<PAGE>
===============================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 11, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Schedule 13E-3
Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
PG ENERGY INC.
(NAME OF ISSUER AND PERSON FILING STATEMENT)
4.10% CUMULATIVE PREFERRED STOCK, PAR VALUE $100.00 PER SHARE
(Title of Class of Securities)
708747209
(CUSIP Number of Class of Securities)
THOMAS J. WARD
SECRETARY
PG ENERGY INC.
WILKES-BARRE CENTER
39 PUBLIC SQUARE
WILKES-BARRE, PENNSYLVANIA 18711
(717) 829-8843
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and
Communications on Behalf of the Person Filing the Statement)
COPY TO:
GARETT J. ALBERT
HUGHES HUBBARD & REED
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
(212) 837-6000
MARCH 11, 1996
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation material or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [X] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: |B&
Calculation of Filing Fee
-----------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
- - - - - ------------------------------------------------------------------------------
$5,000,000 $1,000
- - - - - ------------------------------------------------------------------------------
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 100,000
shares at $50.00 per share. Calculation based on the transaction valuation
multiplied by one-fiftieth of one percent.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $1,000
Form or Registration No.: 13E-4
Filing Party: PG Energy Inc.
Date Filed: March 11, 1996
===============================================================================
<PAGE>
This Rule 13e-3 Transaction Statement (the "Statement") relates to the offer
by PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water Company (the "Company"), to purchase any and all of its outstanding
shares of 4.10% Cumulative Preferred Stock, par value $100.00 per share,
voluntary liquidation preference $105.50 per share, involuntary liquidation
preference $100.00 per share (the "Shares"), at $50.00 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated March 11, 1996, and in the related Letter of
Transmittal, copies of which are attached hereto as Exhibits (d)(1) and (d)(2),
respectively.
The cross reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Issuer Tender
Offer Statement on Schedule 13E-4 (the "Schedule 13E-4") filed by the Company
with the Securities and Exchange Commission on the date hereof of the
information required to be included in response to the items of this Statement.
The information set forth in the Schedule 13E-4, which is attached hereto as
Exhibit (g)(2), including all exhibits thereto, is expressly incorporated by
reference and responses to each item herein are qualified in their entirety by
the provisions of the Schedule 13E-4.
<PAGE>
CROSS-REFERENCE SHEET
ITEM IN LOCATION IN
SCHEDULE 13E-3 SCHEDULE 13E-4
- - - - - ------------------ ------------------
Item 1(a)....... Item 1(a)
Item 1(b)....... Item 1(b)
Item 1(c)....... Item 1(c)
Item 1(d)....... *
Item 1(e)....... *
Item 1(f)....... *
Item 2(a)....... *
Item 2(b)....... *
Item 2(c)....... *
Item 2(d)....... *
Item 2(e)....... *
Item 2(f)....... *
Item 2(g)....... *
Item 3(a)(1).... *
Item 3(a)(2).... *
Item 3(b)....... *
Item 4(a)....... *
Item 4(b)....... *
Item 5(a)....... Item 3(b)
Item 5(b)....... Item 3(c)
Item 5(c)....... Item 3(d)
Item 5(d)....... Item 3(e)
Item 5(e)....... Item 3(f)
Item 5(f)....... Item 3(i)
Item 5(g)....... Item 3(j)
Item 6(a)....... Item 2(a)
Item 6(b)....... *
Item 6(c)....... Item 2(b)
Item 6(d)....... *
Item 7(a)....... Item 3
Item 7(b)....... *
Item 7(c)....... *
(i)
<PAGE>
ITEM IN LOCATION IN
SCHEDULE 13E-3 SCHEDULE 13E-4
- - - - - ------------------ ------------------
Item 7(d)....... *
Item 8(a)....... *
Item 8(b)....... *
Item 8(c)....... *
Item 8(d)....... *
Item 8(e)....... *
Item 8(f)....... *
Item 9(a)....... *
Item 9(b)....... *
Item 9(c)....... *
Item 10(a)...... *
Item 10(b)...... *
Item 11......... Item 5
Item 12(a)...... *
Item 12(b)...... *
Item 13(a)...... *
Item 13(b)...... *
Item 13(c)...... *
Item 14(a)...... Item 7(a)
Item 14(b)...... Item 7(b)
Item 15(a)...... *
Item 15(b)...... Item 6
Item 16......... Item 8(e)
Item 17(a)...... Item 9(b)
Item 17(b)...... *
Item 17(c)...... Item 9(c)
Item 17(d)...... Item 9(a)
Item 17(e)...... *
Item 17(f)...... Item 9(f)
__________
* The Item is located in the Schedule 13E-3 only.
(ii)
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer is PG Energy Inc., a Pennsylvania corporation
formerly known as Pennsylvania Gas and Water Company (the "Company"), and the
address of its principal executive offices is Wilkes-Barre Center, 39 Public
Square, Wilkes-Barre, Pennsylvania 18711.
(b) This Schedule relates to the offer by the Company to purchase any and all
of its outstanding shares of 4.10% Cumulative Preferred Stock, par value $100.00
per share, voluntary liquidation preference $105.50 per share, involuntary
liquidation preference $100.00 per share (the "Shares"), at $50.00 per Share,
net to the seller in cash, all upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 11, 1996 (the "Offer to Purchase"),
and the related Letter of Transmittal (which together constitute the "Offer"),
copies of which are attached hereto as Exhibits (d)(1) and (d)(2), respectively.
As of March 11, 1996, the Company had issued and outstanding 100,000 Shares. As
of March 7, 1996, there were approximately 700 holders of record of Shares. The
information set forth on the cover page, and under "Introduction" of the Offer
to Purchase is incorporated herein by reference.
(c) and (d) The information set forth on the cover page, and under
"Introduction" and "The Offer-Price Range of Shares; Dividends; Trading Volume"
in Section 10 of the Offer to Purchase is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth under "The Offer-Transactions and Agreements
Concerning the Shares and Other Securities of the Company" in Section 13 and on
Schedule C, "Purchase of Preferred Stock of the Company by the Company or its
Affiliates Since January 1, 1994," of the Offer to Purchase is incorporated
herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
The issuer is the party filing this Statement.
(a)-(d) The information set forth under "The Offer-Certain Information
Concerning the Company-Directors and Executive Officers of the Company" in
Section 11 and on Schedule A, "Directors and Executive Officers of the Company,"
of the Offer to Purchase is incorporated herein by reference.
(e) and (f) None.
(g) The information set forth under "The Offer-Certain Information Concerning
the Company-Directors and Executive Officers of the Company" in Section 11 and
on Schedule A, "Directors and Executive Officers of the Company," of the Offer
to Purchase is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) Not applicable.
(b) None.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth on the cover page, and under "Introduction,"
"Special Factors-Purpose of the Offer; Certain Effects of the Offer; Plans of
the Company After the Offer" in Section 1 and "The Offer" of the Offer to
Purchase is incorporated herein by reference.
(b) Not applicable.
1
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth under "Special Factors-Purpose of the
Offer; Certain Effects of the Offer; Plans of the Company After the Offer" in
Section 1 of the Offer to Purchase is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth under "The Offer-Source and Amount of Funds" in
Section 12, "The Offer-Certain Information Concerning the Company-Recent
Developments" in Section 11 and "Special Factors-Purpose of the Offer; Certain
Effects of the Offer; Plans of the Company After the Offer" in Section 1 of the
Offer to Purchase is incorporated herein by reference.
(b) The information set forth under "The Offer-Fees and Expenses" in Section
15 of the Offer to Purchase is incorporated herein by reference.
(c) and (d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth under "Special Factors-Purpose of the Offer;
Certain Effects of the Offer; Plans of the Company After the Offer" in Section 1
of the Offer to Purchase is incorporated herein by reference.
(b) None.
(c) The information set forth under "Special Factors-Purpose of the Offer;
Certain Effects of the Offer; Plans of the Company After the Offer" in Section 1
of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth under "Special Factors-Purpose of the Offer;
Certain Effects of the Offer; Plans of the Company After the Offer" in Section 1
and "Special Factors-Certain Federal Income Tax Consequences" in Section 2 of
the Offer to Purchase is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The information set forth under "Special Factors-Fairness of the
Offer; Reports and Opinions" in Section 3 of the Offer to Purchase is
incorporated herein by reference.
(c) The information set forth under "Special Factors-Certain Legal Matters;
Regulatory and Foreign Approvals; No Appraisal Rights" in Section 4 of the Offer
to Purchase is incorporated herein by reference.
(d) The information set forth under "Special Factors-Fairness of the Offer;
Reports and Opinions" in Section 3 of the Offer to Purchase is incorporated
herein by reference.
(e) The information set forth under "Special Factors-Purpose of the Offer;
Certain Effects of the Offer, Plans of the Company After the Offer" in Section 1
of the Offer to Purchase is incorporated herein by reference.
(f) The information set forth under "The Offer-Certain Information
Concerning the Company-Recent Developments" in Section 11 of the Offer to
Purchase is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The information set forth under "Special Factors-Fairness of the
Offer; Reports andOpinions" in Section 3 of the Offer to Purchase is
incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
2
<PAGE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth under "The Offer-Transactions and Agreements
Concerning the Shares and Other Securities of the Company" in Section 13 and on
Schedule B, "Interest in Preferred Stock of the Company," of the Offer to
Purchase is incorporated herein by reference.
(b) The information set forth under "The Offer-Transactions and Agreements
Concerning the Shares and Other Securities of the Company" in Section 13 of the
Offer to Purchase is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth under "The Offer-Transactions and Agreements
Concerning the Shares and Other Securities of the Company" in Section 13 of the
Offer to Purchase is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION.
(a) and (b) The information set forth on the cover page, and under
"Introduction" and "Special Factors-Purpose of the Offer; Certain Effects of the
Offer; Plans of the Company After the Offer" in Section 1 of the Offer to
Purchase is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth under "Special Factors-Certain Legal Matters;
Regulatory and Foreign Approvals; No Appraisal Rights" in Section 4 of the Offer
to Purchase is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) and (b) The information set forth under "The Offer-Certain Information
Concerning the Company-Summary Historical Financial Information" and "The
Offer-Certain Information Concerning the Company-Summary Unaudited Pro Forma
Financial Information" in Section 11 of the Offer to Purchase is incorporated
herein by reference, and the information set forth on pages 23 through 47 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, filed
as Exhibit (g)(1) hereto, is incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) and (b) The information set forth under "The Offer-Fees and Expenses" in
Section 15 of the Offer to Purchase is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) None.
(b) None.
(c) None.
(d)(1) Form of Offer to Purchase, dated March 11, 1996.
3
<PAGE>
(d)(2) Form of Letter of Transmittal together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
(d)(3) Form of Letter to Stockholders of the Company from Dean T. Casaday,
President and Chief Executive Officer of the Company, dated March 11, 1996.
(d)(4) Form of Notice of Guaranteed Delivery.
(d)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated March 11, 1996.
(d)(6) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(d)(7) Form of Summary Advertisement, dated March 12, 1996.
(d)(8) Form of Press Release issued by the Company, dated March 11, 1996.
(e) Not applicable.
(f) None.
(g)(1) Pages 23 through 47 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(g)(2) Issuer Tender Offer Statement on Schedule 13E-4.
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
PG Energy Inc.
By: /s/ John F. Kell, Jr.
-------------------------------
Name: John F. Kell, Jr.
Title: Vice President, Financial Services
Dated: March 11, 1996
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - - - - ---------- ------------
[S] [C]
(d)(1)..... Form of Offer to Purchase, dated March 11, 1996.
(d)(2)..... Form of Letter of Transmittal together with Guidelines for
Certification of Taxpayer Identification Number on Substitute
Form W-9.
(d)(3)..... Form of Letter to Stockholders of the Company from Dean T. Casaday,
President and Chief Executive Officer of the Company, dated
March 11, 1996.
(d)(4)..... Form of Notice of Guaranteed Delivery.
(d)(5)..... Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated March 11, 1996.
(d)(6)..... Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(d)(7)..... Form of Summary Advertisement, dated March 12, 1996.
(d)(8)..... Form of Press Release issued by the Company, dated March 11, 1996.
(g)(1)..... Pages 23 through 47 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(g)(2)..... Issuer Tender Offer Statement on Schedule 13E-4.
6
<PAGE>
PG ENERGY INC.
(FORMERLY PENNSYLVANIA GAS AND WATER COMPANY)
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING SHARES OF
4.10% CUMULATIVE PREFERRED STOCK
AT $50.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
------------
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water Company (the "Company"), is offering to purchase any and all of its
outstanding shares of 4.10% Cumulative Preferred Stock (the "Shares"), at $50.00
per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer").
------------
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
The Offer is, however, subject to certain other conditions. See Section 9.
------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
------------
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY
SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO
WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF
ITS AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE
OFFER AS NO SUCH PERSON OWNS ANY SHARES.
------------
As of the close of business on March 8, 1996, the last trading day prior to
the commencement of the Offer, the bid price of the Shares as reported on the
National Association of Securities Dealers OTC Bulletin Board was $50.25 per
Share. Stockholders are urged to obtain current market quotations for the
Shares. There is currently no established trading market for the Shares,
excluding limited and sporadic quotations. Stockholders should note that the
average weekly trading volume of the Shares since January 1, 1995, has been
approximately 79 Shares.
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent at the address and telephone number set forth
on the back cover of this Offer to Purchase.
THE DEALER MANAGER FOR THE OFFER IS:
LEGG MASON WOOD WALKER
INCORPORATED
March 11, 1996
<PAGE>
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her Shares
should either (1) complete and sign the Letter of Transmittal or a photocopy
thereof in accordance with the instructions in the Letter of Transmittal, mail
or deliver it and any other required documents to the Depositary, and either
deliver the certificates for Shares to the Depositary along with the Letter of
Transmittal or deliver such Shares pursuant to the procedure for book-entry
transfer set forth under "Book-Entry Transfer" in Section 6 hereof or (2)
request his or her broker, dealer, commercial bank, trust company or nominee to
effect the transaction for him or her. A stockholder whose Shares are registered
in the name of a broker, dealer, commercial bank, trust company or nominee must
contact such broker, dealer, commercial bank, trust company or nominee if he or
she desires to tender such Shares. Any stockholder who desires to tender Shares
and whose certificates for such Shares are not immediately available, or who
cannot comply in a timely manner with the procedure for book-entry transfer,
should tender such Shares by following the procedures for guaranteed delivery
set forth under "Guaranteed Delivery" in Section 6 hereof.
------------
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- - - - - ------- -----
<S> <C>
SUMMARY................................................................................... i
INTRODUCTION.............................................................................. 1
SPECIAL FACTORS........................................................................... 1
1. Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the
Offer................................................................................ 1
2. Certain Federal Income Tax Consequences.............................................. 3
3. Fairness of the Offer; Reports and Opinions.......................................... 7
4. Certain Legal Matters; Regulatory and Foreign Approvals; No Appraisal Rights......... 8
THE OFFER................................................................................. 8
5. Number of Shares; Expiration Date; Extension of the Offer............................ 8
6. Procedure for Tendering Shares....................................................... 9
7. Withdrawal Rights.................................................................... 10
8. Acceptance for Payment of Shares and Payment of Purchase Price....................... 11
9. Certain Conditions of the Offer...................................................... 11
10. Price Range of Shares; Dividends; Trading Volume..................................... 13
11. Certain Information Concerning the Company........................................... 14
12. Source and Amount of Funds........................................................... 21
13. Transactions and Agreements Concerning the Shares and Other Securities of the
Company.............................................................................. 21
14. Extension of Tender Period; Termination; Amendments.................................. 22
15. Fees and Expenses.................................................................... 23
16. Miscellaneous........................................................................ 24
Directors and Executive Officers of the Company...................................... Schedule A
Interest in Preferred Stock of the Company........................................... Schedule B
Purchases of Preferred Stock of the Company by the Company or its Affiliates Since
January 1, 1994...................................................................... Schedule C
</TABLE>
<PAGE>
SUMMARY
This general summary is provided solely for the convenience of holders of
Shares and is qualified in its entirety by reference to the full text of and the
more specific details contained in this Offer to Purchase and the related Letter
of Transmittal and any amendments hereto and thereto. Capitalized terms used in
this summary without definition shall have the meaning ascribed to such terms in
the Offer to Purchase.
<TABLE>
<CAPTION>
<S> <C>
The Company ................. PG Energy Inc.(formerly known as Pennsylvania Gas
and Water Company)
The Shares .................. Shares of the Company's 4.10% Cumulative Preferred
Stock, par value $100.00 per share, voluntary
liquidation preference $105.50 per share,
involuntary liquidation preference $100.00 per share.
Number of Shares Sought .... 100,000 (all of the Shares outstanding).
Purchase Price .............. $50.00 per Share, net to the seller in cash.
How to Tender Shares ........ Monday, April 8, 1996, at 5:00 p.m., New York
City time, unless extended by the Company.
How to Tender Shares ........ See Section 6. For further information, call the
Information Agent or consult your broker for assistance.
Withdrawal Rights ........... Tendered Shares may be withdrawn at any time until
the Expiration Date of the Offer and, unless
previously purchased, after May 3, 1996. See
Section 7.
Market Price of Shares ..... On March 8, 1996, the bid price of the Shares on
the National Association of Securities Dealers
OTC Bulletin Board was $50.25 per Share. See Section 10.
Dividends ................... Shares tendered and purchased by the Company will
be entitled to the regular quarterly cash
dividend of $1.025 per Share to be paid by the
Company on March 15, 1996, to holders of record
on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the
Company will not be entitled to any dividends in
respect of any later dividend periods. See Section 10.
Purpose of Offer ............ The Company is making the Offer as one of the
recapitalizations being undertaken in connection
with the sale on February 16, 1996, by the
Company and Pennsylvania Enterprises, Inc., the
owner of all of the Company's common stock, of
the Company's regulated water operations and
certain related assets (the "Sale of the Water
Business"). The Company believes that the Offer
and the other recapitalizations will have a
positive effect on the Company's financial and
capital ratios and credit rating. In addition,
the repurchase of Shares pursuant to the Offer
will adjust the Company's capital structure to a
level more appropriate to the size and nature of
its operations after the Sale of the Water
Business. See Section 1.
i
<PAGE>
Certain Effects of Offer ... The Company's purchase of Shares pursuant to the
Offer will reduce the number of holders of Shares
and the number of Shares that might otherwise
trade publicly, and depending upon the number of
Shares so purchased, could adversely affect the
liquidity and market value of the remaining
Shares held by the public although there is
currently no established trading market for the
Shares, excluding limited and sporadic quotations.
Brokerage Commissions ....... Not payable by stockholders.
Stock Transfer Tax .......... None, except as provided in Instruction 6 of the
Letter of Transmittal.
Payment Date ................ As promptly as practicable after the Expiration
Date of the Offer.
Further Information ......... Any questions, requests for assistance or
requests for additional copies of this Offer to
Purchase, the Letter of Transmittal or other
tender offer materials may be directed to D.F.
King & Co., Inc., 77 Water Street, New York, New
York 10005, Tel: (800) 714-3313 (toll free).
</TABLE>
ii
<PAGE>
To the Holders of 4.10% Cumulative Preferred Stock of
PG Energy Inc.:
INTRODUCTION
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water Company (the "Company"), is offering to purchase any and all of its
outstanding shares of 4.10% Cumulative Preferred Stock, par value $100.00 per
share, voluntary liquidation preference $105.50 per share, involuntary
liquidation preference $100.00 per share (the "Shares"), at $50.00 per Share
(the "Purchase Price"), net to the seller in cash, upon the terms and subject to
the conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer").
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 9.
Tendering stockholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to Instruction 6 of the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by the Company. The Company will
pay all charges and expenses of Legg Mason Wood Walker, Incorporated (the
"Dealer Manager"), Chemical Mellon Shareholder Services, L.L.C. (the
"Depositary") and D.F. King & Co., Inc. (the "Information Agent") incurred in
connection with the Offer. See Section 15. However, any tendering stockholder or
other payee who fails to complete and sign the Substitute Form W-9 that is
included in the Letter of Transmittal may be subject to a required federal
income tax backup withholding of 31% of the gross payments payable to such
stockholder or other payee pursuant to the Offer. See Sections 2 and 6.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TOTENDER ALL OR ANY SHARES. EACH
STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES
AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO
DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS TO
TENDER SHARES PURSUANT TO THE OFFER AS NO SUCH PERSON OWNS ANY SHARES.
As of March 11, 1996, the Company had issued and outstanding 100,000 Shares.
As of March 7, 1996, there were approximately 700 holders of record of Shares.
The bid price of the Shares is reported on the National Association of
Securities Dealers OTC Bulletin Board (the "NASD OTC Bulletin Board") under the
symbol "PGWCP". See Section 10. Stockholders are urged to obtain current market
quotations for the Shares. There is currently noestablished trading market for
the Shares, excluding limited and sporadic quotations. Stockholders should note
that the average weekly trading volume of the Shares since January 1, 1995, has
been approximately 79 Shares.
SPECIAL FACTORS
1. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY
AFTER THE OFFER.
The Offer is one of the recapitalizations being undertaken in connection with
the sale on February 16, 1996, by the Company and Pennsylvania Enterprises, Inc.
("PEI"), the owner of all of the Company's common stock, of the Company's
regulated water operations and certain related assets (the "Sale of the Water
Business") to Pennsylvania-American Water Company, a wholly-owned subsidiary of
American Water Works Company, Inc. See "The Offer-Certain Information Concerning
the Company-Summary Unaudited Pro Forma Financial Information" in Section 11 for
a description of the other recapitalizations. The Company believes that the
Offer and the other recapitalizations will have a positive effect on the
Company's financial and capital ratios and credit rating. In addition, the
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repurchase of Shares pursuant to the Offer will adjust the Company's capital
structure to a level more appropriate to the size and nature of its operations
after the Sale of the Water Business. See "The Offer-Certain Information
Concerning the Company-Summary Unaudited Pro Forma Financial Information" in
Section 11 for a pro forma presentation of the financial effect of the Offer.
Finally, the Offer will enable the Company to reduce its dividend requirements
and annual administrative expenses in connection with servicing the accounts of
holders of the Shares. If the Company repurchases 90% of the outstanding Shares
pursuant to the Offer, it will reduce its dividend requirements by $369,000
annually. The Board of Directors of the Company has authorized the Offer by a
unanimous vote. Nine of the eleven directors are not employees of the Company.
Following the consummation of the Offer, the business and operations of the
Company will be continued by the Company substantially as they are currently
being conducted. Except as disclosed in the Offer (see "The Offer-Certain
Information Concerning the Company-Summary Unaudited Pro Forma Financial
Information" in Section 11 for a description of the other recapitalizations),
the Company has no plans or proposals which relate to or would result in: (a)
the acquisition by any person of additional securities of the Company or the
disposition of securities of the Company; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; (c) a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries; (d) any change in the
present Board of Directors or management of the Company; (e) any material change
in the present dividend rate or policy, or indebtedness or capitalization of the
Company; (f) any other material change in the Company's corporate structure or
business; or (g) any change in the Company's Restated Articles of Incorporation
or Bylaws or any actions which may impede the acquisition of control of the
Company by any person.
The Company's purchase of Shares pursuant to the Offer will reduce the number
of holders of Shares and the number of Shares that might otherwise trade
publicly, and depending upon the number of Shares so purchased, could adversely
affect the liquidity and market value of the remaining Shares held by the public
although there is currently no established trading market for the Shares,
excluding limited and sporadic quotations. The extent of the public market for
the Shares and the availability of such quotations would, however, depend upon
such factors as the number of stockholders remaining at such time, the interest
in maintaining a market in the Shares on the part of securities firms, the
possible termination of registration under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as described below, and other factors.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Securities and Exchange Commission (the "Commission") if the
Shares are held by fewer than 300 holders of record. Termination of registration
of the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of the Shares (although the
Company would, among other things, remain for the time being subject to the
reporting obligations under the Exchange Act as a result of other of its
outstanding securities) and would make certain provisions of the Exchange Act,
such as the requirements of Rule 13e-3 thereunder with respect to "going
private" transactions, no longer applicable in respect of the Shares.
If the aggregate purchase price of Shares purchased pursuant to the Offer and
related costs (together with the net reduction in consolidated net worth
associated with the other recapitalizations being undertaken in connection with
the Sale of the Water Business) exceeds approximately $53.0 million, PEI's
consolidated net worth, based on its consolidated net worth as of December 31,
1995, would fall below the $110.0 million that PEI is required to maintain by
the Indenture, dated as of June 15, 1992, as supplemented (the "Indenture"),
relating to its 10.125% Senior Notes due June 15, 1999 (the "Senior Notes").
Failure to maintain this minimum net worth at the end of two consecutive
quarters will constitute an "Event of Default" under the Indenture if PEI does
not cure such failure within 60 days after receipt of notice from the trustee
under the Indenture or from holders of at least 25% in principal amount of the
outstanding Senior Notes. If an Event of Default occurs, the trustee may, and
the trustee shall upon the request of the holders of at least 25% in principal
amount of the outstanding Senior Notes, declare the principal of and accrued and
unpaid interest to the date of
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acceleration on the Senior Notes due and payable. Before the failure to maintain
the minimum net worth becomes an "Event of Default", PEI intends to elect to be
released from certain provisions of the Indenture ("covenant defeasance"),
including the covenant to maintain such minimum net worth, so that any omission
to comply with such covenant will not constitute an Event of Default. To effect
covenant defeasance, PEI must make an irrevocable deposit with the trustee, in
trust for such purpose, of money and/or U.S. Government Obligations (as defined
in the Indenture) which through the payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and interest on the Senior Notes to the date for redemption of
the Senior Notes (June 15, 1997) plus 91 days (or, under certain circumstances,
such longer period as may be determined) during which no bankruptcy or
insolvency petition shall have been filed by or against PEI. Part of the
proceeds from the Sale of the Water Business were used by the Company to pay PEI
a one-time special dividend on February 16, 1996, in the form of a $30 million
unsecured promissory note. The full $30 million principal amount of this note
was paid on March 8, 1996, and the funds therefrom, along with other funds
provided by PEI, will be used by PEI to make the required deposit with the
trustee. See "The Offer-Certain Information Concerning the Company-Summary
Unaudited Pro Forma Financial Information" in Section 11.
The Shares are redeemable by the Company at any time or from time to time at
a price per Share of $105.50, plus all accrued and unpaid dividends to the date
of redemption. The Offer does not constitute a notice of redemption of the
Shares pursuant to the Company's Restated Articles of Incorporation, as amended,
and owners of Shares are not under any obligation to accept the Offer or to
remit their Shares to the Company pursuant to the Offer. The Company reserves
the right to redeem Shares not purchased pursuant to the Offer at any time. The
Shares have no preemptive or conversion rights and are not entitled to any
sinking fund or similar fund. In the event of (i) a voluntary liquidation,
dissolution or winding up of the Company, holders of the Shares are entitled to
a liquidation preference of $105.50 per Share, and (ii) an involuntary
liquidation, dissolution or winding up of the Company, holders of the Shares are
entitled to a liquidation preference of $100.00 per Share, in each case, plus
all accrued and unpaid dividends thereon to the date of payment, prior to the
payment of any amounts to any holder of the Company's common stock.
Following the expiration of the Offer, the Company may, in its sole
discretion, determine to purchase any remaining Shares through privately
negotiated transactions, open market purchases or otherwise, on such terms and
at such prices as the Company may determine from time to time, the terms of
which purchases or offers could differ from those of the Offer, except that the
Company will not make any such purchases of Shares until the expiration of ten
business days after the termination of the Offer. Any possible future purchases
of Shares by the Company will depend on many factors, including the market price
of the Shares, the Company's business and financial position, alternative
investment opportunities available to the Company, the results of the Offer and
general economic and market conditions.
All Shares purchased by the Company pursuant to the Offer will be
reclassified to the status of authorized but unissued shares of the Company's
preferred stock.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT
NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS
TO TENDER SHARES PURSUANT TO THE OFFER AS NO SUCH PERSON OWNS ANY SHARES.
2. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
In General. The following summary is a general discussion of certain United
States federal income tax consequences relating to the Offer. This summary does
not discuss any aspects of state, local, foreign or other tax laws. The summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"), and
existing final, temporary and proposed Treasury Regulations, Revenue Rulings and
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judicial decisions, all of which are subject to prospective and retroactive
changes. The summary deals only with Shares held as capital assets within the
meaning of Section 1221 of the Code and does not address tax consequences that
may be relevant to investors in special tax situations, such as certain
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities or currencies, or stockholders holding the Shares as part of a
hedge or hedging transaction or as a position in a straddle for tax purposes.
The Company will not seek a ruling from the Internal Revenue Service (the "IRS")
with regard to the tax matters discussed below. Accordingly, each stockholder
should consult its own tax advisor with regard to the Offer and the application
of United States federal income tax laws, as well as the laws of any state,
local or foreign taxing jurisdiction, to its particular situation.
Characterization of the Sale. A sale of Shares by a stockholder of the
Company pursuant to the Offer will be a taxable transaction for United States
federal income tax purposes and may also be a taxable transaction under
applicable state, local and foreign tax laws. The United States federal income
tax consequences to a stockholder may vary depending upon the stockholder's
particular facts and circumstances. Under Section 302 of the Code, a sale of
Shares by a stockholder to the Company pursuant to the Offer will be treated as
a "sale or exchange" of such Shares for United States federal income tax
purposes (rather than as a distribution by the Company with respect to the
Shares held by the tendering stockholder) if the receipt of cash upon such sale
(i) results in a "complete termination" of the stockholder's interest in the
Company, (ii) is "not essentially equivalent to a dividend" with respect to the
stockholder, or (iii) in the case of a noncorporate stockholder, qualifies as a
distribution in "partial liquidation" of the Company. These tests (the "Section
302 tests") are explained more fully below. A sale of Shares by a tendering
stockholder to the Company pursuant to the Offer should be treated as a sale or
exchange of such Shares for United States federal income tax purposes, absent
other integrated purchase transactions. See "Section 302 Tests," below.
If any of the Section 302 tests is satisfied, and the sale of the Shares is
therefore treated as a "sale or exchange" of such Shares for United States
federal income tax purposes, the tendering stockholder will recognize capital
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Any such gain or loss will be long-term capital gain
or loss if the Shares have been held for more than one year.
If none of the Section 302 tests is satisfied and the Company has sufficient
current and accumulated earnings and profits, the tendering stockholder will be
treated as having received a dividend includible in gross income in an amount
equal to the entire amount of cash received by the stockholder pursuant to the
Offer (without reduction for the tax basis of the Shares sold pursuant to the
Offer), no loss will be recognized, and (subject to reduction as described below
for corporate stockholders eligible for the dividends-received deduction) the
tendering stockholder's basis in the Shares sold pursuant to the Offer will be
added to such stockholder's basis in its remaining Shares, if any. No assurance
can be given that any of the Section 302 tests will be satisfied as to any
particular stockholder, and thus no assurance can be given that any particular
stockholder will not be treated as having received a dividend taxable as
ordinary income. If the sale of Shares is not treated as a sale or exchange for
federal income tax purposes, any cash received for Shares pursuant to the Offer
in excess of the Company's earnings and profits will be treated, first, as a
nontaxable return of capital to the extent of the stockholder's basis for such
stockholder's Shares, and, thereafter, as capital gain, to the extent it exceeds
such basis.
Constructive Ownership of Stock. In determining whether any of the Section
302 tests is satisfied, stockholders must take into account not only the Shares
which are actually owned by the stockholder, but also Shares which are
constructively owned by the stockholder within the meaning of Section 318 of the
Code. Under Section 318 of the Code, a stockholder may constructively own Shares
actually owned, and in some cases constructively owned, by certain related
individuals or entities in which the stockholder has an interest, or, in the
case of stockholders that are entities, by certain individuals or entities that
have an interest in the stockholder, and Shares which the stockholder has the
right to acquire by exercise of an option or by conversion. Contemporaneous
dispositions or acquisitions of
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Shares by a stockholder or related individuals or entities may be deemed to be
part of a single integrated transaction which will be taken into account in
determining whether any of the Section 302 tests has been satisfied.
Section 302 Tests. One of the following tests must be satisfied in order for
the sale of Shares pursuant to the Offer to be treated as a sale or exchange for
federal income tax purposes.
a. Complete Termination Test. The receipt of cash by a stockholder will be
a "complete termination" of the stockholder's interest if either (i) all of
the Shares actually and constructively owned by the stockholder are sold
pursuant to the Offer, or (ii) all of the Shares actually owned by the
stockholder are sold pursuant to the Offer and, with respect to the Shares
constructively owned by the stockholder which are not sold pursuant to the
Offer, the stockholder is eligible to waive (and effectively waives)
constructive ownership of all such Shares under procedures described in
Section 302(c) of the Code. Stockholders considering making such a waiver
should do so in consultation with their tax advisors.
b. Not Essentially Equivalent to a Dividend Test. Even if the receipt of
cash by a stockholder fails to satisfy the "complete termination" test or the
"partial liquidation" test, a stockholder may nevertheless satisfy the "not
essentially equivalent to a dividend" test if the stockholder's sale of
Shares pursuant to the Offer results in a "meaningful reduction" in the
stockholder's proportionate interest in the Company. The sale of Shares to
the Company by a tendering stockholder should qualify as "not essentially
equivalent to a dividend," absent other integrated purchase transactions.
Stockholders expecting to rely on the "not essentially equivalent to a
dividend" test should consult their own tax advisors as to its application in
their particular situation.
c. Partial Liquidation Test. A sale of Shares pursuant to the Offer will
be treated as a sale or exchange for federal income tax purposes if such sale
is (i) a redemption of Shares from a stockholder that is not a corporation,
and (ii) in partial liquidation of the Company. To determine whether a
stockholder is a corporation for these purposes, shares held by a
partnership, trust or estate are treated as if owned proportionately by the
partners or beneficiaries. A distribution is treated as in partial
liquidation of a corporation if the distribution is not essentially
equivalent to a dividend (as determined at the corporate rather than the
stockholder level) and the distribution is pursuant to a plan and occurs
within the taxable year in which the plan is adopted or within the succeeding
taxable year. A distribution is not essentially equivalent to a dividend at
the corporate level for these purposes if (A) the distribution is
attributable to the corporation's ceasing to conduct a trade or business
which was actively conducted for the previous five years and which was not
acquired by the distributing corporation in a taxable transaction during such
five year period (a "qualified trade or business"), and (B) the distributing
corporation is actively involved in the conduct of a qualified trade or
business immediately after the distribution. The Company actively conducted
the water business for more than five years, and, subsequent to the Sale of
the Water Business, the Company has continued to be actively engaged in the
conduct of a qualified trade or business. Thus, the Sale of the Water
Business and the Offer will likely constitute a partial liquidation of the
Company.
Corporate Stockholder Dividend Treatment. Under current law, if a sale of
Shares by a corporate stockholder is treated as a dividend, the corporate
stockholder may be entitled to claim a deduction equal to a portion of the
dividend, subject to applicable limitations. Since the Shares are "preferred
stock" within the meaning of Section 247(b)(2) of the Code, the amount of such
deduction under Section 244 of the Code will generally be equal to 42% of the
dividend, based on the current maximum corporate income tax rate of 35%.
Corporate stockholders should consider the effect of Section 246(c) of the Code,
which disallows the dividends-received deduction with respect to stock that is
held for 45 days or less (90 days or less, in the case of preferred stock if the
stockholder receives dividends attributable to a period aggregating in excess of
366 days). For this purpose, the length of time a taxpayer is deemed to have
held stock may be reduced by periods during which the taxpayer's risk of loss
with respect to the stock is diminished by reason of the existence of certain
options or other transactions. Moreover, under Section 246A of the Code, if a
corporate stockholder has incurred indebtedness directly attributable to an
investment in Shares, the dividends-received deduction may be
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reduced by a percentage generally computed based on the amount of such
indebtedness and the total adjusted tax basis in the Shares.
In addition, because it is expected that the redemption of Shares will not be
pro rata with respect to all stockholders, any amount received by a corporate
stockholder pursuant to the Offer that is treated as a dividend will likely
constitute an "extraordinary dividend" under Section 1059 of the Code (except as
may otherwise be provided in regulations yet to be promulgated by the Treasury
Department). A redemption which is part of a partial liquidation of the
redeeming company will also constitute an "extraordinary dividend" under Section
1059 (in the absence of such regulations). A corporate stockholder receiving an
"extraordinary dividend" would be required under Section 1059(a) of the Code to
reduce its basis (but not below zero) in its Shares by the non-taxed portion of
the extraordinary dividend (i.e., the portion of the dividend for which a
deduction is allowed), and, if such portion exceeds the stockholder's tax basis
for its Shares, to treat the excess as gain from the sale of such Shares in the
year in which a sale or disposition of such Shares occurs. The basis reduction
rules of Section 1059 also generally apply to dividends which exceed a threshold
percentage of a stockholder's basis in its stock, unless the stockholder has
held its stock for more than two years before the announcement date of such
dividend. For purposes of applying Section 1059, all dividends received by a
stockholder and having their ex-dividend dates within an 85-day period (expanded
to a 365-day period, in the case of dividends received in such period that in
the aggregate exceed 20% of the stockholder's adjusted tax basis in the Shares)
are aggregated. Corporate stockholders should consult their own tax advisors as
to the application of Section 1059 of the Code to the Offer, and to any
dividends which may be paid with respect to the Shares, as well as the effect of
pending legislation discussed below.
Foreign Stockholders. The Company will withhold United States federal income
tax at a rate of 30% from the gross proceeds paid pursuant to the Offer to a
foreign stockholder or his agent, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or that an exemption
from withholding is applicable because such gross proceeds are effectively
connected with the conduct of a trade or business by the foreign stockholder
within the United States. For this purpose, a foreign stockholder is any
stockholder that is not (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) any
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
Generally, the determination of whether a reduced rate of withholding is
applicable is made by reference to a foreign stockholder's address or to a
properly completed Form 1001 furnished by the stockholder, and the determination
of whether an exemption from withholding is available on the grounds that gross
proceeds paid to a foreign stockholder are effectively connected with a United
States trade or business is made on the basis of a properly completed Form 4224
furnished by the stockholder. The Company will determine a foreign stockholder's
eligibility for a reduced rate of, or exemption from, withholding by reference
to the stockholder's address and any Forms 1001 or 4224 submitted to the Company
by a foreign stockholder unless facts and circumstances indicate that such
reliance is not warranted or unless applicable law requires some other method
for determining whether a reduced rate of withholding is applicable. These forms
can be obtained from the Company.
A foreign stockholder with respect to whom tax has been withheld may be
eligible to obtain a refund of all or a portion of the withheld tax if the
stockholder satisfied one of the Section 302 tests for capital gain treatment or
is otherwise able to establish that no tax or a reduced amount of tax was due.
Foreign stockholders are urged to consult their own tax advisors regarding the
application of United States federal income tax withholding, including
eligibility for a withholding tax reduction or exemption and the refund
procedure.
Backup Withholding. See Section 6 with respect to the application of
United States federal income tax backup withholding.
Legislative Proposals.
(a) Capital Gains: The Revenue Reconciliation Act of 1995, as passed by
Congress and vetoed by the President, includes a reduction in the tax on net
long-term capital gains for both individuals and corporations. Under the bill,
individual taxpayers would be permitted a deduction for 50% of net
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capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses). In addition, the deduction for net long-term capital
losses could not exceed 50% of the excess of net long-term capital losses over
net short-term capital gains. Corporations would be subject to a maximum tax
rate of 28% on their net capital gains. These reductions in the effective
capital gains tax rates generally would have been effective for transactions
occurring after 1994. It is uncertain whether capital gains relief ultimately
will be adopted and, if adopted, what form such relief will take or what the
effective date will be.
(b) Corporate Dividends-Received Deduction: The Revenue Reconciliation Act of
1995, as passed by Congress and vetoed by the President, and the President's
budget proposal would amend Section 1059 of the Code to require corporate
stockholders to recognize gain immediately whenever the non-taxed portion of an
extraordinary dividend exceeds the basis of stock with respect to which the
dividend is received. Such legislation would also cause any amount characterized
as a dividend due to the Section 318 option attribution rules to be treated as
an extraordinary dividend under Section 1059 (with the legislation's gain
recognition rule applied by taking into account only the basis of the stock
redeemed). The legislation generally is proposed to be effective for redemptions
after May 3, 1995. It is uncertain whether such proposals will be adopted and,
if adopted, what form such legislation will take.
In addition, the President's budget proposal (but not the Revenue
Reconciliation Act of 1995 as passed by Congress) would reduce the
dividends-received deduction under Section 244 of the Code from 42% to 30%
(assuming that the maximum corporate income tax rate remains at 35%) and would
require the 46-day holding period of Section 246(c) of the Code to be satisfied
over a period immediately before and/or after the taxpayer becomes entitled to
receive the dividend. Both of these provisions would apply to dividends paid
after January 31, 1996.
The impact of pending and future budget and tax legislation on the United
States federal tax system, including possible effects on taxation of the Offer,
is uncertain. Stockholders are advised to consult their own tax advisors as to
these matters.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON,
AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER.
NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE
OFFER, THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED ABOVE AND
THE EFFECT OF TAX LEGISLATIVE PROPOSALS.
3. FAIRNESS OF THE OFFER; REPORTS AND OPINIONS.
The Company believes the Offer is fair to holders of Shares. There is
currently no established trading market for the Shares, excluding limited and
sporadic quotations. The Offer gives holders of Shares the opportunity to sell
substantial amounts of Shares without driving down the bid price. The Offer will
also provide stockholders with the opportunity to dispose of Shares without the
usual transaction costs associated with a market sale including the payment of
brokerage commissions. Correspondingly, the costs to the Company for servicing
the accounts of odd lot holders will be reduced.
Neither the Company nor its Board of Directors received any report, opinion
(other than any opinion of counsel it may have received) or appraisal which is
materially related to the Offer, including, but not limited to, any such report,
opinion or appraisal relating to the consideration or the fairness of the
consideration to be offered to the holders of the Shares or the fairness of such
transaction to the Company. A majority of the directors who are not employees of
the Company have not retained an unaffiliated representative to act solely on
behalf of unaffiliated stockholders for the purposes of negotiating the terms of
the transaction.
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4. CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS; NO APPRAISAL RIGHTS.
The Company is not aware of any license or regulatory permit that appears to
be material to its business that might be adversely affected by its acquisition
of Shares as contemplated in the Offer or of any approval or other action by any
government or governmental, administrative or regulatory authority or agency,
domestic or foreign, that would be required for the Company's acquisition or
ownership of Shares pursuant to the Offer. Should any such approval or other
action be required, the Company currently contemplates that it will seek such
approval or other action. The Company cannot predict whether it may determine
that it is required to delay the acceptance for payment of, or payment for,
Shares tendered pursuant to the Offer pending the outcome of any such matter.
There can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
the failure to obtain any such approval or other action might not result in
adverse consequences to the Company's business. The Company intends to make all
required filings under the Exchange Act. The Company's obligation under the
Offer to accept for payment, or make payment for, Shares is subject to certain
conditions. See Section 9.
There is no stockholder vote required in connection with the Offer.
There are no appraisal rights available to holders of Shares in connection
with the Offer.
THE OFFER
5. NUMBER OF SHARES; EXPIRATION DATE; EXTENSION OF THE OFFER.
Upon the terms and subject to the conditions described herein and in the
Letter of Transmittal, the Company will purchase any and all Shares that are
validly tendered on or prior to the Expiration Date (and not properly withdrawn
in accordance with Section 7) at the Purchase Price. The later of 5:00 p.m., New
York City time, on Monday, April 8, 1996, or the latest time and date to which
the Offer is extended, is referred to herein as the "Expiration Date". The Offer
is not conditioned on any minimum number of Shares being tendered.
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
If (i) the Company increases or decreases the price to be paid for Shares or
decreases the number of Shares being sought and (ii) the Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
business day from, and including, the date that notice of such increase or
decrease is first published, sent or given in the manner described in Section
14, the Offer will be extended until the expiration of ten business days from
the date of publication of such notice.
The Company also expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary and
making a public announcement thereof. See Section 14. There can be no assurance,
however, that the Company will exercise its right to extend the Offer.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Copies of this Offer to Purchase and the Letter of Transmittal are being
mailed to record holders of Shares and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
Company's stockholder list or, if applicable, who are listed as participants in
a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
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<PAGE>
6. PROCEDURE FOR TENDERING SHARES.
Proper Tender of Shares. To tender Shares validly pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal or
photocopy thereof, together with any required signature guarantees and any other
documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (i) certificates for the Shares to be tendered must be
received by the Depositary at one of such addresses or (ii) such Shares must be
delivered pursuant to the procedures for book-entry transfer described below
(and a confirmation of such delivery received by the Depositary), in each case
on or prior to the Expiration Date, or (b) the tendering holder of Shares must
comply with the guaranteed delivery procedure described below.
Book-Entry Transfer. The Depositary will establish an account with respect to
the Shares at The Depository Trust Company and the Philadelphia Depository Trust
Company (collectively referred to as the "Book-Entry Transfer Facilities") for
purposes of the Offer within two business days after the date of this Offer to
Purchase, and any financial institution that is a participant in the system of
any Book-Entry Transfer Facility may make delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the procedures of such Book-Entry Transfer Facility.
Although delivery of Shares may be effected through book-entry transfer, a
properly completed and duly executed Letter of Transmittal or photocopy thereof,
together with any required signature guarantees and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase on or prior to
the Expiration Date, or the tendering holder of Shares must comply with the
guaranteed delivery procedure described below. Delivery of the Letter of
Transmittal and any other required documents to a Book-Entry Transfer Facility
does not constitute delivery to the Depositary.
Signature Guarantees. Except as otherwise provided below, all signatures on a
Letter of Transmittal must be guaranteed by a firm that is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (each of the foregoing being
referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal
need not be guaranteed if (a) the Letter of Transmittal is signed by the
registered holder of the Shares tendered therewith and such holder has not
completed the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of Transmittal or (b) such Shares
are tendered for the account of an Eligible Institution. See Instructions 1 and
5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and cannot deliver certificates for such Shares and all other required
documents to the Depositary on or prior to the Expiration Date or the procedure
for book-entry transfer cannot be complied within a timely manner, such Shares
may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company (with any required
signature guarantees) is received by the Depositary as provided below on or
prior to the Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), together with a properlycompleted and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by the Letter of Transmittal, are received by the Depositary no
later than 5:00 p.m., New York City time, on the third business day after the
date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Depositary and must include a guarantee by
an Eligible Institution in the form set forth in such Notice.
9
<PAGE>
The method of delivery of Shares and all other required documents is at the
option and risk of the tendering stockholder. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases sufficient time should be allowed to assure timely delivery.
Federal Backup Withholding. To avoid federal income tax backup withholding
equal to 31% of the gross payments made pursuant to the Offer, each stockholder
must notify the Depositary of such stockholder's correct taxpayer identification
number and provide certain other information by properly completing the
Substitute Form W-9 included in the Letter of Transmittal. Foreign stockholders
(as defined in Section 2) may be required to submit a properly completed Form
W-8, certifying non-United States status, in order to avoid backup withholding.
In addition, foreign stockholders may be subject to 30% (or lower treaty rate)
withholding on gross payments received pursuant to the Offer (as discussed in
Section 2). For a discussion of certain federal income tax consequences to
tendering stockholders, see Section 2. Each stockholder is urged to consult with
his or her own tax advisor.
Determinations of Validity. All questions as to the Purchase Price, the form
of documents and the validity, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be determined by the
Company, in its sole discretion, and its determination shall be final and
binding. The Company reserves the absolute right to reject any or all tenders of
Shares that it determines are not in proper form or the acceptance for payment
of or payment for Shares that may, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any defect or
irregularity in any tender of Shares. None of the Company, the Dealer Manager,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice.
Rule 14e-4. It is a violation of Rule 14e-4 promulgated under the Exchange
Act for a person to tender Shares for his or her own account unless the person
so tendering (i) has a net long position equal to or greater than the amount of
(x) Shares tendered or (y) other securities immediately convertible into,
exercisable, or exchangeable for the amount of Shares tendered and will acquire
such Shares for tender by conversion, exercise or exchange of such other
securities and (ii) will cause such Shares to be delivered in accordance with
the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to
the tender or guarantee of a tender on behalf of another person. The tender of
Shares pursuant to any one of the procedures described above will constitute the
tendering stockholder's representation and warranty that (i) such stockholder
has a net long position in the Shares being tendered within the meaning of Rule
14e-4 promulgated under the Exchange Act, and (ii) the tender of such Shares
complies with Rule 14e-4. The Company's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions of the Offer.
7. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after May 3, 1996, unless theretofore accepted for
payment as provided in this Offer to Purchase. If the Company extends the period
of time during which the Offer is open, is delayed in accepting for payment or
paying for Shares or is unable to accept for payment or pay for Shares pursuant
to the Offer for any reason, then, without prejudice to the Company's rights
under the Offer, the Depositary may, on behalf of the Company, retain all Shares
tendered, and such Shares may not be withdrawn except as otherwise provided in
this Section 7, subject to Rule 13e-4(f)(5) under the Exchange Act, which
provides that the issuer making the tender offer shall either pay the
consideration offered, or return the tendered securities promptly after the
termination or withdrawal of the tender offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of this Offer to Purchase and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution (except in the case of Shares tendered by an Eligible Institution)
must be submitted prior to the release of such Shares. In addition, such
10
<PAGE>
notice must specify, in the case of Shares tendered by delivery of certificates,
the name of the registered holder (if different from that of the tendering
stockholder) and the serial numbers shown on the particular certificates
evidencing the Shares to be withdrawn or, in the case of Shares tendered by
book-entry transfer, the name and number of the account at one of the Book-Entry
Transfer Facilities to be credited with the withdrawn Shares. Withdrawals may
not be rescinded, and Shares withdrawn will thereafter be deemed not validly
tendered for purposes of the Offer. However, withdrawn Shares may be retendered
by again following one of the procedures described in Section 6 at any time
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding. None of the Company, the Dealer
Manager, the Depositary, the Information Agent or any other person will be under
any duty to give notification of any defect or irregularity in any notice of
withdrawal or incur any liability for failure to give any such notification.
8. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer and as promptly as
practicable after the Expiration Date, the Company will accept for payment and
pay the Purchase Price for any and all Shares validly tendered. Thereafter,
payment for all Shares accepted for payment pursuant to the Offer will be made
by the Depositary by check as promptly as practicable. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for Shares (or of a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), a properly completed and duly executed Letter
of Transmittal or photocopy thereof, and any other required documents.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares that are validly tendered prior to the
applicable Expiration Date and not withdrawn as, if and when it gives oral or
written notice to the Depositary of its acceptance for payment of such Shares.
The Company will pay for Shares that it has purchased pursuant to the Offer by
depositing the Purchase Price therefor with the Depositary. The Depositary will
act as agent for tendering stockholders for the purpose of receiving payment
from the Company and transmitting payment to tendering stockholders. Under no
circumstances will interest be paid on amounts to be paid to tendering
stockholders, regardless of any delay in making such payment.
If certain events occur, the Company may not be obligated to purchase Shares
pursuant to the Offer. See Section 9. Certificates for all Shares not purchased
will be returned (or, in the case of Shares tendered by book-entry transfer,
such Shares will be credited to an account maintained with a Book-Entry Transfer
Facility) as promptly as practicable without expense to the tendering
stockholder.
The Company will pay or cause to be paid any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the Purchase Price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder, or if tendered Shares are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of any stock transfer taxes (whether imposed on the registered
holder, such other person or otherwise) payable on account of the transfer to
such person will be deducted from the Purchase Price unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted. See
Instruction 6 of the Letter of Transmittal.
9. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of the Offer, the Company will not be
required to accept for payment or pay for any Shares tendered, and may terminate
or amend the Offer or may postpone (subject to the requirements of the Exchange
Act for prompt payment for or return of Shares) the acceptance for payment of or
payment for Shares tendered, if at any time on or after March 11, 1996,
11
<PAGE>
and before acceptance for payment of or payment for any such Shares, any of the
following events shall have occurred (or shall have been determined by the
Company in its sole judgment to have occurred) regardless of the circumstances
giving rise thereto (including any action or omission to act by the Company):
(a) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, or
before any court, authority, agency or tribunal that (i) challenges the
acquisition of Shares pursuant to the Offer or otherwise in any manner
relates to or affects the Offer, (ii) challenges the acquisition by the
Company of its Depositary Preferred Shares (the "Depositary Preferred
Shares"), each representing a one-fourth interest in a share of its 9%
Cumulative Preferred Stock, pursuant to the Company's Offer to Purchase,
dated March 11, 1996, concerning such Depositary Preferred Shares (the
"Depositary Preferred Offer") or otherwise in any manner relates to or
affects the Depositary Preferred Offer, (iii) challenges the acquisition by
PEI of shares of its common stock pursuant to PEI's Offer to Purchase, dated
March 11, 1996, concerning such common stock (the "PEI Offer") or otherwise
in any manner reltates to or affects the PEI Offer or (iv) in the sole
judgment of the Company, could materially and adversely affect the business,
condition (financial or other), income, operations or prospects of the
Company or PEI and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the business
of PEI or any of its subsidiaries (including the Company) or materially
impair the contemplated benefits of the Offer to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, withdrawn or abrogated or any statute, rule, regulation,
judgment, order or injunction threatened, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the Offer,
the Depositary Preferred Offer or the PEI Offer or to PEI or any of its
subsidiaries (including the Company), by any legislative body, court,
authority, agency or tribunal which, in the Company's sole judgment, would or
might directly or indirectly (i) make the acceptance for payment of, or
payment for, some or all of the Shares, the Depositary Preferred Shares or
shares of the common stock of PEI illegal or otherwise restrict or prohibit
consummation of the Offer, the Depositary Preferred Offer or the PEI Offer,
(ii) delay or restrict the ability of the Company or PEI, or render the
Company or PEI unable, to accept for payment or pay for some or all of the
Shares, the Depositary Preferred Shares or shares of the common stock of PEI,
as the case may be, (iii) materially impair the contemplated benefits or the
Depositary Preferred Offer of the Offer to the Company or of the PEI Offer to
PEI or (iv) materially affect the business, condition (financial or other),
income, operations or prospects of the Company or PEI and its subsidiaries,
taken as a whole, or otherwise materially impair in any way the contemplated
future conduct of the business of PEI or any of its subsidiaries (including
the Company);
(c) it shall have been publicly disclosed or the Company shall have
learned that (i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) has acquired or proposes to acquire beneficial
ownership of more than 5% of the outstanding shares of the common stock of
PEI, whether through the acquisition of stock, the formation of a group, the
grant of any option or right, or otherwise (other than as disclosed in a
Schedule 13D or 13G (or an amendment thereto) on file with the Commission on
March 8, 1996), (ii) any such person or group that on or prior to March 8,
1996, had filed such a Schedule with the Commission thereafter shall have
acquired or shall propose to acquire whether through the acquisition of
stock, the formation of a group, the grant of any option or right, or
otherwise, beneficial ownership of additional shares of the common stock of
PEI representing 2% or more of the outstanding shares of such common stock,
(iii) any new group shall have been formed which beneficially owns more than
5% of the outstanding shares of the common stock of PEI, or (iv) any person,
entity or group shall have filed a Notification and Report Form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public
announcement reflecting an intent to acquire PEI or any of its subsidiaries
or any of their respective assets or securities;
(d) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or
in the over-the-counter market, (ii) any significant decline in the market
price of the Shares or in the general level of market prices of equity
securities
12
<PAGE>
in the United States or abroad, (iii) any change in the general political,
market, economic or financial condition in the United States or abroad that
could have a material adverse effect on PEI's or the Company's business,
condition (financial or other), income, operations, prospects or ability to
obtain financing generally or the trading in the Shares, (iv) the declaration
of a banking moratorium or any suspension of payments in respect of banks in
the United States or any limitation on, or any event which, in the Company's
sole judgment, might affect, the extension of credit by lending institutions
in the United States, (v) the commencement of a war, armed hostilities or
other international or national crisis directly or indirectly involving the
United States or (vi) in the case of any of the foregoing existing at the
time of the commencement of the Offer, in the Company's sole judgment, a
material acceleration or worsening thereof;
(e) a tender or exchange offer with respect to some or all of the Shares
(other than the Offer) or other shares of preferred stock of the Company or
some or all of the common stock of PEI, or a merger, acquisition or other
business combination proposal for PEI or any subsidiary (including the
Company), shall have been proposed, announced or made by a person other than
the Company or PEI;
(f) there shall have occurred any event or events that have resulted, or
may in the sole judgment of the Company result, in an actual or threatened
change in the business, condition (financial or other), income, operations,
stock ownership or prospects of the Company or PEI and its subsidiaries,
taken as a whole; or materially impair the contemplated benefits of the Offer
to the Company; or
(g) (i) Moody's Investors Service, Inc. or Standard & Poor's Corporation
shall have downgraded or withdrawn the rating accorded any securities of the
Company or PEI, or (ii) Moody's Investors Service, Inc. or Standard & Poor's
Corporation shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any securities of
the Company or PEI;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payments.
Any of the foregoing conditions may be waived by the Company, in whole or in
part, at any time and from time to time in its sole discretion. The failure by
the Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Any determination
by the Company concerning the events described above will be final and binding
on all parties.
10. PRICE RANGE OF SHARES; DIVIDENDS; TRADING VOLUME.
The Shares are listed on the NASD OTC Bulletin Board. The following table
sets forth the high and low bid prices of the Shares on the NASD OTC Bulletin
Board and the cash dividends per Share for the quarters indicated.
13
<PAGE>
<TABLE>
<CAPTION>
BID PRICE BID PRICE CASH DIVIDENDS
FISCAL YEAR HIGH LOW PER SHARE
- - - - - ----------- ---------- ------------ ---------------
<S> <C> <C> <C>
1994:
1st Quarter..................... $47.500 $46.250 $1.025
2nd Quarter..................... $47.500 $43.000 $1.025
3rd Quarter..................... $47.000 $46.000 $1.025
4th Quarter..................... $47.000 $43.500 $1.025
1995:
1st Quarter..................... $45.500 $43.500 $1.025
2nd Quarter..................... $46.000 $45.000 $1.025
3rd Quarter..................... $47.000 $45.000 $1.025
4th Quarter..................... $47.875 $45.000 $1.025
1996:
1st Quarter (through March 8,
1996).......................... $50.250 $45.000 $1.025(1)
<FN>
- - - - - ------------
(1) On January 15, 1996, the Company declared a dividend of $1.025 per common
share for the first quarter of 1996. The dividend is to be paid on March
15, 1996, to holders of record on March 1, 1996.
</FN>
</TABLE>
On March 8, 1996, the last trading day prior to the commencement of the
Offer, the bid price of the Shares as reported on the NASD OTC Bulletin Board
was $50.25 per Share. Stockholders areurged to obtain current market quotations
for the Shares. There is currently no established trading market for the Shares,
excluding limited and sporadic quotation. Stockholders should note that the
average weekly trading volume of the Shares since January 1, 1995, has been
approximately 79 Shares.
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
Pennsylvania law imposes certain legal restrictions on the Company's ability
to pay dividends. As a general matter, Pennsylvania law provides that a
distribution may not be made if after giving effect thereto (1) the corporation
would be unable to pay its debts as they become due in the usual course of its
business, or (2) the total assets of the corporation would be less than the sum
of its total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time as of which the dividend is
measured, to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution. The
Company's Restated Articles of Incorporation, as amended, do not authorize the
issuance of any class of capital stock which has preferential rights superior to
those of the Shares.
11. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a public utility company regulated by the Pennsylvania Public
Utility Commission which provides natural gas to approximately 141,800 customers
in ten counties in northeastern Pennsylvania.
The Company's principal executive offices are located at Wilkes-Barre
Center, 39 Public Square, Wilkes-Barre, PA 18711, and its telephone number is
(717) 829-8843.
RECENT DEVELOPMENTS
On February 16, 1996, the Company and PEI sold substantially all of the
Company's water operations to Pennsylvania-American Water Company, a
wholly-owned subsidiary of American Water Works Company, Inc., for approximately
$413.5 million (including debt assumed), subject to certain post-closing
adjustments. These operations had provided water service to approximately
133,400 customers. See "-Summary Unaudited Pro Forma Financial Information"
below.
14
<PAGE>
Effective as of December 4, 1995, Pennsylvania Energy Resources, Inc., a
wholly-owned subsidiary of PEI, acquired all of the outstanding stock of
Keystone Pipeline Services, Inc. (formerly known as Ford Bacon & Davis Sealants
Inc.), from Ford, Bacon & Davis Companies, Inc., a wholly-owned subsidiary of
Deutsche Babcock Technologies, Inc. Keystone Pipeline Services, Inc. is engaged
in distribution pipeline construction, maintenance and rehabilitation.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Schedule A hereto sets forth the name, business address and present principal
occupation or employment and any other material occupations, positions, offices
or employments during the last five years of each director and executive officer
of the Company. Schedule A also sets forth the citizenship of each such director
and executive officer.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following selected financial information for each of the years ended
December 31, 1995, and December 31, 1994, has been derived from the Company's
audited financial statements contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the "1995 10-K"), which reflect the
Company's water utility operations as "discontinued operations" effective March
31, 1995. The following selected historical financial information should be read
in conjunction with, and is qualified in its entirety by reference to, such
audited financial statements and the related notes which are incorporated herein
by reference. The 1995 10-K may be obtained from or inspected at the offices of
the Commission in the manner set forth in Section 16.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994
----------- ------------
<S> <C> <C>
Income Statement Data:
Operating revenues .................................. $ 152,756 $ 167,992
Cost of gas......................................... 84,372 98,653
----------- ------------
Operating margin..................................... 68,384 69,339
Other operating expenses............................. 49,462 50,211
----------- ------------
Operating income..................................... 18,922 19,128
Other income, net.................................... 301 72
----------- ------------
Income before interest charges....................... 19,223 19,200
Interest charges..................................... 10,753 9,898
----------- ------------
Income from continuing operations.................... 8,470 9,302
Income (loss) with respect to discontinued
operations........................................... (3,834) 10,504
----------- ------------
Net income........................................... 4,636 19,806
Dividends on preferred stock......................... 2,763 4,639
----------- ------------
Net income applicable to common stock ............... $ 1,873 $ 15,167
=========== ============
Common stock:
Earnings per share of common stock ................. $ 0.34 $ 2.73
=========== ============
Weighted average number of shares outstanding....... 5,569,765 5,189,108
=========== ============
Ratio of earnings to fixed charges (1)............... 2.27 2.53
=========== ============
<FN>
_________
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as the sum of pre-tax income plus fixed charges. Fixed charges
consist of all interest expense (before allowance for borrowed funds used
during construction), one-third of rent expense (which approximates the
interest component of such expense), and amortization of debt expense.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Balance Sheet Data:
ASSETS
Utility plant ................................................. $295,895 $284,080
Less accumulated depreciation ................................ (76,882) (74,408)
----------- -----------
Net utility plant ............................................. 219,013 209,672
Other property and investments ................................ 5,089 2,872
Current assets ................................................ 54,512 58,250
Deferred charges .............................................. 34,368 44,345
Net assets of discontinued operations ......................... 204,250 203,196
----------- -----------
Total assets .................................................. $517,232 $518,335
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's investment .............................. $208,356 $216,032
Preferred stock -
Not subject to mandatory redemption, net .................... 33,615 33,615
Subject to mandatory redemption ............................. 1,680 1,760
Long-term debt ............................................... 55,000 170,825
----------- -----------
298,651 422,232
----------- -----------
Current liabilities:
Current portion of long-term debt and preferred stock subject
to
mandatory redemption ........................................ 115,881 3,290
Note payable to bank ......................................... 10,000 --
Other ........................................................ 28,601 31,580
----------- -----------
154,482 34,870
----------- -----------
Deferred credits .............................................. 64,099 61,233
----------- -----------
Total capitalization and liabilities .......................... $517,232 $518,335
=========== ===========
Shareholder's equity per common share outstanding ............. $ 37.19 $ 39.59
=========== ===========
</TABLE>
16
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Summary Unaudited Pro Forma Balance Sheet and Summary Unaudited
Pro Forma Statement of Income have been prepared based on the Company's balance
sheet as of December 31, 1995, and the related statement of income for the year
then ended, each as adjusted to reflect the Sale of the Water Business on
February 16, 1996, and the use of the cash proceeds therefrom of $210.0 million
(after the payment of an estimated $56.7 million of federal and state income
taxes on the sale) for the purchase of Shares pursuant to the Offer and the
other purposes described in Note 3 to the Notes to Summary Unaudited Pro Forma
Balance Sheet. Pursuant to the Asset Purchase Agreement relating to the Sale of
the Water Business, the purchase price is subject to post-closing adjustment in
certain cases. The summary unaudited pro forma financial statements also reflect
certain other assumptions and related transactions as described in the notes to
such statements.
The Summary Unaudited Pro Forma Statement of Income reflects the results of
the Company's continuing operations as if the Sale of the Water Business and the
use of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, had taken place at the beginning of the period. The Summary Unaudited Pro
Forma Balance Sheet as of December 31, 1995, reflects the financial position of
the Company as if such transactions had occurred on that date. Each of the
Company's Summary Unaudited Pro Forma Statement of Income and Summary Unaudited
Pro Forma Balance Sheet include estimates which may differ from the results
ultimately incurred.
The summary unaudited pro forma financial statements have been included
herein as required by the rules of the Commission and are for comparative
purposes only. They should be read in conjunction with the summary historical
financial information and do not purport to be indicative of the results that
would actually have been obtained had the Sale of the Water Business, the
purchase of Shares pursuant to the Offer and the other related transactions
described in the notes to such statements been effected on the dates indicated
or the results that may be obtained in the future.
Certain statements made below relating to plans, conditions, objectives and
economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Exchange Act, and each is
subject to factors that could cause actual results to differ from those in the
forward-looking statement.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA STATEMENT OF
INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS, PER SHARE AMOUNTS AND
SHARES OUTSTANDING)
<TABLE>
<CAPTION>
ASSUMING A $50 PER SHARE PURCHASE PRICE
PRO FORMA
HISTORICAL ADJUSTMENTS (1) PRO FORMA
------------ ---------------- ------------
<S> <C> <C> <C>
Operating revenues.............................. $ 152,756 $ -- $ 152,756
Cost of gas.................................... 84,372 -- 84,372
------------ ---------------- ------------
Operating margin................................ 68,384 -- 68,384
Other operating expenses........................ 49,462 789 (2) 50,251
------------ ---------------- ------------
Operating income................................ 18,922 (789) 18,133
Other income, net............................... 301 -- 301
------------ ---------------- ------------
Income before interest charges.................. 19,223 (789) 18,434
------------ ---------------- ------------
Interest charges:
Interest on long-term debt..................... 9,304 (1,891)(2) 7,413
Other interest................................. 1,449 (10)(2) 1,439
---------------- ------------
Total interest charges........................ 10,753 (1,901) 8,852
------------ ---------------- ------------
Income from continuing operations............... 8,470 1,112 9,582
Dividends on preferred stock.................... 2,763 (2,353)(3) 410
------------ ---------------- ------------
Income from continuing operations applicable to
common stock................................... $ 5,707 $ 3,465 $ 9,172
============ ================ ============
Common stock:
Earnings per share of common stock from
continuing operations ........................ $ 1.02 $ 2.80
============ ============
Weighted average number of shares
outstanding................................... 5,569,765 (2,297,297)(4) 3,272,468
============ ================ ============
Ratio of earnings from continuing operations to
fixed charges (5).............................. 2.27 2.73
Shareholder's equity per common share
outstanding.................................... $ 37.19 $ 28.43
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO SUMMARY UNAUDITED PRO FORMA STATEMENT OF INCOME.
18
<PAGE>
NOTES TO SUMMARY UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(1) Adjustments assume that the Sale of the Water Business and the application
of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, each took place at the beginning of the period.
(2) Represents the adjustments to interest on long-term debt and
amortization of debt expense, and the related income tax effect, necessary to
reflect the interest on indebtedness outstanding during the period after (a)
application of proceeds from the Sale of the Water Business to (i) repay a $50.0
million loan (the "Bridge Loan"), the proceeds of which were used to redeem the
$50.0 million principal amount of the Company's 9.57% Series First Mortgage
Bonds and (ii) repay $10.9 million of the Company's bank borrowings and (b) the
redemption in connection with the Sale of the Water Business and pursuant to
annual sinking fund requirements of the $3.5 million principal amount of the
Company's 8% Series First Mortgage Bonds outstanding as of January 1, 1995. The
adjustments to interest on long-term debt may be summarized as follows:
<TABLE>
<CAPTION>
ASSUMING A $50 PER
SHARE
PURCHASE PRICE
---------------------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Interest on long-term debt for the twelve months ended
December 31, 1995:
Allocated to continuing operations, as per accompanying
summary unaudited pro forma statement of income ........... $ 9,304
Allocated to discontinued operations ....................... 12,848
-----------
22,152
Deduct:
Interest on debt assumed by Pennsylvania-American Water
Company..................................................... $9,529
Interest on debt redeemed or repaid in connection with Sale
of the Water Business
9.57% Series First Mortgage Bonds ......................... 3,748
Bank borrowings ........................................... 719
Bridge Loan................................................ 716
8% Series First Mortgage Bonds ............................ 147 (14,859)
---------
Add:
Interest on bank borrowings to reflect the redemption of the
Company's 8% Series First Mortgage Bonds as if it
occurred at the beginning of the period ................... 120
-----------
Pro forma interest on long-term debt, as per accompanying
summary unaudited pro forma statement of income ........... $ 7,413
===========
</TABLE>
(3) Represents elimination of preferred stock dividends of $2,025,000 and
$328,000 to reflect the repurchase of 225,000 shares of the Company's 9%
Cumulative Preferred Stock and 80,000 Shares pursuant to the Offer,
respectively, with proceeds from the Sale of the Water Business.
(4) Represents the reduction in the number of shares of the Company's common
stock outstanding resulting from the application of $85.0 million of the
proceeds from the Sale of the Water Business to repurchase 2,297,297 shares
of the Company's common stock at an average price of $37.00 per share.
(5) For purposes of computing the ratio of earnings from continuing operations
to fixed charges, earnings are defined as the sum of pre-tax income plus
fixed charges. Fixed charges consist of all interest expense (before
allowance for borrowed funds used during construction), one-third of rent
expense (which approximates the interest component of such expense) and
amortization of debt expense.
19
<PAGE>
SUMMARY UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSUMING A $50 PER SHARE PURCHASE PRICE
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
------------ --------------- ------------
<S> <C> <C> <C>
ASSETS
Utility plant................................. $295,895 $ -- $295,895
Accumulated depreciation..................... (76,882) -- (76,882)
------------ --------------- ------------
Net utility plant............................. 219,013 -- 219,013
Other property and investments................ 5,089 -- 5,089
Current assets................................ 54,512 266,670 (2a)
(56,710)(2c)
(209,960)(3)
13 (3j) 54,525
Deferred charges.............................. 34,368 -- 34,368
Net assets of discontinued operations......... 204,250 (204,250)(2e) --
------------ --------------- ------------
Total assets.................................. $517,232 $(204,237) $312,995
============ =============== ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's investment..............$208,356 $ (790)(2b)
(85,000)(3a)
(1,800)(3b)
4,000 (3c)
(30,000)(3d)
(1,000)(3e)
(722)(4) $ 93,044
Preferred stock--
Not subject to mandatory redemption, net.... 33,615 (22,500)(3b)
(8,000)(3c)
1,247 (4) 4,362
Subject to mandatory redemption............. 1,680 -- 1,680
Long-term debt............................... 55,000 -- 55,000
------------ --------------- ------------
298,651 (144,565) 154,086
--------------- ------------
Current liabilities:
Current portion of long-term debt and
preferred
stock subject to mandatory redemption ...... 115,881 (50,000)(3f)
(10,861)(3g) 55,020
Notes payable to bank........................ 10,000 -- 10,000
Other........................................ 28,601 6,500 (2d)
(5,947)(3h)
(525)(4) 28,629
------------ --------------- ------------
154,482 (60,833) 93,649
------------ --------------- ------------
Deferred credits.............................. 64,099 1,161 (3i) 65,260
------------ --------------- ------------
Total capitalization and liabilities.......... $517,232 $ (204,237) $312,995
============ =============== ============
</TABLE>
20
<PAGE>
NOTES TO SUMMARY UNAUDITED PRO FORMA
BALANCE SHEET AS OF DECEMBER 31, 1995
(1) Adjustments assume that the Sale of the Water Business and the application
of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, each took place as of the date of the balance sheet.
(2) Represents (a) receipt of cash proceeds of $266.7 million from the Sale of
the Water Business, (b) elimination from common shareholder's investment of
the $790,000 of estimated income from the water operations during the
period from January 1, 1996, to February 16, 1996, the date of the Sale of
the Water Business to Pennsylvania-American Water Company, that was
reflected as of December 31, 1995, as an element of income with respect to
discontinued operations, (c) payment of the estimated federal and state
income tax liability of $56.7 million on the Sale of the Water Business,
(d) recording of the $6.5 million premium of the purchase price over the
book value of the assets acquired by Pennsylvania-American Water Company as
a credit to other current liabilities, the account to which it was charged
as of December 31, 1995, as an offset against the liability for the
estimated expenses on the Sale of the Water Business and (e) elimination of
the $204.3 million of net assets of the Water Business.
(3) Reflects the application of the proceeds from the Sale of the Water
Business of $210.0 million, after the payment of the estimated federal and
state income tax liability of $56.7 million on the Sale of the Water
Business, in the following manner: (a) the repurchase (for an aggregate
consideration of $85.0 million) of 2,297,297 shares of the Company's common
stock at an average price of $37.00 per share, (b) the repurchase (for an
aggregate consideration of $24.3 million) of 225,000 shares of the
Company's 9% Cumulative Preferred Stock (having an aggregate book value of
$22.5 million), which includes a premium of $8.00 per share ($1.8 million
in the aggregate), (c) the repurchase (for an aggregate consideration of
$4.0 million) of 80,000 Shares (having an aggregate book value of $8.0
million) at a price of $50.00 per share, which reflects a $4.0 million
aggregate ($50.00 per share) discount from book value, (d) payment of a
$30.0 million common stock dividend by the Company to PEI, (e) payment of
an estimated $1.0 million of costs in connection with the repurchase of
shares of the Company's preferred stock, including there purchase of Shares
pursuant to the Offer, (f) the repayment of the Bridge Loan, the proceeds
of which were used to redeem the $50.0 million principal amount of the
Company's 9.57% Series First Mortgage Bonds, (g) repayment of $10.9 million
of the Company's bank borrowings, (h) payment of transaction costs of $5.9
million relative to the Sale of the Water Business, (i) recording of the
$1.2 million net tax benefit resulting from transaction costs and the
premium over book value on the Sale of the Water Business and (j) the
addition of the remaining proceeds of $13,000 to the Company's cash
accounts. The repurchases and costs referred to in items (b), (c) and (e)
involve voluntary sales to the Company by holders of the Shares and other
series of preferred stock of the Company. Therefore, the number and price
of the securities purchased and the related expenses may vary depending on
market conditions at the time of the repurchases.
(4) Reflects the write-off of $1.2 million ($722,000 after related income tax
benefits of $525,000) of issuance costs relative to the 225,000 shares of
the Company's 9% Cumulative Preferred Stock which the Company intends to
repurchase with proceeds from the Sale of the Water Business.
12. SOURCE AND AMOUNT OF FUNDS.
Assuming that the Company purchases all outstanding Shares pursuant to the
Offer at the Purchase Price, the total amount required by the Company to
purchase such Shares will be $5.0 million, exclusive of fees and other expenses.
The Company expects to fund the purchase of such Shares from part of the
proceeds from the Sale of the Water Business. See Sections 1 and 11.
13. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES AND OTHER SECURITIES OF
THE COMPANY.
Based upon the Company's records and upon information provided to the Company by
its directors and executive officers, neither the Company nor, to the Company's
knowledge, any of its associates, subsidiaries, directors, executive officers or
any associate of any such director or executive
21
<PAGE>
officer, or any director or executive officer of its subsidiaries, has engaged
in any transactions involving the Shares or shares of any other series of
preferred stock of the Company since January 11, 1996. Neither the Company nor,
to the Company's knowledge, any of its directors or executive officers is a
party to any contract, arrangement, understanding or relationship relating
directly or indirectly to the Offer with any other person with respect to any
securities of the Company.
Schedule B hereto sets forth the name and title of each director and
executive officer of the Company, and the name and address of each associate
thereof, beneficially owning Shares or shares of any other series of preferred
stock of the Company as of March 7, 1996, the number of shares so owned and the
percentage of outstanding shares of the particular series such shares represent.
Schedule C hereto sets forth the amount of any purchases of Shares or shares
of any other series of preferred stock of the Company made by the Company and
its affiliates (including the directors of the Company) since January 1, 1994
and the range of prices paid for such shares.
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary.
There can be no assurance, however, that the Company will exercise its right to
extend the Offer. During any such extension, all Shares previously tendered will
remain subject to the Offer, except to the extent that such Shares may be
withdrawn as set forth in Section7. The Company also expressly reserves the
right, in its sole discretion, (i) to terminate the Offer and not accept for
payment any Shares not theretofore accepted for payment or, subject to Rule
13e-4(f)(5) under the Exchange Act, which requires the Company either to pay the
consideration offered or to return the Shares tendered promptly after the
termination or withdrawal of the Offer, to postpone payment for Shares upon the
occurrence of any of the conditions specified in Section 9 hereof by giving oral
or written notice of such termination to the Depositary and making a public
announcement thereof and (ii) at any time or from time to time, to amend the
Offer in any respect. Amendments to the Offer may be effected by public
announcement. Without limiting the manner in which the Company may choose to
make public announcement of any termination or amendment, the Company shall have
no obligation (except as otherwise required by applicable law) to publish,
advertise or otherwise communicate any such public announcement, other than by
making a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the Offer, in which case the Company shall have
no obligation to publish, advertise or otherwise communicate such announcement
other than by issuing a notice of such extension by press release or other
public announcement, which notice shall be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Material changes to information previously provided to holders
of the Shares in this Offer or in documents furnished subsequent thereto will be
disseminated to holders of Shares in compliance with Rule 13e-4(e)(2)
promulgated under the Exchange Act.
If the Company materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price,
change in dealer's soliciting fee or change in percentage of securities sought)
will depend on the facts and circumstances, including the relative materiality
of such terms or information. In a published release, the Commission has stated
that in its view, an offer should remain open for a minimum of five business
days from the date that notice of such a material change is first published,
sent or given. The Offer will continue or be extended for at least ten business
days from the time the Company publishes, sends or gives to holders of Shares a
notice that it will (a) increase or decrease the price it will pay for Shares or
the amount of the dealer's soliciting fee or (b) decrease the number of Shares
it seeks.
22
<PAGE>
15. FEES AND EXPENSES.
Legg Mason Wood Walker, Incorporated will act as Dealer Manager for the
Company in connection with the Offer. The Company has agreed to pay the Dealer
Manager, upon acceptance for payment of Shares pursuant to the Offer, a fee of
$0.15 per Share purchased by the Company pursuant to the Offer. The Dealer
Manager will also be reimbursed by the Company for its reasonable out-of-pocket
expenses and will be indemnified against certain liabilities and expenses,
including liabilities under the federal securities laws, in connection with the
Offer.
The Dealer Manager has rendered, is currently rendering and is expected to
continue to render various investment banking and other advisory services to the
Company. It has received, and will continue to receive, customary compensation
from the Company for such services.
The Company will pay a solicitation fee of $0.50 per Share for any Shares
tendered and accepted for payment and paid for pursuant to the Offer, covered by
a Letter of Transmittal which designates, as having solicited and obtained the
tender, the name of (i) any broker or dealer in securities, including the Dealer
Manager in its capacity as a broker or dealer, who is a member of any national
securities exchange or of the National Association of Securities Dealers, Inc.
(the "NASD"), (ii) any foreign broker or dealer not eligible for membership in
the NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as though it
were an NASD member, or (iii) any bank or trust company (each of which is
referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a
Soliciting Dealer if such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a depositing holder (other than itself). No
such fee shall be payable to a Soliciting Dealer with respect to shares tendered
for such Soliciting Dealer's own account. No broker, dealer, bank, trust company
or fiduciary shall be deemed to be the agent of the Company, the Depositary, the
Information Agent or the Dealer Manager for purposes of the Offer.
The Company has retained Chemical Mellon Shareholder Services, L.L.C. as
Depositary and D.F. King & Co., Inc. as Information Agent in connection with the
Offer. The Information Agent may contact stockholders by mail, telephone,
facsimile transmission and personal interviews, and may request brokers, dealers
and other nominee stockholders to forward materials relating to the Offer to
beneficial owners. The Depositary and the Information Agent will receive
reasonable and customary compensation of their services and will also be
reimbursed for certain out-of-pocket expenses. The Company has agreed to
indemnify the Depositary and the Information Agent against certain liabilities,
including certain liabilities under the federal securities laws, in connection
with the Offer. Neither the Information Agent nor the Depositary has been
retained to make solicitations or recommendations in connection with the Offer.
Certain directors or executive officers of the Company may, from time to
time, contact stockholders to provide them with information regarding the Offer.
Such directors and executive officers will not make any recommendation to any
stockholder as to whether to tender all or any Shares and will not solicit the
tender of any Shares. The Company will not compensate any director or executive
officer for this service.
Other than as described above, the Company will not pay any solicitation fees
to any broker, dealer, bank, trust company or other person for any Shares
purchased in connection with the Offer. The Company will reimburse such persons
for customary handling and mailing expenses incurred in connection with the
Offer.
The Company will pay all stock transfer taxes, if any, payable on account of
the acquisition of the Shares by the Company pursuant to the Offer, except in
certain circumstances where special payment or delivery procedures are utilized
pursuant to Instruction 6 of the Letter of Transmittal.
23
<PAGE>
The expenses incurred, or estimated to be incurred, by the Company in
connection with the Offer are set forth below. The Company will be responsible
for paying all such expenses.
Dealer Manager Fees................ $ 12,000
Solicitation Fees.................. 40,000
Printing and Mailing Fees.......... 20,000
Filing Fees........................ 1,000
Legal, Accounting and
Miscellaneous ..................... 127,000
Total.............................. $200,000
==========
16. MISCELLANEOUS.
The Company is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports and other information with the Commission
relating to its business, financial condition and other matters. Certain
information as of particular dates concerning the Company's directors and
officers, their remuneration, the principal holders of the Company's and PEI's
securities and any material interest of such persons in transactions with the
Company is filed with the Commission. The Company has also filed a Transaction
Statement on Schedule 13E-3 and an Issuer Tender Offer Statement on Schedule
13E-4 with the Commission, which include certain additional information relating
to the Offer. Such reports, as well as such other material, may be inspected and
copies may be obtained at the Commission's public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, and should also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Company's Schedules 13E-3
and 13E-4 may not be available at the Commission's regional offices.
The Offer is being made to all holders of Shares. The Company is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by the Dealer Manager or one or more
registered brokers or dealers licensed under the laws of such jurisdictions.
PG ENERGY INC.
March 11, 1996
24
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, business address, present principal
occupation or employment and any other material occupations, positions, offices
or employments during the last five years of the directors and executive
officers of the Company. Unless otherwise indicated, all occupations, positions,
offices or employments listed opposite any individual's name were held by such
individual during the course of the last five years. Each individual listed
below is a citizen of the United States.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
and Other Material Occupations, Positions, Offices or
Name and Business Address Employments During the Last Five Years
- - - - - ------------------------- ------------------------------------------------------
<S> <C>
Kenneth L. Pollock Chairman of the Board of Directors of the Company and PEI since
PG Energy Inc. June, 1987; Director of the Company since 1972 and of PEI since 1974;
Wilkes-Barre Center President and Chief Executive Officer of the Compan and PEI
39 Public Square from March, 1991, to August, 1991; Director and sole stockholder,
Wilkes-Barre, PA 18711-0601 Susquehanna Coal Company and Ken L. Pollock, Inc., Nanticoke, PA,
since prior to 1990.
Dean T. Casaday President, Chief Executive Officer, and Director of the Company and
PG Energy Inc. PEI since September 1, 1991; Vice President of National Fuel Gas
Wilkes-Barre Center Supply Corporation from 1989 to August, 1991.
39 Public Square
Wilkes-Barre, PA 18711-0601
William D. Davis Vice Chairman of the Board of Directors of the Company and PEI
Commonwealth Plaza since March, 1991; Director of the Company and PEI since 1981;
33 W. Third Street Chairman of the Board of the Commonwealth Bank Division of Meridian Bank,
Williamsport, PA 17703 Williamsport, PA, from September, 1993 to December 31, 1995;
Director, Meridian Bancorp, Inc., and Meridian Bank, Reading, PA,
since September, 1993; Chairman of the Board and Chief Executive
Officer of Commonwealth Bancshares Corporation, Williamsport, PA,
from April, 1987, to June, 1993.
Paul R. Freeman Director of the Company and PEI since November, 1995; Controller of
200 East Front Street HUD, Inc., trading as Emerald Anthracite II, since 1988.
P.O. Box 27
Nanticoke, PA 18634
Robert J. Keating Director of the Company and PEI since 1974; Former Chairman of the
Avanti Cigar Co. Board of Parodi Industries, Inc., Scranton, PA, fromJanuary, 1985,
1015 N. Main Avenue to February, 1994.
Scranton, PA 18508
John D. McCarthy Director of the Company and PEI since 1991; President of McCarthy
McCarthy Tire Service Company Tire Service Company, Wilkes-Barre, PA, since 1968; President of
340 Kidder Street McCarthy Realty, Inc., since 1988.
P.O. Box 1125
Wilkes-Barre, PA 18703-1125
A-1
<PAGE>
John D. McCarthy, Jr. Director of the Company and PEI since November, 1995; Vice
McCarthy Tire Service Company President of McCarthy Tire Service Company, Wilkes-Barre, PA, since
340 Kidder Street 1989; President of McCarthy Tire Service Company of Allentown,
P.O. Box 1125 Reading and Lancaster, since 1992; Vice President of McCarthy
Wilkes-Barre, PA 18703-1125 Realty, Inc., since 1988.
Kenneth M. Pollock Director of the Company and PEI since October, 1993; Vice President
200 East Front Street of HUD, Inc., trading as Emerald Anthracite II; Vice President of
P.O. Box 27 Susquehanna Coal Company and Susquehanna Mt. Carmel, Inc., since
Nanticoke, PA 18634 prior to 1987.
Richard A. Rose, Jr. Director of the Company and PEI since November, 1995; President of
454 South Main Street Petroleum Sales Company, Inc., since 1992; Vice President of
P.O. Box 454 Petroleum Service Company, Inc., Wilkes-Barre, PA, since 1987.
Wilkes-Barre, PA 18703-0454
James A. Ross Director of the Company and PEI since May, 1978; Independent
Old Windmill Road financial consultant since prior to 1988; Chairman, Priestgate,
Clarks Summit, PA 18411 Limited, since 1991.
Ronald W. Simms Director of the Company and PEI since March, 1991; President and
454 South Main Street Chief Executive Officer of Petroleum Service Company, Inc.,
Mountain P.O. Box 454 Wilkes-Barre, PA, since 1980; Chairman of the Board of Directors
Wilkes-Barre, PA 18703-0454 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.
Thomas F. Karam Executive Vice President of the Company and PEI since October,
PG Energy Inc. 1995; Vice President, Legg Mason Wood Walker, Incorporated from
Wilkes-Barre Center 1986 to September, 1995.
39 Public Square
Wilkes-Barre, PA 18711-0601
Vincent A. Bonaddio Vice President, Operations and Engineering Services of the Company
PG Energy Inc. and PEI since March, 1996; Vice President, Operations and
Wilkes-Barre Center Engineering of the Company and PEI since May, 1995; Director of
39 Public Square Field Operations of the Company from May, 1991 to April, 1995;
Wilkes-Barre, PA 18711-0601 General Superintendent, North Division, of the Company from 1988 to
May, 1991.
Harry E. Dowling Vice President, Customer Services, of the Company and PEI since
PG Energy Inc. March, 1996; Vice President of Human Resources and Customer
Wilkes-Barre Center Services of the Company and PEI from October, 1992 to February,
39 Public Square 1996; Vice President of Customer Affairs of the Company and PEI
Wilkes-Barre, PA 18711-0601 from 1987 to October, 1992.
A-2
<PAGE>
John F. Kell, Jr.
PG Energy Inc. Vice President, Financial Services, of the Company and PEI since
Wilkes-Barre Center March, 1996; Vice President, Finance, of the Company and PEI from
39 Public Square October, 1992 to February, 1996; Vice President and Controller of
Wilkes-Barre, PA 18711-0601 the Company and PEI from 1978 to October, 1992.
Joseph F. Perugino Vice President, Energy Services, of the Company and PEI since
PG Energy Inc. March, 1996; Vice President, Marketing and Gas Supply of the
Wilkes-Barre Center Company and PEI from October, 1992 to February, 1996; Vice
39 Public Square President, Administration and Marketing of the Company and PEI from
Wilkes-Barre, PA 18711-0601 November, 1989 to October, 1992.
Thomas J. Ward Vice President, Administrative Services, and Secretary, of the
PG Energy Inc. Company and PEI since March, 1996; Vice President, Administration,
Wilkes-Barre Center and Secretary, of the Company and PEI from October, 1992 to
39 Public Square February, 1996; Secretary of the Company and PEI from September,
Wilkes-Barre, PA 18711-0601 1988 to October, 1992.
Thomas J. Koval Controller and Assistant Treasurer of the Company and PEI since
PG Energy Inc. November, 1992; Accounting Manager of the Company from February,
Wilkes-Barre Center 1987 to November, 1992.
39 Public Square
Wilkes-Barre, PA 18711-0601
Richard N. Marshall Treasurer and Assistant Secretary of the Company and PEI since
PG Energy Inc. February, 1996; Treasurer of the Company and PEI from May, 1994 to
Wilkes-Barre Center January, 1996; Assistant Treasurer of the Company and PEI from
39 Public Square June, 1993 to May, 1994; Manager, Rates and Finance, of the Company
Wilkes-Barre, PA 18711-0601 from March, 1988 to June, 1993.
</TABLE>
A-3
<PAGE>
SCHEDULE B
INTEREST IN PREFERRED STOCK OF THE COMPANY
The following table sets forth the name and title of each director and
executive officer of the Company, and the name and address of each associate
thereof, beneficially owning Shares or shares of any other series of preferred
stock of the Company (including the Depositary Preferred Shares (the "Depositary
Preferred Shares"), each representing a one-fourth interest in a share of the 9%
Cumulative Preferred Stock of the Company, and the 1966 Cumulative Preferred
Stock (the "1966 Preferred Shares")) as of March 7, 1996, the number of shares
so owned and the percentage of outstanding shares of the particular series such
shares represent.
The Shares:
<TABLE>
<CAPTION>
NAME AND TITLE OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- - - - - --------------------- ----------------------- -----------------------
<S> <C> <C>
None ............... None N/A
</TABLE>
The Depositary Preferred Shares:
<TABLE>
<CAPTION>
NUMBER OF
DEPOSITARY PERCENTAGE OF
NAME AND TITLE OF PREFERRED SHARES OUTSTANDING DEPOSITARY
BENEFICIAL OWNER BENEFICIALLY OWNED PREFERRED SHARES
- - - - - ----------------------------------- -------------------- -----------------------
<S> <C> <C>
William D. Davis, Director ........ 2,000 *
Robert J. Keating, Director ...... 500 (1) *
Thomas J. Koval, Controller and
Assistant Treasurer ............... 60 *
Joseph F. Perugino, Vice President 400 *
</TABLE>
The 1966 Preferred Shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME AND TITLE OF 1966 PREFERRED SHARES OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED 1966 PREFERRED SHARES
- - - - - --------------------- ------------------------- --------------------------
<S> <C> <C>
None ................ None N/A
_________
<FN>
* Less than 1%.
(1) Includes 100 Depositary Preferred Shares owned by Mr. Keating's wife.
N/A Not applicable.
</TABLE>
B-1
<PAGE>
SCHEDULE C
PURCHASES OF PREFERRED STOCK OF THE COMPANY
BY THE COMPANY OR ITS AFFILIATES SINCE JANUARY 1, 1994
The following table sets forth the amount of any purchases of Shares or
shares of any other series of preferred stock of the Company (including the
Shares, the Depositary Preferred Shares, the 1966 Preferred Shares, the 9.50%
1988 Series Cumulative Preferred Shares (the "9.50% Preferred Shares") and the
8.90% Cumulative Preferred Shares (the "8.90% Preferred Shares")) made by the
Company and its affiliates (including, without limitation, the Directors of the
Company) since January 1, 1994 and the range of prices paid for such shares.
The Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
--------------------- ------------------------------- -------------------------
<S> <C> <C> <C>
None ......... N/A N/A N/A
</TABLE>
The Depositary Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
--------------------- ------------------------------- -------------------------
<S> <C> <C> <C>
None N/A N/A N/A
</TABLE>
The 1966 Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
----------------- --------------------------- ---------------------
<S> <C> <C> <C>
The Company June 15, 1994 800 $100.00
The Company June 15, 1995 800 $100.00
</TABLE>
The 9.50% Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
----------------- --------------------------- ---------------------
<S> <C> <C> <C>
The Company May 31, 1994 150,000 $103.5625
</TABLE>
The 8.90% Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
------------------ --------------------------- ---------------------
<S> <C> <C> <C>
The Company December 16, 1994 150,000 $102.97
___________
N/A Not applicable.
</TABLE>
C-1
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted from Eligible
Institutions. The Letter of Transmittal and certificates for Shares should be
sent or delivered by each stockholder of the Company or his or her broker,
dealer, bank or trust company to the Depositary at one of its addresses set
forth below.
THE DEPOSITARY:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
TO: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of this Offer to Purchase,the Letter of Transmittal or other tender offer
materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact
theirlocal broker, dealer, commercial bank or trust company for assistance
concerning the Offer.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
(410) 528-2231
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
OF
PG ENERGY INC.
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 11, 1996
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS
EXTENDED.
TO: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DESCRIPTION OF SHARES TENDERED
Shares Tendered
(Attach additional list, if necessary) Print Name(s) and Address(es) of Registered Holder(s)
Total Number of Shares Number of
Certificate Represented by Shares (Please fill in exactly as name(s)
Number(s)* Certificate(s)* Tendered** appear(s) on certificate(s))
Total Shares:
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented
by any certificate delivered to the Depositary are being tendered. See
Instruction 4.
</TABLE>
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery.
<PAGE>
The Instructions accompanying this Letter of Transmittal should be read
carefully before the Letter of Transmittal is completed.
This Letter of Transmittal is to be used if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made by
book-entry transfer to the Depositary's account at The Depository Trust Company
("DTC") or the Philadelphia Depository Trust Company ("PDTC") (hereinafter
collectively referred to as the "Book-Entry Transfer Facilities") pursuant to
the procedures set forth in Section 6 of the Offer to Purchase (as defined
below).
Stockholders who cannot deliver their Shares and all other documents required
hereby to the Depositary by the Expiration Date (as defined in the Offer to
Purchase) must tender their Shares pursuant to the guaranteed delivery procedure
set forth in Section 6 of the Offer to Purchase. See Instruction 2. Delivery of
documents to the Company or to a Book-Entry Transfer Facility does not
constitute a valid delivery.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY's ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________________________
Check Applicable Box: [ ] DTC [ ] PDTC
Account No. _______________________________________________________________
Transaction Code No. ______________________________________________________
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s) _______________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution that Guaranteed Delivery ______________________________
If delivery is by book-entry transfer:
Name of Tendering Institution _____________________________________________
Account No. at [ ] DTC [ ] PDTC
Transaction Code No.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentleman:
The undersigned hereby tenders to PG Energy Inc., a Pennsylvania
corporation formerly known as Pennsylvania Gas and Water Company (the
"Company"), the above-described shares of its 4.10% Cumulative Preferred Stock,
par value $100.00 per share, voluntary liquidation preference $105.50 per share,
involuntary liquidation preference $100.00 per share (the "Shares") pursuant to
the Company's offer to purchase any and all of its outstanding Shares at a price
per Share of $50.00, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated March 11, 1996 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Offer").
Subject to, and effective upon, acceptance for payment of and payment for the
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby (and
any and all other Shares or other securities issued or issuable in respect
thereof on or after March 16, 1996 (collectively, "Distributions")) and
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares and all Distributions, or transfer ownership of
such Shares and all Distributions on the account books maintained by any of the
Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Shares and all Distributions for registration and
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Depositary or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby and all Distributions.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 6 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned|Als acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (i) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Offer.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 6 of the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
3
<PAGE>
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the Purchase Price of any Shares purchased, and/or return
any Shares not tendered or not purchased, in the name(s) of the undersigned
(and, in the case of Shares tendered by book-entry transfer, by credit to the
account at the Book-Entry Transfer Facility designated above). Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the check
for the Purchase Price of any Shares purchased and/or any certificates for
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the check for the Purchase
Price of any Shares purchased and/or return any Shares not tendered or not
purchased in the name(s) of, and mail said check and/or any certificates to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation, pursuant to the "Special Payment Instructions," to transfer any
Shares from the name of the registered holder(s) thereof if the Company does not
accept for payment any of the Shares so tendered.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 5, 6 and 7)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or certificates for Shares not tendered or not purchased are to be issued in
the name of someone other than the undersigned.
Issue [ ] check and/or [ ] certificate(s) to:
Name ___________________________________________________________________________
________________________________________________________________________________
(Please Print)
Address ________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5, 6 and 7)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or the certificates for Shares not tendered or not purchased are to be
mailed to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail [ ] check and/or [ ] certificate(s) to:
Name ___________________________________________________________________________
________________________________________________________________________________
(Please Print)
Address ________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
<PAGE>
SOLICITED TENDERS
(SEE INSTRUCTION 10)
The Company will pay to any Soliciting Dealer, as defined in Instruction 10,
a solicitation fee of $0.50 per Share for each Share tendered and purchased
pursuant to the Offer.
The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm: __________________________________________________________________
(Please Print)
Name of Individual Broker or Financial Consultant: _____________________________
Identification Number (if known): ______________________________________________
Address: _______________________________________________________________________
(Include Zip Code)
The following to be completed ONLY if customer's Shares held in nominee
name are tendered.
Name of Beneficial Owner Number of Shares Tendered
(Attach additional list if necessary)
_______________________ ___________________________
_______________________ ___________________________
_______________________ ___________________________
The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitation; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it
has used no soliciting materials other than those furnished by the Company; and
(iv) if it is a foreign broker or dealer not eligible for membership in the
National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to
conform to the NASD|Als Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer's returning a Notice of Solicited Tenders to the Depositary.
6
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
________________________________________________________________________________
Signature(s) of Owner(s)
________________________________________________________________________________
Dated: _________________, 1996
Name(s) ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. ____________________________________________________
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 5.
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm ___________________________________________________________________
Authorized Signature ___________________________________________________________
Dated: ____________________, 1996
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, for purposes of this document, shall include any participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of Shares) tendered herewith and such holder(s) have not completed
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or if delivery
of Shares is to be made by book-entry transfer pursuant to the procedures set
forth in Section 6 of the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary|Als account at one of the Book-Entry Transfer Facilities of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth on the front page of this Letter of Transmittal
on or prior to the Expiration Date (as defined in the Offer to Purchase).
Stockholders who cannot deliver their Shares and all other required documents to
the Depositary on or prior to the Expiration Date must tender their Shares
pursuant to the guaranteed delivery procedure set forth in Section 6 of the
Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by
or through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by the Company
(with any required signature guarantees) must be received by the Depositary on
or prior to the Expiration Date and (c) the certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all Shares
delivered electronically, as well as a properly completed and duly executed
Letter of Transmittal (or photocopy thereof) and any other documents required by
this Letter of Transmittal must be received by the Depositary within three
business days after the date of execution of such Notice of Guaranteed Delivery,
all as provided in Section 6 of the Offer to Purchase.
The method of delivery of Shares and all other required documents is at the
option and risk of the tendering stockholder. If certificates for Shares are
sent by mail, registered mail with return receipt requested, properly insured,
is recommended.
No alternative, conditional or contingent tenders will be accepted. By
executing this Letter of Transmittal (or a photocopy thereof), the tendering
stockholder waives any right to receive any notice of the acceptance for payment
of the Shares.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares that are to
be tendered in the box entitled "Number of Shares Tendered." In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, as promptly as practicable
following the expiration or termination of the Offer. All Shares represented by
certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
8
<PAGE>
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
hereby, the signature(s) must correspond with the name(s) as written on the face
of the certificates without alteration, enlargement or any change whatsoever.
If any of the Shares hereby are held of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the Purchase Price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s). Signatures on any such certificates or
stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Shares tendered hereby, certificates must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name(s) of the registered holder(s) appear(s) on the certificates for such
Shares. Signature(s) on any such certificates or stock powers must be guaranteed
by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
6. Stock Transfer Taxes. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or its
order pursuant to the Offer. If, however, payment of the Purchase Price is to be
made to, or Shares not tendered or not purchased are to be registered in the
name of, any person other than the registered holder(s), or if tendered Shares
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s), such other person or otherwise) payable on account
of the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Section 8 of the Offer to Purchase.
7. Special Payment and Delivery Instructions. If the check for the Purchase
Price of any Shares purchased is to be issued in the name of, and/or any Shares
not tendered or not purchased are to be returned to, a person other than the
person(s) signing this Letter of Transmittal or if the check and/or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown below the signature of the person(s) signing this
Letter of Transmittal, then the boxes captioned "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such stockholder at the Book-Entry Transfer Facility from which such transfer
was made.
8. Substitute Form W-9 and Form W-8. The tendering stockholder is required to
provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or, in the case of certain foreign stockholders, a properly
completed Form W-8. Failure to provide the information on either Substitute Form
W-9 or Form W-8 may subject the tendering stockholder to 31% federal income tax
backup withholding on the payment of the Purchase Price. The box in Part 2 of
Substitute Form W-9 may be checked if the tendering stockholder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future. If the box in Part 2 is checked and the Depositary is
9
<PAGE>
not provided with a TIN by the time of payment, the Depositary will withhold 31%
on all payments of the Purchase Price thereafter until a TIN is provided to the
Depositary.
9. Requests for Assistance or Additional Copies. Any questions or requests
for assistance may be directed to the Information Agent at the telephone number
and address listed below. Requests for additional copies of the Offer to
Purchase, this Letter of Transmittal or other tender offer materials may be
directed to the Information Agent and such copies will be furnished promptly at
the Company|Als expense. Stockholders may also contact their local broker,
dealer, commercial bank or trust company for assistance concerning the Offer.
10. Solicited Tenders. The Company will pay a solicitation fee of $0.50 per
Share for any Shares tendered and accepted for payment and paid for pursuant to
the Offer, covered by the Letter of Transmittal which designates, in the box
captioned "Solicited Tenders," as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a dealer or broker, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company (each of which is referred to herein
as a "Soliciting Dealer"). No such fee shall be payable to a Soliciting Dealer
with respect to the tender of Shares by a holder unless the Letter of
Transmittal accompanying such tender designates such Soliciting Dealer. No such
fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is
required for any reason to transfer the amount of such fee to a depositing
holder (other than itself). No such fee shall be payable to a Soliciting Dealer
with respect to Shares tendered for such Soliciting Dealer|Als own account. No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company, the Depositary, the Information Agent or the Dealer Manager for
purposes of the Offer.
11. Irregularities. All questions as to the Purchase Price, the form of
documents and the validity, eligibility (including time of receipt) and
acceptance of any tender of Shares will be determined by the Company, in its
sole discretion, and its determination shall be final and binding. The Company
reserves the absolute right to reject any or all tenders of Shares that it
determines are not in proper form or the acceptance for payment of or payment
for Shares that may, in the opinion of the Company's counsel, be unlawful. The
Company also reserves the absolute right to waive any of the conditions to the
Offer or any defect or irregularity in any tender of Shares and the Company|Als
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. None of the Company, the Dealer Manager, the
Depositary, the Information Agent or any other person shall be under any duty to
give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured or
waived.
10
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or in the
case of certain foreign stockholders, a properly completed Form W-8. If such
stockholder is an individual, the TIN is his or her social security number. For
businesses and otherentities, the number is the employer identification number.
If the Depositary is not provided with the correct TIN or properly completed
Form W-8, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding. The Form W-8 can be obtained from the Depositary.
See the enclosed Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is required
to withhold 31% of any payments made to the stockholder. Backup withholding is
not an additional tax. Rather, the federal income tax liability of persons
subject to federal income tax backup withholding will be reduced by the amount
of the tax withheld. If withholding results in an overpayment of taxes, a refund
may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9
is correct and that (1) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign stockholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security number
or employer identification number of the registered owner of the Shares. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
IMPORTANT: This Letter of Transmittal (or a photocopy thereof) together with
certificates or confirmation of book-entry transfer and all other required
documents must be received by the Depositary, or the Notice of Guaranteed
Delivery must be received by the Depositary, on or prior to the Expiration Date
(as defined in the Offer to Purchase).
11
<PAGE>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number (TIN) and
Certification
________________________________________________________________________________
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW.
- - - - - --------------------------------------------------------------------------------
NAME
(Please Print)
- - - - - --------------------------------------------------------------------------------
ADDRESS
- - - - - --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- - - - - --------------------------------------------------------------------------------
________________________________________________________________________________
TIN ________________________
Social Security Number or Employer
Identification Number
Part 2
AWAITING
TIN [ ]
________________________________________________________________________________
Part 3--CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or a TIN
has not been issued to me but I have mailed or delivered an application to
receive a TIN or intend to do so in the near future), (2) I am not subject to
backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has notified me that
I am no longer subject to backup withholding and (3) all other information
provided on this form is true, correct and complete.
SIGNATURE ______________________________________ DATE__________________________
You must cross out item (2) above if you have been notified by the IRS that your
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the Purchase Price made to me thereafter will be withheld
until I provide a number.
Signature ________________________________________ Date: ________________, 1996
12
<PAGE>
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
(410) 528-2231
<PAGE>
[PG ENERGY INC. LETTERHEAD]
March 11, 1996
Dear Stockholder:
PG Energy Inc., formerly known as Pennsylvania Gas and Water Company, is
offering to purchase any and all of its outstanding shares of 4.10% Cumulative
Preferred Stock, par value $100.00 per share, voluntary liquidation preference
$105.50 per share, involuntary liquidation preference $100.00 per share (the
"Shares"), at a price of $50.00 per Share.
All of the Shares that are properly tendered (and are not withdrawn) will,
subject to the terms and conditions set forth in the enclosed Offer to Purchase,
be purchased at that purchase price, net to the selling stockholder in cash. All
other Shares that have been tendered and not purchased will be returned to the
stockholder.
If you do not wish to participate in the offer, you do not need to take any
action.
The offer is explained in detail in the enclosed Offer to Purchase and Letter
of Transmittal. If you want to tender your Shares, the instructions on how to do
so are also explained in detail in the enclosed materials. I encourage you to
read these materials carefully before making any decision with respect to the
offer.
Neither the Company nor its Board of Directors makes any recommendation to
any stockholder whether to tender all or any Shares. Neither I nor any other
director or executive officer intends to tender Shares pursuant to the offer as
no such person owns any Shares.
Sincerely,
/s/ Dean T. Casaday
----------------------------------
Dean T. Casaday
President and Chief Executive Officer
<PAGE>
PG ENERGY INC.
NOTICE OF GUARANTEED DELIVERY
OF SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for the shares of 4.10%
Cumulative Preferred Stock of PG Energy Inc., formerly known as Pennsylvania Gas
and Water Company, are not immediately available, if the procedure for
book-entry transfer cannot be completed on a timely basis, or if time will not
permit all other documents required by the Letter of Transmittal to be delivered
to the Depositary on or prior to the Expiration Date (as defined in Section 5 of
the Offer to Purchase defined below). Such form may be delivered by hand or
transmitted by mail, or (for Eligible Institutions only) by facsimile
transmission, to the Depositary. See Section 6 of the Offer to Purchase. The
Eligible Institution, which completes this form, must communicate the guarantee
to the Depositary and must deliver the Letter of Transmittal and certificates
for shares to the Depositary within the time shown herein. Failure to do so
could result in a financial loss to such Eligible Institution.
TO: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to PG Energy Inc., a Pennsylvania corporation
formerly known as Pennsylvania Gas and Water Company (the "Company"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 11, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"), receipt of which is hereby
acknowledged, the number of shares of 4.10% Cumulative Preferred Stock, par
value $100.00 per share, voluntary liquidation preference $105.50 per share,
involuntary liquidation preference $100.00 per share (the "Shares"), of the
Company listed below, pursuant to the guaranteed delivery procedure set forth in
Section 6 of the Offer to Purchase.
Number of Shares:
__________________________________ _____________________________________
Certificates Nos.: (if available) Signature(s)
__________________________________ _____________________________________
Name(s) (Please Print)
__________________________________ _____________________________________
If Shares will be tendered by Address
book-entry transfer:
Name of Tendering Institution:
__________________________________ _____________________________________
Account No._______ at (check one) _____________________________________
Area Code and Telephone Number
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national securities
exchange or the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States,
guarantees (a) that the above-named person(s) has a net long position in the
Shares being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended, (b) that such tender of Shares
complies with Rule 14e-4 and (c) delivery to the Depositary at one of its
addresses set forth above certificate(s) for the Shares tendered hereby, in
proper form for transfer, or a confirmation of the book-entry transfer of the
Shares tendered hereby into the Depositary's account at The Depository Trust
Company or the Philadelphia Depository Trust Company, in each case together with
a properly completed and duly executed Letter(s) of Transmittal (or facsimile(s)
thereof), with any required signature guarantee(s) and any other required
documents, all within three business days after the date hereof.
__________________________________ _____________________________________
Name of Firm Authorized Signature
__________________________________ _____________________________________
Address Name
__________________________________ _____________________________________
City, State, Zip Code Title
__________________________________
Area Code and Telephone Number
Dated: _____________________, 1996
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM.
YOUR STOCK CERTIFICATES MUST BE SENT WITH
THE LETTER OF TRANSMITTAL.
<PAGE>
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
PG ENERGY INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS
EXTENDED.
March 11, 1996
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
In our capacity as Dealer Manager (the "Dealer Manager"), we are enclosing
the material listed below relating to the offer of PG Energy Inc., a
Pennsylvania corporation formerly known as Pennsylvania Gas and Water Company
(the "Company"), to purchase any and all of its outstanding shares of 4.10%
Cumulative Preferred Stock, par value $100.00 per share, voluntary liquidation
preference $105.50 per share, involuntary liquidation preference $100.00 per
share (the "Shares"), at $50.00 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 11, 1996 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which together constitute the "Offer").
The Purchase Price will be paid in cash, net to the seller, with respect to
all Shares purchased. Shares not purchased will be returned.
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, subject to other conditions. See Section 9 of
the Offer to Purchase.
We are asking you to contact your clients for whom you hold Shares registered
in your name (or in the name of your nominee) or who hold Shares registered in
their own names. Please bring the Offer to their attention as promptly as
possible.
The Company will pay a solicitation fee of $0.50 per Share for any Shares
tendered and accepted for payment pursuant to the Offer covered by a Letter of
Transmittal which designates, as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a broker or dealer, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company (each of which is referred to herein
as a "Soliciting Dealer"). No such fee shall be payable to a Soliciting Dealer
with respect to the tender of Shares by a holder unless the Letter of
Transmittal accompanying such tender designates such Soliciting Dealer. No such
fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is
required for any reason to transfer the amount of such fee to a depositing
holder (other than itself). No such fee shall be payable to a Soliciting Dealer
with respect to shares tendered for such Soliciting Dealer's own account. No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company, the Depositary (as defined below), the Dealer Manager or the
Information Agent for purposes of the Offer.
1
<PAGE>
The Company will also, upon request, reimburse Soliciting Dealers for
reasonable and customary handling and mailing expenses incurred by them in
forwarding materials relating to the Offer to their customers. The Company will
pay all stock transfer taxes applicable to its purchase of Shares pursuant to
the Offer, subject to Instruction 6 of the Letter of Transmittal.
In order for a Soliciting Dealer to receive a solicitation fee, Chemical
Mellon Shareholder Services, L.L.C., as Depositary (the "Depositary") must have
received from such Soliciting Dealer a properly completed and duly executed
Notice of Solicited Tenders in the form attached hereto (or facsimile thereof)
within five business days after the expiration of the Offer.
For your information and for forwarding to your clients, we are enclosing the
following documents:
1. The Offer to Purchase, dated March 11, 1996.
2. The Letter of Transmittal for your use and for the information of your
clients.
3. A letter to stockholders of the Company from the President and Chief
Executive Officer of the Company.
4. The Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the Depositary
by the Expiration Date (as defined in the Offer to Purchase).
5. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space for
obtaining such clients|Al instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding.
7. A return envelope addressed to Chemical Mellon Shareholder Services,
L.L.C., the Depositary.
We urge you to contact your clients as promptly as possible. Please note that
the Offer and withdrawal rights expire at 5:00 p.m., New York City time, on
Monday, April 8, 1996, unless the Offer is extended.
Neither the Company nor any of its directors or executive officers makes any
recommendation to any stockholder as to whether to tender all or any Shares.
Each stockholder must make his or her own decision as to whether to tender
Shares and, if so, how many Shares to tender. No director or executive officer
of the Company or any of its affiliates intends to tender Shares pursuant to the
Offer as no such person owns any Shares.
Any questions or requests for assistance or additional copies of the enclosed
materials may be directed to D.F. King & Co., Inc., the Information Agent, at
the address and telephone number set forth on the back cover of the enclosed
Offer to Purchase.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
NOTICE OF SOLICITED TENDERS
List below the number of Shares tendered by each beneficial owner whose
tender you have solicited. All Shares beneficially owned by a beneficial owner,
whether in one account or several, and in however many capacities, must be
aggregated for purposes of completing the table below. Any questions as to what
constitutes beneficial ownership should be directed to the Depositary. If the
space below is inadequate, list the Shares in a separate signed schedule and
affix the list to this Notice of Solicited Tenders. Please do not complete the
sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY."
ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE DEPOSITARY. ALL
QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO
THE INFORMATION AGENT.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TO BE COMPLETED BY TO BE COMPLETED ONLY TO BE COMPLETED ONLY
THE SOLICITING DEALER BY DEPOSITARY BY DEPOSITARY
--------------------- -------------------- --------------------
Number of Shares Number of Shares Fee
Beneficial Owners Tendered Accepted ($0.50 per Share)
- - - - - ----------------- -------- -------- -----------------
Beneficial Owner
No. 1
Beneficial Owner
No. 2
Beneficial Owner
No. 3
Beneficial Owner
No. 4
Beneficial Owner
No. 5
Beneficial Owner
No. 6
Beneficial Owner
No. 7
Beneficial Owner
No. 8
Beneficial Owner
No. 9
Beneficial Owner
No. 10
Total
</TABLE>
All questions as to the validity, form and eligibility (including time of
receipt) of Notices of Solicited Tenders will be determined by the Depositary,
in its sole discretion, which determination will be final and binding. Neither
the Depositary nor any other person will be under any duty to give notification
of any defects or irregularities in any Notice of Solicited Tenders or incur any
liability for failure to give such notification.
<PAGE>
The undersigned hereby confirms that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Offer to Purchase; (iii) in soliciting
tenders of Shares, it has used no soliciting materials other than those
furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Rules of Fair Practice in making solicitations.
- - - - - ----------------------------- ---------------------------------
Printed Firm Name Address
- - - - - ----------------------------- ---------------------------------
Authorized Signature Area Code and Telephone Number
<PAGE>
PG ENERGY INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE
OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated March 11,
1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") setting forth an offer by PG Energy Inc., a
Pennsylvania corporation formerly known as Pennsylvania Gas and Water Company
(the "Company"), to purchase any and all of its outstanding shares of 4.10%
Cumulative Preferred Stock, par value $100.00 per share, voluntary liquidation
preference $105.50 per share, involuntary liquidation preference $100.00 per
share (the "Shares"), at $50.00 per Share, net to the seller in cash, upon the
terms and subject to the conditions of the Offer.
We are the holder of record of Shares held for your account. A tender of such
Shares can be made only by us as the holder of record and pursuant to your
instructions. The Letter of Transmittal is furnished to you for your information
only and cannot be used by you to tender Shares held by us for your account.
We request instructions as to whether you wish us to tender any or all of the
Shares held by us for your account, upon the terms and subject to the conditions
set forth in the Offer to Purchase and the Letter of Transmittal.
Your attention is invited to the following:
(1) You may tender Shares as indicated in the attached instruction form,
at a price of $50.00 per Share, net to you in cash.
(2) The Offer is for any and all outstanding Shares of the Company.
(3) The Offer is not conditioned upon any minimum number of Shares being
tendered.
(4) The Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on Monday, April 8, 1996, unless the Offer is extended. Your
instructions to us should be forwarded to us in ample time to permit us to
submit a tender on your behalf. If you would like to withdraw your Shares
that we have tendered, you can withdraw them so long as the Offer remains
open or at any time after May 3, 1996, if they have not been accepted for
payment.
(5) Any stock transfer taxes applicable to the sale of Shares to the
Company pursuant to the Offer will be paid by the Company, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Neither the Company nor any of its directors or executive officers makes any
recommendation to any stockholder as to whether to tender all or any Shares.
Each stockholder must make his or her own decision as to whether to tender
Shares and, if so, how many Shares to tender. No director or executive officer
of the Company or any of its affiliates intends to tender Shares pursuant to the
Offer as no such person owns any Shares.
If you wish to have us tender any or all of your Shares held by us for your
account upon the terms and subject to the conditions set forth in the Offer,
please so instruct us by completing, executing, detaching and returning to us
the instruction form on the detachable part hereof. An envelope to
<PAGE>
return your instructions to us is enclosed. If you authorize tender of your
Shares, all such Shares will be tendered unless otherwise specified on the
detachable part hereof. Your instructions should be forwarded to us in ample
time to permit us to submit a tender on your behalf by the Expiration Date (as
defined in the Offer to Purchase) of the Offer.
The Offer is being made to all holders of Shares. The Company is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by Legg Mason Wood Walker, Incorporated, as
the Dealer Manager, or one or more registered brokers or dealers licensed under
the laws of such jurisdictions.
<PAGE>
INSTRUCTIONS
WITH RESPECT TO OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
OF
PG ENERGY INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated March 11, 1996, and the related Letter of Transmittal (which
together constitute the "Offer") in connection with the Offer by PG Energy Inc.,
a Pennsylvania corporation formerly known as Pennsylvania Gas and Water Company
(the "Company"), to purchase any and all of its outstanding shares of 4.10%
Cumulative Preferred Stock, par value $100.00 per share, voluntary liquidation
preference $105.50 per share, involuntary liquidation preference $100.00 per
share (the "Shares"), at $50.00 per Share, net to the undersigned in cash, upon
the terms and subject to the conditions of the Offer.
This will instruct you to tender to the Company the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions of the Offer.
Number of Shares to be Tendered: SIGN HERE
__________ Shares* _______________________________________
Signature(s)
Dated: ____________, 1996 Name: _________________________________
Address: ______________________________
______________________________________
______________________________________
- - - - - -----------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
<PAGE>
================================================================================
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase dated March
11, 1996 and the Letter of Transmittal which are applicable to the Shares
tendered. Capitalized terms not defined in this announcement have the respective
meanings ascribed to such terms in the Offer to Purchase. The Company is not
aware of any jurisdiction in which the making of the Offer is prohibited by
administrative or judicial action pursuant to a valid state statute. If the
Company becomes aware of any valid state statute prohibiting the making of the
Offer, the Company will make a good faith effort to comply with such statute.
If, after such good faith effort, the Company cannot comply with such statute,
the Offer will not be made to, nor will tenders be accepted from or on behalf
of, holders of Shares in such state. In those jurisdictions whose securities,
blue sky or other laws require the Offer be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Company by Legg Mason Wood
Walker, Incorporated as Dealer Manager or one or more registered brokers or
dealers licensed under the laws of such jurisdictions.
Notice by
PG Energy Inc.
formerly
Pennsylvania Gas and Water Company
to Purchase for Cash
Any and All of the Outstanding Shares of
the Following Series of its Preferred Stock
<TABLE>
<CAPTION>
Title of Series of Preferred Outstanding Shares Purchase Price (per Share) Trading Symbol
- - - - - ---------------------------- ------------------ -------------------------- --------------
<S> <C> <C> <C>
9% Depositary Preferred Shares 1,000,000 $27.00 PGWCZ
4.10% Cumulative Preferred Stock 100,000 $50.00 PGWCP
</TABLE>
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania
Gas and Water Company (the "Company"), invites the holders of each series of
preferred stock described above (each a "Series of Preferred") to tender any or
all of their shares of a Series of Preferred (the "Shares") to the Company for
purchase at the purchase price set forth above for the Series of Preferred
tendered, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated March 11, 1996 (the "Offer
to Purchase") and in the Letter of Transmittal for the Shares tendered (the
"Letter of Transmittal"). As to each Series of Preferred, the Offer to Purchase,
together with the applicable Letter of Transmittal, constitutes the "Offer". The
Offer is not conditioned upon any minimum number of Shares being tendered. The
Offer is, however, subject to certain other conditions set forth in the Offer to
Purchase.
- - - - - --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
- - - - - --------------------------------------------------------------------------------
Such time and date, or the latest time and date as to which the Offer is
extended with respect to either Series of Preferred, is referred to herein as
the "Expiration Date." The Company will give oral or written notice of any
extension to the Depositary and make a public announcement thereof.
THE OFFER FOR A SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR THE
OTHER SERIES OF PREFERRED.
Neither the Company nor any of its directors or executive officers makes
any recommendation to stockholders as to whether to tender all or any Shares.
Each stockholder must make his or her own decision as to whether to tender
Shares and, if so, how many Shares to tender.
The Offer is one of the recapitalizations being undertaken in connection
with the sale on February 16, 1996, by the Company of its regulated water
operations and certain related assets. The Company believes that the Offer and
the other recapitalizations will have a positive effect on the Company's
financial and capital ratios and credit rating. In addition, the repurchase of
Shares pursuant to the Offer will adjust the Company's capital structure to a
level more appropriate to the size and nature of its operations after the sale
of the water operations. Finally, the Offer will enable the Company to reduce
its dividend requirements and annual administrative expenses in connection with
servicing the accounts of holders of the Shares. The Offer will afford to
stockholders who are considering the sale of all or a portion of their Shares
the opportunity to sell Shares without the usual transaction costs associated
with open-market sales. The Company believes the Offer is fair to holders of
Shares.
The Company's purchase of Shares pursuant to the Offer will reduce the
number of holders of Shares and the number of Shares that might otherwise trade
publicly, and depending upon the number of Shares so purchased, could adversely
affect the liquidity and market value of the remaining Shares held by the
public. In addition, there is currently no established trading market for the
shares of 4.10% Cumulative Preferred Stock, excluding limited and sporadic
quotations.
The Company also expressly reserves the right, in its sole discretion, at
any time or from time to time, to extend the period of time during which the
Offer is open by giving oral or written notice of such extension to the
Depositary and making a public announcement thereof.
The Company will pay to a Soliciting Dealer (as defined in the Offer to
Purchase) a solicitation fee of $0.50 per Share for any Shares tendered and
accepted for payment and paid for pursuant to the Offer, subject to certain
conditions.
Tenders of Shares of a Series of Preferred made pursuant to the Offer may
be withdrawn at any time prior to the applicable Expiration Date with respect to
such Series of Preferred. Thereafter, such tenders are irrevocable, except that
they may be withdrawn after May 3, 1996, unless theretofore accepted for payment
as provided in the Offer to Purchase. To be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of the Offer to Purchase and
must specify the name of the person who tendered the Shares to be withdrawn and
the number of Shares of each Series of Preferred to be withdrawn. If the Shares
to be withdrawn have been delivered to the Depositary, a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution (except in the
case of Shares tendered by an Eligible Institution) must be submitted prior to
the release of such Shares. In addition, such notice must specify, in the case
of Shares tendered by delivery of certificates, the name of the registered
holder (if different from that of the tendering stockholder) and the serial
numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at one of the Book-Entry Transfer Facilities to be
credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in the Offer to Purchase at any time prior to the
applicable Expiration Date.
THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION, WHICH SHOULD BE READ BEFORE STOCKHOLDERS DECIDE WHETHER TO ACCEPT
OR REJECT THE OFFER.
These materials are being mailed to record holders of Shares and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the Company's stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
The information required to be disclosed by Rule 13e-4(d)(1) of the
Securities Exchange Act of 1934, as amended, is contained in the Offer to
Purchase and is incorporated in this notice by reference.
EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL AND ONLY THE
APPLICABLE LETTER OF TRANSMITTAL FOR A PARTICULAR SERIES OR A NOTICE OF
GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES.
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of the Offer to Purchase, the Letter of Transmittal or other tender offer
materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact their
local broker, dealer, commercial bank or trust company for assistance concerning
the Offer.
The Information Agent:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 714-3313
The Dealer Manager:
Legg Mason Wood Walker
Incorporated
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
March 11, 1996
================================================================================
<PAGE>
FROM: ROBERT J. LOPATTO
RELEASE: UPON RECEIPT
PHONE: 717/829-8814
PG ENERGY INC. (FORMERLY PENNSYLVANIA GAS AND WATER COMPANY)
TO REPURCHASE ITS DEPOSITARY PREFERRED SHARES
AND 4.10% CUMULATIVE PREFERRED STOCK
WILKES-BARRE, PA, March 11, 1996 -- PG Energy Inc., a Pennsylvania
corporation (formerly Pennsylvania Gas and Water Company), announced today that
it has commenced an offer to purchase any and all of its outstanding Depositary
Preferred Shares, each representing a one-fourth interest in a share of its 9%
Cumulative Preferred Stock, at a price of $27.00 per share, net to the seller in
cash, and any and all of its outstanding shares of 4.10% Cumulative Preferred
Stock at a price of $50.00 per share, net to the seller in cash. The offer
begins today, March 11, 1996, and is subject to the terms and conditions
described in the offering materials, which are being mailed to record holders of
shares.
The offer is one of the recapitalizations being undertaken in connection with
the sale on February 16, 1996, by the Company of its regulated water operations
and certain related assets. The Company believes that the offer and the other
recapitalizations will have a positive effect on the Company's financial and
capital ratios and credit rating. In addition, the repurchases of shares
pursuant to the offer will adjust the Company's capital structure to a level
more appropriate to the size and nature of its operations after the sale of the
water operations. Finally, the offer will enable the Company to reduce its
dividend requirements and annual administrative expenses in connection with
servicing the accounts of holders of these shares. The offer will afford to
stockholders the opportunity to sell shares without the usual transaction costs
associated with open-market sales.
The offer will expire at 5:00 p.m., New York City time, on Monday, April 8,
1996, unless extended. The offer is not conditioned upon any minimum number of
shares being tendered.
The Dealer Manager for the offer is Legg Mason Wood Walker, Incorporated.
D.F. King & Co., Inc. is serving as the Information Agent.
PG Energy provides natural gas to approximately 142,000 customers in ten
counties in northeastern Pennsylvania.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PG Energy Inc.:
We have audited the accompanying balance sheets and statements of capitalization
of PG Energy Inc. ("PGE"), formerly known as Pennsylvania Gas and Water Company
(a Pennsylvania corporation and a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc.) as of December 31, 1995 and 1994, and the related statements
of income, common shareholder's investment, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of PGE's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PG Energy Inc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 23, 1996
<PAGE>
PG ENERGY INC.
BALANCE SHEETS
December 31,
1995* 1994*
[CAPTION]
(Thousands of Dollars)
ASSETS
[S] [C] [C]
UTILITY PLANT:
At original cost, less acquisition
adjustments of $386,000 $295,895 $284,080
Accumulated depreciation (76,882) (74,408)
219,013 209,672
OTHER PROPERTY AND INVESTMENTS 5,089 2,872
CURRENT ASSETS:
Cash 328 304
Accounts receivable -
Customers 18,189 15,676
Others 815 1,474
Reserve for uncollectible accounts (781) (921)
Accrued utility revenues 10,319 9,004
Materials and supplies, at average cost 2,609 2,743
Gas held by suppliers, at average cost 15,140 20,025
Natural gas transition costs collectible 4,612 4,708
Deferred cost of gas and supplier refunds, net - 3,767
Prepaid expenses and other 3,281 1,470
54,512 58,250
DEFERRED CHARGES:
Regulatory assets
Deferred taxes collectible 30,015 31,696
Natural gas transition costs collectible 497 4,099
Other 2,516 3,131
Unamortized debt expense 1,340 1,867
Other - 3,552
34,368 44,345
NET ASSETS OF DISCONTINUED OPERATIONS 204,250 203,196
TOTAL ASSETS $517,232 $518,335
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
BALANCE SHEETS
[CAPTION]
December 31,
1995* 1994*
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
[S] [C] [C]
CAPITALIZATION (see accompanying statements):
Common shareholder's investment (Notes 5 and 8) $208,356 $216,032
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 1,680 1,760
Long-term debt (Note 7) 55,000 170,825
298,651 422,232
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 6, 7 and 9) 115,881 3,290
Note payable (Note 9) 10,000 -
Accounts payable -
Suppliers 17,781 16,762
Affiliates, net 826 788
Deferred cost of gas and supplier refunds, net 434 -
Accrued general business and realty taxes 1,542 3,381
Accrued income taxes 516 3,185
Accrued interest 2,062 2,713
Accrued natural gas transition costs (Note 3) 2,278 2,356
Other 3,162 2,395
154,482 34,870
DEFERRED CREDITS:
Deferred income taxes 48,848 46,627
Accrued natural gas transition costs (Note 3) 1,144 3,250
Unamortized investment tax credits 4,938 5,110
Operating reserves 3,709 2,383
Other 5,460 3,863
64,099 61,233
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $517,232 $518,335
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 152,756 $ 167,992 $ 153,325
Cost of gas 84,372 98,653 86,557
OPERATING MARGIN 68,384 69,339 66,768
OTHER OPERATING EXPENSES:
Operation 22,438 22,652 21,797
Maintenance 4,967 4,436 3,695
Depreciation 6,971 6,667 6,388
Income taxes 5,168 5,649 6,041
Taxes other than income taxes 9,918 10,807 10,055
Total other operating expenses 49,462 50,211 47,976
OPERATING INCOME 18,922 19,128 18,792
OTHER INCOME (DEDUCTIONS), NET (Note 4) 301 72 (585)
INCOME BEFORE INTEREST CHARGES 19,223 19,200 18,207
INTEREST CHARGES:
Interest on long-term debt 9,304 8,914 8,615
Other interest 1,543 1,005 1,247
Allowance for borrowed funds used
during construction (94) (21) (47)
Total interest charges 10,753 9,898 9,815
INCOME FROM CONTINUING OPERATIONS 8,470 9,302 8,392
DISCONTINUED OPERATIONS (Note 2):
Income from discontinued operations 2,127 10,504 7,909
Estimated loss on disposal of discontinued
operations, net of anticipated income
during the phase-out period of $7,409,000
(net of related income taxes of $4,800,000) (5,961) - -
Income (loss) with respect to discontinued
operations (3,834) 10,504 7,909
NET INCOME 4,636 19,806 16,301
DIVIDENDS ON PREFERRED STOCK 2,763 4,639 6,462
EARNINGS APPLICABLE TO COMMON STOCK $ 1,873 $ 15,167 $ 9,839
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ 1.02 $ .90 $ .46
Discontinued operations (.69) 2.02 1.90
Income before premium on redemption of
preferred stock .33 2.92 2.36
Premium on redemption of preferred stock - (.19) -
Earnings per share of common stock $ .33 $ 2.73 $ 2.36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,569,765 5,189,108 4,176,087
* See Note 2 regarding discontinued operations and restatement of financial
statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 8,470 $ 9,302 $ 8,392
Effects of noncash charges to income -
Depreciation 7,018 6,693 6,413
Deferred income taxes, net (265) 725 (2,492)
Provisions for self insurance 2,652 1,030 1,510
Other, net 5,190 2,755 2,185
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues (3,309) 1,546 (1,495)
Gas held by suppliers 4,885 6,625 (5,038)
Accounts payable 839 (5,609) (515)
Deferred cost of gas and supplier refunds, net 5,715 5,784 (13,307)
Other current assets and liabilities, net (6,622) (658) 1,293
Other operating items, net 2,675 (4,020) (3,988)
Net cash provided (used) by continuing
operations 27,248 24,173 (7,042)
Net cash provided (used) by discontinued
operations 3,764 552 (837)
Net cash provided (used) by operating
activities 31,012 24,725 (7,879)
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (20,615) (16,960) (14,011)
Other, net (4,934) 1,098 201
Net cash used for investing activities (25,549) (15,862) (13,810)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 5,720 23,439 32,366
Redemption of preferred stock (80) (30,080) (10,080)
Dividends on common and preferred stock (18,032) (14,244) (18,398)
Issuance of long-term debt 50,000 30,000 19,000
Repayment of long-term debt (53,535) (31,055) (30,678)
Repayment of note payable to parent - (3,680) -
Net increase in bank borrowings 10,519 15,370 32,247
Other, net (31) (1,023) (624)
Net cash provided (used) for financing
activities (5,439) (11,273) 23,833
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 24 (2,410) 2,144
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 304 2,714 570
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 328 $ 304 $ 2,714
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 23,802 $ 21,001 $ 21,092
Income taxes $ 8,694 $ 7,353 $ 6,790
* See Note 2 regarding discontinued operations and restatement of financial
statements.
</TABLE>
<PAGE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C>
COMMON SHAREHOLDER'S INVESTMENT (Notes 5 and 8):
Common stock, no par value
(stated value $10 per share)
Authorized - 15,000,000 shares
Outstanding - 5,602,480 shares and
5,456,665 shares, respectively $ 56,025 $ 54,567
Additional paid-in capital 94,463 90,201
Retained earnings 57,868 71,264
Total common shareholders' investment 208,356 69.8% 216,032 51.2%
PREFERRED STOCK of PGE, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
100,000 shares issued 10,000 10,000
9% cumulative preferred,
250,000 shares outstanding, net of
issuance costs 23,615 23,615
Total preferred stock not subject to
mandatory redemption, net 33,615 11.2% 33,615 8.0%
Subject to mandatory redemption -
5.75% cumulative preferred, 17,600 and
18,400 shares outstanding, respectively 1,760 1,840
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 1,680 0.6% 1,760 0.4%
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 108,535
Notes 115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt 55,000 18.4% 170,825 40.4%
TOTAL CAPITALIZATION $ 298,651 100.0% $ 422,232 100.0%
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
PG ENERGY INC.
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
[CAPTION]
Additional
Common Paid-In Retained
Stock Capital Earnings Total
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Balance at December 31, 1992 $40,187 $ 48,776 $ 69,135 $158,098
Net income for 1993 - - 16,301 16,301
Issuance of common stock 8,500 23,866 - 32,366
Premium on redemption of
preferred stock - - (356) (356)
Dividends on:
Preferred stock (Note 6) - - (6,462) (6,462)
Common stock ($2.8225 per share) - - (11,936) (11,936)
Balance at December 31, 1993 48,687 72,642 66,682 188,011
Net income for 1994 - - 19,806 19,806
Issuance of common stock 5,880 17,559 - 23,439
Premium on redemption of preferred
stock - - (980) (980)
Dividends on:
Preferred stock (Note 6) - - (4,639) (4,639)
Common stock ($1.81 per share) - - (9,605) (9,605)
Balance at December 31, 1994 54,567 90,201 71,264 216,032
Net income for 1995 - - 4,636 4,636
Issuance of common stock 1,458 4,262 - 5,720
Dividends on:
Preferred stock (Note 6) - - (2,763) (2,763)
Common stock ($2.7425 per share) - - (15,269) (15,269)
Balance at December 31, 1995 $56,025 $ 94,463 $ 57,868 $208,356
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. PG Energy Inc. ("PGE"), formerly known as
Pennsylvania Gas and Water Company, a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc. ("PEI"), is a regulated public utility subject to the
jurisdiction of the Pennsylvania Public Utility Commission ("PPUC") for rate and
accounting purposes. PGE distributes natural gas to a ten-county area in
northeastern Pennsylvania, a territory that includes 116 municipalities, in
addition to the cities of Scranton, Wilkes-Barre and Williamsport. The
financial statements of PGE have been prepared in accordance with generally
accepted accounting principles, including the provisions of Financial Accounting
Standards Board ("FASB") Statement 71, "Accounting for the Effects of Certain
Types of Regulation," which give recognition to the rate and accounting
practices of regulatory agencies such as the PPUC.
Use of Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates involve judgments with respect to,
among other things, various future economic factors which are difficult to
predict and are beyond the control of PEI. Therefore, actual amounts could
differ from these estimates.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, and an allowance for funds used during construction.
The allowance for funds used during construction ("AFUDC") is defined as the
net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as a reduction of interest expense (with respect to
the cost of borrowed funds) in the accompanying statements of income. AFUDC
varies according to changes in the level of construction work in progress and in
the sources and costs of capital. The weighted average rate for such allowance
was approximately 8% in 1995, 7% in 1994 and 8% in 1993.
PGE provides for depreciation on a straight-line basis. Exclusive of
transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, was 2.75% in
1995, 2.77% in 1994 and 2.81% in 1993, respectively.
When depreciable property is retired, the original cost of such property is
removed from the utility plant accounts and is charged, together with the cost
of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PGE bills its customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
<PAGE>
PGE generally passes on to its customers increases or decreases in gas costs
from those reflected in its tariff charges. In accordance with this procedure,
PGE defers any current under or over-recoveries of gas costs and collects or
refunds such amounts in subsequent periods.
Deferred Charges (Regulatory Assets). PGE generally accounts for and
reports its costs in accordance with the economic effect of rate actions by the
PPUC. To this extent, certain costs are recorded as deferred charges pending
their recovery in rates. These amounts relate to previously-issued orders of
the PPUC and are of a nature which, in the opinion of PEI, will be recoverable
in future rates, based on such rate orders. In addition to deferred taxes
collectible, which represent the probable future rate recovery of the previously
unrecorded deferred taxes primarily relating to certain temporary differences in
the basis of utility plant not previously recorded because of the regulatory
rate practices of the PPUC, and natural gas transition costs collectible, the
following deferred charges are included as "Other" regulatory assets:
[CAPTION]
1995 1994
[S] [C] [C]
Early retirement plan charges $ 710 $ 756
Low income usage reduction program 429 441
Computer software costs 415 1,006
Corrosion control costs 341 489
Customer assistance program 109 5
Other 512 434
Total $ 2,516 $ 3,131
PGE also records, as deferred charges, the direct financing costs incurred
in connection with the issuance of long-term debt and redeemable preferred stock
and equitably amortizes such amounts over the life of such securities.
Cash and Cash Equivalents. For the purposes of the statements of cash
flows, PGE considers all highly liquid debt instruments purchased, which
generally have a maturity of three months or less, to be cash equivalents. Such
instruments are carried at cost, which approximates market value.
<PAGE>
Income Taxes. PGE provides for deferred taxes in accordance with the
provisions of FASB Statement 109. The components of PGE's net deferred income
tax liability relative to continuing operations as of December 31, 1995 and
1994, are shown below:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Utility plant basis differences $51,822 $49,638
FERC Order 636 transition costs 700 1,371
Alternative minimum tax (1,947) (2,213)
Operating reserves (1,300) (1,020)
Other (427) (1,149)
Net deferred income tax liability $48,848 $46,627
The provision for income taxes relative to continuing operations consists of
the following components:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Included in operating expenses:
Currently payable -
Federal $ 4,457 $ 3,013 $ 5,641
State 1,169 1,128 2,021
Total currently payable 5,626 4,141 7,662
Deferred, net -
Federal 198 1,785 (515)
State (463) (105) (934)
Total deferred, net (265) 1,680 (1,449)
Amortization of investment tax credits (193) (172) (172)
Total included in operating expenses 5,168 5,649 6,041
Included in other income, net:
Currently payable -
Federal 135 213 (44)
State 43 85 (28)
Total currently payable 178 298 (72)
Deferred, net -
Federal - (5) (6)
State - - -
Total deferred, net - (5) (6)
Total included in other income, net 178 293 (78)
Total provision for income taxes $ 5,346 $ 5,942 $ 5,963
<PAGE>
The components of deferred income taxes relative to continuing operations,
which are recorded consistent with the treatment allowed by the PPUC for
ratemaking purposes, are as follows:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Excess of tax depreciation over
depreciation for accounting purposes $ 1,587 $ 1,197 $ 1,023
FERC Order 636 transition costs (670) 1,371 -
Take-or-pay costs, net (281) (652) (1,126)
Other, net (901) (241) (1,352)
Total deferred taxes, net $ (265) $ 1,675 $(1,455)
Included in:
Operating expenses $ (265) $ 1,680 $(1,449)
Other income, net - (5) (6)
Total deferred taxes, net $ (265) $ 1,675 $(1,455)
The total provision for income taxes relative to continuing operations shown
in the accompanying statements of income differs from the amount which would be
computed by applying the statutory federal income tax rate to income before
income taxes. The following table summarizes the major reasons for this
difference:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income before income taxes $13,816 $15,293 $14,428
Tax expense at statutory federal
income tax rate $ 4,836 $ 5,353 $ 5,050
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 487 879 878
Amortization of investment tax
credits (193) (172) (172)
Other, net 216 (118) 207
Total provision for income taxes $ 5,346 $ 5,942 $ 5,963
Long Lived Assets. In March 1995, FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets", was issued. The provisions of this statement,
which are effective for fiscal years beginning after September 15, 1995, require
that long-lived assets, identifiable intangibles, capital leases and goodwill be
reviewed for impairment whenever events occur or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. In
addition, FASB Statement 121 requires that regulatory assets meet the recovery
criteria of FASB Statement 71, "Accounting for Effects of Certain Types of
Regulation", on an ongoing basis in order to avoid a writedown. The
implementation of FASB Statement 121 in 1996 is not expected to have any
significant impact on PGE since the carrying amount of all assets, including
regulatory assets, is considered recoverable.
<PAGE>
(2) DISCONTINUED OPERATIONS
On April 26, 1995, PEI and PGE signed a definitive agreement (the
"Agreement") with American Water Works Company, Inc. ("American") and
Pennsylvania-American Water Company ("Pennsylvania-American"), a wholly-owned
subsidiary of American, providing for the sale to Pennsylvania-American of
substantially all of the assets, properties and rights of PGE's water utility
operations.
Under the terms of the Agreement, Pennsylvania-American paid approximately
$413.5 million consisting of $266.4 million in cash and the assumption of $147.1
million of PGE's liabilities, including $141.1 million of its long-term debt, to
PGE on the February 16, 1996, closing date for the transaction. This price is
subject to certain post-closing adjustments. PGE continued to operate the water
utility business until the closing date.
The sale price reflects a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other
items, principally the write-off of certain deferred regulatory assets and
deferred credits and the impact of pension and other postretirement benefit
expenses relative to the early retirement plan (see Note 10 of the Notes to
Financial Statements), the sale resulted in an estimated after tax loss of $6.0
million, net of the expected income from the water operations during the phase-
out period (which for financial reporting purposes was April 1, 1995, through
February 15, 1996). The sale involved a gain for income tax purposes, primarily
because of the accelerated depreciation that had been claimed by PGE with
respect to the water utility plant that was sold. It is estimated that the
income taxes payable on the sale, for which deferred income taxes had previously
been provided, will be approximately $56.7 million.
The net cash proceeds from the sale of approximately $209.1 million, net of
the estimated $56.7 million payable for income taxes, are being used by PEI and
PGE to retire debt, to repurchase stock and for working capital for their
continuing operations. With the sale of PGE's water utility operations, the
principal assets of PGE consist of its gas utility operations and approximately
46,000 acres of land.
The accompanying financial statements reflect PGE's water utility operations
as "discontinued operations" effective March 31, 1995. Interest charges
relating to indebtedness of PGE have been allocated to the discontinued
operations based on the relationship of the gross water utility plant that was
sold to the total of PGE's gross gas and water utility plant. This is the same
method as was utilized by PGE and the PPUC in establishing the revenue
requirements of both PGE's gas and water utility operations. None of the
dividends on PGE's preferred stock nor any of PEI's interest expense has been
allocated to the discontinued operations.
<PAGE>
Selected financial information for the discontinued operations as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993 is set forth below:
Net Assets of Discontinued Operations
[CAPTION]
As of December 31,
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Net utility plant $ 368,742 $ 359,399
Current assets (primarily accounts
receivable and accrued revenues) 12,756 12,141
Deferred charges and other assets 25,752 31,103
Total assets being acquired by
Pennsylvania-American 407,250 402,643
Liabilities being assumed by
Pennsylvania-American
Long-term debt 141,097 141,420
Other 5,983 13,168
147,080 154,588
Net assets being acquired by
Pennsylvania-American 260,170 248,055
Estimated liability for income taxes on
sale of discontinued operations (56,710) (55,542)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790 -
Other net assets of discontinued operations
(written off as of March 31, 1995) - 10,683
Total net assets of discontinued operations $ 204,250 $ 203,196
Income From Discontinued Operations
[CAPTION]
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Operating revenues $ 15,640 $ 66,731 $ 53,363
Operating expenses, excluding income taxes
Depreciation 1,946 7,672 5,911
Other operating expenses 6,929 29,005 27,140
8,875 36,677 33,051
Operating income before income taxes 6,765 30,054 20,312
Income taxes 1,403 6,850 2,948
Operating income 5,362 23,204 17,364
Other income 9 49 71
Allocated interest charges (3,244) (12,749) (9,526)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
<PAGE>
Net Cash Provided (Used) by Discontinued Operations
[CAPTION]
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
Noncash charges (credits) to income:
Depreciation 1,946 7,672 5,911
Deferred treatment plant costs, net 145 581 (3,560)
Deferred income taxes 447 5,146 4,170
Deferred water utility billings - (5,574) (582)
Changes in working capital, exclusive
of long-term debt 1,648 353 (2,041)
Additions to utility plant (2,276) (20,980) (32,515)
Utilization of restricted funds - 9,753 15,868
Net increase (decrease) in long-term
debt 1,010 (6,834) 1,640
Other, net (1,283) (69) 2,363
Net cash provided (used) for discontinued
operations $ 3,764 $ 552 $ (837)
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
(3) RATE MATTERS
Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania
Public Utility Code, which require that the tariffs of gas distribution
companies, such as PGE, be adjusted on an annual basis, and on an interim basis
when circumstances dictate, to reflect changes in their purchased gas costs, the
PPUC ordered PGE to make the following changes during 1995, 1994 and 1993 to the
gas costs contained in its gas tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
December 1, 1995 $2.42 $2.75 $ 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)
December 1, 1994 3.74 3.68 (1,800,000)
December 1, 1993 2.79 3.74 28,800,000
The changes in gas rates on account of purchased gas costs have no effect on
PGE's earnings since the change in revenue is offset by a corresponding change
in the cost of gas.
Quarterly Gas Cost Adjustment. Effective September 14, 1995, the PPUC
adopted regulations that provide for the quarterly adjustment of the annual
purchased gas cost rate of larger gas distribution companies, including PGE.
Such adjustments are allowed when the actual purchased gas costs vary from the
estimated costs reflected in the respective company's tariffs by 2% or more.
Except for reducing the amount of any over or undercollections of gas costs,
these regulations will not have any material effect on PGE's financial position
or results of operations, and PGE will still be required to file an annual
purchased gas cost rate. As of March 1, 1996, no such quarterly gas cost
adjustments had been made to PGE's tariffs.
<PAGE>
Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing.
PGE was billed a total of $1.3 million of Gas Transition Costs by its interstate
pipelines. Of this amount, $858,000 was recovered by PGE over a twelve-month
period ended January 31, 1995, through an increase in its PGC rate, $252,000 are
being recovered by PGE in its annual PGC rate that the PPUC approved effective
December 1, 1995, and the recovery of the remaining $217,000 will be sought by
PGE in its PGC rate that is effective December 1, 1996.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition Costs") are not natural gas costs eligible for
recovery under the PGC rate filing mechanism, such costs are subject to full
recovery by local distribution companies through the filing of a tariff pursuant
to either the existing surcharge or base rate provisions of the Pennsylvania
Public Utility Code. By Order of the PPUC entered August 26, 1994, PGE began
recovering the Non-Gas Transition Costs that it estimates it will ultimately be
billed pursuant to FERC Order 636 through the billing of a surcharge to its
customers effective September 12, 1994. It is currently estimated that $9.6
million of Non-Gas Transition Costs will be billed to PGE, generally over a
four-year period extending through the fourth quarter of 1997, of which $6.1
million had been billed to PGE and $4.4 million had been recovered from its
customers as of December 31, 1995. PGE has recorded the estimated Non-Gas
Transition Costs that remain to be billed to it and the amounts remaining to be
recovered from its customers.
(4) OTHER INCOME (DEDUCTIONS), NET
Other income (deductions), net was comprised of the following elements:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Write-off of expired advances relating
to income taxes, net of related
income taxes $ 227 $ - $ -
Net interest income (expense) with respect
to proceeds from the issuance of debt
held in a construction fund 30 (91) (330)
Gain on sale of investment in joint
venture, net of related income taxes - 268 -
Gain on sale of land and other property,
net of related income taxes - 165 20
Premium on retirement/defeasance of debt (7) (40) (81)
Amortization of preferred stock issuance
costs, net of related income tax
benefits (1) (227) (126)
Other 52 (3) (68)
Total $ 301 $ 72 $ (585)
<PAGE>
(5) COMMON STOCK
Since January 1, 1993, PGE has issued the following amounts of common stock
to PEI, its parent company, in addition to shares issued in connection with
PEI's Dividend Reinvestment and Stock Purchase Plan and Customer Stock Purchase
Plan:
[CAPTION]
Issuance Price
Date Issued Number of Shares Per Share* Aggregate
[S] [C] [C] [C]
October 27, 1993 834,000 $ 38.25 $31.9 million
May 31, 1994 500,000 $ 40.00 $20.0
Total 1,334,000 $51.9 million
* Approximately equal to the book value of PGE's common stock at the date of
issuance.
The proceeds from the shares issued on October 27, 1993, were used to repay
bank borrowings which had been incurred primarily to finance construction
expenditures. The proceeds from the shares issued on May 31, 1994, were used by
PGE to redeem $15.0 million of its 9.50% 1988 series cumulative preferred stock,
to fund the $534,375 premium in connection with such redemption, to repay a
portion of its bank borrowings and for working capital purposes.
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provides the residential customers of PGE with a method
of purchasing newly-issued shares of PEI common stock at a 5% discount from the
market price. PEI uses proceeds from the issuance of shares through the
Customer Plan to purchase common stock of PGE. PGE realized $2.4 million and
$1.7 million from the issuance of common stock to PEI in connection with the
Customer Plan during 1995 and 1994, respectively. Effective May 9, 1995, the
Customer Plan was suspended because of the significant reduction in PEI's and
PGE's capital requirements resulting from the sale of PGE's water utility
operations to Pennsylvania-American.
Through PEI's Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders
of shares of PEI common stock may reinvest cash dividends and/or make cash
investments in the common stock of PEI. The DRP was amended on May 5, 1994, to
provide PEI's shareholders with a method of reinvesting cash dividends and
making cash investments to purchase newly-issued shares of PEI's common stock at
a 5% discount from the market price. Prior to such amendment, cash dividends
were reinvested at 100% of the market price in newly-issued shares and cash
investments were used to purchase shares of PEI common stock on the open market.
PEI uses the proceeds from the DRP to purchase common stock of PGE. During
1995, 1994 and 1993, PGE realized $3.3 million, $1.8 million and $465,000,
respectively, from the issuance of common stock to PEI in connection with the
DRP. Effective May 9, 1995, the cash investment feature of the DRP and the 5%
discount from the market price on the reinvestment of dividends under the DRP
were suspended because of the significant reduction in PEI's and PGE's capital
requirements resulting from the sale of PGE's water utility operations to
Pennsylvania-American.
(6) PREFERRED STOCK
Preferred Stock Subject to Mandatory Redemption
On December 23, 1993, PGE redeemed 100,000 shares of its 9.50% 1988 series
cumulative preferred stock at a price of $103.5625 per share (plus accrued
<PAGE>
dividends to the redemption date), which included a voluntary redemption premium
of $3.5625 per share ($356,250 in the aggregate). On May 31, 1994, PGE redeemed
the remaining 150,000 outstanding shares of its 9.50% 1988 series cumulative
preferred stock, $100 par value, at a price of $103.5625 per share, which
included a voluntary redemption premium of $3.5625 per share ($534,375 in the
aggregate), plus accrued dividends.
On December 16, 1994, PGE redeemed all 150,000 shares of its 8.90%
cumulative preferred stock at a price of $102.97 per share, which included a
voluntary redemption premium of $2.97 per share ($445,500 in the aggregate).
The holders of the 5.75% cumulative preferred stock have a noncumulative
right each year to tender to PGE and to require it to purchase at a per share
price not exceeding $100, up to (a) that number of shares of the 5.75%
cumulative preferred stock which can be acquired for an aggregate purchase price
of $80,000 less (b) the number of such shares which PGE may already have
purchased during the year at a per share price of not more than $100. Eight
hundred such shares were acquired and cancelled by PGE in each of the three
years in the period ended December 31, 1995, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1995, the sinking fund requirements relative to PGE's
5.75% cumulative preferred stock (the only series of preferred stock subject to
mandatory redemption that was outstanding as of such date) were $80,000 for each
of the years 1996 through 2000.
At PGE's option, the 5.75% cumulative preferred stock may currently be
redeemed at a price of $102.00 per share ($1,795,200 in the aggregate).
Preferred Stock Not Subject to Mandatory Redemption
On August 18, 1992, PGE issued 250,000 shares of its 9% cumulative preferred
stock, par value $100 per share, for aggregate net proceeds of approximately
$23.6 million. The 9% cumulative preferred stock is not redeemable by PGE prior
to September 15, 1997. Thereafter, it is redeemable at the option of PGE, in
whole or in part, upon not less than 30 days' notice, at $100 per share plus
accrued dividends to the date of redemption and at a premium of $8 per share if
redeemed from September 15, 1997, to September 14, 1998, and a premium of $4 per
share if redeemed from September 15, 1998, to September 14, 1999.
At PGE's option, the 4.10% cumulative preferred stock may currently be
redeemed at a redemption price of $105.50 per share or for an aggregate
redemption price of $10,550,000.
Dividend Information
The dividends on the preferred stock of PGE in each of the three years in
the period ended December 31, 1995, were as follows:
[CAPTION]
Series 1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
4.10% $ 410 $ 410 $ 410
5.75% 103 108 113
8.90% - 1,280 1,335
9.00% 2,250 2,250 2,250
9.50% 1988 series - 591 2,354
Total $2,763 $4,639 $6,462
<PAGE>
Dividends on all series of PGE's preferred stock are cumulative, and if
dividends in an amount equivalent to four full quarterly dividends on all shares
of preferred stock then outstanding are in default and until all such dividends
have been paid, the holders of the preferred stock, voting separately as one
class, shall be entitled to elect a majority of the Board of Directors of PGE.
Additionally, PGE may not declare dividends on its common stock if any dividends
on shares of preferred stock then outstanding are in default.
(7) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1995
and 1994:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
First mortgage bonds -
8 % Series, due 1997 $ - $ 3,535
8.375% Series, due 2002 30,000 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
9.57 % Series, due 1996 - 50,000
55,000 108,535
Notes -
Term loan, due 1996 50,000 -
Bank borrowings, at weighted average interest
rates of 6.62% and 5.28%, respectively (Note 9) 65,801 65,500
115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt $ 55,000 $ 170,825
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement, which matures on November 1, 1996. Proceeds from the loan, along
with other funds provided by PGE, were utilized on October 13, 1995, to redeem
the $50.0 million principal amount of PGE's 9.57% Series First Mortgage Bonds
due September 1, 1996.
Maturities and Sinking Fund Requirements. As of December 31, 1995, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
[CAPTION]
Year Amount
[S] [C]
1996 $115,801,000 (a)
1997 $ -
1998 $ -
1999 $ 10,000,000 (b)
2000 $ -
(a) Includes $65.8 million of bank borrowings outstanding as of December 31,
1995, and PGE's term loan in the principal amount of $50.0 million.
Such amounts were repaid by February 16, 1996, primarily with proceeds
from the sale of PGE's water operations to Pennsylvania-American.
(b) Includes PGE's 9.23% Series First Mortgage Bonds in the principal amount
of $10.0 million due September 1, 1999.
(8) DIVIDEND RESTRICTIONS
The preferred stock provisions of PGE's Restated Articles of Incorporation
and certain of the agreements under which PGE has issued long-term debt provide
for certain dividend restrictions. As of December 31, 1995, $5,416,000 of the
<PAGE>
retained earnings of PGE were restricted against the payment of cash dividends
on common stock under the most restrictive of these covenants.
<PAGE>
(9) BANK NOTES PAYABLE
As of April 19, 1993, PGE entered into a revolving bank credit agreement, as
subsequently amended (the "Credit Agreement") with a group of six banks under
the terms of which $60.0 million was available for borrowing by PGE through May
31, 1996. The Credit Agreement was terminated on February 26, 1996, following
the sale of PGE's water operations to Pennsylvania-American on February 16,
1996, and repayment of all borrowings outstanding under the Credit Agreement
with proceeds from such sale. The interest rate on borrowings under the Credit
Agreement was generally less than prime. The Credit Agreement also required the
payment of a commitment fee of .195% per annum on the average daily amount of
the unused portion of the available funds. PGE currently has four additional
bank lines of credit with an aggregate borrowing capacity of $17.5 million which
provide for borrowings at interest rates generally less than prime. Borrowings
outstanding under two of these bank lines of credit with borrowing capacities of
$2.5 million and $5.0 million mature on May 31, 1996, and June 30, 1996,
respectively. Borrowings outstanding under the other two bank lines of credit
with borrowing capacities of $3.0 million and $7.0 million mature on March 31,
1996, and May 31, 1996, respectively. As of March 1, 1996, PGE had no
borrowings outstanding under these additional bank lines of credit.
Additionally, PGE had one other bank line of credit outstanding as of December
31, 1995, with a borrowing capacity of $3.0 million, which was terminated
following the sale of PGE's water operations. The commitment fees paid by PGE
with respect to its revolving bank credit agreements totaled $26,000 in 1995,
$97,000 in 1994 and $113,000 in 1993.
Because of limitations imposed by the terms of its preferred stock, PGE is
prohibited, without the consent of the holders of a majority of the outstanding
shares of its preferred stock, from issuing more than $12.0 million of unsecured
debt due on demand or within one year from issuance. PGE had $10.0 million due
on demand or within one year from issuance outstanding as of December 31, 1995.
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
[CAPTION]
As of December 31,
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Borrowings under lines of credit
Short-term $ 10,000 $ - $ 2,000
Long-term 65,801 65,500 47,000
$ 75,801 $ 65,500 $ 49,000
Unused lines of credit
Short-term $ - $ - $ 5,000
Long-term 4,699 2,000 13,000
$ 4,699 $ 2,000 $ 18,000
Total lines of credit
Prime rate $ - $ - $ 2,000
Other than prime rate 80,500 67,500 65,000
$ 80,500 $ 67,500 $ 67,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 5,692 $ 5,666
Daily average amount outstanding $ 2,581 $ 441 $ 637
Weighted daily average interest
rate 6.513% 3.984% 4.046%
Weighted average interest rate at
year-end 6.334% - 4.208%
<PAGE>
Range of interest rates 6.290- 3.700- 3.750-
6.660% 6.000% 6.000%
(a) PGE had no short-term bank borrowings outstanding as of December 31,
1994.
<PAGE>
(10) POSTEMPLOYMENT BENEFITS
Pension Benefits
Substantially all employees of PGE are covered by PEI's trusteed,
noncontributory, defined benefit pension plan. Pension benefits are based on
years of service and average final salary. PGE's funding policy is to
contribute an amount necessary to provide for benefits based on service to date,
as well as for benefits expected to be earned in the future by current
participants. To the extent that the present value of these obligations is
fully covered by assets in the trust, a contribution may not be made for a
particular year.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligations relating to employees of PGE who
accepted employment with Pennsylvania-American (the "Transferred Employees").
In this regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees will be
transferred to the American pension plan. In February, 1996, PGE began
terminating additional employees as a result of the sale of its water operations
and the transfer of fewer employees to Pennsylvania-American than originally
expected. As a result of these actions, PGE recognized an estimated settlement
loss of $200,000 ($117,000 net of the related income tax benefit) and
curtailment gain of $2.7 million ($1.6 million net of related income taxes) in
its determination of the estimated loss on the disposal of water utility
operations.
In December, 1995, as a result of the agreement to transfer fewer employees
to Pennsylvania-American in connection with the sale of PGE's water utility
operations than originally expected, PGE offered an Early Retirement Plan
("ERP") to its employees who would be 59 years of age or older and have a
minimum of five years of service as of December 31, 1995. Of the 63 eligible
employees, 50 elected to accept this offer and retire as of December 31, 1995,
resulting in the recording, as of December 31, 1995, of an additional pension
liability of $1.6 million reflecting the increased costs associated with the
ERP. Such amount was charged to the estimated loss on the disposal of water
utility operations.
Net pension costs relative to continuing operations, including amounts
capitalized, were $353,000, $309,000 and $244,000 in 1995, 1994 and 1993,
respectively. The following items were the components of such net pension
costs:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned
during the year $ 430 $ 549 $ 470
Interest cost on projected benefit
obligations 1,459 1,400 1,321
Return on plan assets (1,502) 535 (1,720)
Net amortization and deferral (34) (55) (53)
Deferral of investment (loss) gain - (2,120) 226
Net pension cost $ 353 $ 309 $ 244
<PAGE>
The funded status of the plan as of December 31, 1995 and 1994, was as
follows:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 29,100 $ 21,592
Nonvested 47 77
Total 29,147 21,669
Provision for future salary increases 7,841 7,565
Projected benefit obligations 36,988 29,234
Market value of plan assets, primarily
invested in equities and bonds 34,000 30,457
Plan assets in excess of (less than) projected
benefit obligations (2,988) 1,223
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (2,155) (2,528)
Unrecognized prior service costs 1,507 2,150
Unrecognized net (gain) loss 2,155 (1,644)
Accrued pension cost at year-end $ (1,481) $ (799)
The assumptions used in determining pension obligations were:
[CAPTION]
1995 1994 1993
[S] [C] [C] [C]
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
Other Postretirement Benefits
In addition to pension benefits, PGE provides certain health care and life
insurance benefits for retired employees. Substantially all of PGE's employees
may become eligible for those benefits if they reach retirement age while
working for PGE. PGE records the cost of retiree health care and life insurance
benefits as a liability over the employees' active service periods instead of on
a benefits-paid basis.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligation relating to the Transferred
Employees, as well as 45% of PGE's retired employees as of that date. In this
regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees and 45% of the
retired employees as of February 16, 1996, will be transferred to trusts
established by Pennsylvania-American. In February, 1996, PGE began terminating
additional employees as a result of the sale of its water operations and the
transfer of fewer employees to Pennsylvania-American than originally expected.
As a result of the transfer, early retirement and displacement of employees, PGE
recognized an estimated settlement and curtailment loss of $385,000 ($225,000
net of the related income tax benefit) as part of the loss on the disposal of
its water utility operations.
<PAGE>
As a result of the ERP offered by PGE to certain of its employees, PGE
recorded, as of December 31, 1995, an additional liability of $805,000,
($471,000 net of the related income tax benefit) reflecting the cost of future
health care benefits required to be recognized under FASB Statement 88 in
conjunction with the ERP. Such amount was charged to the estimated loss on
disposal of water utility operations.
The following items were the components of the net cost of postretirement
benefits other than pensions relative to continuing operations for the years
1995, 1994 and 1993:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned during
the year $ 127 $ 148 $ 124
Interest cost on accumulated benefit
obligation 577 532 532
Return on plan assets (69) (4) -
Net amortization and deferral 391 360 339
Net cost of postretirement benefits other
than pensions 1,026 1,036 995
Less disbursements for benefits (555) (543) (540)
Increase in liability for postretirement
benefits other than pensions $ 471 $ 493 $ 455
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1995 and 1994, follow:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Accumulated benefit obligation:
Retirees $ 6,514 $ 9,021
Fully eligible active employees 850 1,628
Other active employees 1,074 1,305
8,438 11,954
Plan assets at fair value - 839
Accumulated benefit obligation
in excess of plan assets 8,438 11,115
Unrecognized transition obligation
being amortized over 20 years (5,438) (11,108)
Unrecognized net gain (loss) (703) 885
Accrued liability for postretirement
benefits other than pensions $ 2,297 $ 892
The assumptions used in determining other postretirement benefit obligations
were:
[CAPTION]
1995 1994 1993
[S] [C] [C] [C]
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
It was also assumed that the per capita cost of covered health care benefits
would increase at an annual rate of 9% in 1996 and that this rate would decrease
gradually to 5-1/2% for the year 2003 and remain at that level thereafter. The
health care cost trend rate assumption had a significant effect on the amounts
accrued. To illustrate, increasing the assumed health care cost trend rate by 1
percentage point in each year would increase the transition obligation as of
<PAGE>
January 1, 1995, by approximately $394,000 and the aggregate of the service and
interest cost components of the net cost of postretirement benefits other than
pensions for the year 1995 by approximately $50,000.
Since PGE has not sought to increase its base gas rates, the $441,000
($258,000 net of related income taxes), $447,000 ($256,000 net of related income
taxes) and $407,000 ($232,000 net of related income taxes) of additional cost
incurred in 1995, 1994 and 1993, respectively, as a result of the adoption of
the provisions of FASB Statement 106 were expensed without any adjustment being
made to its gas rates.
Other Postemployment Benefits
In December, 1992, FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," was issued. The provisions of this statement require
the recording of a liability for postemployment benefits (such as disability
benefits, including workers' compensation, salary continuation and the
continuation of benefits such as health care and life insurance) provided to
former or inactive employees, their beneficiaries and covered dependents. PGE
consistently recorded liabilities for benefits of this nature prior to the
effectiveness of FASB Statement 112, and included liabilities for employees
scheduled to be terminated in 1996 as a result of the sale of water operations
in its estimate of accrued costs relative to such sale as of December 31, 1995.
The provisions of FASB Statement 112, which PGE adopted effective January 1,
1994, did not have a material impact on its financial position or results of
operations.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1996 construction program will be $28.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, pending the periodic issuance of
stock and long-term debt.
(12) COMMITMENTS AND CONTINGENCIES
Valve Maintenance
On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently
ratified by the PPUC (the "Emergency Order"), requiring PGE to survey its gas
distribution system to verify the location and spacing of its gas shut off
valves, to add or repair valves where needed and to establish programs for the
periodic inspection and maintenance of all such valves and the verification of
all gas service line information. On March 31, 1995, the PPUC adopted an Order
approving a plan submitted by PGE for complying with the Emergency Order. PGE
does not believe that compliance with the terms of such Order will have a
material adverse effect on its financial position or results of operations.
Environmental Matters
PGE, like many gas distribution companies, once utilized manufactured gas
plants in connection with providing gas service to its customers. None of these
plants has been in operation since 1960, and several of the plant sites are no
longer owned by PGE. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), PGE filed notices with the
United States Environmental Protection Agency (the "EPA") with respect to the
former plant sites. None of the sites is or was formerly on the proposed or
final National Priorities List. The EPA has conducted site inspections and made
<PAGE>
preliminary assessments of each site and has concluded that no further remedial
action is planned. While this conclusion does not constitute a legal
prohibition against further regulatory action under CERCLA or other applicable
federal or state law, PGE does not believe that additional costs, if any,
related to these manufactured gas plant sites would be material to its financial
position or results of operations since environmental remediation costs
generally are recoverable through rates over a period of time.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216
Operating income 9,500 1,867 (3) 7,558
Income (loss) from continuing
operations 6,413 (1,581) (3,520) 4,395
Loss with respect to
discontinued operations (3,704) - - (130)
Net income (loss) 2,709 (1,581) (3,520) 4,265
Earnings (loss) per share
of common stock: (a)
Continuing operations 1.16 (.28) (.63) .78
Discontinued operations (.67) - - (.02)
Earnings (loss) per share of
common stock (a) .49 (.28) (.63) .76
QUARTER ENDED
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 80,233 $ 26,568 $ 14,356 $ 46,835
Operating income 10,606 1,881 134 6,395
Income (loss) from continuing
operations 6,958 (1,875) (3,435) 2,903
Income from discontinued
operations 2,079 2,757 2,915 2,865
Net income (loss) 9,037 882 (520) 5,768
Earnings (loss) per share
of common stock:
Continuing operations 1.43 (.37) (.64) .53
Discontinued operations .43 .54 .54 .53
Net income (loss) before
premium on redemption of
preferred stock 1.86 .17 (.10) 1.06
Premium on redemption of
preferred stock - (.11) - (.08)
Earnings (loss) per share of
common stock 1.86 .06 (.10) .98
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in the financial
statements and supplementary data of this report, as a result of PGE's
issuance of additional shares of common stock at various dates during the
year.
</TABLE>
<PAGE>
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
<PAGE>
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Long-term debt. The fair value of PGE's long-term debt has been estimated
based on the quoted market price as of the respective dates for the portion
of such debt which is publicly traded and, with respect to the portion of
such debt which is not publicly traded, on the estimated borrowing rate as
of the respective dates for long-term debt of comparable credit quality with
similar terms and maturities.
o Preferred stock subject to mandatory redemption. The fair value of PGE's
preferred stock subject to mandatory redemption has been estimated based on
the market value as of the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of PGE's financial
instruments at December 31, 1995 and 1994, were as follows:
[CAPTION]
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Long-term debt (including current
portion) $170,801 $ 175,431 $174,035 $ 177,027
Preferred stock subject to
mandatory redemption (including
current portion) 1,760 1,795 1,840 1,877
PGE believes that the regulatory treatment of any excess or deficiency of
fair value relative to the carrying amounts of these items, if such items were
settled at amounts approximating those above, would dictate that these amounts
be used to increase or reduce its rates over a prescribed amortization period.
Accordingly, any settlement would not result in a material impact on PGE's
financial position or the results of operations of either PEI or PGE.
<PAGE>
================================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 11, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Schedule 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
PG Energy Inc.
(Name of Issuer and Person Filing Statement)
4.10% CUMULATIVE PREFERRED STOCK, PAR VALUE $100.00 PER SHARE
(Title of Class of Securities)
708747209
(CUSIP Number of Class of Securities)
THOMAS J. WARD
SECRETARY
PG ENERGY INC.
WILKES-BARRE CENTER
39 PUBLIC SQUARE
WILKES-BARRE, PENNSYLVANIA 18711
(717) 829-8843
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and
Communications on Behalf of the Person Filing the Statement)
COPY TO:
GARETT J. ALBERT
HUGHES HUBBARD & REED
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
(212) 837-6000
MARCH 11, 1996
(DAte Tender Offer First Published, Sent or Given to Security Holders)
Calculation of Filing Fee
- - - - - --------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
- - - - - --------------------------------------------------------------------------------
$5,000,000 $1,000
- - - - - --------------------------------------------------------------------------------
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 100,000
shares at $50.00 per share.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
================================================================================
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is PG Energy Inc., a Pennsylvania corporation
formerly known as Pennsylvania Gas and Water Company (the "Company"), and the
address of its principal executive offices is Wilkes-Barre Center, 39 Public
Square, Wilkes-Barre, Pennsylvania 18711.
(b) This Schedule relates to the offer by the Company to purchase any and all
of its outstanding shares of 4.10% Cumulative Preferred Stock, par value $100.00
per share, voluntary liquidation preference $105.50 per share, involuntary
liquidation preference $100.00 per share (the "Shares"), at $50.00 per Share,
net to the seller in cash, all upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 11, 1996 (the "Offer to Purchase"),
and the related Letter of Transmittal (which together constitute the "Offer"),
copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively.
As of March 11, 1996, the Company had issued and outstanding 100,000 Shares. No
director or executive officer of the Company or any of its affiliates intends to
tender Shares pursuant to the Offer as no such person owns any Shares. The
information set forth on the cover page and under "Introduction" of the Offer to
Purchase is incorporated herein by reference.
(c) The information set forth on the cover page, and under "Introduction" and
"The Offer-Price Range of Shares; Dividends; Trading Volume" in Section 10 of
the Offer to Purchase is incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth under "The Offer-Source and Amount of Funds" in
Section 12, "The Offer-Certain Information Concerning the Company-Recent
Developments" in Section 11 and "Special Factors-Purpose of the Offer; Certain
Effects of the Offer; Plans of the Company After the Offer" in Section 1 of the
Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a) through (j) The information set forth under "Special Factors-Purpose of
the Offer; Certain Effects of the Offer; Plans of the Company After the Offer"
in Section 1 of the Offer to Purchase is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth under "The Offer-Transactions and Agreements
Concerning the Shares and Other Securities of the Company" in Section 13 of the
Offer to Purchase is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth under "The Offer-Transactions and Agreements
Concerning the Shares and Other Securities of the Company" in Section 13 of the
Offer to Purchase is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Introduction" and "The Offer-Fees and
Expenses" in Section 15 of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a) and (b) The information set forth under "The Offer-Certain Information
Concerning the Company-Summary Historical Financial Information" and "The
Offer-Certain Information Concerning the Company-Summary Unaudited Pro Forma
Financial Information" in Section 11 of the Offer to
1
<PAGE>
Purchase is incorporated herein by reference, and the information set forth on
pages 23 through 47 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, filed as Exhibit (g) hereto, is incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) The information set forth under "Special Factors-Certain Legal Matters;
Regulatory and Foreign Approvals; No Appraisal Rights" in Section 4 of the Offer
to Purchase is incorporated herein by reference.
(c) None.
(d) None.
(e) The Information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
(a)(1).. Form of Offer to Purchase, dated March 11, 1996.
(a)(2).. Form of Letter of Transmittal together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
(a)(3).. Form of Letter to Stockholders of the Company from Dean T. Casaday, President and Chief Executive
Officer of the Company, dated March 11, 1996.
(a)(4).. Form of Notice of Guaranteed Delivery.
(a)(5).. Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees, dated March 11, 1996.
(a)(6).. Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, TrustCompanies and Other
Nominees.
(a)(7).. Form of Summary Advertisement, dated March 12, 1996.
(a)(8).. Form of Press Release issued by the Company, dated March 11, 1996.
(b)..... Not applicable.
(c)..... None.
(d)..... None.
(e)..... Not applicable.
(f)..... None.
(g)..... Pages 23 through 47 of the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
</TABLE>
2
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
PG Energy Inc.
By: /s/ John F. Kell, Jr.
---------------------------------
Name: John F. Kell, Jr.
Title: Vice President, Financial Services
Dated: March 11, 1996
<PAGE>
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - - - - ----------- ----------------------------------------------------------------------------------------
<S> <C>
(a)(1)... Form of Offer to Purchase, dated March 11, 1996.
(a)(2)... Form of Letter of Transmittal together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
(a)(3)... Form of Letter to Stockholders of the Company from Dean T. Casaday, President and Chief
Executive Officer of the Company, dated March 11, 1996.
(a)(4)... Form of Notice of Guaranteed Delivery.
(a)(5)... Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
OtherNominees, dated March 11, 1996.
(a)(6)... Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, TrustCompanies
and Other Nominees.
(a)(7)... Form of Summary Advertisement, dated March 12, 1996.
(a)(8)... Form of Press Release issued by the Company, dated March 11, 1996.
(g)...... Pages 23 through 47 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
</TABLE>
<PAGE>
PG ENERGY INC.
(FORMERLY PENNSYLVANIA GAS AND WATER COMPANY)
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING SHARES OF
4.10% CUMULATIVE PREFERRED STOCK
AT $50.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
------------
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water Company (the "Company"), is offering to purchase any and all of its
outstanding shares of 4.10% Cumulative Preferred Stock (the "Shares"), at $50.00
per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer").
------------
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 9.
------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
------------
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY
SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO
WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF
ITS AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE
OFFER AS NO SUCH PERSON OWNS ANY SHARES.
------------
As of the close of business on March 8, 1996, the last trading day prior to
the commencement of the Offer, the bid price of the Shares as reported on the
National Association of Securities Dealers OTC Bulletin Board was $50.25 per
Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
SHARES. There is currently no established trading market for the Shares,
excluding limited and sporadic quotations. Stockholders should note that the
average weekly trading volume of the Shares since January 1, 1995, has been
approximately 79 Shares.
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent at the address and telephone number set forth
on the back cover of this Offer to Purchase.
THE DEALER MANAGER FOR THE OFFER IS:
LEGG MASON WOOD WALKER
INCORPORATED
March 11, 1996
<PAGE>
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her Shares
should either (1) complete and sign the Letter of Transmittal or a photocopy
thereof in accordance with the instructions in the Letter of Transmittal, mail
or deliver it and any other required documents to the Depositary, and either
deliver the certificates for Shares to the Depositary along with the Letter of
Transmittal or deliver such Shares pursuant to the procedure for book-entry
transfer set forth under "Book-Entry Transfer" in Section 6 hereof or (2)
request his or her broker, dealer, commercial bank, trust company or nominee to
effect the transaction for him or her. A stockholder whose Shares are registered
in the name of a broker, dealer, commercial bank, trust company or nominee must
contact such broker, dealer, commercial bank, trust company or nominee if he or
she desires to tender such Shares. Any stockholder who desires to tender Shares
and whose certificates for such Shares are not immediately available, or who
cannot comply in a timely manner with the procedure for book-entry transfer,
should tender such Shares by following the procedures for guaranteed delivery
set forth under "Guaranteed Delivery" in Section 6 hereof.
------------
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- - - - - ------- -----
<S> <C>
SUMMARY................................................................................... i
INTRODUCTION.............................................................................. 1
SPECIAL FACTORS........................................................................... 1
1. Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the
Offer................................................................................ 1
2. Certain Federal Income Tax Consequences.............................................. 3
3. Fairness of the Offer; Reports and Opinions.......................................... 7
4. Certain Legal Matters; Regulatory and Foreign Approvals; No Appraisal Rights......... 8
THE OFFER................................................................................. 8
5. Number of Shares; Expiration Date; Extension of the Offer............................ 8
6. Procedure for Tendering Shares....................................................... 9
7. Withdrawal Rights.................................................................... 10
8. Acceptance for Payment of Shares and Payment of Purchase Price....................... 11
9. Certain Conditions of the Offer...................................................... 11
10. Price Range of Shares; Dividends; Trading Volume..................................... 13
11. Certain Information Concerning the Company........................................... 14
12. Source and Amount of Funds........................................................... 21
13. Transactions and Agreements Concerning the Shares and Other Securities of the
Company.............................................................................. 21
14. Extension of Tender Period; Termination; Amendments.................................. 22
15. Fees and Expenses.................................................................... 23
16. Miscellaneous........................................................................ 24
Directors and Executive Officers of the Company...................................... Schedule A
Interest in Preferred Stock of the Company........................................... Schedule B
Purchases of Preferred Stock of the Company by the Company or its Affiliates Since
January 1, 1994...................................................................... Schedule C
</TABLE>
<PAGE>
SUMMARY
This general summary is provided solely for the convenience of holders of
Shares and is qualified in its entirety by reference to the full text of and the
more specific details contained in this Offer to Purchase and the related Letter
of Transmittal and any amendments hereto and thereto. Capitalized terms used in
this summary without definition shall have the meaning ascribed to such terms in
the Offer to Purchase.
<TABLE>
<CAPTION>
<S> <C>
The Company ................. PG Energy Inc.(formerly known as Pennsylvania Gas
and Water Company)
The Shares .................. Shares of the Company's 4.10% Cumulative Preferred
Stock, par value $100.00 per share, voluntary
liquidation preference $105.50 per share,
involuntary liquidation preference $100.00 per share.
Number of Shares Sought .... 100,000 (all of the Shares outstanding).
Purchase Price .............. $50.00 per Share, net to the seller in cash.
How to Tender Shares ........ Monday, April 8, 1996, at 5:00 p.m., New York
City time, unless extended by the Company.
How to Tender Shares ........ See Section 6. For further information, call the
Information Agent or consult your broker for assistance.
Withdrawal Rights ........... Tendered Shares may be withdrawn at any time until
the Expiration Date of the Offer and, unless
previously purchased, after May 3, 1996. See
Section 7.
Market Price of Shares ..... On March 8, 1996, the bid price of the Shares on
the National Association of Securities Dealers
OTC Bulletin Board was $50.25 per Share. See Section 10.
Dividends ................... Shares tendered and purchased by the Company will
be entitled to the regular quarterly cash
dividend of $1.025 per Share to be paid by the
Company on March 15, 1996, to holders of record
on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the
Company will not be entitled to any dividends in
respect of any later dividend periods. See Section 10.
Purpose of Offer ............ The Company is making the Offer as one of the
recapitalizations being undertaken in connection
with the sale on February 16, 1996, by the
Company and Pennsylvania Enterprises, Inc., the
owner of all of the Company's common stock, of
the Company's regulated water operations and
certain related assets (the "Sale of the Water
Business"). The Company believes that the Offer
and the other recapitalizations will have a
positive effect on the Company's financial and
capital ratios and credit rating. In addition,
the repurchase of Shares pursuant to the Offer
will adjust the Company's capital structure to a
level more appropriate to the size and nature of
its operations after the Sale of the Water
Business. See Section 1.
i
<PAGE>
Certain Effects of Offer ... The Company's purchase of Shares pursuant to the
Offer will reduce the number of holders of Shares
and the number of Shares that might otherwise
trade publicly, and depending upon the number of
Shares so purchased, could adversely affect the
liquidity and market value of the remaining
Shares held by the public although there is
currently no established trading market for the
Shares, excluding limited and sporadic quotations.
Brokerage Commissions ....... Not payable by stockholders.
Stock Transfer Tax .......... None, except as provided in Instruction 6 of the
Letter of Transmittal.
Payment Date ................ As promptly as practicable after the Expiration
Date of the Offer.
Further Information ......... Any questions, requests for assistance or
requests for additional copies of this Offer to
Purchase, the Letter of Transmittal or other
tender offer materials may be directed to D.F.
King & Co., Inc., 77 Water Street, New York, New
York 10005, Tel: (800) 714-3313 (toll free).
</TABLE>
ii
<PAGE>
To the Holders of 4.10% Cumulative Preferred Stock of
PG Energy Inc.:
INTRODUCTION
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water Company (the "Company"), is offering to purchase any and all of its
outstanding shares of 4.10% Cumulative Preferred Stock, par value $100.00 per
share, voluntary liquidation preference $105.50 per share, involuntary
liquidation preference $100.00 per share (the "Shares"), at $50.00 per Share
(the "Purchase Price"), net to the seller in cash, upon the terms and subject to
the conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer").
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 9.
Tendering stockholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to Instruction 6 of the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by the Company. The Company will
pay all charges and expenses of Legg Mason Wood Walker, Incorporated (the
"Dealer Manager"), Chemical Mellon Shareholder Services, L.L.C. (the
"Depositary") and D.F. King & Co., Inc. (the "Information Agent") incurred in
connection with the Offer. See Section 15. HOWEVER, ANY TENDERING STOCKHOLDER OR
OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS
INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO A REQUIRED FEDERAL
INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PAYMENTS PAYABLE TO SUCH
STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTIONS 2 AND 6.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TOTENDER ALL OR ANY SHARES. EACH
STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES
AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO
DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS TO
TENDER SHARES PURSUANT TO THE OFFER AS NO SUCH PERSON OWNS ANY SHARES.
As of March 11, 1996, the Company had issued and outstanding 100,000 Shares.
As of March 7, 1996, there were approximately 700 holders of record of Shares.
The bid price of the Shares is reported on the National Association of
Securities Dealers OTC Bulletin Board (the "NASD OTC Bulletin Board") under the
symbol "PGWCP". See Section 10. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE SHARES. There is currently noestablished trading market for
the Shares, excluding limited and sporadic quotations. Stockholders should note
that the average weekly trading volume of the Shares since January 1, 1995, has
been approximately 79 Shares.
SPECIAL FACTORS
1. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY
AFTER THE OFFER.
The Offer is one of the recapitalizations being undertaken in connection with
the sale on February 16, 1996, by the Company and Pennsylvania Enterprises, Inc.
("PEI"), the owner of all of the Company's common stock, of the Company's
regulated water operations and certain related assets (the "Sale of the Water
Business") to Pennsylvania-American Water Company, a wholly-owned subsidiary of
American Water Works Company, Inc. See "The Offer-Certain Information Concerning
the Company-Summary Unaudited Pro Forma Financial Information" in Section 11 for
a description of the other recapitalizations. The Company believes that the
Offer and the other recapitalizations will have a positive effect on the
Company's financial and capital ratios and credit rating. In addition, the
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repurchase of Shares pursuant to the Offer will adjust the Company's capital
structure to a level more appropriate to the size and nature of its operations
after the Sale of the Water Business. See "The Offer-Certain Information
Concerning the Company-Summary Unaudited Pro Forma Financial Information" in
Section 11 for a pro forma presentation of the financial effect of the Offer.
Finally, the Offer will enable the Company to reduce its dividend requirements
and annual administrative expenses in connection with servicing the accounts of
holders of the Shares. If the Company repurchases 90% of the outstanding Shares
pursuant to the Offer, it will reduce its dividend requirements by $369,000
annually. The Board of Directors of the Company has authorized the Offer by a
unanimous vote. Nine of the eleven directors are not employees of the Company.
Following the consummation of the Offer, the business and operations of the
Company will be continued by the Company substantially as they are currently
being conducted. Except as disclosed in the Offer (see "The Offer-Certain
Information Concerning the Company-Summary Unaudited Pro Forma Financial
Information" in Section 11 for a description of the other recapitalizations),
the Company has no plans or proposals which relate to or would result in: (a)
the acquisition by any person of additional securities of the Company or the
disposition of securities of the Company; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; (c) a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries; (d) any change in the
present Board of Directors or management of the Company; (e) any material change
in the present dividend rate or policy, or indebtedness or capitalization of the
Company; (f) any other material change in the Company's corporate structure or
business; or (g) any change in the Company's Restated Articles of Incorporation
or Bylaws or any actions which may impede the acquisition of control of the
Company by any person.
The Company's purchase of Shares pursuant to the Offer will reduce the number
of holders of Shares and the number of Shares that might otherwise trade
publicly, and depending upon the number of Shares so purchased, could adversely
affect the liquidity and market value of the remaining Shares held by the public
although there is currently no established trading market for the Shares,
excluding limited and sporadic quotations. The extent of the public market for
the Shares and the availability of such quotations would, however, depend upon
such factors as the number of stockholders remaining at such time, the interest
in maintaining a market in the Shares on the part of securities firms, the
possible termination of registration under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as described below, and other factors.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Securities and Exchange Commission (the "Commission") if the
Shares are held by fewer than 300 holders of record. Termination of registration
of the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of the Shares (although the
Company would, among other things, remain for the time being subject to the
reporting obligations under the Exchange Act as a result of other of its
outstanding securities) and would make certain provisions of the Exchange Act,
such as the requirements of Rule 13e-3 thereunder with respect to "going
private" transactions, no longer applicable in respect of the Shares.
If the aggregate purchase price of Shares purchased pursuant to the Offer and
related costs (together with the net reduction in consolidated net worth
associated with the other recapitalizations being undertaken in connection with
the Sale of the Water Business) exceeds approximately $53.0 million, PEI's
consolidated net worth, based on its consolidated net worth as of December 31,
1995, would fall below the $110.0 million that PEI is required to maintain by
the Indenture, dated as of June 15, 1992, as supplemented (the "Indenture"),
relating to its 10.125% Senior Notes due June 15, 1999 (the "Senior Notes").
Failure to maintain this minimum net worth at the end of two consecutive
quarters will constitute an "Event of Default" under the Indenture if PEI does
not cure such failure within 60 days after receipt of notice from the trustee
under the Indenture or from holders of at least 25% in principal amount of the
outstanding Senior Notes. If an Event of Default occurs, the trustee may, and
the trustee shall upon the request of the holders of at least 25% in principal
amount of the outstanding Senior Notes, declare the principal of and accrued and
unpaid interest to the date of
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acceleration on the Senior Notes due and payable. Before the failure to maintain
the minimum net worth becomes an "Event of Default", PEI intends to elect to be
released from certain provisions of the Indenture ("covenant defeasance"),
including the covenant to maintain such minimum net worth, so that any omission
to comply with such covenant will not constitute an Event of Default. To effect
covenant defeasance, PEI must make an irrevocable deposit with the trustee, in
trust for such purpose, of money and/or U.S. Government Obligations (as defined
in the Indenture) which through the payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and interest on the Senior Notes to the date for redemption of
the Senior Notes (June 15, 1997) plus 91 days (or, under certain circumstances,
such longer period as may be determined) during which no bankruptcy or
insolvency petition shall have been filed by or against PEI. Part of the
proceeds from the Sale of the Water Business were used by the Company to pay PEI
a one-time special dividend on February 16, 1996, in the form of a $30 million
unsecured promissory note. The full $30 million principal amount of this note
was paid on March 8, 1996, and the funds therefrom, along with other funds
provided by PEI, will be used by PEI to make the required deposit with the
trustee. See "The Offer-Certain Information Concerning the Company-Summary
Unaudited Pro Forma Financial Information" in Section 11.
The Shares are redeemable by the Company at any time or from time to time at
a price per Share of $105.50, plus all accrued and unpaid dividends to the date
of redemption. The Offer does not constitute a notice of redemption of the
Shares pursuant to the Company's Restated Articles of Incorporation, as amended,
and owners of Shares are not under any obligation to accept the Offer or to
remit their Shares to the Company pursuant to the Offer. The Company reserves
the right to redeem Shares not purchased pursuant to the Offer at any time. The
Shares have no preemptive or conversion rights and are not entitled to any
sinking fund or similar fund. In the event of (i) a voluntary liquidation,
dissolution or winding up of the Company, holders of the Shares are entitled to
a liquidation preference of $105.50 per Share, and (ii) an involuntary
liquidation, dissolution or winding up of the Company, holders of the Shares are
entitled to a liquidation preference of $100.00 per Share, in each case, plus
all accrued and unpaid dividends thereon to the date of payment, prior to the
payment of any amounts to any holder of the Company's common stock.
Following the expiration of the Offer, the Company may, in its sole
discretion, determine to purchase any remaining Shares through privately
negotiated transactions, open market purchases or otherwise, on such terms and
at such prices as the Company may determine from time to time, the terms of
which purchases or offers could differ from those of the Offer, except that the
Company will not make any such purchases of Shares until the expiration of ten
business days after the termination of the Offer. Any possible future purchases
of Shares by the Company will depend on many factors, including the market price
of the Shares, the Company's business and financial position, alternative
investment opportunities available to the Company, the results of the Offer and
general economic and market conditions.
All Shares purchased by the Company pursuant to the Offer will be
reclassified to the status of authorized but unissued shares of the Company's
preferred stock.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT
NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS
TO TENDER SHARES PURSUANT TO THE OFFER AS NO SUCH PERSON OWNS ANY SHARES.
2. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
In General. The following summary is a general discussion of certain United
States federal income tax consequences relating to the Offer. This summary does
not discuss any aspects of state, local, foreign or other tax laws. The summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"), and
existing final, temporary and proposed Treasury Regulations, Revenue Rulings and
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judicial decisions, all of which are subject to prospective and retroactive
changes. The summary deals only with Shares held as capital assets within the
meaning of Section 1221 of the Code and does not address tax consequences that
may be relevant to investors in special tax situations, such as certain
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities or currencies, or stockholders holding the Shares as part of a
hedge or hedging transaction or as a position in a straddle for tax purposes.
The Company will not seek a ruling from the Internal Revenue Service (the "IRS")
with regard to the tax matters discussed below. Accordingly, each stockholder
should consult its own tax advisor with regard to the Offer and the application
of United States federal income tax laws, as well as the laws of any state,
local or foreign taxing jurisdiction, to its particular situation.
Characterization of the Sale. A sale of Shares by a stockholder of the
Company pursuant to the Offer will be a taxable transaction for United States
federal income tax purposes and may also be a taxable transaction under
applicable state, local and foreign tax laws. The United States federal income
tax consequences to a stockholder may vary depending upon the stockholder's
particular facts and circumstances. Under Section 302 of the Code, a sale of
Shares by a stockholder to the Company pursuant to the Offer will be treated as
a "sale or exchange" of such Shares for United States federal income tax
purposes (rather than as a distribution by the Company with respect to the
Shares held by the tendering stockholder) if the receipt of cash upon such sale
(i) results in a "complete termination" of the stockholder's interest in the
Company, (ii) is "not essentially equivalent to a dividend" with respect to the
stockholder, or (iii) in the case of a noncorporate stockholder, qualifies as a
distribution in "partial liquidation" of the Company. These tests (the "Section
302 tests") are explained more fully below. A sale of Shares by a tendering
stockholder to the Company pursuant to the Offer should be treated as a sale or
exchange of such Shares for United States federal income tax purposes, absent
other integrated purchase transactions. See "Section 302 Tests," below.
If any of the Section 302 tests is satisfied, and the sale of the Shares is
therefore treated as a "sale or exchange" of such Shares for United States
federal income tax purposes, the tendering stockholder will recognize capital
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Any such gain or loss will be long-term capital gain
or loss if the Shares have been held for more than one year.
If none of the Section 302 tests is satisfied and the Company has sufficient
current and accumulated earnings and profits, the tendering stockholder will be
treated as having received a dividend includible in gross income in an amount
equal to the entire amount of cash received by the stockholder pursuant to the
Offer (without reduction for the tax basis of the Shares sold pursuant to the
Offer), no loss will be recognized, and (subject to reduction as described below
for corporate stockholders eligible for the dividends-received deduction) the
tendering stockholder's basis in the Shares sold pursuant to the Offer will be
added to such stockholder's basis in its remaining Shares, if any. No assurance
can be given that any of the Section 302 tests will be satisfied as to any
particular stockholder, and thus no assurance can be given that any particular
stockholder will not be treated as having received a dividend taxable as
ordinary income. If the sale of Shares is not treated as a sale or exchange for
federal income tax purposes, any cash received for Shares pursuant to the Offer
in excess of the Company's earnings and profits will be treated, first, as a
nontaxable return of capital to the extent of the stockholder's basis for such
stockholder's Shares, and, thereafter, as capital gain, to the extent it exceeds
such basis.
Constructive Ownership of Stock. In determining whether any of the Section
302 tests is satisfied, stockholders must take into account not only the Shares
which are actually owned by the stockholder, but also Shares which are
constructively owned by the stockholder within the meaning of Section 318 of the
Code. Under Section 318 of the Code, a stockholder may constructively own Shares
actually owned, and in some cases constructively owned, by certain related
individuals or entities in which the stockholder has an interest, or, in the
case of stockholders that are entities, by certain individuals or entities that
have an interest in the stockholder, and Shares which the stockholder has the
right to acquire by exercise of an option or by conversion. Contemporaneous
dispositions or acquisitions of
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Shares by a stockholder or related individuals or entities may be deemed to be
part of a single integrated transaction which will be taken into account in
determining whether any of the Section 302 tests has been satisfied.
Section 302 Tests. One of the following tests must be satisfied in order for
the sale of Shares pursuant to the Offer to be treated as a sale or exchange for
federal income tax purposes.
a. Complete Termination Test. The receipt of cash by a stockholder will be
a "complete termination" of the stockholder's interest if either (i) all of
the Shares actually and constructively owned by the stockholder are sold
pursuant to the Offer, or (ii) all of the Shares actually owned by the
stockholder are sold pursuant to the Offer and, with respect to the Shares
constructively owned by the stockholder which are not sold pursuant to the
Offer, the stockholder is eligible to waive (and effectively waives)
constructive ownership of all such Shares under procedures described in
Section 302(c) of the Code. Stockholders considering making such a waiver
should do so in consultation with their tax advisors.
b. Not Essentially Equivalent to a Dividend Test. Even if the receipt of
cash by a stockholder fails to satisfy the "complete termination" test or the
"partial liquidation" test, a stockholder may nevertheless satisfy the "not
essentially equivalent to a dividend" test if the stockholder's sale of
Shares pursuant to the Offer results in a "meaningful reduction" in the
stockholder's proportionate interest in the Company. The sale of Shares to
the Company by a tendering stockholder should qualify as "not essentially
equivalent to a dividend," absent other integrated purchase transactions.
Stockholders expecting to rely on the "not essentially equivalent to a
dividend" test should consult their own tax advisors as to its application in
their particular situation.
c. Partial Liquidation Test. A sale of Shares pursuant to the Offer will
be treated as a sale or exchange for federal income tax purposes if such sale
is (i) a redemption of Shares from a stockholder that is not a corporation,
and (ii) in partial liquidation of the Company. To determine whether a
stockholder is a corporation for these purposes, shares held by a
partnership, trust or estate are treated as if owned proportionately by the
partners or beneficiaries. A distribution is treated as in partial
liquidation of a corporation if the distribution is not essentially
equivalent to a dividend (as determined at the corporate rather than the
stockholder level) and the distribution is pursuant to a plan and occurs
within the taxable year in which the plan is adopted or within the succeeding
taxable year. A distribution is not essentially equivalent to a dividend at
the corporate level for these purposes if (A) the distribution is
attributable to the corporation's ceasing to conduct a trade or business
which was actively conducted for the previous five years and which was not
acquired by the distributing corporation in a taxable transaction during such
five year period (a "qualified trade or business"), and (B) the distributing
corporation is actively involved in the conduct of a qualified trade or
business immediately after the distribution. The Company actively conducted
the water business for more than five years, and, subsequent to the Sale of
the Water Business, the Company has continued to be actively engaged in the
conduct of a qualified trade or business. Thus, the Sale of the Water
Business and the Offer will likely constitute a partial liquidation of the
Company.
Corporate Stockholder Dividend Treatment. Under current law, if a sale of
Shares by a corporate stockholder is treated as a dividend, the corporate
stockholder may be entitled to claim a deduction equal to a portion of the
dividend, subject to applicable limitations. Since the Shares are "preferred
stock" within the meaning of Section 247(b)(2) of the Code, the amount of such
deduction under Section 244 of the Code will generally be equal to 42% of the
dividend, based on the current maximum corporate income tax rate of 35%.
Corporate stockholders should consider the effect of Section 246(c) of the Code,
which disallows the dividends-received deduction with respect to stock that is
held for 45 days or less (90 days or less, in the case of preferred stock if the
stockholder receives dividends attributable to a period aggregating in excess of
366 days). For this purpose, the length of time a taxpayer is deemed to have
held stock may be reduced by periods during which the taxpayer's risk of loss
with respect to the stock is diminished by reason of the existence of certain
options or other transactions. Moreover, under Section 246A of the Code, if a
corporate stockholder has incurred indebtedness directly attributable to an
investment in Shares, the dividends-received deduction may be
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reduced by a percentage generally computed based on the amount of such
indebtedness and the total adjusted tax basis in the Shares.
In addition, because it is expected that the redemption of Shares will not be
pro rata with respect to all stockholders, any amount received by a corporate
stockholder pursuant to the Offer that is treated as a dividend will likely
constitute an "extraordinary dividend" under Section 1059 of the Code (except as
may otherwise be provided in regulations yet to be promulgated by the Treasury
Department). A redemption which is part of a partial liquidation of the
redeeming company will also constitute an "extraordinary dividend" under Section
1059 (in the absence of such regulations). A corporate stockholder receiving an
"extraordinary dividend" would be required under Section 1059(a) of the Code to
reduce its basis (but not below zero) in its Shares by the non-taxed portion of
the extraordinary dividend (i.e., the portion of the dividend for which a
deduction is allowed), and, if such portion exceeds the stockholder's tax basis
for its Shares, to treat the excess as gain from the sale of such Shares in the
year in which a sale or disposition of such Shares occurs. The basis reduction
rules of Section 1059 also generally apply to dividends which exceed a threshold
percentage of a stockholder's basis in its stock, unless the stockholder has
held its stock for more than two years before the announcement date of such
dividend. For purposes of applying Section 1059, all dividends received by a
stockholder and having their ex-dividend dates within an 85-day period (expanded
to a 365-day period, in the case of dividends received in such period that in
the aggregate exceed 20% of the stockholder's adjusted tax basis in the Shares)
are aggregated. Corporate stockholders should consult their own tax advisors as
to the application of Section 1059 of the Code to the Offer, and to any
dividends which may be paid with respect to the Shares, as well as the effect of
pending legislation discussed below.
Foreign Stockholders. The Company will withhold United States federal income
tax at a rate of 30% from the gross proceeds paid pursuant to the Offer to a
foreign stockholder or his agent, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or that an exemption
from withholding is applicable because such gross proceeds are effectively
connected with the conduct of a trade or business by the foreign stockholder
within the United States. For this purpose, a foreign stockholder is any
stockholder that is not (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) any
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
Generally, the determination of whether a reduced rate of withholding is
applicable is made by reference to a foreign stockholder's address or to a
properly completed Form 1001 furnished by the stockholder, and the determination
of whether an exemption from withholding is available on the grounds that gross
proceeds paid to a foreign stockholder are effectively connected with a United
States trade or business is made on the basis of a properly completed Form 4224
furnished by the stockholder. The Company will determine a foreign stockholder's
eligibility for a reduced rate of, or exemption from, withholding by reference
to the stockholder's address and any Forms 1001 or 4224 submitted to the Company
by a foreign stockholder unless facts and circumstances indicate that such
reliance is not warranted or unless applicable law requires some other method
for determining whether a reduced rate of withholding is applicable. These forms
can be obtained from the Company.
A foreign stockholder with respect to whom tax has been withheld may be
eligible to obtain a refund of all or a portion of the withheld tax if the
stockholder satisfied one of the Section 302 tests for capital gain treatment or
is otherwise able to establish that no tax or a reduced amount of tax was due.
Foreign stockholders are urged to consult their own tax advisors regarding the
application of United States federal income tax withholding, including
eligibility for a withholding tax reduction or exemption and the refund
procedure.
Backup Withholding. See Section 6 with respect to the application of
United States federal income tax backup withholding.
Legislative Proposals.
(a) Capital Gains: The Revenue Reconciliation Act of 1995, as passed by
Congress and vetoed by the President, includes a reduction in the tax on net
long-term capital gains for both individuals and corporations. Under the bill,
individual taxpayers would be permitted a deduction for 50% of net
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capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses). In addition, the deduction for net long-term capital
losses could not exceed 50% of the excess of net long-term capital losses over
net short-term capital gains. Corporations would be subject to a maximum tax
rate of 28% on their net capital gains. These reductions in the effective
capital gains tax rates generally would have been effective for transactions
occurring after 1994. It is uncertain whether capital gains relief ultimately
will be adopted and, if adopted, what form such relief will take or what the
effective date will be.
(b) Corporate Dividends-Received Deduction: The Revenue Reconciliation Act of
1995, as passed by Congress and vetoed by the President, and the President's
budget proposal would amend Section 1059 of the Code to require corporate
stockholders to recognize gain immediately whenever the non-taxed portion of an
extraordinary dividend exceeds the basis of stock with respect to which the
dividend is received. Such legislation would also cause any amount characterized
as a dividend due to the Section 318 option attribution rules to be treated as
an extraordinary dividend under Section 1059 (with the legislation's gain
recognition rule applied by taking into account only the basis of the stock
redeemed). The legislation generally is proposed to be effective for redemptions
after May 3, 1995. It is uncertain whether such proposals will be adopted and,
if adopted, what form such legislation will take.
In addition, the President's budget proposal (but not the Revenue
Reconciliation Act of 1995 as passed by Congress) would reduce the
dividends-received deduction under Section 244 of the Code from 42% to 30%
(assuming that the maximum corporate income tax rate remains at 35%) and would
require the 46-day holding period of Section 246(c) of the Code to be satisfied
over a period immediately before and/or after the taxpayer becomes entitled to
receive the dividend. Both of these provisions would apply to dividends paid
after January 31, 1996.
The impact of pending and future budget and tax legislation on the United
States federal tax system, including possible effects on taxation of the Offer,
is uncertain. Stockholders are advised to consult their own tax advisors as to
these matters.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON,
AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER.
NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE
OFFER, THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED ABOVE AND
THE EFFECT OF TAX LEGISLATIVE PROPOSALS.
3. FAIRNESS OF THE OFFER; REPORTS AND OPINIONS.
The Company believes the Offer is fair to holders of Shares. There is
currently no established trading market for the Shares, excluding limited and
sporadic quotations. The Offer gives holders of Shares the opportunity to sell
substantial amounts of Shares without driving down the bid price. The Offer will
also provide stockholders with the opportunity to dispose of Shares without the
usual transaction costs associated with a market sale including the payment of
brokerage commissions. Correspondingly, the costs to the Company for servicing
the accounts of odd lot holders will be reduced.
Neither the Company nor its Board of Directors received any report, opinion
(other than any opinion of counsel it may have received) or appraisal which is
materially related to the Offer, including, but not limited to, any such report,
opinion or appraisal relating to the consideration or the fairness of the
consideration to be offered to the holders of the Shares or the fairness of such
transaction to the Company. A majority of the directors who are not employees of
the Company have not retained an unaffiliated representative to act solely on
behalf of unaffiliated stockholders for the purposes of negotiating the terms of
the transaction.
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4. CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS; NO APPRAISAL RIGHTS.
The Company is not aware of any license or regulatory permit that appears to
be material to its business that might be adversely affected by its acquisition
of Shares as contemplated in the Offer or of any approval or other action by any
government or governmental, administrative or regulatory authority or agency,
domestic or foreign, that would be required for the Company's acquisition or
ownership of Shares pursuant to the Offer. Should any such approval or other
action be required, the Company currently contemplates that it will seek such
approval or other action. The Company cannot predict whether it may determine
that it is required to delay the acceptance for payment of, or payment for,
Shares tendered pursuant to the Offer pending the outcome of any such matter.
There can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
the failure to obtain any such approval or other action might not result in
adverse consequences to the Company's business. The Company intends to make all
required filings under the Exchange Act. The Company's obligation under the
Offer to accept for payment, or make payment for, Shares is subject to certain
conditions. See Section 9.
There is no stockholder vote required in connection with the Offer.
There are no appraisal rights available to holders of Shares in connection
with the Offer.
THE OFFER
5. NUMBER OF SHARES; EXPIRATION DATE; EXTENSION OF THE OFFER.
Upon the terms and subject to the conditions described herein and in the
Letter of Transmittal, the Company will purchase any and all Shares that are
validly tendered on or prior to the Expiration Date (and not properly withdrawn
in accordance with Section 7) at the Purchase Price. The later of 5:00 p.m., New
York City time, on Monday, April 8, 1996, or the latest time and date to which
the Offer is extended, is referred to herein as the "Expiration Date". The Offer
is not conditioned on any minimum number of Shares being tendered.
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
If (i) the Company increases or decreases the price to be paid for Shares or
decreases the number of Shares being sought and (ii) the Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
business day from, and including, the date that notice of such increase or
decrease is first published, sent or given in the manner described in Section
14, the Offer will be extended until the expiration of ten business days from
the date of publication of such notice.
The Company also expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary and
making a public announcement thereof. See Section 14. There can be no assurance,
however, that the Company will exercise its right to extend the Offer.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Copies of this Offer to Purchase and the Letter of Transmittal are being
mailed to record holders of Shares and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
Company's stockholder list or, if applicable, who are listed as participants in
a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
8
<PAGE>
6. PROCEDURE FOR TENDERING SHARES.
Proper Tender of Shares. To tender Shares validly pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal or
photocopy thereof, together with any required signature guarantees and any other
documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (i) certificates for the Shares to be tendered must be
received by the Depositary at one of such addresses or (ii) such Shares must be
delivered pursuant to the procedures for book-entry transfer described below
(and a confirmation of such delivery received by the Depositary), in each case
on or prior to the Expiration Date, or (b) the tendering holder of Shares must
comply with the guaranteed delivery procedure described below.
Book-Entry Transfer. The Depositary will establish an account with respect to
the Shares at The Depository Trust Company and the Philadelphia Depository Trust
Company (collectively referred to as the "Book-Entry Transfer Facilities") for
purposes of the Offer within two business days after the date of this Offer to
Purchase, and any financial institution that is a participant in the system of
any Book-Entry Transfer Facility may make delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the procedures of such Book-Entry Transfer Facility.
Although delivery of Shares may be effected through book-entry transfer, a
properly completed and duly executed Letter of Transmittal or photocopy thereof,
together with any required signature guarantees and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase on or prior to
the Expiration Date, or the tendering holder of Shares must comply with the
guaranteed delivery procedure described below. DELIVERY OF THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Except as otherwise provided below, all signatures on a
Letter of Transmittal must be guaranteed by a firm that is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (each of the foregoing being
referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal
need not be guaranteed if (a) the Letter of Transmittal is signed by the
registered holder of the Shares tendered therewith and such holder has not
completed the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of Transmittal or (b) such Shares
are tendered for the account of an Eligible Institution. See Instructions 1 and
5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and cannot deliver certificates for such Shares and all other required
documents to the Depositary on or prior to the Expiration Date or the procedure
for book-entry transfer cannot be complied within a timely manner, such Shares
may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company (with any required
signature guarantees) is received by the Depositary as provided below on or
prior to the Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), together with a properlycompleted and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by the Letter of Transmittal, are received by the Depositary no
later than 5:00 p.m., New York City time, on the third business day after the
date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Depositary and must include a guarantee by
an Eligible Institution in the form set forth in such Notice.
9
<PAGE>
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
FEDERAL BACKUP WITHHOLDING. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING
EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH STOCKHOLDER
MUST NOTIFY THE DEPOSITARY OF SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING THE
SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. FOREIGN STOCKHOLDERS
(AS DEFINED IN SECTION 2) MAY BE REQUIRED TO SUBMIT A PROPERLY COMPLETED FORM
W-8, CERTIFYING NON-UNITED STATES STATUS, IN ORDER TO AVOID BACKUP WITHHOLDING.
IN ADDITION, FOREIGN STOCKHOLDERS MAY BE SUBJECT TO 30% (OR LOWER TREATY RATE)
WITHHOLDING ON GROSS PAYMENTS RECEIVED PURSUANT TO THE OFFER (AS DISCUSSED IN
SECTION 2). FOR A DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO
TENDERING STOCKHOLDERS, SEE SECTION 2. EACH STOCKHOLDER IS URGED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR.
Determinations of Validity. All questions as to the Purchase Price, the form
of documents and the validity, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be determined by the
Company, in its sole discretion, and its determination shall be final and
binding. The Company reserves the absolute right to reject any or all tenders of
Shares that it determines are not in proper form or the acceptance for payment
of or payment for Shares that may, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any defect or
irregularity in any tender of Shares. None of the Company, the Dealer Manager,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice.
Rule 14e-4. It is a violation of Rule 14e-4 promulgated under the Exchange
Act for a person to tender Shares for his or her own account unless the person
so tendering (i) has a net long position equal to or greater than the amount of
(x) Shares tendered or (y) other securities immediately convertible into,
exercisable, or exchangeable for the amount of Shares tendered and will acquire
such Shares for tender by conversion, exercise or exchange of such other
securities and (ii) will cause such Shares to be delivered in accordance with
the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to
the tender or guarantee of a tender on behalf of another person. The tender of
Shares pursuant to any one of the procedures described above will constitute the
tendering stockholder's representation and warranty that (i) such stockholder
has a net long position in the Shares being tendered within the meaning of Rule
14e-4 promulgated under the Exchange Act, and (ii) the tender of such Shares
complies with Rule 14e-4. The Company's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions of the Offer.
7. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after May 3, 1996, unless theretofore accepted for
payment as provided in this Offer to Purchase. If the Company extends the period
of time during which the Offer is open, is delayed in accepting for payment or
paying for Shares or is unable to accept for payment or pay for Shares pursuant
to the Offer for any reason, then, without prejudice to the Company's rights
under the Offer, the Depositary may, on behalf of the Company, retain all Shares
tendered, and such Shares may not be withdrawn except as otherwise provided in
this Section 7, subject to Rule 13e-4(f)(5) under the Exchange Act, which
provides that the issuer making the tender offer shall either pay the
consideration offered, or return the tendered securities promptly after the
termination or withdrawal of the tender offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of this Offer to Purchase and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution (except in the case of Shares tendered by an Eligible Institution)
must be submitted prior to the release of such Shares. In addition, such
10
<PAGE>
notice must specify, in the case of Shares tendered by delivery of certificates,
the name of the registered holder (if different from that of the tendering
stockholder) and the serial numbers shown on the particular certificates
evidencing the Shares to be withdrawn or, in the case of Shares tendered by
book-entry transfer, the name and number of the account at one of the Book-Entry
Transfer Facilities to be credited with the withdrawn Shares. Withdrawals may
not be rescinded, and Shares withdrawn will thereafter be deemed not validly
tendered for purposes of the Offer. However, withdrawn Shares may be retendered
by again following one of the procedures described in Section 6 at any time
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding. None of the Company, the Dealer
Manager, the Depositary, the Information Agent or any other person will be under
any duty to give notification of any defect or irregularity in any notice of
withdrawal or incur any liability for failure to give any such notification.
8. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer and as promptly as
practicable after the Expiration Date, the Company will accept for payment and
pay the Purchase Price for any and all Shares validly tendered. Thereafter,
payment for all Shares accepted for payment pursuant to the Offer will be made
by the Depositary by check as promptly as practicable. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for Shares (or of a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), a properly completed and duly executed Letter
of Transmittal or photocopy thereof, and any other required documents.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares that are validly tendered prior to the
applicable Expiration Date and not withdrawn as, if and when it gives oral or
written notice to the Depositary of its acceptance for payment of such Shares.
The Company will pay for Shares that it has purchased pursuant to the Offer by
depositing the Purchase Price therefor with the Depositary. The Depositary will
act as agent for tendering stockholders for the purpose of receiving payment
from the Company and transmitting payment to tendering stockholders. Under no
circumstances will interest be paid on amounts to be paid to tendering
stockholders, regardless of any delay in making such payment.
If certain events occur, the Company may not be obligated to purchase Shares
pursuant to the Offer. See Section 9. Certificates for all Shares not purchased
will be returned (or, in the case of Shares tendered by book-entry transfer,
such Shares will be credited to an account maintained with a Book-Entry Transfer
Facility) as promptly as practicable without expense to the tendering
stockholder.
The Company will pay or cause to be paid any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the Purchase Price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder, or if tendered Shares are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of any stock transfer taxes (whether imposed on the registered
holder, such other person or otherwise) payable on account of the transfer to
such person will be deducted from the Purchase Price unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted. See
Instruction 6 of the Letter of Transmittal.
9. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of the Offer, the Company will not be
required to accept for payment or pay for any Shares tendered, and may terminate
or amend the Offer or may postpone (subject to the requirements of the Exchange
Act for prompt payment for or return of Shares) the acceptance for payment of or
payment for Shares tendered, if at any time on or after March 11, 1996,
11
<PAGE>
and before acceptance for payment of or payment for any such Shares, any of the
following events shall have occurred (or shall have been determined by the
Company in its sole judgment to have occurred) regardless of the circumstances
giving rise thereto (including any action or omission to act by the Company):
(a) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, or
before any court, authority, agency or tribunal that (i) challenges the
acquisition of Shares pursuant to the Offer or otherwise in any manner
relates to or affects the Offer, (ii) challenges the acquisition by the
Company of its Depositary Preferred Shares (the "Depositary Preferred
Shares"), each representing a one-fourth interest in a share of its 9%
Cumulative Preferred Stock, pursuant to the Company's Offer to Purchase,
dated March 11, 1996, concerning such Depositary Preferred Shares (the
"Depositary Preferred Offer") or otherwise in any manner relates to or
affects the Depositary Preferred Offer, (iii) challenges the acquisition by
PEI of shares of its common stock pursuant to PEI's Offer to Purchase, dated
March 11, 1996, concerning such common stock (the "PEI Offer") or otherwise
in any manner reltates to or affects the PEI Offer or (iv) in the sole
judgment of the Company, could materially and adversely affect the business,
condition (financial or other), income, operations or prospects of the
Company or PEI and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the business
of PEI or any of its subsidiaries (including the Company) or materially
impair the contemplated benefits of the Offer to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, withdrawn or abrogated or any statute, rule, regulation,
judgment, order or injunction threatened, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the Offer,
the Depositary Preferred Offer or the PEI Offer or to PEI or any of its
subsidiaries (including the Company), by any legislative body, court,
authority, agency or tribunal which, in the Company's sole judgment, would or
might directly or indirectly (i) make the acceptance for payment of, or
payment for, some or all of the Shares, the Depositary Preferred Shares or
shares of the common stock of PEI illegal or otherwise restrict or prohibit
consummation of the Offer, the Depositary Preferred Offer or the PEI Offer,
(ii) delay or restrict the ability of the Company or PEI, or render the
Company or PEI unable, to accept for payment or pay for some or all of the
Shares, the Depositary Preferred Shares or shares of the common stock of PEI,
as the case may be, (iii) materially impair the contemplated benefits or the
Depositary Preferred Offer of the Offer to the Company or of the PEI Offer to
PEI or (iv) materially affect the business, condition (financial or other),
income, operations or prospects of the Company or PEI and its subsidiaries,
taken as a whole, or otherwise materially impair in any way the contemplated
future conduct of the business of PEI or any of its subsidiaries (including
the Company);
(c) it shall have been publicly disclosed or the Company shall have
learned that (i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) has acquired or proposes to acquire beneficial
ownership of more than 5% of the outstanding shares of the common stock of
PEI, whether through the acquisition of stock, the formation of a group, the
grant of any option or right, or otherwise (other than as disclosed in a
Schedule 13D or 13G (or an amendment thereto) on file with the Commission on
March 8, 1996), (ii) any such person or group that on or prior to March 8,
1996, had filed such a Schedule with the Commission thereafter shall have
acquired or shall propose to acquire whether through the acquisition of
stock, the formation of a group, the grant of any option or right, or
otherwise, beneficial ownership of additional shares of the common stock of
PEI representing 2% or more of the outstanding shares of such common stock,
(iii) any new group shall have been formed which beneficially owns more than
5% of the outstanding shares of the common stock of PEI, or (iv) any person,
entity or group shall have filed a Notification and Report Form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public
announcement reflecting an intent to acquire PEI or any of its subsidiaries
or any of their respective assets or securities;
(d) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or
in the over-the-counter market, (ii) any significant decline in the market
price of the Shares or in the general level of market prices of equity
securities
12
<PAGE>
in the United States or abroad, (iii) any change in the general political,
market, economic or financial condition in the United States or abroad that
could have a material adverse effect on PEI's or the Company's business,
condition (financial or other), income, operations, prospects or ability to
obtain financing generally or the trading in the Shares, (iv) the declaration
of a banking moratorium or any suspension of payments in respect of banks in
the United States or any limitation on, or any event which, in the Company's
sole judgment, might affect, the extension of credit by lending institutions
in the United States, (v) the commencement of a war, armed hostilities or
other international or national crisis directly or indirectly involving the
United States or (vi) in the case of any of the foregoing existing at the
time of the commencement of the Offer, in the Company's sole judgment, a
material acceleration or worsening thereof;
(e) a tender or exchange offer with respect to some or all of the Shares
(other than the Offer) or other shares of preferred stock of the Company or
some or all of the common stock of PEI, or a merger, acquisition or other
business combination proposal for PEI or any subsidiary (including the
Company), shall have been proposed, announced or made by a person other than
the Company or PEI;
(f) there shall have occurred any event or events that have resulted, or
may in the sole judgment of the Company result, in an actual or threatened
change in the business, condition (financial or other), income, operations,
stock ownership or prospects of the Company or PEI and its subsidiaries,
taken as a whole; or materially impair the contemplated benefits of the Offer
to the Company; or
(g) (i) Moody's Investors Service, Inc. or Standard & Poor's Corporation
shall have downgraded or withdrawn the rating accorded any securities of the
Company or PEI, or (ii) Moody's Investors Service, Inc. or Standard & Poor's
Corporation shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any securities of
the Company or PEI;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payments.
Any of the foregoing conditions may be waived by the Company, in whole or in
part, at any time and from time to time in its sole discretion. The failure by
the Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Any determination
by the Company concerning the events described above will be final and binding
on all parties.
10. PRICE RANGE OF SHARES; DIVIDENDS; TRADING VOLUME.
The Shares are listed on the NASD OTC Bulletin Board. The following table
sets forth the high and low bid prices of the Shares on the NASD OTC Bulletin
Board and the cash dividends per Share for the quarters indicated.
13
<PAGE>
<TABLE>
<CAPTION>
BID PRICE BID PRICE CASH DIVIDENDS
FISCAL YEAR HIGH LOW PER SHARE
- - - - - ----------- ---------- ------------ ---------------
<S> <C> <C> <C>
1994:
1st Quarter..................... $47.500 $46.250 $1.025
2nd Quarter..................... $47.500 $43.000 $1.025
3rd Quarter..................... $47.000 $46.000 $1.025
4th Quarter..................... $47.000 $43.500 $1.025
1995:
1st Quarter..................... $45.500 $43.500 $1.025
2nd Quarter..................... $46.000 $45.000 $1.025
3rd Quarter..................... $47.000 $45.000 $1.025
4th Quarter..................... $47.875 $45.000 $1.025
1996:
1st Quarter (through March 8,
1996).......................... $50.250 $45.000 $1.025 (1)
<FN>
- - - - - ------------
(1) On January 15, 1996, the Company declared a dividend of $1.025 per common
share for the first quarter of 1996. The dividend is to be paid on March
15, 1996, to holders of record on March 1, 1996.
</FN>
</TABLE>
On March 8, 1996, the last trading day prior to the commencement of the
Offer, the bid price of the Shares as reported on the NASD OTC Bulletin Board
was $50.25 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE SHARES. There is currently no established trading market for the Shares,
excluding limited and sporadic quotation. Stockholders should note that the
average weekly trading volume of the Shares since January 1, 1995, has been
approximately 79 Shares.
Shares tendered and purchased by the Company will be entitled to the regular
quarterly cash dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996, regardless of when such tender
is made. Shares tendered and purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
Pennsylvania law imposes certain legal restrictions on the Company's ability
to pay dividends. As a general matter, Pennsylvania law provides that a
distribution may not be made if after giving effect thereto (1) the corporation
would be unable to pay its debts as they become due in the usual course of its
business, or (2) the total assets of the corporation would be less than the sum
of its total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time as of which the dividend is
measured, to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution. The
Company's Restated Articles of Incorporation, as amended, do not authorize the
issuance of any class of capital stock which has preferential rights superior to
those of the Shares.
11. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a public utility company regulated by the Pennsylvania Public
Utility Commission which provides natural gas to approximately 141,800 customers
in ten counties in northeastern Pennsylvania.
The Company's principal executive offices are located at Wilkes-Barre
Center, 39 Public Square, Wilkes-Barre, PA 18711, and its telephone number is
(717) 829-8843.
Recent Developments
On February 16, 1996, the Company and PEI sold substantially all of the
Company's water operations to Pennsylvania-American Water Company, a
wholly-owned subsidiary of American Water Works Company, Inc., for approximately
$413.5 million (including debt assumed), subject to certain post-closing
adjustments. These operations had provided water service to approximately
133,400 customers. See "-Summary Unaudited Pro Forma Financial Information"
below.
14
<PAGE>
Effective as of December 4, 1995, Pennsylvania Energy Resources, Inc., a
wholly-owned subsidiary of PEI, acquired all of the outstanding stock of
Keystone Pipeline Services, Inc. (formerly known as Ford Bacon & Davis Sealants
Inc.), from Ford, Bacon & Davis Companies, Inc., a wholly-owned subsidiary of
Deutsche Babcock Technologies, Inc. Keystone Pipeline Services, Inc. is engaged
in distribution pipeline construction, maintenance and rehabilitation.
Directors and Executive Officers of the Company
Schedule A hereto sets forth the name, business address and present principal
occupation or employment and any other material occupations, positions, offices
or employments during the last five years of each director and executive officer
of the Company. Schedule A also sets forth the citizenship of each such director
and executive officer.
Summary Historical Financial Information
The following selected financial information for each of the years ended
December 31, 1995, and December 31, 1994, has been derived from the Company's
audited financial statements contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the "1995 10-K"), which reflect the
Company's water utility operations as "discontinued operations" effective March
31, 1995. The following selected historical financial information should be read
in conjunction with, and is qualified in its entirety by reference to, such
audited financial statements and the related notes which are incorporated herein
by reference. The 1995 10-K may be obtained from or inspected at the offices of
the Commission in the manner set forth in Section 16.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994
----------- ------------
<S> <C> <C>
Income Statement Data:
Operating revenues .................................. $ 152,756 $ 167,992
Cost of gas......................................... 84,372 98,653
----------- ------------
Operating margin..................................... 68,384 69,339
Other operating expenses............................. 49,462 50,211
----------- ------------
Operating income..................................... 18,922 19,128
Other income, net.................................... 301 72
----------- ------------
Income before interest charges....................... 19,223 19,200
Interest charges..................................... 10,753 9,898
----------- ------------
Income from continuing operations.................... 8,470 9,302
Income (loss) with respect to discontinued
operations........................................... (3,834) 10,504
----------- ------------
Net income........................................... 4,636 19,806
Dividends on preferred stock......................... 2,763 4,639
----------- ------------
Net income applicable to common stock ............... $ 1,873 $ 15,167
=========== ============
Common stock:
Earnings per share of common stock ................. $ 0.34 $ 2.73
=========== ============
Weighted average number of shares outstanding....... 5,569,765 5,189,108
=========== ============
Ratio of earnings to fixed charges (1)............... 2.27 2.53
=========== ============
___________
<FN>
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as the sum of pre-tax income plus fixed charges. Fixed charges
consist of all interest expense (before allowance for borrowed funds used
during construction), one-third of rent expense (which approximates the
interest component of such expense), and amortization of debt expense.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Balance Sheet Data:
ASSETS
Utility plant ................................................. $295,895 $284,080
Less accumulated depreciation ................................ (76,882) (74,408)
----------- -----------
Net utility plant ............................................. 219,013 209,672
Other property and investments ................................ 5,089 2,872
Current assets ................................................ 54,512 58,250
Deferred charges .............................................. 34,368 44,345
Net assets of discontinued operations ......................... 204,250 203,196
----------- -----------
Total assets .................................................. $517,232 $518,335
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's investment .............................. $208,356 $216,032
Preferred stock -
Not subject to mandatory redemption, net .................... 33,615 33,615
Subject to mandatory redemption ............................. 1,680 1,760
Long-term debt ............................................... 55,000 170,825
----------- -----------
298,651 422,232
----------- -----------
Current liabilities:
Current portion of long-term debt and preferred stock subject
to
mandatory redemption ........................................ 115,881 3,290
Note payable to bank ......................................... 10,000 --
Other ........................................................ 28,601 31,580
----------- -----------
154,482 34,870
----------- -----------
Deferred credits .............................................. 64,099 61,233
----------- -----------
Total capitalization and liabilities .......................... $517,232 $518,335
=========== ===========
Shareholder's equity per common share outstanding ............. $ 37.19 $ 39.59
=========== ===========
</TABLE>
16
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Summary Unaudited Pro Forma Balance Sheet and Summary Unaudited
Pro Forma Statement of Income have been prepared based on the Company's balance
sheet as of December 31, 1995, and the related statement of income for the year
then ended, each as adjusted to reflect the Sale of the Water Business on
February 16, 1996, and the use of the cash proceeds therefrom of $210.0 million
(after the payment of an estimated $56.7 million of federal and state income
taxes on the sale) for the purchase of Shares pursuant to the Offer and the
other purposes described in Note 3 to the Notes to Summary Unaudited Pro Forma
Balance Sheet. Pursuant to the Asset Purchase Agreement relating to the Sale of
the Water Business, the purchase price is subject to post-closing adjustment in
certain cases. The summary unaudited pro forma financial statements also reflect
certain other assumptions and related transactions as described in the notes to
such statements.
The Summary Unaudited Pro Forma Statement of Income reflects the results of
the Company's continuing operations as if the Sale of the Water Business and the
use of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, had taken place at the beginning of the period. The Summary Unaudited Pro
Forma Balance Sheet as of December 31, 1995, reflects the financial position of
the Company as if such transactions had occurred on that date. Each of the
Company's Summary Unaudited Pro Forma Statement of Income and Summary Unaudited
Pro Forma Balance Sheet include estimates which may differ from the results
ultimately incurred.
The summary unaudited pro forma financial statements have been included
herein as required by the rules of the Commission and are for comparative
purposes only. They should be read in conjunction with the summary historical
financial information and do not purport to be indicative of the results that
would actually have been obtained had the Sale of the Water Business, the
purchase of Shares pursuant to the Offer and the other related transactions
described in the notes to such statements been effected on the dates indicated
or the results that may be obtained in the future.
Certain statements made below relating to plans, conditions, objectives and
economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Exchange Act, and each is
subject to factors that could cause actual results to differ from those in the
forward-looking statement.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA STATEMENT OF
INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS, PER SHARE AMOUNTS AND
SHARES OUTSTANDING)
<TABLE>
<CAPTION>
ASSUMING A $50 PER SHARE PURCHASE PRICE
PRO FORMA
HISTORICAL ADJUSTMENTS (1) PRO FORMA
------------ ---------------- ------------
<S> <C> <C> <C>
Operating revenues.............................. $ 152,756 $ -- $ 152,756
Cost of gas.................................... 84,372 -- 84,372
------------ ---------------- ------------
Operating margin................................ 68,384 -- 68,384
Other operating expenses........................ 49,462 789 (2) 50,251
------------ ---------------- ------------
Operating income................................ 18,922 (789) 18,133
Other income, net............................... 301 -- 301
------------ ---------------- ------------
Income before interest charges.................. 19,223 (789) 18,434
------------ ---------------- ------------
Interest charges:
Interest on long-term debt..................... 9,304 (1,891)(2) 7,413
Other interest................................. 1,449 (10)(2) 1,439
---------------- ------------
Total interest charges........................ 10,753 (1,901) 8,852
------------ ---------------- ------------
Income from continuing operations............... 8,470 1,112 9,582
Dividends on preferred stock.................... 2,763 (2,353)(3) 410
------------ ---------------- ------------
Income from continuing operations applicable to
common stock................................... $ 5,707 $ 3,465 $ 9,172
============ ================ ============
Common stock:
Earnings per share of common stock from
continuing operations ........................ $ 1.02 $ 2.80
============ ============
Weighted average number of shares
outstanding................................... 5,569,765 (2,297,297)(4) 3,272,468
============ ================ ============
Ratio of earnings from continuing operations to
fixed charges (5).............................. 2.27 2.73
Shareholder's equity per common share
outstanding.................................... $ 37.19 $ 28.43
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO SUMMARY UNAUDITED PRO FORMA STATEMENT OF INCOME.
18
<PAGE>
NOTES TO SUMMARY UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(1) Adjustments assume that the Sale of the Water Business and the application
of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, each took place at the beginning of the period.
(2) Represents the adjustments to interest on long-term debt and amortization
of debt expense, and the related income tax effect, necessary to reflect
the interest on indebtedness outstanding during the period after (a)
application of proceeds from the Sale of the Water Business to (i) repay a
$50.0 million loan (the "Bridge Loan"), the proceeds of which were used to
redeem the $50.0 million principal amount of the Company's 9.57% Series
First Mortgage Bonds and (ii) repay $10.9 million of the Company's bank
borrowings and (b) the redemption in connection with the Sale of the Water
Business and pursuant to annual sinking fund requirements of the $3.5
million principal amount of the Company's 8% Series First Mortgage Bonds
outstanding as of January 1, 1995. The adjustments to interest on long-term
debt may be summarized as follows:
<TABLE>
<CAPTION>
ASSUMING A $50 PER
SHARE
PURCHASE PRICE
---------------------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Interest on long-term debt for the twelve months ended
December 31, 1995:
Allocated to continuing operations, as per accompanying
summary unaudited pro forma statement of income ........... $ 9,304
Allocated to discontinued operations ....................... 12,848
-----------
22,152
Deduct:
Interest on debt assumed by Pennsylvania-American Water
Company..................................................... $9,529
Interest on debt redeemed or repaid in connection with Sale
of the Water Business
9.57% Series First Mortgage Bonds ......................... 3,748
Bank borrowings ........................................... 719
Bridge Loan................................................ 716
8% Series First Mortgage Bonds ............................ 147 (14,859)
---------
Add:
Interest on bank borrowings to reflect the redemption of the
Company's 8% Series First Mortgage Bonds as if it
occurred at the beginning of the period ................... 120
-----------
Pro forma interest on long-term debt, as per accompanying
summary unaudited pro forma statement of income ........... $ 7,413
===========
</TABLE>
(3) Represents elimination of preferred stock dividends of $2,025,000 and
$328,000 to reflect the repurchase of 225,000 shares of the Company's 9%
Cumulative Preferred Stock and 80,000 Shares pursuant to the Offer,
respectively, with proceeds from the Sale of the Water Business.
(4) Represents the reduction in the number of shares of the Company's common
stock outstanding resulting from the application of $85.0 million of the
proceeds from the Sale of the Water Business to repurchase 2,297,297 shares
of the Company's common stock at an average price of $37.00 per share.
(5) For purposes of computing the ratio of earnings from continuing operations
to fixed charges, earnings are defined as the sum of pre-tax income plus
fixed charges. Fixed charges consist of all interest expense (before
allowance for borrowed funds used during construction), one-third of rent
expense (which approximates the interest component of such expense) and
amortization of debt expense.
19
<PAGE>
SUMMARY UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSUMING A $50 PER SHARE PURCHASE PRICE
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
------------ --------------- ------------
<S> <C> <C> <C>
ASSETS
Utility plant................................. $295,895 $ -- $295,895
Accumulated depreciation..................... (76,882) -- (76,882)
------------ --------------- ------------
Net utility plant............................. 219,013 -- 219,013
Other property and investments................ 5,089 -- 5,089
Current assets................................ 54,512 266,670 (2a)
(56,710)(2c)
(209,960)(3)
13 (3j) 54,525
Deferred charges.............................. 34,368 -- 34,368
Net assets of discontinued operations......... 204,250 (204,250)(2e) --
------------ --------------- ------------
Total assets.................................. $517,232 $(204,237) $312,995
============ =============== ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's investment..............$208,356 $ (790)(2b)
(85,000)(3a)
(1,800)(3b)
4,000 (3c)
(30,000)(3d)
(1,000)(3e)
(722)(4) $ 93,044
Preferred stock--
Not subject to mandatory redemption, net.... 33,615 (22,500)(3b)
(8,000)(3c)
1,247 (4) 4,362
Subject to mandatory redemption............. 1,680 -- 1,680
Long-term debt............................... 55,000 -- 55,000
------------ --------------- ------------
298,651 (144,565) 154,086
--------------- ------------
Current liabilities:
Current portion of long-term debt and
preferred
stock subject to mandatory redemption ...... 115,881 (50,000)(3f)
(10,861)(3g) 55,020
Notes payable to bank........................ 10,000 -- 10,000
Other........................................ 28,601 6,500 (2d)
(5,947)(3h)
(525)(4) 28,629
------------ --------------- ------------
154,482 (60,833) 93,649
------------ --------------- ------------
Deferred credits.............................. 64,09 1,161 (3i) 65,260
------------ --------------- ------------
Total capitalization and liabilities.......... $517,232 $ (204,237) $312,995
============ =============== ============
</TABLE>
20
<PAGE>
NOTES TO SUMMARY UNAUDITED PRO FORMA
BALANCE SHEET AS OF DECEMBER 31, 1995
(1) Adjustments assume that the Sale of the Water Business and the application
of the proceeds therefrom, including the purchase of Shares pursuant to the
Offer, each took place as of the date of the balance sheet.
(2) Represents (a) receipt of cash proceeds of $266.7 million from the Sale of
the Water Business, (b) elimination from common shareholder's investment of
the $790,000 of estimated income from the water operations during the
period from January 1, 1996, to February 16, 1996, the date of the Sale of
the Water Business to Pennsylvania-American Water Company, that was
reflected as of December 31, 1995, as an element of income with respect to
discontinued operations, (c) payment of the estimated federal and state
income tax liability of $56.7 million on the Sale of the Water Business,
(d) recording of the $6.5 million premium of the purchase price over the
book value of the assets acquired by Pennsylvania-American Water Company as
a credit to other current liabilities, the account to which it was charged
as of December 31, 1995, as an offset against the liability for the
estimated expenses on the Sale of the Water Business and (e) elimination of
the $204.3 million of net assets of the Water Business.
(3) Reflects the application of the proceeds from the Sale of the Water
Business of $210.0 million, after the payment of the estimated federal and
state income tax liability of $56.7 million on the Sale of the Water
Business, in the following manner: (a) the repurchase (for an aggregate
consideration of $85.0 million) of 2,297,297 shares of the Company's common
stock at an average price of $37.00 per share, (b) the repurchase (for an
aggregate consideration of $24.3 million) of 225,000 shares of the
Company's 9% Cumulative Preferred Stock (having an aggregate book value of
$22.5 million), which includes a premium of $8.00 per share ($1.8 million
in the aggregate), (c) the repurchase (for an aggregate consideration of
$4.0 million) of 80,000 Shares (having an aggregate book value of $8.0
million) at a price of $50.00 per share, which reflects a $4.0 million
aggregate ($50.00 per share) discount from book value, (d) payment of a
$30.0 million common stock dividend by the Company to PEI, (e) payment of
an estimated $1.0 million of costs in connection with the repurchase of
shares of the Company's preferred stock, including there purchase of Shares
pursuant to the Offer, (f) the repayment of the Bridge Loan, the proceeds
of which were used to redeem the $50.0 million principal amount of the
Company's 9.57% Series First Mortgage Bonds, (g) repayment of $10.9 million
of the Company's bank borrowings, (h) payment of transaction costs of $5.9
million relative to the Sale of the Water Business, (i) recording of the
$1.2 million net tax benefit resulting from transaction costs and the
premium over book value on the Sale of the Water Business and (j) the
addition of the remaining proceeds of $13,000 to the Company's cash
accounts. The repurchases and costs referred to in items (b), (c) and (e)
involve voluntary sales to the Company by holders of the Shares and other
series of preferred stock of the Company. Therefore, the number and price
of the securities purchased and the related expenses may vary depending on
market conditions at the time of the repurchases.
(4) Reflects the write-off of $1.2 million ($722,000 after related income tax
benefits of $525,000) of issuance costs relative to the 225,000 shares of
the Company's 9% Cumulative Preferred Stock which the Company intends to
repurchase with proceeds from the Sale of the Water Business.
12. SOURCE AND AMOUNT OF FUNDS.
Assuming that the Company purchases all outstanding Shares pursuant to the
Offer at the Purchase Price, the total amount required by the Company to
purchase such Shares will be $5.0 million, exclusive of fees and other expenses.
The Company expects to fund the purchase of such Shares from part of the
proceeds from the Sale of the Water Business. See Sections 1 and 11.
13. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES AND OTHER SECURITIES OF
THE COMPANY.
Based upon the Company's records and upon information provided to the Company by
its directors and executive officers, neither the Company nor, to the Company's
knowledge, any of its associates, subsidiaries, directors, executive officers or
any associate of any such director or executive
21
<PAGE>
officer, or any director or executive officer of its subsidiaries, has engaged
in any transactions involving the Shares or shares of any other series of
preferred stock of the Company since January 11, 1996. Neither the Company nor,
to the Company's knowledge, any of its directors or executive officers is a
party to any contract, arrangement, understanding or relationship relating
directly or indirectly to the Offer with any other person with respect to any
securities of the Company.
Schedule B hereto sets forth the name and title of each director and
executive officer of the Company, and the name and address of each associate
thereof, beneficially owning Shares or shares of any other series of preferred
stock of the Company as of March 7, 1996, the number of shares so owned and the
percentage of outstanding shares of the particular series such shares represent.
Schedule C hereto sets forth the amount of any purchases of Shares or shares
of any other series of preferred stock of the Company made by the Company and
its affiliates (including the directors of the Company) since January 1, 1994
and the range of prices paid for such shares.
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary.
There can be no assurance, however, that the Company will exercise its right to
extend the Offer. During any such extension, all Shares previously tendered will
remain subject to the Offer, except to the extent that such Shares may be
withdrawn as set forth in Section7. The Company also expressly reserves the
right, in its sole discretion, (i) to terminate the Offer and not accept for
payment any Shares not theretofore accepted for payment or, subject to Rule
13e-4(f)(5) under the Exchange Act, which requires the Company either to pay the
consideration offered or to return the Shares tendered promptly after the
termination or withdrawal of the Offer, to postpone payment for Shares upon the
occurrence of any of the conditions specified in Section 9 hereof by giving oral
or written notice of such termination to the Depositary and making a public
announcement thereof and (ii) at any time or from time to time, to amend the
Offer in any respect. Amendments to the Offer may be effected by public
announcement. Without limiting the manner in which the Company may choose to
make public announcement of any termination or amendment, the Company shall have
no obligation (except as otherwise required by applicable law) to publish,
advertise or otherwise communicate any such public announcement, other than by
making a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the Offer, in which case the Company shall have
no obligation to publish, advertise or otherwise communicate such announcement
other than by issuing a notice of such extension by press release or other
public announcement, which notice shall be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Material changes to information previously provided to holders
of the Shares in this Offer or in documents furnished subsequent thereto will be
disseminated to holders of Shares in compliance with Rule 13e-4(e)(2)
promulgated under the Exchange Act.
If the Company materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price,
change in dealer's soliciting fee or change in percentage of securities sought)
will depend on the facts and circumstances, including the relative materiality
of such terms or information. In a published release, the Commission has stated
that in its view, an offer should remain open for a minimum of five business
days from the date that notice of such a material change is first published,
sent or given. The Offer will continue or be extended for at least ten business
days from the time the Company publishes, sends or gives to holders of Shares a
notice that it will (a) increase or decrease the price it will pay for Shares or
the amount of the dealer's soliciting fee or (b) decrease the number of Shares
it seeks.
22
<PAGE>
15. FEES AND EXPENSES.
Legg Mason Wood Walker, Incorporated will act as Dealer Manager for the
Company in connection with the Offer. The Company has agreed to pay the Dealer
Manager, upon acceptance for payment of Shares pursuant to the Offer, a fee of
$0.15 per Share purchased by the Company pursuant to the Offer. The Dealer
Manager will also be reimbursed by the Company for its reasonable out-of-pocket
expenses and will be indemnified against certain liabilities and expenses,
including liabilities under the federal securities laws, in connection with the
Offer.
The Dealer Manager has rendered, is currently rendering and is expected to
continue to render various investment banking and other advisory services to the
Company. It has received, and will continue to receive, customary compensation
from the Company for such services.
The Company will pay a solicitation fee of $0.50 per Share for any Shares
tendered and accepted for payment and paid for pursuant to the Offer, covered by
a Letter of Transmittal which designates, as having solicited and obtained the
tender, the name of (i) any broker or dealer in securities, including the Dealer
Manager in its capacity as a broker or dealer, who is a member of any national
securities exchange or of the National Association of Securities Dealers, Inc.
(the "NASD"), (ii) any foreign broker or dealer not eligible for membership in
the NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as though it
were an NASD member, or (iii) any bank or trust company (each of which is
referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a
Soliciting Dealer if such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a depositing holder (other than itself). No
such fee shall be payable to a Soliciting Dealer with respect to shares tendered
for such Soliciting Dealer's own account. No broker, dealer, bank, trust company
or fiduciary shall be deemed to be the agent of the Company, the Depositary, the
Information Agent or the Dealer Manager for purposes of the Offer.
The Company has retained Chemical Mellon Shareholder Services, L.L.C. as
Depositary and D.F. King & Co., Inc. as Information Agent in connection with the
Offer. The Information Agent may contact stockholders by mail, telephone,
facsimile transmission and personal interviews, and may request brokers, dealers
and other nominee stockholders to forward materials relating to the Offer to
beneficial owners. The Depositary and the Information Agent will receive
reasonable and customary compensation of their services and will also be
reimbursed for certain out-of-pocket expenses. The Company has agreed to
indemnify the Depositary and the Information Agent against certain liabilities,
including certain liabilities under the federal securities laws, in connection
with the Offer. Neither the Information Agent nor the Depositary has been
retained to make solicitations or recommendations in connection with the Offer.
Certain directors or executive officers of the Company may, from time to
time, contact stockholders to provide them with information regarding the Offer.
Such directors and executive officers will not make any recommendation to any
stockholder as to whether to tender all or any Shares and will not solicit the
tender of any Shares. The Company will not compensate any director or executive
officer for this service.
Other than as described above, the Company will not pay any solicitation fees
to any broker, dealer, bank, trust company or other person for any Shares
purchased in connection with the Offer. The Company will reimburse such persons
for customary handling and mailing expenses incurred in connection with the
Offer.
The Company will pay all stock transfer taxes, if any, payable on account of
the acquisition of the Shares by the Company pursuant to the Offer, except in
certain circumstances where special payment or delivery procedures are utilized
pursuant to Instruction 6 of the Letter of Transmittal.
23
<PAGE>
The expenses incurred, or estimated to be incurred, by the Company in
connection with the Offer are set forth below. The Company will be responsible
for paying all such expenses.
Dealer Manager Fees................ $ 12,000
Solicitation Fees.................. 40,000
Printing and Mailing Fees.......... 20,000
Filing Fees........................ 1,000
Legal, Accounting and
Miscellaneous ..................... 127,000
Total.............................. $200,000
==========
16. MISCELLANEOUS.
The Company is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports and other information with the Commission
relating to its business, financial condition and other matters. Certain
information as of particular dates concerning the Company's directors and
officers, their remuneration, the principal holders of the Company's and PEI's
securities and any material interest of such persons in transactions with the
Company is filed with the Commission. The Company has also filed a Transaction
Statement on Schedule 13E-3 and an Issuer Tender Offer Statement on Schedule
13E-4 with the Commission, which include certain additional information relating
to the Offer. Such reports, as well as such other material, may be inspected and
copies may be obtained at the Commission's public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, and should also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Company's Schedules 13E-3
and 13E-4 may not be available at the Commission's regional offices.
The Offer is being made to all holders of Shares. The Company is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by the Dealer Manager or one or more
registered brokers or dealers licensed under the laws of such jurisdictions.
PG ENERGY INC.
March 11, 1996
24
<PAGE>
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, business address, present principal
occupation or employment and any other material occupations, positions, offices
or employments during the last five years of the directors and executive
officers of the Company. Unless otherwise indicated, all occupations, positions,
offices or employments listed opposite any individual's name were held by such
individual during the course of the last five years. Each individual listed
below is a citizen of the United States.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
and Other Material Occupations, Positions, Offices or
Name and Business Address Employments During the Last Five Years
- - - - - ------------------------- ------------------------------------------------------
<S> <C>
Kenneth L. Pollock Chairman of the Board of Directors of the Company and PEI since
PG Energy Inc. June, 1987; Director of the Company since 1972 and of PEI since 1974;
Wilkes-Barre Center President and Chief Executive Officer of the Compan and PEI
39 Public Square from March, 1991, to August, 1991; Director and sole stockholder,
Wilkes-Barre, PA 18711-0601 Susquehanna Coal Company and Ken L. Pollock, Inc., Nanticoke, PA,
since prior to 1990.
Dean T. Casaday President, Chief Executive Officer, and Director of the Company and
PG Energy Inc. PEI since September 1, 1991; Vice President of National Fuel Gas
Wilkes-Barre Center Supply Corporation from 1989 to August, 1991.
39 Public Square
Wilkes-Barre, PA 18711-0601
William D. Davis Vice Chairman of the Board of Directors of the Company and PEI
Commonwealth Plaza since March, 1991; Director of the Company and PEI since 1981;
33 W. Third Street Chairman of the Board of the Commonwealth Bank Division of Meridian Bank,
Williamsport, PA 17703 Williamsport, PA, from September, 1993 to December 31, 1995;
Director, Meridian Bancorp, Inc., and Meridian Bank, Reading, PA,
since September, 1993; Chairman of the Board and Chief Executive
Officer of Commonwealth Bancshares Corporation, Williamsport, PA,
from April, 1987, to June, 1993.
Paul R. Freeman Director of the Company and PEI since November, 1995; Controller of
200 East Front Street HUD, Inc., trading as Emerald Anthracite II, since 1988.
P.O. Box 27
Nanticoke, PA 18634
Robert J. Keating Director of the Company and PEI since 1974; Former Chairman of the
Avanti Cigar Co. Board of Parodi Industries, Inc., Scranton, PA, fromJanuary, 1985,
1015 N. Main Avenue to February, 1994.
Scranton, PA 18508
John D. McCarthy Director of the Company and PEI since 1991; President of McCarthy
McCarthy Tire Service Company Tire Service Company, Wilkes-Barre, PA, since 1968; President of
340 Kidder Street McCarthy Realty, Inc., since 1988.
P.O. Box 1125
Wilkes-Barre, PA 18703-1125
A-1
<PAGE>
John D. McCarthy, Jr. Director of the Company and PEI since November, 1995; Vice
McCarthy Tire Service Company President of McCarthy Tire Service Company, Wilkes-Barre, PA, since
340 Kidder Street 1989; President of McCarthy Tire Service Company of Allentown,
P.O. Box 1125 Reading and Lancaster, since 1992; Vice President of McCarthy
Wilkes-Barre, PA 18703-1125 Realty, Inc., since 1988.
Kenneth M. Pollock Director of the Company and PEI since October, 1993; Vice President
200 East Front Street of HUD, Inc., trading as Emerald Anthracite II; Vice President of
P.O. Box 27 Susquehanna Coal Company and Susquehanna Mt. Carmel, Inc., since
Nanticoke, PA 18634 prior to 1987.
Richard A. Rose, Jr. Director of the Company and PEI since November, 1995; President of
454 South Main Street Petroleum Sales Company, Inc., since 1992; Vice President of
P.O. Box 454 Petroleum Service Company, Inc., Wilkes-Barre, PA, since 1987.
Wilkes-Barre, PA 18703-0454
James A. Ross Director of the Company and PEI since May, 1978; Independent
Old Windmill Road financial consultant since prior to 1988; Chairman, Priestgate,
Clarks Summit, PA 18411 Limited, since 1991.
Ronald W. Simms Director of the Company and PEI since March, 1991; President and
454 South Main Street Chief Executive Officer of Petroleum Service Company, Inc.,
Mountain P.O. Box 454 Wilkes-Barre, PA, since 1980; Chairman of the Board of Directors
Wilkes-Barre, PA 18703-0454 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.
Thomas F. Karam Executive Vice President of the Company and PEI since October,
PG Energy Inc. 1995; Vice President, Legg Mason Wood Walker, Incorporated from
Wilkes-Barre Center 1986 to September, 1995.
39 Public Square
Wilkes-Barre, PA 18711-0601
Vincent A. Bonaddio Vice President, Operations and Engineering Services of the Company
PG Energy Inc. and PEI since March, 1996; Vice President, Operations and
Wilkes-Barre Center Engineering of the Company and PEI since May, 1995; Director of
39 Public Square Field Operations of the Company from May, 1991 to April, 1995;
Wilkes-Barre, PA 18711-0601 General Superintendent, North Division, of the Company from 1988 to
May, 1991.
Harry E. Dowling Vice President, Customer Services, of the Company and PEI since
PG Energy Inc. March, 1996; Vice President of Human Resources and Customer
Wilkes-Barre Center Services of the Company and PEI from October, 1992 to February,
39 Public Square 1996; Vice President of Customer Affairs of the Company and PEI
Wilkes-Barre, PA 18711-0601 from 1987 to October, 1992.
A-2
<PAGE>
John F. Kell, Jr.
PG Energy Inc. Vice President, Financial Services, of the Company and PEI since
Wilkes-Barre Center March, 1996; Vice President, Finance, of the Company and PEI from
39 Public Square October, 1992 to February, 1996; Vice President and Controller of
Wilkes-Barre, PA 18711-0601 the Company and PEI from 1978 to October, 1992.
Joseph F. Perugino Vice President, Energy Services, of the Company and PEI since
PG Energy Inc. March, 1996; Vice President, Marketing and Gas Supply of the
Wilkes-Barre Center Company and PEI from October, 1992 to February, 1996; Vice
39 Public Square President, Administration and Marketing of the Company and PEI from
Wilkes-Barre, PA 18711-0601 November, 1989 to October, 1992.
Thomas J. Ward Vice President, Administrative Services, and Secretary, of the
PG Energy Inc. Company and PEI since March, 1996; Vice President, Administration,
Wilkes-Barre Center and Secretary, of the Company and PEI from October, 1992 to
39 Public Square February, 1996; Secretary of the Company and PEI from September,
Wilkes-Barre, PA 18711-0601 1988 to October, 1992.
Thomas J. Koval Controller and Assistant Treasurer of the Company and PEI since
PG Energy Inc. November, 1992; Accounting Manager of the Company from February,
Wilkes-Barre Center 1987 to November, 1992.
39 Public Square
Wilkes-Barre, PA 18711-0601
Richard N. Marshall Treasurer and Assistant Secretary of the Company and PEI since
PG Energy Inc. February, 1996; Treasurer of the Company and PEI from May, 1994 to
Wilkes-Barre Center January, 1996; Assistant Treasurer of the Company and PEI from
39 Public Square June, 1993 to May, 1994; Manager, Rates and Finance, of the Company
Wilkes-Barre, PA 18711-0601 from March, 1988 to June, 1993.
</TABLE>
A-3
<PAGE>
SCHEDULE B
INTEREST IN PREFERRED STOCK OF THE COMPANY
The following table sets forth the name and title of each director and
executive officer of the Company, and the name and address of each associate
thereof, beneficially owning Shares or shares of any other series of preferred
stock of the Company (including the Depositary Preferred Shares (the "Depositary
Preferred Shares"), each representing a one-fourth interest in a share of the 9%
Cumulative Preferred Stock of the Company, and the 1966 Cumulative Preferred
Stock (the "1966 Preferred Shares")) as of March 7, 1996, the number of shares
so owned and the percentage of outstanding shares of the particular series such
shares represent.
The Shares:
<TABLE>
<CAPTION>
NAME AND TITLE OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- - - - - --------------------- ----------------------- -----------------------
<S> <C> <C>
None ............... None N/A
</TABLE>
The Depositary Preferred Shares:
<TABLE>
<CAPTION>
NUMBER OF
DEPOSITARY PERCENTAGE OF
NAME AND TITLE OF PREFERRED SHARES OUTSTANDING DEPOSITARY
BENEFICIAL OWNER BENEFICIALLY OWNED PREFERRED SHARES
- - - - - ----------------------------------- -------------------- -----------------------
<S> <C> <C>
William D. Davis, Director ........ 2,000 *
Robert J. Keating, Director ...... 500 (1) *
Thomas J. Koval, Controller and
Assistant Treasurer ............... 60 *
Joseph F. Perugino, Vice President 400 *
</TABLE>
The 1966 Preferred Shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME AND TITLE OF 1966 PREFERRED SHARES OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED 1966 PREFERRED SHARES
- - - - - --------------------- ------------------------- --------------------------
<S> <C> <C>
None ................ None N/A
_________
<FN>
* Less than 1%.
(1) Includes 100 Depositary Preferred Shares owned by Mr. Keating's wife.
N/A Not applicable.
</FN>
</TABLE>
B-1
<PAGE>
SCHEDULE C
PURCHASES OF PREFERRED STOCK OF THE COMPANY
BY THE COMPANY OR ITS AFFILIATES SINCE JANUARY 1, 1994
The following table sets forth the amount of any purchases of Shares or
shares of any other series of preferred stock of the Company (including the
Shares, the Depositary Preferred Shares, the 1966 Preferred Shares, the 9.50%
1988 Series Cumulative Preferred Shares (the "9.50% Preferred Shares") and the
8.90% Cumulative Preferred Shares (the "8.90% Preferred Shares")) made by the
Company and its affiliates (including, without limitation, the Directors of the
Company) since January 1, 1994 and the range of prices paid for such shares.
The Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
--------------------- ------------------------------- -------------------------
<S> <C> <C> <C>
None ......... N/A N/A N/A
</TABLE>
The Depositary Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
--------------------- ------------------------------- -------------------------
<S> <C> <C> <C>
None N/A N/A N/A
</TABLE>
The 1966 Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
----------------- --------------------------- ---------------------
<S> <C> <C> <C>
The Company June 15, 1994 800 $100.00
The Company June 15, 1995 800 $100.00
</TABLE>
The 9.50% Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
----------------- --------------------------- ---------------------
<S> <C> <C> <C>
The Company May 31, 1994 150,000 $103.5625
</TABLE>
The 8.90% Preferred Shares:
<TABLE>
<CAPTION>
PURCHASER DATE OF PURCHASE NUMBER OF SHARES PURCHASED PRICE PAID PER SHARE
------------------ --------------------------- ---------------------
<S> <C> <C> <C>
The Company December 16, 1994 150,000 $102.97
___________
N/A Not applicable.
</TABLE>
C-1
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted from Eligible
Institutions. The Letter of Transmittal and certificates for Shares should be
sent or delivered by each stockholder of the Company or his or her broker,
dealer, bank or trust company to the Depositary at one of its addresses set
forth below.
The Depositary:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
To: Chemical Mellon Shareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of this Offer to Purchase,the Letter of Transmittal or other tender offer
materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact
theirlocal broker, dealer, commercial bank or trust company for assistance
concerning the Offer.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
(410) 528-2231
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
OF
PG ENERGY INC.
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 11, 1996
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS
EXTENDED.
To: Chemical Mellon Shareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DESCRIPTION OF SHARES TENDERED
SHARES TENDERED
(ATTACH ADDITIONAL LIST, IF NECESSARY) PRINT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
TOTAL NUMBER OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES (PLEASE FILL IN EXACTLY AS NAME(S)
NUMBER(S)* CERTIFICATE(S)* TENDERED** APPEAR(S) ON CERTIFICATE(S))
TOTAL SHARES:
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented
by any certificate delivered to the Depositary are being tendered. See
Instruction 4.
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made by
book-entry transfer to the Depositary's account at The Depository Trust Company
("DTC") or the Philadelphia Depository Trust Company ("PDTC") (hereinafter
collectively referred to as the "Book-Entry Transfer Facilities") pursuant to
the procedures set forth in Section 6 of the Offer to Purchase (as defined
below).
Stockholders who cannot deliver their Shares and all other documents required
hereby to the Depositary by the Expiration Date (as defined in the Offer to
Purchase) must tender their Shares pursuant to the guaranteed delivery procedure
set forth in Section 6 of the Offer to Purchase. See Instruction 2. Delivery of
documents to the Company or to a Book-Entry Transfer Facility does not
constitute a valid delivery.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY's ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________________________
Check Applicable Box: [ ] DTC [ ] PDTC
Account No. _______________________________________________________________
Transaction Code No. ______________________________________________________
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s) _______________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution that Guaranteed Delivery ______________________________
If delivery is by book-entry transfer:
Name of Tendering Institution _____________________________________________
Account No. at [ ] DTC [ ] PDTC
Transaction Code No.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentleman:
The undersigned hereby tenders to PG Energy Inc., a Pennsylvania
corporation formerly known as Pennsylvania Gas and Water Company (the
"Company"), the above-described shares of its 4.10% Cumulative Preferred Stock,
par value $100.00 per share, voluntary liquidation preference $105.50 per share,
involuntary liquidation preference $100.00 per share (the "Shares") pursuant to
the Company's offer to purchase any and all of its outstanding Shares at a price
per Share of $50.00, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated March 11, 1996 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Offer").
Subject to, and effective upon, acceptance for payment of and payment for the
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby (and
any and all other Shares or other securities issued or issuable in respect
thereof on or after March 16, 1996 (collectively, "Distributions")) and
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares and all Distributions, or transfer ownership of
such Shares and all Distributions on the account books maintained by any of the
Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Shares and all Distributions for registration and
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Depositary or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby and all Distributions.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 6 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned|Als acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (i) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Offer.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 6 of the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
3
<PAGE>
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the Purchase Price of any Shares purchased, and/or return
any Shares not tendered or not purchased, in the name(s) of the undersigned
(and, in the case of Shares tendered by book-entry transfer, by credit to the
account at the Book-Entry Transfer Facility designated above). Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the check
for the Purchase Price of any Shares purchased and/or any certificates for
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the check for the Purchase
Price of any Shares purchased and/or return any Shares not tendered or not
purchased in the name(s) of, and mail said check and/or any certificates to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation, pursuant to the "Special Payment Instructions," to transfer any
Shares from the name of the registered holder(s) thereof if the Company does not
accept for payment any of the Shares so tendered.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or certificates for Shares not tendered or not purchased are to be issued in
the name of someone other than the undersigned.
Issue [ ] check and/or [ ] certificate(s) to:
Name ___________________________________________________________________________
________________________________________________________________________________
(Please Print)
Address ________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or the certificates for Shares not tendered or not purchased are to be
mailed to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail [ ] check and/or [ ] certificate(s) to:
Name ___________________________________________________________________________
________________________________________________________________________________
(Please Print)
Address ________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
<PAGE>
SOLICITED TENDERS
(SEE INSTRUCTION 10)
The Company will pay to any Soliciting Dealer, as defined in Instruction 10,
a solicitation fee of $0.50 per Share for each Share tendered and purchased
pursuant to the Offer.
The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm: __________________________________________________________________
(Please Print)
Name of Individual Broker or Financial Consultant: _____________________________
Identification Number (if known): ______________________________________________
Address: _______________________________________________________________________
(Include Zip Code)
The following to be completed ONLY if customer's Shares held in nominee
name are tendered.
Name of Beneficial Owner Number of Shares Tendered
(Attach additional list if necessary)
_______________________ ___________________________
_______________________ ___________________________
_______________________ ___________________________
The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitation; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it
has used no soliciting materials other than those furnished by the Company; and
(iv) if it is a foreign broker or dealer not eligible for membership in the
National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to
conform to the NASD|Als Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer's returning a Notice of Solicited Tenders to the Depositary.
6
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
________________________________________________________________________________
Signature(s) of Owner(s)
________________________________________________________________________________
Dated: _________________, 1996
Name(s) ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. ____________________________________________________
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 5.
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm ___________________________________________________________________
Authorized Signature ___________________________________________________________
Dated: ____________________, 1996
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, for purposes of this document, shall include any participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of Shares) tendered herewith and such holder(s) have not completed
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or if delivery
of Shares is to be made by book-entry transfer pursuant to the procedures set
forth in Section 6 of the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary|Als account at one of the Book-Entry Transfer Facilities of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth on the front page of this Letter of Transmittal
on or prior to the Expiration Date (as defined in the Offer to Purchase).
Stockholders who cannot deliver their Shares and all other required documents to
the Depositary on or prior to the Expiration Date must tender their Shares
pursuant to the guaranteed delivery procedure set forth in Section 6 of the
Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by
or through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by the Company
(with any required signature guarantees) must be received by the Depositary on
or prior to the Expiration Date and (c) the certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all Shares
delivered electronically, as well as a properly completed and duly executed
Letter of Transmittal (or photocopy thereof) and any other documents required by
this Letter of Transmittal must be received by the Depositary within three
business days after the date of execution of such Notice of Guaranteed Delivery,
all as provided in Section 6 of the Offer to Purchase.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE
SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
No alternative, conditional or contingent tenders will be accepted. By
executing this Letter of Transmittal (or a photocopy thereof), the tendering
stockholder waives any right to receive any notice of the acceptance for payment
of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares that are to
be tendered in the box entitled "Number of Shares Tendered." In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, as promptly as practicable
following the expiration or termination of the Offer. All Shares represented by
certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
8
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
hereby, the signature(s) must correspond with the name(s) as written on the face
of the certificates without alteration, enlargement or any change whatsoever.
If any of the Shares hereby are held of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the Purchase Price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s). Signatures on any such certificates or
stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Shares tendered hereby, certificates must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name(s) of the registered holder(s) appear(s) on the certificates for such
Shares. Signature(s) on any such certificates or stock powers must be guaranteed
by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
6. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or its
order pursuant to the Offer. If, however, payment of the Purchase Price is to be
made to, or Shares not tendered or not purchased are to be registered in the
name of, any person other than the registered holder(s), or if tendered Shares
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s), such other person or otherwise) payable on account
of the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Section 8 of the Offer to Purchase.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase
Price of any Shares purchased is to be issued in the name of, and/or any Shares
not tendered or not purchased are to be returned to, a person other than the
person(s) signing this Letter of Transmittal or if the check and/or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown below the signature of the person(s) signing this
Letter of Transmittal, then the boxes captioned "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such stockholder at the Book-Entry Transfer Facility from which such transfer
was made.
8. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required to
provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or, in the case of certain foreign stockholders, a properly
completed Form W-8. Failure to provide the information on either Substitute Form
W-9 or Form W-8 may subject the tendering stockholder to 31% federal income tax
backup withholding on the payment of the Purchase Price. The box in Part 2 of
Substitute Form W-9 may be checked if the tendering stockholder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future. If the box in Part 2 is checked and the Depositary is
9
<PAGE>
not provided with a TIN by the time of payment, the Depositary will withhold 31%
on all payments of the Purchase Price thereafter until a TIN is provided to the
Depositary.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests
for assistance may be directed to the Information Agent at the telephone number
and address listed below. Requests for additional copies of the Offer to
Purchase, this Letter of Transmittal or other tender offer materials may be
directed to the Information Agent and such copies will be furnished promptly at
the Company|Als expense. Stockholders may also contact their local broker,
dealer, commercial bank or trust company for assistance concerning the Offer.
10. SOLICITED TENDERS. The Company will pay a solicitation fee of $0.50 per
Share for any Shares tendered and accepted for payment and paid for pursuant to
the Offer, covered by the Letter of Transmittal which designates, in the box
captioned "Solicited Tenders," as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a dealer or broker, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company (each of which is referred to herein
as a "Soliciting Dealer"). No such fee shall be payable to a Soliciting Dealer
with respect to the tender of Shares by a holder unless the Letter of
Transmittal accompanying such tender designates such Soliciting Dealer. No such
fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is
required for any reason to transfer the amount of such fee to a depositing
holder (other than itself). No such fee shall be payable to a Soliciting Dealer
with respect to Shares tendered for such Soliciting Dealer|Als own account. No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company, the Depositary, the Information Agent or the Dealer Manager for
purposes of the Offer.
11. IRREGULARITIES. All questions as to the Purchase Price, the form of
documents and the validity, eligibility (including time of receipt) and
acceptance of any tender of Shares will be determined by the Company, in its
sole discretion, and its determination shall be final and binding. The Company
reserves the absolute right to reject any or all tenders of Shares that it
determines are not in proper form or the acceptance for payment of or payment
for Shares that may, in the opinion of the Company's counsel, be unlawful. The
Company also reserves the absolute right to waive any of the conditions to the
Offer or any defect or irregularity in any tender of Shares and the Company|Als
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. None of the Company, the Dealer Manager, the
Depositary, the Information Agent or any other person shall be under any duty to
give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured or
waived.
10
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or in the
case of certain foreign stockholders, a properly completed Form W-8. If such
stockholder is an individual, the TIN is his or her social security number. For
businesses and otherentities, the number is the employer identification number.
If the Depositary is not provided with the correct TIN or properly completed
Form W-8, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding. The Form W-8 can be obtained from the Depositary.
See the enclosed Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is required
to withhold 31% of any payments made to the stockholder. Backup withholding is
not an additional tax. Rather, the federal income tax liability of persons
subject to federal income tax backup withholding will be reduced by the amount
of the tax withheld. If withholding results in an overpayment of taxes, a refund
may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9
is correct and that (1) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign stockholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security number
or employer identification number of the registered owner of the Shares. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A PHOTOCOPY THEREOF) TOGETHER WITH
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE
(AS DEFINED IN THE OFFER TO PURCHASE).
11
<PAGE>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN) AND
CERTIFICATION
________________________________________________________________________________
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW.
- - - - - --------------------------------------------------------------------------------
NAME
(Please Print)
- - - - - --------------------------------------------------------------------------------
ADDRESS
- - - - - --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- - - - - --------------------------------------------------------------------------------
________________________________________________________________________________
TIN ________________________
Social Security Number or Employer
Identification Number
Part 2
AWAITING
TIN [ ]
________________________________________________________________________________
Part 3--CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or a TIN
has not been issued to me but I have mailed or delivered an application to
receive a TIN or intend to do so in the near future), (2) I am not subject to
backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has notified me that
I am no longer subject to backup withholding and (3) all other information
provided on this form is true, correct and complete.
SIGNATURE ______________________________________ DATE__________________________
You must cross out item (2) above if you have been notified by the IRS that your
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the Purchase Price made to me thereafter will be withheld
until I provide a number.
Signature ________________________________________ Date: ________________, 1996
12
<PAGE>
The Information Agent:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 EAST REDWOOD STREET, 6TH FLOOR
BALTIMORE, MD 21202
(410) 528-2231
<PAGE>
[PG ENERGY INC. LETTERHEAD]
March 11, 1996
Dear Stockholder:
PG Energy Inc., formerly known as Pennsylvania Gas and Water Company, is
offering to purchase any and all of its outstanding shares of 4.10% Cumulative
Preferred Stock, par value $100.00 per share, voluntary liquidation preference
$105.50 per share, involuntary liquidation preference $100.00 per share (the
"Shares"), at a price of $50.00 per Share.
All of the Shares that are properly tendered (and are not withdrawn) will,
subject to the terms and conditions set forth in the enclosed Offer to Purchase,
be purchased at that purchase price, net to the selling stockholder in cash. All
other Shares that have been tendered and not purchased will be returned to the
stockholder.
If you do not wish to participate in the offer, you do not need to take any
action.
The offer is explained in detail in the enclosed Offer to Purchase and Letter
of Transmittal. If you want to tender your Shares, the instructions on how to do
so are also explained in detail in the enclosed materials. I encourage you to
read these materials carefully before making any decision with respect to the
offer.
Neither the Company nor its Board of Directors makes any recommendation to
any stockholder whether to tender all or any Shares. Neither I nor any other
director or executive officer intends to tender Shares pursuant to the offer as
no such person owns any Shares.
Sincerely,
/s/ Dean T. Casaday
----------------------------------
Dean T. Casaday
President and Chief Executive Officer
<PAGE>
PG ENERGY INC.
NOTICE OF GUARANTEED DELIVERY
OF SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for the shares of 4.10%
Cumulative Preferred Stock of PG Energy Inc., formerly known as Pennsylvania Gas
and Water Company, are not immediately available, if the procedure for
book-entry transfer cannot be completed on a timely basis, or if time will not
permit all other documents required by the Letter of Transmittal to be delivered
to the Depositary on or prior to the Expiration Date (as defined in Section 5 of
the Offer to Purchase defined below). Such form may be delivered by hand or
transmitted by mail, or (for Eligible Institutions only) by facsimile
transmission, to the Depositary. See Section 6 of the Offer to Purchase. THE
ELIGIBLE INSTITUTION, WHICH COMPLETES THIS FORM, MUST COMMUNICATE THE GUARANTEE
TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL AND CERTIFICATES
FOR SHARES TO THE DEPOSITARY WITHIN THE TIME SHOWN HEREIN. FAILURE TO DO SO
COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION.
To: Chemical Mellon Shareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to PG Energy Inc., a Pennsylvania corporation
formerly known as Pennsylvania Gas and Water Company (the "Company"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 11, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"), receipt of which is hereby
acknowledged, the number of shares of 4.10% Cumulative Preferred Stock, par
value $100.00 per share, voluntary liquidation preference $105.50 per share,
involuntary liquidation preference $100.00 per share (the "Shares"), of the
Company listed below, pursuant to the guaranteed delivery procedure set forth in
Section 6 of the Offer to Purchase.
Number of Shares:
__________________________________ _____________________________________
Certificates Nos.: (if available) Signature(s)
__________________________________ _____________________________________
Name(s) (Please Print)
__________________________________ _____________________________________
If Shares will be tendered by Address
book-entry transfer:
Name of Tendering Institution:
__________________________________ _____________________________________
Account No._______ at (check one) _____________________________________
Area Code and Telephone Number
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States, guarantees (a) that the above-named person(s) has a net long position in
the Shares being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended, (b) that such tender of Shares
complies with Rule 14e-4 and (c) delivery to the Depositary at one of its
addresses set forth above certificate(s) for the Shares tendered hereby, in
proper form for transfer, or a confirmation of the book-entry transfer of the
Shares tendered hereby into the Depositary's account at The Depository Trust
Company or the Philadelphia Depository Trust Company, in each case together with
a properly completed and duly executed Letter(s) of Transmittal (or facsimile(s)
thereof), with any required signature guarantee(s) and any other required
documents, all within three business days after the date hereof.
__________________________________ _____________________________________
Name of Firm Authorized Signature
__________________________________ _____________________________________
Address Name
__________________________________ _____________________________________
City, State, Zip Code Title
__________________________________
Area Code and Telephone Number
Dated: _____________________, 1996
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM.
YOUR STOCK CERTIFICATES MUST BE SENT WITH
THE LETTER OF TRANSMITTAL.
<PAGE>
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
PG ENERGY INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS
EXTENDED.
March 11, 1996
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
In our capacity as Dealer Manager (the "Dealer Manager"), we are enclosing
the material listed below relating to the offer of PG Energy Inc., a
Pennsylvania corporation formerly known as Pennsylvania Gas and Water Company
(the "Company"), to purchase any and all of its outstanding shares of 4.10%
Cumulative Preferred Stock, par value $100.00 per share, voluntary liquidation
preference $105.50 per share, involuntary liquidation preference $100.00 per
share (the "Shares"), at $50.00 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 11, 1996 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which together constitute the "Offer").
The Purchase Price will be paid in cash, net to the seller, with respect to
all Shares purchased. Shares not purchased will be returned.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. The Offer is, however, subject to other conditions. See Section 9 of
the Offer to Purchase.
We are asking you to contact your clients for whom you hold Shares registered
in your name (or in the name of your nominee) or who hold Shares registered in
their own names. Please bring the Offer to their attention as promptly as
possible.
The Company will pay a solicitation fee of $0.50 per Share for any Shares
tendered and accepted for payment pursuant to the Offer covered by a Letter of
Transmittal which designates, as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a broker or dealer, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company (each of which is referred to herein
as a "Soliciting Dealer"). No such fee shall be payable to a Soliciting Dealer
with respect to the tender of Shares by a holder unless the Letter of
Transmittal accompanying such tender designates such Soliciting Dealer. No such
fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is
required for any reason to transfer the amount of such fee to a depositing
holder (other than itself). No such fee shall be payable to a Soliciting Dealer
with respect to shares tendered for such Soliciting Dealer's own account. No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company, the Depositary (as defined below), the Dealer Manager or the
Information Agent for purposes of the Offer.
1
<PAGE>
The Company will also, upon request, reimburse Soliciting Dealers for
reasonable and customary handling and mailing expenses incurred by them in
forwarding materials relating to the Offer to their customers. The Company will
pay all stock transfer taxes applicable to its purchase of Shares pursuant to
the Offer, subject to Instruction 6 of the Letter of Transmittal.
In order for a Soliciting Dealer to receive a solicitation fee, Chemical
Mellon Shareholder Services, L.L.C., as Depositary (the "Depositary") must have
received from such Soliciting Dealer a properly completed and duly executed
Notice of Solicited Tenders in the form attached hereto (or facsimile thereof)
within five business days after the expiration of the Offer.
For your information and for forwarding to your clients, we are enclosing the
following documents:
1. The Offer to Purchase, dated March 11, 1996.
2. The Letter of Transmittal for your use and for the information of your
clients.
3. A letter to stockholders of the Company from the President and Chief
Executive Officer of the Company.
4. The Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the Depositary
by the Expiration Date (as defined in the Offer to Purchase).
5. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space for
obtaining such clients|Al instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding.
7. A return envelope addressed to Chemical Mellon Shareholder Services,
L.L.C., the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER. NO DIRECTOR OR EXECUTIVE OFFICER
OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE
OFFER AS NO SUCH PERSON OWNS ANY SHARES.
Any questions or requests for assistance or additional copies of the enclosed
materials may be directed to D.F. King & Co., Inc., the Information Agent, at
the address and telephone number set forth on the back cover of the enclosed
Offer to Purchase.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
NOTICE OF SOLICITED TENDERS
List below the number of Shares tendered by each beneficial owner whose
tender you have solicited. All Shares beneficially owned by a beneficial owner,
whether in one account or several, and in however many capacities, must be
aggregated for purposes of completing the table below. Any questions as to what
constitutes beneficial ownership should be directed to the Depositary. If the
space below is inadequate, list the Shares in a separate signed schedule and
affix the list to this Notice of Solicited Tenders. Please do not complete the
sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY."
ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE DEPOSITARY. ALL
QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO
THE INFORMATION AGENT.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TO BE COMPLETED BY TO BE COMPLETED ONLY TO BE COMPLETED ONLY
THE SOLICITING DEALER BY DEPOSITARY BY DEPOSITARY
--------------------- -------------------- --------------------
NUMBER OF SHARES NUMBER OF SHARES FEE
BENEFICIAL OWNERS TENDERED ACCEPTED ($0.50 PER SHARE)
- - - - - ----------------- -------- -------- -----------------
Beneficial Owner
No. 1
Beneficial Owner
No. 2
Beneficial Owner
No. 3
Beneficial Owner
No. 4
Beneficial Owner
No. 5
Beneficial Owner
No. 6
Beneficial Owner
No. 7
Beneficial Owner
No. 8
Beneficial Owner
No. 9
Beneficial Owner
No. 10
Total
</TABLE>
All questions as to the validity, form and eligibility (including time of
receipt) of Notices of Solicited Tenders will be determined by the Depositary,
in its sole discretion, which determination will be final and binding. Neither
the Depositary nor any other person will be under any duty to give notification
of any defects or irregularities in any Notice of Solicited Tenders or incur any
liability for failure to give such notification.
<PAGE>
The undersigned hereby confirms that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Offer to Purchase; (iii) in soliciting
tenders of Shares, it has used no soliciting materials other than those
furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Rules of Fair Practice in making solicitations.
- - - - - ----------------------------- ---------------------------------
Printed Firm Name Address
- - - - - ----------------------------- ---------------------------------
Authorized Signature Area Code and Telephone Number
<PAGE>
PG ENERGY INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE
OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated March 11,
1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") setting forth an offer by PG Energy Inc., a
Pennsylvania corporation formerly known as Pennsylvania Gas and Water Company
(the "Company"), to purchase any and all of its outstanding shares of 4.10%
Cumulative Preferred Stock, par value $100.00 per share, voluntary liquidation
preference $105.50 per share, involuntary liquidation preference $100.00 per
share (the "Shares"), at $50.00 per Share, net to the seller in cash, upon the
terms and subject to the conditions of the Offer.
WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. A TENDER OF SUCH
SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of the
Shares held by us for your account, upon the terms and subject to the conditions
set forth in the Offer to Purchase and the Letter of Transmittal.
Your attention is invited to the following:
(1) You may tender Shares as indicated in the attached instruction form,
at a price of $50.00 per Share, net to you in cash.
(2) The Offer is for any and all outstanding Shares of the Company.
(3) The Offer is not conditioned upon any minimum number of Shares being
tendered.
(4) The Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on Monday, April 8, 1996, unless the Offer is extended. Your
instructions to us should be forwarded to us in ample time to permit us to
submit a tender on your behalf. If you would like to withdraw your Shares
that we have tendered, you can withdraw them so long as the Offer remains
open or at any time after May 3, 1996, if they have not been accepted for
payment.
(5) Any stock transfer taxes applicable to the sale of Shares to the
Company pursuant to the Offer will be paid by the Company, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES.
EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER. NO DIRECTOR OR EXECUTIVE OFFICER
OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE
OFFER AS NO SUCH PERSON OWNS ANY SHARES.
If you wish to have us tender any or all of your Shares held by us for your
account upon the terms and subject to the conditions set forth in the Offer,
please so instruct us by completing, executing, detaching and returning to us
the instruction form on the detachable part hereof. An envelope to
<PAGE>
return your instructions to us is enclosed. If you authorize tender of your
Shares, all such Shares will be tendered unless otherwise specified on the
detachable part hereof. Your instructions should be forwarded to us in ample
time to permit us to submit a tender on your behalf by the Expiration Date (as
defined in the Offer to Purchase) of the Offer.
The Offer is being made to all holders of Shares. The Company is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by Legg Mason Wood Walker, Incorporated, as
the Dealer Manager, or one or more registered brokers or dealers licensed under
the laws of such jurisdictions.
<PAGE>
INSTRUCTIONS
WITH RESPECT TO OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
SHARES OF 4.10% CUMULATIVE PREFERRED STOCK
OF
PG ENERGY INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated March 11, 1996, and the related Letter of Transmittal (which
together constitute the "Offer") in connection with the Offer by PG Energy Inc.,
a Pennsylvania corporation formerly known as Pennsylvania Gas and Water Company
(the "Company"), to purchase any and all of its outstanding shares of 4.10%
Cumulative Preferred Stock, par value $100.00 per share, voluntary liquidation
preference $105.50 per share, involuntary liquidation preference $100.00 per
share (the "Shares"), at $50.00 per Share, net to the undersigned in cash, upon
the terms and subject to the conditions of the Offer.
This will instruct you to tender to the Company the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions of the Offer.
Number of Shares to be Tendered: SIGN HERE
__________ Shares* _______________________________________
Signature(s)
Dated: ____________, 1996 Name: _________________________________
Address: ______________________________
_______________________________________
_______________________________________
- - - - - -----------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
<PAGE>
================================================================================
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase dated March
11, 1996 and the Letter of Transmittal which are applicable to the Shares
tendered. Capitalized terms not defined in this announcement have the respective
meanings ascribed to such terms in the Offer to Purchase. The Company is not
aware of any jurisdiction in which the making of the Offer is prohibited by
administrative or judicial action pursuant to a valid state statute. If the
Company becomes aware of any valid state statute prohibiting the making of the
Offer, the Company will make a good faith effort to comply with such statute.
If, after such good faith effort, the Company cannot comply with such statute,
the Offer will not be made to, nor will tenders be accepted from or on behalf
of, holders of Shares in such state. In those jurisdictions whose securities,
blue sky or other laws require the Offer be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Company by Legg Mason Wood
Walker, Incorporated as Dealer Manager or one or more registered brokers or
dealers licensed under the laws of such jurisdictions.
NOTICE BY
PG ENERGY INC.
FORMERLY
PENNSYLVANIA GAS AND WATER COMPANY
TO PURCHASE FOR CASH
ANY AND ALL OF THE OUTSTANDING SHARES OF
THE FOLLOWING SERIES OF ITS PREFERRED STOCK
<TABLE>
<CAPTION>
Title of Series of Preferred Outstanding Shares Purchase Price (per Share) Trading Symbol
- - - - - ---------------------------- ------------------ -------------------------- --------------
<S> <C> <C> <C>
9% Depositary Preferred Shares 1,000,000 $27.00 PGWCZ
4.10% Cumulative Preferred Stock 100,000 $50.00 PGWCP
</TABLE>
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania
Gas and Water Company (the "Company"), invites the holders of each series of
preferred stock described above (each a "Series of Preferred") to tender any or
all of their shares of a Series of Preferred (the "Shares") to the Company for
purchase at the purchase price set forth above for the Series of Preferred
tendered, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated March 11, 1996 (the "Offer
to Purchase") and in the Letter of Transmittal for the Shares tendered (the
"Letter of Transmittal"). As to each Series of Preferred, the Offer to Purchase,
together with the applicable Letter of Transmittal, constitutes the "Offer". The
Offer is not conditioned upon any minimum number of Shares being tendered.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS SET FORTH IN THE
OFFER TO PURCHASE.
- - - - - --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
- - - - - --------------------------------------------------------------------------------
Such time and date, or the latest time and date as to which the Offer is
extended with respect to either Series of Preferred, is referred to herein as
the "Expiration Date." The Company will give oral or written notice of any
extension to the Depositary and make a public announcement thereof.
THE OFFER FOR A SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR THE
OTHER SERIES OF PREFERRED.
Neither the Company nor any of its directors or executive officers makes
any recommendation to stockholders as to whether to tender all or any Shares.
Each stockholder must make his or her own decision as to whether to tender
Shares and, if so, how many Shares to tender.
The Offer is one of the recapitalizations being undertaken in connection
with the sale on February 16, 1996, by the Company of its regulated water
operations and certain related assets. The Company believes that the Offer and
the other recapitalizations will have a positive effect on the Company's
financial and capital ratios and credit rating. In addition, the repurchase of
Shares pursuant to the Offer will adjust the Company's capital structure to a
level more appropriate to the size and nature of its operations after the sale
of the water operations. Finally, the Offer will enable the Company to reduce
its dividend requirements and annual administrative expenses in connection with
servicing the accounts of holders of the Shares. The Offer will afford to
stockholders who are considering the sale of all or a portion of their Shares
the opportunity to sell Shares without the usual transaction costs associated
with open-market sales. The Company believes the Offer is fair to holders of
Shares.
The Company's purchase of Shares pursuant to the Offer will reduce the
number of holders of Shares and the number of Shares that might otherwise trade
publicly, and depending upon the number of Shares so purchased, could adversely
affect the liquidity and market value of the remaining Shares held by the
public. In addition, there is currently no established trading market for the
shares of 4.10% Cumulative Preferred Stock, excluding limited and sporadic
quotations.
The Company also expressly reserves the right, in its sole discretion, at
any time or from time to time, to extend the period of time during which the
Offer is open by giving oral or written notice of such extension to the
Depositary and making a public announcement thereof.
The Company will pay to a Soliciting Dealer (as defined in the Offer to
Purchase) a solicitation fee of $0.50 per Share for any Shares tendered and
accepted for payment and paid for pursuant to the Offer, subject to certain
conditions.
Tenders of Shares of a Series of Preferred made pursuant to the Offer may
be withdrawn at any time prior to the applicable Expiration Date with respect to
such Series of Preferred. Thereafter, such tenders are irrevocable, except that
they may be withdrawn after May 3, 1996, unless theretofore accepted for payment
as provided in the Offer to Purchase. To be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of the Offer to Purchase and
must specify the name of the person who tendered the Shares to be withdrawn and
the number of Shares of each Series of Preferred to be withdrawn. If the Shares
to be withdrawn have been delivered to the Depositary, a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution (except in the
case of Shares tendered by an Eligible Institution) must be submitted prior to
the release of such Shares. In addition, such notice must specify, in the case
of Shares tendered by delivery of certificates, the name of the registered
holder (if different from that of the tendering stockholder) and the serial
numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at one of the Book-Entry Transfer Facilities to be
credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in the Offer to Purchase at any time prior to the
applicable Expiration Date.
THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION, WHICH SHOULD BE READ BEFORE STOCKHOLDERS DECIDE WHETHER TO ACCEPT
OR REJECT THE OFFER.
These materials are being mailed to record holders of Shares and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the Company's stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
THE INFORMATION REQUIRED TO BE DISCLOSED BY RULE 13E-4(D)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, IS CONTAINED IN THE OFFER TO
PURCHASE AND IS INCORPORATED IN THIS NOTICE BY REFERENCE.
EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL AND ONLY THE
APPLICABLE LETTER OF TRANSMITTAL FOR A PARTICULAR SERIES OR A NOTICE OF
GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES.
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of the Offer to Purchase, the Letter of Transmittal or other tender offer
materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact their
local broker, dealer, commercial bank or trust company for assistance concerning
the Offer.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
March 11, 1996
================================================================================
<PAGE>
FROM: ROBERT J. LOPATTO
RELEASE: UPON RECEIPT
PHONE: 717/829-8814
PG ENERGY INC. (FORMERLY PENNSYLVANIA GAS AND WATER COMPANY)
TO REPURCHASE ITS DEPOSITARY PREFERRED SHARES
AND 4.10% CUMULATIVE PREFERRED STOCK
WILKES-BARRE, PA, March 11, 1996 -- PG Energy Inc., a Pennsylvania
corporation (formerly Pennsylvania Gas and Water Company), announced today that
it has commenced an offer to purchase any and all of its outstanding Depositary
Preferred Shares, each representing a one-fourth interest in a share of its 9%
Cumulative Preferred Stock, at a price of $27.00 per share, net to the seller in
cash, and any and all of its outstanding shares of 4.10% Cumulative Preferred
Stock at a price of $50.00 per share, net to the seller in cash. The offer
begins today, March 11, 1996, and is subject to the terms and conditions
described in the offering materials, which are being mailed to record holders of
shares.
The offer is one of the recapitalizations being undertaken in connection with
the sale on February 16, 1996, by the Company of its regulated water operations
and certain related assets. The Company believes that the offer and the other
recapitalizations will have a positive effect on the Company's financial and
capital ratios and credit rating. In addition, the repurchases of shares
pursuant to the offer will adjust the Company's capital structure to a level
more appropriate to the size and nature of its operations after the sale of the
water operations. Finally, the offer will enable the Company to reduce its
dividend requirements and annual administrative expenses in connection with
servicing the accounts of holders of these shares. The offer will afford to
stockholders the opportunity to sell shares without the usual transaction costs
associated with open-market sales.
The offer will expire at 5:00 p.m., New York City time, on Monday, April 8,
1996, unless extended. The offer is not conditioned upon any minimum number of
shares being tendered.
The Dealer Manager for the offer is Legg Mason Wood Walker, Incorporated.
D.F. King & Co., Inc. is serving as the Information Agent.
PG Energy provides natural gas to approximately 142,000 customers in ten
counties in northeastern Pennsylvania.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PG Energy Inc.:
We have audited the accompanying balance sheets and statements of capitalization
of PG Energy Inc. ("PGE"), formerly known as Pennsylvania Gas and Water Company
(a Pennsylvania corporation and a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc.) as of December 31, 1995 and 1994, and the related statements
of income, common shareholder's investment, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of PGE's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PG Energy Inc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 23, 1996
<PAGE>
PG ENERGY INC.
BALANCE SHEETS
December 31,
1995* 1994*
[CAPTION]
(Thousands of Dollars)
ASSETS
[S] [C] [C]
UTILITY PLANT:
At original cost, less acquisition
adjustments of $386,000 $295,895 $284,080
Accumulated depreciation (76,882) (74,408)
219,013 209,672
OTHER PROPERTY AND INVESTMENTS 5,089 2,872
CURRENT ASSETS:
Cash 328 304
Accounts receivable -
Customers 18,189 15,676
Others 815 1,474
Reserve for uncollectible accounts (781) (921)
Accrued utility revenues 10,319 9,004
Materials and supplies, at average cost 2,609 2,743
Gas held by suppliers, at average cost 15,140 20,025
Natural gas transition costs collectible 4,612 4,708
Deferred cost of gas and supplier refunds, net - 3,767
Prepaid expenses and other 3,281 1,470
54,512 58,250
DEFERRED CHARGES:
Regulatory assets
Deferred taxes collectible 30,015 31,696
Natural gas transition costs collectible 497 4,099
Other 2,516 3,131
Unamortized debt expense 1,340 1,867
Other - 3,552
34,368 44,345
NET ASSETS OF DISCONTINUED OPERATIONS 204,250 203,196
TOTAL ASSETS $517,232 $518,335
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
BALANCE SHEETS
[CAPTION]
December 31,
1995* 1994*
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
[S] [C] [C]
CAPITALIZATION (see accompanying statements):
Common shareholder's investment (Notes 5 and 8) $208,356 $216,032
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 1,680 1,760
Long-term debt (Note 7) 55,000 170,825
298,651 422,232
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 6, 7 and 9) 115,881 3,290
Note payable (Note 9) 10,000 -
Accounts payable -
Suppliers 17,781 16,762
Affiliates, net 826 788
Deferred cost of gas and supplier refunds, net 434 -
Accrued general business and realty taxes 1,542 3,381
Accrued income taxes 516 3,185
Accrued interest 2,062 2,713
Accrued natural gas transition costs (Note 3) 2,278 2,356
Other 3,162 2,395
154,482 34,870
DEFERRED CREDITS:
Deferred income taxes 48,848 46,627
Accrued natural gas transition costs (Note 3) 1,144 3,250
Unamortized investment tax credits 4,938 5,110
Operating reserves 3,709 2,383
Other 5,460 3,863
64,099 61,233
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $517,232 $518,335
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 152,756 $ 167,992 $ 153,325
Cost of gas 84,372 98,653 86,557
OPERATING MARGIN 68,384 69,339 66,768
OTHER OPERATING EXPENSES:
Operation 22,438 22,652 21,797
Maintenance 4,967 4,436 3,695
Depreciation 6,971 6,667 6,388
Income taxes 5,168 5,649 6,041
Taxes other than income taxes 9,918 10,807 10,055
Total other operating expenses 49,462 50,211 47,976
OPERATING INCOME 18,922 19,128 18,792
OTHER INCOME (DEDUCTIONS), NET (Note 4) 301 72 (585)
INCOME BEFORE INTEREST CHARGES 19,223 19,200 18,207
INTEREST CHARGES:
Interest on long-term debt 9,304 8,914 8,615
Other interest 1,543 1,005 1,247
Allowance for borrowed funds used
during construction (94) (21) (47)
Total interest charges 10,753 9,898 9,815
INCOME FROM CONTINUING OPERATIONS 8,470 9,302 8,392
DISCONTINUED OPERATIONS (Note 2):
Income from discontinued operations 2,127 10,504 7,909
Estimated loss on disposal of discontinued
operations, net of anticipated income
during the phase-out period of $7,409,000
(net of related income taxes of $4,800,000) (5,961) - -
Income (loss) with respect to discontinued
operations (3,834) 10,504 7,909
NET INCOME 4,636 19,806 16,301
DIVIDENDS ON PREFERRED STOCK 2,763 4,639 6,462
EARNINGS APPLICABLE TO COMMON STOCK $ 1,873 $ 15,167 $ 9,839
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ 1.02 $ .90 $ .46
Discontinued operations (.69) 2.02 1.90
Income before premium on redemption of
preferred stock .33 2.92 2.36
Premium on redemption of preferred stock - (.19) -
Earnings per share of common stock $ .33 $ 2.73 $ 2.36
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,569,765 5,189,108 4,176,087
* See Note 2 regarding discontinued operations and restatement of financial
statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 8,470 $ 9,302 $ 8,392
Effects of noncash charges to income -
Depreciation 7,018 6,693 6,413
Deferred income taxes, net (265) 725 (2,492)
Provisions for self insurance 2,652 1,030 1,510
Other, net 5,190 2,755 2,185
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues (3,309) 1,546 (1,495)
Gas held by suppliers 4,885 6,625 (5,038)
Accounts payable 839 (5,609) (515)
Deferred cost of gas and supplier refunds, net 5,715 5,784 (13,307)
Other current assets and liabilities, net (6,622) (658) 1,293
Other operating items, net 2,675 (4,020) (3,988)
Net cash provided (used) by continuing
operations 27,248 24,173 (7,042)
Net cash provided (used) by discontinued
operations 3,764 552 (837)
Net cash provided (used) by operating
activities 31,012 24,725 (7,879)
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (20,615) (16,960) (14,011)
Other, net (4,934) 1,098 201
Net cash used for investing activities (25,549) (15,862) (13,810)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 5,720 23,439 32,366
Redemption of preferred stock (80) (30,080) (10,080)
Dividends on common and preferred stock (18,032) (14,244) (18,398)
Issuance of long-term debt 50,000 30,000 19,000
Repayment of long-term debt (53,535) (31,055) (30,678)
Repayment of note payable to parent - (3,680) -
Net increase in bank borrowings 10,519 15,370 32,247
Other, net (31) (1,023) (624)
Net cash provided (used) for financing
activities (5,439) (11,273) 23,833
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 24 (2,410) 2,144
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 304 2,714 570
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 328 $ 304 $ 2,714
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 23,802 $ 21,001 $ 21,092
Income taxes $ 8,694 $ 7,353 $ 6,790
* See Note 2 regarding discontinued operations and restatement of financial
statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C>
COMMON SHAREHOLDER'S INVESTMENT (Notes 5 and 8):
Common stock, no par value
(stated value $10 per share)
Authorized - 15,000,000 shares
Outstanding - 5,602,480 shares and
5,456,665 shares, respectively $ 56,025 $ 54,567
Additional paid-in capital 94,463 90,201
Retained earnings 57,868 71,264
Total common shareholders' investment 208,356 69.8% 216,032 51.2%
PREFERRED STOCK of PGE, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
100,000 shares issued 10,000 10,000
9% cumulative preferred,
250,000 shares outstanding, net of
issuance costs 23,615 23,615
Total preferred stock not subject to
mandatory redemption, net 33,615 11.2% 33,615 8.0%
Subject to mandatory redemption -
5.75% cumulative preferred, 17,600 and
18,400 shares outstanding, respectively 1,760 1,840
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 1,680 0.6% 1,760 0.4%
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 108,535
Notes 115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt 55,000 18.4% 170,825 40.4%
TOTAL CAPITALIZATION $ 298,651 100.0% $ 422,232 100.0%
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
PG ENERGY INC.
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
[CAPTION]
Additional
Common Paid-In Retained
Stock Capital Earnings Total
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Balance at December 31, 1992 $40,187 $ 48,776 $ 69,135 $158,098
Net income for 1993 - - 16,301 16,301
Issuance of common stock 8,500 23,866 - 32,366
Premium on redemption of
preferred stock - - (356) (356)
Dividends on:
Preferred stock (Note 6) - - (6,462) (6,462)
Common stock ($2.8225 per share) - - (11,936) (11,936)
Balance at December 31, 1993 48,687 72,642 66,682 188,011
Net income for 1994 - - 19,806 19,806
Issuance of common stock 5,880 17,559 - 23,439
Premium on redemption of preferred
stock - - (980) (980)
Dividends on:
Preferred stock (Note 6) - - (4,639) (4,639)
Common stock ($1.81 per share) - - (9,605) (9,605)
Balance at December 31, 1994 54,567 90,201 71,264 216,032
Net income for 1995 - - 4,636 4,636
Issuance of common stock 1,458 4,262 - 5,720
Dividends on:
Preferred stock (Note 6) - - (2,763) (2,763)
Common stock ($2.7425 per share) - - (15,269) (15,269)
Balance at December 31, 1995 $56,025 $ 94,463 $ 57,868 $208,356
The accompanying notes are an integral part of the financial statements.
<PAGE>
PG ENERGY INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. PG Energy Inc. ("PGE"), formerly known as
Pennsylvania Gas and Water Company, a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc. ("PEI"), is a regulated public utility subject to the
jurisdiction of the Pennsylvania Public Utility Commission ("PPUC") for rate and
accounting purposes. PGE distributes natural gas to a ten-county area in
northeastern Pennsylvania, a territory that includes 116 municipalities, in
addition to the cities of Scranton, Wilkes-Barre and Williamsport. The
financial statements of PGE have been prepared in accordance with generally
accepted accounting principles, including the provisions of Financial Accounting
Standards Board ("FASB") Statement 71, "Accounting for the Effects of Certain
Types of Regulation," which give recognition to the rate and accounting
practices of regulatory agencies such as the PPUC.
Use of Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates involve judgments with respect to,
among other things, various future economic factors which are difficult to
predict and are beyond the control of PEI. Therefore, actual amounts could
differ from these estimates.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, and an allowance for funds used during construction.
The allowance for funds used during construction ("AFUDC") is defined as the
net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as a reduction of interest expense (with respect to
the cost of borrowed funds) in the accompanying statements of income. AFUDC
varies according to changes in the level of construction work in progress and in
the sources and costs of capital. The weighted average rate for such allowance
was approximately 8% in 1995, 7% in 1994 and 8% in 1993.
PGE provides for depreciation on a straight-line basis. Exclusive of
transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, was 2.75% in
1995, 2.77% in 1994 and 2.81% in 1993, respectively.
When depreciable property is retired, the original cost of such property is
removed from the utility plant accounts and is charged, together with the cost
of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PGE bills its customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
<PAGE>
PGE generally passes on to its customers increases or decreases in gas costs
from those reflected in its tariff charges. In accordance with this procedure,
PGE defers any current under or over-recoveries of gas costs and collects or
refunds such amounts in subsequent periods.
Deferred Charges (Regulatory Assets). PGE generally accounts for and
reports its costs in accordance with the economic effect of rate actions by the
PPUC. To this extent, certain costs are recorded as deferred charges pending
their recovery in rates. These amounts relate to previously-issued orders of
the PPUC and are of a nature which, in the opinion of PEI, will be recoverable
in future rates, based on such rate orders. In addition to deferred taxes
collectible, which represent the probable future rate recovery of the previously
unrecorded deferred taxes primarily relating to certain temporary differences in
the basis of utility plant not previously recorded because of the regulatory
rate practices of the PPUC, and natural gas transition costs collectible, the
following deferred charges are included as "Other" regulatory assets:
[CAPTION]
1995 1994
[S] [C] [C]
Early retirement plan charges $ 710 $ 756
Low income usage reduction program 429 441
Computer software costs 415 1,006
Corrosion control costs 341 489
Customer assistance program 109 5
Other 512 434
Total $ 2,516 $ 3,131
PGE also records, as deferred charges, the direct financing costs incurred
in connection with the issuance of long-term debt and redeemable preferred stock
and equitably amortizes such amounts over the life of such securities.
Cash and Cash Equivalents. For the purposes of the statements of cash
flows, PGE considers all highly liquid debt instruments purchased, which
generally have a maturity of three months or less, to be cash equivalents. Such
instruments are carried at cost, which approximates market value.
<PAGE>
Income Taxes. PGE provides for deferred taxes in accordance with the
provisions of FASB Statement 109. The components of PGE's net deferred income
tax liability relative to continuing operations as of December 31, 1995 and
1994, are shown below:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Utility plant basis differences $51,822 $49,638
FERC Order 636 transition costs 700 1,371
Alternative minimum tax (1,947) (2,213)
Operating reserves (1,300) (1,020)
Other (427) (1,149)
Net deferred income tax liability $48,848 $46,627
The provision for income taxes relative to continuing operations consists of
the following components:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Included in operating expenses:
Currently payable -
Federal $ 4,457 $ 3,013 $ 5,641
State 1,169 1,128 2,021
Total currently payable 5,626 4,141 7,662
Deferred, net -
Federal 198 1,785 (515)
State (463) (105) (934)
Total deferred, net (265) 1,680 (1,449)
Amortization of investment tax credits (193) (172) (172)
Total included in operating expenses 5,168 5,649 6,041
Included in other income, net:
Currently payable -
Federal 135 213 (44)
State 43 85 (28)
Total currently payable 178 298 (72)
Deferred, net -
Federal - (5) (6)
State - - -
Total deferred, net - (5) (6)
Total included in other income, net 178 293 (78)
Total provision for income taxes $ 5,346 $ 5,942 $ 5,963
<PAGE>
The components of deferred income taxes relative to continuing operations,
which are recorded consistent with the treatment allowed by the PPUC for
ratemaking purposes, are as follows:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Excess of tax depreciation over
depreciation for accounting purposes $ 1,587 $ 1,197 $ 1,023
FERC Order 636 transition costs (670) 1,371 -
Take-or-pay costs, net (281) (652) (1,126)
Other, net (901) (241) (1,352)
Total deferred taxes, net $ (265) $ 1,675 $(1,455)
Included in:
Operating expenses $ (265) $ 1,680 $(1,449)
Other income, net - (5) (6)
Total deferred taxes, net $ (265) $ 1,675 $(1,455)
The total provision for income taxes relative to continuing operations shown
in the accompanying statements of income differs from the amount which would be
computed by applying the statutory federal income tax rate to income before
income taxes. The following table summarizes the major reasons for this
difference:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income before income taxes $13,816 $15,293 $14,428
Tax expense at statutory federal
income tax rate $ 4,836 $ 5,353 $ 5,050
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 487 879 878
Amortization of investment tax
credits (193) (172) (172)
Other, net 216 (118) 207
Total provision for income taxes $ 5,346 $ 5,942 $ 5,963
Long Lived Assets. In March 1995, FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets", was issued. The provisions of this statement,
which are effective for fiscal years beginning after September 15, 1995, require
that long-lived assets, identifiable intangibles, capital leases and goodwill be
reviewed for impairment whenever events occur or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. In
addition, FASB Statement 121 requires that regulatory assets meet the recovery
criteria of FASB Statement 71, "Accounting for Effects of Certain Types of
Regulation", on an ongoing basis in order to avoid a writedown. The
implementation of FASB Statement 121 in 1996 is not expected to have any
significant impact on PGE since the carrying amount of all assets, including
regulatory assets, is considered recoverable.
<PAGE>
(2) DISCONTINUED OPERATIONS
On April 26, 1995, PEI and PGE signed a definitive agreement (the
"Agreement") with American Water Works Company, Inc. ("American") and
Pennsylvania-American Water Company ("Pennsylvania-American"), a wholly-owned
subsidiary of American, providing for the sale to Pennsylvania-American of
substantially all of the assets, properties and rights of PGE's water utility
operations.
Under the terms of the Agreement, Pennsylvania-American paid approximately
$413.5 million consisting of $266.4 million in cash and the assumption of $147.1
million of PGE's liabilities, including $141.1 million of its long-term debt, to
PGE on the February 16, 1996, closing date for the transaction. This price is
subject to certain post-closing adjustments. PGE continued to operate the water
utility business until the closing date.
The sale price reflects a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other
items, principally the write-off of certain deferred regulatory assets and
deferred credits and the impact of pension and other postretirement benefit
expenses relative to the early retirement plan (see Note 10 of the Notes to
Financial Statements), the sale resulted in an estimated after tax loss of $6.0
million, net of the expected income from the water operations during the phase-
out period (which for financial reporting purposes was April 1, 1995, through
February 15, 1996). The sale involved a gain for income tax purposes, primarily
because of the accelerated depreciation that had been claimed by PGE with
respect to the water utility plant that was sold. It is estimated that the
income taxes payable on the sale, for which deferred income taxes had previously
been provided, will be approximately $56.7 million.
The net cash proceeds from the sale of approximately $209.1 million, net of
the estimated $56.7 million payable for income taxes, are being used by PEI and
PGE to retire debt, to repurchase stock and for working capital for their
continuing operations. With the sale of PGE's water utility operations, the
principal assets of PGE consist of its gas utility operations and approximately
46,000 acres of land.
The accompanying financial statements reflect PGE's water utility operations
as "discontinued operations" effective March 31, 1995. Interest charges
relating to indebtedness of PGE have been allocated to the discontinued
operations based on the relationship of the gross water utility plant that was
sold to the total of PGE's gross gas and water utility plant. This is the same
method as was utilized by PGE and the PPUC in establishing the revenue
requirements of both PGE's gas and water utility operations. None of the
dividends on PGE's preferred stock nor any of PEI's interest expense has been
allocated to the discontinued operations.
<PAGE>
Selected financial information for the discontinued operations as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993 is set forth below:
Net Assets of Discontinued Operations
[CAPTION]
As of December 31,
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Net utility plant $ 368,742 $ 359,399
Current assets (primarily accounts
receivable and accrued revenues) 12,756 12,141
Deferred charges and other assets 25,752 31,103
Total assets being acquired by
Pennsylvania-American 407,250 402,643
Liabilities being assumed by
Pennsylvania-American
Long-term debt 141,097 141,420
Other 5,983 13,168
147,080 154,588
Net assets being acquired by
Pennsylvania-American 260,170 248,055
Estimated liability for income taxes on
sale of discontinued operations (56,710) (55,542)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790 -
Other net assets of discontinued operations
(written off as of March 31, 1995) - 10,683
Total net assets of discontinued operations $ 204,250 $ 203,196
Income From Discontinued Operations
[CAPTION]
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Operating revenues $ 15,640 $ 66,731 $ 53,363
Operating expenses, excluding income taxes
Depreciation 1,946 7,672 5,911
Other operating expenses 6,929 29,005 27,140
8,875 36,677 33,051
Operating income before income taxes 6,765 30,054 20,312
Income taxes 1,403 6,850 2,948
Operating income 5,362 23,204 17,364
Other income 9 49 71
Allocated interest charges (3,244) (12,749) (9,526)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
<PAGE>
Net Cash Provided (Used) by Discontinued Operations
[CAPTION]
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
Noncash charges (credits) to income:
Depreciation 1,946 7,672 5,911
Deferred treatment plant costs, net 145 581 (3,560)
Deferred income taxes 447 5,146 4,170
Deferred water utility billings - (5,574) (582)
Changes in working capital, exclusive
of long-term debt 1,648 353 (2,041)
Additions to utility plant (2,276) (20,980) (32,515)
Utilization of restricted funds - 9,753 15,868
Net increase (decrease) in long-term
debt 1,010 (6,834) 1,640
Other, net (1,283) (69) 2,363
Net cash provided (used) for discontinued
operations $ 3,764 $ 552 $ (837)
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
(3) RATE MATTERS
Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania
Public Utility Code, which require that the tariffs of gas distribution
companies, such as PGE, be adjusted on an annual basis, and on an interim basis
when circumstances dictate, to reflect changes in their purchased gas costs, the
PPUC ordered PGE to make the following changes during 1995, 1994 and 1993 to the
gas costs contained in its gas tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
December 1, 1995 $2.42 $2.75 $ 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)
December 1, 1994 3.74 3.68 (1,800,000)
December 1, 1993 2.79 3.74 28,800,000
The changes in gas rates on account of purchased gas costs have no effect on
PGE's earnings since the change in revenue is offset by a corresponding change
in the cost of gas.
Quarterly Gas Cost Adjustment. Effective September 14, 1995, the PPUC
adopted regulations that provide for the quarterly adjustment of the annual
purchased gas cost rate of larger gas distribution companies, including PGE.
Such adjustments are allowed when the actual purchased gas costs vary from the
estimated costs reflected in the respective company's tariffs by 2% or more.
Except for reducing the amount of any over or undercollections of gas costs,
these regulations will not have any material effect on PGE's financial position
or results of operations, and PGE will still be required to file an annual
purchased gas cost rate. As of March 1, 1996, no such quarterly gas cost
adjustments had been made to PGE's tariffs.
<PAGE>
Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing.
PGE was billed a total of $1.3 million of Gas Transition Costs by its interstate
pipelines. Of this amount, $858,000 was recovered by PGE over a twelve-month
period ended January 31, 1995, through an increase in its PGC rate, $252,000 are
being recovered by PGE in its annual PGC rate that the PPUC approved effective
December 1, 1995, and the recovery of the remaining $217,000 will be sought by
PGE in its PGC rate that is effective December 1, 1996.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition Costs") are not natural gas costs eligible for
recovery under the PGC rate filing mechanism, such costs are subject to full
recovery by local distribution companies through the filing of a tariff pursuant
to either the existing surcharge or base rate provisions of the Pennsylvania
Public Utility Code. By Order of the PPUC entered August 26, 1994, PGE began
recovering the Non-Gas Transition Costs that it estimates it will ultimately be
billed pursuant to FERC Order 636 through the billing of a surcharge to its
customers effective September 12, 1994. It is currently estimated that $9.6
million of Non-Gas Transition Costs will be billed to PGE, generally over a
four-year period extending through the fourth quarter of 1997, of which $6.1
million had been billed to PGE and $4.4 million had been recovered from its
customers as of December 31, 1995. PGE has recorded the estimated Non-Gas
Transition Costs that remain to be billed to it and the amounts remaining to be
recovered from its customers.
(4) OTHER INCOME (DEDUCTIONS), NET
Other income (deductions), net was comprised of the following elements:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Write-off of expired advances relating
to income taxes, net of related
income taxes $ 227 $ - $ -
Net interest income (expense) with respect
to proceeds from the issuance of debt
held in a construction fund 30 (91) (330)
Gain on sale of investment in joint
venture, net of related income taxes - 268 -
Gain on sale of land and other property,
net of related income taxes - 165 20
Premium on retirement/defeasance of debt (7) (40) (81)
Amortization of preferred stock issuance
costs, net of related income tax
benefits (1) (227) (126)
Other 52 (3) (68)
Total $ 301 $ 72 $ (585)
<PAGE>
(5) COMMON STOCK
Since January 1, 1993, PGE has issued the following amounts of common stock
to PEI, its parent company, in addition to shares issued in connection with
PEI's Dividend Reinvestment and Stock Purchase Plan and Customer Stock Purchase
Plan:
[CAPTION]
Issuance Price
Date Issued Number of Shares Per Share* Aggregate
[S] [C] [C] [C]
October 27, 1993 834,000 $ 38.25 $31.9 million
May 31, 1994 500,000 $ 40.00 $20.0
Total 1,334,000 $51.9 million
* Approximately equal to the book value of PGE's common stock at the date of
issuance.
The proceeds from the shares issued on October 27, 1993, were used to repay
bank borrowings which had been incurred primarily to finance construction
expenditures. The proceeds from the shares issued on May 31, 1994, were used by
PGE to redeem $15.0 million of its 9.50% 1988 series cumulative preferred stock,
to fund the $534,375 premium in connection with such redemption, to repay a
portion of its bank borrowings and for working capital purposes.
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provides the residential customers of PGE with a method
of purchasing newly-issued shares of PEI common stock at a 5% discount from the
market price. PEI uses proceeds from the issuance of shares through the
Customer Plan to purchase common stock of PGE. PGE realized $2.4 million and
$1.7 million from the issuance of common stock to PEI in connection with the
Customer Plan during 1995 and 1994, respectively. Effective May 9, 1995, the
Customer Plan was suspended because of the significant reduction in PEI's and
PGE's capital requirements resulting from the sale of PGE's water utility
operations to Pennsylvania-American.
Through PEI's Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders
of shares of PEI common stock may reinvest cash dividends and/or make cash
investments in the common stock of PEI. The DRP was amended on May 5, 1994, to
provide PEI's shareholders with a method of reinvesting cash dividends and
making cash investments to purchase newly-issued shares of PEI's common stock at
a 5% discount from the market price. Prior to such amendment, cash dividends
were reinvested at 100% of the market price in newly-issued shares and cash
investments were used to purchase shares of PEI common stock on the open market.
PEI uses the proceeds from the DRP to purchase common stock of PGE. During
1995, 1994 and 1993, PGE realized $3.3 million, $1.8 million and $465,000,
respectively, from the issuance of common stock to PEI in connection with the
DRP. Effective May 9, 1995, the cash investment feature of the DRP and the 5%
discount from the market price on the reinvestment of dividends under the DRP
were suspended because of the significant reduction in PEI's and PGE's capital
requirements resulting from the sale of PGE's water utility operations to
Pennsylvania-American.
(6) PREFERRED STOCK
Preferred Stock Subject to Mandatory Redemption
On December 23, 1993, PGE redeemed 100,000 shares of its 9.50% 1988 series
cumulative preferred stock at a price of $103.5625 per share (plus accrued
<PAGE>
dividends to the redemption date), which included a voluntary redemption premium
of $3.5625 per share ($356,250 in the aggregate). On May 31, 1994, PGE redeemed
the remaining 150,000 outstanding shares of its 9.50% 1988 series cumulative
preferred stock, $100 par value, at a price of $103.5625 per share, which
included a voluntary redemption premium of $3.5625 per share ($534,375 in the
aggregate), plus accrued dividends.
On December 16, 1994, PGE redeemed all 150,000 shares of its 8.90%
cumulative preferred stock at a price of $102.97 per share, which included a
voluntary redemption premium of $2.97 per share ($445,500 in the aggregate).
The holders of the 5.75% cumulative preferred stock have a noncumulative
right each year to tender to PGE and to require it to purchase at a per share
price not exceeding $100, up to (a) that number of shares of the 5.75%
cumulative preferred stock which can be acquired for an aggregate purchase price
of $80,000 less (b) the number of such shares which PGE may already have
purchased during the year at a per share price of not more than $100. Eight
hundred such shares were acquired and cancelled by PGE in each of the three
years in the period ended December 31, 1995, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1995, the sinking fund requirements relative to PGE's
5.75% cumulative preferred stock (the only series of preferred stock subject to
mandatory redemption that was outstanding as of such date) were $80,000 for each
of the years 1996 through 2000.
At PGE's option, the 5.75% cumulative preferred stock may currently be
redeemed at a price of $102.00 per share ($1,795,200 in the aggregate).
Preferred Stock Not Subject to Mandatory Redemption
On August 18, 1992, PGE issued 250,000 shares of its 9% cumulative preferred
stock, par value $100 per share, for aggregate net proceeds of approximately
$23.6 million. The 9% cumulative preferred stock is not redeemable by PGE prior
to September 15, 1997. Thereafter, it is redeemable at the option of PGE, in
whole or in part, upon not less than 30 days' notice, at $100 per share plus
accrued dividends to the date of redemption and at a premium of $8 per share if
redeemed from September 15, 1997, to September 14, 1998, and a premium of $4 per
share if redeemed from September 15, 1998, to September 14, 1999.
At PGE's option, the 4.10% cumulative preferred stock may currently be
redeemed at a redemption price of $105.50 per share or for an aggregate
redemption price of $10,550,000.
Dividend Information
The dividends on the preferred stock of PGE in each of the three years in
the period ended December 31, 1995, were as follows:
[CAPTION]
Series 1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
4.10% $ 410 $ 410 $ 410
5.75% 103 108 113
8.90% - 1,280 1,335
9.00% 2,250 2,250 2,250
9.50% 1988 series - 591 2,354
Total $2,763 $4,639 $6,462
<PAGE>
Dividends on all series of PGE's preferred stock are cumulative, and if
dividends in an amount equivalent to four full quarterly dividends on all shares
of preferred stock then outstanding are in default and until all such dividends
have been paid, the holders of the preferred stock, voting separately as one
class, shall be entitled to elect a majority of the Board of Directors of PGE.
Additionally, PGE may not declare dividends on its common stock if any dividends
on shares of preferred stock then outstanding are in default.
(7) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1995
and 1994:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
First mortgage bonds -
8 % Series, due 1997 $ - $ 3,535
8.375% Series, due 2002 30,000 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
9.57 % Series, due 1996 - 50,000
55,000 108,535
Notes -
Term loan, due 1996 50,000 -
Bank borrowings, at weighted average interest
rates of 6.62% and 5.28%, respectively (Note 9) 65,801 65,500
115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt $ 55,000 $ 170,825
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement, which matures on November 1, 1996. Proceeds from the loan, along
with other funds provided by PGE, were utilized on October 13, 1995, to redeem
the $50.0 million principal amount of PGE's 9.57% Series First Mortgage Bonds
due September 1, 1996.
Maturities and Sinking Fund Requirements. As of December 31, 1995, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
[CAPTION]
Year Amount
[S] [C]
1996 $115,801,000 (a)
1997 $ -
1998 $ -
1999 $ 10,000,000 (b)
2000 $ -
(a) Includes $65.8 million of bank borrowings outstanding as of December 31,
1995, and PGE's term loan in the principal amount of $50.0 million.
Such amounts were repaid by February 16, 1996, primarily with proceeds
from the sale of PGE's water operations to Pennsylvania-American.
(b) Includes PGE's 9.23% Series First Mortgage Bonds in the principal amount
of $10.0 million due September 1, 1999.
(8) DIVIDEND RESTRICTIONS
The preferred stock provisions of PGE's Restated Articles of Incorporation
and certain of the agreements under which PGE has issued long-term debt provide
for certain dividend restrictions. As of December 31, 1995, $5,416,000 of the
retained earnings of PGE were restricted against the payment of cash dividends
on common stock under the most restrictive of these covenants.
<PAGE>
(9) BANK NOTES PAYABLE
As of April 19, 1993, PGE entered into a revolving bank credit agreement, as
subsequently amended (the "Credit Agreement") with a group of six banks under
the terms of which $60.0 million was available for borrowing by PGE through May
31, 1996. The Credit Agreement was terminated on February 26, 1996, following
the sale of PGE's water operations to Pennsylvania-American on February 16,
1996, and repayment of all borrowings outstanding under the Credit Agreement
with proceeds from such sale. The interest rate on borrowings under the Credit
Agreement was generally less than prime. The Credit Agreement also required the
payment of a commitment fee of .195% per annum on the average daily amount of
the unused portion of the available funds. PGE currently has four additional
bank lines of credit with an aggregate borrowing capacity of $17.5 million which
provide for borrowings at interest rates generally less than prime. Borrowings
outstanding under two of these bank lines of credit with borrowing capacities of
$2.5 million and $5.0 million mature on May 31, 1996, and June 30, 1996,
respectively. Borrowings outstanding under the other two bank lines of credit
with borrowing capacities of $3.0 million and $7.0 million mature on March 31,
1996, and May 31, 1996, respectively. As of March 1, 1996, PGE had no
borrowings outstanding under these additional bank lines of credit.
Additionally, PGE had one other bank line of credit outstanding as of December
31, 1995, with a borrowing capacity of $3.0 million, which was terminated
following the sale of PGE's water operations. The commitment fees paid by PGE
with respect to its revolving bank credit agreements totaled $26,000 in 1995,
$97,000 in 1994 and $113,000 in 1993.
Because of limitations imposed by the terms of its preferred stock, PGE is
prohibited, without the consent of the holders of a majority of the outstanding
shares of its preferred stock, from issuing more than $12.0 million of unsecured
debt due on demand or within one year from issuance. PGE had $10.0 million due
on demand or within one year from issuance outstanding as of December 31, 1995.
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
[CAPTION]
As of December 31,
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Borrowings under lines of credit
Short-term $ 10,000 $ - $ 2,000
Long-term 65,801 65,500 47,000
$ 75,801 $ 65,500 $ 49,000
Unused lines of credit
Short-term $ - $ - $ 5,000
Long-term 4,699 2,000 13,000
$ 4,699 $ 2,000 $ 18,000
Total lines of credit
Prime rate $ - $ - $ 2,000
Other than prime rate 80,500 67,500 65,000
$ 80,500 $ 67,500 $ 67,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 5,692 $ 5,666
Daily average amount outstanding $ 2,581 $ 441 $ 637
Weighted daily average interest
rate 6.513% 3.984% 4.046%
Weighted average interest rate at
year-end 6.334% - 4.208%
Range of interest rates 6.290- 3.700- 3.750-
6.660% 6.000% 6.000%
(a) PGE had no short-term bank borrowings outstanding as of December 31,
1994.
<PAGE>
(10) POSTEMPLOYMENT BENEFITS
Pension Benefits
Substantially all employees of PGE are covered by PEI's trusteed,
noncontributory, defined benefit pension plan. Pension benefits are based on
years of service and average final salary. PGE's funding policy is to
contribute an amount necessary to provide for benefits based on service to date,
as well as for benefits expected to be earned in the future by current
participants. To the extent that the present value of these obligations is
fully covered by assets in the trust, a contribution may not be made for a
particular year.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligations relating to employees of PGE who
accepted employment with Pennsylvania-American (the "Transferred Employees").
In this regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees will be
transferred to the American pension plan. In February, 1996, PGE began
terminating additional employees as a result of the sale of its water operations
and the transfer of fewer employees to Pennsylvania-American than originally
expected. As a result of these actions, PGE recognized an estimated settlement
loss of $200,000 ($117,000 net of the related income tax benefit) and
curtailment gain of $2.7 million ($1.6 million net of related income taxes) in
its determination of the estimated loss on the disposal of water utility
operations.
In December, 1995, as a result of the agreement to transfer fewer employees
to Pennsylvania-American in connection with the sale of PGE's water utility
operations than originally expected, PGE offered an Early Retirement Plan
("ERP") to its employees who would be 59 years of age or older and have a
minimum of five years of service as of December 31, 1995. Of the 63 eligible
employees, 50 elected to accept this offer and retire as of December 31, 1995,
resulting in the recording, as of December 31, 1995, of an additional pension
liability of $1.6 million reflecting the increased costs associated with the
ERP. Such amount was charged to the estimated loss on the disposal of water
utility operations.
Net pension costs relative to continuing operations, including amounts
capitalized, were $353,000, $309,000 and $244,000 in 1995, 1994 and 1993,
respectively. The following items were the components of such net pension
costs:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned
during the year $ 430 $ 549 $ 470
Interest cost on projected benefit
obligations 1,459 1,400 1,321
Return on plan assets (1,502) 535 (1,720)
Net amortization and deferral (34) (55) (53)
Deferral of investment (loss) gain - (2,120) 226
Net pension cost $ 353 $ 309 $ 244
<PAGE>
The funded status of the plan as of December 31, 1995 and 1994, was as
follows:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 29,100 $ 21,592
Nonvested 47 77
Total 29,147 21,669
Provision for future salary increases 7,841 7,565
Projected benefit obligations 36,988 29,234
Market value of plan assets, primarily
invested in equities and bonds 34,000 30,457
Plan assets in excess of (less than) projected
benefit obligations (2,988) 1,223
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (2,155) (2,528)
Unrecognized prior service costs 1,507 2,150
Unrecognized net (gain) loss 2,155 (1,644)
Accrued pension cost at year-end $ (1,481) $ (799)
The assumptions used in determining pension obligations were:
[CAPTION]
1995 1994 1993
[S] [C] [C] [C]
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
Other Postretirement Benefits
In addition to pension benefits, PGE provides certain health care and life
insurance benefits for retired employees. Substantially all of PGE's employees
may become eligible for those benefits if they reach retirement age while
working for PGE. PGE records the cost of retiree health care and life insurance
benefits as a liability over the employees' active service periods instead of on
a benefits-paid basis.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligation relating to the Transferred
Employees, as well as 45% of PGE's retired employees as of that date. In this
regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees and 45% of the
retired employees as of February 16, 1996, will be transferred to trusts
established by Pennsylvania-American. In February, 1996, PGE began terminating
additional employees as a result of the sale of its water operations and the
transfer of fewer employees to Pennsylvania-American than originally expected.
As a result of the transfer, early retirement and displacement of employees, PGE
recognized an estimated settlement and curtailment loss of $385,000 ($225,000
net of the related income tax benefit) as part of the loss on the disposal of
its water utility operations.
<PAGE>
As a result of the ERP offered by PGE to certain of its employees, PGE
recorded, as of December 31, 1995, an additional liability of $805,000,
($471,000 net of the related income tax benefit) reflecting the cost of future
health care benefits required to be recognized under FASB Statement 88 in
conjunction with the ERP. Such amount was charged to the estimated loss on
disposal of water utility operations.
The following items were the components of the net cost of postretirement
benefits other than pensions relative to continuing operations for the years
1995, 1994 and 1993:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned during
the year $ 127 $ 148 $ 124
Interest cost on accumulated benefit
obligation 577 532 532
Return on plan assets (69) (4) -
Net amortization and deferral 391 360 339
Net cost of postretirement benefits other
than pensions 1,026 1,036 995
Less disbursements for benefits (555) (543) (540)
Increase in liability for postretirement
benefits other than pensions $ 471 $ 493 $ 455
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1995 and 1994, follow:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Accumulated benefit obligation:
Retirees $ 6,514 $ 9,021
Fully eligible active employees 850 1,628
Other active employees 1,074 1,305
8,438 11,954
Plan assets at fair value - 839
Accumulated benefit obligation
in excess of plan assets 8,438 11,115
Unrecognized transition obligation
being amortized over 20 years (5,438) (11,108)
Unrecognized net gain (loss) (703) 885
Accrued liability for postretirement
benefits other than pensions $ 2,297 $ 892
The assumptions used in determining other postretirement benefit obligations
were:
[CAPTION]
1995 1994 1993
[S] [C] [C] [C]
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
It was also assumed that the per capita cost of covered health care benefits
would increase at an annual rate of 9% in 1996 and that this rate would decrease
gradually to 5-1/2% for the year 2003 and remain at that level thereafter. The
health care cost trend rate assumption had a significant effect on the amounts
accrued. To illustrate, increasing the assumed health care cost trend rate by 1
percentage point in each year would increase the transition obligation as of
<PAGE>
January 1, 1995, by approximately $394,000 and the aggregate of the service and
interest cost components of the net cost of postretirement benefits other than
pensions for the year 1995 by approximately $50,000.
Since PGE has not sought to increase its base gas rates, the $441,000
($258,000 net of related income taxes), $447,000 ($256,000 net of related income
taxes) and $407,000 ($232,000 net of related income taxes) of additional cost
incurred in 1995, 1994 and 1993, respectively, as a result of the adoption of
the provisions of FASB Statement 106 were expensed without any adjustment being
made to its gas rates.
Other Postemployment Benefits
In December, 1992, FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," was issued. The provisions of this statement require
the recording of a liability for postemployment benefits (such as disability
benefits, including workers' compensation, salary continuation and the
continuation of benefits such as health care and life insurance) provided to
former or inactive employees, their beneficiaries and covered dependents. PGE
consistently recorded liabilities for benefits of this nature prior to the
effectiveness of FASB Statement 112, and included liabilities for employees
scheduled to be terminated in 1996 as a result of the sale of water operations
in its estimate of accrued costs relative to such sale as of December 31, 1995.
The provisions of FASB Statement 112, which PGE adopted effective January 1,
1994, did not have a material impact on its financial position or results of
operations.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1996 construction program will be $28.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, pending the periodic issuance of
stock and long-term debt.
(12) COMMITMENTS AND CONTINGENCIES
Valve Maintenance
On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently
ratified by the PPUC (the "Emergency Order"), requiring PGE to survey its gas
distribution system to verify the location and spacing of its gas shut off
valves, to add or repair valves where needed and to establish programs for the
periodic inspection and maintenance of all such valves and the verification of
all gas service line information. On March 31, 1995, the PPUC adopted an Order
approving a plan submitted by PGE for complying with the Emergency Order. PGE
does not believe that compliance with the terms of such Order will have a
material adverse effect on its financial position or results of operations.
Environmental Matters
PGE, like many gas distribution companies, once utilized manufactured gas
plants in connection with providing gas service to its customers. None of these
plants has been in operation since 1960, and several of the plant sites are no
longer owned by PGE. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), PGE filed notices with the
United States Environmental Protection Agency (the "EPA") with respect to the
former plant sites. None of the sites is or was formerly on the proposed or
final National Priorities List. The EPA has conducted site inspections and made
<PAGE>
preliminary assessments of each site and has concluded that no further remedial
action is planned. While this conclusion does not constitute a legal
prohibition against further regulatory action under CERCLA or other applicable
federal or state law, PGE does not believe that additional costs, if any,
related to these manufactured gas plant sites would be material to its financial
position or results of operations since environmental remediation costs
generally are recoverable through rates over a period of time.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216
Operating income 9,500 1,867 (3) 7,558
Income (loss) from continuing
operations 6,413 (1,581) (3,520) 4,395
Loss with respect to
discontinued operations (3,704) - - (130)
Net income (loss) 2,709 (1,581) (3,520) 4,265
Earnings (loss) per share
of common stock: (a)
Continuing operations 1.16 (.28) (.63) .78
Discontinued operations (.67) - - (.02)
Earnings (loss) per share of
common stock (a) .49 (.28) (.63) .76
QUARTER ENDED
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 80,233 $ 26,568 $ 14,356 $ 46,835
Operating income 10,606 1,881 134 6,395
Income (loss) from continuing
operations 6,958 (1,875) (3,435) 2,903
Income from discontinued
operations 2,079 2,757 2,915 2,865
Net income (loss) 9,037 882 (520) 5,768
Earnings (loss) per share
of common stock:
Continuing operations 1.43 (.37) (.64) .53
Discontinued operations .43 .54 .54 .53
Net income (loss) before
premium on redemption of
preferred stock 1.86 .17 (.10) 1.06
Premium on redemption of
preferred stock - (.11) - (.08)
Earnings (loss) per share of
common stock 1.86 .06 (.10) .98
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in the financial
statements and supplementary data of this report, as a result of PGE's
issuance of additional shares of common stock at various dates during the
year.
</TABLE>
<PAGE>
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
<PAGE>
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Long-term debt. The fair value of PGE's long-term debt has been estimated
based on the quoted market price as of the respective dates for the portion
of such debt which is publicly traded and, with respect to the portion of
such debt which is not publicly traded, on the estimated borrowing rate as
of the respective dates for long-term debt of comparable credit quality with
similar terms and maturities.
o Preferred stock subject to mandatory redemption. The fair value of PGE's
preferred stock subject to mandatory redemption has been estimated based on
the market value as of the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of PGE's financial
instruments at December 31, 1995 and 1994, were as follows:
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
Long-term debt (including current
portion) $170,801 $ 175,431 $174,035 $ 177,027
Preferred stock subject to
mandatory redemption (including
current portion) 1,760 1,795 1,840 1,877
PGE believes that the regulatory treatment of any excess or deficiency of
fair value relative to the carrying amounts of these items, if such items were
settled at amounts approximating those above, would dictate that these amounts
be used to increase or reduce its rates over a prescribed amortization period.
Accordingly, any settlement would not result in a material impact on PGE's
financial position or the results of operations of either PEI or PGE.
<PAGE>
