
following documents:
1. The Offer to Purchase, dated March 11, 1996.
2. The Letter of Transmittal for your use and for the information of your
clients.
3. A letter to stockholders of the Company from the President and Chief
Executive Officer of the Company.
4. The Notice of Guaranteed Delivery to be used to accept the Offer if
the Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Offer to Purchase).
5. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space for
obtaining such clients|Al instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding.
7. A return envelope addressed to Chemical Mellon Shareholder Services,
L.L.C., the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
As described in the Offer to Purchase, if more than 2,000,000 Shares have
been validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date, as defined in Section 1 of the Offer to Purchase,
the Company will purchase Shares in the following order of priority: (a) all
Shares (excluding Shares held in a Savings Plan account) validly tendered at or
below the Purchase Price and not withdrawn on or prior to the Expiration Date by
any stockholder (an "Odd Lot Owner") who owned beneficially an aggregate of
fewer than 100 Shares (including any Shares held in the Dividend Reinvestment
Plan and the Savings Plan and fractional Shares) as of the close of business on
March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as
of the close of business on January 1, 1996, and who validly tenders all of such
Shares (partial and conditional tenders will not qualify for this preference)
and completes the box captioned "Odd Lots" on the Letter
2
<PAGE>
of Transmittal and, if applicable, the Notice of Guaranteed Delivery or, in the
case of Shares held in a Dividend Reinvestment Plan account, in the "Memorandum
to Participants in the Dividend Reinvestment and Stock Purchase Plan"; (b) after
purchase of all the foregoing Shares, subject to the conditional tender
provisions described in Section 6 of the Offer to Purchase, all other Shares
validly tendered at or below the Purchase Price and not withdrawn on or prior to
the Expiration Date on a pro rata basis, if necessary (with appropriate
adjustments to avoid purchases of fractional Shares, other than Shares held in
the Dividend Reinvestment Plan and the Savings Plan); and (c) if necessary,
Shares conditionally tendered, for which the condition was not satisfied, at or
below the Purchase Price and not withdrawn on or prior to the Expiration Date,
selected by random lot in accordance with Section 6.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS
BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS
AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
Any questions, requests for assistance or requests for additional copies of
the enclosed materials may be directed to D.F. King & Co., Inc. (the
"Information Agent") at the address and telephone number set forth on the back
cover of the enclosed Offer to Purchase.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
NOTICE OF SOLICITED TENDERS
List below the number of Shares tendered by each beneficial owner whose
tender you have solicited. All Shares beneficially owned by a beneficial owner,
whether in one account or several, and in however many capacities, must be
aggregated for purposes of completing the table below. Any questions as to what
constitutes beneficial ownership should be directed to the Depositary. If the
space below is inadequate, list the Shares in a separate signed schedule and
affix the list to this Notice of Solicited Tenders. Please do not complete the
sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY."
ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE DEPOSITARY. ALL
QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO THE
INFORMATION AGENT.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TO BE COMPLETED BY TO BE COMPLETED ONLY TO BE COMPLETED ONLY
THE SOLICITING DEALER BY DEPOSITARY BY DEPOSITARY
Number of Shares Number of Shares Fee
BENEFICIAL OWNERS TENDERED ACCEPTED ($0.50 PER SHARE)
Beneficial Owner
No. 1
Beneficial Owner
No. 2
Beneficial Owner
No. 3
Beneficial Owner
No. 4
Beneficial Owner
No. 5
Beneficial Owner
No. 6
Beneficial Owner
No. 7
Beneficial Owner
No. 8
Beneficial Owner
No. 9
Beneficial Owner
No. 10
Total
</TABLE>
All questions as to the validity, form and eligibility (including time of
receipt) of Notices of Solicited Tenders will be determined by the Depositary,
in its sole discretion, which determination will be final and binding. Neither
the Depositary nor any other person will be under any duty to give notification
of any defects or irregularities in any Notice of Solicited Tenders or incur any
liability for failure to give such notification.
4
<PAGE>
The undersigned hereby confirms that: (i) it has complied with the applicable
requirements of the Securities Exchange Act of 1934, as amended, and the
applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Offer to Purchase; (iii) in soliciting
tenders of Shares, it has used no soliciting materials other than those
furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Rules of Fair Practice in making solicitations.
_______________________________ _____________________________________
Printed Firm Name Address
_______________________________ _____________________________________
Authorized Signature Address Code and Telephone Number
5
<PAGE>
PENNSYLVANIA ENTERPRISES, INC.
OFFER TO PURCHASE FOR CASH
UP TO 2,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE
OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated March 11,
1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") setting forth an offer by Pennsylvania
Enterprises, Inc., a Pennsylvania corporation (the "Company"), to purchase up to
2,000,000 shares of its Common Stock, no par value, stated value $10.00 per
share (the "Shares") (including the associated common stock purchase rights
issued pursuant to the Rights Agreement, dated as of April 26, 1995, between the
Company and Chemical Bank, as the Rights Agent), at prices not greater than
$39.00 nor less than $37.00 per Share, net to the seller in cash, specified by
tendering stockholders, upon the terms and subject to the conditions of the
Offer. The Company will determine a single per Share price (not greater than
$39.00 nor less than $37.00 per Share) (the "Purchase Price") that it will pay
for the Shares validly tendered pursuant to the Offer and not withdrawn, taking
into account the number of Shares so tendered and the prices specified by
tendering stockholders. The Company will select the Purchase Price that will
enable it to purchase 2,000,000 Shares (or such lesser number of Shares as are
validly tendered at prices not greater than $39.00 nor less than $37.00 per
Share) pursuant to the Offer. The Company will purchase all Shares validly
tendered at prices at or below the Purchase Price and not withdrawn, upon the
terms and subject to the conditions of the Offer, including the provisions
thereof relating to proration and conditional tenders.
WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. A TENDER OF SUCH
SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of the
Shares held by us for your account, upon the terms and subject to the conditions
set forth in the Offer to Purchase and the Letter of Transmittal.
Your attention is invited to the following:
(1) You may tender Shares at prices (in multiples of $0.125), not greater
than $39.00 nor less than $37.00 per Share, as indicated in the attached
instruction form, net to you in cash.
(2) The Offer is for up to 2,000,000 Shares, constituting approximately
34.5% of the total Shares outstanding as of March 7, 1996. Although it has
no present intention of so doing, the Company reserves the right to purchase
more than 2,000,000 Shares pursuant to the Offer. The Offer is not
conditioned upon any minimum number of Shares being tendered.
(3) The Offer, proration period and withdrawal rights will expire at 5:00
p.m., New York City time, on Monday, April 8, 1996, unless the Offer is
extended. Your instructions to us should be forwarded to us in ample time to
permit us to submit a tender on your behalf. If you would like to withdraw
your Shares that we have tendered, you can withdraw them so long as the
Offer remains open or at any time after May 3, 1996, if they have not been
accepted for payment.
(4) As described in the Offer to Purchase, if more than 2,000,000 Shares
have been validly tendered at or below the Purchase Price and not withdrawn
on or prior to the Expiration Date, as defined in Section 1 of the Offer to
Purchase, the Company will purchase Shares in the following order of
priority:
1
<PAGE>
(a) all Shares (excluding Shares held in a Savings Plan account)
validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date by any stockholder (an "Odd Lot Owner") who
owns beneficially an aggregate of fewer than 100 Shares (including any
Shares held in the Dividend Reinvestment Plan and the Savings Plan and
fractional Shares) as of the close of business on March 7, 1996, or, in
the case of Shares allocated to a Savings Plan account, as of the close
of business on January 1, 1996, and who validly tenders all of such
Shares (partial and conditional tenders will not qualify for this
preference) and completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, the Notice of Guaranteed Delivery or, in
the case of Shares held in a Dividend Reinvestment Plan account, in the
"Memorandum to Participants in the Dividend Reinvestment and Stock
Purchase Plan";
(b) after purchase of all of the foregoing Shares, all Shares
conditionally and validly tendered in accordance with Section 6, for
which the condition was satisfied, and all other Shares unconditionally
and validly tendered at or below the Purchase Price and not withdrawn on
or prior to the Expiration Date on a pro rata basis, if necessary (with
appropriate adjustments to avoid purchases of fractional Shares, other
than Shares held in the Dividend Reinvestment Plan and the Savings Plan);
and
(c) if necessary, Shares conditionally tendered, for which the
condition was not satisfied, at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, selected by random lot in
accordance with Section 6 of the Offer to Purchase.
(5) Any stock transfer taxes applicable to the sale of Shares to the
Company pursuant to the Offer will be paid by the Company, except as
otherwise provided in Instruction 7 of the Letter of Transmittal.
(6) If you owned beneficially an aggregate of fewer than 100 Shares
(including Shares held in the Dividend Reinvestment Plan and the Savings
Plan and fractional Shares) as of the close of business on March 7, 1996,
or, in the case of Shares allocated to a Savings Plan account, as of the
close of business on January 1, 1996, and you instruct us to tender at or
below the Purchase Price on your behalf all such Shares on or prior to the
Expiration Date and check the box captioned "Odd Lots" in the instruction
form, all such Shares will be accepted for purchase before proration, if
any, of the purchase of other tendered Shares.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS
BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS
AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
If you wish to have us tender any or all of your Shares held by us for your
account upon the terms and subject to the conditions set forth in the Offer,
please so instruct us by completing, executing, detaching and returning to us
the instruction form on the detachable part hereof. An envelope to return your
instructions to us is enclosed. If you authorize tender of your Shares, all such
Shares will be tendered unless otherwise specified on the detachable part
hereof. Your instructions should be forwarded to us in ample time to permit us
to submit a tender on your behalf by the expiration of the Offer.
A tendering stockholder may condition the tender of Shares upon the purchase
by the Company of a specified minimum number of Shares tendered, all as
described in Section 6 of the Offer to Purchase. Unless such specified minimum
is purchased by the Company pursuant to the terms of the Offer to Purchase and
the related Letter of Transmittal, none of the Shares tendered by the
stockholder will be purchased. If you wish us to condition your tender upon the
purchase of a specified minimum number of Shares, please complete the box
entitled "Conditional Tender" on the instruction form. It is the tendering
stockholder's responsibility to calculate such minimum number of Shares, and
you are urged to consult your own tax advisor.
2
<PAGE>
The Offer is being made to all holders of Shares. The Company is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by Legg Mason Wood Walker, Incorporated, as
the Dealer Manager, or one or more registered brokers or dealers licensed under
the laws of such jurisdictions.
3
<PAGE>
INSTRUCTIONS
WITH RESPECT TO OFFER TO PURCHASE FOR CASH
UP TO 2,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
PENNSYLVANIA ENTERPRISES, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated March 11, 1996, and the related Letter of Transmittal (which
together constitute the "Offer") in connection with the Offer by Pennsylvania
Enterprises, Inc., a Pennsylvania corporation (the "Company"), to purchase up to
2,000,000 shares of its Common Stock, no par value, stated value $10.00 per
share (the "Shares") (including the associated common stock purchase rights), at
prices not greater than $39.00 nor less than $37.00 per Share, net to the
undersigned in cash, upon the terms and subject to the conditions of the Offer.
This will instruct you to tender to the Company the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, at the price per Share indicated
below, upon the terms and subject to the conditions of the Offer.
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR
IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES.
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having the Company
purchase all the Shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this one box INSTEAD OF
ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is
willing to accept the Purchase Price resulting from the Dutch auction
tender process. This action could result in receiving a price per Share as
low as $37.00 or as high as $39.00.
_______________________ OR ________________________
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ ] $37.000 [ ] $37.500 [ ] $38.000 [ ] $38.500
[ ] $37.125 [ ] $37.625 [ ] $38.125 [ ] $38.625
[ ] $37.250 [ ] $37.750 [ ] $38.250 [ ] $38.750
[ ] $37.375 [ ] $37.875 [ ] $38.375 [ ] $38.875
[ ] $39.000
</TABLE>
5
<PAGE>
CONDITIONAL TENDER
By completing this box, the undersigned conditions the tender authorized
hereby on the following minimum number of Shares being purchased if any are
purchased:
________________ Shares
Unless this box is completed, the tender authorized hereby will be made
unconditionally.
ODD LOTS
Check this box ONLY if shares are being tendered by or on behalf of a person
owning beneficially an aggregate of fewer than 100 Shares (including Shares held
in the Dividend Reinvestment Plan and the Savings Plan and fractional Shares) as
of the close of business on March 7, 1996, or, in the case of Shares allocated
to a Savings Plan account, as of the close of business on January 1, 1996.
[ ] By checking this box, the undersigned represents that the undersigned
owned beneficially an aggregate of fewer than 100 Shares (including Shares
held in the Dividend Reinvestment Plan and the Savings Plan and fractional
Shares) as of the close of business on March 7, 1996, or, in the case of
Shares allocated to a Savings Plan account, as of the close of business on
January 1, 1996, and is tendering all of such Shares.
Number of Shares to be Tendered: SIGN HERE
_____________ Shares* ________________________________________
Signature(s)
Date: ___________________, 1996
Name: __________________________________
Address: _______________________________
_______________________________________
_______________________________________
_____________
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
To: Participants in the Pennsylvania Enterprises, Inc. Dividend
Reinvestmentand Stock Purchase Plan
Re: Pennsylvania Enterprises, Inc.'s Offer to Purchase for Cash Up to
2,000,000 Shares of its Common Stock
Date: March 11, 1996
This memorandum is being sent to you because you are a participant in the
Pennsylvania Enterprises, Inc. Dividend Reinvestment and Stock Purchase Plan
(the "Dividend Reinvestment Plan").
The Dividend Reinvestment Plan is described in the Plan Prospectus
("Prospectus"). Please refer to the relevant Prospectus for more information
regarding the Dividend Reinvestment Plan.
PENNSYLVANIA ENTERPRISES, INC. IS OFFERING TO PURCHASE SHARES OF ITS COMMON
STOCK
Pennsylvania Enterprises, Inc., a Pennsylvania corporation (the "Company"),
is inviting its stockholders to tender shares of its Common Stock, no par value,
stated value $10.00 per share (the "Shares") (including the associated common
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of April 26, 1995, between the Company and Chemical Bank, as the Rights
Agent), at prices not greater than $39.00 nor less than $37.00 per Share, net to
the seller in cash, specified by such stockholders. Unless the context otherwise
requires, all references to Shares shall include the associated Rights. The
details of the invitation are described in the Company's Offer to Purchase,
dated March 11, 1996 (the "Offer to Purchase"), and this memorandum (which
together constitute the "Offer" for purposes of tendering Shares held in your
Dividend Reinvestment Plan account). Copies of the Offer to Purchase and certain
related materials (excluding the Letter of Transmittal), which are being sent to
the Company's stockholders generally, are enclosed for your review.
The Company is conducting the offer through a procedure commonly referred to
as a "dutch auction." This procedure allows you to select the price within that
range at which you are willing to sell all or a portion of your Shares to the
Company. Based upon the number of Shares tendered and the prices specified by
the tendering stockholders, the Company will determine the single per-Share
price within that range that will allow it to buy 2,000,000 Shares (or such
lesser number of Shares that are properly tendered). All of the Shares that are
properly tendered at prices at or below that purchase price (and are not
withdrawn) will -- subject to possible proration, conditional tender and
provisions relating to the tender of "odd lots" -- be purchased for cash at that
purchase price, net to the selling stockholder. All other Shares that have been
tendered and not purchased will be returned to the stockholder.
THE LETTER OF TRANSMITTAL REFERRED TO ABOVE AND IN THE OFFER TO PURCHASE
CANNOT BE USED TO TENDER SHARES HELD IN YOUR DIVIDEND REINVESTMENT PLAN ACCOUNT;
THE ENCLOSED ELECTION FORM FOR THE DIVIDEND REINVESTMENT PLAN IS A SUBSTITUTE
FOR THE LETTER OF TRANSMITTAL AND MUST BE USED TO TENDER SHARES IN YOUR DIVIDEND
REINVESTMENT PLAN ACCOUNT.
YOUR DECISION WHETHER TO TENDER
As a participant in the Dividend Reinvestment Plan, you may direct Chemical
Bank, the administrator of the Dividend Reinvestment Plan (the "Administrator"),
to tender Shares allocated to your Dividend Reinvestment Plan account pursuant
to the Offer.
HOW TO TENDER SHARES; COMPLETION OF ELECTION FORM
If you wish to direct the Administrator to tender all or part of the Shares
in your Dividend Reinvestment Plan account, you must complete and return the
enclosed Election Form in accordance with the instructions specified on the
Election Form. Before deciding whether or not to tender your Shares, please read
the enclosed materials carefully.
1
<PAGE>
YOUR ELECTION WILL BE EFFECTIVE ONLY IF YOUR PROPERLY COMPLETED ELECTION FORM
IS RECEIVED BY THE ADMINISTRATOR AT ITS ADDRESS SET FORTH ON THE ENCLOSED RETURN
ENVELOPE IN AMPLE TIME FOR THE ADMINISTRATOR TO SUBMIT A TENDER ON YOUR BEHALF
AT OR PRIOR TO THE LATER OF 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8,
1996, OR THE LATEST TIME AND DATE TO WHICH THE OFFER IS EXTENDED (referred to
herein as the "Expiration Date"). Election Forms that are received after this
deadline and Election Forms which are not properly completed will not be
accepted. Examples of improperly completed Election Forms include Forms which
are not signed and Forms which contain incorrect or incomplete information. IN
THE EVENT THAT YOU DO NOT FILE A PROPERLY COMPLETED ELECTION FORM ON A TIMELY
BASIS, NONE OF YOUR SHARES WILL BE TENDERED.
Dividend Reinvestment Plan participants who desire to tender Shares at more
than one price must complete a separate Election Form for each price at which
Shares are tendered, provided that the same Shares cannot be tendered (unless
properly withdrawn in accordance with the terms of the Offer) at more than one
price. IN ORDER TO PROPERLY TENDER SHARES, ONE AND ONLY ONE PRICE BOX MUST BE
CHECKED IN THE APPROPRIATE SECTION ON EACH ELECTION FORM.
All Shares held in a Dividend Reinvestment Plan account which are validly
tendered at or below the Purchase Price (as defined in the Offer to Purchase)
and not withdrawn on or prior to the Expiration Date by any stockholder (an "Odd
Lot Owner") who owned beneficially an aggregate of fewer than 100 Shares
(including any Shares held in the Dividend Reinvestment Plan and the Savings
Plan and fractional Shares) as of the close of business on March 7, 1996, or, in
the case of Shares allocated to a Savings Plan account, as of the close of
business on January 1, 1996, and who validly tenders all of such Shares will
qualify for the odd lot preference described in Section 2 of the Offer to
Purchase. Partial and conditional tenders will not qualify for this preference.
In order to qualify for the preference, you must complete the box captioned "Odd
Lots" on the Election Form attached to this memorandum.
COMPLETION OF SUBSTITUTE FORM W-9 AND FORM W-8
The tendering stockholder is required to provide the Administrator with
either a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9,
which is provided under "Important Tax Information" below, or, in the case of
certain foreign stockholders, a properly completed Form W-8. Failure to provide
the information on either Substitute Form W-9 or Form W-8 may subject the
tendering stockholder to 31% federal income tax backup withholding on the
payment of the Purchase Price. For a discussion of certain federal income tax
consequences to tendering stockholders, see Section 13 of the Offer to Purchase.
EACH STOCKHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR.
CHANGING YOUR INSTRUCTION TO THE ADMINISTRATOR
Tenders of Shares made pursuant to the Offer to Purchase may be withdrawn at
any time prior to the Expiration Date. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after May 3, 1996 unless they have been
previously accepted for payment as provided in the Offer to Purchase. In order
to change your instructions, you must send a notice of withdrawal to the
Administrator. The notice of withdrawal will be effective only if it is in
writing and is received by the Administrator at the address set forth on the
enclosed return envelope in ample time for the Administrator to submit a notice
of withdrawal on your behalf on or prior to the Expiration Date. Any notice of
change of instruction to the Administrator must specify your name, your social
security number, the number of Shares tendered, and the number of Shares to be
withdrawn. Upon receipt of a timely written notice of change of instruction to
the Administrator, previous instructions to tender with respect to such Shares
will be deemed canceled. If you later wish to retender Shares, you may call D.F.
King & Co., Inc., the Information Agent, at (800) 714-3313 to obtain a new
Election Form. Any new Election Form must be received by the Administrator in
ample time for the Administrator to submit the tender on your behalf on or prior
to the Expiration Date.
2
<PAGE>
IF YOU HAVE QUESTIONS
If you have any questions about the Offer or any of the other matters
discussed above, please call D.F. King & Co., Inc., the Information Agent at
(800) 714-3313. If you have questions about the Dividend Reinvestment Plan,
please refer to the Prospectus. Additional copies of the Prospectus for the
Dividend Reinvestment Plan may be obtained from the Administrator by contacting
Chemical Mellon Shareholder Services, L.L.C., P.O. Box 750, Pittsburgh, PA
15230, (800) 851-9677.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY PARTICIPANTS AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH PARTICIPANT MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE.
3
<PAGE>
ELECTION FORM
INSTRUCTIONS FOR TENDER OF SHARES OF
PENNSYLVANIA ENTERPRISES, INC.
Please tender to Pennsylvania Enterprises, Inc. (the "Company"), on my
behalf, the number of Shares indicated below held in the Pennsylvania
Enterprises, Inc. Dividend Reinvestment and Stock Purchase Plan (the "Dividend
Reinvestment Plan"), which are beneficially owned by me and held by you under
the Dividend Reinvestment Plan, upon the terms and subject to the conditions
contained in the Offer to Purchase of the Company, dated March 11, 1996, and in
the related "Memorandum to Participants in the Dividend Reinvestment and Stock
Purchase Plan," the receipt of which is acknowledged.
Number of Shares to be tendered: ________ Shares
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED,
THERE IS NO VALID TENDER OF SHARES. STOCKHOLDERS WHO DESIRE TO TENDER SHARES
AT MORE THAN ONE PRICE MUST COMPLETE A SEPARATE ELECTION FORM FOR EACH PRICE
AT WHICH SHARES ARE TENDERED.
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having the Company
purchase all the Shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this one box INSTEAD
OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and
is willing to accept the Purchase Price resulting from the Dutch auction
tender process. This action could result in receiving a price per Share as
low as $37.00 or as high as $39.00.
________________________ OR _____________________________
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
[ ] $37.000 [ ] $37.375 [ ] $37.750 [ ] $38.125 [ ] $38.500 [ ] $38.875
[ ] $37.125 [ ] $37.500 [ ] $37.875 [ ] $38.250 [ ] $38.625 [ ] $39.000
[ ] $37.250 [ ] $37.625 [ ] $38.000 [ ] $38.375 [ ] $38.750
</TABLE>
<PAGE>
CONDITIONAL TENDER
By completing this box, the undersigned conditions the tender authorized
hereby on the following minimum number of Shares being purchased if any are
purchased:
____________________ Shares
Unless this box is completed, the tender authorized hereby will be made
unconditionally.
ODD LOTS
Check this box ONLY if shares are being tendered by or on behalf of a person
owning beneficially an aggregate of fewer than 100 Shares (including Shares held
in the Dividend Reinvestment Plan and Savings Plan (as such terms are defined in
the Offer to Purchase)) as of the close of business on March 7, 1996, or, in the
case of Shares allocated to a Savings Plan account as of the close of business
on January 1, 1996.
[ ] The undersigned was the beneficial owner of an aggregate of fewer than 100
Shares (including Shares held in the Dividend Reinvestment Plan and the
Savings Plan) as of the close of business on March 7, 1996, or, in the case
of Shares allocated to a Savings Plan account, as of the close of business
on January 1, 1996, all of which are being tendered.
THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE OPTION AND RISK OF THE
TENDERING PARTICIPANT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED UNANIMOUSLY THE OFFER.
HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO PARTICIPANTS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES.
EACH PARTICIPANT MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW
MANY SHARES AND AT WHAT PRICE OR PRICES SHARES SHOULD BE TENDERED.
Signature:
Name:
(Please Print)
Taxpayer Identification or Social Security Number:
Address:
(Including Zip Code)
Area Code and Telephone Number:
Date: , 1996
IMPORTANT: THIS DIVIDEND REINVESTMENT PLAN PARTICIPANT ELECTION FORM (OR A
MANUALLY SIGNED FACSIMILE THEREOF) MUST BE RECEIVED BY THE
ADMINISTRATOR IN AMPLE TIME FOR THE ADMINISTRATOR TO SUBMIT A
TENDER ON YOUR BEHALF ON OR PRIOR TO THE EXPIRATION DATE. DIVIDEND
REINVESTMENT PLAN PARTICIPANTS MUST COMPLETE AND RETURN TO THE
ADMINISTRATOR THE SUBSTITUTE FORM W-9 ATTACHED HERETO WITH THEIR
ELECTION FORM.
2
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or, in the
case of certain foreign stockholders, a properly completed Form W-8. If such
stockholder is an individual, the TIN is his or her social security number. For
businesses and other entities, the number is the employer identification number.
If the Depositary is not provided with the correct TIN or properly completed
Form W-8, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding. The Form W-8 can be obtained from the Depositary.
See the enclosed Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is required
to withhold 31% of any payments made to the stockholder. Backup withholding is
not an additional tax. Rather, the federal income tax liability of persons
subject to federal income tax backup withholding will be reduced by the amount
of the tax withheld. If withholding results in an overpayment of taxes, a refund
may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9
is correct and that (1) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign stockholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security number
or employer identification number of the registered owner of the Shares. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
3
<PAGE>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN) AND
CERTIFICATION
________________________________________________________________________________
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW.
- --------------------------------------------------------------------------------
NAME
(Please Print)
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
________________________________________________________________________________
TIN ________________________
Social Security Number or Employer
Identification Number
Part 2
AWAITING
TIN [ ]
________________________________________________________________________________
Part 3--CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or a TIN
has not been issued to me but I have mailed or delivered an application to
receive a TIN or intend to do so in the near future), (2) I am not subject to
backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has notified me that
I am no longer subject to backup withholding and (3) all other information
provided on this form is true, correct and complete.
SIGNATURE ______________________________________ DATE__________________________
You must cross out item (2) above if you have been notified by the IRS that your
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the Purchase Price made to me thereafter will be withheld
until I provide a number.
Signature ________________________________________ Date: ________________, 1996
4
<PAGE>
PENNSYLVANIA ENTERPRISES, INC.
EMPLOYEES'S SAVINGS PLAN
To: Participants in the Pennsylvania Enterprises, Inc. Employees's Savings
Plan
Re: Pennsylvania Enterprises, Inc.'s Offer to Purchase for Cash Up to
2,000,000 Shares of its Common Stock
Date: March 11, 1996
This memorandum is being sent to you because you are a participant in the
Pennsylvania Enterprises, Inc. Employees's Savings Plan (the "Savings Plan").
The Savings Plan is described in the Summary Plan Description ("SPD"). Please
refer to the relevant SPD for more information regarding the Savings Plan.
PENNSYLVANIA ENTERPRISES, INC. IS OFFERING TO PURCHASE SHARES OF ITS COMMON
STOCK
Pennsylvania Enterprises, Inc., a Pennsylvania corporation (the "Company"),
is inviting its stockholders to tender shares of its Common Stock, no par value,
stated value $10.00 per share (the "Shares") (including the associated common
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of April 26, 1995, between the Company and Chemical Bank, as the Rights
Agent), at prices not greater than $39.00 nor less than $37.00 per Share, net to
the seller in cash, specified by such stockholders. Unless the context otherwise
requires, all references to Shares shall include the associated Rights. The
details of the invitation are described in the Company's Offer to Purchase,
dated March 11, 1996 (the "Offer to Purchase"), and this memorandum (which
together constitute the "Offer" for purposes of tendering Shares allocated to
your Savings Plan account(s)). Copies of the Offer to Purchase and certain
related materials (excluding the Letter of Transmittal), which are being sent to
the Company's stockholders generally, are enclosed for your review.
The Company is conducting the offer through a procedure commonly referred to
as a "dutch auction." This procedure allows you to select the price within that
range at which you are willing to sell all or a portion of your Shares to the
Company. Based upon the number of Shares tendered and the prices specified by
the tendering stockholders, the Company will determine the single per-Share
price within that range that will allow it to buy 2,000,000 Shares (or such
lesser number of Shares that are properly tendered). All of the Shares that are
properly tendered at prices at or below that purchase price (and are not
withdrawn) will -- subject to possible proration, conditional tender and
provisions relating to the tender of "odd lots" -- be purchased for cash at that
purchase price, net to the selling stockholder. All other Shares that have been
tendered and not purchased will be returned to the stockholder.
THE LETTER OF TRANSMITTAL REFERRED TO ABOVE AND IN THE OFFER TO PURCHASE
CANNOT BE USED TO TENDER SHARES HELD IN YOUR SAVINGS PLAN ACCOUNT(S); THE
ENCLOSED ELECTION FORM FOR THE SAVINGS PLAN IS A SUBSTITUTE FOR THE LETTER OF
TRANSMITTAL AND MUST BE USED TO TENDER THE SHARES IN YOUR SAVINGS PLAN ACCOUNTS.
Also, please note that if you hold an "odd lot," as described in Section 2 of
the Offer to Purchase, in your Savings Plan accounts, the special odd lot
purchase rule will not apply to your Shares in the Savings Plan. That is, the
proration provisions that will apply if more than 2,000,000 Shares are properly
tendered (as described in Section 1 of the Offer to Purchase) will apply to any
Shares tendered from the Savings Plan, even if you are an odd lot holder. You
are permitted, however, to make a conditional tender of the Shares allocated to
your Savings Plan account(s). See Section 6 of the Offer to Purchase for the
provisions governing conditional tenders.
YOUR DECISION WHETHER TO TENDER
As a participant in the Savings Plan, you may direct PNC Bank, N.A., the
trustee of the Savings Plan (the "Trustee"), to tender all or any portion of the
Shares allocated to your Savings Plan account(s) pursuant to the Offer.
PARTICIPANTS CONSIDERING TENDERING SHARES FROM THEIR SAVINGS PLAN ACCOUNT(S)
SHOULD REVIEW CAREFULLY THE TAX CONSEQUENCES OF DOING SO. (SEE "POTENTIAL TAX
CONSEQUENCES OF TENDERING
1
<PAGE>
SHARES" BELOW.) ALSO, THE PROCEEDS FROM ANY SALE OF SHARES FROM YOUR SAVINGS
PLAN ACCOUNT(S) WILL NOT BE DISTRIBUTED TO YOU. INSTEAD, ANY PROCEEDS WILL
CONTINUE TO BE HELD IN THE SAVINGS PLAN AND WILL BE INVESTED IN ACCORDANCE
WITH YOUR INSTRUCTIONS. (SEE "REINVESTMENT OF SALE PROCEEDS" BELOW).
HOW TO TENDER SHARES; COMPLETION OF ELECTION FORM
If you wish to direct the Trustee to tender all or any portion of the
eligible Shares in your Savings Plan account(s), you must complete and return
the enclosed Election Form in accordance with the instructions specified on the
Election Form. Before deciding whether or not to tender your Shares, please read
the enclosed materials carefully.
YOUR ELECTION WILL BE EFFECTIVE ONLY IF YOUR PROPERLY COMPLETED ELECTION FORM
IS RECEIVED BY THE TRUSTEE AT ITS ADDRESS SET FORTH ON THE ENCLOSED RETURN
ENVELOPE IN AMPLE TIME FOR THE TRUSTEE TO SUBMIT A TENDER ON YOUR BEHALF AT OR
PRIOR TO THE LATER OF 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996,
OR THE LATEST TIME AND DATE TO WHICH THE OFFER IS EXTENDED (referred to herein
as the "Expiration Date"). Election Forms that are received after this deadline
and Election Forms which are not properly completed, will not be accepted.
Examples of improperly completed Election Forms include Forms which are not
signed and Forms which contain incorrect or incomplete information. Your
decision to tender (or not to tender) and your reinvestment election are
personal decisions you should make based upon your own personal circumstances
and desires. IN THE EVENT THAT YOU DO NOT FILE A PROPERLY COMPLETED ELECTION
FORM ON A TIMELY BASIS, NONE OF YOUR SHARES WILL BE TENDERED.
Savings Plan participants who desire to tender Shares at more than one price
must complete a separate Election Form for each price at which Shares are
tendered, provided that the same Shares cannot be tendered (unless properly
withdrawn in accordance with the terms of the Offer) at more than one price. IN
ORDER TO PROPERLY TENDER SHARES, ONE AND ONLY ONE PRICE BOX MUST BE CHECKED IN
THE APPROPRIATE SECTION ON EACH ELECTION FORM.
SAVINGS PLAN ACCOUNT(S)
Under the Savings Plan, you may direct the Trustee to tender all or any
portion of the Shares that are allocated to your account(s), including Shares
that were purchased with Company matching contributions. The label attached
below identifies the number of Shares that were allocated to each of your
Savings Plan accounts as of the date indicated. Your tender instructions should
specify the number of Shares you wish to tender from each of your Savings Plan
accounts. Unallocated Shares (Shares held in the Company Stock Fund and not
credited to a participant's account(s)) are not subject to your tender
direction. Unallocated Shares held in the Savings Plan will be tendered by the
Savings Plan Trustee in the same proportion as were tendered Shares credited to
participants' accounts as to which participant instructions to tender have been
timely received.
REINVESTMENT OF SALE PROCEEDS
If you direct the Trustee to tender Shares allocated to your account(s) in
the Savings Plan, proceeds from the sale of the Shares will continue to be held
in your account(s) in the Savings Plan. You will not be able to exercise control
over the proceeds outside of the Savings Plan. The proceeds will be invested in
accordance with your instructions (provided on the attached form) in one or more
of the investment funds offered under the Savings Plan (as briefly described
below).
In deciding how to allocate the investment of the sale proceeds of your
Shares, you should consider your overall financial goals. Factors you will need
to take into account include your need for current income (as opposed to capital
appreciation), the diversification of your entire portfolio of investments, your
relative tolerance for risk, and the time period available for your investment
to grow under the Savings Plan. IF YOU NEED PROFESSIONAL INVESTMENT ADVICE, YOU
SHOULD CONSULT A QUALIFIED INVESTMENT ADVISOR TO ASSIST YOU IN YOUR INVESTMENT
ALLOCATION.
2
<PAGE>
The following is a general summary of the investment funds currently offered
under the Savings Plan and the significant characteristics of each such fund:
o MassMutual Fixed Income Fund: This stable interest fund is intended
for Savings Plan participants who seek an income-producing, low risk
vehicle which declares an interest rate each year that such
participants will earn on their investments. This rate and your
principal are backed by the general assets of MassMutual. The
Company does not guarantee the principal in the fund or the future
level of earnings thereon.
o MassMutual Balanced Fund: This balanced fund is intended for Savings
Plan participants who seek some current income but also seek a
higher potential for capital appreciation than the Fixed Income Fund
offers. The MassMutual Balanced Fund is a medium-risk balanced fund
which seeks to balance a higher rate of return with preservation of
principal. As a result, the fund typically has at least 45-65% of
its assets invested in stock. The remaining 33-55% of its assets is
typically invested in bonds and money market investments.
o Provident Mutual Value Equity Fund: This stock fund is intended for
Savings Plan participants who seek the potentially higher returns
offered by investments in common stocks. It generally provides
slightly higher risk than the balanced and fixed income fund
options, but also provides a greater chance for higher returns and
growth of principal over time. The Provident Mutual Value Equity
Fund is managed by six different investment managers which generally
seek to invest in stocks in which the price is low in relation to
current and projected earnings and which also have a record of
paying strong dividends.
For a detailed description of the funds, refer to the Savings Plan's SPD or
the PEI Employees's Savings Plan Basics of Investing for Retirement (a separate
description of investment funds). If you have questions concerning any of these
investment funds, you may contact the Plan Administrator at (717) 829-8661.
An Investment Designation Form is attached for your use in allocating the
proceeds from the sale of any Shares you have decided to tender. The Investment
Designation Form should be forwarded to the Trustee, Investment Management and
Trust Services, PNC Bank, N.A., P.O. Box 937, Scranton, PA 18540-9951, Attn:
Employee Benefit Department.
YOUR INVESTMENT DESIGNATION FORM MUST BE RECEIVED ON OR BEFORE THE DAY ON
WHICH THE SALES PROCEEDS FROM YOUR SHARES ARE CREDITED TO YOUR ACCOUNT IN THE
SAVINGS PLAN. IF YOU DO NOT RETURN AN INVESTMENT DESIGNATION FORM, THE SALES
PROCEEDS FROM YOUR SHARES WILL BE ALLOCATED TO THE INVESTMENT FUNDS OFFERED
UNDER THE SAVINGS PLAN IN THE SAME PROPORTION AS YOUR ACCOUNTS WHICH ARE NOT
INVESTED IN PEI COMMON STOCK. YOU WILL BE PERMITTED TO SELECT ANOTHER INVESTMENT
FUND ON THE NEXT QUARTERLY DATE ON WHICH INVESTMENT SELECTION IS AVAILABLE TO
OTHER SAVINGS PLAN PARTICIPANTS (JANUARY 1, APRIL 1, JULY 1, AND OCTOBER 1)
(EXCEPT FOR SAVINGS PLAN PARTICIPANTS WHO TRANSFERRED TO PENNSYLVANIA-AMERICAN
WATER COMPANY WHOSE OPTIONS ARE DESCRIBED IN A SEPARATE NOTICE).
ALSO, BE SURE TO READ THE NEXT SECTION REGARDING THE POSSIBLE LOSS OF
FAVORABLE TAX TREATMENT UNDER THE SAVINGS PLAN AS A RESULT OF TENDERING
SHARES FROM YOUR ACCOUNT(S).
3
<PAGE>
POTENTIAL TAX CONSEQUENCES OF TENDERING SHARES
TENDERING AND SELLING SHARES FROM YOUR SAVINGS PLAN ACCOUNT(S) NOW COULD
RESULT IN THE LOSS OF A FAVORABLE TAX TREATMENT AVAILABLE WITH RESPECT TO ANY
SHARES THAT SUBSEQUENTLY ARE DISTRIBUTED TO YOU FROM THE SAVINGS PLAN. Shares
that you receive in a distribution from the Savings Plan generally are eligible
for favorable tax treatment. Specifically, depending upon the type of
distribution, all or a portion of any "net unrealized appreciation" on the
Shares is not taxable to you until you sell the Shares. If you tender and sell
Shares from your Savings Plan account(s), any net unrealized appreciation in the
Shares that are sold will be lost. If your net unrealized appreciation is lost,
the amount of tax that you owe immediately upon receipt of a Savings Plan
distribution may be greater than if you had not tendered and sold your Shares in
the Offer.
CHANGING YOUR INSTRUCTION TO THE TRUSTEE
Tenders of Shares made pursuant to the Offer to Purchase may be withdrawn at
any time prior to the Expiration Date. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after May 3, 1996 unless they have been
previously accepted for payment as provided in the Offer to Purchase. In order
to change your Instructions, you must send a notice of withdrawal to the
Trustee. The notice of withdrawal will be effective only if it is in writing and
is received by the Trustee at the address set forth on the enclosed return
envelope in ample time for the Trustee to submit a notice of withdrawal on your
behalf on or prior to the Expiration Date. Any notice of change of instruction
to the Trustee must specify your name, your social security number, the number
of Shares tendered, whether the Shares are held in your Company Stock
Fund-Matching Contribution Account or your Company Stock Fund-Prior Plan (ESOP)
Account, Deferred Contribution (401(K)) Account, or Rollover Account, and the
number of Shares to be withdrawn. Upon receipt of a timely written notice of
change of Instruction to the Trustee, previous instructions to tender with
respect to such Shares will be deemed canceled. If you later wish to retender
Shares, you may contact the Plan Administrator at (717) 829-8661 to obtain a new
Election Form. Any new Election Form must be received by the Trustee in ample
time for the Trustee to submit the tender on your behalf on or prior to the
Expiration Date.
IF YOU HAVE QUESTIONS
If you have any questions about the Offer or any of the other matters
discussed above, please call D.F. King & Company, Inc., the Information Agent at
(800) 714-3313. If you wish, your inquiry may be made on a confidential basis.
If you have questions about the Savings Plan, please refer to the Savings
Plan's SPD. Additional copies of the SPD for the Savings Plan may be obtained
from the Plan Administrator at (717) 829-8661.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY PARTICIPANTS AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH PARTICIPANT MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE.
4
<PAGE>
ELECTION FORM
INSTRUCTIONS FOR TENDER OF SHARES OF
PENNSYLVANIA ENTERPRISES, INC.
Please tender to Pennsylvania Enterprises, Inc. (the "Company"), on my
behalf, the number of Shares indicated below held in the Pennsylvania
Enterprises, Inc. Employees's Savings Plan (the "Savings Plan"), which are
beneficially owned by me and held by you under the Savings Plan, upon the terms
and subject to the conditions contained in the Offer to Purchase of the Company,
dated March 11, 1996, and in the related "Memorandum to Participants in the
Savings Plan," the receipt of which is acknowledged. I understand that the label
that follows sets forth the number of Shares allocated to me in the various
Savings Plan accounts.
Number of Shares to be tendered from my Company Stock Fund-Matching
Contribution Account:
_______ Shares
Number of Shares to be tendered from my Company Stock Fund-Prior Plan (ESOP)
Account, Deferred Contribution (401(k)) Account, and Rollover Account:
_______ Shares
CONDITIONAL TENDER
By completing this box, the undersigned conditions the tender authorized
hereby on the following minimum number of Shares being purchased if any are
purchased:
_______ Shares
Unless this box is completed, the tender authorized hereby will be made
unconditionally.
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR
IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES.
STOCKHOLDERS WHO DESIRE TO TENDER SHARES AT MORE THAN
ONE PRICE MUST COMPLETE A SEPARATE ELECTION FORM FOR EACH
PRICE AT WHICH SHARES ARE TENDERED.
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having the Company
purchase all the Shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this one box INSTEAD OF
ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is
willing to accept the Purchase Price resulting from the Dutch auction
tender process. This action could result in receiving a price per Share as
low as $37.00 or as high as $39.00.
_______________________ OR ________________________
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ ] $37.000 [ ] $37.500 [ ] $38.000 [ ] $38.500
[ ] $37.125 [ ] $37.625 [ ] $38.125 [ ] $38.625
[ ] $37.250 [ ] $37.750 [ ] $38.250 [ ] $38.750
[ ] $37.375 [ ] $37.875 [ ] $38.375 [ ] $38.875
[ ] $39.000
</TABLE>
5
<PAGE>
THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE OPTION AND RISK OF THE
TENDERING PARTICIPANT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED UNANIMOUSLY THE OFFER.
HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO PARTICIPANTS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES.
EACH PARTICIPANT MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW
MANY SHARES AND AT WHAT PRICE OR PRICES SHARES SHOULD BE TENDERED.
Signature:
Name:
(Please Print)
Taxpayer Identification or Social Security Number:
Address:
(Including Zip Code)
Area Code and Telephone Number:
Date: , 1996
IMPORTANT: THIS SAVINGS PLAN PARTICIPANT ELECTION FORM (OR A MANUALLY
SIGNED FACSIMILE THEREOF) MUST BE RECEIVED BY THE TRUSTEE IN AMPLE
TIME FOR THE TRUSTEE TO SUBMIT A TENDER ON YOUR BEHALF ON OR PRIOR
TO THE EXPIRATION DATE. IN THE EVENT THAT YOU DO NOT FILE
A PROPERLY COMPLETED ELECTION FORM WITH THE TRUSTEE ON A TIMELY
BASIS, NONE OF YOUR SHARES WILL BE TENDERED.
6
<PAGE>
INVESTMENT DESIGNATION FORM
TO: Investment Management and Trust Services
PNC Bank, N.A.
P.O. Box 937
Scranton, PA 18540-9951
Attn: Employee Benefit Department
FROM:
RE: Investment Designation of Tender Offer Proceeds
I. PARTICIPANT INFORMATION
NAME:___________________________________________________________________________
Last First Middle
ADDRESS:________________________________________________________________________
Number and Street City State Zip Code
SOCIAL SECURITY NUMBER: ____________________
DATE OF BIRTH: _____________________ DATE OF HIRE: ______________________
II. INVESTMENT DESIGNATION
I elect to have my Tender Offer Proceeds invested in the Pennsylvania
Enterprises, Inc. Employees's Savings Plan as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-----------% + -----------% + ----------% +
MassMutual Fixed Provident Mutual Value MassMutual Balanced = 100%
Income Fund Equity Fund Fund
</TABLE>
NOTE: Investment elections must be in five percent (5%) increments.
________________________________________________________________________________
7
<PAGE>
III. PARTICIPANT SIGNATURE:
I have read the above information and I authorize my employer to invest my
tender offer proceeds, solely for my benefit, based on my above investment
elections. I also understand that my participation in the Pennsylvania
Enterprises, Inc. Employees's Savings Plan, including my tender offer
proceeds and any associated earnings, will be governed by the provisions
contained in such plan.
_________________________________________ Date: ____________________________
Signature
TO BE COMPLETED BY PERSONNEL REPRESENTATIVE
Approved by: _________________________ Valuation Date: ______________________
Signature: ___________________________
Date: _________________________ , 1996 Plan: (circle one) UorN-U
8
<PAGE>
NOTICE
TO: PARTICIPANTS IN THE PENNSYLVANIA ENTERPRISES, INC. EMPLOYEES' SAVINGS
PLAN WHO TRANSFERRED EMPLOYMENT TO PENNSYLVANIA-AMERICAN WATER COMPANY
You recently received information and Account Transfer Election forms
concerning your accounts under the Pennsylvania Enterprises, Inc. Employees'
Savings Plan (the "Savings Plan"). Many of you have already returned completed
Account Transfer Election forms, choosing either to liquidate the shares of PEI
common stock credited to your Savings Plan accounts ("Shares") and to transfer
your accounts to the Savings Plan for Employees of American Water Works Company,
Inc. (the "American Water Savings Plan"), or to retain your Shares in the
Savings Plan.
Since the date the Account Transfer Election forms and instructions were
distributed to you, PEI has decided to repurchase up to 2,000,000 shares of PEI
common stock. Since information concerning this stock repurchase was unavailable
at the time you submitted your completed Account Transfer Election form, PEI
wishes to extend to you the same opportunity as will be available to other PEI
shareholders to tender your shares for repurchase. In addition, the transfer
election alternatives previously explained to you have now been expanded.
Therefore, PEI is requiring each participant who transferred to the
Pennsylvania-American Water Company to complete and return a new Transfer
Election Form. Attached to this Notice is a copy of the Offer to Purchase and
special Notice and Election Forms for Savings Plan participants who transferred
to Pennsylvania-American Water Company.
IF YOU ARE A PARTICIPANT WHO TRANSFERRED EMPLOYMENT TO PENNSYLVANIA-AMERICAN
WATER COMPANY, YOU MUST COMPLETE AND RETURN A NEW ACCOUNT TRANSFER ELECTION
FORM, EVEN IF YOU PREVIOUSLY SUBMITTED A TRANSFER ELECTION FORM.
IF YOU WISH TO PARTICIPATE IN THE TENDER OFFER, YOU MUST COMPLETE THE
ATTACHED ACCOUNT TRANSFER ELECTION FORM B AND THE TENDER ELECTION FORM ATTACHED
TO THE MEMORANDUM TO PARTICIPANTS IN THE SAVINGS PLAN. IF YOU DO NOT SUBMIT A
PROPERLY COMPLETED TRANSFER ELECTION FORM B AND THE TENDER ELECTION FORM TO PNC
BANK, N.A., THE TRUSTEE OF THE SAVINGS PLAN (THE "TRUSTEE"), IN AMPLE TIME FOR
THE TRUSTEE TO SUBMIT A TENDER FORM ON YOUR BEHALF, NONE OF YOUR SHARES WILL BE
TENDERED.
In addition, if you do not timely return a completed Election Form B to the
Trustee, your prior Account Transfer Election Form will remain in effect or, if
you did not complete and return a prior form, all Shares held in your accounts
under the Savings Plan will be liquidated and transferred to the American Water
Savings Plan.
As described in the Offer to Purchase, if PEI's tender offer is
oversubscribed, not all of the Shares you wish to tender may be repurchased. In
such event, you should make a contingent election on the attached Election Form
B as to how you wish the remaining Shares in your Savings Plan accounts to be
handled.
IF YOU DO NOT WISH TO PARTICIPATE IN THE TENDER OFFER, YOU MUST TIMELY
COMPLETE AND RETURN TO THE TRUSTEE THE ATTACHED ACCOUNT TRANSFER ELECTION
FORM A.
If you do not return a completed Election Form A to the Trustee, your prior
Account Transfer Election Form will remain in effect or, if you did not complete
and return a prior Account Transfer Election Form, all Shares held in your
accounts under the Savings Plan will be liquidated and the proceeds transferred
to the American Water Savings Plan.
If you have any questions concerning the Offer to Purchase or your account
transfer to the American Water Savings Plan, please contact the Plan
Administrator at (717) 829-8661.
<PAGE>
ELECTION FORM A - NO TENDER
THIS FORM IS TO BE COMPLETED ONLY BY PARTICIPANTS IN
THE PENNSYLVANIA ENTERPRISES, INC. EMPLOYEES' SAVINGS PLAN (THE
"SAVINGS PLAN") WHO TRANSFERRED EMPLOYMENT TO THE
PENNSYLVANIA-AMERICAN WATER COMPANY
PEI SAVINGS PLAN
REVISED ACCOUNT TRANSFER ELECTION
NOTE: ALL SAVINGS PLAN PARTICIPANTS WHO TRANSFERRED TO PENNSYLVANIA-AMERICAN
WATER COMPANY MUST RETURN EITHER THIS ELECTION FORM A (NO TENDER) OR ELECTION
FORM B (TENDER).
TYPE OR PRINT CLEARLY ALL INFORMATION
NAME:_________________________________ SOCIAL SECURITY #: _____________________
ADDRESS: _______________________________________________________________________
Number & Street City State Zip Code
This form supersedes and revokes any prior Account Transfer Election form
which I have filed with the Savings Plan Administrative Committee concerning
transfer of my Savings Plan accounts to the Savings Plan for Employees of
American Water Works Company, Inc. (the "American Water Savings Plan"), and my
decision as to whether to liquidate shares of common stock of Pennsylvania
Enterprises, Inc. ("Shares") in my Savings Plan accounts.
______ I HAVE REVIEWED THE OFFER TO PURCHASE DATED MARCH 11, 1996 AND THE
NOTICE TO SAVINGS PLAN PARTICIPANTS DESCRIBING THE PEI TENDER OFFER AND
DO NOT WISH TO TENDER SHARES IN MY SAVINGS PLAN ACCOUNTS.
I have previously been advised that upon the closing of the sale of part of
PEI's business to Pennsylvania-American Water Company, my account balances under
the Savings Plan became 100% vested and will (subject to my election as to my
account Shares) be transferred to the American Water Savings Plan. Except for
any outstanding loan I may have had under the Savings Plan (which is to be
transferred to the American Water Savings Plan), my account balances will, after
the transfer, be reinvested in accordance with the terms of the American Water
Savings Plan. However, I may elect to have Shares credited to my accounts under
the Savings Plan retained in the Savings Plan until the earlier of the date I
(i) terminate employment with Pennsylvania-American Water Company or (ii) make a
one-time only election (in accordance with the Savings Plan's terms) to
liquidate the Shares retained in the Savings Plan and have the Savings Plan
Trustee transfer the proceeds thereof to the American Water Savings Plan. I also
may elect to have my Prior Plan account Shares (i.e., Shares transferred to the
Savings Plan from the PEI ESOP) distributed to me at any time in accordance with
the Savings Plan's terms.
I hereby elect the following treatment for the Shares in my Savings Plan
accounts:
_____ I hereby elect that my prior Account Transfer Election remain in
effect.
_____ I hereby elect that my entire account balances in the Savings Plan be
transferred to the American Water Savings Plan. I understand that this
will result in the liquidation of any Shares remaining in my Savings
Plan accounts.
_____ I hereby elect to have only the portion of my account balances in the
Savings Plan which is not invested in Shares transferred to the
American Water Savings Plan, with the portion of my account balances
which remains invested in Shares retained in the Savings Plan. I
understand that the Shares (other than ESOP Shares) retained in the
Savings Plan:
1
<PAGE>
(1) cannot be distributed until I terminate employment with
Pennsylvania-American Water Company, provided, however, that I will
have a one-time opportunity in the future (at such time as I may elect
in accordance with the Savings Plan's terms) to liquidate all or a
portion of my Shares remaining in the Savings Plan and have the
proceeds thereof transferred to the American Water Savings Plan, and
(2) except as provided in (1) above, must remain invested in Shares
until distributed to me or until I reach age 55, at which time I can
direct that all or a portion be invested in the Fixed Income Fund
within the Savings Plan.
IF THIS FORM OR ELECTION FORM B IS NOT RETURNED, MY PRIOR ACCOUNT TRANSFER
ELECTION WILL REMAIN IN EFFECT, OR, IF NO ACCOUNT TRANSFER ELECTION WAS RECEIVED
BY THE TRUSTEE, ALL SHARES IN MY ACCOUNTS UNDER THE SAVINGS PLAN WILL BE
LIQUIDATED AND THE PROCEEDS TRANSFERRED TO THE AMERICAN WATER SAVINGS PLAN.
______________________________ _____________________________
Signature Date
TO BE COMPLETED BY PERSONNEL REPRESENTATIVE
Termination Date:__________________________ Valuation Date: ___________________
Vested Percent:____________________________
Date Received:_____________________________
2
<PAGE>
ELECTION FORM B-TENDER
THIS FORM IS TO BE COMPLETED ONLY BY PARTICIPANTS IN THE
PENNSYLVANIA ENTERPRISES, INC. EMPLOYEES' SAVINGS PLAN
(THE "SAVINGS PLAN") WHO TRANSFERRED EMPLOYMENT TO THE
PENNSYLVANIA-AMERICAN WATER COMPANY
PEI SAVINGS PLAN
REVISED ACCOUNT TRANSFER ELECTION
AND
TENDER OFFER ELECTION
NOTE: ALL SAVINGS PLAN PARTICIPANTS WHO TRANSFERRED EMPLOYMENT TO
PENNSYLVANIA-AMERICAN WATER COMPANY MUST RETURN EITHER THIS ELECTION FORM B
(TENDER) OR ELECTION FORM A (NO TENDER).
TYPE OR PRINT CLEARLY ALL INFORMATION
NAME:__________________________________ SOCIAL SECURITY #:____________________
ADDRESS:_______________________________________________________________________
Number & Street City State Zip Code
This form supersedes and revokes any prior Account Transfer Election form
which I have filed with the Savings Plan Administrative Committee concerning
transfer of my Savings Plan accounts to the Savings Plan for Employees of
American Water Works Company, Inc. (the "American Water Savings Plan"), and my
decision as to whether to liquidate shares of common stock of Pennsylvania
Enterprises, Inc. ("Shares") in my Savings Plan accounts.
I HAVE REVIEWED THE OFFER TO PURCHASE DATED MARCH 11, 1996 AND THE NOTICE TO
SAVINGS PLAN PARTICIPANTS DESCRIBING THE PEI TENDER OFFER AND WISH TO TENDER
SHARES IN MY SAVINGS PLAN ACCOUNTS.
_____ By completing and returning both this form and the tender election form
attached to the Memorandum to Participants in the Savings Plan, I am
hereby electing to tender all or a portion of the Shares in my Savings
Plan accounts.
TO EFFECTUATE SUCH ELECTION, I ACKNOWLEDGE THAT I MUST SUBMIT A
PROPERLY COMPLETED SAVINGS PLAN TENDER ELECTION FORM WHICH HAS BEEN
PROVIDED TO ALL SAVINGS PLAN PARTICIPANTS.
I HAVE BEEN ADVISED THAT IF I DO NOT SUBMIT A PROPERLY COMPLETED
SAVINGS PLAN TENDER ELECTION FORM TO PNC BANK, N.A., THE TRUSTEE OF THE
SAVINGS PLAN (THE "TRUSTEE"), IN AMPLE TIME FOR THE TRUSTEE TO SUBMIT A
TENDER ON MY BEHALF AT OR PRIOR TO THE LATER OF 5:00 P.M., NEW YORK
CITY TIME, MONDAY, APRIL 8, 1996, OR THE LATEST TIME AND DATE TO WHICH
THE OFFER IS EXTENDED, NO SHARES IN MY SAVINGS PLAN ACCOUNT WILL BE
TENDERED.
I further acknowledge that I must submit a properly completed Savings
Plan Investment Designation Form which was provided to all Savings Plan
participants on or before the date on which I submit this Election Form
B in order to elect one or more Savings Plan investment funds in which
the proceeds from the sale of my repurchased Shares will be invested
until such proceeds are transferred to the American Water Savings Plan.
I have been advised that if I do not submit a properly completed
Investment Designation Form on or before the date on which I submit
this Election Form B, the proceeds from the sale of my repurchased
Shares will be invested in the same proportion as my non-Company Stock
Fund accounts are invested within the Savings Plan until they are
transferred to the American Water Savings Plan.
1
<PAGE>
I have previously been advised that upon the closing of the sale of part of
PEI's business to Pennsylvania-American Water Company, my account balances under
the Savings Plan became 100% vested and will (subject to my election as to my
account Shares) be transferred to the American Water Savings Plan. Except for
any outstanding loan I may have had under the Savings Plan (which is to be
transferred to the American Water Savings Plan), my account balances will, after
the transfer, be reinvested in accordance with the terms of the American Water
Savings Plan. However, I may be allowed to elect to have any Shares credited to
my accounts under the Savings Plan retained in the Savings Plan until the
earlier of the date I (i) terminate employment with Pennsylvania-American Water
Company or (ii) make a one-time only election (in accordance with the Savings
Plan terms) to liquidate the Shares retained in the Savings Plan and have the
Savings Plan Trustee transfer the proceeds thereof to the American Water Savings
Plan. I also may elect to have my Prior Plan account Shares (i.e., Shares
transferred to the Savings Plan from the PEI ESOP) distributed to me at any time
in accordance with the Savings Plan's terms.
If I have elected to tender less than all of the Shares in my Savings Plan
accounts, or if any Shares which I elect to tender are not purchased in the
tender offer, I hereby elect the following treatment for the remaining Shares in
my Savings Plan accounts:
_____ I hereby elect that my prior Account Transfer Election remain in
effect.
_____ I hereby elect that my entire account balances in the Savings Plan
(including the proceeds from the sale of my Shares to PEI under the
tender offer) be transferred to the American Water Savings Plan. I
understand that this will result in the liquidation of any Shares
remaining in my Savings Plan accounts after the tender offer is
completed.
_____ I hereby elect to have only the portion of my account balances in the
Savings Plan which is not invested in Shares (including the proceeds
from the sale of my Shares to PEI under the tender offer) transferred
to the American Water Savings Plan, with the portion of my account
balances which remains invested in Shares retained in the Savings Plan.
I understand that the Shares (other than ESOP Shares) retained in the
Savings Plan:
(1) cannot be distributed until I terminate employment with
Pennsylvania-American Water Company, provided, however, that I will
have a one-time opportunity in the future (at such time as I may elect
in accordance with the Savings Plan terms) to liquidate all or a
portion of my Shares remaining in the Savings Plan and have the
proceeds thereof transferred to the American Water Savings Plan, and
(2) except as provided in (1) above, must remain invested in Shares
until distributed to me or until I reach age 55, at which time I can
direct that all or a portion be invested in the Fixed Income Fund
within the Savings Plan.
IF THIS FORM OR ELECTION FORM A IS NOT RETURNED, MY PRIOR ACCOUNT TRANSFER
ELECTION WILL REMAIN IN EFFECT, OR, IF NO ACCOUNT TRANSFER ELECTION FORM WAS
RECEIVED BY THE TRUSTEE, ALL SHARES IN MY ACCOUNTS UNDER THE SAVINGS PLAN WILL
BE LIQUIDATED AND THE PROCEEDS TRANSFERRED TO THE AMERICAN WATER SAVINGS PLAN.
___________________________________ _________________________________________
Signature Date
TO BE COMPLETED BY PERSONNEL REPRESENTATIVE
Termination Date:__________________________ Valuation Date: ___________________
Vested Percent:____________________________
Date Received:_____________________________
Signature:_________________________________ Plan (circle one): U or N-U
2
<PAGE>
================================================================================
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase dated March
11, 1996 and the related Letter of Transmittal. Capitalized terms not defined in
this announcement have the respective meanings ascribed to such terms in the
Offer to Purchase. The Company is not aware of any jurisdiction in which the
making of the Offer is prohibited by administrative or judicial action pursuant
to a valid state statute. If the Company becomes aware of any valid state
statute prohibiting the making of the Offer, the Company will make a good faith
effort to comply with such statute. If, after such good faith effort, the
Company cannot comply with such statute, the Offer will not be made to, nor will
tenders be accepted from or on behalf of, holders of Shares in such state. In
those jurisdictions whose securities, blue sky or other laws require the Offer
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of the Company by Legg Mason Wood Walker, Incorporated as Dealer Manager
or one or more registered brokers or dealers licensed under the laws of such
jurisdictions.
NOTICE OF OFFER TO PURCHASE FOR CASH
BY
PENNSYLVANIA ENTERPRISES, INC.
(NYSE: PNT)
UP TO 2,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT GREATER THAN $39.00
NOR LESS THAN $37.00 PER SHARE
Pennsylvania Enterprises, Inc., a Pennsylvania corporation (the "Company"),
invites its stockholders to tender shares of its Common Stock, no par value,
stated value $10.00 per share (the "Shares") (including the associated common
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of April 26, 1995, between the Company and Chemical Bank, as the Rights
Agent), to the Company at prices not greater than $39.00 nor less than $37.00
per Share, net to the seller in cash, specified by such stockholders, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
March 11, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"). Unless the context otherwise requires,
all references to Shares shall include the associated Rights.
The Offer is not conditioned upon any minimum number of Shares being tendered.
The Offer is, however, subject to certain other conditions set forth in the
Offer to Purchase.
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
Neither the Company nor any of its directors or executive officers makes
any recommendation to stockholders as to whether to tender all or any Shares.
Each stockholder must make his or her own decision as to whether to tender
Shares and, if so, how many Shares to tender and at what price. The Company has
been advised that no director or executive officer of the Company or any of its
affiliates intends to tender Shares pursuant to the Offer. The Company will
determine a single per Share price (not greater than $39.00 nor less than $37.00
per Share) (the "Purchase Price") that it will pay for the Shares validly
tendered pursuant to the Offer and not withdrawn, taking into account the number
of Shares so tendered and the prices specified by the tendering stockholders.
The Company will select the Purchase Price that will enable it to purchase
2,000,000 Shares (or such lesser number of Shares as are validly tendered at
prices not greater than $39.00 nor less than $37.00 per Share) pursuant to the
Offer. The Company will purchase all Shares validly tendered at prices at or
below the Purchase Price and not withdrawn, upon the terms and subject to the
conditions of the Offer, including the provisions thereof relating to proration
and conditional tenders described herein. Shares tendered at prices in excess of
the Purchase Price and Shares not purchased because of proration and conditional
tenders will be returned.
Upon the terms and subject to the conditions of the Offer, if 2,000,000 or
fewer Shares have been validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, the Company will purchase all such
Shares (including fractional Shares). Upon the terms and subject to the
conditions of the Offer, if more than 2,000,000 Shares have been validly
tendered at or below the Purchase Price and not withdrawn on or prior to the
Expiration Date, the Company will purchase Shares in the following order of
priority: (a) first, all Shares (excluding Shares allocated to a Savings Plan
account) validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date by any Odd Lot Owner who validly tenders all of
such Shares (partial and conditional tenders will not qualify for this
preference) and completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, the Notice of Guaranteed Delivery; (b) second,
after purchase of all of the foregoing Shares, all Shares conditionally and
validly tendered in accordance with the Offer, for which the condition was
satisfied, and all other Shares unconditionally and validly tendered at or below
the Purchase Price and not withdrawn on or prior to the Expiration Date on a pro
rata basis, if necessary (with appropriate adjustments to avoid purchases of
fractional Shares, other than Shares held in the Dividend Reinvestment Plan and
the Savings Plan); and (c) third, if necessary, Shares conditionally tendered,
for which the condition was not satisfied, at or below the Purchase Price and
not withdrawn on or prior to the Expiration Date, selected by random lot in
accordance with the Offer. The later of 5:00 P.M., New York City time, on
Monday, April 8, 1996, or the latest time and date to which the Offer is
extended, is referred to herein as the "Expiration Date."
A stockholder may tender Shares subject to the condition that a specified
minimum number of such holder's Shares tendered pursuant to a Letter of
Transmittal or Notice of Guaranteed Delivery must be purchased if any such
Shares so tendered are purchased, and any stockholder desiring to make such a
conditional tender must so indicate in the box captioned "Conditional Tender" in
such Letter of Transmittal or, if applicable, the Notice of Guaranteed Delivery.
If the effect of accepting tenders on a pro rata basis would be to reduce the
number of Shares to be purchased from any stockholder (tendered pursuant to a
Letter of Transmittal or Notice of Guaranteed Delivery) below the minimum number
so specified, such tender will automatically be regarded as withdrawn (except as
provided in the next paragraph) and all Shares tendered by such stockholder
pursuant to such Letter of Transmittal or Notice of Guaranteed Delivery will be
returned as promptly as practicable thereafter.
If conditional tenders would otherwise be so regarded as withdrawn and
would cause the total number of Shares to be purchased to fall below 2,000,000,
then, to the extent feasible, the Company will select enough of such conditional
tenders that would otherwise have been so withdrawn to permit the Company to
purchase 2,000,000 Shares. In selecting among such conditional tenders, the
Company will select by lot and will limit its purchase in each case to the
designated minimum number of Shares to be purchased.
The Offer is one of the recapitalizations being undertaken in connection
with the sale on February 16, 1996, by the Company and one of its subsidiaries
of the subsidiary's regulated water operations and certain related assets. The
Company believes that the Offer and the other recapitalizations will have a
positive effect on the Company's financial and capital ratios, credit rating,
earnings per share, dividend payout and payout ratio and stock price. In
addition, the repurchase of Shares pursuant to the Offer will adjust the
Company's capital structure to a level more appropriate to the size and nature
of its operations after the sale of the water operations. The Offer will afford
to stockholders who are considering the sale of all or a portion of their Shares
the opportunity to determine the price at which they are willing to sell their
Shares and, in the event the Company accepts such Shares for purchase, to
dispose of Shares without the usual transaction costs associated with open
market sales.
The Company also expressly reserves the right, in its sole discretion, at
any time or from time to time, to extend the period of time during which the
Offer is open by giving oral or written notice of such extension to the
Depositary.
The Company will pay to a Soliciting Dealer (as defined in the Offer to
Purchase) a solicitation fee of $0.50 per Share for any Shares tendered and
accepted for payment and paid for pursuant to the Offer, subject to certain
conditions.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after May 3, 1996, unless theretofore accepted for
payment as provided in the Offer to Purchase. To be effective, a written or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer to
Purchase and must specify the name of the person who tendered the Shares to be
withdrawn and the number of Shares to be withdrawn. If the Shares to be
withdrawn have been delivered to the Depositary, a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution (except in the case of
Shares tendered by an Eligible Institution) must be submitted prior to the
release of such Shares. In addition, such notice must specify, in the case of
Shares tendered by delivery of certificates, the name of the registered holder
(if different from that of the tendering stockholder) and the serial numbers
shown on the particular certificates evidencing the Shares to be withdrawn or,
in the case of Shares tendered by book-entry transfer, the name and number of
the account at one of the Book-Entry Transfer Facilities to be credited with the
withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn Shares may be retendered by again following one of the procedures
described in the Offer to Purchase at any time prior to the Expiration Date.
THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION, WHICH SHOULD BE READ BEFORE STOCKHOLDERS DECIDE WHETHER TO ACCEPT
OR REJECT THE OFFER AND, IF ACCEPTED, AT WHICH PRICE OR PRICES TO TENDER THEIR
SHARES.
Stockholders who are participants in the Company's Dividend Reinvestment
and Stock Purchase Plan or Employees' Savings Plan cannot use the Letter of
Transmittal to tender Shares held in such accounts, but must use the election
forms attached to the "Memorandum to Participants in the Dividend Reinvestment
and Stock Purchase Plan" and "Memorandum to Participants in the Savings Plan,"
respectively, as a substitute for the Letter of Transmittal to tender Shares
held in such accounts.
These materials are being mailed to record holders of Shares and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the Company's stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
THE INFORMATION REQUIRED TO BE DISCLOSED BY RULE 13E-4(D)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, IS CONTAINED IN THE OFFER TO
PURCHASE AND IS INCORPORATED IN THIS NOTICE BY REFERENCE.
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of the Offer to Purchase, the Letter of Transmittal or other tender offer
materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact their
local broker, dealer, commercial bank or trust company for assistance concerning
the Offer.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
March 11, 1996
================================================================================
<PAGE>
FROM: ROBERT J. LOPATTO
RELEASE: UPON RECEIPT
PHONE: 717/829-8814
PENNSYLVANIA ENTERPRISES, INC., TO REPURCHASE
UP TO 2 MILLION SHARES OF ITS COMMON STOCK
WILKES_BARRE, PA, March 11, 1996 -- Pennsylvania Enterprises, Inc. (NYSE:PNT)
announced today that it has commenced a "Dutch auction" tender offer to purchase
up to 2 million shares of its common stock (representing approximately 35% of
the currently outstanding shares) at a price not greater than $39.00 nor less
than $37.00 per share. The offer begins today, March 11, 1996, and is subject to
the terms and conditions described in the offering materials, which are being
mailed to record holders of the shares.
The "Dutch auction" tender offer procedure allows stockholders to select the
price within the $37.00-$39.00 per share range at which they are willing to sell
all or a portion of their shares to the Company. After expiration of the offer,
the Company will determine the single per-share price within that range that
will enable it to purchase up to 2,000,000 shares from those stockholders who
agree to sell at or below the selected price and properly tender shares. All
stockholders whose shares are purchased will receive the same price per share,
and no commission charges will be incurred by tendering stockholders.
The offer is one of the recapitalizations being undertaken in connection with
the sale on February 16, 1996, by the Company and its principal subsidiary, PG
Energy Inc. (PGE), formerly Pennsylvania Gas and Water Company, of PGE's
regulated water operations and certain related assets. The Company believes that
the offer and the other recapitalizations will have a positive effect on the
Company's financial and capital ratios, credit rating, earnings per share,
dividend payout and payout ratio, and stock price. In addition, the repurchase
of shares pursuant to the offer will adjust the Company's capital structure to a
level more appropriate to the size and nature of its operation after the sale of
the water operations.
The offer will expire at 5:00 p.m., New York City time, on Monday, April 8,
1996, unless extended. The offer is not conditioned upon any minimum number of
shares being tendered.
The Dealer Manager for the offer is Legg Mason Wood Walker, Incorporated.
D.F. King & Co., Inc. is serving as the Information Agent.
The Company is a holding company with two groups of subsidiaries. One group
consists of PGE, which provides natural gas to approximately 142,000 customers
in ten counties in northeastern Pennsylvania. The other group consists of
Pennsylvania Energy Resources, Inc., its subsidiary, Keystone Pipeline Services,
Inc., Pennsylvania Energy Marketing Company and Theta Land Corporation.
***
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennsylvania Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Pennsylvania Enterprises, Inc. (a Pennsylvania
corporation) and subsidiaries (the "Company") as of December 31, 1995 and 1994,
and the related consolidated statements of income, common shareholders'
investment, and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pennsylvania
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 23, 1996
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 152,756 $ 167,992 $ 153,325
Cost of gas 84,372 98,653 86,557
OPERATING MARGIN 68,384 69,339 66,768
OTHER OPERATING EXPENSES:
Operation 22,438 22,652 21,797
Maintenance 4,967 4,436 3,695
Depreciation 6,971 6,667 6,388
Income taxes 3,556 4,290 4,935
Taxes other than income taxes 9,918 10,807 10,055
Total other operating expenses 47,850 48,852 46,870
OPERATING INCOME 20,534 20,487 19,898
OTHER INCOME (DEDUCTIONS), NET (Note 4) 763 258 (472)
INCOME BEFORE INTEREST CHARGES 21,297 20,745 19,426
INTEREST CHARGES:
Interest on long-term debt 13,663 12,591 11,636
Other interest 1,844 1,223 1,299
Allowance for borrowed funds used
during construction (94) (21) (47)
Total interest charges 15,413 13,793 12,888
INCOME FROM CONTINUING OPERATIONS 5,884 6,952 6,538
DISCONTINUED OPERATIONS (Note 2):
Income from discontinued operations 2,127 10,504 7,909
Estimated loss on disposal of discontinued
operations, net of anticipated income
during the phase-out period of $7,409,000
(net of related income taxes of $4,800,000) (5,961) - -
Income (loss) with respect to discontinued
operations (3,834) 10,504 7,909
INCOME BEFORE SUBSIDIARY'S
PREFERRED STOCK DIVIDENDS 2,050 17,456 14,447
SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 2,763 4,639 6,462
NET INCOME (LOSS) $ (713) $ 12,817 $ 7,985
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ .55 $ .43 $ .02
Discontinued operations (.67) 1.92 1.80
Net income (loss) before premium on
redemption of subsidiary's preferred stock (.12) 2.35 1.82
Premium on redemption of subsidiary's
preferred stock - (.18) -
Earnings (loss) per share of common stock $ (.12) $ 2.17 $ 1.82
Weighted average number of shares outstanding 5,729,436 5,456,568 4,394,953
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C>
ASSETS
UTILITY PLANT:
At original cost, less acquisition
adjustments of $386,000 $295,895 $284,080
Accumulated depreciation (76,882) (74,408)
219,013 209,672
OTHER PROPERTY AND INVESTMENTS 7,142 3,481
CURRENT ASSETS:
Cash 629 330
Restricted cash - common stock subscribed (Note 5) - 2,532
Accounts receivable -
Customers 21,066 16,883
Others 815 1,474
Reserve for uncollectible accounts (788) (937)
Accrued utility revenues 10,319 9,004
Materials and supplies, at average cost 2,876 2,797
Gas held by suppliers, at average cost 15,140 20,025
Natural gas transition costs collectible 4,612 4,708
Deferred cost of gas and supplier refunds, net - 3,767
Prepaid expenses and other 3,486 1,483
58,155 62,066
DEFERRED CHARGES:
Regulatory assets
Deferred taxes collectible 30,015 31,696
Natural gas transition costs collectible 497 4,099
Other 2,516 3,131
Unamortized debt expense 2,630 3,539
Other - 3,552
35,658 46,017
NET ASSETS OF DISCONTINUED OPERATIONS 204,250 203,196
TOTAL ASSETS $524,218 $524,432
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see accompanying statements):
Common shareholders' investment (Notes 5 and 8) $162,739 $172,012
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 1,680 1,760
Long-term debt (Note 7) 106,706 220,705
304,740 428,092
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 6, 7 and 9) 116,081 3,290
Notes payable (Note 9) 10,180 -
Accounts payable 18,531 17,781
Deferred cost of gas and supplier refunds, net 434 -
Accrued general business and realty taxes 1,493 3,315
Accrued income taxes 526 3,136
Accrued interest 2,307 2,850
Accrued natural gas transition costs (Note 3) 2,278 2,356
Other 3,534 2,398
155,364 35,126
DEFERRED CREDITS:
Deferred income taxes 48,835 46,600
Accrued natural gas transition costs (Note 3) 1,144 3,250
Unamortized investment tax credits 4,938 5,110
Operating reserves 3,709 2,383
Other 5,488 3,871
64,114 61,214
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $524,218 $524,432
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations, net of
subsidiary's preferred stock dividends $ 3,121 $ 2,313 $ 76
Effects of noncash charges to income -
Depreciation 7,018 6,693 6,413
Deferred income taxes, net (251) 752 (2,472)
Provisions for self insurance 2,652 1,030 1,510
Other, net 5,572 3,074 2,418
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues (219) 1,435 (2,099)
Gas held by suppliers 4,885 6,625 (5,038)
Accounts payable 321 (4,375) (1,233)
Deferred cost of gas and supplier refunds, net 5,715 5,784 (13,307)
Other current assets and liabilities, net (6,509) (763) 1,187
Other operating items, net 2,628 (6,588) (4,014)
Net cash provided (used) by continuing
operations 24,933 15,980 (16,559)
Net cash provided (used) by discontinued
operations 3,764 552 (837)
Net cash provided (used) by operating
activities 28,697 16,532 (17,396)
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (20,615) (16,960) (14,011)
Investment in non-regulated business (3,169) - -
Other, net (4,934) 1,098 201
Net cash used for investing activities (28,718) (15,862) (13,810)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 4,045 3,887 32,807
Common stock subscribed, net (Note 5) - 2,515 -
Redemption of preferred stock of PGE (80) (30,080) (10,080)
Dividends on common stock (12,605) (12,002) (9,805)
Issuance of long-term debt 52,000 50,000 19,000
Repayment of long-term debt (53,535) (31,055) (30,678)
Net increase in bank borrowings 10,500 15,370 32,247
Other, net (5) (1,724) (599)
Net cash provided (used) for financing
activities 320 (3,089) 32,892
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 299 (2,419) 1,686
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 330 2,749 1,063
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 629 $ 330 $ 2,749
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 27,951 $ 24,622 $ 23,992
Income taxes $ 8,748 $ 7,460 $ 6,931
<PAGE>
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1995* 1994*
(Thousands of Dollars)
COMMON SHAREHOLDERS' INVESTMENT (Notes 5 and 8):
Common stock, no par value
(stated value $10 per share)
Authorized - 15,000,000 shares
Outstanding - 5,784,319 shares and
5,553,915 shares, respectively $ 57,843 $ 55,539
Common stock subscribed - 2,515
Additional paid-in capital 49,749 45,493
Retained earnings 55,147 68,465
Total common shareholders' investment 162,739 53.4% 172,012 40.2%
PREFERRED STOCK of PGE, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
100,000 shares issued 10,000 10,000
9% cumulative preferred,
250,000 shares outstanding, net of
issuance costs 23,615 23,615
Total preferred stock not subject to
mandatory redemption, net 33,615 11.0% 33,615 7.8%
Subject to mandatory redemption -
5.75% cumulative preferred, 17,600 and
18,400 shares outstanding, respectively 1,760 1,840
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 1,680 0.6% 1,760 0.4%
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 108,535
Notes 167,707 115,380
Less current maturities and sinking
fund requirements (116,001) (3,210)
Total long-term debt 106,706 35.0% 220,705 51.6%
TOTAL CAPITALIZATION $ 304,740 100.0% $ 428,092 100.0%
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Common Additional
Common Stock Paid-In Retained
Stock Subscribed Capital Earnings Total
(Thousands of Dollars)
Balance at December 31, 1992 $41,315 $ - $ 23,023 $ 70,806 $135,144
Net income for 1993 - - - 7,985 7,985
Issuance of common stock 12,825 - 19,982 - 32,807
Premium on redemption of
preferred stock of PGE - - - (356) (356)
Cash dividends on common stock
($2.20 per share) - - - (9,805) (9,805)
Balance at December 31, 1993 54,140 - 43,005 68,630 165,775
Net income for 1994 - - - 12,817 12,817
Issuance of common stock 1,399 - 2,488 - 3,887
Common stock subscribed, net
(Note 5) - 2,515 - - 2,515
Premium on redemption of
preferred stock of PGE - - - (980) (980)
Cash dividends on common stock
($2.20 per share) - - - (12,002) (12,002)
Balance at December 31, 1994 55,539 2,515 45,493 68,465 172,012
Net loss for 1995 - - - (713) (713)
Issuance of common stock 2,304 - 4,256 - 6,560
Common stock subscribed, net
(Note 5) - (2,515) - - (2,515)
Cash dividends on common stock
($2.20 per share) - - - (12,605) (12,605)
Balance at December 31, 1995 $57,843 $ - $ 49,749 $ 55,147 $162,739
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. Pennsylvania Enterprises, Inc. ("the Company") is a
holding company whose principal subsidiary, PG Energy Inc. ("PGE"), a regulated
public utility formerly known as Pennsylvania Gas and Water Company, distributes
natural gas to a ten-county area in northeastern Pennsylvania, a territory that
includes 116 municipalities, in addition to the cities of Scranton, Wilkes-Barre
and Williamsport. The Company, through its remaining subsidiaries, Pennsylvania
Energy Resources, Inc. ("PERI"), Pennsylvania Energy Marketing Company ("PEM")
and Theta Land Corporation, is also engaged in various non-regulated activities,
including energy-related services and the construction, maintenance and
rehabilitation of natural gas distribution pipelines, which have not been
significant to the operations of the Company as a whole.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries, PGE, PERI, PEM and Theta. The
consolidated financial statements also include the accounts of Keystone Pipeline
Services, Inc. ("Keystone"), a wholly-owned subsidiary of PERI, from December 4,
1995, the date Keystone was acquired by PERI. All material intercompany
accounts have been eliminated in consolidation.
PGE, a wholly-owned subsidiary of Pennsylvania Enterprises, Inc., is a
regulated public utility subject to the jurisdiction of the Pennsylvania Public
Utility Commission ("PPUC") for rate and accounting purposes. The financial
statements of PGE that are incorporated in these consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles, including the provisions of Financial Accounting Standards Board
("FASB") Statement 71, "Accounting for the Effects of Certain Types of
Regulation," which give recognition to the rate and accounting practices or
regulatory agencies such as the PPUC.
The operations of PERI, including Keystone from its date of acquisition, PEM
and Theta, which are summarized in Note 4 to these consolidated financial
statements, were not significant to the operations of the Company as a whole and
are reflected in the consolidated financial statements in "Other Income
(deductions), net."
Use of Accounting Estimates. The preparation of 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. These estimates involve judgments with respect to,
among other things, various future economic factors which are difficult to
predict and are beyond the control of the Company. Therefore, actual amounts
could differ from these estimates.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, and an allowance for funds used during construction.
<PAGE>
The allowance for funds used during construction ("AFUDC") is defined as the
net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as a reduction of interest expense (with respect to
the cost of borrowed funds) in the accompanying consolidated statements of
income. AFUDC varies according to changes in the level of construction work in
progress and in the sources and costs of capital. The weighted average rate for
such allowance was approximately 8% in 1995, 7% in 1994 and 8% in 1993.
PGE provides for depreciation on a straight-line basis. Exclusive of
transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, was 2.75% in
1995, 2.77% in 1994 and 2.81% in 1993, respectively.
When depreciable property is retired, the original cost of such property is
removed from the utility plant accounts and is charged, together with the cost
of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PGE bills its customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
PGE generally passes on to its customers increases or decreases in gas costs
from those reflected in its tariff charges. In accordance with this procedure,
PGE defers any current under or over-recoveries of gas costs and collects or
refunds such amounts in subsequent periods.
Deferred Charges (Regulatory Assets). PGE generally accounts for and
reports its costs in accordance with the economic effect of rate actions by the
PPUC. To this extent, certain costs are recorded as deferred charges pending
their recovery in rates. These amounts relate to previously-issued orders of
the PPUC and are of a nature which, in the opinion of the Company, will be
recoverable in future rates, based on such rate orders. In addition to deferred
taxes collectible, which represent the probable future rate recovery of the
previously unrecorded deferred taxes primarily relating to certain temporary
differences in the basis of utility plant not previously recorded because of the
regulatory rate practices of the PPUC, and natural gas transition costs
collectible, the following deferred charges are included as "Other" regulatory
assets:
1995 1994
Early retirement plan charges $ 710 $ 756
Low income usage reduction program 429 441
Computer software costs 415 1,006
Corrosion control costs 341 489
Customer assistance program 109 5
Other 512 434
Total $ 2,516 $ 3,131
The Company also records, as deferred charges, the direct financing costs
incurred in connection with the issuance of long-term debt and redeemable
preferred stock and equitably amortizes such amounts over the life of such
securities.
<PAGE>
Cash and Cash Equivalents. For the purposes of the consolidated statements
of cash flows, the Company considers all highly liquid debt instruments
purchased, which generally have a maturity of three months or less, to be cash
equivalents. Such instruments are carried at cost, which approximates market
value.
Income Taxes. The Company provides for deferred taxes in accordance with
the provisions of FASB Statement 109. The components of the Company's net
deferred income tax liability relative to continuing operations as of December
31, 1995 and 1994, are shown below:
1995 1994
(Thousands of Dollars)
Utility plant basis differences $51,822 $49,638
FERC Order 636 transition costs 700 1,371
Alternative minimum tax (1,947) (2,213)
Operating reserves (1,300) (1,020)
Other (440) (1,176)
Net deferred income tax liability $48,835 $46,600
The provision for income taxes relative to continuing operations consists of
the following components:
1995 1994 1993
(Thousands of Dollars)
Included in operating expenses:
Currently payable -
Federal $ 2,845 $ 1,654 $ 4,535
State 1,169 1,128 2,021
Total currently payable 4,014 2,782 6,556
Deferred, net -
Federal 198 1,785 (515)
State (463) (105) (934)
Total deferred, net (265) 1,680 (1,449)
Amortization of investment tax credits (193) (172) (172)
Total included in operating expenses 3,556 4,290 4,935
Included in other income, net:
Currently payable -
Federal 410 345 93
State 159 170 35
Total currently payable 569 515 128
Deferred, net -
Federal - 10 7
State - 12 6
Total deferred, net - 22 13
Total included in other income, net 569 537 141
Total provision for income taxes $ 4,125 $ 4,827 $ 5,076
<PAGE>
The components of deferred income taxes relative to continuing operations,
which are recorded consistent with the treatment allowed by the PPUC for
ratemaking purposes, are as follows:
1995 1994 1993
(Thousands of Dollars)
Excess of tax depreciation over
depreciation for accounting purposes $ 1,587 $ 1,197 $ 1,023
FERC Order 636 transition costs (670) 1,371 -
Take-or-pay costs, net (281) (652) (1,126)
Other, net (901) (214) (1,333)
Total deferred taxes, net $ (265) $ 1,702 $(1,436)
Included in:
Operating expenses $ (265) $ 1,680 $(1,449)
Other income, net - 22 13
Total deferred taxes, net $ (265) $ 1,702 $(1,436)
The total provision for income taxes relative to continuing operations shown
in the accompanying consolidated statements of income differs from the amount
which would be computed by applying the statutory federal income tax rate to
income before income taxes. The following table summarizes the major reasons
for this difference:
1995 1994 1993
(Thousands of Dollars)
Income before income taxes $10,009 $11,828 $11,687
Tax expense at statutory federal
income tax rate $ 3,503 $ 4,140 $ 4,090
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 562 942 924
Amortization of investment tax
credits (193) (172) (172)
Other, net 253 (83) 234
Total provision for income taxes $ 4,125 $ 4,827 $ 5,076
Long Lived Assets. In March 1995, FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets", was issued. The provisions of this statement,
which are effective for fiscal years beginning after September 15, 1995, require
that long-lived assets, identifiable intangibles, capital leases and goodwill be
reviewed for impairment whenever events occur or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. In
addition, FASB Statement 121 requires that regulatory assets meet the recovery
criteria of FASB Statement 71, "Accounting for Effects of Certain Types of
Regulation", on an ongoing basis in order to avoid a writedown. The
implementation of FASB Statement 121 in 1996 is not expected to have any
significant impact on the Company or PGE since the carrying amount of all
assets, including regulatory assets, is considered recoverable.
<PAGE>
(2) DISCONTINUED OPERATIONS
On April 26, 1995, the Company and PGE signed a definitive agreement (the
"Agreement") with American Water Works Company, Inc. ("American") and
Pennsylvania-American Water Company ("Pennsylvania-American"), a wholly-owned
subsidiary of American, providing for the sale to Pennsylvania-American of
substantially all of the assets, properties and rights of PGE's water utility
operations.
Under the terms of the Agreement, Pennsylvania-American paid approximately
$413.5 million consisting of $266.4 million in cash and the assumption of $147.1
million of PGE's liabilities, including $141.1 million of its long-term debt, to
PGE on the February 16, 1996, closing date for the transaction. This price is
subject to certain post-closing adjustments. PGE continued to operate the water
utility business until the closing date.
The sale price reflects a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other
items, principally the write-off of certain deferred regulatory assets and
deferred credits and the impact of pension and other postretirement benefit
expenses relative to the early retirement plan (see Note 10 of the Notes to
Consolidated Financial Statements), the sale resulted in an estimated after tax
loss of $6.0 million, net of the expected income from the water operations
during the phase-out period (which for financial reporting purposes was April 1,
1995, through February 15, 1996). The sale involved a gain for income tax
purposes, primarily because of the accelerated depreciation that had been
claimed by PGE with respect to the water utility plant that was sold. It is
estimated that the income taxes payable on the sale, for which deferred income
taxes had previously been provided, will be approximately $56.7 million.
The net cash proceeds from the sale of approximately $209.1 million, net of
the estimated $56.7 million payable for income taxes, are being used by the
Company and PGE to retire debt, to repurchase stock and for working capital for
their continuing operations. With the sale of PGE's water utility operations,
the principal assets of the Company and PGE consist of PGE's gas utility
operations and approximately 46,000 acres of land.
The accompanying consolidated financial statements reflect PGE's water
utility operations as "discontinued operations" effective March 31, 1995.
Interest charges relating to indebtedness of PGE have been allocated to the
discontinued operations based on the relationship of the gross water utility
plant that was sold to the total of PGE's gross gas and water utility plant.
This is the same method as was utilized by PGE and the PPUC in establishing the
revenue requirements of both PGE's gas and water utility operations. None of
the dividends on PGE's preferred stock nor any of the Company's interest expense
has been allocated to the discontinued operations.
<PAGE>
Selected financial information for the discontinued operations as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993 is set forth below:
Net Assets of Discontinued Operations
As of December 31,
1995 1994
(Thousands of Dollars)
Net utility plant $ 368,742 $ 359,399
Current assets (primarily accounts
receivable and accrued revenues) 12,756 12,141
Deferred charges and other assets 25,752 31,103
Total assets being acquired by
Pennsylvania-American 407,250 402,643
Liabilities being assumed by
Pennsylvania-American
Long-term debt 141,097 141,420
Other 5,983 13,168
147,080 154,588
Net assets being acquired by
Pennsylvania-American 260,170 248,055
Estimated liability for income taxes on
sale of discontinued operations (56,710) (55,542)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790 -
Other net assets of discontinued operations
(written off as of March 31, 1995) - 10,683
Total net assets of discontinued operations $ 204,250 $ 203,196
Income From Discontinued Operations
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
Operating revenues $ 15,640 $ 66,731 $ 53,363
Operating expenses, excluding income taxes
Depreciation 1,946 7,672 5,911
Other operating expenses 6,929 29,005 27,140
8,875 36,677 33,051
Operating income before income taxes 6,765 30,054 20,312
Income taxes 1,403 6,850 2,948
Operating income 5,362 23,204 17,364
Other income 9 49 71
Allocated interest charges (3,244) (12,749) (9,526)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
<PAGE>
Net Cash Provided (Used) by Discontinued Operations
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
Noncash charges (credits) to income:
Depreciation 1,946 7,672 5,911
Deferred treatment plant costs, net 145 581 (3,560)
Deferred income taxes 447 5,146 4,170
Deferred water utility billings - (5,574) (582)
Changes in working capital, exclusive
of long-term debt 1,648 353 (2,041)
Additions to utility plant (2,276) (20,980) (32,515)
Utilization of restricted funds - 9,753 15,868
Net increase (decrease) in long-term
debt 1,010 (6,834) 1,640
Other, net (1,283) (69) 2,363
Net cash provided (used) for discontinued
operations $ 3,764 $ 552 $ (837)
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
(3) RATE MATTERS
Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania
Public Utility Code, which require that the tariffs of gas distribution
companies, such as PGE, be adjusted on an annual basis, and on an interim basis
when circumstances dictate, to reflect changes in their purchased gas costs, the
PPUC ordered PGE to make the following changes during 1995, 1994 and 1993 to the
gas costs contained in its gas tariff rates:
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
December 1, 1995 $2.42 $2.75 $ 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)
December 1, 1994 3.74 3.68 (1,800,000)
December 1, 1993 2.79 3.74 28,800,000
The changes in gas rates on account of purchased gas costs have no effect on
PGE's earnings since the change in revenue is offset by a corresponding change
in the cost of gas.
Quarterly Gas Cost Adjustment. Effective September 14, 1995, the PPUC
adopted regulations that provide for the quarterly adjustment of the annual
purchased gas cost rate of larger gas distribution companies, including PGE.
Such adjustments are allowed when the actual purchased gas costs vary from the
estimated costs reflected in the respective company's tariffs by 2% or more.
Except for reducing the amount of any over or undercollections of gas costs,
these regulations will not have any material effect on PGE's financial position
or results of operations, and PGE will still be required to file an annual
purchased gas cost rate. As of March 1, 1996, no such quarterly gas cost
adjustments had been made to PGE's tariffs.
<PAGE>
Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing.
PGE was billed a total of $1.3 million of Gas Transition Costs by its interstate
pipelines. Of this amount, $858,000 was recovered by PGE over a twelve-month
period ended January 31, 1995, through an increase in its PGC rate, $252,000 are
being recovered by PGE in its annual PGC rate that the PPUC approved effective
December 1, 1995, and the recovery of the remaining $217,000 will be sought by
PGE in its PGC rate that is effective December 1, 1996.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition Costs") are not natural gas costs eligible for
recovery under the PGC rate filing mechanism, such costs are subject to full
recovery by local distribution companies through the filing of a tariff pursuant
to either the existing surcharge or base rate provisions of the Pennsylvania
Public Utility Code. By Order of the PPUC entered August 26, 1994, PGE began
recovering the Non-Gas Transition Costs that it estimates it will ultimately be
billed pursuant to FERC Order 636 through the billing of a surcharge to its
customers effective September 12, 1994. It is currently estimated that $9.6
million of Non-Gas Transition Costs will be billed to PGE, generally over a
four-year period extending through the fourth quarter of 1997, of which $6.1
million had been billed to PGE and $4.4 million had been recovered from its
customers as of December 31, 1995. PGE has recorded the estimated Non-Gas
Transition Costs that remain to be billed to it and the amounts remaining to be
recovered from its customers.
<PAGE>
(4) OTHER INCOME (DEDUCTIONS), NET
Other income (deductions), net was comprised of the following elements:
1995 1994 1993
(Thousands of Dollars)
Earnings of non-regulated subsidiaries $ 651 $ 395 $ 316
Write-off of expired advances relating
to income taxes, net of related
income taxes 227 - -
Net interest income (expense) with respect
to proceeds from the issuance of debt
held in a construction fund 30 (91) (330)
Gain on sale of investment in joint
venture, net of related income taxes - 268 -
Gain on sale of land and other property,
net of related income taxes - 165 20
Holding company expenses, net of related
income tax benefits (189) (209) (203)
Premium on retirement/defeasance of debt (11) (40) (81)
Amortization of preferred stock issuance
costs, net of related income tax benefits (1) (227) (126)
Other 56 (3) (68)
Total $ 763 $ 258 $ (472)
Summary financial data for non-regulated
subsidiaries:
Revenues $ 8,479 $ 9,127 $ 6,574
Expenses 7,828 8,732 6,258
Net income $ 651 $ 395 $ 316
Total assets (including, $66,000,
$294,000 and $817,000, respectively,
eliminated in consolidation) $ 5,272 $ 1,753 $ 2,534
(5) COMMON STOCK
Customer Stock Purchase Plan. On July 28, 1994, the Company implemented a
Customer Stock Purchase Plan (the "Customer Plan") which provided the
residential customers of PGE with a method of purchasing newly-issued shares of
the Company's common stock at a 5% discount from the market price. Under the
terms of the Customer Plan, 88,231 shares ($2.4 million) and 59,537 shares ($1.7
million) of the Company's common stock were issued during 1995 and 1994,
respectively. Effective May 9, 1995, the Company suspended the Customer Plan
because of the significant reduction in its capital requirements resulting from
the sale of PGE's water utility operations to Pennsylvania-American.
On January 3, 1995, the Company issued 45,360 shares of its common stock for
an aggregate consideration of $1.2 million with respect to payments received
pursuant to the Customer Plan during the December, 1994, subscription period.
The payments so received during December are reflected under the captions
"Restricted cash - Common stock subscribed" and "Common shareholders' investment
- - Common stock subscribed" in these consolidated financial statements as of
December 31, 1994.
<PAGE>
Dividend Reinvestment and Stock Purchase Plan. Through the Company's
Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders of shares of the
Company's common stock may reinvest cash dividends and/or make cash investments
in the common stock of the Company. Under the DRP, 116,505 shares ($3.3
million), 62,271 shares ($1.8 million) and 15,988 shares ($465,000) of common
stock were issued during 1995, 1994 and 1993, respectively. The DRP was amended
on May 5, 1994, to provide the Company's shareholders with a method of
reinvesting cash dividends and making cash investments to purchase newly-issued
shares of the Company's common stock at a 5% discount from the market price.
Prior to such amendment, cash dividends were reinvested at 100% of the market
price in newly-issued shares and cash investments were used to purchase shares
of the Company's common stock on the open market. Effective May 9, 1995, the
Company suspended the cash investment feature of the DRP and the 5% discount
from the market price on the reinvestment of dividends under the DRP because of
the significant reduction in capital requirements resulting from the sale of
PGE's water utility operations to Pennsylvania-American.
On January 3, 1995, the Company issued 51,565 shares of its common stock for
an aggregate consideration of $1.3 million with respect to cash investments made
pursuant to the DRP during the fourth quarter of 1994. The investments made
during the fourth quarter are reflected under the captions "Restricted cash -
common stock subscribed" and "Common shareholders' investment - Common stock
subscribed" in these consolidated financial statements as of December 31, 1994.
Employees' Savings Plan. Under the Company's Employees' Savings Plan (a
section 401(k) plan) which became effective January 1, 1992, the Company issued
an additional 19,468 shares ($628,000) in 1995, 18,100 shares ($540,000) in 1994
and 16,478 shares ($481,000) in 1993.
Stock Option Plan. On June 3, 1992, the Company's shareholders approved the
Pennsylvania Enterprises, Inc. 1992 Stock Option Plan (the "Plan"). Under the
terms of the Plan, a total of 200,000 shares of authorized but unissued common
stock were reserved and made available for distribution to eligible employees.
Stock options awarded under the Plan may be either Incentive Stock Options or
Non-qualified Stock Options. On April 7, 1993, Non-qualified Stock Options to
purchase 45,000 shares of common stock were issued to eligible employees at an
exercise price of $30 per share (the fair market value of the common stock on
such date). These options, which expire on April 6, 2003, could not be
exercised prior to April 7, 1994. As of December 31, 1995, the options for 400
such shares had expired, 4,800 had been exercised and 39,800 options remained
outstanding. In addition, as of such date, 155,400 shares of authorized but
unissued common stock were reserved for distribution to eligible employees under
the terms of the Plan, including 400 shares for which previously granted options
had expired.
Shareholder Rights Plan. On April 26, 1995, the Company adopted a
Shareholder Rights Plan under the terms of which each shareholder of record at
the close of business on May 16, 1995, will receive a dividend distribution of
one right ("Right" or "Rights") for each share of common stock held.
Each Right will entitle shareholders to purchase from the Company one-half
of a share of common stock. No less than two Rights, and only integral
multiples of two Rights, may be exercised by holders of Rights at an exercise
price of $100 per share of common stock (equivalent to $50 for each one-half
share of common stock), subject to certain adjustments. The Rights will become
exercisable only if a person or group acquires 15% or more of the Company's
common stock, or commences a tender or exchange offer which, if consummated,
would result in that person or group owning at least 15% of the common stock.
Prior to that time, the Rights will not trade separately from the common stock.
<PAGE>
If a person or group acquires 15% or more of the Company's common stock, all
other holders of Rights will then be entitled to purchase, by payment of the
$100 exercise price upon the exercise of two Rights, the Company's common stock
(or a common stock equivalent) with a value of twice the exercise price. In
addition, at any time after a 15% position is acquired and prior to the
acquisition by any person or group of 50% or more of the outstanding common
stock, the Company's Board of Directors may, at its option, require each
outstanding Right (other than Rights held by the acquiring person or group) to
be exchanged for one share of common stock (or one common stock equivalent).
If, following an acquisition of 15% or more of the Company's common stock,
the Company is acquired by any person in a merger or other business combination
transaction or sells more than 50% of its assets or earning power to any person
(other than the sale of PGE's water utility operations to Pennsylvania-
American), all other holders of Rights will then be entitled to purchase, by
payment of the $100 exercise price upon the exercise of two Rights, common stock
of the acquiring company with a value of twice the exercise price.
The Company may redeem the Rights at $.005 per Right at any time prior to
the time that a person or group has acquired 15% or more of its common stock.
The Rights, which expire on May 16, 2005, do not have voting or dividend rights
and, until they become exercisable, have no dilutive effect on the earnings per
share of the Company.
(6) PREFERRED STOCK
Preferred Stock of PGE Subject to Mandatory Redemption
On December 23, 1993, PGE redeemed 100,000 shares of its 9.50% 1988 series
cumulative preferred stock at a price of $103.5625 per share (plus accrued
dividends to the redemption date), which included a voluntary redemption premium
of $3.5625 per share ($356,250 in the aggregate). On May 31, 1994, PGE redeemed
the remaining 150,000 outstanding shares of its 9.50% 1988 series cumulative
preferred stock, $100 par value, at a price of $103.5625 per share, which
included a voluntary redemption premium of $3.5625 per share ($534,375 in the
aggregate), plus accrued dividends.
On December 16, 1994, PGE redeemed all 150,000 shares of its 8.90%
cumulative preferred stock at a price of $102.97 per share, which included a
voluntary redemption premium of $2.97 per share ($445,500 in the aggregate).
The holders of the 5.75% cumulative preferred stock have a noncumulative
right each year to tender to PGE and to require it to purchase at a per share
price not exceeding $100, up to (a) that number of shares of the 5.75%
cumulative preferred stock which can be acquired for an aggregate purchase price
of $80,000 less (b) the number of such shares which PGE may already have
purchased during the year at a per share price of not more than $100. Eight
hundred such shares were acquired and cancelled by PGE in each of the three
years in the period ended December 31, 1995, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1995, the sinking fund requirements relative to PGE's
5.75% cumulative preferred stock (the only series of preferred stock subject to
mandatory redemption that was outstanding as of such date) were $80,000 for each
of the years 1996 through 2000.
<PAGE>
At PGE's option, the 5.75% cumulative preferred stock may currently be
redeemed at a price of $102.00 per share ($1,795,200 in the aggregate).
Preferred Stock of PGE Not Subject to Mandatory Redemption
On August 18, 1992, PGE issued 250,000 shares of its 9% cumulative preferred
stock, par value $100 per share, for aggregate net proceeds of approximately
$23.6 million. The 9% cumulative preferred stock is not redeemable by PGE prior
to September 15, 1997. Thereafter, it is redeemable at the option of PGE, in
whole or in part, upon not less than 30 days' notice, at $100 per share plus
accrued dividends to the date of redemption and at a premium of $8 per share if
redeemed from September 15, 1997, to September 14, 1998, and a premium of $4 per
share if redeemed from September 15, 1998, to September 14, 1999.
At PGE's option, the 4.10% cumulative preferred stock may currently be
redeemed at a redemption price of $105.50 per share or for an aggregate
redemption price of $10,550,000.
Dividend Information
The dividends on the preferred stock of PGE in each of the three years in
the period ended December 31, 1995, were as follows:
Series 1995 1994 1993
(Thousands of Dollars)
4.10% $ 410 $ 410 $ 410
5.75% 103 108 113
8.90% - 1,280 1,335
9.00% 2,250 2,250 2,250
9.50% 1988 series - 591 2,354
Total $2,763 $4,639 $6,462
Dividends on all series of PGE's preferred stock are cumulative, and if
dividends in an amount equivalent to four full quarterly dividends on all shares
of preferred stock then outstanding are in default and until all such dividends
have been paid, the holders of the preferred stock, voting separately as one
class, shall be entitled to elect a majority of the Board of Directors of PGE.
Additionally, PGE may not declare dividends on its common stock if any dividends
on shares of preferred stock then outstanding are in default.
<PAGE>
(7) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1995
and 1994:
1995 1994
(Thousands of Dollars)
Indebtedness of the Company:
10.125% senior notes, due 1999, net of
unamortized discount $ 29,906 $ 29,880
Term loan, due 1999 20,000 20,000
Total long-term debt of the Company 49,906 49,880
Indebtedness of PGE:
First mortgage bonds -
8 % Series, due 1997 - 3,535
8.375% Series, due 2002 30,000 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
9.57 % Series, due 1996 - 50,000
55,000 108,535
Notes -
Term loan, due 1996 50,000 -
Bank borrowings, at weighted average interest
rates of 6.62% and 5.28%, respectively (Note 9) 65,801 65,500
115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt of PGE 55,000 170,825
Indebtedness of PERI:
Term loan, due 2000 2,000 -
Less current maturities (200) -
Total long-term debt of PERI 1,800 -
Total consolidated long-term debt $106,706 $220,705
Term Loan Agreements. On May 31, 1994, the Company borrowed $20.0 million
pursuant to a five-year term loan agreement (the "Term Loan Agreement"), which
loan matures on May 31, 1999. Borrowings under the Term Loan Agreement bear
interest at LIBOR ("London Interbank Offered Rates") plus one-half of one
percent (5.875% as of March 1, 1996). Under the terms of the Term Loan
Agreement, the Company can choose interest rate periods of one, two, three or
six months. The Company utilized the proceeds from such loan to purchase $20.0
million of PGE common stock. PGE used a portion of the proceeds it so received
to redeem $15.0 million of its 9.50% cumulative preferred stock and to fund the
$534,375 premium in connection with such redemption. The remaining $4.5 million
of proceeds were used by PGE to repay a portion of its bank borrowings and for
working capital purposes.
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement, which matures on November 1, 1996. Proceeds from the loan, along
with other funds provided by PGE, were utilized on October 13, 1995, to redeem
the $50.0 million principal amount of PGE's 9.57% Series First Mortgage Bonds
due September 1, 1996.
On December 7, 1995, PERI borrowed $2.0 million pursuant to a five-year term
loan agreement, which loan matures November 30, 2000. Borrowings under the
agreement bear interest at a fixed rate of 6.54%. PERI used the proceeds it so
received along with an equity investment from the Company to acquire all of the
outstanding stock of Keystone Pipeline Services, Inc. (formerly known as Ford,
<PAGE>
Bacon & Davis Sealants, Inc.) from Ford, Bacon & Davis Companies, Inc., a
wholly-owned subsidiary of Deutsche Babcock Technologies, Inc. Under the terms
of the term loan agreement, PERI is required to make principal repayments of
$200,000, $300,000, $400,000, $500,000 and $600,000 during the years 1996, 1997,
1998, 1999 and 2000, respectively.
<PAGE>
Maturities and Sinking Fund Requirements. As of December 31, 1995, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
Year Amount
1996 $116,001,000 (a)
1997 $ 300,000
1998 $ 400,000
1999 $ 60,500,000 (b)
2000 $ 600,000
(a) Includes $65.8 million of PGE bank borrowings outstanding as of December
31, 1995, and PGE's term loan in the principal amount of $50.0 million.
Such amounts were repaid on February 16, 1996, with proceeds from the
sale of PGE's water operations to Pennsylvania-American.
(b) Includes the $20.0 million of borrowings outstanding as of December 31,
1995, under the Company's Term Loan Agreement due May 31, 1999, the
Company's 10.125% Senior Notes in the principal amount of $30.0 million
due June 15, 1999, and PGE's 9.23% Series First Mortgage Bonds in the
principal amount of $10.0 million due September 1, 1999.
(8) DIVIDEND RESTRICTIONS
There are no dividend restrictions in the Restated Articles of Incorporation
of the Company. However, the preferred stock provisions of PGE's Restated
Articles of Incorporation and certain of the agreements under which the Company
and PGE have issued long-term debt provide for certain dividend restrictions.
As of December 31, 1995, $5,416,000 of the consolidated retained earnings of the
Company were restricted against the payment of cash dividends on common stock
under the most restrictive of these covenants.
(9) BANK NOTES PAYABLE
As of April 19, 1993, PGE entered into a revolving bank credit agreement, as
subsequently amended (the "Credit Agreement") with a group of six banks under
the terms of which $60.0 million was available for borrowing by PGE through May
31, 1996. The Credit Agreement was terminated on February 26, 1996, following
the sale of PGE's water operations to Pennsylvania-American on February 16,
1996, and repayment of all borrowings outstanding under the Credit Agreement
with proceeds from such sale. The interest rate on borrowings under the Credit
Agreement was generally less than prime. The Credit Agreement also required the
payment of a commitment fee of .195% per annum on the average daily amount of
the unused portion of the available funds. PGE currently has four additional
bank lines of credit with an aggregate borrowing capacity of $17.5 million which
provide for borrowings at interest rates generally less than prime. Borrowings
outstanding under two of these bank lines of credit with borrowing capacities of
$2.5 million and $5.0 million mature on May 31, 1996, and June 30, 1996,
respectively. Borrowings outstanding under the other two bank lines of credit
with borrowing capacities of $3.0 million and $7.0 million mature on March 31,
1996, and May 31, 1996, respectively. As of March 1, 1996, PGE had no
borrowings outstanding under these additional bank lines of credit.
Additionally, PGE had one other bank line of credit outstanding as of December
31, 1995, with a borrowing capacity of $3.0 million, which was terminated
following the sale of PGE's water operations. The commitment fees paid by PGE
with respect to its revolving bank credit agreements totaled $26,000 in 1995,
$97,000 in 1994 and $113,000 in 1993.
Because of limitations imposed by the terms of PGE's preferred stock, PGE is
prohibited, without the consent of the holders of a majority of the outstanding
shares of its preferred stock, from issuing more than $12.0 million of unsecured
debt due on demand or within one year from issuance. PGE had $10.0 million due
on demand or within one year from issuance outstanding as of December 31, 1995.
<PAGE>
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
As of December 31,
1995 1994 1993
(Thousands of Dollars)
Borrowings under lines of credit
Short-term $ 10,000 $ - $ 2,000
Long-term 65,801 65,500 47,000
$ 75,801 $ 65,500 $ 49,000
Unused lines of credit
Short-term $ - $ - $ 5,000
Long-term 4,699 2,000 13,000
$ 4,699 $ 2,000 $ 18,000
Total lines of credit
Prime rate $ - $ - $ 2,000
Other than prime rate 80,500 67,500 65,000
$ 80,500 $ 67,500 $ 67,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 5,692 $ 5,666
Daily average amount outstanding $ 2,581 $ 441 $ 637
Weighted daily average interest
rate 6.513% 3.984% 4.046%
Weighted average interest rate at
year-end 6.334% - 4.208%
Range of interest rates 6.290- 3.700- 3.750-
6.660% 6.000% 6.000%
(a) PGE had no short-term bank borrowings outstanding as of December 31,
1994.
(10) POSTEMPLOYMENT BENEFITS
Pension Benefits
The Company's retirement plan is a trusteed, noncontributory, defined
benefit pension plan which covers substantially all employees of the Company
except those of Keystone. Pension benefits are based on years of service and
average final salary. The Company's funding policy is to contribute an amount
necessary to provide for benefits based on service to date, as well as for
benefits expected to be earned in the future by current participants. To the
extent that the present value of these obligations is fully covered by assets in
the trust, a contribution may not be made for a particular year.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligations relating to employees of PGE who
accepted employment with Pennsylvania-American (the "Transferred Employees").
In this regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees will be
transferred to the American pension plan. In February, 1996, PGE began
terminating additional employees as a result of the sale of its water operations
and the transfer of fewer employees to Pennsylvania-American than originally
expected. As a result of these actions, the Company recognized an estimated
settlement loss of $200,000 ($117,000 net of the related income tax benefit) and
curtailment gain of $2.7 million ($1.6 million net of related income taxes) in
<PAGE>
its determination of the estimated loss on the disposal of PGE's water utility
operations.
<PAGE>
In December, 1995, as a result of the agreement to transfer fewer employees
to Pennsylvania-American in connection with the sale of PGE's water utility
operations than originally expected, the Company offered an Early Retirement
Plan ("ERP") to its employees who would be 59 years of age or older and have a
minimum of five years of service as of December 31, 1995. Of the 63 eligible
employees, 50 elected to accept this offer and retire as of December 31, 1995,
resulting in the recording, as of December 31, 1995, of an additional pension
liability of $1.6 million reflecting the increased costs associated with the
ERP. Such amount was charged to the estimated loss on the disposal of PGE's
water utility operations.
Net pension costs relative to continuing operations, including amounts
capitalized, were $353,000, $309,000 and $244,000 in 1995, 1994 and 1993,
respectively. The following items were the components of such net pension
costs:
<CAPTION>
1995 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C>
Present value of benefits earned
during the year $ 430 $ 549 $ 470
Interest cost on projected benefit
obligations 1,459 1,400 1,321
Return on plan assets (1,502) 535 (1,720)
Net amortization and deferral (34) (55) (53)
Deferral of investment (loss) gain - (2,120) 226
Net pension cost $ 353 $ 309 $ 244
The funded status of the plan as of December 31, 1995 and 1994, was as
follows:
1995 1994
(Thousands of Dollars)
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 29,100 $ 21,592
Nonvested 47 77
Total 29,147 21,669
Provision for future salary increases 7,841 7,565
Projected benefit obligations 36,988 29,234
Market value of plan assets, primarily
invested in equities and bonds 34,000 30,457
Plan assets in excess of (less than) projected
benefit obligations (2,988) 1,223
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (2,155) (2,528)
Unrecognized prior service costs 1,507 2,150
Unrecognized net (gain) loss 2,155 (1,644)
Accrued pension cost at year-end $ (1,481) $ (799)
The assumptions used in determining pension obligations were:
1995 1994 1993
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
<PAGE>
Other Postretirement Benefits
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees. All of the Company's
employees, except those of Keystone, may become eligible for those benefits if
they reach retirement age while working for the Company. The Company records
the cost of retiree health care and life insurance benefits as a liability over
the employees' active service periods instead of on a benefits-paid basis.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligation relating to the Transferred
Employees, as well as 45% of PGE's retired employees as of that date. In this
regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees and 45% of the
retired employees as of February 16, 1996, will be transferred to trusts
established by Pennsylvania-American. In February, 1996, PGE began terminating
additional employees as a result of the sale of its water operations and the
transfer of fewer employees to Pennsylvania-American than originally expected.
As a result of the transfer, early retirement and displacement of employees, the
Company recognized an estimated settlement and curtailment loss of $385,000
($225,000 net of the related income tax benefit) as part of the loss on the
disposal of PGE's water utility operations.
As a result of the ERP offered by the Company to certain of its employees,
PGE recorded, as of December 31, 1995, an additional liability of $805,000,
($471,000 net of the related income tax benefit) reflecting the cost of future
health care benefits required to be recognized under FASB Statement 88 in
conjunction with the ERP. Such amount was charged to the estimated loss on
disposal of PGE's water utility operations.
The following items were the components of the net cost of postretirement
benefits other than pensions relative to continuing operations for the years
1995, 1994 and 1993:
1995 1994 1993
(Thousands of Dollars)
Present value of benefits earned during
the year $ 127 $ 148 $ 124
Interest cost on accumulated benefit
obligation 577 532 532
Return on plan assets (69) (4) -
Net amortization and deferral 391 360 339
Net cost of postretirement benefits other
than pensions 1,026 1,036 995
Less disbursements for benefits (555) (543) (540)
Increase in liability for postretirement
benefits other than pensions $ 471 $ 493 $ 455
<PAGE>
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1995 and 1994, follow:
1995 1994
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees $ 6,514 $ 9,021
Fully eligible active employees 850 1,628
Other active employees 1,074 1,305
8,438 11,954
Plan assets at fair value - 839
Accumulated benefit obligation
in excess of plan assets 8,438 11,115
Unrecognized transition obligation
being amortized over 20 years (5,438) (11,108)
Unrecognized net gain (loss) (703) 885
Accrued liability for postretirement
benefits other than pensions $ 2,297 $ 892
The assumptions used in determining other postretirement benefit obligations
were:
1995 1994 1993
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
It was also assumed that the per capita cost of covered health care benefits
would increase at an annual rate of 9% in 1996 and that this rate would decrease
gradually to 5-1/2% for the year 2003 and remain at that level thereafter. The
health care cost trend rate assumption had a significant effect on the amounts
accrued. To illustrate, increasing the assumed health care cost trend rate by 1
percentage point in each year would increase the transition obligation as of
January 1, 1995, by approximately $394,000 and the aggregate of the service and
interest cost components of the net cost of postretirement benefits other than
pensions for the year 1995 by approximately $50,000.
Since PGE has not sought to increase its base gas rates, the $441,000
($258,000 net of related income taxes), $447,000 ($256,000 net of related income
taxes) and $407,000 ($232,000 net of related income taxes) of additional cost
incurred in 1995, 1994 and 1993, respectively, as a result of the adoption of
the provisions of FASB Statement 106 were expensed without any adjustment being
made to its gas rates.
Other Postemployment Benefits
In December, 1992, FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," was issued. The provisions of this statement require
the recording of a liability for postemployment benefits (such as disability
benefits, including workers' compensation, salary continuation and the
continuation of benefits such as health care and life insurance) provided to
former or inactive employees, their beneficiaries and covered dependents. The
Company consistently recorded liabilities for benefits of this nature prior to
the effectiveness of FASB Statement 112, and included liabilities for employees
<PAGE>
scheduled to be terminated in 1996 as a result of the sale of water operations
in its estimate of accrued costs relative to such sale as of December 31, 1995.
The provisions of FASB Statement 112, which the Company adopted effective
January 1, 1994, did not have a material impact on its financial position or
results of operations.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1996 construction program will be $28.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, pending the periodic issuance of
stock and long-term debt.
(12) COMMITMENTS AND CONTINGENCIES
Valve Maintenance
On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently
ratified by the PPUC (the "Emergency Order"), requiring PGE to survey its gas
distribution system to verify the location and spacing of its gas shut off
valves, to add or repair valves where needed and to establish programs for the
periodic inspection and maintenance of all such valves and the verification of
all gas service line information. On March 31, 1995, the PPUC adopted an Order
approving a plan submitted by PGE for complying with the Emergency Order. PGE
does not believe that compliance with the terms of such Order will have a
material adverse effect on its financial position or results of operations.
Environmental Matters
PGE, like many gas distribution companies, once utilized manufactured gas
plants in connection with providing gas service to its customers. None of these
plants has been in operation since 1960, and several of the plant sites are no
longer owned by PGE. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), PGE filed notices with the
United States Environmental Protection Agency (the "EPA") with respect to the
former plant sites. None of the sites is or was formerly on the proposed or
final National Priorities List. The EPA has conducted site inspections and made
preliminary assessments of each site and has concluded that no further remedial
action is planned. While this conclusion does not constitute a legal
prohibition against further regulatory action under CERCLA or other applicable
federal or state law, the Company does not believe that additional costs, if
any, related to these manufactured gas plant sites would be material to its
financial position or results of operations since environmental remediation
costs generally are recoverable through rates over a period of time.
<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216
Operating income 9,905 2,271 400 7,958
Income (loss) from continuing
operations 5,669 (2,133) (4,159) 3,744
Loss with respect to
discontinued operations (3,704) - - (130)
Net income (loss) 1,965 (2,133) (4,159) 3,614
Earnings (loss) per share
of common stock: (a)
Continuing operations 1.00 (.37) (.72) .65
Discontinued operations (.65) - - (.02)
Earnings (loss) per share of
common stock (a) .35 (.37) (.72) .63
QUARTER ENDED
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 80,233 $ 26,568 $ 14,356 $ 46,835
Operating income 10,884 2,192 515 6,784
Income (loss) from continuing
operations 6,469 (2,342) (4,038) 2,112
Income from discontinued
operations 2,079 2,757 2,915 2,865
Net income (loss) 8,548 415 (1,123) 4,977
Earnings (loss) per share
of common stock:
Continuing operations 1.20 (.43) (.74) .38
Discontinued operations .38 .51 .53 .52
Net income (loss) before
premium on redemption of
subsidiary's preferred stock 1.58 .08 (.21) .90
Premium on redemption of
subsidiary's preferred stock - (.10) - (.08)
Earnings (loss) per share of
common stock 1.58 (.02) (.21) .82
<FN>
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in the consolidated
financial statements and supplementary data of this report, as a result
of the Company's issuance of additional shares of common stock at
various dates during the year.
</FN>
</TABLE>
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
<PAGE>
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Long-term debt. The fair value of both the Company's and PGE's long-term
debt has been estimated based on the quoted market price as of the
respective dates for the portion of such debt which is publicly traded and,
with respect to the portion of such debt which is not publicly traded, on
the estimated borrowing rate as of the respective dates for long-term debt
of comparable credit quality with similar terms and maturities.
o Preferred stock subject to mandatory redemption. The fair value of PGE's
preferred stock subject to mandatory redemption has been estimated based on
the market value as of the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of the Company's and PGE's
financial instruments at December 31, 1995 and 1994, were as follows:
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
Long-term debt (including current
portion):
Company $ 49,906 $ 50,300 $ 49,880 $ 50,000
PGE 170,801 175,431 174,035 177,027
PERI 2,000 2,000 - -
Preferred stock of PGE subject to
mandatory redemption (including
current portion) 1,760 1,795 1,840 1,877
The Company believes that the regulatory treatment of any excess or
deficiency of fair value relative to the carrying amounts of these items, if
such items were settled at amounts approximating those above, would dictate that
these amounts be used to increase or reduce PGE's rates over a prescribed
amortization period. Accordingly, any settlement would not result in a material
impact on PGE's financial position or the results of operations of either the
Company or PGE.
<PAGE>
