[LOGO] One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telephone: (570) 829-8843
March 25, 1999
Dear Fellow Shareowner:
It is our pleasure to extend to you a cordial invitation to attend the
Annual Meeting of Shareowners of Pennsylvania Enterprises, Inc.
The Annual Meeting will be held at the Community Arts Center, 220 West
Fourth Street, Williamsport, Pennsylvania, beginning at 10:00 a.m., on
Wednesday, May 5, 1999. Directions to the meeting site and a map are included
with this letter. In addition to the specific matters to be acted upon, there
will be a review of the affairs and progress of your Company and a report on
first quarter results.
Once again this year we are offering you the option to vote by telephone.
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.
On behalf of your Board of Directors, thank you for your continued support
and interest in Pennsylvania Enterprises, Inc.
Sincerely,
s/s Ronald W. Simms s/s Thomas F. Karam
Ronald W. Simms Thomas F. Karam
Chairman of the Board President and
Chief Executive Officer
<PAGE>
Directions to the Community Arts Center, Williamsport, Pennsylvania
[MAP]
From Interstate 80 or South: Get off I-80 at Exit 30 and take Route 15 North to
Williamsport. After crossing the Susquehanna River Bridge into Williamsport, you
will be on Market Street. Take Market Street to the second traffic light and
turn left onto Fourth Street. Take Fourth Street to the third traffic light.
Turn right onto Hepburn Street and proceed approximately 1-1/2 blocks to the
Hepburn Plaza Parking on the left. Please park in spaces designated with yellow
lines. Bring your parking ticket for validation and proceed to the Community
Arts Center at 220 West Fourth Street.
From the North or West: From Route 180 East, get off at the Hepburn Street Exit
(also listed as 15 South or Lewisburg Exit). Continue straight through the
second light at West Fourth Street and then go 1-1/2 blocks to the Hepburn Plaza
Parking, which is on the left. Please park in spaces designated with yellow
lines. Bring your parking ticket for validation and proceed to the Community
Arts Center at 220 West Fourth Street.
From Wilkes-Barre: Take Route 309, Cross Valley Expressway, north to Dallas
towards Harveys Lake. Route 309 turns into Route 415. Stay on Route 415 to
intersection of Route 118 (at traffic light). Take left onto Route 118. Follow
Route 118 to Hughesville. At the traffic light in Hughesville, turn right and go
a few blocks to Route 220 South. Turn left on Route 220 and drive approximately
4 miles to the Route 180 West entrance ramp on the right. Take Route 180 to the
Route 15 South / Lewisburg / Basin Street Exit (approximately 10 miles). Turn
right at the stop sign onto Basin Street. At the stoplight, proceed straight on
Basin Street to the stop sign. Turn left onto Fourth Street and go to the fifth
traffic light. Turn right onto Hepburn Street and proceed approximately 1-1/2
blocks to the Hepburn Plaza Parking on the left. Please park in spaces
designated with yellow lines. Bring your parking ticket for validation and
proceed to the Community Arts Center at 220 West Fourth Street.
<PAGE>
[LOGO] One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telephone: (570) 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 the Community
Arts Center, 220 West Fourth Street, Williamsport, Pennsylvania, on Wednesday,
May 5, 1999, at 10:00 a.m., for the following purposes:
(1) To elect nine 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 11, 1999,
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,
Donna M. Abdalla
Secretary
Wilkes-Barre, Pennsylvania
March 25, 1999
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 or voting by telephone. 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>
[LOGO] Mailing Date
March 25, 1999
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telephone: (570) 829-8843
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREOWNERS TO BE HELD MAY 5, 1999
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 the Community
Arts Center, 220 West Fourth Street, Williamsport, Pennsylvania, on Wednesday,
May 5, 1999, 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 11, 1999, 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 Corporate 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 Corporate Secretary of the Company. If voting by telephone, the
latest telephone voting instructions will supersede any previous telephone
instructions.
COMMON STOCK OUTSTANDING
Common Stock, of which there were 10,669,483 shares outstanding and
entitled to vote on March 11, 1999, 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 M. Pollock, a Director of the
Company, who beneficially owns 6.08% of the Company's Common Stock as described
in the Security Ownership of Management section of this Proxy Statement.
ANNUAL REPORT
Copies of the Company's Summary Annual Report and Form 10-K for the year
1998 are included with this Proxy Statement.
MATTERS TO BE BROUGHT BEFORE THE MEETING
Election of Directors
At the meeting, nine 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
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<PAGE>
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 1998
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, 1999.
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO] Chairman of the Board of Directors of the
Company and PG Energy since December 17,
1998. 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 since April 1996; past Chairman of
the Wilkes-Barre Chamber of Commerce. Age
59. Chairman of the Executive Committee.
Ronald W. Simms
March 1991
326,405 Shares
[PHOTO] 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, Wyoming Valley
Health Care Systems, Inc., United Way of
Lackawanna County, United Way of Wyoming
Valley, and Team Pennsylvania. Age 40.
Thomas F. Karam
September 1996
205,749 Shares
- - ------
*See page 5, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
2
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO] 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., from
April 1996 to March 1998, 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: Lycoming Foundation,
Pennsylvania Economic Development Financing
Authority (PEDFA), Pennsylvania Economy
League, Williamsport Wirerope Corp. (WWW),
and Higher Dimension Medical, Inc.; former
Director of National Association of
Corporate Directors. Age 68. Member of the
Executive Committee, Chairman of the Audit
Committee and member of the Compensation and
Stock Option Committees and the Investment
Committee of the Employees' Retirement Plan.
William D. Davis
June 1981
38,129 Shares
[PHOTO] 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. Age 80. Member of the
Executive Committee and the Investment
Committee of the Employees' Retirement Plan.
Robert J. Keating
June 1974
25,351 Shares
[PHOTO] 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 62. Member of
the Audit Committee and Investment Committee
of the Employees' Retirement Plan.
James A. Ross
May 1978
7,315 Shares
- - ------
*See page 5, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
3
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO] 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 since
April 1996. Age 63. Chairman of the
Compensation and Stock Option Committees,
Chairman of the Investment Committee of the
Employees' Retirement Plan, and member of
the Executive Committee.
John D. McCarthy
March 1991
17,002 Shares
[PHOTO] President and Chief Executive Officer,
Intercoastal Management, Inc. and HUD,
Inc., trading as Emerald Anthracite II,
and Vice President of Susquehanna Coal
Company and Susquehanna Mt. Carmel,
Inc., Nanticoke, PA. Director of LA Bank,
N.A. and Director of Penn State, Wilkes-
Barre Campus. Former Director of Common-
wealth Bank East, Wilkes-Barre, a
division of CoreStates Bank, N.A., as
well as PNC Bank, and former Director of
F. M. Kirby Center for the Performing
Arts. Age 41.Member of the Executive,
Audit, Planning and the Compensation and
Stock Option Committees.
Kenneth M. Pollock
October 1993
648,662 Shares
[PHOTO] 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
34. Chairman of the Planning Committee and
member of the Audit Committee and Investment
Committee of the Employees' Retirement Plan.
John D. McCarthy, Jr.
November 1995
7,573 Shares
- - ------
*See page 5, Security Ownership of Management, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
4
<PAGE>
Name
First Became Director
Common Shares
Beneficially Owned* Principal Occupation and Other Information
[PHOTO} President of Petroleum Service Company,
Inc., Wilkes-Barre, PA, since 1998.
President of Petroleum Sales Company, Inc.,
since 1992. Vice President of Petroleum
Service Company, Inc. from 1987 to 1998.
Director of the Black Horse Foundation,Inc.,
Mountain Productions, Inc., Mountain
Productions Services, Inc., and Wyoming
Valley Health Care Systems. Age 38. Member
of the Audit,Planning, and the Compensation
and Stock Option Committees.
Richard A. Rose, Jr.
November 1995
32,854 Shares
- - ------
*See Security Ownership of Management, below, for complete listing and
explanatory notes relating to the security ownership of directors and officers
of the Company.
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, 1999, 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, 1999. Unless otherwise specified, shares are beneficially owned
directly by the director or officer.
Amount and Nature of
Beneficial Ownership
Title Name of Number of Shares Percent
of Class Beneficial Owner Beneficially Owned(1) of Class
- - -------- ----------------- -------------------- --------
Common Ronald W. Simms 326,405 (2) 3.06%
Thomas F. Karam 205,749 (3) 1.93%
William D. Davis 38,129 (4) *
Robert J. Keating 25,351 (5) *
James A. Ross 7,315 (6) *
John D. McCarthy 17,002 (7) *
Kenneth M. Pollock 648,662 (8) 6.08%
John D. McCarthy, Jr. 7,573 (9) *
Richard A. Rose, Jr. 32,854 (10) *
Vincent A. Bonaddio 2,932 *
Harry E. Dowling 14,524 *
John F. Kell, Jr. 16,231 *
All directors and
officers as a group
(17 persons) 1,346,925 (11)(12) 12.63%
- - ----------
"*" - Less than one percent.
5
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(1) Includes shares that may be acquired pursuant to the exercise of stock
options exercisable within 60 days of February 1, 1999, as follows: 110,000
for Mr. Karam; 110,000 for the Estate of Mr. Kenneth L. Pollock, of which
Mr. Kenneth M. Pollock is co-executor; 7,000 for Mr. Dowling; 7,000 for Mr.
Kell; and 3,600 for other officers not specifically named. Does not include
options to purchase 90,000 shares granted on September 1, 1996, to Mr.
Thomas F. Karam, which shares are not currently exercisable. Also includes
10,073 stock units credited to directors' accounts pursuant to the Director
Deferred Compensation Plan as follows: 1,586 for Mr. Simms, 1,787 for Mr.
Davis, 1,801 for Mr. John D. McCarthy, 415 for Mr. Ross, 1,573 for Mr. John
D. McCarthy, Jr., 1,729 for Mr. Pollock, and 1,182 for Mr. Rose.
(2) Includes 86,854 shares owned by Mr. Simms's wife and 105,519 shares for
which Mr. Simms has voting power.
(3) Includes 32,800 shares that Mr. Karam owns jointly with his wife, 53,897
shares for which Mr. Karam has voting power, and 8,000 shares held in the
name of Lakeside Drive Assoc., Inc., in which Mr. Karam's wife has an
interest. These 8,000 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.
(4) Includes 1,000 shares owned by Mr. Davis's wife; 1,000 shares owned by a
charitable remainder trust of which Mr. Davis is the life income
beneficiary and a joint trustee with his wife; and 1,000 shares owned by a
charitable remainder trust of which Mr. Davis's wife is a life income
beneficiary and a joint trustee with Mr. Davis. Mr. Davis shares voting and
investment power with his wife of the shares held by both these trusts.
(5) Includes 1,411 shares owned by Mr. Keating's wife and 8,000 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 and 2,000 shares held by
McCarthy Realty Inc., in which both Messrs. 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 265,953 shares owned by the Estate of Mr. Kenneth L. Pollock of
which Mr. Kenneth M. Pollock is co-executor; 216,800 shares held by several
corporations of which controlling interests are owned by the Estate of Mr.
Kenneth L. Pollock; 13,144 shares owned by Mr. Pollock's children; 30,223
shares owned by Mr. Pollock as custodian for his children; and presently
exercisable options to purchase 110,000 shares owned by the Estate of Mr.
Kenneth L. Pollock.
(9) Includes 2,000 shares that Mr. McCarthy owns jointly with his wife and 200
shares he owns jointly with his wife and son.
(10) Includes 18,486 shares that Mr. Rose owns jointly with his wife, 5,794
shares owned by Mr. Rose's wife, 2,468 shares held as custodian for his
children, and 4,924 shares for which Mr. Rose has voting power.
(11) 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 17,795 shares which were allocated to accounts under the Employees'
Savings Plan of all officers as a group at February 1, 1999 (including
1,052 for Mr. Karam, 1,932 for Mr. Bonaddio, 5,307 for Mr. Dowling, and
3,827 for Mr. Kell).
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(12) Does not include 109,653 shares of the Company's Common Stock held by the
Employees' Retire- ment Plan, as to which investment power is exercised by
the Investment Committee under the Plan, consisting of Messrs. John D.
McCarthy, Keating, Ross, Davis and John D. McCarthy, Jr. The Committee
members disclaim beneficial ownership of these shares.
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, 4, and 5 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 1998.
Certain Relationships and Transactions
During 1998, Lewith and Freeman Real Estate served as the real estate
broker for certain parcel transactions which were conveyed by the Company.
Lewith and Freeman Real Estate received commissions totaling $74,000 for such
services rendered in 1998. Lewith and Freeman Real Estate is owned by Ms. Rhea
Simms, the wife of Mr. Ronald Simms.
Additional Director Information
During 1998, the Board met 17 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.
Simms (Chairman), Davis, Keating, John D. McCarthy, and Pollock. 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 once during 1998.
In addition to an Executive Committee, the Company has an Audit Committee,
currently consisting of Messrs. Davis (Chairman), Ross, Pollock, John D.
McCarthy, Jr., and Rose. 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 four times during 1998.
The Company has an Investment Committee of the Employees' Retirement Plan
currently consisting of Messrs. John D. McCarthy (Chairman), Keating, Ross,
Davis, and John D. McCarthy, Jr. 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 four times
during 1998.
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
7
<PAGE>
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),
Davis, Pollock, and Rose. These committees met five times during 1998.
The Company's Planning Committee, currently consisting of Messrs. John D.
McCarthy, Jr. (Chairman), 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 1998, 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 $1,000 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 May 6, 1998, the Board of Directors granted options for the purchase of
5,000 shares of Common Stock of the Company to each of the non-employee
directors of the Company. The options have an exercise price of $23.9375 and
vesting is subject to the Company achieving specified financial and operational
goals for 1998 and 1999. Because certain of these goals were not met in 1998,
50% of the options did not vest and were cancelled. Vesting of the remaining 50%
of the options is subject to achievement of the goals for 1999.
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-transferable for a period of three years following
the award, except in the event of death, disability, or retirement on or after
age 65. 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.
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 service 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.
On December 17, 1998, the Board of Directors, upon recommendation by the
Compensation Committee, approved a Director Retirement Plan. Under the Plan,
each director of the Company and/or PG Energy who is not an employee of the
Company or PG Energy or any of their subsidiaries who retires from the Board
after attaining age 60 and completing five or more years of service on the Board
8
<PAGE>
or who becomes disabled after completing five or more years of service on the
Board, will be entitled to receive retirement benefits. Annual benefits payable
under this Plan shall be a percentage of the aggregate of the annual retainers
for directors in effect at the Company and PG Energy on the date of the
director's retirement. As a general rule, the percentage will be 50% after five
years of service, increasing by 5% for each additional year of service to a
maximum of 75%. Directors with less than five years of service will also receive
benefits (of 10% of the retainer per year of service) following a change of
control. The annual benefit will be paid for the lesser of (1) ten years, (2)
the director's years of service as a non-employee director or (3) until the
director's death.
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. There are no other family relationships among any of the directors or
executive officers of the Company.
Compensation Committee Interlocks
During 1998, Messrs. John D. McCarthy, Davis, Rose, and Simms served as
members of the Company's Compensation Committee. Beginning in January 1999, the
Compensation Committee consists of Messrs. John D. McCarthy, Davis, Rose, and
Pollock. 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.
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. In
subsequent years, options have been granted under the Stock Incentive Plan,
which provides for stock options, restricted stock and other awards, the value
of which is based on the performance of the Company's stock. In 1998, stock
options under this Plan were awarded to certain senior executives, subject to
the achievement of specified financial and operational goals for the Company
during 1998 and 1999. Because certain of these goals were not met in 1998, 50%
of these options did not vest and are not exercisable.
9
<PAGE>
1998 Compensation of the Chief Executive Officer
During 1998, the Committee determined to extend Mr. Karam's employment
agreement as President and Chief Executive Officer. The amended agreement
provides for his employment until 2003 at a salary of $275,000 for the period
from May 1, 1998 to April 30, 1999, and thereafter at a salary subject to
increase at the discretion of the Committee during the remaining term of the
agreement. Prior to its amendment, the agreement provided 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 September 1, 1997. The amended agreement provides for an
additional grant of options to purchase 60,000 shares under the Stock Incentive
Plan with the options becoming exercisable in two equal annual installments
commencing May 1, 2002. This second grant will not vest or become exercisable
unless specified financial and operational goals are achieved.
In concluding to amend Mr. Karam's agreement, the Committee considered the
importance of retaining his services to follow through on the Company's
long-term plans, enabling him to perform his duties without distraction, and
providing 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. In addition, as noted, the second grant
of options will not vest and become exercisable unless the Company achieves
certain specified financial and operational goals, thereby further aligning the
interests of Mr. Karam and 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.
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
Richard A. Rose, Jr. Kenneth M. Pollock
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($) ($) (1) (# of Shares) ($) (2) .
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Karam 1998 $266,346 -0- -0- 60,000 (3) $3,123
President and 1997 216,076 -0- -0- 0 2,792
Chief Executive Officer 1996 171,023 -0- -0- 200,000 306
Vincent A. Bonaddio 1998 $138,203 -0- -0- 7,500 (4) $2,663
Vice President, 1997 115,385 -0- -0- 4,000 (5) 1,698
Operations and 1996 94,965 -0- -0- 0 853
Engineering Services
Harry E. Dowling 1998 $120,000 -0- -0- 7,500 (4) $2,302
Vice President, 1997 103,357 -0- -0- 4,000 (5) 1,588
Customer Services 1996 95,606 -0- -0- 0 922
John F. Kell, Jr. 1998 $137,135 -0- -0- 7,500 (4) $4,005
Vice President, 1997 126,805 -0- -0- 4,000 (5) 3,277
Financial Services 1996 124,053 -0- -0- 0 1,824
- - -------
<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 $408 in
1998, $286 in 1997, and $306 in 1996; for Mr. Bonaddio, $452 in 1998, $313
in 1997, and $313 in 1996; for Mr. Dowling, $382 in 1998, $348 in 1997, and
$348 in 1996; and for Mr. Kell, $1,811 in 1998, $1,755 in 1997, and $1,080
in 1996. The amount for the Employees' Savings Plan for Mr. Karam was
$2,715 in 1998 and $2,506 in 1997; for Mr. Bonaddio, $2,211 in 1998, $1,385
in 1997,and $540 in 1996; for Mr. Dowling, $1,920 in 1998, $1,240 in 1997,
and $574 in 1996; and for Mr. Kell, $2,194 in 1998, $1,522 in 1997, and
$744 in 1996.
(3) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 2001 and 2002.
(4) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 1998 and 1999.
Because certain of these goals were not met in 1998, 50% of these options
did not vest.
(5) 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 did not vest.
</FN>
</TABLE>
11
<PAGE>
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise Grant Date
Options in Fiscal Price Expiration Present
Name Granted(#)(1) Year $/Share(1) Date Value($)(1)
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas F. Karam 60,000 (2) 40.0% $23.9375 05/05/2008 $162,600
Vincent A. Bonaddio 7,500 (3) 5.0% $23.9375 05/05/2008 20,325
Harry E. Dowling 7,500 (3) 5.0% $23.9375 05/05/2008 20,325
John F. Kell, Jr. 7,500 (3) 5.0% $23.9375 05/05/2008 20,325
- - -------
<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 $2.71, based upon the following assumptions: (1) a
stock price volatility of 17.58% (2) a risk-free interest rate of 5.00%
representing the rate of a zero-coupon U.S. Treasury Strip available on the
date of grant and due to expire at the approximate end of the option term
(3) a dividend yield of 6.24%, and (4) an expected option term of ten
years. The valuation assumes that all specified financial and operational
goals will be met. Therefore, the value shown may be thought of as a
"conservative" expected value that does not take into account the risk that
the options may be forfeited if the specified performance measures are not
met.
(2) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 2001 and 2002.
(3) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 1998 and 1999. The
above option valuation assumes that all specified financial and operational
goals will be met. Therefore, the value shown may be thought of as a
"conservative" expected value that does not take into account the risk that
the options may be forfeited if the specified performance measures are not
met. In fact, because certain of these specified goals were not met in
1998, 50% of the shares subject to the options will not vest and have been
cancelled.
</FN>
</TABLE>
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END STOCK OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal at Fiscal
Acquired on Value Year End (#) Year-End ($)
Exercise Realized Exercisable/ Exercisable /
Name (#)(1) ($) Unexercisable Unexercisable
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vincent A. Bonaddio -0- -0- -0- / 7,500 (1) -0- / $ 14,063
Harry E. Dowling -0- -0- 7,000 / 7,500 (1) $ 70,875 / 14,063
Thomas F. Karam -0- -0- 110,000 / 150,000 (2) 543,750 / 506,250
John F. Kell, Jr. -0- -0- 7,000 / 7,500 (1) 70,875 / 14,063
- - ------
12
<PAGE>
<FN>
(1) These options were granted subject to the achievement of specified
financial and operational goals for the Company during 1998 and 1999.
Because certain of these goals were not met in 1998, 50% of the shares
subject to these options will not vest and were cancelled.
(2) 60,000 shares subject to these options were granted in 1998 subject to the
achievement of specified financial and operational goals for the Company
during 2001 and 2002.
</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.
<TABLE> <CAPTION>
5-Year Years of Credited Service
- - ----------------------------------------------------------------------------------------------------------------------------------
Average Earnings 15 20 25 30 35
- - ---------------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000............. $ 21,747 $ 28,996 $ 36,245 $ 43,493 $ 43,493
$125,000............. $ 27,747 $ 36,996 $ 46,245 $ 55,493 $ 55,493
$150,000............. $ 33,747 $ 44,996 $ 56,245 $ 67,493 $ 67,493
$175,000............. $ 36,147* $ 48,196* $ 60,245* $ 72,293* $ 72,293*
$200,000............. $ 36,147* $ 48,196* $ 60,245* $ 72,293* $ 72,293*
$250,000............. $ 36,147* $ 48,196* $ 60,245* $ 72,293* $ 72,293*
$275,000............. $ 36,147* $ 48,196* $ 60,245* $ 72,293* $ 72,293*
$300,000............. $ 36,147* $ 48,196* $ 60,245* $ 72,293* $ 72,293*
</TABLE>
- - -------
* 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 on or
after January 1, 1999. As of December 31, 1998, Mr. Bonaddio had completed 29
years of credited service, Mr. Dowling 23 years, Mr. Karam 3 years, and Mr. Kell
20 years.
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 the employment of Mr. Karam is terminated without cause or his
compensation, position or benefits are reduced within three years of a change in
control (as defined in Mr. Karam's employment agreement) of the Company, Mr.
Karam shall receive a severance payment equal to two times his annual salary for
the year in which such termination occurs and the unpaid portion of his salary
with respect to any additional years remaining in the term of his 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.
13
<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. , North Carolina
Natural Gas Corp., Providence Energy Corp., Public Service Company of North
Carolina, SEMCO Energy Inc., and Yankee Energy Systems Inc. These companies were
selected from the Edward D. Jones Index for Natural Gas Distribution Companies
because they had revenues, net plant, and market capitalization in the same
general range as that of the Company. However, Atmos Energy Corporation has
merged with United Cities Gas Co. As a result, at the end of 1998, the market
capitalization of Atmos was four times the peer group average market
capitalization (excluding Atmos) and Atmos' revenues and market capitalization
were approximately four times those of the Company. Accordingly, the Company has
determined that Atmos is no longer a comparable company, and Atmos has been
dropped from the peer group. The Company's cumulative total return is compared
with the peer group including Atmos and with the peer group excluding Atmos.
The graph reflects the investment of $100 on December 31, 1993, in the
Company's Common Stock, the S & P 500 Stock Index, and the gas distribution
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
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Enterprises, Inc. 100.00 96.52 142.94 174.67 210.86 223.66
S & P 500 Stock Index 100.00 101.32 139.37 171.35 228.50 293.80
Gas Distribution Index Including Atmos 100.00 91.68 114.46 124.17 160.07 182.08
Gas Distribution Index Excluding Atmos 100.00 89.54 105.56 114.66 146.42 168.48
</TABLE>
[GRAPH]
14
<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 renumeration, 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
The Audit Committee recommended to the Board of Directors that
PricewaterhouseCoopers LLP be appointed as independent public accountants to
audit the books of the Company for the year ending December 31, 1998. The Board
of Directors approved the Audit Committee's recommendation on March 25, 1998.
PricewaterhouseCoopers LLP also served as independent public accountants for the
Company for the year ending December 31, 1997. Representatives of
PricewaterhouseCoopers 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
PricewaterhouseCoopers 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 year ended December 31, 1996, did not contain an adverse
opinion or a disclaimer of opinion, nor was such report 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.
SHAREOWNER PROPOSALS FOR YEAR 2000 ANNUAL MEETING
Proposals of shareowners intended to be presented at the Year 2000 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 24, 1999, for inclusion in the Company's proxy statement
and form of proxy relating to that meeting.
15
<PAGE>
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,
Donna M. Abdalla
Secretary
Wilkes-Barre, Pennsylvania
March 25, 1999
Included with this Proxy Statement is a copy of the Company's 1998 Summary
Annual Report and Form 10-K for the year ended December 31, 1998, as filed with
the Securities and Exchange Commission. Persons who were not shareowners of
record on March 11, 1999, but were beneficial owners of Common Stock as of such
date and who wish to receive such reports should address their request to the
Investor Relations Department, Pennsylvania Enterprises, Inc., One PEI Center,
Wilkes-Barre, Pennsylvania 18711-0601 and include with the request a
representation that the person making the request was a beneficial owner on
March 11, 1999.
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.
16
