[LOGO] One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telephone: (717) 829-8843
March 26, 1998
Dear Fellow Shareowner:
You are cordially invited to attend the Annual Meeting of Shareowners of
the Company.
The meeting will be held at the site of our new offices at One PEI Center,
Wilkes-Barre, Pennsylvania, beginning at 10:00 a.m., on Wednesday, May 6, 1998.
Directions to the meeting site and a map are included with this letter. A report
on the operations of the Company during 1997 and its plans for 1998 will be
presented at the Annual Meeting. Escorted tours of our new office building will
be offered prior to the Annual Meeting, from 9:00 a.m. to 9:30 a.m.
This year we are introducing a vote by telephone option for you. You may
vote by telephone or by the traditional proxy card. Telephone voting is quick,
easy, and immediate. This method of voting is described on your proxy card.
Your vote is important. Whether or not you expect to attend the Annual
Meeting, please vote by telephone or sign and date the enclosed proxy and return
it promptly by mail in the enclosed envelope which requires no postage if mailed
in the United States.
Sincerely,
Thomas F. Karam Kenneth L. Pollock
Chief Executive Officer President and Chairman of the Board
<PAGE>
Directions to One PEI Center, Wilkes-Barre, Pennsylvania
[MAP]
From New York and Northern New Jersey: Take I-80 West into Pennsylvania to I-380
North to I-81. Take I-81 South to Exit 45, Mountain Top/Wilkes-Barre (Route 309)
exit. Take a right off the exit ramp onto Business Rte. 309 North. Continue on
Business Rte. 309 North, a K-Mart and McDonald's will be on your left. Take the
second right-hand exit to Northampton Street. Turn right onto Northampton Street
and proceed 200 yards to the entrance to One PEI Center on the left.
From Philadelphia and Southeastern Pennsylvania: Take the Northeast Extension of
the Pennsylvania Turnpike I-476 to the Wilkes-Barre exit (Exit 36). Make a left
onto Rte. 115 North. After approximately 2 miles, take the first marked exit
(Exit 1) to Business Rte. 309 South. Follow Business Rte. 309 South, pass the
Wal-Mart/Sam's Club complex at Coal Street, and take the next exit ramp on the
right onto Northampton Street. Make a right onto Northampton Street and the
entrance to One PEI Center is 200 yards on your left.
From Western Pennsylvania and the Harrisburg Area: Take I-81 North to Exit 45B,
Wilkes-Barre (and Business Route 309). This exit is from the left lane. This
exit turns into Business Rte. 309 North. The first traffic light is an
intersection with Blackman Street. Continue on Business Rte. 309 North, a K-Mart
and McDonald's will be on your left. Take the second right-hand exit to
Northampton Street. Turn right onto Northampton Street and proceed 200 yards to
the entrance to One PEI Center on the left.
From Baltimore and Washington, DC: Take I-83 North to I-81 and follow
the above directions from Western Pennsylvania and the Harrisburg Area.
<PAGE>
[LOGO] One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telephone: (717) 829-8843
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareowners of
Pennsylvania Enterprises, Inc. (the "Company") will be held at One PEI Center,
Wilkes-Barre, Pennsylvania, on Wednesday, May 6, 1998, at 10:00 a.m., for the
following purposes:
(1) To elect eleven directors of the Company; and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 12, 1998,
as the record date for the determination of holders of the Company's Common
Stock entitled to notice of and to vote at the meeting.
If you plan to attend the meeting and are a shareowner of record, please
mark your proxy card in the appropriate space or if voting by telephone, so
indicate during the telephone voting process. An admission ticket will be mailed
to you prior to the meeting date. However, if your shares are not registered in
your own name, please advise the shareowner of record (your bank, broker, etc.)
that you wish to attend. That firm will provide you with evidence of your
ownership which will enable you to gain admittance to the meeting.
Whether you plan to attend the meeting or not, please vote by telephone or
sign and date the enclosed proxy and return it promptly by mail in the enclosed
envelope. No postage is required if mailed in the United States.
By Order of the Board of Directors,
Thomas J. Ward
Vice President of Administrative Services
and Secretary
Wilkes-Barre, Pennsylvania
March 26, 1998
IMPORTANT
Pennsylvania law requires that the holders of a majority of the Company's
outstanding Common Stock be present in person or by proxy at the Annual Meeting
in order to constitute a quorum. Shareowners can help avoid the necessity and
expense of follow-up letters to assure that a quorum is present at the Annual
Meeting by promptly returning the enclosed proxy. Broker non-votes, abstentions,
and withhold authority votes all count for the purpose of determining a quorum.
In the absence of a quorum, the Annual Meeting will be adjourned until a time
announced at such meeting. At the adjourned meeting, the shareowners in
attendance, although less than a quorum, will nevertheless constitute a quorum
to elect directors and, if the adjournment has been at least fifteen days, to
act on all other matters included in this Proxy Statement.
<PAGE>
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREOWNERS TO BE HELD MAY 6, 1998
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Pennsylvania Enterprises, Inc. (the
"Company") of proxies to be used at the Annual Meeting of Shareowners of the
Company and any adjournment or adjournments thereof to be held at One PEI
Center, Wilkes-Barre, Pennsylvania, on Wednesday, May 6, 1998, at 10:00 a.m.,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareowners. The Board of Directors has fixed the close of business on March 12,
1998, as the record date for the determination of shareowners entitled to notice
of and to vote at the meeting.
Pennsylvania law provides that a proxy, unless coupled with an interest
(for example, a vote pooling or similar arrangement among shareowners; or
between the Company and shareowners; or an unrevoked proxy in favor of an
existing or potential creditor of a shareowner), is revocable at will by a
shareowner, notwithstanding any other agreement or any provision in the proxy to
the contrary. A shareowner may revoke a proxy by giving written notice of
revocation to the Secretary of the Company at any time before the proxy is
voted. Such revocation shall be effective upon receipt of the written notice by
the Secretary of the Company. If voting by telephone, your latest telephone
voting instructions will supersede any previous telephone instructions.
COMMON STOCK OUTSTANDING
Common Stock, of which there were 9,751,550 shares outstanding and entitled
to vote on March 12, 1998, constitutes the only class of securities of the
Company entitled to vote at the meeting. The Company does not know of any person
who is the beneficial owner of more than 5% of the outstanding Common Stock of
the Company, other than Mr. Kenneth L. Pollock, Chairman of the Company, who
beneficially owns 6.29% of the Company's Common Stock as described in the
Security Ownership of Management section of this Proxy Statement.
ANNUAL REPORT
A copy of the annual report of the Company for the year 1997 is included
with this proxy.
MATTERS TO BE BROUGHT BEFORE THE MEETING
Election of Directors
At the meeting, eleven directors are to be elected to hold office for the
term of one year and until their successors have been elected and qualified.
Unless a contrary indication is specified, it is the intention of the persons
named as proxies to vote the shares represented by the proxy for the election of
the nominees listed herein as directors of the Company. Each of the nominees for
election as a director was elected as a director of the Company at the 1997
Annual Meeting of Shareowners. In the event that any of the nominees should
become unavailable for any reason, which is not anticipated, the Board of
Directors, in its discretion, may, unless it shall have provided for a lesser
number of directors, designate a substitute nominee, in which event, pursuant to
the accompanying proxy, votes will be cast for such substitute nominee.
Nominees for Election as Directors
The following information is furnished with respect to each person
nominated by the Board of Directors for election as a director: principal
occupations or employment, age, principal directorships, other affiliations,
Board Committee(s) on which each serves, the period of service as a director of
PG Energy Inc. ("PG Energy") and the Company and the number of shares of Common
Stock of the Company which each nominee has advised the Company was beneficially
owned directly or indirectly by him as of February 1, 1998.
Nominees for Election as Directors
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO]
Kenneth L. Pollock
July 1972
625,148 Shares
Chairman of the Board of Directors of the Company and PG Energy since June
1987; President and Chief Executive Officer of the Company and PG Energy from
March 1991 to August 1991; Director and sole stockholder, Susquehanna Coal
Company and Ken L. Pollock, Inc., Nanticoke, PA, since prior to 1990. Member of
the Pennsylvania State University National Development Council and Campaign for
the Library Committee; former board member of United Penn Bank, King's College,
Mercy Hospital, and the Mill Memorial Library. Age 77. Chairman of the Executive
Committee.
[PHOTO]
Thomas F. Karam
September 1996
160,944 Shares
President and Chief Executive Officer of the Company and PG Energy since
September 1, 1996. Executive Vice President of the Company and PG Energy from
September 1995 to August 1996. Vice President, Investment Banking, Legg Mason
Wood Walker, Inc. from July 1989 to September 1995. Vice President, Investment
Banking, Thomson McKinnon Securities, Inc. from September 1987 to July 1989.
Director of the Pennsylvania Gas Association, Greater Scranton Chamber of
Commerce, Mental Health Association of Northeastern Pennsylvania, and the
Wyoming Valley Health Care Systems, Inc. Age 39.
- - ------
*See page 9, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO]
William D. Davis
June 1981
17,838 Shares
Vice Chairman of the Board of Directors of the Company and PG Energy since
March 1991; Chairman of the Board of the Commonwealth Bank Division of Meridian
Bank, Williamsport, PA, from September 1993 to December 1995; Director, Meridian
Bancorp, Inc., and Meridian Bank, Reading, PA, from September 1993 to April
1996; Chairman of the Board and Chief Executive Officer of Commonwealth
Bancshares Corporation, Williamsport, PA, from April 1987 to June 1993; Director
CoreStates Bank, N.A., since April 1996; past Director and President of
Industrial Properties Corporation; Vice Chairman of the Pennsylvania College of
Technology; past Director and Chairman, Williamsport/Lycoming Chamber of
Commerce; Chairman, Williamsport/Lycoming Foundation; Director of the following:
National Association of Corporate Directors, Lycoming Foundation, Pennsylvania
Economic Development Financing Authority (PEDFA), Pennsylvania Economy League,
Williamsport Wirerope Corp. (WWW), and Higher Dimension Medical, Inc. Age 67.
Member of the Executive Committee, Chairman of the Audit Committee and member of
the Compensation and Stock Option Committees.
[PHOTO]
Robert J. Keating
June 1974
20,240 Shares
Chairman of the Board of Directors of the Company and PG Energy from June
1986 to June 1987; Chairman of the Board, Parodi Industries, Inc., Scranton, PA,
from January 1985 to February 1994; past Chairman of the Board of Directors of
the Northeastern Bank of Pennsylvania; past Chairman of the Board of Trustees of
Marywood College; past President of LIFE (Lackawanna Industrial Fund
Enterprises). Age 79. Member of the Executive Committee and the Investment
Committee of the Employees' Retirement Plan.
- - ------
*See page 9, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO]
James A. Ross
May 1978
6,900 Shares
Independent financial consultant since prior to 1988; Chairman, Priestgate,
Limited, since 1991; former President and Chief Executive Officer and Director,
Sprague & Henwood, Inc., Scranton, PA; Director, Scranton Industrial Development
Company; Director, Lackawanna Industrial Development Enterprise. Age 61.
Chairman of the Planning Committee and member of the Investment Committee of the
Employees' Retirement Plan.
[PHOTO]
John D. McCarthy
March 1991
10,751 Shares
Chairman and Chief Executive Officer of McCarthy Tire Service Company,
Wilkes-Barre, PA, since June 1997; President of McCarthy Tire Service Company
from 1968 to June 1997; President of McCarthy Realty, Inc., since 1988; Director
and Chairman, Wyoming Valley Health Care Systems, Inc.; Director of
Pennsylvania-American Water Company. Age 62. Chairman of the Compensation and
Stock Option Committees, Chairman of the Investment Committee of the Employees'
Retirement Plan, and member of the Executive Committee.
- - ------
*See page 9, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO]
Ronald W. Simms
March 1991
273,022 Shares
President and Chief Executive Officer of Petroleum Service Company, Inc.,
Wilkes-Barre, PA, since 1980; Chairman of the Board of Directors since 1994, and
Chief Executive Officer since 1984, of Mountain Productions, Inc.; Chairman of
the Board of Directors of First Heritage Bank, since March 1994; Director of
Pennsylvania-American Water Company; past Chairman of the Wilkes-Barre Chamber
of Commerce. Age 58. Member of the Executive, Audit, Planning, Compensation and
Stock Option Committees, and the Investment Committee of the Employees'
Retirement Plan.
[PHOTO]
Kenneth M. Pollock
October 1993
259,178 Shares
President and Chief Executive Officer, Intercoastal Management, Inc., Vice
President of HUD, Inc., trading as Emerald Anthracite II, and Vice President of
Susquehanna Coal Company and Susquehanna Mt. Carmel, Inc., Nanticoke, PA, since
prior to 1993; Director of Commonwealth Bank East, a division of CoreStates
Bank, N.A.; Director of F. M. Kirby Center for the Performing Arts. Age 40.
Member of the Audit and Planning Committees.
- - ------
*See page 9, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO]
Paul R. Freeman
November 1995
3,458 Shares
Controller of HUD, Inc., trading as Emerald Anthracite II, Nanticoke, PA,
since 1988. Previously held positions with Northeastern Bank, United Penn Bank,
Barnett Banks, and Marine Midland Bank. Age 50. Member of the Audit Committee
and the Investment Committee of the Employees' Retirement Plan.
[PHOTO]
John D. McCarthy, Jr.
November 1995
5,401 Shares
President of McCarthy Tire Service Company, Wilkes-Barre, PA, since June
1997; Vice President of McCarthy Tire Service Company from 1989 to June 1997;
Vice President of McCarthy Realty, Inc. since 1988. President of McCarthy Tire
Service Company of Allentown, Reading and Lancaster since 1992. Member and
Chairman of the Board of Directors of the Wyoming Valley Catholic Youth Center;
member of the Michelin Tire Corporation Dealer Council and Continental/General
Tire Dealer Council. Age 33. Member of the Audit Committee.
- - -------
*See page 9, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO]
Richard A. Rose, Jr.
November 1995
28,604 Shares
President of Petroleum Sales Company, Inc., Wilkes-Barre, PA, since 1992;
Vice President of Petroleum Service Company, Inc. since 1987. Director of the
Black Horse Foundation, Inc., Mountain Productions, Inc., Mountain Productions
Services, Inc., and Rock USA, Inc. Age 37. Member of the Planning Committee and
the Compensation and Stock Option Committees.
- - -------
*See page 9, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock, beneficially owned, directly or indirectly, as of February 1, 1998, by
individual directors, each of the officers named in the Summary Compensation
Table, and all directors and officers as a group, who held such positions as of
February 1, 1998. Unless otherwise specified, shares are beneficially owned
directly by the director or officer.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
Number of Shares Percent of
Title of Name of Beneficial Beneficially Owned(1) Class
Class Owner
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Kenneth L. Pollock 625,148 (2)(3) 6.29
Thomas F. Karam 160,944 (4) 1.62%
William D. Davis 17,838 *
Robert J. Keating 20,240 (5) *
James A Ross 6,900 (6) *
John D McCarthy 10,751 (7) *
Ronald W. Simms 273,022 (8) 2.74%
Kenneth M. Pollock 259,178 (3)(9) 2.60%
Paul R Freeman 3,458 *
John D McCarthy, Jr 5,401 (7)(10) *
Richard A. Rose, Jr 28,604 (11) *
Vincent A. Bonaddio 2,669 *
Harry E Dowling 13,937 *
John F Kell, Jr 15,978 *
All directors and
officers as a group
(20 persons) 1,240,724 (12)(13) 12.48%
<FN>
- - ----------
* - Less than one percent.
(1) Includes shares that may be acquired pursuant to the exercise of stock
options exercisable within 60 days of February 1, 1998, as follows: 80,000
for Mr. Karam, 80,000 for Mr. Kenneth L. Pollock, 7,000 for Mr. Dowling,
7,000 for Mr. Kell, and 17,600 for other officers not specifically named.
Does not include options to purchase shares of Common Stock granted on
September 1, 1996, in the amount of 60,000 to Mr. Kenneth L. Pollock and
120,000 to Mr. Thomas F. Karam for which the next annual installments of
30,000 for each of Mr. Pollock and Mr. Karam become exercisable on
September 1, 1998. Also includes 3,201 stock units credited to individual
directors' accounts pursuant to the Director Deferred Compensation Plan as
follows: 496 for Mr. Davis, 245 for Mr. Freeman, 551 for Mr. John D.
McCarthy, 401 for Mr. John D. McCarthy, Jr., 491 for Mr. Kenneth M.
Pollock, 395 for Mr. Rose, and 622 for Mr. Simms.
<PAGE>
(2) Includes 34,568 shares that Mr. Pollock owns jointly with his wife, 9,615
shares jointly with his wife and son, Kenneth M. Pollock, 164,098 shares
jointly with his son, 14,800 shares jointly with his daughter, 48,288
shares jointly with his son and daughter, and 17,084 as custodian for his
grandchildren, 12,486 of which are for the children of Kenneth M. Pollock.
Includes 216,800 shares held by several corporations in which Mr. Pollock
holds a controlling interest.
(3) Shares held jointly by Mr. Kenneth L. Pollock and Mr. Kenneth M. Pollock,
and by Mr. Kenneth L. Pollock for Mr. Kenneth M. Pollock's children are
reported in the total shares for each of them but are reported one time, on
an unduplicated basis, in the total shares owned by all directors and
officers as a group. A total of 649,839 shares are beneficially owned by
Mr. Kenneth L. Pollock and Mr. Kenneth M. Pollock on an unduplicated basis.
(4) Includes 32,800 shares that Mr. Karam owns jointly with his wife, 41,582
shares for which Mr. Karam has sole voting and investment power, and 6,000
shares held in the name of Lakeside Drive Assoc., Inc., in which Mr.
Karam's wife has an interest. These 6,000 shares are also reported for Mr.
Keating who has an interest in Lakeside Drive Assoc., Inc. These shares are
reported one time, on an unduplicated basis, in the total shares owned by
all directors and officers as a group.
(5) Includes 1,200 shares owned by Mr. Keating's wife and 6,000 shares that Mr.
Keating beneficially owns through Lakeside Drive Assoc., Inc.
(6) Includes 1,500 shares held jointly with Mr. Ross's wife, 600 shares owned
by Mr. Ross's wife and 2,600 shares owned by charitable foundations of
which Mr. Ross is a trustee. Mr. Ross shares voting and investment power
and disclaims beneficial ownership of the shares held by these foundations.
(7) Includes 2,000 shares owned by Mr. McCarthy's wife, 2,000 shares held by
McCarthy Realty, Inc. in which both John D. McCarthy and John D. McCarthy,
Jr. each have a beneficial interest. These shares are reported in the total
shares for each of them, but are reported one time, on an unduplicated
basis, in the total shares owned by all directors and officers as a group.
(8) Includes 71,854 shares owned by Mr. Simms's wife and 80,400 shares for
which Mr. Simms has voting power.
(9) Includes 164,098 shares held jointly with his father, Mr. Kenneth L.
Pollock, 9,615 shares held jointly with his father and mother, 48,288
shares held jointly with his father and sister, 12,486 shares held by his
father as custodian for his children, and 18,000 shares as custodian for
his children.
(10) Includes 2,000 shares that Mr. McCarthy owns jointly with his wife and 200
shares he owns jointly with his wife and son.
(11) Includes 15,486 shares that Mr. Rose owns jointly with his wife, 5,251
shares owned by Mr. Rose's wife, 2,304 shares held as custodian for his
children, and 4,568 shares for which Mr. Rose has voting power.
<PAGE>
(12) The Company has an Employees' Savings Plan in which officers and employees
participate. Included in the number of shares of Common Stock shown above
are 23,651 shares which were allocated to the accounts under the Employees'
Savings Plan of all officers as a group at February 1, 1998 (including
2,158 shares in those shown for Mr. Pollock, 562 for Mr. Karam, 1,669 for
Mr. Bonaddio, 4,830 for Mr. Dowling, and 3,574 for Mr. Kell).
(13) Does not include 104,162 shares of the Company's Common Stock held by the
Employees' Retirement Plan, as to which investment power is exercised by
the Investment Committee under the Plan, consisting of Messrs. Freeman,
Keating, John D. McCarthy, Ross, and Simms. The Committee members disclaim
beneficial ownership of these shares.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires that the Company's directors and officers file reports of ownership and
changes in ownership of the Company's Common Stock with the Securities and
Exchange Commission and the New York Stock Exchange. Based solely on a review of
Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Rule
16a-3(e) under the Exchange Act, the Company believes that all directors and
officers filed on a timely basis all such reports required of them with respect
to stock ownership and changes in ownership during 1997.
Additional Director Information
During 1997, the Board met 16 times, and each incumbent director attended
more than 75% of the total number of meetings of the Board and of the committees
of the Board on which he served.
The Company has an Executive Committee, currently consisting of Messrs.
Kenneth L. Pollock (Chairman), Davis, Keating, John D. McCarthy, and Simms.
During intervals between meetings of the Company's Board of Directors, the
Executive Committee may exercise, subject to law and any specific directions
given by the Board to the Executive Committee, all powers of the Board of
Directors in the management of the business and affairs of the Company. The
Executive Committee met three times during 1997.
In addition to an Executive Committee, the Company has an Audit Committee,
currently consisting of Messrs. Davis (Chairman), Freeman, Kenneth M. Pollock,
John D. McCarthy, Jr., and Simms. This Committee performs the following
functions, among others: recommending the appointment and monitoring the
independence and compensation of the independent auditors; approving
professional services provided by the independent auditors; reviewing the scope
of the annual audit with the independent auditors; reviewing the independent and
internal auditors' reports to management; reviewing financial statements; and
reviewing various internal accounting controls. The Audit Committee met five
times during 1997.
The Company has an Investment Committee of the Employees' Retirement Plan
currently consisting of Messrs. John D. McCarthy (Chairman), Freeman, Ross,
Simms, and Keating. The duties of this Committee include appointing, removing,
and monitoring the performance of investment managers, allocating Plan assets
among them, reviewing the investment philosophy of the Plan, and managing all or
portions of the assets of the Plan, subject to any limits or guidelines
established by the Board. This Committee met seven times during 1997. <PAGE>
The Company has a Compensation Committee which provides direction and
guidance and makes recommendations to the Board and management on
compensation-related matters. The members of the Compensation Committee are also
designated as the Stock Option Committee for the purpose of administering the
1992 Stock Option Plan and the Stock Incentive Plan. The Compensation and Stock
Option Committees currently consist of Messrs. John D. McCarthy (Chairman),
Simms, Davis, and Rose. These committees met four times during 1997.
The Company's Planning Committee, currently consisting of Messrs. Ross
(Chairman), Simms, Kenneth M. Pollock, and Rose, provides direction and guidance
and makes recommendations to the Board and management on corporate planning
issues.
The Company does not have a Nominating Committee. Nominations are
considered by the full Board.
During 1997, directors of the Company and PG Energy who were not full-time
employees of the Company and/or PG Energy were paid a retainer fee of $500 per
month, and on days they attended a Company and/or PG Energy Board meeting(s)
they were paid $500, plus expenses. Since the Company and PG Energy Boards
consist of the same members, meetings are usually scheduled on the same day, and
a single fee is paid for attendance at both meetings. Additionally, each
director received $250 for each Board Committee meeting attended on the same day
as meeting(s) of the full Board(s), and $500 for each Board Committee meeting
attended on a day when the full Board(s) did not meet. Further, directors who
were members of the Investment Committee of the Employees' Retirement Plan were
paid $250 for each meeting attended on the same day as a meeting of the full
Board(s) and $500 for each meeting attended on a day when the full Board(s) did
not meet.
On June 20, 1997, the Board of Directors granted options for the purchase
of 2,000 shares of Common Stock of the Company to each of the nine non-employee
directors of the Company. The options had an exercise price of $25.75 and
vesting was subject to the Company achieving specified financial and operational
goals for 1997. Because certain of these goals were not met, the options did not
vest and are not exercisable.
The Company's 1995 Directors' Stock Compensation Plan (the "Directors'
Stock Plan") provides for the annual automatic award of 400 shares of Company
Common Stock (subject to anti-dilution adjustment in the event of certain
corporate changes) to each continuing director, who has completed at least one
year of service and who is not a full-time employee of the Company or any of its
affiliates, immediately following each annual meeting of shareowners. The
Directors' Stock Plan will terminate in 2005. All shares awarded under the
Directors' Stock Plan are non-transferrable for a period of three years
following the award, except in the event of death, disability, or retirement on
or after age 65. Beginning in 1998, if elected by the director, an award under
the Directors' Stock Plan will instead be credited as Stock Units under the
Director Deferred Compensation Plan discussed below and will be paid in
accordance with the provisions of that plan. Six directors have elected to defer
receipt of their 1998 stock awards.
The Company has a Director Deferred Compensation Plan, pursuant to which
each director who is not a full-time employee of the Company or any of its
subsidiaries may elect to defer all or any portion of his retainer and meeting
fees. Amounts deferred are credited to a bookkeeping account maintained by the
Company for the director in the form of stock units, representing the number of
shares of the Company's Common Stock which could have been purchased with the
deferred amount (based on the market price of the Common Stock on the date such
amount would have been paid to the director had it not been deferred) or which
would have been awarded under the Directors' Stock Plan. Additional stock units
are credited to the director's account whenever a cash dividend is paid on the
Common Stock, reflecting the number of shares that could have been purchased on
the dividend payment date with the amount of the per share dividend multiplied
by the number of stock units then credited to the director's account. Upon the
director's termination of services as a director, the director receives for each
stock unit either one share of Common Stock or cash equal to the value of a
share on such date, as elected by the director before the units were credited.
During 1997, seven directors participated in the Director Deferred Compensation
Plan, all of whom elected to receive shares of stock in settlement of their
accounts upon termination of their services as directors.
<PAGE>
Mr. Kenneth L. Pollock is the father of Mr. Kenneth M. Pollock. Mr. Simms
is the father-in-law of Mr. Rose. Mr. John D. McCarthy is the father of Mr. John
D. McCarthy, Jr. Mr. Keating is the father-in-law of Mr. Karam, President and
Chief Executive Officer of the Company. There are no other family relationships
among any of the directors or executive officers of the Company.
Compensation Committee Interlocks
During 1997, the Compensation Committee consisted of Messrs. John D.
McCarthy, Davis, Rose, and Simms. None of these persons was or is an officer or
employee of the Company or any of its subsidiaries. None of the Company's
executive officers served on the compensation committee or board of an entity of
which (i) a member of the Company's Compensation Committee or other director of
the Company was an executive officer or (ii) an executive officer of the entity
was one of the Company's directors.
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, which is composed of four
non-employee directors. The following is a report of the Compensation Committee
to the Company's shareowners:
Compensation Policies
In determining compensation, including the award of both annual and
long-term compensation, the Committee follows a policy of considering, among
other factors, the operating and financial performance of the Company and the
individual contribution of each officer.
Salary is the principal component of the annual portion of the compensation
of senior executives. Stock options comprise both the long-term component and a
portion of the annual component of compensation. The value realized by an
executive from stock options is directly dependent on the performance of the
Company's stock. Options authorized pursuant to the 1992 Stock Option Plan were
granted to executives and senior management in the years 1993 through 1996.
During 1997, shareowners approved the Stock Incentive Plan under which an
executive could receive stock options, restricted stock and other awards, the
value of which are based on the performance of the Company's stock. During 1997,
stock options under the Stock Incentive Plan were awarded to certain senior
executives. The number of options that would vest and become exercisable would
vary depending upon the number of specified financial and operational goals and
the level of earnings (threshold, target, or outstanding) achieved. A threshold
level of earnings had to be achieved for any options to vest. Because certain of
these goals were not met, the options did not vest.
1997 Compensation of the Chief Executive Officer
Mr. Karam was elected President and Chief Executive Officer, effective
September 1, 1996. Mr. Karam has an employment agreement with the Company which
provides for a five year term of employment with an annual salary that commenced
at $212,880 for the first year, increased to $225,000 on September 1, 1997, the
beginning of the second year under the employment agreement, and is subject to
increase at the discretion of the Compensation Committee during the remaining
three years of the term. The agreement also provides for the grant of options to
purchase 150,000 shares of the Company's Common Stock under the 1992 Stock
Option Plan with the options becoming exercisable in five equal annual
installments commencing 12 months after grant. In concluding to provide this
employment agreement to Mr. Karam, the Committee considered the need to ensure
the retention of this key executive, to enable him to perform his duties without
distraction, and to provide him with competitive compensation. The Committee
also determined that a greater portion of the compensation called for by this
agreement should be made up of the long-term component -- stock options -- than
typically awarded to Company officers as a way to more closely align the
interests of this key executive with those of the shareowners.
The Committee operates on the principle that the compensation of the
Company's executive officers should be competitive with compensation of senior
executives at comparable companies. In this regard, the Committee reviewed and
considered the compensation of executives in comparable positions at other
utility companies, and non-utility companies located in the same region as the
Company, with which the Company competes for executive talent. Consequently,
these are not exactly the same companies that are included in the indices used
in the performance graphs in this proxy statement. The Committee targets
executive compensation to be in the general range, but not the high end, of
compensation for comparable positions at these companies.
<PAGE>
The Committee (which also serves as the Stock Option Committee) believes
stock options help to align the interests of management with those of the
Company's shareowners and provide an incentive and reward for increasing
shareowner value. Options are awarded at market and there is no benefit to the
optionee unless the stock increases in price, in which case both shareowners and
the optionees are rewarded. The Committee considers the contributions of
potential recipients in determining whether to award options. The vesting of
options may be subject to restrictions, such as the achievement of performance
goals.
Other Officers
The compensation of Messrs. Bonaddio, Dowling, and Kell was determined in
accordance with the compensation policies discussed earlier in this report.
All members of the Committee concur and join in this report to the
Company's shareowners.
John D. McCarthy, Chairman William D. Davis
Ronald W. Simms Richard A. Rose, Jr.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($) ($)(1) (#ofShares) ($)(2)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Karam 1997 $216,076 -0- -0- -0- $2,792
President and Chief 1996 171,023 -0- -0- 200,000 306
Executive Officer(3) 1995 31,731 -0- -0- -0- 77
Vincent A. Bonaddio 1997 $115,385 -0- -0- 4,000 $1,698
Vice President, 1996 94,965 -0- -0- -0- 853
Operations and 1995 86,151 -0- -0- -0- 795
Engineering Services
Harry E. Dowling 1997 103,357 -0- -0- 4,000 $1,588
Vice President, 1996 95,606 -0- -0- -0- 922
Customer Services 1995 95,608 -0- -0- -0- 923
John F. Kell, Jr 1997 $126,805 -0- -0- 4,000 $3,277
Vice President, 1996 124,053 -0- -0- -0- 1,824
Financial Services 1995 125,053 -0- -0- -0- 1,876
<FN>
- - ------
(1) Does not include the value of perquisites and other personal benefits
because the aggregate amount of such compensation does not exceed
established reporting thresholds.
(2) The amounts shown under All Other Compensation are for group term life
insurance provided for officers and matching contributions made by the
Company for the named executives to their Employees' Savings Plan
(401(k)) account. The amounts for Mr. Karam's life insurance premiums
were $286 in 1997, $306 in 1996, and $77 in 1995; for Mr. Bonaddio, $313
in 1997, $313 in 1996, and $278 in 1995; for Mr. Dowling, $348 in 1997,
$348 in 1996, and $348 in 1995; and for Mr. Kell, $1,755 in 1997, $1,080
in 1996, and $1,125 in 1995. The amount for the Employees' Savings Plan
for Mr. Karam was $2,506 in 1997; for Mr. Bonaddio, $1,385 in 1997, $540
in 1996, and $517 in 1995; for Mr. Dowling, $1,240 in 1997, $574 in
1996, and $576 in 1995; and for Mr. Kell, $1,522 in 1997, $744 in 1996,
and $751 in 1995.
(3) Mr. Karam commenced employment with the Company effective October 1,
1995, at an annual salary of $150,000. The above amount is his actual
salary for that portion of the year during which he was employed by the
Company.
<PAGE>
(4) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 1997. Because
certain of these goals were not met, these options will not vest or
become exercisable.
</FN>
</TABLE>
The Company also has an employment agreement with Mr. Kenneth L. Pollock,
Chairman of the Board of Directors, effective June 26, 1996, providing for a
three year term of employment, subject to his reelection by the Company's
shareowners, at an annual salary of $97,500 per year, and the grant of options
to purchase 90,000 shares of the Company's Common Stock exercisable in three
equal annual installments, the first of which became exercisable on September 1,
1997.
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
Number of
Securities % of Total
Underlying Options Granted Exercise Grant Date
Options to Employees in Price Expiration Present
Name Granted(#)(1) Fiscal Year $/Share(1) Date Value($)(1)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vincent A. Bonaddio 4,000 16.7% $ 25.75 06/20/2007 $8,880
Harry E. Dowling 4,000 16.7% $ 25.75 06/20/2007 8,880
John F. Kell, Jr 4,000 16.7% $ 25.75 06/20/2007 8,880
------
<FN>
(1) The "grant date present value" shown is an expected value based upon the
application of the Black-Scholes Option Pricing Model. Use of this model
should not be viewed in any way as a forecast of the future performance
of the Company's Common Stock. An option granted to an employee will
have value to the optionee only if and to the extent the market price of
the Company's stock rises above the exercise price. The estimated
present value of each stock option is $2.22, based upon the following
assumptions: (1) a stock price volatility of 12.26% (2) a risk-free
interest rate of 5.75% representing the rate of a zero-coupon U.S.
Treasury Strip available on the date of grant (3) a dividend yield of
6.24%, and (4) an expected option term of seven years (the full term is
ten years) to reflect the likelihood that the options will be exercised
before the full term based upon the Company's exercise history. These
options were granted subject to the achievement of specified financial
and operational goals for the Company during 1997. The above option
valuation assumes that all specified financial and operational goals
will be met. Therefore, the value shown may be thought of as a
"conservative" expected value that does not take into account the risk
that the options may be forfeited if the specified performance measures
are not met. In fact, because certain of these specified goals were not
met, these options will not vest or become exercisable.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END STOCK OPTION VALUES
Value of
Number of Unexercised
Securities Underlying In-the-Money
Shares Unexercised Options Options at
Acquired on Value at Fiscal Year-End(#) Fiscal Year-End($)
Exercise Realized Exercisable/ Exercisable/
Name (#)(1) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Vincent A. Bonaddio -0- -0- -0-/4,000(1) -0-/-0-
Harry E. Dowling -0- -0- 7,000/4,000(1) $71,750/-0-
Thomas F. Karam -0- -0- 80,000/120,000 422,500/$540,000
John F. Kell, Jr -0- -0- 7,000/4,000(1) 71,750/-0-
<FN>
(1) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 1997. Because
certain of these goals were not met, these options will not vest or
become exercisable.
</FN>
</TABLE>
Employees' Retirement Plan
The following table illustrates the estimated annual retirement benefits
payable at age 65 under the Company's Employees' Retirement Plan as a straight
life annuity to an employee retiring with the specified combination of final
average earnings and years of service with the Company. The benefits shown are
not subject to deduction for social security.
5-Year Years of Credited Service
Average
Earnings 15 20 25 30 35
- - -------------------------------------------------------------------------------
$100,000....$ 21,052 $ 28,069 $ 35,086 $ 42,103 $ 42,103
$125,000....$ 26,864 $ 35,819 $ 44,774 $ 53,728 $ 53,728
$150,000....$ 32,677 $ 43,569 $ 54,461 $ 65,353 $ 65,353
$175,000....$ 35,002* $ 46,669* $ 58,336* $ 70,003* $ 70,003*
$200,000....$ 35,002* $ 46,669* $ 58,336* $ 70,003* $ 70,003*
$250,000....$ 35,002* $ 46,669* $ 58,336* $ 70,003* $ 70,003*
- - -------
* The Internal Revenue Code limits the amount of compensation which may be taken
into account under a tax-qualified retirement plan.
The above table reflects the benefits payable to employees who retire after
January 1, 1998. As of December 31, 1997, Mr. Bonaddio had completed 28 years of
credited service, Mr. Dowling 22 years, Mr. Karam 2 years, and Mr. Kell 19
years.
<PAGE>
Covered compensation under the Retirement Plan is the same as the amount
reported in the Salary column of the Summary Compensation Table.
Change in Control and Other Agreements
If following a change in control (as defined in such agreements) of the
Company, the employment of Mr. Pollock or Mr. Karam is terminated or their
compensation, position or benefits are reduced, the employment agreements that
the Company has with each of them entitle them to receive a severance payment
equal to two times their annual salary for the year in which such termination
occurs and the unpaid portion of their salary with respect to any additional
years remaining in the term of their employment agreement, other than the year
in which the termination occurs.
The Company has agreements with certain of its other officers, including
Messrs. Bonaddio, Dowling, and Kell, which entitle the officers to receive a
severance payment equal to two times their annual salary if, following a change
in control (as defined in such agreements) of the Company, their employment is
terminated or their compensation, position or benefits are reduced.
<PAGE>
PERFORMANCE GRAPH
FIVE-YEAR CUMULATIVE RETURN
The graph below compares the cumulative total return on the Company's stock
during the past five years with the average cumulative total return during the
same period of the S & P 500 Stock Index, and a self-constructed index of a
group of comparable mid-sized natural gas distribution companies, excluding the
Company. The companies included in the self-constructed natural gas distribution
index are: Atmos Energy Corporation, Cascade Natural Gas Corporation, Colonial
Gas Company, Connecticut Energy Corp., CTG Resources, Inc. (formerly Connecticut
Natural Gas Co.), North Carolina Natural Gas Corp., Providence Energy Corp.,
Public Service Company of North Carolina, SEMCO Energy Inc. (formerly
Southeastern Michigan Gas Enterprises), and Yankee Energy Systems Inc. These
companies, selected from the Edward D. Jones Index for Natural Gas Distribution
Companies, have revenues, net plant, and market capitalization in the same
general range as that of the Company. United Cities Gas Co., which was included
in the group of comparable companies last year, merged with Atmos Energy
Corporation in 1997.
The graph reflects the investment of $100 on December 31, 1992, in the
Company's Common Stock, the S & P 500 Stock Index, and the gas utility index.
Dividends are assumed to be reinvested as paid in the Company's Common Stock and
in the S & P 500 Stock Index and quarterly in the stocks of the gas utility
index.
FIVE-YEAR CHART
[GRAPH]
1992 1993 1994 1995 1996 1997
- - -------------------------------------------------------------------------------
Pennsylvania
Enterprises, Inc. 100.00 103.50 99.90 147.94 180.78 218.24
S&P 500 Stock Index 100.00 110.06 111.51 153.39 188.59 251.48
Gas Utility Index 100.00 117.12 105.87 128.23 139.62 177.74
<PAGE>
SOLICITATION OF PROXIES
The Company will bear the costs of this solicitation of proxies. In
addition to solicitation by mail, arrangements may be made with brokerage houses
and other custodians, nominees and fiduciaries to send material to their
principals, and the Company may reimburse them for their expenses in so doing.
To the extent necessary in order to ensure a sufficient shareowner presence to
constitute a quorum, officers and other employees of the Company and its
principal subsidiary, PG Energy Inc. or designated agents may, without
additional remuneration, in person or by telephone or telegram, request the
return of proxies. In addition, the Company has retained D. F. King & Co., Inc.
for assistance in the solicitation of proxies. For its services, D. F. King will
receive a fee estimated at $5,500 plus reimbursement for reasonable and
customary out-of-pocket expenses.
VOTE REQUIRED
Candidates for director receiving the highest number of affirmative votes,
up to the number of directors to be elected, shall be elected. Broker non-votes,
abstentions, and withhold authority votes, will be counted in determining the
presence of a quorum but will have no effect on the election of directors.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP served as independent public accountants for the
Company for the year ending December 31, 1997. Representatives of Price
Waterhouse are expected to be present at the Annual Meeting, and will be
available to respond to appropriate questions by shareowners.
Arthur Andersen LLP had served as independent public accountants for the
Company for 1996 and a number of years prior thereto. In March 1997, the Company
requested Arthur Andersen LLP and several other accounting firms to provide a
proposal concerning the terms and conditions of engagement as independent
accountants to the Company for future periods. The decisions to request
proposals from Arthur Andersen LLP and other accountants and to select Price
Waterhouse LLP were both recommended by the Company's Audit Committee and
approved by the Company's Board of Directors.
The report of Arthur Andersen LLP on the financial statements of the
Company for the fiscal years ended December 31, 1996 and 1995, did not contain
an adverse opinion or a disclaimer of opinion, nor were such reports qualified
or modified as to uncertainty, audit scope or accounting principles. There were
no disagreements between Arthur Andersen LLP and the Company on any matter of
accounting principle or practice, financial statement disclosure or audit scope
or procedure, which, if not resolved to its satisfaction, would have caused
Arthur Andersen LLP to make reference to the subject matter of any such
disagreement in connection with this report. <PAGE>
SHAREOWNER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareowners intended to be presented at the 1999 Annual
Meeting of Shareowners must be received by the Secretary of the Company at the
Company's executive offices, One PEI Center, Wilkes-Barre, Pennsylvania
18711-0601, by November 25, 1998, for inclusion in the Company's proxy statement
and form of proxy relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other business to be transacted at the
Annual Meeting, but if any other matters properly come before the meeting, the
persons named as proxies will vote upon such matters in accordance with their
best judgment.
By Order of the Board of Directors,
Thomas J. Ward
Vice President of Administrative Services
and Secretary
Wilkes-Barre, Pennsylvania
March 26, 1998
Upon written request the Company will provide without charge to each person
whose vote is solicited for the Annual Meeting a copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission. Requests for such Annual Report should be
addressed to the Investor Relations Department, Pennsylvania Enterprises, Inc.,
One PEI Center, Wilkes-Barre, Pennsylvania 18711-0601. Persons who were not
shareowners of record on March 12, 1998, should include with the request a
representation that the person making the request is a beneficial owner of
Common Stock as of the date of the request.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, OR YOU MAY VOTE BY TELEPHONE AS DESCRIBED ON THE PROXY/VOTING
INSTRUCTION CARD.
