<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
APRIL 18, 1997
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.
ONE PEI CENTER
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:
KENNETH A. LEFKOWITZ
HUGHES HUBBARD & REED LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
(212) 837-6000
April 18, 1997
(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 materials 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: [ ]
Calculation of Filing Fee
- --------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$5,519,710 $1,104
- --------------------------------------------------------------------------------
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 78,853
shares at $70.00 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: $1,104
Form or Registration No.: 13E-4
Filing Party: PG Energy Inc.
Date Filed: April 18, 1997
- -----------------------------------------------------------
- -----------------------------------------------------------
<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 $70.00 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated April 18, 1997, 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
<TABLE>
<CAPTION>
ITEM IN LOCATION IN
SCHEDULE 13E-3 SCHEDULE 13E-4
-------------- --------------
<S> <C>
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).................................................................... *
Item 7(d).................................................................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM IN LOCATION IN
SCHEDULE 13E-3 SCHEDULE 13E-4
-------------- --------------
<S> <C>
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 4
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)
</TABLE>
- --------------------
* The Item is located in the Schedule 13E-3 only.
<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 One PEI
Center, 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 $70.00
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 April 18, 1997 (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 April 18, 1997, the Company had issued and outstanding
78,853 Shares. As of April 18, 1997, there were approximately 525 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 B, "Purchases of Preferred Stock of the Company by the
Company or its Affiliates Since January 1, 1995" 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.
<PAGE>
(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.
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 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) The information set forth under "The Offer-Source and Amount of
Funds" in Section 12 of the Offer to Purchase is incorporated herein by
reference.
(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) and (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) None.
ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) 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.
(b) Not applicable.
(c) Not applicable.
ITEM 10. Interest in Securities of the Issuer.
(a) and (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-Selected Historical Financial Information" in
Section 11 of the Offer to Purchase is incorporated herein by reference, and the
information set forth on pages 25 through 48 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, filed as Exhibit (g)(1) hereto,
is incorporated herein by reference.
ITEM 15. Persons and Assets Employed, Retained or Utilized.
(a) The information set forth under "The Offer-Fees and Expenses"
in Section 15 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 and in the Letter of Transmittal and
Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees, dated April 18, 1997 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)(1) Promissory Note in the principal amount of $15.0 million dated
April 8, 1997, between PG Energy Inc. and Mellon Bank, N.A.
(b) None.
(c) None.
(d)(1) Form of Offer to Purchase, dated April 18, 1997.
(d)(2) Form of Letter of Transmittal with Substitute Form W-9.
(d)(3) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(d)(4) Form of Letter to Stockholders of the Company from Thomas F.
Karam, President and Chief Executive Officer of the Company
and Kenneth L. Pollock, Chairman of the Board of the Company,
dated April 18, 1997.
(d)(5) Form of Notice of Guaranteed Delivery.
(d)(6) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated April 18, 1997.
(d)(7) Form of Summary Advertisement, dated April 21, 1997.
(d)(8) Form of Press Release issued by the Company, dated April 18,
1997.
(e) Not applicable.
(f) None.
(g)(1) Pages 25 through 48 of the Company's Annual Report on Form
10-K for the Year Ended December 31, 1996.
(g)(2) Issuer Tender Offer Statement on Schedule 13E-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: April 18, 1997
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
(a)(1) Promissory Note in the principal amount of $15.0 million dated
April 8, 1997, between PG Energy Inc. and Mellon Bank, N.A.
(b) None.
(c) None.
(d)(1) Form of Offer to Purchase, dated April 18, 1997.
(d)(2) Form of Letter of Transmittal with Substitute Form W-9.
(d)(3) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(d)(4) Form of Letter to Stockholders of the Company from Thomas F.
Karam, President and Chief Executive Officer of the Company and
Kenneth L. Pollock, Chairman of the Board of the Company,
dated April 18, 1997.
(d)(5) Form of Notice of Guaranteed Delivery.
(d)(6) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated April 18, 1997.
(d)(7) Form of Summary Advertisement, dated April 18, 1997.
(d)(8) Form of Press Release issued by the Company, dated April
18, 1997.
(e) Not applicable.
(f) None.
(g)(1) Pages 25 through 48 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1996.
(g)(2) Issuer Tender Offer Statement on Schedule 13E-4.
<PAGE>
Promissory Note [LOGO] Mellon Bank
$15,000,000.00 April 8, 1997
For value received, and intending to be legally bound, Undersigned, as defined
below, promises to pay to Mellon Bank, N.A. ("Bank") or its order at 8 West
Market Street, Wilkes-Barre, PA 18711 the sum of Fifteen Million Dollars
($15,000,000.00), or such lesser or greater principal amount as may be
outstanding from time to time under a discretionary line of credit established
by Bank for the benefit of Undersigned, with interest on the outstanding balance
from the date of this Promissory Note ("Note") at the rate(s) ("Contractual
Rate[s]") specified herein.
Payment. Principal on the Note shall be due and payable on July 31, 1998.
Accrued interest on the Prime Rate Portion shall be due and payable on the last
Business Day of each calendar month beginning on April 30, 1997. Interest on
each Rate Segment of the As-Offered Rate Portion and the Libor Rate Portion
shall be due and payable on the last day of the corresponding Rate Period. After
maturity of any part of the Note (by acceleration or otherwise), interest on
such part of the Note shall be due and payable ON DEMAND.
Interest Rate Options. The unpaid principal amount of the Note shall bear
interest for each day until due on one or more bases selected by Undersigned
from among the three interest rate options set forth below (each an "Interest
Rate Option" and, collectively, the "Interest Rate Options"). Undersigned
understands and agrees: (a) that Bank may in its sole discretion from time to
time determine that the right of Undersigned to select, convert to or renew a
Prime Rate Option, an As-Offered Rate Option, or a Libor Rate Option is not
available to Bank and (b) that subject to the provisions of this Note
Undersigned may select any number of such Interest Rate Options to apply
simultaneously to different parts of the unpaid principal amount of the Note and
may select any number of Rate Segments to apply simultaneously to different
parts of the As-Offered Rate Option, or Libor Rate Portion.
Available Interest Rate Options.
Prime Rate Option: A rate per annum (computed on the basis of a year of 365
or 366 days, as the case may be) for each day equal to the Prime Rate, such
interest rate to change automatically from time to time effective as of the
effective date of each change in the Prime Rate.
Libor Rate Option: For each Rate Segment of the Libor Rate Portion, a rate
per annum (computed on the basis of a year of 360 days and actual days elapsed)
for each day equal to the Libor Rate for such Rate Segment plus four tenths of
one percent (.40%).
As-Offered Rate Option: For each Rate Segment of the As-Offered Rate
Portion, a rate per annum for such Rate Segment for each day equal to the
As-Offered Rate offered by the Bank in its sole discretion.
Rate Periods. At any time when Undersigned selects, converts to or renews the
As-Offered Rate Option or Libor Rate Option, Undersigned shall fix one or more
periods (the "Rate Periods") during which such Interest Rate Option shall apply,
such periods being set forth below:
As-Offered Rate Option--Periods of 7, 14, 21, 30, 60 or 90 days or other period
as agreed to between the Undersigned and the Bank ("As-Offered Rate Period")
Libor Rate Option--1, 2 or 3 months or other period as agreed to between the
Undersigned and the Bank ("Libor Rate Period")
Bank's right to payment of principal and interest under the Note shall in no way
be affected by the fact that one or more Rate Periods may be in effect.
Amounts. Every selection of, conversion to or renewal of any Interest Rate
Option shall be in a principal amount of at least $100,000.00 selected by
Undersigned and acceptable to Bank.
Interest After Maturity. After the principal amount of any part of the Prime
Rate Portion shall have become due and payable, whether by acceleration or
otherwise, such amount shall bear interest for each day until paid (before and
after judgment) at a rate per annum (based on a year of 365 or 366 days, as the
case may be) which for each day shall be the greater of (a) 2% above the Prime
Rate Option on the day such amount became due and (b) 2% above the Prime Rate
Option, such interest rate to change automatically from time to time effective
as of the effective date of each change in the Prime Rate. After the principal
amount of any part of the As-Offered Rate Portion or the Libor Rate Portion
shall have become due and payable, whether by acceleration or otherwise, such
amount shall bear interest for each day until paid (before and after judgment)
(c) until the end of the applicable then-current Rate Period as a rate per annum
2% above such Interest Rate Option otherwise applicable to such part and (d)
thereafter in accordance with the previous sentence.
Selection, Conversion or Renewal of Rate Options. Subject to the other
provisions of this Supplement, Undersigned may select any Interest Rate Option
to apply to any borrowing evidenced by the Note. Subject to the other provisions
of this Supplement, Undersigned may convert any part of the unpaid principal
amount of the Note from any Interest Rate Option to
<PAGE>
any other Interest Rate Option: (a) at any time with respect to conversion from
the Prime Rate Option to any other Interest Rate Option, and (b) at the
expiration of any Rate Period with respect to conversion from or renewals of the
As-Offered Rate Option or the Libor Rate Option as to the Rate Segment
corresponding to such expiring Rate Period. Whenever Undersigned desires to
select, convert or renew any Interest Rate Option, Undersigned shall give Bank
Standard Notice thereof (which shall be irrevocable), specifying the date,
amount and type of the proposed new Rate Option. If such notice has been duly
given, and if Bank in its sole discretion approves the proposed selection,
conversion or renewal, on and after the date specified in such notice interest
shall be calculated upon the unpaid principal amount of the Note taking into
account such selection, conversion or renewal.
Prime Rate Fallback. If any Rate Period expires, any part of the Rate Segment
corresponding to such Rate Period which has not been converted or renewed in
accordance with Section 6 hereof automatically shall be converted to the Prime
Rate Option. If Undersigned fails to select, or if Bank fails to approve, an
Interest Rate Option to apply to any borrowing evidenced by the Note, such
borrowing shall be deemed to be at the Prime Rate Option. If any time the Bank
shall have determined in good faith (which determination shall be conclusive)
that the accrual of interest at the As-Offered Rate Option or the Libor Rate
Option has been made unascertainable, impractical or unlawful by compliance with
the Bank in good faith with any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any government or political subdivision or any agency, authority,
bureau, central bank, commission, department or instrumentality of either, or
any court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic, or adminsitration thereof by any official body charged with the
interpretation or administration thereof or with any request or directive of any
such official body (whether or not having the force of law), then, and in any
such event, the outstanding principal amount of this Note subject to such
Interest Rate Options shall accrue interest at the Prime Rate Option and the
Undersigned shall not have the right to select such Interest Rate Option.
Prepayments. Undersigned shall have the right at its option from time to time to
prepay the Prime Rate Portion in whole or in part. Undersigned shall have no
right to prepay any part of the As-Offered Rate Portion or the Libor Rate
Portion at any time without the prior written consent of Bank except that
Undersigned may prepay any part of any Rate Segment at the expiration of the
Rate Period corresponding to such Rate Segment. Prepayments shall be made by
giving the Bank Standard Notice thereof (which shall be irrevocable), specifying
the date, and amount and type of prepayment, and upon such date the amount so
specified and accrued interest thereon shall be due and payable.
Indemnity. Undersigned shall indemnify Bank against any loss or expense
(including loss of margin) which Bank has sustained or incurred as a consequence
of:
(i) payment, prepayment or conversion of any part of any Rate Segment of
the As-Offered Rate Portion or the Libor Rate Portion on a day other than the
last day of the corresponding Rate Period (whether or not any such payment is
pursuant to demand by Bank under the Note and whether or not any such payment,
prepayment or conversion is consented to by Bank, unless Bank shall have
expressly waived such indemnity in writing);
(ii) attempt by Undersigned to revoke in whole or part any irrevocable
notice given pursuant to Section 6 of this Supplement; or
(iii) breach of or default by any Obligor in the performance or observance
of any covenant or condition contained in the Loan Agreement, the Note or any
separate security, guarantee or suretyship agreement between Bank and any
Obligor.
If Bank sustains any such loss or expense it shall from time to time notify
Undersigned of the amount determined in good faith by Bank (which determination
shall be conclusive) to be necessary to indemnify Bank for such loss or expense.
Such amount shall be due and payable by Undersigned on demand.
Records. The unpaid principal amount of the Note, the unpaid interest accrued
thereon, the interest rate or rates applicable to such unpaid principal amount,
the duration of such applicability and the date and amount of each payment or
demand shall at all times be ascertained from the books and records created
by Bank, which shall be conclusive absent manifest error.
Notices. All notices under this Note shall be in writing or by telephone
promptly confirmed in writing, and all such writings shall be sent by
first-class, first-class express or certified mail, telecopier or by hand
delivery, in all cases with charges prepaid. All notices shall be sent to the
applicable party at the address stated on the signature page hereof or in
accordance with the last unrevoked written direction from such party to the
other parties hereto. All notices by Undersigned shall be effective when
received by Bank and all notices by Bank shall be effective when telephoned,
deposited in the mail or hand delivered. Written notices or confirmations by
Undersigned shall not be deemed records of Bank whether or not received by Bank.
Bank may conclusively rely without inquiry or any notice or confirmation
purporting to be from or authorized by Undersigned.
<PAGE>
The prompt and faithful performance of all Undersigned's obligations hereunder,
including without limitation time of payment, is of the essence of this Note.
The Undersigned hereby acknowledges the Bank's right of setoff against, all
deposit accounts, credits, securities, moneys of other property of Undersigned
which may at any time be in the possession of, delivered to, or owed by Bank,
including any proceeds or returned or unearned premiums of insurance, and the
proceeds (cash and non-cash) of all the foregoing property.
1. Representations. Undersigned hereby makes the following representations and
warranties which shall be true and correct on the date of this Note and shall
continue to be true and correct for so long as any indebtedness evidenced hereby
remains outstanding: (a) Undersigned's residence and/or Chief Executive Office,
as the case may be, is as stated below or as otherwise stated in a subsequent
written notice delivered to Bank pursuant to the terms hereof; (b) if any of the
Undersigned is an individual, each such individual is at least 18 years of age
and under no legal disability or incapacity.
2. Covenants. Undersigned covenants and agrees that until the Obligations
secured hereunder have been paid in full, Undersigned shall: (a) use the
proceeds of the loans evidenced hereby only for the purpose specified to the
Bank at or prior to the execution hereof; (b) promptly notify Bank in writing of
any change in its or their residence or Chief Executive Office; (c) purchase and
maintain policies of insurance (including flood insurance) to protect against
such risks and casualties, and in such amounts, as shall be required by Bank
and/or applicable law, which policies shall (1) be in form and substance
satisfactory to Bank and (2) be (or certificates evidencing same shall be)
deposited with Bank; (d) provide, upon request, financial or other information,
documentation or certifications to Bank (including balance sheets and income
statements), all in form and content satisfactory to Bank; (e) pay, upon demand,
all amounts incurred by Bank in connection with any action or proceeding taken
or commenced by Bank to enforce or collect this Note, including attorney's fees
equal to lesser of (1) 10% of the above sum and interest then due hereunder, or
$500.00, whichever is greater, or (2) the maximum amount permitted by law, and
attorney's costs and all costs of legal proceedings; (f) not incur, create
assume or permit to exist, any mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its Accounts Receivable or
Inventory, now or hereafter owned; (g) covenant that in the event the
Undersigned agrees to incorporate any financial or other more restrictive
covenants into any of its agreements governing working capital lines of credit
from any other lender, such covenants and/or restrictive terms shall be
incorporated into this Note for the benefit of the Bank; and (h) not cause,
agree to, permit or suffer a change in control or ownership whereby such change
in control or ownership results in any single party or a group of related
parties (other than Pennsylvania Enterprises, Inc.) owning or controlling more
than a fifty percent (50%) direct or indirect interest in the Borrower.
3. Events of Default. The occurrence of any of the following shall constitute an
"Event of Default" hereunder: (a) default in payment or performance of any of
the Obligations evidenced or secured by this Note or any other evidence of
liability of Undersigned to Bank; (b) the breach by any Obligor (defined as
Undersigned and each surety or guarantor of any of Undersigned's liabilities to
Bank, as well as any person or entity granting Bank a security interest in
property to secure the Obligations evidenced hereby) of any covenant contained
in the Credit Agreement, this Note, or in any separate security, guarantee or
suretyship agreement between Bank and any Obligor, the occurrence of any default
hereunder or under the terms of any such agreement, or the discovery by Bank of
any false or misleading representation made by an Obligor herein or in any such
agreement or in any other information submitted to Bank by any Obligor; (c) with
respect to any Obligor: (1) death or incapacity of any individual or general
partner; or (2) dissolution of any partnership or corporation; (d) any
assignment for the benefit of creditors by any Obligor; (e) insolvency of any
Olbigor; (f) the filing or commencement of any petition, action, case or
proceeding, voluntary or involuntary, under any state or federal law regarding
bankruptcy, insolvency, reorganization, receivership or dissolution, including
the Bankruptcy Reform Act of 1978, as amended, by or against any Obligor; (g)
the garnishment, attachment or taking by governmental authority of any
Collateral or other property of the Undersigned which is in Bank's possession or
which constitutes security for any indebtedness evidenced hereby; (h) a
determination by Bank, which determination shall be conclusive if made in good
faith, that a material adverse change has occurred in the financial or business
condition of Undersigned; or (i) default of Undersigned in payment or
performance of any note, loan agreement or other evidence of liability to any
person or entity.
4. Acceleration; Remedies. Upon the occurrence of any Event of Default: (a) all
amounts due under this Note, including the unpaid balance of principal and
interest hereof, shall become immediately due and payable at the option of Bank,
without any demand or notice whatsoever; and (b) Bank may immediately and
without demand exercise any of its rights and remedies granted herein, under
applicable law, or which it may otherwise have, against the Undersigned or
otherwise.
5. Bank's Rights. Undersigned hereby authorizes Bank, and Bank shall have the
continuing right, at its sole option and discretion, to: (a) do anything which
Undersigned is required but fails to do hereunder, and in particular Bank may,
if Undersigned fails to do so, obtain and pay any premiums payable on any policy
of insurance required to be obtained or maintained hereunder, and add any
amounts paid under this Section 5(a) to the principal amount of the indebtedness
<PAGE>
secured by this Note; and (b) pay the proceeds of the Loans evidenced by this
Note to any or all of the Undersigned individually or jointly, or to such other
persons as any of the Undersigned may direct.
In addition to all rights given to Bank by this Note, Bank shall have all the
rights and remedies of a secured party under any applicable law, including
without limitation, the Uniform Commercial Code.
6. Definitions; Miscellaneous Provisions. (a) Undersigned waives protest of all
commercial paper at any time held by Bank on which Undersigned is in any way
liable, notice of nonpayment at maturity of any and all accounts, and (except
where requested hereby) notice of action taken by Bank; and hereby ratifies and
confirms whatever Bank may do. Bank shall be entitled to exercise any right
notwithstanding any prior exercise, failure to exercise or delay in exercising
any such right. (b) Bank shall retain the lien of any judgment entered on
account of the indebtedness evidenced hereby. Undersigned warrants that
Undersigned has no defense whatsoever to any action or proceeding that may be
brought to enforce or realize on such judgment or security interest. (c) If any
provision hereof shall for any reason be held invalid or unenforcable, no other
provision shall be affected thereby, and this Note shall be construed as if the
invalid or unenforceable provision had never been a part of it. The descriptive
headings of this Note are for convenience only and shall not in any way affect
the meaning or construction of any provision hereof. (d) The rights and
privileges of Bank contained in this Note shall inure to the benefit of its
successors and assigns, and the duties of Undersigned shall bind all heirs,
personal representatives, successors and assigns. (e) This Note shall in all
respects be governed by the laws of the state in which this Note is payable
(except to the extent that federal law governs), and all references to the
Uniform Commercial Code shall be deemed to refer to the Uniform Commercial Code
as enacted in such state. (f) "Chief Executive Office" means the place from
which the main part of the business operations of any entity is managed. (g)
"As-Offered Rate" for any day for any proposed or existing Rate Segment
corresponding to a Rate Period shall mean the rate per annum offered by the Bank
in its sole discretion. (h) "Business Day" shall mean any day on which Bank is
open for business at the location where the Note is payable (i) "Libor Rate" for
any day for any proposed or existing Rate Segment corresponding to a Rate Period
shall mean the rate per annum determined by Bank to be the rate per annum
obtained by dividing (the resulting quotient to be rounded upward to the nearest
1/100 of 1%) (A) the rate of interest (which shall be the same for each day in
such Rate Period) estimated in good faith by Bank in accordance with its usual
procedures (which determination shall be conclusive) to be the average of the
rates per annum for deposits in United States dollars offered to major money
center banks in the London interbank market at approximately 11:00 a.m., London
time, two London Business Days prior to the first day of such Rate Period for
delivery on the first day of such Rate Period in amounts comparable to such Rate
Segment (or, if there are no such comparable amounts actively traded, the
smallest amounts actively traded) and having maturities comparable to such Rate
Period by (B) a number equal to 1.00 minus the Libor Rate Reserve Percentage for
such day. The "Libor Rate" may also be expressed by the following formula:
[average of rates offered to major]
[money banks in the London inter-]
[bank market estimated by the Bank]
Libor Rate= [subsection (A)(1)]
---------------------------------------
[1.00-Libor Rate Reserve Percentage]
(j) "Libor Rate Reserve Percentage" for any day shall mean the percentage
(rounded upward to the nearest 1/100 of 1%), as determined in good faith by Bank
(which determination shall be conclusive) as representing for such day the
maximum effective reserve requirement (including without limitatin supplemental,
marginal and emergency requirements) for member banks of the Federal Reserve
System with respect to eurocurrency funding (currently referred to as
"Eurocurrenty liabilities") of any maturity. Each Libor Rate shall be adjusted
automatically as of the effective date of any change in the Libor Rate Reserve
Percentage. (k) "London Business Day" shall mean a day for dealing in deposits
in United States dollars by and among banks in the London interbank market. (l)
"Portion": "Prime Rate Portion" shall mean at any time, the part, including the
whole, of the unpaid principal amount of the Note bearing interest at such time
under the Prime Rate Option or in accordance with the first sentence of Section
5 of this Supplement. "As-Offered Rate Portion" shall mean at any time, the
part, including the whole, of the unpaid principal amount of the Note bearing
interest at such time under the As-Offered Rate Option. "Libor Rate Portion"
shall mean at any time, the part, including the whole, of the unpaid principal
amount of the Note bearing interest at such time under the Libor Rate Option.
(m) "Prime Rate" shall mean the interest rate per annum announced from time to
time by Bank as its Prime Rate. The Prime Rate may be greater or less than other
interest rates charged by Bank to other borrowers and is not solely based or
dependent upon the interest rate which Bank may charge any particular borrower
or class of borrowers. (n) "Rate Segment" of the As-Offered Rate Portion or the
Libor Rate Portion at any time shall mean the entire principal amount of such
Portion to which at such time there is applicable a particular Rate Period
beginning on a particular day and ending on another particular day. (By
definition, each Portion is at all times composed of an integral number of
discrete Rate Segments, each corresponding to a particular Rate Period, and the
sum of the principal amounts of all Rate Segments of a particular Portion at any
time equals the principal amount of such Portion at such time). (o) "Standard
Notice" shall mean an irrevocable notice provided to the Bank on a Business Day
which is
(i) at least one Business Day in advance in the case of selection of,
conversion to or renewal of the Prime Rate Option or the As-Offered Rate Option,
or the prepayment of any such Interest Rate Portions; and
<PAGE>
(ii) at least three London Business Days in advance in the case of
selection of, conversion to or renewal of the Libor Rate Option or prepayment of
any Libor Rate Portion.
Standard Notice must be provided no later than 1:00 o'clock p.m., Wilkes-Barre
time, on the last day permitted for such notice.
7. Confession of Judgment. Undersigned hereby empowers the prothonotary or any
attorney of any court of record to appear for Undersigned and to confess
judgment as often as necessary against Undersigned in favor of the holder
hereof, as of any term, for the above sum plus interest due under the terms
hereof, together with costs of legal proceedings and an attorney's commission
equal to the lesser of (a) 10% of the above sum and interest then due hereunder
or $500.00, whichever is greater, or (b) the maximum amount permitted by law,
with release of all errors. Undersigned waives all laws exempting real or
personal property from execution.
Signatures
Witness the due execution hereof intending to be legally bound this 8th day of
April, 1997.
PG Energy, Inc.
Attest: /s/ Thomas J. Ward by: /s/ John F. Kell, Jr.
------------------------------ --------------------------------
Name & Title Name & Title
Thomas J. Ward, Secretary John F. Kell, Jr.
Vice President, Financial Services
(Corporate Seal) Business Address:
One PEI Center
Wilkes-Barre, PA 18711-0601
by: /s/ Richard N. Marshall
-------------------------------
Richard N. Marshall
Treasurer
<PAGE>
MELLON BANK, N.A.
ENVIRONMENTAL RIDER
-------------------
THIS ENVIRONMENTAL RIDER dated April 8, 1997, is a rider to a Promissory Note
dated April 8, 1997, (the "Agreement") from PG Energy Inc. ("Undersigned") to
MELLON BANK, N.A. ("Bank");
WHEREAS, Undersigned and Bank desire to incorporate the following provisions
into the Agreement.
NOW, THEREFORE, Undersigned, intending to be legally bound hereby, covenants and
agrees that the following shall be added to the Agreement and made a part
thereof.
1. Additional Representations, Warranties and Covenants.
-----------------------------------------------------
In addition to the representations, warranties, and covenants set forth in the
Agreement, Undersigned hereby represents, warrants, covenants, and agrees, on
behalf of itself and each of its subsidiaries and affiliates, if any, that:
(a) Each of them now has and will continue to have all Environmental Permits (as
hereinafter defined) necessary for the conduct of each of their businesses
and operations;
(b) Each of them conducts and will continue to conduct each of their businesses
and operations in material compliance with all applicable Environmental
Laws (as hereinafter defined) and Environmental Permits;
(c) There does not exist, nor will any of them permit to exist, any event or
condition that requires or is likely to require any of them under any
Environmental Law to pay or expend funds by way of fines, judgments,
damages, cleanup, remediation or the like in an aggregate amount, the
payment of which could reasonably be expected to interfere substantially
with normal operations of Undersigned or materially adversely affect the
financial condition of Undersigned;
(d) Undersigned shall notify the Bank, in writing within five (5) business
days, upon becoming aware of any pending or threatened proceeding, suit,
investigation, allegation or inquiry regarding any alleged event or
condition that, if resolved unfavorably to Undersigned or any of
Undersigned's subsidiaries or affiliates, could reasonably be expected to
interfere substantially with normal operations of Undersigned or materially
adversely affect the financial condition of Undersigned; and
(e) Undersigned shall provide at Undersigned's cost, upon request by Bank,
certifications, documentation, copies of pleadings and other information
regarding the above, all in form and content satisfactory to Bank.
<PAGE>
Environmental Rider
Page -2-
2. Definitions.
As used in this Rider:
(a) 'Environmental Law' means any federal, state or local environmental law,
statute, regulation, rule, ordinance, court or administrative order or
decree, or private agreement or interpretation, now or hereafter in
existence, relating to the manufacture, distribution, labeling, use,
handling, collection, storage, treatment, disposal or otherwise of
Hazardous Substances, or in any way relating to pollution or protection
of the environment, or public health.
(b) 'Enviornmental Permit' means any federal, state or local permit, license or
authorization issued under or in connection with any Environmental Law.
(c) 'Hazardous Substances' means petroleum and petroleum products, radioactive
materials or any materials or substances defined as or included in the
definition of 'hazardous wastes,' 'hazardous substances,' 'hazardous
materials,' 'toxic substances,' 'hazardous air pollutants,' and 'toxic
pollutants,' or 'pollution' as those terms are used in any Environmental
Law.
Witness the due execution hereof.
Witness: Individual:
X X (Seal)
- ------------------------------------- -------------------------------------
Address
-------------------------------------
Witness: Individual:
X X (Seal)
- ------------------------------------- -------------------------------------
Address
Corporation or Other Entity:
PG Energy, Inc.
Attest/Witness: By: (Signature and Title)
X /s/ Thomas J. Ward X /s/ John F. Kell (Seal)
- ------------------------------------- -------------------------------------
By: (Signature and Title)
X /s/ Richard N. Marshall (Seal)
-------------------------------------
(Corporate Seal) By: (Signature and Title)
Business Address:
One PEI Center
Wilkes-Barre, PA 18711-0601
<PAGE>
LATE PAYMENT CHARGE ADDENDUM
SPECIFIED PERCENTAGE CHARGE
----------------------------
THIS ADDENDUM dated April 8, 1997, to the Promissory Note dated April 8,
1997, (the "Note") from PG Energy, Inc. ("Undersigned") to Mellon Bank, N. A.
("Bank");
WHEREAS, Undersigned and Bank desire to incorporate the following provisions
into the Note.
NOW, THEREFORE, Undersigned, intending to be legally bound hereby, covenants
and agrees that the following shall be added to the Note and made a part
thereof.
1. If any payment (including without limitation any regularly scheduled
payment, balloon payment and final payment) is not paid within 10 days after it
is due, Undersigned will pay a late charge equal to 5% of the entire payment due
(regardless of whether part of the payment due had been made, and regardless of
whether the payment due consists of principal and interest, principal only or
interest only). (Such late charge shall be in addition to any increase made to
the interest rate(s) applicable to the outstanding balance hereof as a result of
maturity of this Note or otherwise, as well as in addition to any other
applicable fees, charges and costs.) Also, Bank reserves the right to modify, in
its sole discretion and upon thirty (30) days prior written notice to
Undersigned, the late charge set forth herein.
2. Except as stated in this LATE PAYMENT CHARGE ADDENDUM, the terms,
covenants, conditions and provisions of the Note will remain in full force and
effect.
Witness the due execution hereof.
- -------------------------------------------------------------------------------
Witness: Individual:
x x (Seal)
- ---------------------------------- ------------------------------------
Address
- ---------------------------------- ------------------------------------
Witness: Individual:
x x (Seal)
- ---------------------------------- ------------------------------------
Address
PG Energy, Inc.
------------------------------------
Corporation Or Other Entity
- ---------------------------------- ------------------------------------
Attest/Witness: By: (Signature and Title)
x /s/ Thomas J. Ward x /s/ John F. Kell (Seal)
- ----------------------------------- ------------------------------------
By: (Signature and Title)
x /s/ Richard N. Marshall (Seal)
------------------------------------
Business Address
One PEI Center
Wilkes-Barre, Pa. 18711-0601
(Corporate Seal) ------------------------------------
<PAGE>
CERTIFIED COPY OF A CERTAIN RESOLUTION
ADOPTED BY THE BOARD OF DIRECTORS OF
PG ENERGY INC.
ON JUNE 25, 1975
RESOLVED, that any proper officer of the Corporation is hereby
authorized on behalf of the Corporation, to issue and sell from time to time
unsecured promissory notes of the Corporation, the notes to contain such terms
as such officer shall in his judgment deem appropriate, provided that no such
note shall be for more than a term of twenty-four (24) months, with such
registration as may be required by the Pennsylvania Public Utility Commission,
and each such note shall be signed by two officers, one of which shall be the
Chairman of the Board, or the President and Chief Executive Officer, or a Vice
President, and the other should be any one of following: the Treasurer; the
Secretary; any Assistant Treasurer or Assistant Secretary, or the Controller.
I, the undersigned, Secretary of PG Energy Inc., a Pennsylvania
corporation, do hereby certify that the above is a true and correct copy of a
certain resolution duly adopted at a meeting of the Board of Directors of the
Company held on June 25, 1976, at which a quorum was present and voting
throughout and that the same has not been amended or revoked but is now in full
force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 8th day of April, 1997.
/s/ Thomas J. Ward
--------------------
Thomas J. Ward
Secretary
[SEAL]
<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 $70.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON FRIDAY, MAY 16, 1997, 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
$70.00 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 not be entitled to the
regular quarterly cash dividend in respect of any dividend period after March
15, 1997.
------------------------
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 BECAUSE NO SUCH PERSON OWNS ANY 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 April 1, 1996, has been approximately
300 Shares. The Shares are traded in the over-the-counter market and are not
listed on any national securities exchange or quoted on the automated quotation
system of a registered securities association. As of the close of business on
April 14, 1997, the bid price of the Shares as reported on the National
Association of Securities Dealers OTC Bulletin Board was $55.00 per Share.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent at the address and telephone number set forth
on the back cover of this Offer to Purchase.
------------------------
THE DEALER MANAGER FOR THE OFFER IS:
LEGG MASON WOOD WALKER
INCORPORATED
April 18, 1997
<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 ChaseMellon Shareholder
Services, L.L.C. (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..................................................................................... 2
1. Purpose of the Offer; Certain Effects of the Offer; Plans of the Company
After the Offer............................................................................... 2
2. Certain Federal Income Tax Consequences....................................................... 3
3. Fairness of the Offer; Reports and Opinions................................................... 6
4. Certain Legal Matters; Regulatory and Foreign Approvals; No Appraisal Rights.................. 6
THE OFFER........................................................................................... 6
5. Number of Shares; Expiration Date; Extension of the Offer..................................... 6
6. Procedure for Tendering Shares................................................................ 7
7. Withdrawal Rights............................................................................. 8
8. Acceptance for Payment of Shares and Payment of Purchase Price................................ 9
9. Certain Conditions of the Offer............................................................... 9
10. Price Range of Shares; Dividends; Trading Volume.............................................. 11
11. Certain Information Concerning the Company.................................................... 12
12. Source and Amount of Funds.................................................................... 14
13. Transactions and Agreements Concerning the Shares and Other Securities of the Company......... 15
14. Extension of Tender Period; Termination; Amendments........................................... 15
15. Fees and Expenses............................................................................. 16
16. Miscellaneous................................................................................. 17
Directors and Executive Officers of the Company............................................... Schedule A
Purchases of Preferred Stock of the Company by the Company or its Affiliates
Since January 1, 1995......................................................................... Schedule B
</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>
<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............. 78,853 (all of the Shares outstanding).
Purchase Price...................... $70.00 per Share, net to the seller in cash.
Expiration Date of Offer............ Friday, May 16, 1997, 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 June 13, 1997. See Section 7.
Market Price of Shares.............. On April 14, 1997, the bid price of the Shares on the National Association of
Securities Dealers OTC Bulletin Board was $55.00 per Share. See Section 10.
Dividends........................... Shares tendered and purchased by the Company will not be entitled to the
regular quarterly cash dividend in respect of any dividend period after March
15, 1997. See Section 10.
Purpose of Offer.................... The Company is making the Offer because it believes that, given the current
market price of the Shares and the opportunity for the Company to replace the
Shares with indebtedness, in the form of bank borrowings, that has a lower
after-tax cost, the purchase of the Shares pursuant to the Offer is
economically attractive to the Company. In addition, the Offer gives holders
of Shares the opportunity to sell their Shares at a premium over market price
and without the usual transaction costs associated with a market sale. See
Section 1.
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) 769-5414 (toll free).
</TABLE>
i
<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 $70.00 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'), ChaseMellon 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 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 BECAUSE NO SUCH PERSON OWNS ANY SHARES.
As of April 18, 1997, the Company had issued and outstanding 78,853 Shares.
As of April 18, 1997, there were approximately 525 holders of record of 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 April 1, 1996, has been approximately
300 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.
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SPECIAL FACTORS
1. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY
AFTER THE OFFER.
The Company is making the Offer because it believes that, given the current
market price of the Shares and the opportunity for the Company to replace the
Shares with indebtedness, in the form of bank borrowings, that has a lower
after-tax cost, the purchase of the Shares pursuant to the Offer is economically
attractive to the Company. Additionally, the Offer will enable the Company to
reduce its annual administrative expenses in connection with servicing the
accounts of holders of the Shares. 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. 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 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.
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
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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 BECAUSE 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
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 or (ii) is 'not essentially equivalent to a dividend' with respect to
the stockholder. These tests (the 'Section 302 tests') are explained more fully
below.
If either 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 neither 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 either 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
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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 either of the
Section 302 tests is satisfied, stockholders must take into account not only the
Shares which are actually owned by the stockholder, but also Shares which are
constructively owned by the stockholder within the meaning of Section 318 of the
Code. Under Section 318 of the Code, a stockholder may constructively own Shares
actually owned, and in some cases constructively owned, by certain related
individuals or entities in which the stockholder has an interest, or, in the
case of stockholders that are entities, by certain individuals or entities that
have an interest in the stockholder, and Shares which the stockholder has the
right to acquire by exercise of an option or by conversion. Contemporaneous
dispositions or acquisitions of Shares by a stockholder or related individuals
or entities may be deemed to be part of a single integrated transaction which
will be taken into account in determining whether either 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
that application in their particular situation.
Corporate Stockholder Dividend Treatment. Under current law, if a sale of
Shares by a corporate stockholder is treated as a dividend, the corporate
stockholder may be entitled to claim a deduction equal to 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, assuming that the maximum corporate tax rate is 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 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 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
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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 or 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. The President's 1998 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). In addition, the
President's budget proposal would reduce the dividends-received deduction under
Section 244 of the Code from 42% to 30% and would require the 46-day holding
period under Section 244 of the Code to be satisfied over a period immediately
before and/or after the taxpayer become entitled to receive the dividend. It is
uncertain whether such proposals will be adopted and, if adopted, what form such
legislation will take.
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
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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. In particular,
the Offer gives holders who are considering the sale of all or a portion of
their Shares the opportunity to sell their Shares at a 27% premium over the bid
price of the Shares as reported on the NASD OTC Bulletin Board on April 14,
1997. 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. The
Company did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the aforementioned reasons it believes the Offer is
fair to holders of Shares.
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.
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 Friday, May 16, 1997, 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 not be entitled to the
regular quarterly cash dividend in respect of any dividend period after March
15, 1997.
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
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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.
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 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 with in a timely manner, such Shares
may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company (with any
required signature guarantees) is received by the Depositary as provided
below on or prior to the Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of
the Book-Entry Transfer Facilities), together with a properly completed and
duly executed Letter of Transmittal (or photocopy thereof) and any other
documents required by the Letter of Transmittal, are received by the
Depositary no later than 5:00 p.m., New York City time, on the third
business day after the date of execution of the Notice of Guaranteed
Delivery.
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The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
FEDERAL BACKUP WITHHOLDING. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING
EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH STOCKHOLDER
MUST NOTIFY THE DEPOSITARY OF SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING THE
SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. FOREIGN STOCKHOLDERS
(AS DEFINED IN SECTION 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 June 13, 1997, 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
8
<PAGE>
prior to the release of such Shares. In addition, such notice must specify, in
the case of Shares tendered by delivery of certificates, the name of the
registered holder (if different from that of the tendering stockholder) and the
serial numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Shares tendered by book-entry transfer, the name
and number of the account at one of the Book-Entry Transfer Facilities to be
credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 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 April 18, 1997, 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
9
<PAGE>
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 or seeks to challenge the acquisition of Shares
pursuant to the Offer or otherwise in any manner relates to or affects the
Offer or (ii) 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 Pennsylvania Enterprises, Inc.
('PEI'), the owner of all of the Company's common stock, 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
or 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
illegal or otherwise restrict or prohibit consummation of the Offer, (ii)
delay or restrict the ability of the Company, or render the Company unable,
to accept for payment or pay for some or all of the Shares, (iii) imposes
or seeks to impose limitations on the ability of the Company to acquire or
hold or to exercise full rights of ownership of the Shares, (iv) materially
impair the contemplated benefits of the Offer to the Company or (v)
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 April 17, 1997), (ii) any such person or group
that on or prior to April 17, 1997, 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 or its subsidiaries or any of their respective assets
or securities;
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market, (ii) any significant decline in
the market price of the Shares or in the general level of market prices of
equity securities in the United States or abroad, (iii) any change in the
general political, market, economic or financial condition in the United
States or abroad that could have a material adverse effect on 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,
10
<PAGE>
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;
(g) (i) Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Corporation ('S&P') shall have downgraded or withdrawn the rating
accorded any securities of the Company, or (ii) Moody's or S&P shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any securities of the Company; or
(h) there shall have occurred any decline in the S&P Composite 500
Stock Index by an amount in excess of 15% measured from the close of
business on April 17, 1997;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payment.
Any of the foregoing conditions may be waived by the Company, in whole or
in part, at any time and from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Any determination
by the Company concerning the events described above will be final and binding
on all parties.
10. 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.
<TABLE>
<CAPTION>
BID PRICE BID PRICE CASH DIVIDENDS
FISCAL YEAR HIGH LOW PER SHARE
- ---------------------------------------------------------------------------- --------- --------- --------------
<S> <C> <C> <C> <C>
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......................................................... $51.000 $47.875 $1.025
2nd Quarter......................................................... $51.500 $50.500 $1.025
3rd Quarter......................................................... $51.750 $51.500 $1.025
4th Quarter......................................................... $52.125 $51.750 $1.025
1997: 1st Quarter......................................................... $52.500 $52.125 $1.025
2nd Quarter (through April 14, 1997)................................ $55.000 $52.500
</TABLE>
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 April 1, 1996, has been approximately
300 Shares. The Shares are traded in the over-the-counter market and are not
listed on any national securities exchange or quoted on the automated quotation
system of a registered securities association. As of the close of business on
April 14, 1997, the bid price of the Shares as reported on the NASD OTC Bulletin
Board was $55.00 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE SHARES.
Shares tendered and purchased by the Company will not be entitled to the
regular quarterly cash dividend in respect of any dividend period after March
15, 1997.
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
11
<PAGE>
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
stockholders 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, formerly known as Pennsylvania Gas and Water Company, is a
subsidiary of PEI. The Company is a public utility company regulated by the
Pennsylvania Public Utility Commission (the 'PPUC') and is engaged in the
distribution of natural gas to approximately 145,000 customers in ten counties
in northeastern Pennsylvania. On February 14, 1997, the Company acquired all of
the outstanding capital stock of Honesdale Gas Company ('Honesdale'), a public
utility also regulated by the PPUC. Honesdale is engaged in the distribution of
natural gas to approximately 3,200 customers in portions of Wayne and Pike
Counties, Pennsylvania, an area adjacent to the Company's service territory.
Until February 16, 1996, when its water utility operations were sold to
Pennsylvania-American Water Company, a subsidiary of American Water Works
Company, the Company was also engaged in the distribution of water.
The Company's principal executive offices are located at One PEI Center,
Wilkes-Barre, PA 18711, and its telephone number is (717) 829-8843.
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.
Selected Historical Financial Information
The following selected historical financial information for each of the
years ended December 31, 1996, and December 31, 1995, 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, 1996 (the '1996 10-K'), which
reflects 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. The
1996 10-K may be obtained from or inspected at the offices of the Commission in
the manner set forth in Section 16.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995
---------- ----------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenues................................................................ $ 160,594 $ 152,756
Cost of gas....................................................................... 88,291 84,372
---------- ----------
Operating margin.................................................................. 72,303 68,384
Other operating expenses.......................................................... 55,587 49,462
---------- ----------
Operating income.................................................................. 16,716 18,922
Other income, net................................................................. 143 301
---------- ----------
Income before interest charges.................................................... 16,859 19,223
Interest charges.................................................................. 7,343 10,753
---------- ----------
Income from continuing operations................................................. 9,516 8,470
Loss with respect to discontinued operations...................................... (363) (3,834)
---------- ----------
Net income........................................................................ 9,153 4,636
Dividends on preferred stock...................................................... 1,730 2,763
---------- ----------
Net income applicable to common stock............................................. $ 7,423 $ 1,873
---------- ----------
---------- ----------
Common stock:
Earnings (loss) per share of common stock:
Continuing operations......................................................... $ 2.16 $ 1.02
Discontinued operations....................................................... (.10) (.69)
---------- ----------
Income before premium on repurchase/redemption of preferred stock............. 2.06 .33
Premium on repurchase/redemption of preferred stock........................... (.37) --
---------- ----------
Total......................................................................... $ 1.69 $ .33
---------- ----------
---------- ----------
Weighted average number of shares outstanding................................... 3,601,072 5,569,765
---------- ----------
---------- ----------
Ratio of earnings to fixed charges (1)............................................ 3.08 2.27
---------- ----------
---------- ----------
</TABLE>
- ------------------
(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 expenses (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.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
ASSETS
Utility plant....................................................................... $319,205 $295,895
Less accumulated depreciation..................................................... (79,783) (76,882)
-------- --------
Net utility plant................................................................... 239,422 219,013
Other property and investments...................................................... 4,894 5,089
Current assets...................................................................... 75,065 54,512
Deferred charges.................................................................... 35,198 34,368
Net assets of discontinued operations............................................... -- 204,250
-------- --------
Total assets........................................................................ $354,579 $517,232
-------- --------
-------- --------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's investment................................................... $ 96,005 $208,356
Preferred stock -
Not subject to mandatory redemption, net........................................ 18,851 33,615
Subject to mandatory redemption................................................. 739 1,680
Long-term debt.................................................................... 55,000 55,000
-------- --------
170,595 298,651
-------- --------
Current liabilities:
Current portion of long-term debt and preferred stock subject to
mandatory redemption............................................................ 70,236 115,881
Note payable to bank.............................................................. 10,000 10,000
Other............................................................................. 42,383 28,601
-------- --------
122,619 154,482
-------- --------
Deferred credits.................................................................... 61,365 64,099
-------- --------
Total capitalization and liabilities................................................ $354,579 $517,232
-------- --------
-------- --------
Shareholder's equity per common share outstanding................................... $ 28.97 $ 37.19
-------- --------
-------- --------
</TABLE>
13
<PAGE>
Capitalization
The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to reflect (i) the repurchase of 817 Shares
during the period from January 1, 1997, through April 18, 1997, and (ii) the
consummation of the Offer assuming all of the outstanding Shares are tendered
and purchased. The following capitalization table should be read in conjunction
with the selected historical financial information set forth above and the
detailed information and financial statements included in the 1996 10-K and is
qualified in its entirety by reference thereto.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED(1)
-------- -----------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT AND PREFERRED STOCK SUBJECT TO
REPURCHASE OR MANDATORY REDEMPTION.................................................. $ 80,236 $ 80,201
-------- -----------
-------- -----------
CAPITALIZATION:
Long-Term Debt...................................................................... $ 55,000 $ 60,794
-------- -----------
Preferred Stock par value $100 per share--997,500 shares authorized:
Not subject to mandatory redemption, net:
4.10% cumulative preferred, 79,320 shares outstanding; no shares as
adjusted(2)................................................................... 7,932 --
9% cumulative preferred, 115,641 shares outstanding............................ 11,564 11,564
Less: issuance costs........................................................ (645) (645)
-------- -----------
Total Preferred Stock not subject to mandatory redemption, net................. 18,851 10,919
-------- -----------
Subject to mandatory redemption:
5.75% cumulative preferred, 7,392 shares outstanding(3)........................ 739 739
-------- -----------
Common Shareholder's Investment:
Common Stock, no par value (stated value $10 per share)
15,000,000 shares authorized; 3,314,155 shares outstanding.................. 33,142 33,142
Additional paid-in capital..................................................... 32,677 32,677
Retained earnings.............................................................. 30,186 32,324
-------- -----------
Total common shareholder's investment.......................................... 96,005 98,143
-------- -----------
TOTAL CAPITALIZATION.................................................................. $170,595 $ 170,595
-------- -----------
-------- -----------
</TABLE>
- ------------------
(1) Adjusted to reflect (i) the repurchase of 817 Shares during the period from
January 1, 1997, through April 18, 1997, and (ii) the consummation of the
Offer assuming all of the outstanding Shares are tendered and purchased.
(2) Exclusive of 350 Shares which were included in current portion of long-term
debt and preferred stock subject to repurchase or mandatory redemption as of
December 31, 1996. Such Shares were purchased by the Company during January,
1997.
(3) Exclusive of eight hundred shares of 5.75% cumulative preferred stock
subject to mandatory redemption prior to June, 1998.
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 approximately $5.5 million, exclusive of fees and
other expenses.
The Company currently has an unsecured bank line of credit of $15.0 million
with Mellon Bank, N.A. (the 'Mellon Bank Line of Credit') which provides for
borrowings at an interest rate equal to the London Interbank Offering Rate plus
four-tenths of one percent (currently 6.20%) and which matures on July 31, 1998.
The Company expects to fund the purchase of the Shares pursuant to the Offer
with borrowings under the Mellon Bank Line of Credit. Based on its present
earnings capabilities, capitalization and banking arrangements and
relationships, the Company believes it will be able to arrange a new or
replacement bank line of credit prior to the maturity of the existing Mellon
Bank Line of Credit.
14
<PAGE>
13. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES AND OTHER SECURITIES OF
THE COMPANY.
The Company has been advised by its directors and executive officers that
no directors or executive officers of the Company own any Shares or shares of
any other series of preferred stock of the Company. Based upon the Company's
records and upon information provided to the Company by its directors and
executive officers, to the Company's knowledge, none of its associates,
subsidiaries, directors, executive officers or any associate of any such
director or executive officer, or any director or executive officer of its
subsidiaries, has engaged in any transactions involving the Shares or shares of
any other series of preferred stock of the Company since February 15, 1997. On
February 26, 1997, the Company made open market purchases of 402 Shares at
$53.75 per Share and on March 24, 1997, the Company made open market purchases
of 65 Shares at $53.75 per Share. The Company has not engaged in any
transactions involving the shares of any other series of preferred stock of the
Company since February 15, 1997. 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 number of Shares or shares of any other
series of preferred stock of the Company purchased by the Company and its
affiliates (including the directors of the Company) since January 1, 1995, the
range of prices paid for such shares and the average purchase price paid for
each quarterly period since January 1, 1995.
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary.
There can be no assurance, however, that the Company will exercise its right to
extend the Offer. During any such extension, all Shares previously tendered will
remain subject to the Offer, except to the extent that such Shares may be
withdrawn as set forth in Section 7. 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.
15
<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
$25,000 plus $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 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 $1.50 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 with respect to the tender of Shares by a holder unless the
Letter of Transmittal accompanying such tender designates such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer if such Soliciting
Dealer is required for any reason to transfer the amount of such fee to a
depositing holder (other than itself). No such fee shall be payable to a
Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's
own account. No broker, dealer, bank, trust company or fiduciary shall be deemed
to be the agent of the Company, the Depositary, the Information Agent or the
Dealer Manager for purposes of the Offer.
The Company has retained ChaseMellon 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.
16
<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.
<TABLE>
<S> <C>
Dealer Manager Fees............................................................... $ 31,000
Solicitation Fees................................................................. 118,000
Printing and Mailing Fees......................................................... 15,000
Filing Fees....................................................................... 1,000
Legal, Accounting and Miscellaneous............................................... 85,000
--------
Total............................................................................. $250,000
--------
--------
</TABLE>
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
Section at Room 1024, Judiciary Plaza, 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 Citicorp Center, 500 West Madison Street, Suite 1400,
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 Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other materials that are filed
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
system. This Web site can be accessed at http://www.sec.gov. 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.
April 18, 1997
17
<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 June,
PG Energy Inc. 1987; Director of the Company since 1972 and of PEI since 1974; President
One PEI Center and Chief Executive Officer of the Company and PEI from March, 1991, to
Wilkes-Barre, PA 18711-0601 August, 1991; Director and sole stockholder, Susquehanna Coal Company and
Ken L. Pollock, Inc., Nanticoke, PA, since prior to 1990.
Thomas F. Karam President, Chief Executive Officer and Director of the Company and PEI
PG Energy Inc. since September, 1996; Executive Vice President of the Company and PEI
One PEI Center from September, 1995 to August, 1996; Vice President, Investment Banking,
Wilkes-Barre, PA 18711-0601 Legg Mason Wood Walker, Inc. from July, 1989 to September, 1995.
William D. Davis Vice Chairman of the Board of Directors of the Company and PEI since
1500 Ritchey Street March, 1991; Director of the Company and PEI since 1981; Chairman of the
Williamsport, PA 17701-2643 Board of the Commonwealth Bank Division of Meridian Bank, Williamsport,
PA, from September, 1993 to December 31, 1995; Director, Meridian Bancorp,
Inc., and Meridian Bank, Reading, PA, from September, 1993 to April, 1996;
Chairman of the Board and Chief Executive Officer of Commonwealth
Bancshares Corporation, Williamsport, PA, from April, 1987, to June, 1993.
Paul R. Freeman Director of the Company and PEI since November, 1995; Controller for HUD,
200 East Front Street Inc., trading as Emerald Anthracite II, Nanticoke, PA, since 1988.
P.O. Box 27
Nanticoke, PA 18634
Robert J. Keating Director of the Company and PEI since June, 1974; Chairman of the Board of
1516 Jefferson Avenue Directors of the Company and PEI from June, 1986 to June, 1987; Chairman
Dunmore, PA 18509 of the Board of Parodi Industries, Inc., Scranton, PA, from January, 1985,
to February, 1994.
John D. McCarthy Director of the Company and PEI since March, 1991; President of McCarthy
McCarthy Tire Service Company Tire Service Company, Wilkes-Barre, PA, since 1968; President of McCarthy
340 Kidder Street Realty, Inc., since 1988.
P.O. Box 1125
Wilkes-Barre, PA 18703-1125
John D. McCarthy, Jr. Director of the Company and PEI since November, 1995; President of
McCarthy Tire Service Company McCarthy Tire Service Company of Allentown, Reading and Lancaster, since
340 Kidder Street 1992; Vice President of McCarthy Tire Service Company, Wilkes-Barre, PA,
P.O. Box 1125 since 1989; Vice President of McCarthy Realty, Inc., since 1988.
Wilkes-Barre, PA 18703-1125
</TABLE>
A-1
<PAGE>
<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 M. Pollock Director of the Company and PEI since October, 1993; Vice President of
200 East Front Street HUD, Inc., trading as Emerald Anthracite II; Vice President of Susquehanna
P.O. Box 27 Coal Company and Susquehanna Mt. Carmel, Inc., Nanticoke, PA, since prior
Nanticoke, PA 18634 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., Wilkes-Barre, PA, since 1992; Vice
P.O. Box 454 President of Petroleum Service Company, Inc., Wilkes-Barre, PA, since
Wilkes-Barre, PA 18703-0454 1987.
James A. Ross Director of the Company and PEI since May, 1978; Independent financial
Old Windmill Road consultant since prior to 1988; Chairman, Priestgate, Limited, since 1991.
Clarks Summit, PA 18411
Ronald W. Simms Director of the Company and PEI since March, 1991; President and Chief
454 South Main Street Executive Officer of Petroleum Service Company, Inc., Wilkes-Barre, PA,
P.O. Box 454 since 1980; Chairman of the Board of Directors since 1994, and Chief
Wilkes-Barre, PA 18703-0454 Executive Officer since 1984, of Mountain Productions, Inc.; Chairman of
the Board of Directors of First Heritage Bank since March, 1994.
Vincent A. Bonaddio Vice President, Operations and Engineering Services of the Company and PEI
PG Energy Inc. since March 1996; Vice President, Operations and Engineering of the
One PEI Center Company and PEI since May 1995; Director of Field Operations of the
Wilkes-Barre, PA 18711-0601 Company from May 1991 to April 1995; 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 March
PG Energy Inc. 1996; Vice President of Human Resources and Customer Services of the
One PEI Center Company and PEI from October 1992 to February 1996; Vice President of
Wilkes-Barre, PA 18711-0601 Customer Affairs of the Company and PEI from 1987 to October 1992.
John F. Kell, Jr. Vice President, Financial Services, of the Company and PEI since March
PG Energy Inc. 1996; Vice President, Finance, of the Company and PEI from October 1992 to
One PEI Center February 1996; Vice President and Controller of the Company and PEI from
Wilkes-Barre, PA 18711-0601 1978 to October 1992.
Thomas J. Ward Vice President, Administrative Services, and Secretary, of the Company and
PG Energy Inc. PEI since March 1996; Vice President, Administration, and Secretary, of
One PEI Center the Company and PEI from October 1992 to February 1996; Secretary of the
Wilkes-Barre, PA 18711-0601 Company and PEI from September 1988 to October 1992.
Thomas J. Koval Controller and Assistant Treasurer of the Company and PEI since November
PG Energy Inc. 1992; Accounting Manager of the Company from February 1987 to November
One PEI Center 1992.
Wilkes-Barre, PA 18711-0601
Richard N. Marshall Treasurer and Assistant Secretary of the Company and PEI since February
PG Energy Inc. 1996; Treasurer of the Company and PEI from May 1994 to January 1996;
One PEI Center Assistant Treasurer of the Company and PEI from June 1993 to May 1994;
Wilkes-Barre, PA 18711-0601 Manager, Rates and Finance, of the Company from March 1988 to June 1993.
</TABLE>
A-2
<PAGE>
SCHEDULE B
PURCHASES OF PREFERRED STOCK OF THE COMPANY
BY THE COMPANY OR ITS AFFILIATES SINCE JANUARY 1, 1995
The following table sets forth the number of 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 Shares) purchased by the Company and its affiliates
since January 1, 1995, the range of prices paid for such shares and the average
purchase price for each quarterly period since January 1, 1995. No Director of
the Company or any affiliate of the Company has made any purchases of Shares or
shares of any other series of preferred stock of the Company since January 1,
1995.
THE SHARES:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES PURCHASE PRICE RANGE OF PRICES
FISCAL YEAR PURCHASED PER SHARE PAID PER SHARE
- ------------ --------- -------------- ----------------
<S> <C> <C> <C> <C>
1995: 1st Quarter........................................ 0 N/A N/A
2nd Quarter........................................ 0 N/A N/A
3rd Quarter........................................ 0 N/A N/A
4th Quarter........................................ 0 N/A N/A
1996: 1st Quarter........................................ 0 N/A N/A
2nd Quarter........................................ 18,524 $ 50.012 $50.000-$51.500
3rd Quarter........................................ 67 $ 51.500 $51.500
4th Quarter........................................ 1,739 $ 53.463 $53.000-$54.000
1997: 1st Quarter........................................ 817 $ 53.513 $52.125-$53.750
2nd Quarter (to April 17, 1997).................... 0 N/A N/A
</TABLE>
THE DEPOSITARY PREFERRED SHARES:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES PURCHASE PRICE RANGE OF PRICES
FISCAL YEAR PURCHASED PER SHARE PAID PER SHARE
- ------------ --------- -------------- ----------------
<S> <C> <C> <C> <C>
1995: 1st Quarter........................................ 0 N/A N/A
2nd Quarter........................................ 0 N/A N/A
3rd Quarter........................................ 0 N/A N/A
4th Quarter........................................ 0 N/A N/A
1996: 1st Quarter........................................ 0 N/A N/A
2nd Quarter........................................ 515,936 $ 27.000 $27.000
3rd Quarter........................................ 16,015 $ 27.125 $27.125
4th Quarter........................................ 5,486 $ 27.159 $27.125-$27.250
1997: 1st Quarter........................................ 0 N/A N/A
2nd Quarter (to April 17, 1997).................... 0 N/A N/A
</TABLE>
THE 1966 CUMULATIVE PREFERRED SHARES:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES PURCHASE PRICE RANGE OF PRICES
FISCAL YEAR PURCHASED PER SHARE PAID PER SHARE
- ------------ --------- -------------- -----------------
<S> <C> <C> <C> <C>
1995: 1st Quarter....................................... 0 N/A N/A
2nd Quarter....................................... 800 $100.000 $100.000
3rd Quarter....................................... 0 N/A N/A
4th Quarter....................................... 0 N/A N/A
1996: 1st Quarter....................................... 0 N/A N/A
2nd Quarter....................................... 9,408 $ 89.020 $88.000-$100.000
3rd Quarter....................................... 0 N/A N/A
4th Quarter....................................... 0 N/A N/A
1997: 1st Quarter....................................... 0 N/A N/A
2nd Quarter (to April 17, 1997)................... 0 N/A N/A
</TABLE>
B-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:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TO: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 3301 (201) 329-8936 120 Broadway
South Hackensack, NJ 07606 To Confirm Receipt of Facsimile: 13th Floor
(201) 296-4100 New York, NY 10271
or
(201) 296-4381
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent at the telephone number and address listed below. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal or other tender
offer materials may be directed to the Information Agent and such copies will be
furnished promptly at the Company's expense. Stockholders may also contact their
local broker, dealer, commercial bank or trust company for assistance concerning
the Offer.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(800) 769-5414
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 APRIL 18, 1997
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON FRIDAY, MAY 16, 1997, UNLESS THE OFFER IS EXTENDED.
To: ChaseMellon Shareholder Services, L.L.C., Depositary
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (201) 329-8936 Reorganization Department
P.O. Box 3301 120 Broadway
South Hackensack, N.J. 13th Floor
07606 New York, NY 10271
Confirm by Telephone:
(201) 296-4209
or
(201) 296-4381
</TABLE>
DESCRIPTION OF SHARES TENDERED
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES TENDERED
(PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
<S> <C> <C> <C>
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
TOTAL SHARES:
</TABLE>
* 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 Depository are being tendered. See
Instruction 4.
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 Philadelphia Depository Trust Company ('PDTC') (hereinafter
collectively referred to as the 'Book-Entry Transfer Facilities') pursuant to
the procedures set forth in Section 6 of the Offer to Purchase (as defined
below).
Stockholders who cannot deliver their Shares and all other documents
required hereby to the Depositary by the Expiration Date (as defined in the
Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery
procedure set forth in Section 6 of the Offer to Purchase. See Instruction 2.
Delivery of documents to the Company or to a Book-Entry Transfer Facility does
not constitute a valid delivery.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY-TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________
Check Applicable Box: / / DTC / / PDTC
Account No. _______________________________________________
Transaction Code No. ______________________________________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s) ______________________
Date of Execution of Notice of Guaranteed Delivery _______
Name of Institution that Guaranteed Delivery _____________
If delivery is by book-entry transfer:
Name of Tendering Institution ____________________________
Account No. __________________at / / DTC / / PDTC
Transaction Code No. _____________________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to 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 $70.00, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated April 18, 1997 (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 after March 15, 1997 (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's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (i) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Offer.
The undersigned understands that 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>
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7) (SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the check for the Purchase Price of To be completed ONLY if the check for the Purchase Price of
Shares purchased and/or certificates for Shares not tendered Shares purchased and/or certificates for Shares not tendered
or not purchased are to be issued in the name of someone or not purchased are to be mailed to someone other than the
other than the undersigned. undersigned or to the undersigned at an address other than
that shown below the undersigned's signature(s).
Issue / / check and/or / / certificate(s) to: Mail / / check and/or / / certificate(s) to:
____________________________________________________________ ____________________________________________________________
Name Name
____________________________________________________________ ____________________________________________________________
(Please Print) (Please Print)
Address ____________________________________________________ Address ____________________________________________________
____________________________________________________________ ____________________________________________________________
(Include Zip Code) (Include Zip Code)
____________________________________________________________
(Taxpayer Identification or Social Security No.)
</TABLE>
5
<PAGE>
SOLICITED TENDERS
(SEE INSTRUCTION 10)
The Company will pay to any Soliciting Dealer, as defined in Instruction 10,
a solicitation fee of $1.50 per Share for each Share tendered and purchased
pursuant to the Offer.
The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm: __________________________________________________________________
(Please Print)
Name of Individual Broker or Financial Consultant:______________________________
Identification Number (if known):_______________________________________________
Address:________________________________________________________________________
(Include Zip Code)
The following to be completed ONLY if customer's Shares held in nominee name
are tendered.
Name of Beneficial Owner Number of Shares Tendered
(Attach additional list if necessary)
____________________________________ _________________________________
____________________________________ __________________________________
____________________________________ __________________________________
The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitation; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it
has used no soliciting materials other than those furnished by the Company; and
(iv) if it is a foreign broker or dealer not eligible for membership in the
National Association of Securities Dealers, Inc. (the 'NASD'), it has agreed to
conform to the NASD's Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer's returning a Notice of Solicited Tenders to the Depositary.
6
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
_____________________________________________________________________________
Signature(s) of Owner(s)
_____________________________________________________________________________
Dated: ________________________, 1997
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: _______________________, 1997
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'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 facsimile 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 facsimile 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 facsimile 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 indicted.
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.
8
<PAGE>
If any of the Shares hereby is 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 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's expense. Stockholders may also contact their local broker, dealer,
commercial bank or trust company for assistance concerning the Offer.
9
<PAGE>
10. SOLICITED TENDERS. The Company will pay a solicitation fee of $1.50 per
Share for any Shares tendered and accepted for payment and paid for pursuant to
the Offer, covered by the Letter of Transmittal which designates, in the box
captioned 'Solicited Tenders,' as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a dealer or broker, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
'NASD'), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company (each of which is referred to herein
as a 'Soliciting Dealer'). No such fee shall be payable to a Soliciting Dealer
with respect to the tender of Shares by a holder unless the Letter of
Transmittal accompanying such tender designates such Soliciting Dealer. No such
fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is
required for any reason to transfer the amount of such fee to a depositing
holder (other than itself). No such fee shall be payable to a Soliciting Dealer
with respect to Shares tendered for such Soliciting Dealer's own account. No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company, the Depositary, the Information Agent or the Dealer Manager for
purposes of the Offer.
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's
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. None of the Company, the Dealer Manager, the
Depositary, the Information Agent or any other person shall be under any duty to
give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured or
waived.
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 other entities, the number is the employer identification number.
If the Depositary is not provided with the correct TIN or properly completed
Form W-8, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding. The Form W-8 can be obtained from the Depositary.
See the enclosed Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is
required to withhold 31% of any payments made to the stockholder. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to federal income tax backup withholding will be reduced by
the amount of the tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9
is correct and that (1) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign stockholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the registered owner of the Shares.
If the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY 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>
<TABLE>
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<S> <C> <C>
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT
SUBSTITUTE RIGHT AND CERTIFY BY SIGNING AND DATING TIN ______________________________
FORM W-9 BELOW. Social Security Number or
_____________________________________________ Employer Identification Number
DEPARTMENT OF THE TREASURY NAME (Please Print) PART 2
INTERNAL REVENUE SERVICE _____________________________________________
ADDRESS AWAITING
PAYOR'S REQUEST FOR TAXPAYER _____________________________________________ TIN
IDENTIFICATION NUMBER (TIN) CITY STATE ZIP CODE / /
AND CERTIFICATION
</TABLE>
<TABLE>
<S> <C>
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.
</TABLE>
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: __________________ , 1997
12
<PAGE>
The Information Agent:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(800) 769-5414
The Dealer Manager:
LEGG MASON WOOD WALKER
Incorporated
7 East Redwood Street, 6th Floor
Baltimore, MD 21202
(410) 528-2231
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
Purpose of Form. -- A person who is required to file an information return
with the IRS must get your correct taxpayer identification number (TIN) to
report, for example, income paid to you, real estate transactions, mortgage
interest you paid, acquisition or abandonment of secured property, cancellation
of debt, or contributions you made to an IRA.
Use Form W-9 to give your correct TIN to the person requesting it (the
requester) and, when applicable, to:
1. Certify the TIN you are giving is correct (or you are waiting for a
number to be issued),
2. Certify you are not subject to backup withholding,
3. Claim exemption from backup withholding if you are an exempt payee.
Note: If a requester gives you a form other than a W-9 to request your TIN,
you must use the requester's form if it is substantially similar to this Form
W-9.
What is Backup Withholding? -- Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called 'backup withholding.' Payments that may be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the proper certifications,
and report all your taxable interest and dividends on your tax return, payments
you receive will not be subject to backup withholding. Payments you receive will
be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because you
did not report all your interest and dividends on your tax return (for
reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN when required. See the Part III instructions
on page 3 for details.
Certain payees and payments are exempt from backup withholding. See the
Part II instructions and the separate Instructions for the Requester of Form
W-9.
PENALTIES
Failure to Furnish TIN. -- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
Civil Penalty for False Information With Respect to Withholding. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
Criminal Penalty for Falsifying Information. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
Misuse of TINs. -- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
Name. -- If you are an individual, you must generally enter the name shown
on your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, enter your first name, the last name shown on your social
security card, and your new last name.
If the account is in joint names, list first and then circle the name of
the person or entity whose number you enter in Part I of the form.
<PAGE>
Sole Proprietor. -- You must enter your individual name as shown on your
social security card. You may enter your business, trade, or 'doing business as'
name on the business name line.
Other Entities. -- Enter the business name as shown on required Federal tax
documents. This name should match the name shown on the charter or other legal
document creating the entity. You may enter any business, trade or 'doing
business as' name on the business name line.
PART I -- TAXPAYER IDENTIFICATION NUMBER
You must enter your TIN in the appropriate box. If you are a resident alien
and you do not have and are not eligible to get an SSN, your TIN is your IRS
individual taxpayer identification number (ITIN). Enter it in the social
security number box. If you do not have an ITIN, see How To Get a TIN below.
If you are a sole proprietor and you have an EIN, you may enter either your
SSN or EIN. However, using your EIN may result in unnecessary notices to the
requester.
Note: See the chart on pages 4 and 5 for further clarification of name and
TIN combinations.
How to Obtain a TIN. -- If you do not have a TIN, apply for one
immediately. To apply for an SSN, get Form SS-5 from your local Social Security
Administration office. Get Form W-7 to apply for an ITIN or Form SS-4 to apply
for an EIN. You can get Forms W-7 and SS-4 from the IRS by calling
1-800-TAX-FORM (1-800-829-3676).
If you do not have a TIN, write 'Applied For' in the space for the TIN,
sign and date the form, and give it to the requester. For interest and dividend
payments, and certain payments made with respect to readily tradable
instruments, you will generally have 60 days to get a TIN and give it to the
requester. Other payments are subject to backup withholding.
Note: Writing 'Applied For' means that you have already applied for a TIN
OR that you intend to apply for one soon.
PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are not exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends. For more information on exempt payees,
see the separate instructions for the Requester of Form W-9.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write 'Exempt' in Part II, and sign and date the form.
If you are a nonresident alien or a foreign entity not subject to backup
withholding, give the requester a completed Form W-8, Certificate of Foreign
Status.
PART III -- CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should
sign (when required).
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and
Broker Accounts Considered Active During 1983. You give your correct TIN, but
you do not have to sign the certification.
2. Interest, Dividend, Broker and Barter Exchange Accounts Opened After
1983 and Broker Accounts Considered Inactive During 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may cross
out item 2 of the certification.
4. Other Payments. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified that you have previously
given an incorrect TIN. 'Other payments' include payments made in the course of
the requester's trade or business for rents, royalties, goods (other than bills
for merchandise), medical and health care services (including payments to
corporations), payments to a nonemployee for services (including attorney and
accounting fees), and payments to certain fishing boat crew members.
5. Mortgage Interest Paid by You, Acquisition or Abandonment of Secured
Property, Cancellation of Debt, or IRA Contributions. You must give your correct
TIN, but you do not have to sign the certification.
<PAGE>
PRIVACY ACT NOTICE
Section 6109 of the Internal Revenue Code requires you to give your correct
TIN to persons who must file information returns with the IRS to report
interest, dividends, and certain other income paid to you, mortgage interest you
paid, the acquisition or abandonment of secured property, cancellation of debt,
or contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. The IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states, and the District of Columbia to carry out
their tax laws.
You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not give a TIN to a payer. Certain
penalties may also apply.
NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<S> <C>
For this type of account: Give name and SSN of:
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined funds,
the first individual on the account(1)
3. Custodian account of a minor (Uniform Gift The minor(2)
to Minors Act)
4. a. The usual revocable savings trust The grantor-trustee1
(grantor is also trustee)
b. So-called trust account that is not a The actual owner(1)
legal or valid trust under state law
5. Sole proprietorship The owner(3)
For this type of account: Give name and EIN of:
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or pension trust The legal entity(4)
8. Corporate The corporation
9. Association, club, religious, charitable, The organization
educational, or other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of Agriculture in the The public entity
name of a public entity (such as a state or local
government, school district or prison) that receives
agricultural program payments
</TABLE>
- ------------------
1. List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.
2. Circle the minor's name and furnish the minor's SSN.
3. You must show your individual name, but you may also enter your business or
'doing business as' name. You may use either your SSN or EIN (if you have one).
4. List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
Note: If no name is circled when more than one name listed, the number will be
considered to be that of the first name listed.
<PAGE>
[LOGO]
April 18, 1997
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 (the 'Shares'), at a price of $70.00 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.
The Company is making the offer because it believes that, given the current
market price of the Shares and the opportunity for the Company to replace the
Shares with indebtedness, in the form of bank borrowings, that has a lower
after-tax cost, the purchase of the Shares pursuant to the offer is economically
attractive to the Company. In addition, the offer gives holders of Shares the
opportunity to sell their Shares at a premium over market price and without the
usual transaction costs associated with a market sale.
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. If you do not wish to participate in the offer, you do not need to
take any action.
Neither the Company nor its Board of Directors makes any recommendation to
any stockholder whether to tender all or any Shares.
Sincerely,
/s/ Thomas F. Karam
Thomas F. Karam
President and Chief Executive Officer
/s/ Kenneth L. Pollock
Kenneth L. Pollock
Chairman of the Board
<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: ChaseMellon Shareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
<S> <C> <C>
Reorganization Department (201) 329-8936 Reorganization Department
P.O. Box 3301 120 Broadway
South Hackensack, NJ 13th Floor
07606 New York, NY 10271
Confirm by Telephone:
(201) 296-4209
or
(201) 296-4381
</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 April 18, 1997 (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.
<TABLE>
<S> <C>
Number of Shares:
______________________________________________________ ______________________________________________________
Certificate Nos.: (if available) Signature(s)
______________________________________________________ ______________________________________________________
Name(s) (Please Print)
______________________________________________________ ______________________________________________________
If Shares will be tendered by book-entry transfer: Address
Name of Tendering Institution:
______________________________________________________
______________________________________________________
______________________________________________________
Account No. __________________________ at (check one) Area Code and Telephone Number
</TABLE>
/ / 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.
<TABLE>
<S> <C>
______________________________________________________ ______________________________________________________
Name of Firm Authorized Signature
______________________________________________________ ______________________________________________________
Address Name
______________________________________________________ ______________________________________________________
City, State, Zip Code Title
______________________________________________________
Area Code and Telephone Number
Dated: _________________________________________, 1997
</TABLE>
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 FRIDAY, MAY 16, 1997, UNLESS THE OFFER IS
EXTENDED.
April 18, 1997
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 $70.00 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
April 18, 1997 (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 $1.50 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.
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, ChaseMellon
Shareholder Services, L.L.C., as Depositary (the 'Depositary') must have
received from such Soliciting Dealer a properly completed and duly
<PAGE>
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 April 18, 1997.
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 and the Chairman of the Board of the
Company, dated April 18, 1997.
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. 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.
6. A return envelope addressed to ChaseMellon 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
FRIDAY, MAY 16, 1997, UNLESS THE OFFER IS EXTENDED.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. STOCKHOLDERS MUST
MAKE THEIR 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 INTENDS TO TENDER SHARES PURSUANT TO THE OFFER BECAUSE 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>
................................................................................
DETACH ALONG DOTTED LINE AND RETURN TO DEPOSITARY
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>
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 ($ PER SHARE)
<S> <C> <C> <C>
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.
<TABLE>
<S> <C>
- -------------------------------------------------------- --------------------------------------------------------
Printed Firm Name Address
- -------------------------------------------------------- --------------------------------------------------------
Authorized Signature Area Code and Telephone Number
</TABLE>
<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 April
18, 1997 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.
PG Energy Inc.
formerly
Pennsylvania Gas and Water Company
Notice of Offer 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>
4.10% Cumulative Preferred Stock 78,853 $70.00 PGWCP
</TABLE>
PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania
Gas and Water Company (the "Company"), invites the holders of its 4.10%
Cumulative Preferred Stock (the "Shares") to tender any or all of their Shares
to the Company for purchase at the purchase price set forth above, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated April 18, 1997 (the "Offer to Purchase") and in the
Letter of Transmittal for the Shares tendered (the "Letter of Transmittal"). 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 FRIDAY, MAY 16, 1997, UNLESS THE OFFER IS EXTENDED.
-----------------------------------------------------------------
Neither the Company nor any of its directors or executive officers makes
any recommendation to stockholders as to whether to tender all or any Shares.
Each stockholder must make his or her own decision as to whether to tender
Shares and, if so, how many Shares to tender.
The Offer gives holders of Shares the opportunity to sell their Shares at a
premium over market price and without the usual transaction costs associated
with a market sale. 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 Company will pay to a Soliciting Dealer (as defined in the Offer to
Purchase) a solicitation fee of $1.50 per Share for any Shares tendered and
accepted for payment and paid for pursuant to the Offer, subject to certain
conditions.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after June 13, 1997, unless theretofore accepted for
payment as provided in the Offer to Purchase.
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.
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 Dealer Manager: The Information Agent:
Legg Mason Wood Walker D.F. King & Co., Inc.
Incorporated 77 Water Street
New York, New York 10005
7 East Redwood Street, 6th Floor (800) 769-5414
Baltimore, MD 21202
April 18, 1997
================================================================================
<PAGE>
97/
FROM: ROBERT J. LOPATTO
RELEASE: UPON RECEIPT
PHONE: 717/829-8814
PG ENERGY INC. (FORMERLY PENNSYLVANIA GAS AND WATER COMPANY)
TO REPURCHASE ITS 4.10% CUMULATIVE PREFERRED STOCK
WILKES-BARRE, PA, April 18, 1997 -- 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 shares of
4.10% Cumulative Preferred Stock (the "Shares") at a price of $70.00 per share,
net to the seller in cash. The offer begins today, April 18, 1997, and is
subject to the terms and conditions described in the offering materials, which
are being mailed to record holders of Shares.
The Company is making the offer because it believes that, given the current
market price of the Shares and the opportunity for the Company to replace the
Shares with indebtedness, in the form of bank borrowings, that has a lower
after - tax cost, the purchase of Shares pursuant to the offer is economically
attractive to the Company. Additionally, the offer will afford to shareholders
the opportunity to sell their Shares at a premium over market price and without
the usual transaction costs associated with a market sale.
The offer will expire at 5:00 p.m., New York City time, on Friday, May 16,
1997, 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 Inc. provides natural gas to approximately 148,000 customers in
twelve counties in northeastern Pennsylvania.
# # #
<PAGE>
PG ENERGY INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
--------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 160,594 $ 152,756 $ 167,992
Cost of gas 88,291 84,372 98,653
--------- --------- ---------
OPERATING MARGIN 72,303 68,384 69,339
--------- --------- ---------
OTHER OPERATING EXPENSES:
Operation 25,070 22,438 22,652
Maintenance 5,513 4,967 4,436
Depreciation 7,612 6,971 6,667
Income taxes 6,364 5,168 5,649
Taxes other than income taxes 11,028 9,918 10,807
--------- --------- ---------
Total other operating expenses 55,587 49,462 50,211
--------- --------- ---------
OPERATING INCOME 16,716 18,922 19,128
OTHER INCOME, NET (Note 4) 143 301 72
--------- --------- ---------
INCOME BEFORE INTEREST CHARGES 16,859 19,223 19,200
--------- --------- ---------
INTEREST CHARGES:
Interest on long-term debt 6,862 9,304 8,914
Other interest 658 1,543 1,005
Allowance for borrowed funds used
during construction (177) (94) (21)
--------- --------- ---------
Total interest charges 7,343 10,753 9,898
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 9,516 8,470 9,302
INCOME (LOSS) WITH RESPECT TO DISCONTINUED
OPERATIONS (Note 2) (363) (3,834) 10,504
--------- --------- ---------
NET INCOME 9,153 4,636 19,806
DIVIDENDS ON PREFERRED STOCK 1,730 2,763 4,639
--------- --------- ---------
EARNINGS APPLICABLE TO COMMON STOCK $ 7,423 $ 1,873 $ 15,167
========= ========= =========
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ 2.16 $ 1.02 $ .90
Discontinued operations (.10) (.69) 2.02
--------- --------- ---------
Income before premium on repurchase/
redemption of preferred stock 2.06 .33 2.92
Premium on repurchase/redemption of
preferred stock (.37) - (.19)
--------- --------- ---------
Total $ 1.69 $ .33 $ 2.73
========= ========= =========
Weighted average number of shares outstanding 3,601,072 5,569,765 5,189,108
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-25-
<PAGE>
PG ENERGY INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-------- --------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
UTILITY PLANT:
At original cost $319,205 $295,895
Accumulated depreciation (79,783) (76,882)
-------- --------
239,422 219,013
-------- --------
OTHER PROPERTY AND INVESTMENTS 4,894 5,089
-------- --------
CURRENT ASSETS:
Cash and cash equivalents 690 328
Accounts receivable -
Customers 17,183 18,189
Affiliates, net 58 -
Others 565 815
Reserve for uncollectible accounts (1,140) (781)
Accrued utility revenues 11,830 10,319
Materials and supplies, at average cost 2,460 2,609
Gas held by suppliers, at average cost 20,265 15,140
Natural gas transition costs collectible 2,525 4,612
Deferred cost of gas and supplier refunds, net 19,316 -
Prepaid expenses and other 1,313 3,281
-------- --------
75,065 54,512
-------- --------
DEFERRED CHARGES:
Regulatory assets -
Deferred taxes collectible 29,771 30,015
Other 4,274 3,013
Unamortized debt expense 1,153 1,340
-------- --------
35,198 34,368
-------- --------
NET ASSETS OF DISCONTINUED OPERATIONS (Note 2) - 204,250
-------- --------
TOTAL ASSETS $354,579 $517,232
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-26-
<PAGE>
PG ENERGY INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-------- --------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see accompanying statements):
Common shareholder's investment (Notes 5 and 8) $ 96,005 $208,356
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 18,851 33,615
Subject to mandatory redemption 739 1,680
Long-term debt (Note 7) 55,000 55,000
-------- --------
170,595 298,651
-------- --------
CURRENT LIABILITIES:
Current portion of long-term debt (Notes 7 and 9)
Parent 31,400 -
Other 38,721 115,801
Preferred stock subject to repurchase or mandatory
redemption (Note 6) 115 80
Note payable (Note 9) 10,000 10,000
Accounts payable -
Suppliers 17,831 17,781
Parent 348 760
Affiliates, net - 66
Deferred cost of gas and supplier refunds, net - 434
Accrued general business and realty taxes 2,239 1,542
Accrued income taxes 14,559 516
Accrued interest 1,936 2,062
Accrued natural gas transition costs (Note 3) 2,095 2,278
Other 3,375 3,162
-------- --------
122,619 154,482
-------- --------
DEFERRED CREDITS:
Deferred income taxes 49,119 48,848
Accrued natural gas transition costs (Note 3) - 1,144
Unamortized investment tax credits 4,767 4,938
Operating reserves 3,086 3,709
Other 4,393 5,460
-------- --------
61,365 64,099
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $354,579 $517,232
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-27-
<PAGE>
PG ENERGY INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
--------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 9,516 $ 8,470 $ 9,302
Effects of noncash charges to income -
Depreciation 7,675 7,018 6,693
Deferred income taxes, net 1,940 (265) 725
Provisions for self insurance 1,042 2,652 1,030
Other, net 1,390 5,190 2,755
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues 46 (3,309) 1,546
Gas held by suppliers (5,125) 4,885 6,625
Accounts payable 215 839 (5,609)
Deferred cost of gas and supplier refunds, net (18,493) 5,715 5,784
Other current assets and liabilities, net 2,958 (6,622) (658)
Other operating items, net (5,644) 2,675 (4,020)
--------- -------- --------
Net cash provided by (used for) continuing
operations (4,480) 27,248 24,173
Net cash provided by (used for) discontinued
operations (45,173) 3,764 552
--------- -------- --------
Net cash provided by (used for) operating
activities (49,653) 31,012 24,725
--------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (29,312) (20,615) (16,960)
Proceeds from the sale of discontinued
operations 261,752 - -
Other, net 1,078 (4,934) 1,098
--------- -------- --------
Net cash provided by (used for) investing
activities 233,518 (25,549) (15,862)
--------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 339 5,720 23,439
Repurchase of common stock (85,008) - -
Redemption of preferred stock (15,670) (80) (30,080)
Dividends on common and preferred stock (35,498) (18,032) (14,244)
Issuance of long-term debt - 50,000 30,000
Issuance of long-term debt to parent 49,900 - -
Repayment of long-term debt (50,000) (53,535) (31,055)
Repayment of long-term debt to parent (18,500) - -
Repayment of note payable to parent - - (3,680)
Net increase (decrease) in bank borrowings (27,723) 10,519 15,370
Other, net (1,343) (31) (1,023)
--------- -------- --------
Net cash used for financing activities (183,503) (5,439) (11,273)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 362 24 (2,410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 328 304 2,714
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 690 $ 328 $ 304
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,139 $ 23,802 $ 21,001
========= ======== ========
Income taxes $ 46,483 $ 8,694 $ 7,353
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-28-
<PAGE>
PG ENERGY INC.
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995
--------- -------
(Thousands of Dollars)
<S> <C> <C> <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 - 3,314,155 and
5,602,480 shares, respectively $ 33,142 $ 56,025
Additional paid-in capital 32,677 94,463
Retained earnings 30,186 57,868
--------- ---------
Total common shareholder's investment 96,005 56.3% 208,356 69.8%
--------- ---------
PREFERRED STOCK, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
79,670 and 100,000 shares outstanding,
respectively 7,967 10,000
Less current repurchases (35) -
9% cumulative preferred, 115,641 and
250,000 shares outstanding, respectively,
net of issuance costs 10,919 23,615
--------- ---------
Total preferred stock not subject to
mandatory redemption, net 18,851 11.1% 33,615 11.2%
--------- ---------
Subject to mandatory redemption -
5.75% cumulative preferred, 8,192 and
17,600 shares outstanding, respectively 819 1,760
Less current redemption requirements (80) (80)
--------- ---------
Total preferred stock subject to
mandatory redemption 739 0.4% 1,680 0.6%
--------- ---------
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 55,000
Notes 70,121 115,801
Less current maturities and sinking
fund requirements (70,121) (115,801)
--------- ---------
Total long-term debt 55,000 32.2% 55,000 18.4%
--------- ------ --------- ------
TOTAL CAPITALIZATION $ 170,595 100.0% $ 298,651 100.0%
========= ====== ========= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-29-
<PAGE>
PG ENERGY INC.
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------- ---------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
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
Net income for 1996 - - 9,153 9,153
Issuance of common stock 90 249 - 339
Repurchase of common stock (22,973) (62,035) - (85,008)
Premium on repurchase of
preferred stock - - (1,337) (1,337)
Dividends on:
Preferred stock (Note 6) - - (1,730) (1,730)
Common stock ($10.217 per share) - - (33,768) (33,768)
------- ---------- -------- --------
Balance at December 31, 1996 $33,142 $ 32,677 $ 30,186 $ 96,005
======= ========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-30-
<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. On February
14, 1997, PGE acquired all of the outstanding capital stock of Honesdale Gas
Company ("Honesdale"), a regulated public utility serving approximately 3,200
customers in portions of Pike and Wayne Counties in northeastern Pennsylvania.
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 and regulatory matters (see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Restructuring of Natural Gas Industry" in Item 7 of this Form 10-K)
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 9% in 1996, 8% in 1995 and 7% in 1994.
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 2.60% in
1996, 2.75% in 1995 and 2.77% in 1994, respectively.
-31-
<PAGE>
When depreciable property is retired, the original cost of such property
is removed from the utility plant accounts and is charged, together with the
cost of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PGE bills its customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
PGE generally passes on to its customers increases or decreases in gas
costs from those reflected in its tariff charges. In accordance with this
procedure, PGE defers any current under or over-recoveries of gas costs and
collects or refunds such amounts in subsequent periods. PGE had underrecoveries
of gas costs totaling $29.6 million, $10.4 million and $15.8 million as of
December 31, 1996, 1995 and 1994, respectively.
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 PGE's opinion, 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, the following deferred charges are included as "Other"
regulatory assets as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- ------
(Thousands of Dollars)
<S> <C> <C>
Computer software costs $ 1,293 $ 415
Early retirement plan charges 664 710
Rate case expense 588 11
Low income usage reduction program 492 429
Extraordinary charges due to flooding 426 -
Customer assistance program 219 109
Corrosion control costs 194 341
Natural gas transition costs collectible - 497
Other 398 501
------- -------
Total $ 4,274 $ 3,013
======= =======
</TABLE>
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.
-32-
<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, 1996 and
1995, are shown below:
<TABLE>
<CAPTION>
1996 1995
------- -------
(Thousands of Dollars)
<S> <C> <C>
Utility plant basis differences $53,132 $51,822
FERC Order 636 transition costs 181 700
Postretirement benefits (726) (536)
Take-or-pay costs, net (467) (467)
Alternative minimum tax - (1,947)
Operating reserves (1,406) (1,300)
Other (1,595) 576
------- -------
Net deferred income tax liability $49,119 $48,848
======= =======
</TABLE>
The provision for income taxes relative to continuing operations consists
of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
(Thousands of Dollars)
<S> <C> <C> <C>
Included in operating expenses:
Currently payable -
Federal $ 3,235 $ 4,457 $ 3,013
State 1,361 1,169 1,128
------- ------- -------
Total currently payable 4,596 5,626 4,141
------- ------- -------
Deferred, net -
Federal 2,059 198 1,785
State (119) (463) (105)
------- ------- -------
Total deferred, net 1,940 (265) 1,680
------- ------- -------
Amortization of investment tax credits (172) (193) (172)
------- ------- -------
Total included in operating expenses 6,364 5,168 5,649
------- ------- -------
Included in other income, net:
Currently payable -
Federal (59) 135 213
State (19) 43 85
------- ------- -------
Total currently payable (78) 178 298
------- ------- -------
Deferred, net -
Federal - - (5)
State - - -
------- ------- -------
Total deferred, net - - (5)
------- ------- -------
Total included in other income, net (78) 178 293
------- ------- -------
Total provision for income taxes $ 6,286 $ 5,346 $ 5,942
======= ======= =======
</TABLE>
-33-
<PAGE>
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:
<TABLE>
1996 1995 1994
------- ------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Income before income taxes $15,802 $13,816 $15,293
======= ======= =======
Tax expense at statutory federal
income tax rate $ 5,531 $ 4,836 $ 5,353
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 795 487 879
Amortization of investment tax
credits (172) (193) (172)
Other, net 132 216 (118)
------- ------- -------
Total provision for income taxes $ 6,286 $ 5,346 $ 5,942
======= ======= =======
</TABLE>
Long Lived Assets. FASB Statement 121, "Accounting for the Impairment of
Long-Lived Assets", requires 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 did not have a significant
impact on PGE. The carrying amount of all assets, including regulatory assets,
is considered recoverable.
(2) DISCONTINUED OPERATIONS
Pursuant to an Asset Purchase Agreement dated April 26, 1995, as amended
(the "Agreement"), among PEI, PGE, American Water Works Company, Inc.
("American") and Pennsylvania-American Water Company ("Pennsylvania-American"),
a wholly-owned subsidiary of American, PEI and PGE sold substantially all of the
assets, properties and rights of PGE's water utility operations to
Pennsylvania-American on February 16, 1996. Under the terms of the Agreement,
Pennsylvania-American paid PGE $414.3 million consisting of $262.1 million in
cash and the assumption of $152.2 million of PGE's liabilities, including $141.0
million of its long-term debt. PGE continued to operate the water utility
business until February 16, 1996. The cash proceeds from the sale of
approximately $203.3 million, net of the estimated $58.8 million of income
taxes, have been used by PEI and PGE to retire debt, to repurchase stock (see
Note 5 of the Notes to Financial Statements), for construction expenditures and
for working capital for their continuing operations.
The sale price reflected a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other items,
the sale resulted in an estimated after tax loss of approximately $6.2 million,
net of the 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
-34-
<PAGE>
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 $58.8 million, of which $44.6 million had been paid as of
December 31, 1996.
The accompanying financial statements reflect PGE's water utility
operations as "discontinued operations" effective March 31, 1995. Interest
charges relating to indebtedness of PGE were allocated through the date of
disposition 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 were allocated to the discontinued operations.
Selected financial information for the discontinued operations as of
December 31, 1995, and for the years ended December 31, 1995 and 1994 is set
forth below:
Net Assets of Discontinued Operations
<TABLE>
<CAPTION>
As of
December 31, 1995
-----------------
(Thousands of Dollars)
<S> <C>
Net utility plant $ 368,742
Current assets (primarily accounts receivable
and accrued revenues) 38,508
-----------------
Total assets being acquired by
Pennsylvania-American 407,250
Liabilities being assumed by
Pennsylvania-American 147,080
-----------------
Net assets being acquired by
Pennsylvania-American 260,170
Estimated liability for income taxes on
sale of discontinued operations (56,710)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790
-----------------
Total net assets of discontinued operations $ 204,250
=================
</TABLE>
Income From Discontinued Operations
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1995* 1994
-------- ------
(Thousands of Dollars)
<S> <C> <C>
Operating revenues $ 15,640 $ 66,731
Operating expenses, excluding income taxes 8,875 36,677
-------- --------
Operating income before income taxes 6,765 30,054
Income taxes 1,403 6,850
-------- --------
Operating income 5,362 23,204
Other income 9 49
Allocated interest charges (3,244) (12,749)
-------- --------
Income from discontinued operations $ 2,127 $ 10,504
======== ========
</TABLE>
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
-35-
<PAGE>
Net Cash Provided by Discontinued Operations
<TABLE>
<CAPTION>
Years ended December 31,
1995* 1994
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Income from discontinued operations $ 2,127 $ 10,504
Noncash charges (credits) to income:
Depreciation 1,946 7,672
Deferred treatment plant costs, net 145 581
Deferred income taxes 447 5,146
Deferred water utility billings - (5,574)
Changes in working capital, exclusive
of long-term debt 1,648 353
Additions to utility plant (2,276) (20,980)
Utilization of restricted funds - 9,753
Net increase (decrease) in long-term
debt 1,010 (6,834)
Other, net (1,283) (69)
-------- --------
Net cash provided by discontinued
operations $ 3,764 $ 552
======== ========
</TABLE>
* 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
Rate Increase. On May 24, 1996, PGE filed an application with the PPUC
seeking an increase in its base gas rates, designed to produce $14.1 million in
additional annual revenue, to be effective July 23, 1996. On June 20, 1996, the
PPUC suspended this rate increase for seven months (until February 23, 1997) in
order to investigate the reasonableness of the proposed rates. On November 7,
1996, PGE and certain parties filing objections to the rate increase request
filed a Settlement Agreement and Joint Petition for Settlement of Rate
Investigation (the "Settlement Petition") with the Administrative Law Judge
assigned to conduct the investigation of the rate increase request. This
Settlement Petition provided for an overall 5.3% rate increase that was designed
to produce $7.5 million of additional annual revenue. By Order adopted December
19, 1996, the PPUC approved the Settlement Petition effective January 15, 1997.
Under the terms of the Settlement Petition, the billing for the impact of the
rate increase relative to PGE's residential heating customers (which it is
estimated will total $6.6 million on an annual basis) is being deferred, without
carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility
Code require that the tariffs of local gas distribution companies ("LDCs") 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
procedure includes a process for the reconciliation of actual gas costs incurred
and actual revenues received and also provides for the refund of any
overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs.
-36-
<PAGE>
In accordance with these procedures, PGE has been permitted to make the
following changes since January 1, 1994, to the gas costs contained in its gas
tariff rates:
<TABLE>
<CAPTION>
Change in
Rate per MCF Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
---------------- ---- ---- -------------------
<S> <C> <C> <C>
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
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)
</TABLE>
* Represents estimated reduction in revenue for the period May 15, 1995,
through November 30, 1995.
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.
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 filings
made with the PPUC by PGE and other LDCs. 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 LDCs through the filing of
a tariff pursuant to either the existing surcharge or base rate provisions of
the Code. The PGC Order further stated that all such filings would be evaluated
on a case-by-case basis.
PGE was billed a total of $1.3 million of Gas Transition Costs by its
interstate pipelines. Of this amount, $857,000 was recovered by PGE over a
twelve-month period ended January 31, 1995, through an increase in its PGC rate,
$252,000 was recovered by PGE in its annual PGC rate that the PPUC approved
effective December 1, 1995, and the remaining $213,000 is being recovered by PGE
in its PGC rate that was effective December 1, 1996.
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 $10.1 million of Non-Gas
Transition Costs will be billed to PGE, generally over a six-year period
extending through January 1, 1999, of which $8.0 million had been billed to PGE
and $7.5 million had been recovered from its customers as of December 31, 1996.
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.
-37-
<PAGE>
(4) OTHER INCOME, NET
Other income, net was comprised of the following elements:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1996 1995 1994
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Net interest income on the temporary
investment of proceeds from the sale
of PGE's water utility operations $ 267 $ - $ -
Loss on sale and retirement of gas wells
and related abandonment of subsurface gas
rights, net of related income taxes (321) - -
Gain on sale of land and other property,
net of related income taxes 141 - 165
Write-off of expired advances relating
to income taxes, net of related
income taxes - 227 -
Amortization of preferred stock issuance
costs, net of related income tax
benefits (13) (1) (227)
Other 69 75 134
------- ------- -------
Total $ 143 $ 301 $ 72
======= ======= =======
</TABLE>
(5) COMMON STOCK
On May 31, 1994, PGE issued 500,000 shares of its common stock to PEI for
aggregate net proceeds of $20.0 million. 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. Other than shares issued in connection with PEI's Dividend
Reinvestment and Stock Purchase Plan and Customer Stock Purchase Plan, PGE has
not issued any other shares of common stock since January 1, 1994.
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provided the residential customers of PGE with a method
of purchasing newly-issued shares of 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.
PGE also obtains external funds from the sale of its common stock to PEI
in connection with PEI's Dividend Reinvestment and Stock Purchase Plan (the
"DRP"). However, from June 14, 1996, through December 31, 1996, PEI temporarily
suspended the sale of stock to the DRP as a result of the proceeds received from
the sale of PGE's water utility operations, and during that period the DRP
obtained shares of PEI common stock for participants through open market
purchases. Although effective January 1, 1997, PEI resumed selling stock to the
DRP, PGE does not expect to make sales of its common stock to PEI in connection
with the DRP during 1997 because of the significant reduction in PGE's capital
requirements resulting from the sale of PGE's water utility operations to
Pennsylvania-American.
-38-
<PAGE>
Through the DRP, holders of shares of PEI's common stock may reinvest cash
dividends and/or make cash investments in common stock of PEI. During 1996, 1995
and 1994, PGE realized $340,000, $3.3 million and $1.8 million, respectively,
from the issuance of common stock to PEI in connection with the DRP.
On February 16, 1996, PGE repurchased 2,297,297 shares of its common stock
from PEI for an aggregate consideration of $85.0 million, with a portion of the
proceeds from the sale of its water utility operations to Pennsylvania-American.
(6) PREFERRED STOCK
Preferred Stock Subject to Mandatory Redemption. 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. On June
17, 1996, PGE repurchased 9,408 shares of its 5.75% cumulative preferred stock
(including 800 shares redeemed in accordance with annual sinking fund
provisions) for an aggregate consideration of $838,000. Eight hundred such
shares were acquired and cancelled by PGE in each of the years ended December
31, 1995 and 1994, for an aggregate purchase price in each year of $80,000.
As of December 31, 1996, 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 1997 through 2001. At PGE's option, the 5.75% cumulative preferred
stock may currently be redeemed at a price of $102.00 per share ($836,000 in the
aggregate).
Preferred Stock Not Subject to Mandatory Redemption. During the year ended
December 31, 1996, PGE repurchased 134,359 shares of its 9% cumulative preferred
stock, $100 par value, for an aggregate consideration of $14.5 million, largely
pursuant to a self tender offer conducted during March and April, 1996. The 9%
cumulative preferred stock is not redeemable at the option of 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.
During the year ended December 31, 1996, PGE repurchased 20,330 shares of
its 4.10% cumulative preferred stock, $100 par value, for an aggregate
consideration of $1.0 million, largely pursuant to a self tender offer conducted
during March and April,1996. An additional 350 shares of 4.10% cumulative
-39-
<PAGE>
preferred stock were repurchased in January, 1997, for an aggregate
consideration of $19,000. 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 $8,368,260.
Dividend Information. The dividends on the preferred stock of PGE in each
of the three years in the period ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Series 1996 1995 1994
------ ------ ------ -----
(Thousands of Dollars)
<S> <C> <C> <C>
4.10% $ 348 $ 410 $ 410
5.75% 72 103 108
8.90% - - 1,280
9.00% 1,310 2,250 2,250
9.50% 1988 series - - 591
------ ------ ------
Total $1,730 $2,763 $4,639
====== ====== ======
</TABLE>
Dividends on all series of PGE's preferred stock are cumulative and 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, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds -
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
--------- ---------
55,000 55,000
--------- ---------
Notes -
Term loan, due 1996 - 50,000
Bank borrowings, at weighted average interest
rates of 6.18% and 6.62%, respectively (Note 9) 38,721 65,801
Note payable to PEI 31,400 -
--------- ---------
70,121 115,801
--------- ---------
Less current maturities and sinking
fund requirements (70,121) (115,801)
--------- ---------
Total long-term debt $ 55,000 $ 55,000
========= =========
</TABLE>
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement. 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. PGE repaid its
$50.0 million term loan on February 16, 1996, with proceeds from the sale of its
water operations to Pennsylvania-American.
On August 22, 1996, the PPUC granted PGE permission to borrow up to $70.0
million from PEI during 1996, and also 1997 (at interest rates generally less
than prime), to repay bank borrowings and for construction expenditures and
other working capital requirements, to the extent that PEI has funds available
for lending to PGE. As of December 31, 1996, PGE had $31.4 million outstanding
under its borrowing arrangement with PEI. Such interim borrowings by PGE from
PEI will be repaid with proceeds from bank borrowings by PGE.
-40-
<PAGE>
Maturities and Sinking Fund Requirements. As of December 31, 1996, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
Year Amount
1997 $ 70,121,000 (a)
1998 $ -
1999 $ 10,000,000 (b)
2000 $ -
2001 $ -
(a) Includes $38.7 million of bank borrowings outstanding as of December
31, 1996, and $31.4 million of borrowings payable to PEI.
(b) Represents 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, 1996, $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.
(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 the 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
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 arrangements for six revolving bank lines of credit with
an aggregate borrowing capacity of $65.5 million which provide for borrowings at
interest rates generally less than prime and which mature during mid-1997. As of
March 1, 1997, PGE had $27.2 million outstanding under these bank lines of
credit.
Because of limitations imposed by the terms of PGE's preferred stock, PGE
is prohibited, without the consent of the holders of a majority of the
outstanding shares of its preferred stock, from issuing more than $12.0 million
of unsecured debt due on demand or within one year from issuance. PGE had $10.0
million due on demand or within one year from issuance outstanding as of
December 31, 1996.
-41-
<PAGE>
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------
1996 1995 1994
-------- -------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Borrowings under lines of credit
Short-term $ 10,000 $ 10,000 $ -
Long-term 38,721 65,801 65,500
-------- -------- --------
$ 48,721 $ 75,801 $ 65,500
======== ======== ========
Unused lines of credit
Short-term $ - $ - $ -
Long-term 16,779 4,699 2,000
-------- -------- --------
$ 16,779 $ 4,699 $ 2,000
======== ======== ========
Total lines of credit
Prime rate $ - $ - $ -
Other than prime rate 65,500 80,500 67,500
-------- -------- --------
$ 65,500 $ 80,500 $ 67,500
======== ======== ========
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 10,000 $ 5,692
Daily average amount outstanding $ 1,392 $ 2,581 $ 441
Weighted daily average interest
rate 6.241% 6.513% 3.984%
Weighted average interest rate at
year-end 6.206% 6.334% -
Range of interest rates 5.875- 6.290- 3.700-
6.438% 6.660% 6.000%
</TABLE>
(a) PGE had no short-term bank borrowings outstanding as of December 31,
1994.
(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, with interest
from February 16, 1996, were transferred to the American pension plan in June,
1996. As a result of this and other actions, PGE recognized, as of December 31,
1995, 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.
-42-
<PAGE>
In December, 1995, PGE offered an Early Retirement Plan ("ERP") to its
employees who would be 59 years of age or older and had a minimum of five years
of service as of December 31, 1995. Of the 63 eligible employees, 50 elected to
accept this offer and retired 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 $385,000, $353,000 and $309,000 in 1996, 1995 and 1994,
respectively. The following items were the components of such net pension costs:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Present value of benefits earned
during the year $ 799 $ 430 $ 549
Interest cost on projected benefit
obligations 2,731 1,459 1,400
Return on plan assets (5,875) (1,502) 535
Net amortization and deferral (79) (34) (55)
Deferral of investment (loss) gain 2,809 - (2,120)
-------- -------- --------
Net pension cost $ 385 $ 353 $ 309
======== ======== ========
</TABLE>
The funded status of the plan as of December 31, 1996 and 1995, was as
follows:
<TABLE>
<CAPTION>
1996 1995
-------- ------
(Thousands of Dollars)
<S> <C> <C>
Actuarial present value of the projected benefit obligations:
Accumulated benefit obligations
Vested $ 28,613 $ 29,100
Nonvested 21 47
-------- --------
Total 28,634 29,147
Provision for future salary increases 6,933 7,841
-------- --------
Projected benefit obligations 35,567 36,988
Approximate market value of plan assets, primarily
invested in equities and bonds 39,000 34,000
-------- --------
Plan assets in excess of (less than) projected
benefit obligations 3,433 (2,988)
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (1,939) (2,155)
Unrecognized prior service costs 2,258 1,507
Unrecognized net (gain) loss (4,259) 2,155
-------- --------
Accrued pension cost at year-end $ (507) $ (1,481)
======== ========
</TABLE>
The assumptions used in determining pension obligations were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Discount rate 7.75% 7.00 % 8.75 %
Expected long-term rate of return
on plan assets 9.00% 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00% 5.00 % 5.50 %
</TABLE>
-43-
<PAGE>
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 PGE's obligation to provide retiree health care and life insurance
benefits 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 proportional 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, which is expected to
occur in the second quarter of 1997. Pennsylvania-American is reimbursing PGE
for benefit plan payments made on behalf of the retired employees for whom
Pennsylvania-American has assumed responsibility. 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.
In conjunction with 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 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
1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
(Thousands of Dollars)
<S> <C> <C> <C>
Present value of benefits earned during
the year $ 253 $ 127 $ 148
Interest cost on accumulated benefit
obligation 506 577 532
Return on plan assets - (69) (4)
Net amortization and deferral 314 391 360
-------- -------- --------
Net cost of postretirement benefits other
than pensions 1,073 1,026 1,036
Less disbursements for benefits (501) (555) (543)
-------- -------- --------
Increase in liability for postretirement
benefits other than pensions $ 572 $ 471 $ 493
======== ======== ========
</TABLE>
-44-
<PAGE>
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1996 and 1995 follow:
<TABLE>
<CAPTION>
1996 1995
-------- ------
(Thousands of Dollars)
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 4,359 $ 6,514
Fully eligible active employees 1,033 850
Other active employees 1,552 1,074
-------- --------
6,944 8,438
Plan assets at fair value 169 -
-------- --------
Accumulated benefit obligation
in excess of plan assets 6,775 8,438
Unrecognized transition obligation
being amortized over 20 years (5,022) (5,438)
Unrecognized net gain (loss) 1,116 (703)
-------- --------
Accrued liability for postretirement
benefits other than pensions $ 2,869 $ 2,297
======== ========
</TABLE>
The assumptions used in determining other postretirement benefit
obligations were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Discount rate 7.75 % 7.00 % 8.75 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.00 % 5.50 %
</TABLE>
It was also assumed that the per capita cost of covered health care
benefits would increase at an annual rate of 8-1/2% in 1997 and that this rate
would decrease gradually to 5-1/2% for the year 2003 and remain at that level
thereafter. The health care cost trend rate assumption had a significant effect
on the amounts accrued. To illustrate, increasing the assumed health care cost
trend rate by 1 percentage point in each year would increase the transition
obligation as of January 1, 1997, by approximately $294,000 and the aggregate of
the service and interest cost components of the net cost of postretirement
benefits other than pensions for the year 1996 by approximately $31,000.
Since PGE did not seek to increase its base gas rates prior to 1996, the
$442,000 ($259,000 net of related income taxes), $441,000 ($258,000 net of
related income taxes), and $447,000 ($256,000 net of related income taxes) of
additional cost incurred in 1996, 1995 and 1994, 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. Effective with its January 15, 1997,
base rate increase (see Note 3 of the Notes to Financial Statements), PGE will
begin funding its accumulated benefit obligations with respect to other
postretirement benefits.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1997 construction program will be $27.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, and, to the extent necessary, by
the periodic issuance of stock and long-term debt.
-45-
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES
Environmental Matters. PGE, like many gas distribution companies, once
utilized manufactured gas plants in connection with providing gas service to its
customers. None of these plants has been in operation since 1960, and several of
the plant sites are no longer owned by PGE. Pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), PGE
filed notices with the United States Environmental Protection Agency (the "EPA")
with respect to the former plant sites. None of the sites is or was formerly on
the proposed or final National Priorities List. The EPA has conducted site
inspections and made preliminary assessments of each site and has concluded that
no further remedial action is planned. While this conclusion does not constitute
a legal prohibition against further regulatory action under CERCLA or other
applicable federal or state law, 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.
-46-
<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 69,415 $ 25,457 $ 13,998 $ 51,724
Operating income (loss) 10,033 803 (659) 6,539
Income (loss) from continuing
operations 7,485 (757) (2,690) 3,748
Loss with respect to
discontinued operations (365) (21) - 23
Net income (loss) $ 7,120 $ (778) $ (2,690) $ 3,771
Earnings (loss) per share
of common stock: (a)
Continuing operations $ 1.67 $ (.23) $ (.81) $ 1.13
Discontinued operations (.08) (.01) - .01
--------- -------- ------------- ------------
Net income (loss) before
premium on repurchase/
redemption of preferred
stock 1.59 (.24) (.81) 1.14
Premium on repurchase/
redemption of preferred
stock - (.39) (.03) .01
--------- -------- ------------- ------------
Earnings (loss) per share of
common stock (a) $ 1.59 $ (.63) $ (.84) $ 1.15
========= ======== ============= ============
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
--------- -------- ------------- ------------
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216
Operating income 9,500 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
========= ======== ============= ============
</TABLE>
(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 in 1994
and 1995 and its repurchase of shares of common stock during 1996.
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
-47-
<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, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Long-term debt (including current
portion) $125,121 $ 130,622 $170,801 $ 175,431
Preferred stock subject to
mandatory redemption (including
current portion) 819 836 1,760 1,795
</TABLE>
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.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-48-
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
APRIL 18, 1997
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.
ONE PEI CENTER
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:
KENNETH A. LEFKOWITZ
HUGHES HUBBARD & REED LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
(212) 837-6000
April 18, 1997
(Date Tender Offer First Published, Sent or Given to Security Holders)
Calculation of Filing Fee
- --------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$5,519,710 $1,104
- --------------------------------------------------------------------------------
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 78,853
shares at $70.00 per share. Calculation based on the transaction
valuation multiplied by one-fiftieth of one percent.
<PAGE>
2
[ ] 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>
3
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 One PEI
Center, 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 $70.00
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 April 18, 1997 (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 April 18, 1997, the Company had issued and outstanding
78,853 Shares. Officers, directors and affiliates of the Company may participate
in the Offer on the same basis as the Company's other stockholders, although the
Company has been advised that no executive officer, director or affiliate of the
Company intends to tender any Shares pursuant to the Offer because 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 of the Offer to Purchase is incorporated herein by
reference.
(b) The information set forth under "The Offer-Source and Amount of
Funds" in Section 12 of the Offer to Purchase is incorporated herein by
reference.
ITEM 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
(a) - (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.
<PAGE>
4
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-Selected Historical Financial Information" in
Section 11 of the Offer to Purchase is incorporated herein by reference, and the
information set forth on pages 25 through 48 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, filed as Exhibit (g)(1) 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) Not applicable.
(d) None.
(e) The information set forth in the Offer to Purchase and the Letter
of Transmittal is incorporated herein by reference.
<PAGE>
5
ITEM 9. Material to Be Filed as Exhibits.
(a)(1) Form of Offer to Purchase, dated April 18, 1997.
(a)(2) Form of Letter of Transmittal with Substitute Form W-9.
(a)(3) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(4) Form of Letter to Stockholders of the Company from Thomas F.
Karam, President and Chief Executive Officer of the Company,
and Kenneth L. Pollock, Chairman of the Board of the
Company, dated April 18, 1997.
(a)(5) Form of Notice of Guaranteed Delivery.
(a)(6) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated April 18, 1997.
(a)(7) Form of Summary Advertisement, dated April 21, 1997.
(a)(8) Form of Press Release issued by the Company, dated April
18, 1997.
(b)(1) Promissory Note in the principal amount of $15.0 million
dated April 8, 1997, between PG Energy Inc. and Mellon Bank,
N.A.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
(g)(1) Pages 25 through 48 of the Company's Annual Report on Form
10-K for the Year Ended December 31, 1996.
<PAGE>
6
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: April 18, 1997
<PAGE>
7
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
(a)(1) Form of Offer to Purchase, dated April 18, 1997.
(a)(2) Form of Letter of Transmittal with Substitute Form W-9.
(a)(3) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(4) Form of Letter to Stockholders of the Company from Thomas F. Karam,
President and Chief Executive Officer of the Company and Kenneth L.
Pollock, Chairman of the Board of the Company, dated April 18,
1997.
(a)(5) Form of Notice of Guaranteed Delivery.
(a)(6) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated April 18, 1997.
(a)(7) Form of Summary Advertisement, dated April 21, 1997.
(a)(8) Form of Press Release issued by the Company, dated April 18, 1997.
(b)(1) Promissory Note in the principal amount of $15.0 million dated
April 8, 1997, between PG Energy Inc. and Mellon Bank, N.A.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
(g)(1) Pages 25 through 48 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1996.
