As filed with the Securities and Exchange Commission on August 13, 1997
Registration No. 333-
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
PP&L RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 4911 23-2758192
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION
ORGANIZATION) CODE NUMBER) NO.)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Robert J. Grey
Senior Vice President,
General Counsel and Secretary
PP&L Resources, Inc.
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies of all communications to:
MICHAEL P. ROGAN, ESQ. MARTIN B. MCNAMARA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GIBSON, DUNN & CRUTCHER LLP
1440 NEW YORK AVENUE, N.W. 1717 MAIN STREET, SUITE 5400
WASHINGTON, D.C. 20005 DALLAS, TEXAS 75201
(202) 371-7000 (214) 698-3100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective
and all other conditions to the merger described in the enclosed
Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
REGISTERED (1) REGISTERED (2) PER SHARE (3) OFFERING PRICE (3) FEE (3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$0.01 par value
per share 6,800,000 $12.10 $82,268,000 $24,930
==============================================================================================
</TABLE>
(1) THIS REGISTRATION STATEMENT RELATES TO THE SHARES OF COMMON STOCK,
PAR VALUE $0.01 PER SHARE ("RESOURCES COMMON STOCK"), OF THE
REGISTRANT ISSUABLE TO HOLDERS OF COMMON STOCK, PAR VALUE $1.00 PER
SHARE ("PFG COMMON STOCK"), AND $1.40 CUMULATIVE PREFERRED STOCK
("PFG PREFERRED STOCK") OF PENN FUEL GAS, INC. ("PFG") PURSUANT TO
THE MERGER DESCRIBED IN THE ENCLOSED PROSPECTUS (THE "MERGER"). IN
THE MERGER, EACH SHARE OF PFG COMMON STOCK ISSUED AND OUTSTANDING
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER ("EFFECTIVE
TIME") WILL BE CONVERTED INTO THE RIGHT TO RECEIVE BETWEEN 6.968
AND 8.516 SHARES OF RESOURCES COMMON STOCK, SUBJECT TO CERTAIN
ADJUSTMENTS AS DESCRIBED HEREIN. EACH SHARE OF PFG PREFERRED STOCK
ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME
SHALL BE CONVERTED INTO THE RIGHT TO RECEIVE BETWEEN 0.682 AND
0.833 SHARES OF RESOURCES COMMON STOCK, SUBJECT TO CERTAIN
ADJUSTMENTS AS DESCRIBED HEREIN. NO FRACTIONAL SHARES OF RESOURCES
COMMON STOCK WILL BE ISSUED IN THE MERGER, AND EACH RECORD HOLDER
OF PFG COMMON STOCK OR PFG PREFERRED STOCK WHO WOULD OTHERWISE BE
ENTITLED TO RECEIVE A FRACTION OF A SHARE OF RESOURCES COMMON STOCK
WILL BE ENTITLED TO RECEIVE A CASH PAYMENT IN LIEU OF A FRACTIONAL
SHARE OF RESOURCES COMMON STOCK.
(2) THE NUMBER OF SHARES OF RESOURCES COMMON STOCK BEING REGISTERED HAS
BEEN DETERMINED ON THE BASIS OF THE MAXIMUM NUMBER OF SHARES WHICH
MAY BE ISSUED IN ACCORDANCE WITH THE TERMS OF THE MERGER AGREEMENT.
(3) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE REGISTRATION FEE
IN ACCORDANCE WITH RULE 457(f)(ii) UNDER THE SECURITIES ACT, BASED
ON THE BOOK VALUE OF THE OUTSTANDING SHARES OF PFG COMMON STOCK AND
LIQUIDATION PREFERENCE OF THE OUTSTANDING SHARES OF PFG PREFERRED
STOCK (WHICH ARE NOT PUBLICLY TRADED) AS OF MARCH 31, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
============================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
--------------------
PRELIMINARY PROSPECTUS
PP&L RESOURCES, INC.
6,800,000 SHARES OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
--------------------
This Prospectus ("Prospectus") relates to the registration of
6,800,000 shares of common stock, par value $0.01 per share (the
"Resources Common Stock"), of PP&L Resources, Inc., a Pennsylvania
corporation ("Resources" or the "Company"), to be issued in connection
with a proposed merger (the "Merger") of Keystone Merger Corp., a
Pennsylvania corporation ("Keystone") and a wholly-owned subsidiary of
Resources, with and into Penn Fuel Gas, Inc., a Pennsylvania corporation
("PFG"), with PFG surviving the Merger as a wholly-owned subsidiary of
Resources, pursuant to an Agreement and Plan of Merger, dated as of June
26, 1997 (the "Merger Agreement"), by and among Resources, Keystone and
PFG.
In the Merger, Keystone would be merged with and into PFG and (i)
each share of PFG's common stock, par value $1.00 per share ("PFG Common
Stock"), outstanding prior to the Merger will be converted into the right
to receive between 6.968 and 8.516 shares of Resources Common Stock, as
more fully described in the Merger Agreement, and (ii) each share of PFG
$1.40 Cumulative Preferred Stock ("PFG Preferred Stock") outstanding
prior to the Merger, will be converted into the right to receive between
0.682 and 0.833 shares of Resources Common Stock, as more fully described
in the Merger Agreement. No fractional shares of Resources Common Stock
will be issued in the Merger, and each record holder of PFG Common Stock
or PFG Preferred Stock who would otherwise be entitled to receive a
fraction of a share of Resources Common Stock will be entitled to receive
a cash payment in lieu thereof. See "THE PROPOSED MERGER--Conversion of
Shares; Fractional Shares." This Prospectus constitutes the prospectus of
Resources included as part of a Registration Statement filed with the
Securities and Exchange Commission (the "Commission") with respect to the
shares of Resources Common Stock issuable in the Merger to holders of PFG
Common Stock and PFG Preferred Stock.
The Resources Common Stock is listed on the New York Stock Exchange
(the "NYSE") and the Philadelphia Stock Exchange (the "PhSE") under the
symbol "PPL." On August 8, 1997, the most recent practicable date prior
to the printing of this Prospectus, the closing price of Resources Common
Stock as reported on the NYSE Consolidated Tape was $20 3/16 per share.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST , 1997.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
RESOURCES OR PFG. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES PURSUANT TO THIS PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF RESOURCES OR PFG
SINCE THE DATE OF THIS PROSPECTUS. HOWEVER, IF ANY MATERIAL CHANGE OCCURS
DURING THE PERIOD THAT THIS PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS
PROSPECTUS WILL BE AMENDED AND SUPPLEMENTED ACCORDINGLY. ALL INFORMATION
REGARDING RESOURCES AND ITS SUBSIDIARIES IN THIS PROSPECTUS HAS BEEN
SUPPLIED BY RESOURCES, AND ALL INFORMATION REGARDING PFG AND ITS
SUBSIDIARIES IN THIS PROSPECTUS HAS BEEN SUPPLIED BY PFG.
AVAILABLE INFORMATION
Resources is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other
information with the Commission. Copies of such reports, proxy statements
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
Regional Offices of the Commission: Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois, 60661; and Seven
World Trade Center, Suite 1306, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Certain securities of Resources are listed on the NYSE and the
PhSE. Reports, proxy statements and other information concerning
Resources can be inspected and copied at the respective offices of those
exchanges at 20 Broad Street, New York, New York 10005, and at 1900
Market Street, Philadelphia, Pennsylvania 19103. The Commission also
maintains a site on the World Wide Web at http:\\www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. In
addition, reports, proxy statements and other information concerning
Resources can be inspected at the offices of PP&L Resources, Inc., Two
North Ninth Street, Allentown, Pennsylvania 18101.
Resources has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments or supplements thereto, the
"Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Resources Common
Stock to be issued pursuant to the Merger Agreement. This Prospectus does
not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. Such additional information may be
obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Resources
(File No. 1-11459) pursuant to the Exchange Act are incorporated by
reference and made a part hereof:
(1) Resources' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Resources 1996 Form 10-K");
(2) Resources' Proxy Statement filed on March 13, 1997 for its 1997
Annual Meeting of Shareholders;
(3) Resources' Quarterly Report on Form 10-Q for the three-month period
ended March 31, 1997;
(4) Resources' Current Reports on Form 8-K filed on March 3, 1997, April
2, 1997, May 2, 1997, June 30, 1997 and July 14, 1997; and
(5) The "Description of Registrant's Securities to be Registered"
contained in Item 4 of the Registration Statement on Form 8-B of
Resources dated April 26, 1995 relating to the Resources Common
Stock.
All documents filed by Resources pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the date the offering is terminated, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such documents (such documents, and the documents enumerated
above, being hereinafter referred to as "Incorporated Documents"). Any
statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THE INCORPORATED
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE THEREIN) WILL BE FURNISHED
UPON REQUEST WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS
DELIVERED. WRITTEN OR TELEPHONE REQUESTS SHOULD BE DIRECTED TO PP&L
RESOURCES, INC., TWO NORTH NINTH STREET, ALLENTOWN, PENNSYLVANIA 18101,
ATTENTION: INVESTOR SERVICES DEPARTMENT (800-345-3085). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE INCORPORATED DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY , 1997.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................ 4
SUMMARY OF PROSPECTUS.................................................. 7
MARKET PRICE DATA AND DIVIDENDS........................................ 14
SELECTED HISTORICAL FINANCIAL DATA OF RESOURCES........................ 16
SELECTED HISTORICAL FINANCIAL DATA OF PFG.............................. 17
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA................... 18
THE PROPOSED MERGER.................................................... 19
General.......................................................... 19
Closing; Effective Time.......................................... 19
Conversion of Shares; Fractional Shares.......................... 19
Exchange of Certificates......................................... 19
Background of the Merger......................................... 20
Approval by the Resources Board and Resources'
Reasons for the Merger..................................... 20
Approval by the PFG Board and PFG's Reasons for the
Merger..................................................... 21
Interests of Certain Persons in the Merger....................... 21
Resources Shareholder Approval................................... 22
PFG Shareholder Approval......................................... 22
The Voting Agreement............................................. 23
The Merger Agreement............................................. 23
Registration Rights.............................................. 26
Accounting Treatment............................................. 27
Regulatory Filings and Approvals................................. 27
Restrictions on Sales of Shares by Affiliates.................... 27
Stock Exchange Listing........................................... 28
Dissenters' Rights............................................... 28
Certain Federal Income Tax Consequences of the Merger............ 30
PFG SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................... 31
DESCRIPTION OF RESOURCES CAPITAL STOCK................................. 32
Resources Common Stock........................................... 32
Resources Preferred Stock........................................ 32
DESCRIPTION OF PFG CAPITAL STOCK....................................... 32
PFG Common Stock................................................. 32
PFG Prior Preferred Stock........................................ 33
PFG Preferred Stock.............................................. 33
COMPARISON OF SHAREHOLDER RIGHTS....................................... 34
Authorized Capital Stock......................................... 34
Voting Rights.................................................... 34
Amendments to Charter and Bylaws................................. 34
Preemptive Rights; Cumulative Voting............................. 34
Board of Directors............................................... 34
Removal of Directors............................................. 35
Newly-Created Directorships and Vacancies........................ 35
Nomination of Directors.......................................... 35
Shareholder Proposals............................................ 35
Special Meetings of the Shareholders............................. 36
Shareholder Action by Written Consent............................ 36
Limitation on Director's Liability............................... 36
Indemnification.................................................. 36
LEGAL MATTERS.......................................................... 37
EXPERTS................................................................ 37
PFG'S FINANCIAL STATEMENTS AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................... F-1
ANNEX I: AGREEMENT AND PLAN OF MERGER.................................I-1
ANNEX II: VOTING AGREEMENT...........................................II-1
ANNEX III: SECTIONS 1571-1580 OF THE PBCL...........................III-1
SUMMARY OF PROSPECTUS
The following is a summary of certain information contained
elsewhere in this Prospectus. It is not, and is not intended to be,
complete in itself. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained elsewhere in
this Prospectus, including the Annexes hereto which are a part of this
Prospectus. PFG shareholders are encouraged to read carefully all of the
information contained in this Prospectus.
THE COMPANIES
PP&L Resources, Inc. and Keystone
Merger Corp....................... Resources, with headquarters in
Allentown, Pennsylvania, is an
exempt public utility holding
company with major business
segments including an operating
electric utility (Pennsylvania
Power & Light Company ("PP&L")),
investments in electric energy
projects (Power Markets
Development Company) and
energy-related products and
services (Spectrum Energy Services
Corporation). The principal
executive offices of Resources are
located at Two North Ninth Street,
Allentown, Pennsylvania 18101, and
its telephone number is (610)
774-5151. Keystone is a direct,
wholly-owned subsidiary of
Resources, organized under the
laws of the Commonwealth of
Pennsylvania solely for the
purpose of merging with PFG.
Keystone is not engaged in any
business operations. The mailing
address and telephone number for
Keystone are the same as those for
Resources.
Penn Fuel Gas, Inc.................. PFG, with headquarters in Oxford,
Pennsylvania, is an exempt public
utility holding company with major
business segments including
natural gas distribution,
transmission and storage services
and the sale of propane. The
principal executive offices of PFG
are located at 55 South Third
Street, Oxford, Pennsylvania
19363, and its telephone number is
(610) 932-2000.
Trading Markets and Market
Price Data........................ Shares of Resources Common Stock
are listed and traded on the NYSE
and the PhSE under the symbol
"PPL." The closing price of
Resources Common Stock on June 26,
1997, the last full trading day
prior to the announcement that PFG
and Resources had entered into the
Merger Agreement, was $19 7/8 per
share, as reported by the NYSE
Consolidated Tape. On August 8,
1997, the most recent practicable
date prior to the printing of this
Prospectus, the closing price of
Resources Common Stock, as
reported by the NYSE Consolidated
Tape, was $20 3/16 per share. There
has been no public market for PFG
Common Stock or PFG Preferred
Stock. See "MARKET PRICE DATA AND
DIVIDENDS."
THE PROPOSED MERGER
General............................. At the Effective Time (as defined
below), pursuant to the Merger
Agreement, Keystone will be merged
with and into PFG, with PFG
continuing in existence as a
wholly-owned subsidiary of
Resources (the "Surviving
Corporation" as distinguished from
PFG prior to the Merger).
Closing; Effective Time............. The Merger will become effective
upon the filing of Articles of
Merger with the Department of
State of the Commonwealth of
Pennsylvania in accordance with
the Pennsylvania Business
Corporation Law (the "PBCL") (the
"Effective Time"). Such filing
will be made on the date of the
closing of the Merger (the
"Closing Date"). Immediately prior
to the filing of the Articles of
Merger, a closing (the "Closing")
will be held at the offices of
Resources, Two North Ninth Street,
Allentown, Pennsylvania. See "THE
PROPOSED MERGER--Closing;
Effective Time."
Conversion of Shares................ In the Merger, each share of PFG
Common Stock outstanding prior to
the Effective Time will be
converted into the right to
receive a number of shares (the
"Common Stock Exchange Ratio") of
Resources Common Stock equal to
the quotient obtained by dividing
$153.29 by the average closing
sale price of Resources Common
Stock as reported by the NYSE
Consolidated Tape for the 15
consecutive trading days prior to
the fifth trading day prior to the
Effective Time (the "Resources
Closing Market Price"). If,
however, the quotient obtained is
less than 6.968, the Common Stock
Exchange Ratio shall be fixed at
6.968, and if the quotient
obtained is more than 8.516, the
Common Stock Exchange Ratio shall
be fixed at 8.516. Each share of
PFG Preferred Stock outstanding
prior to the Effective Time that
is, at the election of the holder
thereof, not redeemed in
accordance with its terms will be
converted into the right to
receive a number of shares (the
"Preferred Stock Exchange Ratio")
of Resources Common Stock equal to
the quotient obtained by dividing
(i) the amount equal to the
quotient of (A) the sum of
$10,764,000 plus any accrued and
unpaid dividends on the PFG
Preferred Stock under certain
circumstances, divided by (B)
717,583, by (ii) the Resources
Closing Market Price. If, however,
the quotient is less than 0.682,
the Preferred Stock Exchange Ratio
shall be fixed at 0.682, and if
the quotient is more than 0.833,
the Preferred Stock Exchange Ratio
shall be fixed at 0.833. See "THE
PROPOSED MERGER--Conversion of
Shares; Fractional Shares."
Fractional Shares................... Fractional shares of Resources
Common Stock will not be issued in
the Merger. Holders of PFG Common
Stock and PFG Preferred Stock will
be paid cash in lieu of such
fractional shares. See "THE
PROPOSED MERGER--Conversion of
Shares; Fractional Shares."
Background of the Merger............ For a description of the
Background of the Merger, see "THE
PROPOSED MERGER--Background of the
Merger."
Approval by the Resources Board
and Resources' Reasons for the
Merger............................ The Board of Directors of
Resources (the "Resources Board")
has unanimously approved the
Merger Agreement and the
transactions contemplated thereby.
In reaching its conclusion to
approve the Merger Agreement, the
Resources Board determined that
the Merger is consistent with and
in furtherance of the long-term
business strategy of Resources.
See "THE PROPOSED MERGER--Approval
by the Resources Board and
Resources' Reasons for the
Merger."
Approval by the PFG Board and
PFG's Reasons for the Merger...... The Board of Directors of PFG (the
"PFG Board") has unanimously
approved the Merger Agreement and
the transactions contemplated
thereby. In reaching its
conclusion to approve the Merger
Agreement, the PFG Board concluded
that the Merger was in the best
interest of PFG and its
shareholders. See "THE PROPOSED
MERGER--Approval by the PFG Board
and PFG's Reasons for the Merger."
Interests of Certain Persons
in the Merger..................... Certain members of PFG's
management and the PFG Board may
have certain interests in the
Merger that are in addition to PFG
shareholders, generally. See "THE
PROPOSED MERGER--Interests of
Certain Persons in the Merger."
Resources Shareholder Approval...... The Merger does not require the
approval of the Resources
shareholders. Resources
shareholders will not have
dissenters' appraisal rights in
connection with the Merger.
PFG Shareholder Approval............ The PFG Board has unanimously
approved the Merger Agreement and
the transactions contemplated
thereby. In order to effect the
Merger, the Merger Agreement must
also be approved and adopted by
the affirmative vote of a majority
of the votes cast by holders of
outstanding shares of PFG Common
Stock present at a Special Meeting
of PFG shareholders. A Special
Meeting of PFG shareholders has
been scheduled to be held at
on at .
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND
PFG ANY PROXIES.
On June 26, 1997, concurrently
with entering into the Merger
Agreement, PFG, Resources and
Marilyn Ware Lewis, in her
individual capacity, in her
capacity as attorney-in-fact
pursuant to certain powers of
attorney (the "Powers of
Attorney") and in her capacity as
"Business Manager" (as defined in
the Shareholders Agreement by and
among PFG and certain of its
shareholders dated as of November
19, 1992 and amended as of April
15, 1994 (the "Shareholders
Agreement")) entered into a Voting
Agreement (the "Voting Agreement")
with respect to 679,366 shares of
PFG Common Stock (the "Voting
Agreement Shares").
Pursuant to the terms of the
Voting Agreement, Ms. Lewis has
agreed to vote the Voting
Agreement Shares (constituting
approximately 95% of PFG's issued
and outstanding Common Stock) at
any meeting of the shareholders of
PFG (a) in favor of the Merger,
the Merger Agreement and the
transactions contemplated by the
Merger Agreement and (b) against
any proposal for any
recapitalization, merger, sale of
assets or other business
combination (other than the
Merger) between PFG and any person
or entity or any action or
agreement that would result in a
breach of any covenant,
representation or warranty or of
any other obligation or agreement
of PFG under the Merger Agreement
or which could result in any of
the conditions to PFG's
obligations under the Merger
Agreement not being fulfilled. The
Voting Agreement terminates only
upon termination of the Merger
Agreement. ACCORDINGLY, THE
APPROVAL OF PFG SHAREHOLDERS AT
THE PFG SPECIAL MEETING IS
ASSURED.
Conditions to the Merger............ The obligations of each of PFG,
Keystone, and Resources to
consummate the Merger are subject
to a number of conditions,
including (i) the approval of the
Merger by PFG's shareholders; (ii)
the absence of any preliminary or
permanent injunction prohibiting
the consummation of the Merger;
(iii) the Registration Statement
having become effective and not
being the subject of any stop
order proceedings; (iv) the
expiration or termination of any
waiting period (and any extension
thereof) applicable to the Merger
under the Hart-Scott-Rodino
Antitrust Improvements Act of
1976, as amended (the "HSR Act");
(v) the consents, approvals and
authorizations of all Governmental
Entities (as defined in the Merger
Agreement), including the
Pennsylvania Public Utility
Commission (the "PAPUC"), except
where the failure to obtain such
consents, approvals and
authorizations would not have a
PFG Material Adverse Effect (as
defined in the Merger Agreement);
and (vi) the approval for listing
on the NYSE of the Resources
Common Stock issuable in the
Merger pursuant to this
Prospectus.
The obligations of Resources and
Keystone to consummate the Merger
are subject to a number of
additional conditions, including
(i) all representations and
warranties of PFG contained in the
Merger Agreement shall be true and
correct, except where the failure
to be true and correct would not
have a PFG Material Adverse
Effect; (ii) PFG shall have
performed all agreements and
covenants contained in the Merger
Agreement required to be performed
by it; (iii) the Voting Agreement
shall have been executed and
delivered; (iv) no PFG Material
Adverse Effect shall have
occurred; (v) Resources shall
have received a letter from
its independent accountants
stating that the Merger will
qualify as a pooling-of-interests
transaction under GAAP (as defined
in the Merger Agreement) and
applicable regulations; and (vi)
to the extent dissenters' rights
may be available to PFG
shareholders under the PBCL, the
number of shares of PFG Common
Stock which perfect their
dissenters rights shall not exceed
5% of the issued and outstanding
PFG Common Stock.
The obligations of PFG to
consummate the Merger are subject
to a number of additional
conditions, including (i) all
representations and warranties of
Resources and Keystone contained
in the Merger Agreement shall be
true and correct, except where
the failure to be true and
correct would not have a
Resources Material Adverse Effect
(as defined in the Merger
Agreement); (ii) Resources and
Keystone shall have performed all
agreements and covenants
contained in the Merger Agreement
required to be performed by them;
(iii) no Resources Material
Adverse Effect shall have
occurred; (iv) the receipt by PFG
of an opinion from its counsel to
the effect that the Merger will
be treated for federal income tax
purposes as a tax-free
reorganization within the meaning
of Section 368(a) of the Internal
Revenue Code of 1986, as amended
(the "Code"); and (v) PFG shall
have received a letter from its
independent certified public
accountants stating that the
Merger will qualify as a
pooling-of-interests transaction
under GAAP and applicable
regulations.
None of the foregoing conditions
is irrevocable. PFG and Resources
may determine to modify or waive
any condition to the consummation
of the Merger, provided that no
modification or waiver will occur
unless made in writing. See "THE
PROPOSED MERGER--The Merger
Agreement -- Conditions to the
Merger."
Termination......................... The Merger Agreement may be
terminated and the Merger
abandoned at any time prior to the
Effective Time (i) by mutual
consent authorized by the board of
directors of each of PFG, Keystone
and Resources; (ii) by PFG (a)
upon breach of any representation,
warranty, covenant or agreement by
Resources or Keystone which is not
curable through reasonable efforts
or if Resources is not making
reasonable efforts to cure or (b)
if, as of the Closing Date, the
Resources Closing Market Price is
less than $16.00 per share; (iii)
by Resources and Keystone upon
breach of any representation,
warranty, covenant or agreement by
PFG which is not curable through
reasonable efforts or if PFG is
not making reasonable efforts to
cure; or (iv) by either Resources
or PFG if (a) the Merger shall not
have been consummated on or before
August 31, 1998 for reasons other
than failure to fulfill its
obligations under the Merger
Agreement (provided that under
certain circumstances such date
may be extended to May 31, 1999)
or (b) if a court of competent
jurisdiction shall have issued
an order preventing the
consummation of the Merger and
such order shall have become final
and non-appealable or if any state
or federal law, order, rule or
regulation is adopted or issued
which has the effect of
prohibiting the Merger. See "THE
PROPOSED MERGER--The Merger
Agreement -- Termination."
Registration Rights................. Subject to certain requirements,
the persons who immediately prior
to the Effective Time were PFG
shareholders are entitled to two
demand registrations with respect
to their shares of Resource Common
Stock received in the Merger
provided that the demand for
registration requests the
registration of at least 1.25% of
the then outstanding number of
shares of Resources Common Stock.
See "THE PROPOSED
MERGER--Registration Rights."
Accounting Treatment................ The Merger is expected to be
treated as a pooling-of-interests
for accounting and financial
reporting purposes. See "THE
PROPOSED MERGER--Accounting
Treatment."
Regulatory Filings
and Approvals...................... Regulatory approvals for
consummation of the Merger are
required from the Commission
under the Public Utility Holding
Company Act of 1935, as amended
("PUHCA"), and the PAPUC and may
be required from the Maryland
Public Service Commission
("MDPSC"). In addition, the
Merger is subject to the
expiration or termination of the
30-day waiting period under the
HSR Act and no action having been
instituted by the Department of
Justice ("DOJ") or the Federal
Trade Commission ("FTC") which is
not withdrawn or terminated prior
to the Effective Time.
Dissenters' Rights.................. Under the PBCL, holders of shares
of PFG Common Stock and PFG
Preferred Stock have the right to
dissent from the Merger and obtain
payment of the "fair value" of
such shares upon compliance with
the relevant provisions of the
PBCL, in the event that the Merger
is consummated. A copy of the
relevant provisions of the statute
is set forth in Annex III hereto.
See "THE PROPOSED MERGER--Dissenters'
Rights."
Certain Federal Income Tax
Consequences of the Merger........ The Merger is intended to qualify
as a tax-free reorganization
within the meaning of Section
368(a) of the Code such that, for
federal income tax purposes, the
Merger will not result in the
recognition of gain or loss
generally by Resources, PFG or the
shareholders of PFG. PFG's
obligation to effect the Merger is
conditioned on the delivery of an
opinion from Gibson, Dunn &
Crutcher LLP, special counsel to
PFG, substantially to the effect
that, on the basis of the facts,
representations and assumptions
set forth in such opinion, for
federal income tax purposes the
Merger constitutes a tax-free
reorganization within the meaning
of Section 368(a) of the Code. See
"THE PROPOSED MERGER--Certain
Federal Income Tax Consequences of
the Merger."
Comparison of Shareholder Rights.... The rights of PFG shareholders are
currently governed by the PBCL,
PFG's Articles of Incorporation
(the "PFG Articles of
Incorporation") and PFG's Bylaws
(the "PFG Bylaws"). Upon
consummation of the Merger, PFG
shareholders who receive Resources
Common Stock in the Merger will
become shareholders of Resources,
and their rights will be governed
by the PBCL, Resources' Articles
of Incorporation (the "Resources
Articles of Incorporation") and
Resources' Bylaws (the "Resources
Bylaws"). For a summary of the
material differences between the
rights of PFG shareholders and the
rights of Resources shareholders,
see "COMPARISON OF SHAREHOLDER
RIGHTS."
MARKET PRICE DATA AND DIVIDENDS
Resources Common Stock is listed and traded on the NYSE and the
PhSE under the symbol "PPL." The table below sets forth, for the quarters
indicated, (i) the quarterly per share cash dividends paid to holders of
Resources Common Stock and (ii) the high and low sales prices of
Resources Common Stock as reported by the NYSE Consolidated Tape.
Dividends
Declared
Per
Resources
Price of Resources Common
Common Stock Share
----------------- ---------
High Low
---- ---
Year ended December 31, 1995:
First Quarter ................ $ 20 7/8 $ 19 1/8 $0.4175
Second Quarter ............... 19 7/8 17 7/8 0.4175
Third Quarter ................ 23 1/2 18 5/8 0.4175
Fourth Quarter ............... 26 1/2 21 5/8 0.4175
Year ended December 31, 1996:
First Quarter ................ 26 23 1/2 0.4175
Second Quarter ............... 24 1/2 22 0.4175
Third Quarter ................ 24 21 5/8 0.4175
Fourth Quarter ............... 24 1/2 21 7/8 0.4175
Year ending December 31, 1997:
First Quarter ................ 24 20 0.4175
Second Quarter ............... 20 7/8 19 0.4175
Third Quarter (Through
August 8, 1997) ........... 20 3/4 19 7/16 --
The closing price of Resources Common Stock on June 26, 1997, the
last full trading day prior to the public announcement of the Merger, was
$197/8 per share, as reported by the NYSE Consolidated Tape. The closing
price of Resources Common Stock on August 8, 1997, the most recent
practicable date prior to the printing of this Prospectus, was $20 3/16
per share, as reported by the NYSE Consolidated Tape.
PFG believes that there is no established public trading market for
PFG Common Stock or PFG Preferred Stock, notwithstanding the existence of
limited or sporadic quotations that may be available with respect to
purchases and sales of PFG Common Stock or PFG Preferred Stock.
In the Merger Agreement, the parties have agreed that, prior to the
Merger, PFG shall not, nor shall PFG permit any of its subsidiaries to,
declare or pay any dividends on or make other distributions in respect of
any of its capital stock other than to PFG or its wholly-owned
subsidiaries and other than cash dividends paid in accordance with PFG's
current practice if the Closing shall occur by November 1, 1998. If the
Closing shall not occur by November 1, 1998, to the extent such payment
would not prevent the Merger from being accounted as a
pooling-of-interests, PFG may increase its dividend payout ratio in
respect of the PFG Common Stock to the same level as the Resources
dividend payout ratio in respect of the Resources Common Stock (as
calculated for the immediately preceding quarter), with respect to
earnings of PFG attributable to periods after November 1, 1998. Under
PFG's current dividend practice, a 20% increase in the dividend on PFG
Common Stock was approved by the PFG Board on March 7, 1997, to an annual
rate of $2.88 per share, and a further increase of an additional 20% in
such dividend is anticipated beginning the first quarter of 1998. Under
the terms of the PFG Preferred Stock, dividends at an annual dividend
rate of $1.40 per share are payable quarterly on the first day of each
January, April, July and October to shareholders of record.
The table below sets forth per share dividend payments on PFG Common
Stock for the quarters indicated.
Dividends
Declared
Per
PFG
Common
Share
--------
Year ended December 31, 1995:
First Quarter................. $0.50
Second Quarter................ 0.50
Third Quarter................. 0.50
Fourth Quarter................ 0.50
Year ended December 31, 1996:
First Quarter................. 0.60
Second Quarter................ 0.60
Third Quarter................. 0.60
Fourth Quarter................ 0.60
Year ending December 31, 1997:
First Quarter ................ 0.72
Second Quarter................ 0.72
Third Quarter (Through
August 8, 1997).............
On June 10, 1997, there were approximately 120,748 holders of record
of Resources Common Stock. On July 15, 1997, there were approximately 113
holders of record of PFG Common Stock and approximately 83 holders of
record of PFG Preferred Stock.
SELECTED HISTORICAL FINANCIAL DATA OF RESOURCES
The following table presents selected historical financial data of
Resources and its consolidated subsidiaries for the periods indicated.
The historical financial data as of and for the five years ended December
31, 1996 were derived from Resources' audited consolidated financial
statements. The historical financial data as of and for the three-month
periods ended March 31, 1997 and March 31, 1996 were derived from
Resources' unaudited consolidated financial statements. The data
presented below should be read in conjunction with the consolidated
financial statements, related notes and other financial information of
Resources included or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
Three-Months Ended
March 31, Year Ended December 31,
------------------ --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
-----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PP&L RESOURCES, INC
Income Items -- millions except
per share amounts and ratios
Operating revenues $ 786 $ 789 $2,910 $2,752 $2,725 $2,727 $2,744
Operating income (a)(b) 171 176 556 574 501 563 573
Net Income (a)(b) 117 116 329 323 216 314 306
Earnings per share of common
stock (a)(b) $ 0.72 $ 0.73 $ 2.05 $ 2.05 $ 1.41 $ 2.07 $ 2.02
Dividends declared per share
of common stock $0.4175 $0.4175 $ 1.67 $ 1.67 $ 1.67 $ 1.65 $ 1.60
Balance Sheet Items -- millions
Total assets $9,902 $9,531 $9,636 $9,492 $9,372 $9,454 $8,192
Capitalization
Long-term debt $2,832 $2,860 $2,832 $2,859 $2,941 $2,663 $2,627
Preferred and preference stock
With sinking fund requirements 295 295 295 295 295 335 326
Without sinking fund requirements 171 171 171 171 171 171 224
Common equity 2,803 2,663 2,745 2,597 2,454 2,426 2,367
Total capitalization $6,101 $5,989 $6,043 $5,922 $5,861 $5,595 $5,544
Book value per share of common stock $17.15 $16.64 $16.87 $16.29 $15.79 $15.95 $15.58
</TABLE>
(a) Earnings for 1995 were positively affected by the final order of the
PAPUC issued on September 27, 1995 pertaining to PP&L's base rate
case filed in December 1994. The decision increased revenues and
permitted recovery of voluntary early retirement and post-retirement
benefits other than pensions and disallowed certain costs applicable
to the construction of Susquehanna Unit 1. In addition, the Company
realized a gain on the sale of subsidiary coal reserves which were
previously written down in 1994.
(b) Earnings for 1994 were adversely affected by several one-time
charges to income. These charges related to a voluntary early
retirement program; a write-down in the carrying value of a
subsidiary's investment in undeveloped coal reserves; the
disallowance of replacement power costs through the Company's energy
cost rate; and a decision of the Commonwealth Court of Pennsylvania
related to deferral of post-retirement benefit costs.
SELECTED HISTORICAL FINANCIAL DATA OF PFG
The following table presents selected financial data of PFG and its
consolidated subsidiaries for the periods indicated. The historical
financial data as of and for the five years ended December 31, 1996 were
derived from PFG's audited consolidated financial statements. The
historical financial data as of and for the three-month periods ended
March 31, 1997 and March 31, 1996 were derived from PFG's unaudited
consolidated financial statements. The data presented below should be
read in conjunction with the consolidated financial statements, related
notes and other financial information of PFG included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ----- ---- ---- ---- ---- ----
(Unaudited)
-------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PENN FUEL GAS, INC. AND SUBSIDIARIES
Income Items -- millions except per
share amounts and ratios
Operating revenues $ 47 $ 45 $ 114 $ 106 $ 123 $ 116 $ 106
Operating income 7 6 11 9 10 9 7
Net Income applicable to
common stock 5 5 6 5 5 4 2
Earnings per share of common stock $7.35 $6.46 $8.90 $7.07 $6.55 $5.99 $2.73
Dividends declared per share of
common stock $0.72 $0.60 $2.40 $2.00 -- -- --
Balance Sheet Items -- millions
Total assets $ 195 $ 196 $ 196 $ 184 $ 174 $ 159 $ 148
Capitalization
Long-term debt $ 55 $ 59 $ 55 $ 59 $ 61 $ 37 $ 58
Redeemable preferred stock 11 11 11 11 11 11 11
Common Equity 71 66 66 62 58 53 50
Total capitalization $ 137 $ 136 $ 132 $ 132 $ 130 $ 101 $ 119
Book value per share of common stock $99.65 $92.37 $93.01 $86.51 $81.44 $74.89 $68.90
</TABLE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data
is derived from the historical financial statements of Resources and PFG
and gives effect to the Merger as if the Merger had been completed for
the periods presented. For purposes of financial reporting, the Merger
will be treated as a combination of entities under common control.
Accordingly, the assets and liabilities of Resources and PFG will be
recorded at their historical amounts. This information is not necessarily
indicative of the financial results that would have occurred had the
Merger been consummated on the dates for which the Merger is being given
effect, or the merged companies' future financial results, and should be
read in conjunction with the historical financial statements of Resources
and PFG.
<TABLE>
<CAPTION>
Three-Months Ended
March 31, Year Ended December 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
--------------------
<S> <C> <C> <C> <C> <C>
Income Items -- Millions Except per
Share Amounts (a)
Operating revenues $ 832 $ 835 $ 3,024 $ 2,857 $ 2,849
Operating income (b) 177 182 567 583 511
Net Income (b) 122 121 335 328 221
Earnings per share of common stock (c) $ 0.72 $ 0.73 $ 2.01 $ 2.00 $ 1.38
Dividends declared per share of
common stock (c) $ 0.41 $ 0.41 $ 1.62 $ 1.62 $ 1.61
PFG Pro Forma Equivalent per Share
Data (d)
Earnings per share of common stock $ 5.02 $ 5.09 $ 14.01 $ 13.94 $ 9.62
Dividends declared per share of
common stock $ 2.86 $ 2.86 $ 11.29 $ 11.29 $ 11.22
Balance Sheet Items -- Millions (a)
Total assets $10,105 $ 9,736 $ 9,840 $ 9,685 $ 9,546
Capitalization
Long-term debt $ 2,887 $ 2,919 $ 2,886 $ 2,917 $ 3,002
Preferred and preference stock
With sinking fund requirements 306 306 306 306 306
Without sinking fund requirements 171 171 171 171 171
Common equity 2,874 2,730 2,811 2,659 2,513
Total capitalization $ 6,238 $ 6,126 $ 6,174 $ 6,053 $ 5,992
Book value per share of common stock (b) $16.95 $16.42 $16.66 $16.07 $15.55
PFG Pro Forma Equivalent per Share
Data (d)
Book value per share of common stock $118.11 $114.41 $116.09 $111.98 $108.35
</TABLE>
(a) The revenues, expenses, assets and liabilities of PFG and
subsidiaries have been reclassified to conform with the presentation
of Resources. PFG's liabilities for environmental costs and
associated regulatory assets have been adjusted upwards from a
present value to a gross basis. The effects of other accounting
policy differences are immaterial.
(b) Estimated transaction expenses are not reflected above.
(c) Pro forma per common share amounts give effect to the exchange of
PFG Common Stock and PFG Preferred Stock for an estimated 6.1
million shares of Resources Common Stock in accordance with the
Merger Agreement.
(d) The PFG pro forma equivalent per share amounts have been calculated
by multiplying the respective pro forma combined per share amounts
by 6.968, the minimum exchange ratio in the Merger Agreement.
THE PROPOSED MERGER
GENERAL
The following is a brief summary of certain aspects of the Merger.
This summary does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is
included in this Prospectus as Annex I and is incorporated herein by
reference. A description of the relative rights, privileges, and
preferences of Resources Common Stock, on the one hand, and PFG Common
Stock, on the other, including certain material differences between the
rights of holders of such stock, is set forth under "DESCRIPTION OF
RESOURCES CAPITAL STOCK", "DESCRIPTION OF PFG CAPITAL STOCK" and
"COMPARISON OF SHAREHOLDER RIGHTS."
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Merger Agreement
will take place as promptly as practicable following the satisfaction or
waiver of the conditions set forth in the Merger Agreement. The Merger
will become effective upon the filing of Articles of Merger with the
Department of State of the Commonwealth of Pennsylvania in accordance
with the PBCL. Such filings will be made on the Closing Date.
CONVERSION OF SHARES; FRACTIONAL SHARES
In the Merger, each share of PFG Common Stock outstanding prior to
the Effective Time will be converted into the right to receive a number
of shares of Resources Common Stock equal to the quotient obtained by
dividing $153.29 by the Resources Closing Market Price. If, however, the
quotient obtained is less than 6.968, the Common Stock Exchange Ratio
shall be fixed at 6.968, and if the quotient obtained is more than 8.516,
the Common Stock Exchange Ratio shall be fixed at 8.516. Each share of
PFG Preferred Stock outstanding prior to the Effective Time that is, at
the election of the holder thereof, not redeemed in accordance with its
terms will be converted into the right to receive a number of shares of
Resources Common Stock equal to the quotient obtained by dividing (i) the
amount equal to the quotient of (A) the sum of $10,764,000 plus any
accrued and unpaid dividends on the PFG Preferred Stock under certain
circumstances, divided by (B) 717,583, by (ii) the Resources Closing
Market Price. If, however, the quotient is less than 0.682, the Preferred
Stock Exchange Ratio shall be fixed at 0.682, and if the quotient is more
than 0.833, the Preferred Stock Exchange Ratio shall be fixed at 0.833.
No fractional shares of Resources Common Stock will be issued in the
Merger. Instead, each record holder of PFG Common Stock or PFG Preferred
Stock who would otherwise have been entitled to receive a fraction of a
share of Resources Common Stock upon surrender of certificates
representing PFG Common Stock or PFG Preferred Stock, as the case may be,
for exchange will, upon surrender of such certificates, be entitled to
receive a cash payment (without interest) equal to the product of such
fraction multiplied by the Resources Closing Market Price.
EXCHANGE OF CERTIFICATES
Upon surrender of each certificate representing shares of PFG Common
Stock or PFG Preferred Stock, a bank trust company selected by Resources
and reasonably acceptable to PFG (the "Exchange Agent") will issue to the
holder of such certificate, as soon as practicable after the Effective
Time, his or her shares of Resources Common Stock (and cash in lieu of
fractional shares) and such certificate representing shares of PFG Common
Stock or PFG Preferred Stock will thereafter be cancelled. Until so
surrendered and exchanged, each such certificate that prior to the
Effective Time represented shares of PFG Common Stock or PFG Preferred
Stock will represent solely the right to receive shares of Resources
Common Stock pursuant to the Merger Agreement (and cash in lieu of
fractional shares).
No dividends or other distributions declared or made after the
Effective Time with respect to shares of Resources Common Stock will be
paid to the holder of any unsurrendered certificate with respect to the
shares of Resources Common Stock such holder is entitled to receive, and
no cash payment in lieu of fractional shares will be paid, until the
holder of such certificate surrenders such certificate in accordance with
the provisions of the Merger Agreement.
At the Effective Time, all shares of PFG Common Stock that are owned
by PFG as treasury stock and any shares of PFG Common Stock owned by
Resources, Keystone, or any other direct or indirect subsidiary of
Resources will be cancelled and retired and will cease to exist, and no
payment or other consideration will be made in respect thereof.
BACKGROUND OF THE MERGER
Resources and PFG recognize that the utility industry is currently
undergoing unprecedented change, including deregulation of electric power
generation, which will significantly impact the competitiveness and
business opportunities of the companies in the near future. Resources has
been examining strategic alternatives to position itself to compete more
effectively in a restructured utility industry. One such strategy is to
combine electric and gas services so that Resources can create
efficiencies, control costs, increase services available to consumers and
expand its customer base. At the same time, in light of the changing
landscape of the utility industry, PFG also has been considering several
alternatives regarding its future, including partnership opportunities or
combining with an electric utility to strengthen its competitive
position.
In early 1997, Resources and PFG entered into a confidentiality
agreement and began preliminary discussions regarding the possibility of
a business combination. In the months that followed, Resources and PFG
exchanged a limited amount of confidential, nonpublic information and
determined that further investigation of a possible transaction,
including due diligence, was warranted. More in-depth due diligence was
conducted in May-June of 1997. During this time, the companies considered
alternative structures for a possible business combination and negotiated
terms of the Merger Agreement. Periodically throughout this process, the
Boards of both PFG and Resources were updated as to the ongoing status
of events. On June 25, 1997, the PFG Board approved the transaction, and
on June 26, 1997, the Resources Board approved the Merger and the
companies finalized and entered into the Merger Agreement.
APPROVAL BY THE RESOURCES BOARD AND RESOURCES' REASONS FOR
THE MERGER
In connection with the Merger, after consulting with management and
its advisors, the Resources Board concluded that the Merger was in the
best interest of Resources for the reasons, among others, set forth
below.
The Merger furthers Resources' strategy of pursuing growth in
energy-related businesses.
o New Energy Markets -- The Merger affords Resources the
opportunity to add retail natural gas and propane distribution
and sales to its current electric wholesale and retail
operations.
o Geographic Expansion -- PFG's service territory includes areas
not currently served by PP&L. Following the Merger, Resources
will be able to participate in the gas energy markets in
various parts of Pennsylvania.
o New Customers -- While there is some overlap in service
territory, new customers in areas not previously served by
PP&L would be introduced to PP&L.
The Merger also furthers Resources' growth strategy of better
meeting its customers' needs through increased choice and value added
services.
o Full Services -- Retail electricity markets in Pennsylvania
will be open to competition beginning in 1999. Retail gas
markets are expected to be open to competition at about the
same time. The Merger will permit PP&L to compete state-wide
in both energy sources and serve customers with either gas or
electricity, depending on their needs.
o Complement to Energy Services -- Resources is expanding its
energy services offerings and expects that the Merger will
stimulate further growth. The merged companies' presence in a
larger geographic area and the ability to provide both gas and
electric energy will enhance the ability to offer "behind the
meter" consulting services and present increased opportunities
to offer PP&L residential and commercial energy management
systems.
Finally, the Merger represents an opportunity to continue to invest
in businesses that Resources believes will stimulate meaningful long-term
growth due to its enhanced ability to meet the needs of its customers.
APPROVAL BY THE PFG BOARD AND PFG'S REASONS FOR THE MERGER
After consulting with management and its advisors, the PFG Board
concluded that the Merger was in the best interest of PFG and its
shareholders for the following reasons, among others. The Merger affords
significant opportunities to offer enhanced service to the customers and
communities PFG serves. The combination of PFG and Resources will create
an organization with the ability to provide gas, electric and other
energy services to customers. PFG will have access to opportunities due
to deregulation of the gas and electric industries that would be less
available with its stand-alone limited resources. Also, because of the
increased size and resources the combined entity will have in comparison
to PFG standing alone, the Merger will greatly strengthen the foundation
supporting services to PFG's customers at a high quality level. The
Merger is expected to give PFG a broader access to management and
business systems, enable potential operating and management efficiencies
and provide increased stability and other benefits to PFG inherent in
being part of a much larger organization.
At the same time, PFG believes its shareholders will realize fair
value for their shares and will benefit from the combined companies'
future growth, while having ownership as Resources' shareholders in a
much larger and more diverse publicly-traded company as a result of the
tax-free exchange contemplated by the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the PFG Board with respect to
the Merger, PFG shareholders should be aware that certain members of PFG
management and its Board of Directors have certain interests in
connection with the Merger that are in addition to the interests of PFG
stockholders generally. The Board of Directors of PFG was aware of these
interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby, including the
Merger.
The President and Chief Executive Officer of PFG is also a party to
existing stock option, retention and employment agreements with PFG. In
addition to providing for the executive's employment as President and
Chief Executive Officer of PFG under certain terms including a prescribed
salary and other benefits, such agreements provide for PFG to pay to the
executive upon the Closing a retention bonus (the "Retention Bonus")
equal to the executive's base salary for the nine complete calendar
months prior to the month in which the Closing occurs. In addition, if
the executive's employment is terminated within two years after the
Merger by PFG without "cause" ("cause" being defined to mean (i) the
willful and continued failure by the executive to perform his duties
other than any such failure resulting from the executive's incapacity due
to physical or mental illness or injury; (ii) dishonesty or material
misconduct in discharging or failing to discharge the executive's duties;
(iii) conviction of a crime involving moral turpitude; (iv) failure to
comply with any material federal, state or local laws or regulations
relating to PFG or the executive, including without limitation failure to
pass required drug and alcohol tests; (v) substance abuse; (vi)
misappropriation of funds; or (vii) material disparagement of PFG, or its
management, board of directors, stockholders or executives) or by the
executive for "good reason" ("good reason" being defined as (i) the
removal of the executive by PFG, without the executive's express written
approval, from any of the material positions, duties, responsibilities,
titles, offices or status held by the executive with PFG immediately
prior to the Merger, or any removal of the executive from or any failure
by PFG to reelect the executive to any such positions; (ii) a reduction
by PFG in the executive's base salary as in effect immediately prior to
the Merger; (iii) PFG's failure to increase the executive's base salary
within twelve months after the executive's last increase in base salary
where the other executive officers of PFG have all received increases in
base salary; (iv) PFG's failure to provide the executive with fringe
benefits, including life insurance and medical insurance without
exception for preexisting conditions that, taken as a whole, are
substantially similar to the benefits provided to the executive
immediately prior to the Merger; or (v) a relocation of PFG's corporate
headquarters to a location more than fifty miles from Villanova,
Pennsylvania, not including required business travel by the executive to
the extent substantially consistent with the executive's business travel
obligations immediately prior to the Merger), then the executive is
entitled to receive a Severance Payment (as defined below), plus, for a
period of eighteen months beginning with the date of termination, life
insurance, dental insurance, medical insurance without exception for
preexisting conditions and long-term disability insurance, that, taken as
a whole, are substantially similar to the benefits provided to the
executive immediately prior to the date of termination (the "Continuing
Benefits"). The "Severance Payment" means an amount equal to the excess
of (x) 2.99 times the executive's annualized includable compensation for
the most recent five calendar years ending before the year in which the
Merger occurs, over (y) the Retention Bonus, the value of the Continuing
Benefits and the value of certain compensation and benefits amounts
determined in PFG's reasonable judgment to constitute a "parachute
payment" under Section 280G of the Code and related regulations, but
excluding certain amounts on account of accelerated vesting of the
executive's stock options. The Severance Payment otherwise payable shall
be reduced (a) by 50% if the executive terminates his employment under
clause (i) or (v) of the definition of "good reason" on or before the
90th day after the Closing; and (b) by 25% if the executive so terminates
his employment after the 90th day but on or before the 180th day after
the Closing.
With respect to options to purchase up to 14,350 shares of PFG
Common Stock that are held by the President and Chief Executive Officer
of PFG, the Merger Agreement contemplates that, immediately prior to the
Effective Time, such options shall be cancelled in exchange for an
aggregate number of shares of Resources Common Stock, rounded up to the
nearest whole number, that shall have a market value, calculated using
the Resources Closing Market Price, equal to the product of (i) the
number of shares of PFG Common Stock subject to such options and (ii) the
excess, if any, of the implied market value of the Common Stock Exchange
Ratio at the close of business on the last business day prior the Closing
Date over the exercise price per share of such options, provided that
such cancellation and exchange shall not violate any rights of the option
holder under existing agreements with respect to such options.
In the Merger Agreement, the parties have also agreed that for a
period of at least six years after the Merger, Resources shall cause the
Surviving Corporation to (a) maintain in effect the current policies of
directors' and officers' liability insurance and fiduciary liability
insurance maintained by PFG (providing that the Surviving Corporation or
Resources may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions which are, in the aggregate,
no less advantageous to the insured in any material respect) with respect
to claims arising from facts or events which occurred on or before the
Effective Time, and (b) indemnify the present and past directors and
officers of PFG to the fullest extent to which PFG is permitted to
indemnify such officers and directors under the PFG Articles of
Incorporation and PFG Bylaws and applicable law.
PFG has also entered into retention agreements with seven of its
officers (not including the President and Chief Executive Officer) and
certain other of its key employees. The retention agreements provide for
both a retention bonus (four months' base salary for officers, two
months' base salary for key employees), payable if the individual remains
in employment until the Closing, and a severance payment, payable upon
termination of employment for certain reasons (which, as to officers, are
"good reason" as defined above with respect to the President and Chief
Executive Officer's agreements), within two years after the Merger for
officers and within one year after the Merger for key employees. The
severance payment for officers would be 150% of base salary, and for key
employees two weeks of salary for each year of service, with a minimum of
50% of salary and a maximum of 100% of salary. These severance payments
in the case of officers would be reduced in the same manner as the
payments to the President and Chief Executive Officer in the event of
termination by the officer within 90 days or 180 days, respectively,
after the Merger because of removal of the officer from his or her
pre-Merger position or forced relocation. In addition, officers are
entitled to 18 months of continuation of welfare benefits, and key
employees to six to 12 months of continuation, depending on their
respective lengths of service with PFG. The officers would be eligible to
receive their company car, in the discretion of the PFG President and
Chief Executive Officer.
RESOURCES SHAREHOLDER APPROVAL
The Merger does not require the approval of the Resources
shareholders. Resources shareholders will not have dissenters' appraisal
rights in connection with the Merger.
PFG SHAREHOLDER APPROVAL
The PFG Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby. In order to effect the Merger, the
Merger Agreement must also be approved and adopted by the affirmative
vote of a majority of the votes cast by holders of outstanding shares of
PFG Common Stock present at a Special Meeting of PFG shareholders. A
Special Meeting of PFG shareholders has been scheduled to be held at
on at . WE ARE NOT ASKING YOU
FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND PFG A PROXY.
THE VOTING AGREEMENT
On June 26, 1997, concurrently with entering into the Merger
Agreement, PFG, Resources and Marilyn Ware Lewis, in her individual
capacity, in her capacity as attorney-in-fact pursuant to the Powers of
Attorney and in her capacity as "Business Manager" (as defined in the
Shareholders Agreement) entered into the Voting Agreement. Pursuant to
the terms of the Shareholders Agreement and Powers of Attorney, Ms. Lewis
has exclusive voting rights with respect to the Voting Agreement Shares,
which include shares owned by her personally. The Voting Agreement was
entered into by Ms. Lewis as an inducement to Resources to enter into the
Merger Agreement.
Pursuant to the terms of the Voting Agreement, Ms. Lewis has agreed
to vote the Voting Agreement Shares (constituting 95% of the PFG Common
Stock issued and outstanding as of June 30, 1997) at any meeting of the
shareholders of PFG (a) in favor of the Merger, the Merger Agreement and
the transactions contemplated by the Merger Agreement and (b) against any
proposal for any recapitalization, merger, sale of assets or other
business combination (other than the Merger) between PFG and any person
or entity or any action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement
of PFG under the Merger Agreement or which could result in any of the
conditions to PFG's obligations under the Merger Agreement not being
fulfilled. The Voting Agreement terminates only upon termination of the
Merger Agreement.
Pursuant to the Voting Agreement, during the term of the Voting
Agreement, Ms. Lewis has agreed not to (a) sign any writing amending or
terminating the Shareholders Agreement, (b) resign her duties or
relinquish her rights as "Business Manager" (as defined in the
Shareholders Agreement) or (c) voluntarily surrender the Powers of
Attorney or transfer any record or beneficial ownership of any shares of
PFG Common Stock pursuant to the Powers of Attorney, except to a person
who is a party to or bound by the Shareholders Agreement.
This summary of the Voting Agreement is qualified in its entirety by
the text of the Voting Agreement, a copy of which is attached as Annex II
hereto and which is incorporated herein by reference.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement not summarized elsewhere in this Prospectus. A copy of the
Merger Agreement is attached as Annex I to this Prospectus and is
incorporated herein by reference. The following summary does not purport
to be complete and is qualified in its entirety by reference to the
Merger Agreement.
THE MERGER
The Merger Agreement provides that, as soon as practicable following
the satisfaction or waiver of the conditions to each party's obligation
to consummate the Merger, Keystone will be merged with and into PFG in
accordance with the PBCL, the separate corporate existence of Keystone
will cease and PFG will continue as the Surviving Corporation in the
Merger.
REDEMPTION OF PFG PREFERRED STOCK PRIOR TO THE MERGER
The Merger Agreement contemplates that PFG will prior to the Merger
redeem all of the PFG Preferred Stock, such that no PFG Preferred Stock
will be outstanding following the Merger. The PFG Preferred Stock may be
redeemed in accordance with its terms upon the written approval of
holders of at least 66 2/3% of the shares of PFG Preferred Stock
outstanding, at a redemption price of $15 per share, plus accrued and
unpaid dividends to the date of redemption. Members of the Ware family
who collectively represent the ownership of more than 93.5% of the total
number of shares of PFG Preferred Stock outstanding as of June 30, 1997
have indicated their intent to provide the shareholder approval required
for such redemption. PFG intends, and the Merger Agreement contemplates,
that PFG will offer each holder of PFG Preferred Stock the opportunity to
elect not to have their shares of PFG Preferred Stock redeemed and
receive shares of Resources Common Stock in the Merger in accordance with
the Preferred Stock Exchange Ratio. See "--Conversion of Shares;
Fractional Shares."
TREATMENT OF PFG OPTIONS
Each unexpired and unexercised PFG option that is outstanding prior
to the Effective Time shall be cancelled in exchange for that number of
shares of Resources Common Stock having a market value equal to the
product of (i) the number of shares of PFG Common Stock subject to such
option and (ii) the excess, if any, of implied market value of the Common
Stock Exchange Ratio at the close of business on the last business day
prior to the Closing Date, over the exercise price of such option;
provided, however, that this provision of the Merger Agreement does not
require any action that violates the rights of the optionee under the PFG
options or any agreements in respect thereof.
DIRECTORS AND OFFICERS
Pursuant to the Merger Agreement, the directors and officers of
Keystone at the Effective Time will be the directors and officers,
respectively, of the Surviving Corporation following the Merger until
their respective successors are elected or appointed.
CHARTER AND BYLAWS
Pursuant to the Merger Agreement, the certificate of incorporation
and bylaws of Keystone in effect at the Effective Time will be the
certificate of incorporation and bylaws, respectively, of the Surviving
Corporation following the Merger until thereafter amended as provided
therein and by law.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
of each of PFG and Resources including as to (i) corporate status; (ii)
corporate authorization; (iii) capitalization; (iv) governmental
authorizations and consents; (v) no contravention or defaults of charter
documents or agreements; (vi) enforceability of the Merger Agreement;
(vii) the accuracy of documents and reports filed with the Commission;
(viii) the absence of litigation; (ix) taxes; (x) the accuracy of the
information provided for inclusion in this Prospectus and the
Registration Statement; and (xi) full disclosure. PFG has also made
representations and warranties including as to (i) the absence of certain
changes; (ii) employee benefit plans and labor matters; (iii) title to
property and the absence of liens; (iv) contracts and debt instruments;
(v) environmental matters; (vi) trademarks; patents and copyright; (vii)
no brokers being entitled to fees in connection with the Merger other
than as disclosed; (viii) insurance and (ix) assets in good operating
condition. The respective representations and warranties of each of PFG
and Resources will terminate at the Effective Time.
COVENANTS OF PFG, RESOURCES AND KEYSTONE
Pursuant to the Merger Agreement, PFG has agreed, among other
things, that it will (i) carry on its businesses in the ordinary and
customary course consistent with past practice, use reasonable efforts to
preserve intact its business, properties and assets and use reasonable
efforts to keep available the services of its present employees and to
preserve its relationships with customers, suppliers and others having
business dealings with it; (ii) confer on a regular and frequent basis
with Resources and its representatives during the period prior to the
Closing Date to discuss operations; (iii) discuss with Resources any
changes in its rates or charges, standards of service or accounting; and
(iv) use reasonable efforts to obtain and maintain all required consents
and permits. In addition, PFG has agreed that it will not, among other
things, (i) adopt or propose any change in the PFG Articles of
Incorporation, the PFG Bylaws or the PFG Shareholders Agreement; (ii)
merge or consolidate with any person or acquire, except in the ordinary
course of business, a substantial amount of assets of any other person;
(iii) sell, lease, license, encumber or otherwise dispose of any
significant asset or set of assets in any disposition which exceeds
$150,000 or dispositions which exceed $400,000 per annum in the
aggregate; (iv) voluntarily engage in any activities which are reasonably
expected to cause a change in its status under PUHCA or the tax-free
status of the Merger; (v) issue any shares of capital stock or other
securities or any options, warrants or other rights to acquire the same;
(vi) make capital expenditures substantially exceeding 110% of annual
budgeted amounts; or (vii) declare, set aside, or pay any dividend or
make any other distribution with respect to any shares of its capital
stock other than the payment of cash dividends in accordance with PFG's
current practice and, if appropriate relief is received from the
Commission to the effect that such increase would not prevent the Merger
from being accounted as a pooling-of-interests and the Merger shall not
have closed by November 1, 1998, at an increased dividend payment ratio
equal to the dividend payout ratio in respect of Resources Common Stock.
Pursuant to the Merger Agreement, Resources and PFG have agreed that
(i) Resources shall, with PFG's cooperation, prepare and file with the
Commission the Registration Statement in compliance with the applicable
requirements of the Exchange Act, the NYSE, the Securities Act and the
PBCL and shall use its reasonable efforts to cause the Registration
Statement to become effective as promptly as practicable; (ii) PFG shall
distribute to its shareholders disclosure documents relating to the
Merger and use its best efforts to obtain shareholder approval of the
Merger in accordance with the PBCL; (iii) Resources will cause the
Surviving Corporation to maintain in effect for not less than six years
from the Effective Time the current or equivalent policies of directors'
and officers' liability insurance maintained by PFG with respect to
matters occurring prior to the Effective Time; (iv) PFG, Resources and
Keystone shall use reasonable efforts to take appropriate action to
consummate the Merger; and (v) PFG, Resources and Keystone shall give
prompt notice to each other of any change that could result in a
Resources Material Adverse Effect or a PFG Material Adverse Effect or is
likely to delay or impede either Resources' or PFG's ability to
consummate the transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, PFG has agreed that it shall
terminate all existing discussions and negotiations with respect to, and
shall not initiate, solicit, encourage or take any action to facilitate
any offer or proposal which constitutes or may reasonably be expected to
lead to, a Competing Transaction (which term means (i) a merger,
consolidation or other similar transaction (other than the Merger); (ii)
any sale or disposition of 10% or more of the assets of PFG; or (iii) a
takeover bid or tender offer for 10% or more of the outstanding voting
securities of PFG), and shall notify Resources within 24 hours of receipt
of any proposal relating to a Competing Transaction.
CONDITIONS TO THE MERGER
The Merger Agreement provides that the obligation of the parties to
effect the Merger is subject to the satisfaction or waiver on or prior to
the Effective Time of each of the following conditions: (i) the Merger
shall have been approved by the PFG and Keystone shareholders; (ii) the
waiting period (and any extension thereof) applicable to the Merger under
the HSR Act shall have expired or been terminated; (iii) all consents,
approvals and authorizations shall have been obtained from all
Governmental Entities (as defined in the Merger Agreement), except where
the failure to obtain such consents, authorizations and approvals would
not have a PFG Material Adverse Effect; (iv) no preliminary or permanent
injunction shall have been entered by any federal or state court having
jurisdiction that makes illegal or prohibits the consummation of the
Merger; (v) the Registration Statement shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order; and (vi) the shares of Resources Common
Stock issuable in the Merger shall have been authorized for listing on
the NYSE.
The obligation of PFG to effect the Merger is subject to the
satisfaction or waiver on or prior to the Effective Time of the following
additional conditions: (i) both Resources and Keystone shall have
performed or complied in all material respects with all agreements and
covenants contained in the Merger Agreement required to be performed or
complied with by them at or prior to the Effective Time; (ii) all
representations and warranties of Resources and Keystone contained in the
Merger Agreement shall be true and correct (in all material respects with
regard to representations and warranties that are not otherwise qualified
with a materiality standard), except where the failure to be true and
correct would not have a Resources Material Adverse Effect; (iii) PFG
shall have received a certificate from the president of Resources and
Keystone to the effect that the conditions in clauses (i) and (ii) above
have been satisfied; (iv) PFG shall have received an opinion from Gibson,
Dunn & Crutcher LLP, special counsel to PFG, to the effect that the
Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code; (v) PFG
shall have received a letter from its independent public accountants
stating that the Merger will qualify as a pooling-of-interests
transaction under GAAP and applicable Commission regulations; and (vi) no
Resources Material Adverse Effect shall have occurred.
The obligations of Resources and Keystone to effect the Merger are
subject to the satisfaction or waiver on or prior to the Effective Time
of the following additional conditions: (i) PFG shall have performed or
complied in all material respects with all agreements and covenants
contained in the Merger Agreement required to be performed or complied
with by it at or prior to the Effective Time; (ii) all representations
and warranties of PFG contained in the Merger Agreement shall be true and
correct (in all material respects with regard to representations and
warranties that are not otherwise qualified with a materiality standard),
except where the failure to be true and correct would not have a PFG
Material Adverse Effect; (iii) Resources and Keystone shall have received
a certificate from PFG signed by PFG's president to the effect that the
conditions in clauses (i) and (ii) above have been satisfied; (iv) the
Voting Agreement shall have been executed and delivered; (v) no PFG
Material Adverse Effect shall have occurred; (vi) Resources shall have
received a letter from its independent public accountants stating that
the Merger will qualify as a pooling-of-interests transaction under GAAP
and applicable Commission regulations; and (vii) to the extent that
dissenters' rights may be available to PFG Shareholders under the PBCL,
the number of shares of PFG Common Stock which perfect their dissenters'
rights shall not exceed 5% of the issued and outstanding PFG Common
Stock.
TERMINATION
The Merger Agreement provides that it may be terminated and the
Merger abandoned at any time prior to the Effective Time, (i) by mutual
written consent of PFG, Resources and Keystone; (ii) by either PFG or
Resources (unless such party is responsible for the delay) if the
Effective Time shall not have occurred on or before August 31, 1998,
which may be extended to May 31, 1999 if all conditions to the Merger
except the receipt of requisite consents and approvals from all
Governmental Entities have been obtained; (iii) by either PFG or
Resources and Keystone, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by
the written opinion of outside counsel, for such party of prohibiting the
Merger, or if any order preventing the consummation of the Merger shall
have been entered by any court of competent jurisdiction and shall have
become final and nonappealable; (iv) by PFG, upon a breach of any
representation, warranty, covenant or agreement on the part of Resources
set forth in the Merger Agreement which is not curable by Resources
through the exercise of reasonable efforts which are then being made such
that the conditions to the Merger would not be satisfied; (v) by
Resources and Keystone, upon breach of any representation, warranty,
covenant or agreement on the part of PFG set forth in the Agreement which
is not curable by PFG through the exercise of reasonable efforts which
are then being made such that the conditions to the Merger would not be
satisfied; or (vi) by PFG, if the Resources Closing Market Price is less
than $16.00 per share.
In the event of termination of the Merger Agreement, the Merger
Agreement shall forthwith become void, and, except for any prior breach
of the Merger Agreement, there shall be no liability under the Merger
Agreement on the part of PFG, Resources, Keystone or any of their
respective shareholders, officers or directors and all rights and
obligations of each such party shall cease.
REGISTRATION RIGHTS
Pursuant to the terms of the Merger Agreement, the persons who
immediately prior to the Effective Time were PFG shareholders (the
"Subject Holders"), acting through a representative, are entitled to have
Resources effect two demand registrations of their Resources Common Stock
received in the Merger provided that such demand requests registration of
at least 1.25% of the then outstanding number of shares of Resources
Common Stock. However, Resources may respond to any such demand with an
opinion of independent counsel to the effect that such securities may be
transferred without registration under the Securities Act. If
registration of the securities is required for their transfer, Resources
may delay filing the Registration Statement if Resources determines in
good faith that such filing would adversely interfere with an offering of
securities, a possible acquisition or business combination or otherwise
negatively impact Resources' business or operations. Under the terms of
the Merger Agreement, Resources will pay the reasonable registration
expenses in connection with any such demand registration, except for
underwriting discounts and commissions and transfer taxes, if any, and
fees and expenses of any counsel to the Subject Holders.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling-of-interests
in accordance with generally accepted accounting principles.
REGULATORY FILINGS AND APPROVALS
The regulatory filings and approvals described below must be made
before the Merger can be effected and may take a significant period of
time to obtain. Although PFG and Resources believe that such approvals
will be obtained, there can be no assurance that this will be the case or
that such approvals will be obtained in a timely manner or that such
approvals will not be conditioned or otherwise encumbered.
ANTITRUST
The Merger is subject to the expiration or termination of the 30-day
waiting period under the HSR Act and no action having been instituted by
the DOJ or the FTC that is not withdrawn or terminated prior to the
Effective Time. The HSR Act, and the rules and regulations thereunder,
provide that certain merger transactions (including the Merger) may not
be consummated until required information and materials have been
furnished to the DOJ and the FTC and certain waiting periods have expired
or been terminated. PFG and Resources will make their respective filings
with the DOJ and the FTC.
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Two of PFG's subsidiaries are utilities providing gas service to the
public in areas of Pennsylvania. Approval of the PAPUC is required for
the transfer of ownership of PFG to Resources through the Merger. The
PAPUC will approve such a transfer if it finds or determines that
granting approval is necessary or proper for the service, accommodation,
convenience or safety of the public. Appropriate application seeking any
required or necessary approval by the PAPUC was filed on August 7, 1997.
MARYLAND PUBLIC SERVICE COMMISSION
A PFG utility subsidiary has some customers in the State of
Maryland. Appropriate application seeking any required or necessary
approval by the MDPSC will be filed. The MDPSC may require that a
proceeding be instituted to approve the Merger.
COMMISSION APPROVAL UNDER PUHCA
Resources is required to obtain Commission approval under Section
9(a)(2) of PUHCA in connection with the Merger. Section 9(a)(2) generally
requires Commission approval prior to the direct or indirect acquisition
of 5% of more of the voting securities of more than one electric or gas
utility company. An application for approval of the Merger will be filed
by Resources.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
The shares of Resources Common Stock issuable in connection with the
Merger have been registered under the Securities Act. Such shares will be
freely transferable under the Securities Act, except for shares issued to
any person who may be deemed to be an "affiliate," as such term is
defined under the Securities Act for purposes of Rule 145 (an
"Affiliate"), of PFG as of the date of the PFG Special Meeting of
Shareholders. Affiliates may not sell their shares of Resources Common
Stock acquired in connection with the Merger except pursuant to (i) an
effective registration statement under the Securities Act covering such
shares; (ii) the conditions contemplated by paragraph (d) of Rule 145; or
(iii) any other applicable exemption from the registration requirements
of the Securities Act. In addition, the Merger Agreement requires each of
Resources and PFG to use reasonable efforts to cause each of its
directors and officers to execute a written letter agreement to the
effect that such director or officer will not sell or otherwise dispose
of any shares of Resources Common Stock during the period beginning 30
days prior to the Effective Time and continuing until such time as
results covering at least 30 days of post-Effective Time operations of
the Surviving Corporation have been published. Persons who may be deemed
to be Affiliates of Resources or PFG generally include individuals or
entities that may be deemed to control, be controlled by or be under
common control with PFG or Resources, and may include officers, directors
and principal shareholders of PFG or Resources.
STOCK EXCHANGE LISTING
Resources will apply for the listing of the shares of Resources
Common Stock to be issued upon consummation of the Merger on the NYSE.
The obligations of the parties to the Merger Agreement to consummate the
Merger are subject to the shares of Resources Common Stock to be issued
in connection with the Merger being authorized for listing on the NYSE.
No assurance can be given that such shares will in fact be so listed. See
"--The Merger Agreement -- Conditions to the Merger."
DISSENTERS' RIGHTS
The rights of dissenting shareholders of PFG are governed by the
PBCL. The PBCL provides holders of shares of PFG Common Stock and PFG
Preferred Stock with the right to dissent from the Merger and obtain
payment of the "fair value" of such shares upon compliance with the
relevant provisions of the PBCL, in the event that the Merger is
consummated. The term "fair value" means the value of a share of PFG
Common Stock or PFG Preferred Stock, as the case may be, immediately
before consummation of the Merger taking into account all relevant
factors, but excluding any appreciation or depreciation in anticipation
of the Merger. A copy of the applicable statute is set forth in Annex III
hereto. The following summary of such provisions is qualified in its
entirety by reference to Annex III.
Any shareholder of PFG who contemplates exercising the right to
dissent should carefully read the provisions of Subchapter D of Chapter
15 of the PBCL, which are provided in Annex III.
A shareholder desiring to exercise dissenters' rights must satisfy
all of the following conditions. The shareholder must (i) prior to the
vote upon the Merger at the PFG Special Meeting submit a written notice
to PFG of the shareholder's intention to demand payment of the fair value
of the shareholder's shares if the Merger is effectuated; (ii) effect
no change in the beneficial ownership of the shares from the date of such
filing continuously through the Effective Time of the Merger; and (iii)
refrain from voting the shares for approval of the Merger Agreement. The
written notice referred to in clause (i) must be in addition to and
separate from voting against, abstaining from voting or failing to vote
on approval of the Merger Agreement. Voting against, abstaining from
voting or failing to vote on approval of the Merger Agreement will not
constitute written notice of an intent to demand payment for PFG Common
Stock or PFG Preferred Stock, as the case may be, within the meaning of
the PBCL. Any written notice or demand which is required in connection
with the exercise of dissenters' rights must be sent to: Eleanor Ross,
Secretary, Penn Fuel Gas, Inc., 55 South Third Street, Oxford,
Pennsylvania 19363.
In the event a shareholder votes for approval of the Merger
Agreement, or delivers a proxy in connection with the PFG Special Meeting
(unless the proxy specifies a vote against, or an abstention from voting
on, approval of the Merger Agreement), the shareholder will have waived
the dissenters' rights and will have nullified any written notice of an
intent to demand payment submitted by such holder. PFG is not soliciting
proxies to be voted at the PFG Special Meeting of Shareholders.
A PFG shareholder may assert dissenters' rights as to less than all
of the shares registered in such holder's name only if such record holder
dissents with respect to all shares owned by any one beneficial owner and
discloses the name and address of each person on whose behalf such holder
dissents. The rights of a partial dissenter are determined as if the
shares as to which the record holder dissents and the record holder's
remaining shares were registered in the names of different shareholders.
A beneficial owner may assert dissenters' rights as to shares held on
such owner's behalf only if such owner submits to PFG the record holder's
written consent to the dissent no later than the time the beneficial
owner asserts his dissenters' rights. A beneficial owner may not dissent
with respect to less than all shares of the same class or series owned by
the beneficial owner, whether or not the shares owned by such beneficial
owner are registered in such beneficial owner's name.
If the Merger Agreement is approved, PFG will deliver a dissenters'
notice to all holders who have satisfied the foregoing requirements which
will: (i) state where and when a demand for payment is to be sent and
certificated shares are to be deposited; (ii) inform holders of any
uncertificated shares to what extent transfer of shares will be
restricted from the time that demand for payment is received; (iii)
supply a form for demanding payment that includes a requirement that the
person certify the date on which he or she, or the person on whose behalf
he or she dissented, acquired beneficial ownership of shares; and (iv) be
accompanied by a copy of Sections 1571 through 1580 of the PBCL.
A shareholder who sent in a notice of intention to dissent is
required to make a payment demand upon PFG, make the certification
referred to above, and, in the case of certificated shares, deposit the
certificates representing the holder's dissenting shares in accordance
with the dissenters' notice. A shareholder who takes these actions
(including the depositing of share certificates) retains all other rights
as a holder of PFG Common Stock or PFG Preferred Stock, as the case may
be, except to the extent such rights are canceled or modified by the
consummation of the Merger. A shareholder who does not make a payment
demand and deposit the holder's share certificates where required, each
by the date set forth in PFG's dissenters' notice, will not be entitled
to payment of the fair value of the holder's shares under Sections 1571
through 1580 of the PBCL.
Promptly after effectuation of the Merger, or upon timely receipt of
the shareholder's payment demand if the Merger has already been
effectuated, PFG shall either (i) pay to dissenters who have made demand
and, in the case of certificated shares, have deposited their
certificates, an amount that PFG estimates to be the fair value of the
shares; or (ii) give written notice that no payment is being made of the
estimated fair value.
The payment (or written notice that no payment is being made) by PFG
will be accompanied by: (i) PFG's balance sheet and statement of income
as of the end of a fiscal year ended not more than 16 months before the
date of remittance and the latest available interim financial statements;
(ii) a statement of PFG's estimate of the fair value of the shares; and
(iii) a notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Sections 1571 through 1580 of the PBCL. If PFG does not make payment of
the estimated value, it is required to return to a shareholder any
certificates deposited with PFG and, with respect to uncertificated
shares, release transfer restrictions, with a notation on the
certificates or transfer records that a demand for payment has been made.
If PFG gives notice of its estimate of the fair value of the shares
without remitting payment, or remits payment of its estimate of fair
value and the dissenter believes that the amount stated or remitted is
less than fair value, the dissenter may send to PFG the dissenter's own
estimate of fair value, which is deemed to be a demand payment of that
amount (less any amounts previously paid by PFG). A dissenter must file
the dissenter's own estimate within 30 days after the mailing by PFG of
its remittance or notice or else be entitled to no more than the amount
stated in the notice or remitted to the dissenter by PFG.
PFG intends to negotiate in good faith with any dissenting
shareholders. Within 60 days of the later of (i) the Effective Time of
the Merger; (ii) timely receipt of any demands for payment (other than
those described in the previous paragraph); or (iii) timely receipt of
the demand for payment referred to in the previous paragraph, PFG may
apply in the Court of Common Pleas of Chester County (the "Court") to
have the Court determine the fair value of any shares as to which demands
for payment are unsettled. All dissenters whose demands have not been
settled must be made parties to the proceeding. If PFG fails to file such
an action, dissenters whose demands have not been settled may file an
application for such a proceeding in the Court within 30 days after the
expiration of the 60-day period referred to above. If such an application
is not filed by a dissenter within the prescribed time period, the
dissenter shall be paid the amount of PFG's estimate of the fair value of
the dissenter's shares and no more, and may bring an action to recover
any of such amount not previously remitted to the dissenter.
Costs and expenses of the respective parties of a valuation
proceeding will be borne by PFG, unless the Court assesses some portion
or all of the expenses against a dissenter who demanded supplemental
payment and whose action in so doing the Court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith. Expenses of counsel and
experts for respective parties may be assessed wholly or in part against
PFG if it fails to comply substantially with Sections 1571 through 1580
of the PBCL, and may be assessed against any party the Court finds acted
in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner.
The foregoing is only a summary of the rights of a dissenting
shareholder of PFG. Any shareholder who intends to dissent from the
Merger should carefully review the applicable provisions of the PBCL and
should also consult with his or her attorney. The failure of a
shareholder to follow precisely the procedures summarized above may
result in loss of dissenters' rights. No further notice of the events
giving rise to dissenters' rights or any steps associated therewith will
be furnished to PFG shareholders, except as indicated above or otherwise
required by law.
In general, any dissenting shareholder who perfects the dissenters'
right to be paid the fair value of the dissenter's shares in cash will
recognize taxable gain or loss for federal income tax purposes upon
receipt of such cash. See "Certain Federal Income Tax Consequences of the
Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization or
exchange under the Code. A condition precedent to consummation of the
Merger is the receipt by PFG of an opinion of its counsel substantially
to the effect that the Merger will be treated as a tax-free
reorganization under Section 368(a) of the Code. Assuming the Merger so
qualifies, then for Federal income tax purposes (i) no gain or loss will
be recognized by Resources or PFG as a result of the Merger, (ii) holders
of PFG Common Stock or PFG Preferred Stock whose shares are converted
into Resources Common Stock in the Merger generally will recognize no
gain or loss as a result of the conversion (except with respect to PFG
shareholders, who will recognize gain or loss to the extent that they
receive cash in lieu of fractional shares or if they exercise their
dissenters' rights), (iii) the holding period and basis applicable to
shares of Resources Common Stock received in the Merger will be the same
as the holding period and basis attributable to the PFG Common Stock or
PFG Preferred Stock, as applicable, that was converted into Resources
Common Stock in the Merger (reduced by any amount allocable to a
fractional share interest in Resources Common Stock for which cash is
received). A holder of shares of PFG Common Stock or PFG Preferred Stock
who receives cash in lieu of a fractional share interest in Resources
Common Stock will recognize gain or loss measured by the difference
between the amount of cash received and the amount of the shareholder's
aggregate basis allocated to the fractional share interest. Any gain a
PFG shareholder recognizes will be taxed either as a dividend or as a
capital gain. The Internal Revenue Service has published a ruling holding
that, in the case of a minority shareholder whose relative stock interest
in the surviving corporation is minimal, who exercises no control over
the surviving corporation's affairs, and whose relative ownership
interest in the surviving corporation has been reduced by a minimal
amount as a result of the receipt of cash in lieu of fractional shares,
any gain or loss such shareholder recognizes will be a capital gain or
loss. Pursuant to recently enacted legislation, in the case of an
individual holder of PFG Common Stock or of PFG Preferred Stock,
any such capital gain will be subject to a maximum Federal income
tax rate of (i) 20% if the holder's holding period in such shares
is more than 18 months at the time of the Merger and (ii) 28% if
the holder's holding period in such shares is more than one year
but not more than 18 months at the time of the Merger.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE POSSIBLY WITH RETROACTIVE EFFECT AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING ACCURACY OF THE ABOVE DISCUSSION. EACH PFG
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION
AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PFG SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1997 information
concerning each person known by PFG to own beneficially more than 5% of
the outstanding shares of PFG Common Stock or PFG Preferred Stock and the
beneficial ownership of PFG Common Stock for individual PFG directors,
executive officers and all directors and executive officers of PFG as a
group. Except as otherwise noted, the named beneficial owner has sole
voting and investment power with respect to the shares listed.
Name and, if not a
PFG Director or Amount
Executive Officer, and Nature
Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
-------------- ----------------- ------------- --------
PFG Common Stock Marilyn Ware Lewis, 347,407(1) 48.4%
John H. Ware, IV,
Paul W. Ware, and
Carol W. Gates
PFG Common Stock Loren D. Mellendorf 200(2) --
PFG Common Stock All executive 347,607(1)(2) 48.4%
officers and directors
of PFG as a group
PFG Common Stock Marian S. Ware 331,959(3) 46.3%
550-A Bunker Hill Road
Strasburg, PA 17579
PFG Preferred Stock Marian S. Ware 670,998.25(4) 93.5%
(1) Marilyn Ware Lewis, John H. Ware, IV, Paul W. Ware, and Carol W.
Gates are siblings (the "Ware Siblings"), and each is a director of
PFG. The 347,407 shares are all held subject to the terms of a
certain Shareholders Agreement by and among PFG, the Ware Siblings
and certain trusts dated as of November 19, 1992, and amended as of
April 15, 1994 (the "Shareholders Agreement") which has been filed
with the Commission and is a subject of a May 9, 1994 order of the
Commission under the Public Utility Holding Company Act of 1935, as
amended (SEC Release No. 35-26050; 70-8068), and such shares are
held of record by a Ware Sibling and/or trusts which benefit one or
more of the Ware Siblings. The Shareholders Agreement provides
certain restrictions on the transfer of the subject shares and
vests in the "Business Manager" as defined in the Shareholders
Agreement, who is currently Marilyn Ware Lewis, the exclusive
authority to vote and take certain other actions with respect to
the subject shares.
(2) Loren D. Mellendorf is a director of PFG and owns the 200 shares of
PFG Common Stock beneficially and of record.
(3) Marian S. Ware is the mother of the Ware Siblings. The 331,959
shares are owned of record by Marian S. Ware but are subject to
certain powers of attorney pursuant to which Marilyn Ware Lewis, as
attorney-in-fact for Marian S. Ware, has certain rights with
respect to such shares, including the right to vote and/or dispose
of such shares.
(4) Marian S. Ware is the mother of the Ware Siblings. The 670,998.25
shares of PFG Preferred Stock are owned of record by Marian S. Ware
but are subject to certain powers of attorney pursuant to which
Marilyn Ware Lewis, as attorney-in-fact for Marian S. Ware, has
certain rights with respect to such shares, including the right to
vote and/or dispose of such shares. No other owner of PFG Preferred
Stock owns as much as 1% of the issued and outstanding PFG
Preferred Stock, and accordingly such individual holdings,
including holdings by the Ware Siblings, are not detailed here.
DESCRIPTION OF RESOURCES CAPITAL STOCK
The following summaries of the terms of Resources Common Stock and
Resources Preferred Stock do not purport to be complete and are qualified
in their entirety by reference to the Resources Articles of
Incorporation, Resources Bylaws and the PBCL. For a discussion of the
material differences between the rights of holders of PFG Common Stock
and the rights of holders of Resources Common Stock, see "COMPARISON OF
SHAREHOLDER RIGHTS."
RESOURCES COMMON STOCK
Resources is authorized to issue 390,000,000 shares of Resources
Common Stock. As of July 31, 1997, there were outstanding 165,110,665
shares of Resources Common Stock.
Subject to the rights of holders of Preferred Stock of Resources
("Resources Preferred Stock"), holders of Resources Common Stock are
entitled to receive the assets and funds of Resources available for
distribution to shareholders upon liquidation, dissolution or winding up.
The holders of Resources Common Stock are entitled to one vote for
each share held. The holders of Resources Common Stock do not have
cumulative voting rights.
The holders of Resources Common Stock do not have any preemptive
rights to acquire any shares or other securities of any class that may at
any time be issued, sold or offered for sale by Resources. The holders of
Resources Common Stock have no conversion rights, and the Resources
Common Stock is not subject to redemption by either Resources or a
shareholder.
The Resources Common Stock is listed and traded on the NYSE and the
PhSE under the symbol "PPL."
RESOURCES PREFERRED STOCK
Resources is authorized to issue up to 10,000,000 shares of
Preferred Stock. As of July 31, 1997, there are no outstanding shares
of Resources Preferred Stock.
DESCRIPTION OF PFG CAPITAL STOCK
The following summaries of the terms of PFG Common Stock, PFG Prior
Preferred Stock (as defined below) and PFG Preferred Stock do not purport
to be complete and are qualified in their entirety by reference to the
PFG Articles of Incorporation, the PFG Bylaws and the PBCL. For a
discussion of the material differences between the rights of holders of
PFG Common Stock and the rights of holders of Resources Common Stock, see
"COMPARISON OF SHAREHOLDER RIGHTS."
The authorized capital stock of PFG consists of 2,000,000 shares of
PFG Common Stock; 500,000 shares of PFG Prior Preferred Stock, no par
value ("PFG Prior Preferred Stock"); and 2,000,000 shares of PFG
Preferred Stock. As of the date of the Merger Agreement (June 26, 1997),
there were 717,583 shares of PFG Common Stock, no shares of PFG Prior
Preferred Stock and 717,583 shares of PFG Preferred Stock issued and
outstanding.
PFG COMMON STOCK
Subject to preferences that may be applicable to any then
outstanding PFG Preferred Stock, holders of PFG Common Stock are entitled
to receive such cash dividends when, if, and as may be declared by the
PFG Board out of funds legally available therefor.
In the event of any liquidation, dissolution or winding up of PFG,
the holders of PFG Common Stock will be entitled to share pro rata in the
net assets of PFG remaining, if any, after payment or provision for
payment in respect of the debts and other liabilities of PFG and subject
to liquidation preferences that may be applicable to any then outstanding
PFG Prior Preferred Stock and PFG Preferred Stock.
PFG shareholders do not have the right to cumulate their votes for
the election of directors in the corporation. No holder of any class or
series of PFG capital stock has preemptive rights over the issuance and
sale of its capital stock or securities having conversion or option
rights with respect to its capital stock.
PFG PRIOR PREFERRED STOCK
Unless otherwise provided by the PFG Board, shares of PFG Prior
Preferred Stock shall rank senior to shares of PFG Preferred Stock with
respect to payment of dividends and distributions in liquidation.
PFG PREFERRED STOCK
The holders of shares of PFG Preferred Stock are entitled to
receive, but only when declared by the PFG Board of Directors and only
out of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the annual rate of $1.40 per share,
payable quarterly.
In the event of liquidation, before any payment or distribution
shall be made to the holders of the PFG Common Stock or any other class
which ranks junior to the PFG Preferred Stock with respect to payments in
liquidation, the holders of all shares of PFG Preferred Stock shall be
entitled to be paid $15.00 per share plus all accrued and unpaid
cumulative dividends thereon.
During a ten-year period beginning in 2018, PFG is required to
redeem all shares of PFG Preferred Stock at a price per share equal to
$15.00 plus all accrued and unpaid cumulative dividends thereon in
accordance with the terms thereof. PFG also has the option to redeem all
or a portion of outstanding PFG Preferred Stock at $15.00 per share plus
all accrued and unpaid cumulative dividends thereon in accordance with
the terms thereof, but only with the approval of holders of at least 66
2/3% of the shares of PFG Preferred Stock outstanding. All shares of PFG
Preferred Stock that are redeemed or purchased by the corporation shall
not be outstanding and shall not be reissued.
The holders of PFG Preferred Stock have no right to vote and are
not entitled to notice of any meeting of shareholders, except in the
event that dividend payments in an aggregate amount equivalent to six
full quarterly dividends or all or any part of two mandatory redemption
payments are in default. At such time and until all dividends have been
paid, then holders of the PFG Preferred Stock shall be entitled to elect
the smallest number of directors as shall constitute at least one-third
of the entire PFG Board.
COMPARISON OF SHAREHOLDER RIGHTS
Resources and PFG are both organized under the laws of the
Commonwealth of Pennsylvania. Any differences, therefore, between the
rights of the Resources shareholders and the rights of the PFG
shareholders arise solely from differences between each corporation's
articles of incorporation and bylaws.
The following summary sets forth certain material differences
between the rights of the Resources shareholders and the rights of the
PFG shareholders. This summary does not purport to be a complete
description of the differences between the rights of the Resources
shareholders and the rights of the PFG shareholders and is qualified in
its entirety by reference to the Resources Articles of Incorporation and
the Resources Bylaws and to the PFG Articles of Incorporation and the PFG
Bylaws.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Resources consists of 390,000,000
shares of Resources Common Stock and 10,000,000 shares of Resources
Preferred Stock. As of July 31, 1997, there were 165,110,665 shares of
Resources Common Stock and no shares of Resources Preferred Stock issued
and outstanding. The authorized capital stock of PFG consists of
2,000,000 shares of PFG Common Stock, 500,000 shares of PFG Prior
Preferred Stock and 2,000,000 shares of PFG Preferred Stock. As of July
15, 1997, there were 717,583 shares of PFG Common Stock, no shares of PFG
Prior Preferred Stock and 717,583 shares of PFG Preferred Stock issued
and outstanding.
VOTING RIGHTS
The holders of both Resources Common Stock and PFG Common Stock are
entitled to one vote per share with respect to all matters submitted to a
vote of the Resources and PFG shareholders, respectively. The holders of
PFG Preferred Stock have no voting rights, except that if dividends are
in default in an amount equal to six full quarterly dividends or all or
any part of two mandatory redemption payments are in default and until
all dividends have been paid, then the holders of the PFG Preferred Stock
shall be entitled to elect the smallest number of directors as shall
constitute at least one-third of the entire PFG Board.
AMENDMENTS TO CHARTER AND BYLAWS
Any alteration, amendment, or repeal of Articles VI, VII, VIII, IX
or X of the Resources Articles of Incorporation must be approved by the
affirmative vote of the holders of 66 2/3% of the outstanding shares of
Resources Common Stock. Any alteration, amendment, or repeal of certain
sections of the Resources Bylaws must be approved by either the
affirmative vote of the holders of 66 2/3% of the outstanding shares of
Resources Common Stock or a majority of the Resources Board, including a
majority of the independent directors on the Resources Board. The PFG
Bylaws may be amended or repealed either (i) by vote of the shareholders
or (ii) unless such matters are committed expressly to the shareholders,
by the vote of a majority of the PFG Board. Neither the PFG Articles of
Incorporation nor the PFG Bylaws specifies the approvals necessary for
amending PFG's Articles of Incorporation.
PREEMPTIVE RIGHTS; CUMULATIVE VOTING
Neither the Resources shareholders nor the PFG shareholders have
preemptive rights with respect to unissued shares of capital stock.
Moreover, cumulative voting is not authorized under either the Resources
or the PFG Articles of Incorporation.
BOARD OF DIRECTORS
The Resources Board is divided into three classes and currently
consists of eleven directors who serve for three-year terms. The number
of directors on the Resources Board is subject to change by action of the
Resources Board but cannot be less than ten nor more than twenty. The PFG
Board is not classified and consists of eight directors who serve for
one-year terms. The number of directors on the PFG Board is subject to
change by action of the PFG Board but cannot be less than three nor more
than eleven.
REMOVAL OF DIRECTORS
Under the Resources Bylaws, any director may be removed from
office, but only for cause, and only upon the affirmative vote of the
holders of 66 2/3% of the shares entitled to vote thereon. Under the PFG
Bylaws, any director may be removed at any time, with or without cause,
by the holders of a majority of the shares entitled to vote thereon at
any meeting of shareholders called for the purpose of removing any such
director.
NEWLY-CREATED DIRECTORSHIPS AND VACANCIES
Under both the Resources Bylaws and the PFG Bylaws, any vacancy
occurring on the board may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum;
newly-created directorships are required to be filled by the affirmative
vote of a majority of the directors though less than a quorum.
NOMINATION OF DIRECTORS
The Resources Bylaws provide that directors may be nominated by the
board of directors or a committee appointed by the board of directors or
by any shareholder entitled to vote in the election of directors
generally who delivers written notice to the secretary of the corporation
not later than (i) with respect to an election to be held at an annual
meeting of shareholders, 75 days in advance of the date of such meeting;
provided, however, that in the event that less than 85 days' notice or
prior public disclosure of the date of the annual meeting is given,
notice by a shareholder to be timely must be received not later than the
tenth day following the date on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever
first occurs, and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close
of business on the earlier of (A) the seventh day following the date on
which notice of such meeting is first given to shareholders or (B) the
fourth day prior to the meeting. Each such notice shall set forth: (a)
the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the shareholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such
other information regarding each nominee proposed by such shareholder as
would be required to be included in a proxy statement filed pursuant to
the proxy rules of the Commission had proxies been solicited with respect
to such nominee by the management or board of directors of the
corporation; and (e) the consent of each nominee to serve as a director
of the corporation if so elected.
The PFG Bylaws provide that, except in the case of vacancies,
directors shall be elected by the shareholders. Upon the demand of any
shareholder or the shareholder's proxy at any meeting of shareholders for
the election of directors, the chairman of the meeting shall call for and
shall afford a reasonable opportunity for the making of nominations for
the office of director. If the board of directors is classified with
respect to the power to elect directors or with respect to the terms of
directors and if, due to a vacancy or vacancies, or otherwise, directors
of more than one class are to be elected, each class of directors to be
elected at the meeting shall be nominated and elected separately. Any
shareholder or the shareholder's proxy may nominate as many persons for
the office of director as there are positions to be filled. If
nominations for the office of director have been called for, only
candidates who have been nominated in accordance therewith shall be
eligible for election.
SHAREHOLDER PROPOSALS
Under the Resources Bylaws, in order for a Resources shareholder to
have a proposal considered at an annual meeting of shareholders, the
shareholder must deliver notice of such proposal to the secretary of
Resources not less than 75 days before the date of the meeting; provided,
however, that in the event that less than 85 days' notice of the date of
the meeting is given, notice by the shareholder to be timely must be
received not later than the close of business on the tenth day following
the day on which such notice of the date of the meeting was made. The
proposing shareholder's notice shall set forth with respect to each
matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of the shareholder proposing
such business, (iii) the class, series and number of shares of the
corporation that are beneficially owned by such shareholder, (iv) a
description of all arrangements or understandings between such
shareholder and any other person or persons in connection with the
proposal of such business by such shareholder in such business, (v) all
other information which would be required to be included in a proxy
statement or other filing required to be filed with the Commission if,
with respect to any such item of business, such shareholder were a
participant in a solicitation subject to Regulation 14A under the
Exchange Act, and (vi) a representation that such shareholder intends to
appear in person or by proxy at the annual meeting of shareholders to
bring such business before the meeting.
SPECIAL MEETINGS OF THE SHAREHOLDERS
Under the Resources Bylaws, a special meeting of the shareholders
may be called by either the Resources Board or the chairman of the
Resources Board. Under the PFG Bylaws, a special meeting of the
shareholders may be called by the PFG Board, the president, or
shareholders entitled to cast at least 20% of the votes that all
shareholders are entitled to cast at a particular meeting.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Under the Resources Bylaws, any action that may be taken at a
meeting of Resources' shareholders may be taken without a meeting of
shareholders if a written consent setting forth the action to be taken is
signed by the holders of not less than the minimum number of votes that
would be necessary to take such action at a meeting of shareholders.
Under the PFG Bylaws, any action that may be taken at a meeting of PFG
shareholders may be taken without a meeting of shareholders if a written
consent thereto signed by all of the shareholders who would be entitled
to vote at a meeting for such purpose is filed with the secretary of the
corporation.
LIMITATION ON DIRECTOR'S LIABILITY
The Resources Bylaws provide that to the fullest extent that the
laws of the Commonwealth of Pennsylvania, as now in effect or as
hereafter amended, permit elimination or limitation of the liability of
directors, no director of the corporation shall be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, as a director. The PFG Articles of Incorporation provide that a
director has no liability for breach of a fiduciary duty, except for
liability for breach or failure to perform the duties of office that
constitutes self-dealing, willful misconduct or recklessness.
INDEMNIFICATION
The Resources Bylaws provide that Resources will indemnify any
person who is a party to, or is threatened to be made a party to, any
action, suit, or proceeding (whether civil, criminal, administrative,
investigative or other) by reason of the fact that he or she is or was a
director or officer of Resources or is or was serving at the request of
Resources as a director or officer of another corporation against all
costs reasonably incurred or suffered by such person.
The PFG Bylaws provide that PFG will indemnify any person who is a
party to, or is threatened to be made a party to, any action, suit, or
proceeding (whether civil, criminal, administrative, or investigative) by
reason of the fact that he or she is or was a director or officer of PFG
or is or was serving at the request of PFG as a director or officer of
another corporation against all costs reasonably incurred by such person
or on such person's behalf except where the conduct of such person has
been finally determined to constitute willful misconduct or recklessness.
LEGAL MATTERS
The legality of the shares of Resources Common Stock to be issued
in the Merger will be passed upon for Resources by Michael A. McGrail,
Senior Counsel of Pennsylvania Power & Light Company, a direct subsidiary
of Resources.
EXPERTS
The consolidated financial statements of PFG as of December 31,
1996 and 1995, and for each of the years in the three-year period ended
December 31, 1996 have been included in this Prospectus in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. Such report refers to a
change in 1995 in the method of recognizing revenues from sales of
natural gas to residential and small commercial customers and also a
change in 1995 in the method of accounting for postretirement benefits
other than pensions.
The consolidated financial statements of Resources as of December
31, 1996 and 1995 and for the two years then ended, incorporated in this
Prospectus by reference to Resources 1996 Form 10-K, have been so
incorporated in reliance on the report (which contains an explanatory
paragraph relating to the Company's reorganization) of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Pennsylvania Power & Light
Company, prior to restatement (not presented separately therein), as of
December 31, 1994 and for the year ended December 31, 1994, incorporated
in this Prospectus by reference from Resources 1996 Form 10-K, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in
their report which is incorporated herein by reference, and have been so
incorporated in reliance upon such report given upon the authority of
that firm as experts in accounting and auditing.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Table of Contents
- ----------------------------------------------------------------------------
PAGE
Management's Discussion and Analysis of Financial Condition and
Results of Operations -- December 31, 1996, 1995, and 1994..........F-2
Accountants..............................................................F-9
Independent Auditors' Report............................................F-10
Financial Statements:
Consolidated Balance Sheets -- December 31, 1996 and 1995..........F-11
Consolidated Statements of Income, Years ended
December 31, 1996, 1995, and 1994................................F-13
Consolidated Statements of Retained Earnings, Years ended
December 31, 1996, 1995, and 1994................................F-15
Consolidated Statements of Cash Flows, Years ended
December 31, 1996, 1995, and 1994................................F-16
Notes to Consolidated Financial Statements -- December 31, 1996,
1995, and 1994.....................................................F-18
PENN FUEL GAS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------
RESULTS OF OPERATIONS
OVERVIEW
Net income and earnings per common share were $6,389,000 and $8.90
respectively for 1996 compared to $5,072,000 and $7.07 for 1995 and
$4,700,000 and $6.55 for 1994. Net income for 1995 includes $378,000,
equivalent to $.53 per common share from the cumulative effect, net of
tax, on prior years of a change in accounting principle.
1996 COMPARED WITH 1995
The increase in net income in 1996 compared with 1995 is the result of
several factors. Gross utility margin, defined as operating revenues less
cost of gas increased $4,406,000 (8.8%) in 1996. The full benefit of a
rate increase approved by the Pennsylvania Public Utility Commission
(PAPUC) in 1995 is included in 1996 revenues as is part of the benefit of
a rate increase approved in October 1996. Utility throughput in 1996 was
almost the same as in 1995 as deliveries to sales customers increased
492,000 Dth (3.6%), and throughput to transportation customers decreased
405,000 Dth (3.1%). The gross margin the Company earns on sales and
transportation is generally the same for the same type of customer. Sales
to Liquefied Petroleum (LP) customers were almost the same at 841,000 Dth
in 1996 compared to 830,000 Dth in 1995. The gross margin on LP sales
increased $240,000 (3.6%) in 1996. Degree days in 1996 were 2.7% above
normal while degree days in 1995 were 2.3% below normal. Also included in
1996 net income is $868,000 ($1.21 per share) representing the current
tax benefits of a change in tax accounting method approved by the
Internal Revenue Service (IRS) during the year and $115,000 ($.16 per
share) from the sale of real estate no longer used in operations. 1995
net income included $567,000 ($.79 per share) from the sale of assets by
a subsidiary that accounted for all the Company's LP and merchandise
sales in Delaware.
1995 COMPARED WITH 1994
As noted, 1995 net income included $378,000 ($.53 per share) from the
cumulative effect, net of tax, on prior years of a change in accounting
principle and $576,000 ($.79 per share) from the sale of assets. In
addition, gross margin from utility operations increased $1,408,000
(2.9%) in 1995 compared with 1994. The Company's utility throughput was
1,242,000 Dth (4.9%) higher in 1995 than 1994. Deliveries to sales
customers decreased 2,216,000 Dth (14%) but deliveries to transportation
customers increased 3,458,000 Dth (36%). Sales to LP customers in 1995
decreased 35,000 Dth from 1994. Gross margin on LP sales was $655,000
(8.9%) lower in 1995 than 1994 reflecting both the decrease in volumes
and market conditions during the year. Degree days in 1995 were 2.3%
below normal; degree days measured in 1994 were 1.2% above normal.
OPERATING REVENUES
Operating revenues were $113,507,000 in 1996, $105,647,000 in 1995, and
$123,410,000 in 1994. Utility operations accounted for $6,706,000 of the
$7,860,000 increase in 1996 revenues. Several factors including the
impact of rate case proceedings settled in 1996 and 1995, higher sales
volumes and the recovery of purchased gas costs that were higher in 1996
than 1995 contributed to the increase in revenues. 1996 utility operating
revenues include the increase in rates approved in September 1995 by the
PAPUC. The rates were designed to provide $2,247,000 of additional annual
revenues. Also included in 1996 utility operating revenues is a partial
year's benefit of a rate increase approved by the PAPUC in October 1996.
The new rates were designed to provide $6,725,000 of increased annual
revenues.
Total 1995 revenues were $17,763,000 less than total 1994 revenues.
Utility operations accounted for $17,122,000 of the decrease as the mix
of the Company's throughput from sales service and transportation service
changed. From 1992 to 1994 transportation service accounted for
approximately 37% of the Company's throughput. In 1995 49% of the
Company's throughput was from transportation service. Revenue generated
from sales service includes the recovery of the cost of gas sold to
customers; however, revenue from transportation service does not include
the recovery of gas costs because the customer has not purchased its gas
from the Company. In addition to the change in throughput mix in 1995,
gas related costs included in rates billed to sales customers were lower
in 1995 than in 1994 which also reduced utility revenues. An increase in
rates designed to provide $2,247,000 of additional annual revenues was
approved by the PAPUC in September 1995 and was billed to customers for
part of the year.
LP operating revenues increased $1,285,000 in 1996 from $11,009,000 in
1995 while sales on a Dth basis remained essentially unchanged: 841,000
Dth in 1996 and 830,000 Dth in 1995. In 1996 the Company was able to
recover higher product costs through increased selling prices and improve
its gross margin by $240,000 (3.6%).
In 1995 LP operating revenues decreased $639,000 from $11,648,000 in
1994. In addition to 1995 being warmer than 1994, the decreases in LP
volumes and revenues compared to the prior year reflect the August 1995
sale by Gas-Oil Products, Inc. of Delaware (GOP), a wholly owned
subsidiary, of certain of its assets including tanks, inventory, motor
vehicles and accounts receivable. GOP accounted for all of the Company's
business in Delaware which was approximately 9% of the Company's total LP
volume.
OTHER OPERATING, ADMINISTRATIVE, GENERAL EXPENSES,
AND MAINTENANCE EXPENSES
Other operating, administrative, and general expenses and maintenance
expenses increased $1,146,000 (3.5%) in 1996 compared with 1995. During
the year, the Company began a program to inspect the condition of a major
transmission line that is part of its pipeline system. The program will
continue into 1997. To date, no significant anomalies have been
identified through the program. The cost of the program and resulting
repairs have been charged to expense in 1996.
Legal expense was higher in 1996 primarily because of the costs incurred
to oppose an application by another Company with the Federal Energy
Regulatory Commission (FERC) to develop salt dome storage in the same
area as the Company's existing underground storage facilities. Other
factors contributing to the increase in expense are higher payroll costs
and uncollectible accounts expense.
Expense reductions in 1996 included a $343,000 pension expense credit.
The credit resulted from discontinuing an investment contract with an
insurance company, funding outstanding guaranteed annuities under the
contract and placing the balance of the assets from the contract with an
investment manager. Also in 1996 the Company implemented a new purchasing
and inventory control system. As part of the implementation of the new
system, the Company expanded its definition of inventoriable items,
redesigned its part numbers and took a physical inventory. The cost of
items included in the physical inventory net of reserves for loss
contingencies resulted in a $141,000 reduction in 1996 expense.
Other operating, administrative and general expenses increased $1,986,000
(7.3%) in 1995 compared with 1994. In the first quarter of 1995 the
Company adopted the provisions of Statement of Accounting Standards No.
106 (FAS 106) Employers' Accounting for Postretirement Benefits Other
Than Pensions (PBOPs) issued by the Financial Accounting Standards Board
in December 1990. FAS 106 requires the expected cost of PBOPs to be
recognized on an accrual basis as employees perform services to earn the
benefits. Previously, the Company recognized such costs on a "pay as you
go" basis. The adoption of FAS 106 increased 1995 expense by $167,000. As
part of a settlement of the Company's rate increase request filed January
27, 1995 with the PAPUC, the Company received regulatory approval to
recover the cost of PBOPs calculated in accordance with FAS 106. In
addition to the increase in expense resulting from adopting FAS 106, the
cost of employee medical benefits in 1995 was higher than 1994. General
inflation in wages, services and materials and supplies also increased
expense in 1995. Maintenance expense increased $158,000 (5.3%) in 1995
compared with 1994.
During 1995 the Company installed new customer information systems for
both its utility and LP operations. In addition to providing improved
capabilities to respond to customer inquiries, the new systems add
advantages in other areas such as meter reading, routing and scheduling
deliveries of LP. Utility customers receive more detailed monthly bills
with the new system than were available on the postcard bill previously
used and receive envelopes for mailing their payments. These features
have increased the cost of billing utility customers, but provide
improved service to them. After implementing the new systems, the Company
began the process of closing utility district offices and consolidating
its customer service representatives into ten (10) energy centers.
Severance benefits were provided in 1995 to sixteen (16) employees whose
positions were eliminated through consolidation of offices.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $1,225,000 (24.4%) from
1994 to 1996 due to investment in property, plant, and equipment, and
higher amortization of capitalized environmental costs.
INCOME TAX EXPENSE
Current and deferred income tax expense in 1996 include the impact of a
change in tax accounting method for cost of removal. In 1996 the Company
received approval from the IRS to deduct cost of removal from taxable
income beginning with the 1994 tax year. The approval applied to the
deduction of applicable costs incurred in 1994 and subsequent years and
to costs incurred by the Company prior to 1994 (accumulated costs). The
accumulated costs are deductible pro rata over a six year period also
beginning with the 1994 tax year. Approval to begin deducting costs of
removal created timing differences or current tax benefits depending on
the vintage of the assets the costs related to and the principles
followed for recognizing differences between book and tax at the time.
The combination of deferred taxes and current tax benefits recognized in
1996 as a result of the approval to deduct cost of removal reduced the
year's tax expense $868,000.
TAXES OTHER THAN INCOME
Taxes other than income includes taxes based on payroll and various state
taxes. Utility revenues subject to gross receipts tax were lower in 1995
than 1994 consistent with the change in the Company's mix of sales and
transportation throughput.
INTEREST EXPENSE
Interest expense for 1996 was $369,000 (7.8%) lower compared to 1995
expense. Lower interest costs resulting from reductions in long-term debt
through required and optional prepayments more than offset interest
incurred through higher levels of borrowings under the Company's lines of
credit. In addition, interest costs related to the overcollection of
purchased gas and transition costs were lower in 1996 because these
amounts were refunded to customers during the year. A decrease in
interest income from temporary cash investments was approximately offset
by the amount of interest received from the settlement of prior years
income tax issues.
Interest expense in 1995 was $384,000 (8.8%) higher than 1994. The impact
of higher interest rates related to the issuance of $27,000,000 of
long-term debt in May 1994 was partially offset by increased income from
the investment of cash balances during the year.
OTHER EXPENSE
Other expense (income) in 1996 includes $193,000 of pre-tax gain on the
sale of real estate. In 1995 certain assets of an LP subsidiary located
in Delaware were sold and a pre-tax gain of $945,000 was recognized as
other income. The real estate sold in 1996 was previously used in the
Delaware LP business. The Company did not have any comparable asset sales
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's natural gas and LP businesses are both seasonal in nature
and weather sensitive. The heating season of November through March is
the Company's highest period of cash flow. However, cash requirements for
capital expenditures and the acquisition of gas for storage are highest
during the spring and fall of the year. Bank lines of credit are used to
meet the Company's seasonal working capital requirements and as a source
of funds for its capital investment program.
Periodically the Company refinances capital investments funded through
its lines of credit by issuing long-term debt. At December 31, 1996 and
December 31, 1995 the Company had outstanding line of credit borrowings
of $7,500,000 and $500,000, respectively. In 1997 the Company and its
subsidiaries have negotiated unsecured committed and uncommitted bank
lines of credit that in aggregate total $22,500,000 and $45,000,000,
respectively. In 1996 the Company and its subsidiaries had unsecured
committed and uncommitted bank lines of credit that in aggregate totaled
$12,000,000 and $24,000,000 respectively.
In the first quarter of 1995 the Company reinstated a common dividend to
its stockholders at the annual rate of $2.00 per share. The annual rate
of the common dividend was increased to $2.40 on February 27, 1996 and to
$2.88 on March 7, 1997.
The Company's 1997 capital improvement and environmental budgets total
$13,343,000. In 1996, 1995, and 1994, capital and environmental
expenditures amounted to $14,109,000, $15,721,000, and $12,387,000,
respectively. In 1995 the Company acquired undeveloped acreage with the
intent of constructing a new office building for the Company's management
and administrative functions. The new office building project has not
been included in the Company's 1997 capital budget pending finalization
of plans and permitting. The Company has incurred $411,000 of costs
related to designing and planning the proposed building. These costs have
been capitalized.
Gas inventory is primarily natural gas (storage gas) but also includes
smaller amounts of LP. Natural gas in storage is generally purchased
during the warmer months of the year and held either in facilities owned
by the Company or by interstate pipelines for withdrawal during the
heating season. At December 31, 1996 the Company had 3,305,000 Dth of
natural gas in inventory and 60,000 Dth of LP. At December 31, 1995,
natural gas inventory totaled 2,614,000 Dth and LP totaled 52,000 Dth.
Natural gas inventory and LP inventory at December 31, 1994 were
4,300,000 Dth and 56,000 Dth, respectively. The Company's projections
show an increase in storage gas at December 31, 1997 of up to 500,000
Dth. The increase in storage gas is part of a study to determine the
level of additional storage space that may be developed in one of the
Company's storage fields.
GAS UTILITY INDUSTRY RESTRUCTURING
The restructuring of the natural gas industry to date has largely
affected those aspects of the business regulated at the national or
interstate level by the FERC. The Natural Gas Policy Act was passed in
1978 and started the gradual decontrol of natural gas prices at the
wellhead. Subsequent orders issued by the FERC resulted in open access to
pipeline transportation, resolution of take or pay liabilities and
finally the unbundling of merchant gas sales service from other
interstate pipeline services such as storage and transportation. All of
these FERC initiatives have had significant effects on the operations of
local distribution companies (LDCs), such as the Company's utility
subsidiaries.
Most of the Company's large industrial and commercial customers now
purchase their natural gas from a supplier other than the Company and
utilize the Company's pipelines to deliver the gas to their facilities.
The rate for this delivery or transportation service has been unbundled
from the rate the Company charges for the cost of the gas. In situations
where the customer is in a position to exercise its ability to build a
connection to an interstate pipeline and bypass use of the Company's
facilities, the Company has negotiated competitive rates.
Legislation has recently been introduced in Pennsylvania that among other
things provides gas supply choice to all gas customers, not just those
that use large volumes of the commodity, after April 1, 1999. Under the
proposed legislation LDCs will be required to file a restructuring
proposal with the PAPUC by December 31, 1997. Certain aspects of the
proposed legislation may change as the result of hearings to be held by
the legislature, but it is expected that some measure of customer choice
will be provided to all users of natural gas in Pennsylvania. Legislation
providing customer choice to users of electricity was enacted in
Pennsylvania in December 1996. As proposed, the restructuring plan is to
include unbundled rates for gas distribution (transportation) and supply
a proposal to physically, operationally and legally separate the gas
supply merchant function from the distribution function and a proposed
supplier of last resort mechanism. Under current regulations the Company
does not earn a profit from the gas supply merchant function. The return
on investment or profit is part of the rate the Company charges for
delivering the gas and providing other services. The proposed legislation
would continue to have the transportation and distribution of natural gas
regulated by the PAPUC.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128") which establishes new standards for computing and presenting
earnings per share. The Company intends to adopt this standard as
required in the fourth quarter of 1997. All prior periods will be
restated to reflect the new Basic and Diluted earnings per share amounts.
The Company's Basic earnings per share is essentially net income less
preferred stock dividends divided by the weighted common shares
outstanding. The Diluted earnings per share is not expected to be
materially different than currently reported earnings per share amounts.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Accountants
- --------------------------------------------------------------------------
Since January 1, 1995, no independent accountant engaged as a principal
accountant to audit PFG's financial statements, or to audit a significant
subsidiary on whom such principal accountant expressed reliance in its
report, has resigned, indicated it declined to stand for reelection after
the completion of the current audit or been dismissed.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Penn Fuel Gas, Inc. :
We have audited the accompanying consolidated balance sheets of Penn Fuel
Gas, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, retained earnings, and cash
flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Penn
Fuel Gas, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, in 1995
the Company changed its method of recognizing revenues from sales of
natural gas to residential and small commercial customers. As discussed
in note 5 to the consolidated financial statements, in 1995 the Company
changed its method of accounting for postretirement benefits other than
pensions to adopt the provisions of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
April 4, 1997
PENN FUEL GAS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Assets 1996 1995 June 30, 1997
(Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property, plant, and equipment:
Gas utility plant:
Natural gas production and gathering $ 2,401 2,464 *
Storage 5,008 5,000
Transmission 33,221 32,310
Distribution 117,082 108,823
General and other 10,615 9,156
- -----------------------------------------------------------------------------------------------
168,327 157,753
Liquefied petroleum gas property 10,454 10,146
- -----------------------------------------------------------------------------------------------
178,781 167,899
Less accumulated depreciation, depletion,
and amortization 42,830 40,638
- -----------------------------------------------------------------------------------------------
135,951 127,261
Gas stored underground - noncurrent 5,341 5,341
- -----------------------------------------------------------------------------------------------
141,292 132,602
- -----------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents 2,513 5,357
Receivables, less allowance for doubtful
accounts of $988 in 1996 and $920 in 1995 13,802 12,131
Inventories:
Gas 6,179 3,924
Merchandise, material, and supplies 3,706 2,828
Unrecovered gas and transition costs 370 --
Prepayments and other 1,379 1,627
Deferred income taxes 1,322 1,570
- -----------------------------------------------------------------------------------------------
29,271 27,437
- -----------------------------------------------------------------------------------------------
Deferred debits:
Environmental costs 15,115 15,891
Well plugging and abandonment costs 4,038 4,191
Other 6,749 4,156
- -----------------------------------------------------------------------------------------------
25,902 24,238
- -----------------------------------------------------------------------------------------------
$ 196,465 184,277
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
_______________________
* To be provided by amendment.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES 1996 1995 June 30, 1997
(Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capitalization:
Stockholders' equity:
Common, $1 par value; authorized 2,000,000
shares, issued and outstanding 717,583
shares in 1996 and 1995 $ 718 718
Preferred, no par value; authorized
500,000 shares, issued none -- --
Additional paid-in capital 714 714
Retained earnings 65,313 60,646
- -----------------------------------------------------------------------------------------------
66,745 62,078
Redeemable preferred stock:
$1.40 cumulative preferred stock; authorized
2,000,000 shares, issued and outstanding
717,583 shares in 1996 and 1995 10,764 10,764
Long-term debt, less amounts payable within one
year 51,694 55,644
- -----------------------------------------------------------------------------------------------
129,203 128,486
- -----------------------------------------------------------------------------------------------
Current liabilities:
Notes payable 7,500 500
Long-term debt payable within one year 2,939 3,068
Accounts payable 11,346 8,167
Overrecovered gas and transition costs -- 3,080
Accrued environmental costs 1,811 1,815
Other current and accrued liabilities 4,554 3,852
- -----------------------------------------------------------------------------------------------
28,150 20,482
- -----------------------------------------------------------------------------------------------
Deferred credits:
Unamortized investment tax credits 1,990 2,067
Unamortized excess of equity value of
subsidiary at acquisition over cost 537 642
Deferred income taxes 17,530 12,883
Accrued environmental costs 14,163 14,768
Accrued well plugging and abandonment costs 3,792 3,941
Other 1,100 1,008
- -----------------------------------------------------------------------------------------------
39,112 35,309
- -----------------------------------------------------------------------------------------------
$ 196,465 184,277
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
(in thousands, except per share information)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
1996 1995 1994 1997 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue:
Utility revenue $ 99,793 93,087 110,209
Liquefied petroleum gas revenue 12,294 11,009 11,648
Merchandise sales 1,420 1,551 1,553
- -----------------------------------------------------------------------------------------------------------------
113,507 105,647 123,410
- -----------------------------------------------------------------------------------------------------------------
Operating revenue deductions:
Cost of gas, utility 45,378 43,078 61,608
Cost of liquefied petroleum gas 5,323 4,278 4,262
Cost of sales, merchandise 1,192 1,319 1,318
Operating, administrative, and general expenses 30,274 29,235 27,249
Maintenance 3,238 3,131 2,973
Depreciation and amortization 6,246 5,541 5,021
Taxes, other than income 6,788 6,514 7,350
Income taxes 3,741 3,223 3,442
- -----------------------------------------------------------------------------------------------------------------
102,180 96,319 113,223
- -----------------------------------------------------------------------------------------------------------------
Operating income 11,327 9,328 10,187
- -----------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest 4,362 4,731 4,347
Other (429) (1,102) 135
- -----------------------------------------------------------------------------------------------------------------
3,933 3,629 4,482
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle 7,394 5,699 5,705
Cumulative effect on prior years (to December 31, 1994)
of change to record unbilled revenue, net of tax -- 378 --
- -----------------------------------------------------------------------------------------------------------------
Net income 7,394 6,077 5,705
Dividend requirement on redeemable preferred stock (1,005) (1,005) (1,005)
- -----------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 6,389 5,072 4,700
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle $ 8.90 6.54 6.55
Cumulative effect on prior years (to December 31,1994)
of change to record unbilled revenue, net of tax -- 0.53 --
- -----------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 8.90 7.07 6.55
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Years ended December 31, 1996, 1995, and 1994
(in thousands, except per share information)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
1996 1995 1994 1997 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 60,646 57,009 52,309
Net income 7,394 6,077 5,705
Dividends:
Redeemable preferred stock ($1.40 in
1996, 1995, and 1994) (1,005) (1,005) (1,005)
Common stock ($2.40 in 1996 and $2.00
in 1995) (1,722) (1,435) --
- -----------------------------------------------------------------------------
Balance at end of year $ 65,313 60,646 57,009
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
1996 1995 1994 1997 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,394 6,077 5,705
- ---------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,246 5,541 5,021
Amortization of extraordinary
property loss 38 231 231
Deferred taxes and investment tax credits 3,874 1,701 (1,722)
Gain on sale of liquefied petroleum gas (193) (945) --
property
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (1,671) (671) 2,840
(Increase)/decrease in gas inventory (2,255) 3,722 (759)
Increase/(decrease) in overrecovered gas
and transition costs, net (3,450) (1,501) 7,803
Increase in other inventories (878) (353) (395)
Increase/(decrease) in accounts payable
and accrued liabilities 3,881 (1,342) (1,099)
Increase/(decrease) in other assets/
liabilities (1,175) (89) 302
Total adjustments 4,417 6,294 12,222
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,811 12,371 17,927
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (12,561) (13,403) (10,777)
Proceeds on the sale of liquefied petroleum
gas assets 226 1,379 --
Other (2,514) (2,380) (2,029)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,849) (14,404) (12,806)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt $ -- -- 27,000
Principal payments on long-term debt (4,079) (2,458) (2,970)
Net increase in notes payable 7,000 500 --
Decrease in borrowings under the revolving
line of credit -- -- (22,250)
Dividends paid:
Preferred (1,005) (1,005) (1,005)
Common (1,722) (1,435) --
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 194 (4,398) 775
- ---------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (2,844) (6,431) 5,896
Cash and cash equivalents at beginning of year 5,357 11,788 5,892
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,513 5,357 11,788
- ---------------------------------------------------------------------------------------------------
Supplementary disclosures of cash flow information:
Cash paid for the year for:
Interest $ 4,913 5,326 4,740
Income taxes 1,556 3,178 5,649
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
PENN FUEL GAS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
- ----------------------------------------------------------------------------
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF BUSINESS
Penn Fuel Gas, Inc. (the Company) is an exempt public utility
holding company whose utility subsidiaries provide natural gas
distribution, transmission, and storage service from facilities
in Pennsylvania. In addition, the Company provides gas
distribution service to a small number of customers in Maryland.
The Company also sells liquefied petroleum (LP) gas and
merchandise in Pennsylvania and Maryland. In August 1995 the
Company sold its LP operations in Delaware. (See Liquefied
Petroleum Gas Property.)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, each of which is wholly owned. All
material intercompany accounts have been eliminated.
The Company's utility subsidiaries maintain their accounting
records in conformity with the uniform system of accounts
prescribed by the Federal Energy Regulatory Commission (FERC),
Pennsylvania Public Utility Commission (PAPUC) and the Maryland
Public Service Commission. Significant accounting practices are
summarized below.
PROPERTY, PLANT, AND EQUIPMENT
Utility Plant
Utility plant is carried at cost. Depreciation is computed using
the straight-line method. Based on average utility plant, the
composite straight-line rates for 1996, 1995, and 1994 were 2.8%,
3.0%, and 3.0%, respectively.
For utility property, expenditures for replacements and renewals
considered to be units of property are charged to utility plant
accounts at cost. Expenditures for maintenance, repairs, renewals
and replacements determined to be less than units of property are
charged to maintenance. At the time utility properties are
retired, replaced, or otherwise disposed of, accumulated
depreciation, depletion, and amortization is charged with the
cost of the properties plus the costs incurred in retiring,
replacing or disposing of the property. As discussed in note 7,
the Company has accrued the estimated cost of removal related to
366 producing and nonproducing gas wells.
Gas stored underground - noncurrent represents the cost of the
estimated volume of gas required to maintain pressures in the
underground storage fields at levels sufficient to meet the
service requirements of the Company's customers on a peak day.
Liquefied Petroleum Gas Property
Liquefied petroleum gas property is carried at cost. Depreciation
is computed using the straight-line method. Based on average LP
plant, the composite straight-line rate for 1996 and 1995 was
3.2% and 4.5% for 1994. Expenditures for maintenance, repairs,
renewals, and replacements determined to be less than units of
property are charged to maintenance. When assets are retired or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain
or loss is reflected in income for the period.
On August 28, 1995, Gas-Oil Products, Inc. of Delaware (GOP), a
wholly owned subsidiary of the Company, which accounted for all
of the Company's business in Delaware, sold certain of its assets
including tanks, inventory, motor vehicles and accounts
receivable. On a consolidated basis, GOP's operations accounted
for approximately 9% of the Company's LP volume and approximately
2% of the Company's merchandise sales. The selling price of the
assets was received in cash and resulted in a gain before income
tax of $945,000, which is reported as other income. In 1996 the
real estate previously used in the operation was sold and
resulted in a gain before income tax of $193,000, which is
reported as other income.
OPERATING UTILITY REVENUES
Residential and small commercial customers' meters are read on a
cycle basis throughout each month. Revenues from sales and
transportation services are recorded based on meters read.
Generally, large commercial and industrial and resale customers'
meters are read on the last day of each month. Revenues from
storage service are also recorded monthly.
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995, one utility subsidiary changed its
method of recognizing revenue from sales of natural gas to
residential and small commercial customers. Previously, revenues
from these customers were recognized when the accounts were
billed. Revenues related to gas delivered after billing and
before the end of a month were recognized in the following month.
In 1995, the subsidiary began accruing estimated revenues from
gas service provided but not billed consistent with the industry
practice which more closely matches revenues with the period in
which service is provided and related expenses are incurred. The
cumulative effect of the change at December 31, 1994 was to
increase net income $378,000, net of income taxes. The change had
the effect of increasing 1995 net income (excluding the beginning
of the year cumulative effect of $378,000) by $156,000.
INVENTORIES
Inventories of materials, supplies, and appliances are recorded
partly on average cost and partly at the lower of cost,
determined by the first-in, first-out method, or market.
Gas inventories of one subsidiary are recorded on the last-in,
first-out (LIFO) method. Approximately $1,899,000 and $856,000 of
the Company's gas inventory at December 31, 1996 and 1995,
respectively, was valued using the LIFO method. The estimated
replacement cost exceeded the LIFO inventory cost by
approximately $2,004,000 and $1,352,000 at December 31, 1996 and
1995, respectively. The gas inventories of all other utility
subsidiaries are valued at average cost.
Gas stored underground - noncurrent represents the cost of the
estimated volume of gas required to maintain pressures in the
underground storage fields at levels sufficient to meet the
service requirements of the Company's customers on a peak day.
DEFERRED DEBITS
Environmental costs are regulatory assets established in
conjunction with recognition in the financial statements of
environmental liabilities. Where such liabilities are not
recovered from other responsible parties through cost recovery
litigation or insurance claims, the Company expects to continue
to recover environmental costs associated with utility sites
through PAPUC approved rates charged for its services.
Well plugging and abandonment costs are regulatory assets
established in conjunction with recognition in the financial
statements of the cost to plug and abandon wells in accordance
with current regulations. Such costs have historically been
recovered through the ratemaking process.
Other deferred debits are amortized on the straight-line method
over an appropriate number of years determined in regulatory
proceedings.
UNRECOVERED/OVERRECOVERED GAS COSTS
Unrecovered/overrecovered gas costs represent net changes in gas
costs which will either be collected from or paid to customers by
fuel cost adjustments in the future. Amounts to be collected or
paid over a subsequent period are classified as current in the
financial statements.
DEFERRED INCOME TAXES
The Company provides deferred income taxes on timing differences
between book and tax income based on policies and decisions
established in regulatory proceedings. In 1996 the Company
received approval from the Internal Revenue Service (IRS) to
change its tax accounting method for cost of removal. Deferred
taxes have been recognized in 1996 for certain timing differences
related to the change in method.
INVESTMENT TAX CREDITS
Deferred investment tax credits are amortized to income on the
straight-line method over the estimated useful lives of the
related property.
CASH EQUIVALENTS
For the purpose of reporting cash flows, highly liquid
investments purchased with a maturity of three months or less are
considered to be cash equivalents.
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 reported
period. Actual results could differ from those estimates.
EARNINGS PER COMMON SHARE
Earnings per common share were calculated based on net income
less preferred stock dividend requirements divided by the
weighted average number of common shares outstanding during the
period. The earnings per common share including dilutive common
equivalent shares arising from stock options is not materially
different than currently reported earnings per share amounts.
EXCESS OF EQUITY VALUE OVER COST OF ACQUISITION
The excess of the equity value over the cost of acquisition,
arising from the acquisition of North Penn Gas Company in 1977,
is being amortized on the straight-line method over twenty-five
(25) years.
(2) DEBT
At December 31, 1996, the Company and its subsidiaries have
committed bank lines of credit that in aggregate total
$12,000,000, and uncommitted bank lines of credit that in
aggregate total $24,000,000. At December 31, 1995 the amount of
the lines was $8,000,000 and $24,000,000, respectively. The
credit lines, which are unsecured, are reviewed annually. The
Company expects to negotiate bank lines of credit in 1997 at
levels appropriate to meet its requirements.
During 1996 and 1995 the maximum amount borrowed under the lines
of credit at any month end was $7,500,000 and $500,000,
respectively. Average monthly borrowings ranged from zero to
$6,874,000 in 1996 and from zero to $500,000 in 1995. The
weighted average interest rate on borrowings under the lines of
credit at December 31, 1996 and 1995 was $6.89% and 6.70%
respectively.
Long-term debt at December 31, 1996 and 1995, less amounts
payable in one year, consisted of the following (in thousands):
Due
Annual Installments Date 1996 1995
--------------------------------------------------------------------
Notes payable:
9.20% $ 1,500 2001 $ 3,000 4,500
9.59% 750 (commencing 1996) 2005 5,250 6,750
9.64% 375 (commencing 1996) 2010 6,375 7,125
8.70% 833 (commencing 2011) 2023 10,000 10,000
7.51% 1,818 (commencing 2004) 2014 20,000 20,000
6.70% 1,400 (commencing 1999) 2003 7,000 7,000
---------------------------------------------------------------------
51,625 55,375
Capital leases 69 269
---------------------------------------------------------------------
$51,694 55,644
---------------------------------------------------------------------
The terms of the Company's and a wholly-owned subsidiary's
long-term debt agreements contain, among other things,
restrictions relating to the creation of debt, liens,
investments, disposition of assets, mergers and consolidations,
purchase of shares, acceleration of debt payments, maintenance of
equity to debt ratios, and the payment of dividends. At December
31, 1996, the payment of dividends by this subsidiary was limited
to $4,100,000 by the terms of its long-term debt agreements. The
subsidiary's net assets at December 31, 1996 were $31,820,000.
Under the most restrictive provisions, the amount of consolidated
retained earnings available for preferred and common stock
dividends at December 31, 1996 was approximately $9,455,000. In
1996 the Company elected to exercise its option to double the
annual installment payments on the 9.59% and 9.64% notes.
Maturities of long-term notes and capital leases for the next
five years are as follows: 1997 - $2,939,000; 1998 - $2,694,000;
1999 - $4,025,000; 2000 - $2,525,000, and 2001 - $2,525,000.
(3) REDEEMABLE PREFERRED STOCK
In November 1991 the Company authorized the creation of 2,000,000
shares of $1.40 cumulative preferred stock (Preferred Stock). The
Company issued one share of Preferred Stock for each share of
common stock outstanding on December 16, 1991. The Preferred
Stock was recorded at its estimated value of $15 per share at the
date of distribution.
The Preferred Stock is subject to mandatory redemption at $15 per
share over a ten-year period beginning January 1, 2018.
Additionally, commencing January 1, 1997, all or part of the
outstanding preferred stock is redeemable at the option of the
Company provided that 66-2/3% of preferred shareholders approve
such redemption.
(4) INCOME TAXES
Income tax expense for 1996, 1995, and 1994 consisted of the
following (in thousands):
1996 1995 1994
---------------------------------------------------------------
Current:
Federal $ 523 1,232 3,721
State 201 289 1,447
---------------------------------------------------------------
724 1,521 5,168
Deferred 3,093 1,778 (1,650)
Amortization of deferred
investment tax credits (76) (76) (76)
---------------------------------------------------------------
$ 3,741 3,223 3,442
---------------------------------------------------------------
In 1996 the Company received approval from the IRS to change its
tax accounting method for cost of removal. The change in method
which is effective for the tax year beginning January 1, 1994
created a combination of timing differences and current tax
benefits. Deferred taxes have been recorded recognizing the
timing differences.
The tax effects of temporary differences between book and tax
accounting that give rise to the deferred tax assets and deferred
tax liabilities at December 31, 1996 and 1995 consist of the
following (in thousands):
1996 1995
-----------------------------------------------------------------
Deferred tax assets:
Unbilled revenues $ 1,284 1,291
Investment tax credit 563 588
Allowance for doubtful accounts 408 380
Contribution in aid of construction 424 655
Other 1,360 1,416
-----------------------------------------------------------------
Total gross deferred tax assets 4,039 4,330
-----------------------------------------------------------------
Deferred tax liabilities:
Utility plant depreciation 15,164 13,120
Environmental expenditures 2,551 1,960
Change in tax accounting method
for cost of removal 782 --
Other 1,750 563
-----------------------------------------------------------------
Total gross deferred tax liabilities 20,247 15,643
-----------------------------------------------------------------
Net deferred tax liabilities $ 16,208 11,313
-----------------------------------------------------------------
The primary difference between the Company's income tax expense
at the federal statutory rate of 34% and the effective tax rate
is state income taxes, and the reduction in current tax expense
resulting from the 1996 approved change in tax accounting method.
(5) RETIREMENT PLANS
Effective January 1, 1996, two noncontributory defined benefit
plans sponsored by the Company were merged to form one plan. The
Company funds accrued pension costs subject to limitations
included in the Internal Revenue Code and the Employee Retirement
Income Security Act of 1974. Net pension (income) cost for the
pension plan(s) for 1996, 1995, and 1994 includes the following
components (in thousands):
1996 1995 1994
-------------------------------------------------------------------
Service cost $ 809 618 703
Interest cost 1,679 1,575 1,446
Return on assets (includes
insurance contract settlement) (3,734) (4,748) (744)
Net amortization and deferral 1,229 2,814 (1,154)
-------------------------------------------------------------------
Net pension (income) cost $ (17) 259 251
-------------------------------------------------------------------
The assumptions used by the pension plan(s) in determining the
actuarial present value of the plan's benefit obligations are as
follows:
1996 1995 1994
-------------------------------------------------------------------
Discount rate 7.75% 7.0% 8.5%
Weighted-average rate of increase
in future compensation levels 5% 5% 5%
-------------------------------------------------------------------
The funded status of the pension plan(s) at December 31, 1996 and
1995 is as follows (in thousands):
1996 1995
------------------------------------------------------------------
Vested benefit obligation $ 15,622 19,087
------------------------------------------------------------------
Accumulated benefit obligation 16,619 20,410
Additional benefits related to
future compensation levels 3,947 3,864
------------------------------------------------------------------
Projected benefit obligation 20,566 24,274
Plan assets at fair value (24,984) (25,009)
------------------------------------------------------------------
(4,418) (735)
Unrecognized transition amount 958 1,263
Unrecognized net gain 4,385 466
Unrecognized prior service cost (615) (668)
------------------------------------------------------------------
Accrued pension cost $ 310 326
------------------------------------------------------------------
The Company also sponsors an unfunded nonqualified Supplemental
Executive Retirement Plan (SERP) which provides additional
retirement benefits to certain employees. Effective February 1,
1996, the Company established an unfunded nonqualified retirement
program for the benefit of its Board of Directors. The
actuarially determined benefit obligation for the two
nonqualified plans was $433,000 at December 31, 1996 and $282,000
at December 31, 1995. Net expense related to these plans was
$229,000 in 1996, $60,000 in 1995, and $32,000 in 1994. Benefit
payments under both plans are made directly by the Company to
plan participants or their beneficiaries.
In 1996 the Company discontinued an investment contract with an
insurance company that was used to manage approximately
$7,000,000 of pension assets. At the time the contract was
discontinued, there were approximately $2,700,000 of outstanding
guaranteed annuities under the contract. The insurance company
issued certificates to retirees to guarantee their pension
benefits under the program; the balance of the pension assets
were transferred to an investment manager for reinvestment.
Settlement of the investment contract resulted in a reduction of
$343,000 to 1996 pension cost.
In addition to providing pension benefits, the Company provides
certain health care and life insurance benefits for retired
employees of one subsidiary. These benefits are provided through
an insurance company, and substantially all of the subsidiary's
employees will become eligible for them if they reach their
retirement age while working for the subsidiary. Up to and
including December 31, 1994, the subsidiary recognized the cost
of providing these benefits for retirees on the "pay as you go"
basis.
In the first quarter of 1995 the Company adopted the provisions
of Statement of Accounting Standards No. 106 (FAS 106),
Employers' Accounting for Postretirement Benefits Other than
Pensions (PBOPs), issued by the Financial Accounting Standards
Board in December 1990. FAS 106 requires the expected cost of
PBOPs to be recognized on an accrual basis as employees perform
services to earn the benefits. Also, during the first quarter of
1995, the Company filed a rate increase request with the PAPUC,
which among other things, sought authorization for the
recognition in rates of the cost of PBOPs on an accrual basis
instead of "pay as you go" basis. On September 27, 1995, the
PAPUC adopted an order authorizing an increase in the Company's
rates and the recovery of the cost of PBOPs in accordance with
FAS 106. The Company recorded a liability of $435,000 and an
associated regulatory asset representing the estimated FAS 106
costs incurred from January 1, 1995 to September 27, 1995 and
began a five-year amortization of these costs in October 1995.
The Pennsylvania Office of Consumer Advocate appealed the PAPUC's
decision. On February 7, 1997 the Commonwealth Court ordered that
the appeal be reargued before the entire court. In the opinion of
management, the decision of the court will not have a material
adverse effect on the Company.
The Company has established trust funds for the deposit of FAS
106 costs being recovered through its rates. Net periodic PBOP
expense in 1996 and 1995 consists of the following components (in
thousands):
1996 1995
------------------------------------------------------------------
Service cost $ 93 80
Interest cost 555 530
Return on assets (66) --
Net amortization and deferral 431 310
-------------------------------------------------------------------
Net periodic postretirement benefit expense $ 1,013 920
-------------------------------------------------------------------
The funded status of the plan at December 31, 1996 and 1995 is as
follows (in thousands):
1996 1995
-------------------------------------------------------------------
Accumulated postretirement benefit obligation
(APBO) as of December 31, 1996 and 1995
Fully eligible active employees $ 1,803 1,853
Other active employes 1,743 1,791
Retirees 4,292 4,409
--------------------------------------------------------------------
7,838 8,053
Plan assets at fair value (1,157) (260)
--------------------------------------------------------------------
Accumulated obligation in excess of plan assets 6,681 7,793
Unrecognized net transition obligation (5,640) (5,950)
Unrecognized net loss (778) (1,523)
--------------------------------------------------------------------
Accrued postretirement benefit cost $ 263 320
--------------------------------------------------------------------
The discount rate used in determining the benefit obligation was
7.75% for 1996 and 7.0% for 1995. Annual rates of increase in the
per capita cost of covered health care benefits of 10.6% and
11.8% were assumed for 1996 based on the age of plan
participants. The Company assumed rates for 1995 were 11.2% and
12.5%. The rates were assumed to decrease gradually to 5.5% over
ten years in both 1996 and 1995 and remain level thereafter. The
health care cost trend rate assumption has a significant effect
on amounts reported. For example, increasing the assumed health
care cost trend rates by one percentage point would increase the
APBO as of December 31, 1996 by $386,000 and the net periodic
postretirement benefit expense for the year then ended by
$30,000. As of December 31, 1995, the APBO would increase
$396,000 and the net periodic postretirement benefit expense
would increase $29,000 if a one percentage point increase in the
health care cost trend rates was assumed.
(6) REGULATORY MATTERS
Order 636 issued by FERC in 1992 substantially changed the
regulations governing the operations and services provided by
interstate pipeline companies. The Order requires the interstate
pipelines to separately charge for services such as storage and
transportation, which were historically bundled as part of the
traditional merchant gas sales service they offered. The
regulated services available from interstate pipelines no longer
include the aggregation of gas supplies from producers. Instead,
the Company is responsible for securing its gas supply
requirements through negotiated, unregulated transactions.
The interstate pipelines interconnected with the Company's system
implemented Order 636 in 1993. All of the Company's pipeline
suppliers have implemented plans approved by the FERC to recover
from their customers, including the Company, 100% of transition
costs prudently incurred in complying with Order 636. The amount
and duration of transition costs is different for each supplier.
The Company has received authorization from the PAPUC to recover
all transition costs billed by the pipelines.
A $5,712,000 refund to its customers was included in the
Company's annual purchased gas cost filing submitted to the PAPUC
on August 31, 1995. Included in the refund was approximately
$2,600,000 deferred in 1994 plus interest. The PAPUC granted the
Company authorization to refund the amount as a lump-sum bill
credit during December 1995. The balance of $2,969,000 was
included as a refund in rates charged to customers during the
period November 1, 1995 through November 30, 1996.
Revised rates for the recovery of the Company's purchased gas
costs were approved by the PAPUC effective December 1, 1996. The
Company and the parties who participated in purchased gas cost
proceedings agreed that $895,000 of cost for pipeline capacity
that the Company would not need to meet its firm sales
requirements during the next three winters (stranded costs) could
be claimed through rates established under a different docket.
The Company's filing in support of the recovery of these stranded
costs has been suspended by the PAPUC until July 1, 1997 in order
to consider the formal complaints filed by various parties. The
Company is recording the pipeline capacity costs as a liability
and an offsetting regulatory asset representing the expected
recovery of these costs from its customers.
On January 27, 1995, the Company filed a rate increase request
with the PAPUC seeking an increase in annual revenues of
$5,022,000. The filing covered approximately half of the
Company's utility customers. On September 27, 1995, the PAPUC
adopted an order authorizing an increase in annual operating
revenues of $2,247,000 effective on one day's notice for service
rendered after September 27, 1995. The annual increase includes
an allowance for the recovery of the cost of PBOPs calculated in
accordance with FAS 106, including recovery and amortization over
five years of such costs deferred from January 1, 1995 to
September 27, 1995. The Pennsylvania Office of Consumer Advocate
appealed the PAPUC's decision allowing recovery of the deferred
costs. The amount at issue is $435,000. On February 7, 1997, the
Commonwealth Court ordered the appeal to be reargued before the
entire court. In the opinion of the management the decision of
the court will not have a material adverse effect on the Company.
On February 27, 1996, the Company's two wholly owned public
utility subsidiaries filed a request with the PAPUC for an
increase in annual revenues of $10,955,000 and authorization to
consolidate the tariffs of the two subsidiaries into one tariff
and one set of rates. In October 1996 final approval of a
settlement resolving the issues was received from the PAPUC.
Under the settlement, the Companies were permitted to consolidate
their tariffs and increase their rates to produce additional
annual operating revenues of $6,725,000.
Gas supply cost, including contracts with pipelines for delivery
service (capacity cost), storage service and the cost of natural
gas purchased for sale and delivery to customers is the Company's
largest cost. The Company's tariffs provide for the recovery of
these costs subject to regulatory review and approval. Rates to
recover gas supply costs are based on projections of the volume
of gas the Company will purchase; the cost of these purchases and
the amount of gas its sales customers will use. Deviations
between such projections and actual experience cause over or
under recovery of the costs from customers which are adjusted in
the Company's filings with the PAPUC and either refunded or
collected. At December 31, 1996, the Company's rates for the
recovery of gas costs plus its rates authorized to recover
pipeline transition costs resulted in undercollection from
customers of $370,000. At December 31, 1995, the Company
overcollected gas and transition costs in the amount of
$3,080,000 which has been paid back to the customers with
interest.
(7) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are present or past owners of
approximately twenty-six (26) properties on which manufactured
gas plants (MGP) were located. In October 1993 the Company and
the Pennsylvania Department of Environmental Protection (PADEP)
signed a Consent Order and Agreement (COA) for the environmental
assessment of twenty (20) of the Company's twenty-one (21) MGP
sites located in Pennsylvania, which at the time were under the
Company's control. (The one such Pennsylvania MGP site not
covered by the COA was the Brodhead Creek Superfund Site which is
the subject of separate agreements with the United States
Environmental Protection Agency (USEPA).)
On March 27, 1996, the Company, North Penn Gas Company (North
Penn), a wholly owned subsidiary of the Company, and PADEP signed
a new COA (1996 COA). This agreement, except for certain
provisions which have been incorporated by reference, supersedes
the 1993 COA. The 1996 COA provides that from 1996 through the
year 2011 the Company will perform a minimum amount of work per
year to investigate, and where necessary, clean up twenty (20)
MGP sites and that North Penn will plug all of its non-producing
wells. The 1996 COA has a term of fifteen (15) years, but may be
terminated by either party after five (5) years.
Progress on the investigation, clean-up and well plugging
activities covered by the 1996 COA will be measured through a
point system, which is based on addressing the highest risks
earlier in the process. In any year in which the Company's and
North Penn's environmental costs defined by the 1996 COA exceed
$1,750,000 (Environmental Cost Cap), the Company will not be
required to achieve the minimum required points except that North
Penn must meet the well plugging schedule set forth in the
agreement regardless of whether the minimum required points or
the Environmental Cost Cap are reached. The point system gives
the Company and North Penn some flexibility in determining the
activities to be undertaken in a given year, however, the 1996
COA does not relieve or limit the Company's or North Penn's
obligation to comply with applicable statutes or regulations. The
Company and North Penn satisfied the 1996 COA's minimum point
requirement during 1996 and PADEP has approved the Company's 1997
annual plan.
North Penn's estimate of the cost to plug the wells covered by
the 1996 COA is $4,038,000. After recognizing North Penn's
estimated well plugging cost, the Company allocated the balance
of the Environmental Cost Cap to MGP site activities for the
purposes of estimating the related total commitment under the
1996 COA. The estimated present value of the portion of the
Environmental Cost Cap allocated to MGP site activities plus
oversight cost reimbursements owed to PADEP during the term of
the agreement is $15,728,000 at December 31, 1996 and $16,333,000
at December 31, 1995. The estimated present value was determined
based on interest rates for United States Treasury obligations
with maturities that coincide with the term of the 1996 COA.
The Company has adopted the present value of its estimated total
Environmental Cost Cap under the 1996 COA as the low end of the
range of costs that may be incurred in connection with MGP site
activities. A liability of $15,728,000 and an associated
regulatory asset of $15,115,000 have been recorded at December
31, 1996. A liability of $16,333,000 and an associated regulatory
asset of $15,891,000 were recorded at December 31, 1995. The
Company's actual costs will depend on a number of factors
including actual site conditions determined through the site
assessment process, changing technology, government statutes and
regulations, success in pursuing claims against and finalizing
cost sharing arrangements with other potentially responsible
parties and recoveries from insurers. At December 31, 1996, the
Company estimated a range of environmental liability for the MGP
sites of $9,517,000 and $38,702,000. At December 31, 1995 the
estimated range was $11,300,000 to $48,300,000.
In September 1994 the Company initiated a suit against some of
its insurers seeking defense and/or indemnification from the
insurers against claims involving former MGP sites. The insurers
have answered the Company's complaint, the parties have exchanged
documents and have entered the discovery phase.
Localized minor amounts of petroleum hydrocarbon impacted soils
have been identified in the process of removing and abandoning
equipment at a former compressor station site. The removal and
abandonment project was undertaken in accordance with a plan
approved by state and federal environmental agencies. A plan to
remediate the impacted soil is scheduled to be developed and
implemented in 1997. With respect to the Brodhead Creek superfund
site, the USEPA has concluded removal of groundwater
contamination is technically impracticable and that certain wells
should be periodically monitored and pumped unless and until new
technology becomes available. The costs incurred by the Company
for work related to the impacted soils and Brodhead Creek will be
counted against the Environmental Cost Cap included in the 1996
COA.
The Company has received authorization from the PAPUC to
capitalize environmental and cleanup expenditures and well
plugging costs for accounting and ratemaking purposes and to
amortize such expenditures over five (5) years. The Company
expects the PAPUC will continue to authorize the recovery of such
expenditures associated with MGP sites previously or currently
owned by its utility subsidiaries and the costs of plugging wells
through the rates the Company charges for its services.
Accruals sufficient to provide for the minimum range of costs
associated with non-utility sites have been charged to expense.
At December 31, 1996 the amount accrued was $613,000 compared to
$442,000 at December 31, 1995. Additional investigation and
remediation may be required at the sites in the future, however,
the scope of these activities cannot be determined and therefore
any related cost has not been accrued.
(8) COMMON STOCK
The Company has a Stock Option Agreement under which 14,350
shares were granted in 1992. The options are exercisable on a pro
rata basis during a seven-year period commencing in 1995. There
are 4,019 options outstanding at December 31, 1996 exercisable at
a price of $52.27 per share.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of current assets and liabilities which are
considered financial instruments approximates their fair value as
of the dates presented. The carrying amounts and estimated fair
values of the Company's long-term financial liabilities as of
December 31, 1996 are as follows (in thousands):
Carrying Estimated
amount fair value
---------------------------------------------------------
Long-term debt $ 51,625 54,105
Preferred stock 10,764 13,634
---------------------------------------------------------
The fair value of long-term debt and preferred stock has been
estimated based on market rates for similar instruments with
approximately the same maturities. Management believes that the
prepayment provisions of the Company's long-term debt do not make
it economically feasible to refinance the debt at this time.
ANNEX I
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PP&L RESOURCES, INC.,
KEYSTONE MERGER CORP.
AND
PENN FUEL GAS, INC.
DATED AS OF JUNE 26, 1997
TABLE OF CONTENTS
Page
ARTICLE I. THE MERGER
Section 1.1 Occurrence of the Merger . . . . . . .
Section 1.2 Effective Time; Closing . . . . . . .
Section 1.3 Effect of the Merger . . . . . . . . .
Section 1.4 Articles of Incorporation and
By-Laws . . . . . . . . . . . . . .
Section 1.5 Directors and Officers of the
Surviving Corporation . . . . . . .
ARTICLE II. CONVERSION OF SECURITIES IN THE MERGER
Section 2.1 Effect of Merger on PFG Capital
Stock . . . . . . . . . . . . . . .
Section 2.2 Exchange of Certificates . . . . . . .
Section 2.3 Stock Transfer Books . . . . . . . . .
Section 2.4 Stock Options . . . . . . . . . . . .
Section 2.5 Dissenting Shares . . . . . . . . . .
ARTICLE III. REPRESENTATIONS AND WARRANTIES
OF RESOURCES AND KEYSTONE
Section 3.1 Organization and Qualification;
Subsidiaries . . . . . . . . . . .
Section 3.2 Articles of Incorporation and
By-Laws . . . . . . . . . . . . . .
Section 3.3 Capitalization . . . . . . . . . . . .
Section 3.4 Authority Relative to This Agreement .
Section 3.5 No Conflict; Required Filings and
Consents . . . . . . . . . . . . .
Section 3.6 Permits; Compliance . . . . . . . . .
Section 3.7 SEC Filings; Financial Statements . .
Section 3.8 Absence of Certain Changes or Events .
Section 3.9 Continuity of Business Enterprises . .
Section 3.10 Pooling of Interests . . . . . . . . .
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PFG
Section 4.1 Organization and Qualification;
Subsidiaries . . . . . . . . . . .
Section 4.2 Articles of Incorporation, By-Laws and
Shareholders Agreement . . . . . .
Section 4.3 Capitalization . . . . . . . . . . . .
Section 4.4 Authority Relative to This Agreement .
Section 4.5 No Conflict; Required Filings and
Consents . . . . . . . . . . . . .
Section 4.6 Permits; Compliance . . . . . . . . .
Section 4.7 Filings; Financial Statements . . . .
Section 4.8 Absence of Certain Changes or
Events . . . . . . . . . . . . . .
Section 4.9 Employee Benefit Plans; Labor
Matters . . . . . . . . . . . . . .
Section 4.10 Properties; No Liens . . . . . . . . .
Section 4.11 Contracts; Debt Instruments . . . . .
Section 4.12 Litigation . . . . . . . . . . . . . .
Section 4.13 Environmental Matters . . . . . . . .
Section 4.14 Trademarks, Patents and Copyrights . .
Section 4.15 Taxes . . . . . . . . . . . . . . . .
Section 4.16 Broker . . . . . . . . . . . . . . . .
Section 4.17 Insurance . . . . . . . . . . . . . .
Section 4.18 Opinion of Financial Advisor . . . . .
Section 4.19 Assets . . . . . . . . . . . . . . . .
Section 4.20 Pooling of Interests . . . . . . . . .
ARTICLE V. COVENANTS
Section 5.1 Conduct of Business by PFG Pending
the Closing . . . . . . . . . . . .
Section 5.2 Notices of Certain Events . . . . . .
Section 5.3 Contractual Consents . . . . . . . . .
Section 5.4 Merger of PFG Subsidiaries . . . . . .
Section 5.5 Keystone Shareholder Approval . . . .
ARTICLE VI. ADDITIONAL AGREEMENTS
Section 6.1 Registration Statement; Disclosure
Documents . . . . . . . . . . . . .
Section 6.2 Access to Information . . . . . . . .
Section 6.3 No Solicitations . . . . . . . . . . .
Section 6.4 Directors' and Officers' Indemnifi-
cation and Insurance . . . . . . .
Section 6.5 Further Action; Consents; Filings . .
Section 6.6 Public Announcements . . . . . . . . .
Section 6.7 Stock Exchange Listing . . . . . . . .
Section 6.8 Disclosure Schedules . . . . . . . . .
Section 6.9 Redemption as to PFG Preferred
Stock . . . . . . . . . . . . . . .
Section 6.10 Registration Rights . . . . . . . . .
Section 6.11 Shareholder Agreement; Transfer
of Shares . . . . . . . . . . . . .
Section 6.12 Affiliates . . . . . . . . . . . . . .
ARTICLE VII. CONDITIONS TO THE MERGER
Section 7.1 Conditions to the Obligations of
Each Party to Consummate
the Merger. . . . . . . . . . . . .
Section 7.2 Conditions to the Obligations of
Resources and Keystone . . . . . . .
Section 7.3 Conditions to the Obligations of
PFG. . . . . . . . . . . . . . . . .
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination . . . . . . . . . . . . .
Section 8.2 Effect of Termination . . . . . . . .
Section 8.3 Amendment . . . . . . . . . . . . . .
Section 8.4 Waiver . . . . . . . . . . . . . . . .
Section 8.5 Expenses . . . . . . . . . . . . . . .
ARTICLE IX. GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations,
Warranties and Agreements . . . . .
Section 9.2 Notices . . . . . . . . . . . . . . .
Section 9.3 Certain Definitions . . . . . . . . .
Section 9.4 Severability . . . . . . . . . . . . .
Section 9.5 Assignment; Binding Effect; Benefit .
Section 9.6 Incorporation of Exhibits . . . . . .
Section 9.7 Specific Performance . . . . . . . . .
Section 9.8 Governing Law . . . . . . . . . . . .
Section 9.9 Headings . . . . . . . . . . . . . . .
Section 9.10 Counterparts . . . . . . . . . . . . .
Section 9.11 Entire Agreement . . . . . . . . . . .
Section 9.12 Submission to Jurisdiction; Venue . .
Section 9.13 Possible PFG Subsidiary Mergers . . .
Exhibit A: Voting Agreement
Exhibit B: Registration Rights
Exhibit C: Forms of Affiliate Agreements
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"),
is dated as of June 26, 1997, by and between Penn Fuel Gas, Inc.,
a Pennsylvania corporation ("PFG"), PP&L Resources, Inc., a
Pennsylvania corporation ("Resources"), and Keystone Merger
Corp., a Pennsylvania corporation and a wholly owned subsidiary
of Resources ("Keystone").
RECITALS:
WHEREAS, the Board of Directors of Resources, Keystone
and PFG have determined that it is in the best interest of their
respective companies and shareholders to enter into this
Agreement with respect to a merger between PFG and Keystone in
accordance with the Pennsylvania Business Corporation Law (the
"Corporation Law") and the terms and conditions of this Agreement
(the "Merger"), with the intent that the Merger shall be and
constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code") and
this Agreement shall be and constitute a plan of reorganization
within the meaning of Section 368(b) of the Code; and
WHEREAS, as a condition and inducement to Resources'
and Keystone's entering into this Agreement and incurring the
obligations set forth herein, concurrently with the execution and
delivery of this Agreement, Marilyn Ware Lewis, in her individual
capacity (to the extent set forth therein) and her capacity as
Business Manager under a certain Shareholders Agreement dated
November 19, 1992, as amended (the "Shareholders Agreement")
among certain significant shareholders of PFG and/or pursuant to
powers of attorney from certain significant shareholders of PFG,
is entering into a Voting Agreement in the form of Exhibit A
hereto (the "Voting Agreement").
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements contained in this Agreement,
and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 Occurrence of the Merger. Provided that this
Agreement shall not have been terminated in accordance with
Section 8.1, upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Corporation
Law, at the Effective Time (as defined in Section 1.2), Keystone
shall be merged with and into PFG. As a result of the Merger,
the separate corporate existence of Keystone shall cease and PFG
shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
Section 1.2 Effective Time; Closing. Provided that this
Agreement shall not have been terminated in accordance with
Section 8.1, as promptly as practicable after the satisfaction
or, if permissible and effected as provided in Section 8.4,
waiver of the conditions to the consummation of the Merger (or
such other date as may be agreed to in writing by Keystone, PFG
and Resources), the parties shall cause the Merger to be
consummated by filing articles of merger (the "Articles of
Merger") with the Department of State of the Commonwealth of
Pennsylvania in such form as required by, and executed in
accordance with, the Corporation Law (the date and time of such
filing, or such later date or time as set forth therein, being
the "Effective Time"). Immediately prior to the filing of the
Articles of Merger, a closing will be held at the offices of
Resources, Two North Ninth Street, Allentown, Pennsylvania, at
10:00 a.m., local time, or such other place and time as Resources
and PFG shall agree (the "Closing Date").
Section 1.3 Effect of the Merger. At the Effective Time,
the effect of the Merger shall be as provided in the Corporation
Law. Subject to and without limiting the generality of the
foregoing, at the Effective Time all the property, rights,
privileges, powers and franchises of Keystone and PFG shall be
vested in the Surviving Corporation, and all debts, liabilities
and duties of Keystone and PFG shall become the debts,
liabilities and duties of the Surviving Corporation.
Section 1.4 Articles of Incorporation and By-Laws. At the
Effective Time, the Articles of Incorporation and the By-Laws of
the Surviving Corporation as of the Effective Time shall be
amended and restated in their entirety to read as the Articles of
Incorporation and By-Laws of Keystone as in effect immediately
prior to the Effective Time until amended thereafter in
accordance with the terms thereof and applicable law.
Section 1.5 Directors and Officers of the Surviving
Corporation. The directors of Keystone at the Effective Time
shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors shall have been
elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and By-Laws. The
officers of Keystone at the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation
until their successors shall have been elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of
Incorporation and By-Laws.
ARTICLE II
CONVERSION OF SECURITIES IN THE MERGER
Section 2.1 Effect of Merger on PFG Capital Stock. At the
Effective Time, by virtue of the Merger and without any action on
the part of Resources, Keystone, PFG, or holders of any PFG
capital stock:
(a) Cancellation of Certain PFG Common Stock. Each
share of common stock, par value $1.00 per share (the "PFG Common
Stock"), of PFG that is held by PFG as treasury stock or by any
subsidiaries of PFG shall be cancelled and cease to exist without
any conversion thereof or any payment made with respect thereto.
(b) Conversion of PFG Common Stock. Each share of PFG
Common Stock (other than any shares of PFG Common Stock to be
cancelled pursuant to Section 2.1(a)), issued and outstanding
immediately prior to the Effective Time shall be converted into
the right to receive such number (the "Common Stock Exchange
Ratio") of shares of validly issued, fully paid and nonassessable
common stock, par value $0.01 per share ("Resources Common
Stock") of Resources, calculated as follows: the Common Stock
Exchange Ratio shall be the quotient, rounded to the third
decimal place, obtained by dividing the PFG Common Stock Base
Price (as defined below) by the average closing sale price of
Resources Common Stock as reported on the New York Stock Exchange
("NYSE") Consolidated Tape for the 15 consecutive trading days
prior to the fifth trading day prior to the Effective Time
("Resources Closing Market Price"); provided, that, if the actual
quotient obtained thereby is less than 6.968, the Common Stock
Exchange Ratio shall be fixed at 6.968, and if the actual
quotient obtained thereby is more than 8.516, the Common Stock
Exchange Ratio shall be fixed at 8.516. The "PFG Common Stock
Base Price" shall mean $153.29, provided, however, that in the
event PFG and Resources are unable to obtain the SEC Dividend
Relief (as defined in Section 5.1(b) hereof) by November 1, 1998,
such PFG Common Stock Base Price shall thereafter be increased by
the per share amount of the PFG Incremental Dividends (as defined
in Section 5.1(b) hereof) that would have been paid by PFG
assuming that the SEC Dividend Relief had been obtained.
(c) PFG Preferred Stock. (i) At the Effective Time,
each share of PFG Preferred Stock (as defined in Section 4.3)
which has not previously been redeemed for cash in accordance
with Section 2.1(c)(ii) below shall be converted into the right
to receive such number (the "Preferred Stock Exchange Ratio") of
shares of validly issued, fully paid and nonassessable Resources
Common Stock, calculated as follows: the Preferred Stock
Exchange Ratio shall be the quotient, rounded to the third
decimal place, obtained by dividing the PFG Preferred Stock Base
Price (as defined below) by the Resources Closing Market Price;
provided, that, if the actual quotient obtained thereby is less
than 0.682, the Preferred Stock Exchange Ratio shall be fixed at
0.682, and if the actual quotient obtained thereby is more than
0.833, the Preferred Stock Exchange Ratio shall be fixed at
0.833. The "PFG Preferred Stock Base Price" shall mean an amount
equal to the quotient of (A) the sum of $10,764,000, plus any
dividends accrued but unpaid as to the PFG Preferred Stock at the
Closing Date only in the event the ensuing dividends in respect
of Resources Common Stock are not scheduled to be paid within
forty-five (45) days following the Closing Date, divided by (B)
717,583.
(ii) Prior to the Effective Time, PFG shall take all
action necessary to redeem at the redemption price of $15.00 per
share or less, plus any accrued dividends in accordance with the
terms of the PFG Preferred Stock, each outstanding share of PFG
Preferred Stock, the holder of which does not desire to have such
shares converted into the right to receive the shares of
Resources Common Stock pursuant to the Preferred Stock Exchange
Ratio.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. Resources shall, promptly after
the Effective Time, for the benefit of the holders of
certificates that immediately prior to the Effective Time
represented outstanding PFG Common Stock or PFG Preferred Stock
(collectively, the "PFG Certificates"), deposit or cause to be
deposited with a bank trust company selected by Resources and
reasonably satisfactory to PFG (the "PFG Exchange Agent"), for
exchange in accordance with this Article II through the PFG
Exchange Agent, certificates representing the shares ("Resources
Shares") of Resources Common Stock issuable pursuant to Section
2.1(b) and (c) plus funds sufficient to make payment for any
fractional shares pursuant to Section 2.2(e) , together with any
dividends or distributions (which shall be paid to the PFG
Exchange Agent by Resources as they may become due and payable)
with respect to the Resources Shares (collectively, "Related
Funds"; such Resources Shares and Related Funds collectively the
"PFG Exchange Fund"). Resources shall give the PFG Exchange
Agent irrevocable instructions to deliver and pay the shares of
Resources Common Stock contemplated to be issued and Related
Funds contemplated to be paid pursuant to Sections 2.l(b), (c)
and (e) out of the PFG Exchange Fund as promptly as practicable
after the Effective Time. Except as contemplated by Section
2.2(f) hereof, the PFG Exchange Fund shall not be used for any
other purpose.
(b) Exchange Procedures. As promptly as practicable
after the Effective Time, Resources shall cause the PFG Exchange
Agent to mail to each registered holder of a PFG Certificate (i)
a letter of transmittal (which shall be in customary form and
shall specify that delivery shall be effected, and risk of loss
and title to the PFG Certificates shall pass, only upon proper
delivery of the PFG Certificates to the PFG Exchange Agent) and
(ii) instructions for use in effecting the surrender of the PFG
Certificates in exchange for certificates representing shares of
Resources Common Stock and cash in lieu of any fractional shares.
Upon surrender to the PFG Exchange Agent of a PFG Certificate for
exchange, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, and
such other documents as may be reasonably required pursuant to
such instructions, the holder of such PFG Certificate shall be
entitled to receive a certificate representing that number of
whole shares of Resources Common Stock that such holder has the
right to receive in respect of such PFG Certificate (after taking
into account all PFG Common Stock then held by such holder), cash
in lieu of any fractional shares of Resources Common Stock to
which such holder is entitled pursuant to Section 2.2(e) and any
dividends or other distributions to which such holder is entitled
pursuant to Section 2.2(c). In the event of a transfer of
ownership of PFG Common Stock or PFG Preferred Stock that is not
registered in the transfer records of PFG, a certificate
representing the proper number of shares of Resources Common
Stock, cash in lieu of any fractional shares of Resources Common
Stock to which such holder is entitled pursuant to Section 2.2(e)
and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.2(c) may be issued to a transferee
if the PFG Certificate representing such PFG Common Stock or PFG
Preferred Stock is presented to the PFG Exchange Agent,
accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this
Section 2.2, each PFG Certificate shall be deemed at all times
after the Effective Time to represent only the right to receive
upon such surrender a certificate or certificates representing
shares of Resources Common Stock, cash in lieu of any fractional
shares of Resources Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and any dividends or other
distributions to which such holder is entitled pursuant to
Section 2.2(c).
(c) Distributions with Respect to Unexchanged PFG
Shares. No dividends or other distributions declared or made
after the Effective Time with respect to Resources Shares with a
record date after the Effective Time shall be paid to the holder
of any unsurrendered PFG Certificates with respect to Resources
Common Stock represented thereby, and no cash payment in lieu of
any fractional shares shall be paid to any such holder pursuant
to Section 2.2(e), until the holder of such PFG Certificates
shall surrender such PFG Certificates. Subject to the effect of
escheat, tax or other applicable law, following surrender of any
such PFG Certificates, there shall be paid to the holder of PFG
Certificates representing whole shares of Resources Common Stock
issued in exchange therefor, without interest, (i) promptly, the
amount of any cash payable with respect to a fractional share of
Resources Common Stock to which such holder is entitled pursuant
to Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time with
respect to such whole Resources Shares but unpaid because of such
holder's failure to surrender such PFG Certificates, and (ii) at
the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but
prior to surrender and a payment date occurring after surrender,
payable with respect to such whole Resources Shares.
(d) No Further Rights in PFG Common Stock or PFG
Preferred Stock. All shares of Resources Common Stock issued
upon conversion of PFG Common Stock and PFG Preferred Stock in
accordance with the terms of this Agreement (and any cash paid
pursuant to Sections 2.2(c) and (e)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such PFG
Common Stock and PFG Preferred Stock.
(e) No Fractional Shares. No fractional shares of
Resources Common Stock will be issued to holders of PFG
Certificates upon surrender for exchange of the PFG Certificates
in connection with the Merger. In lieu thereof, Resources shall
pay to such holders otherwise entitled to a fractional share cash
in an amount equal to the product of such fraction and the
Resources Closing Market Price.
(f) Termination of Exchange Fund. Any portion of the
PFG Exchange Fund which remains undistributed to the former
holders of PFG Certificates for three months after the Effective
Time shall be delivered to Resources, upon demand, and any
holders of PFG Certificates shall thereafter look only to
Resources for Resources Common Stock, any cash in lieu of
fractional shares of Resources Common Stock to which they are
entitled pursuant to Section 2.2(e) and any dividends or other
distributions with respect to Resources Common Stock to which
they are entitled pursuant to Section 2.2(c). Any portion of the
PFG Exchange Fund remaining unclaimed by holders of PFG
Certificates as of a date which is immediately prior to such time
as such amounts would otherwise escheat to or become property of
any government entity shall, to the extent permitted by
applicable law, become the property of Resources free and clear
of any claims or interest of any person previously entitled
thereto.
(g) Adjustment of Exchange Ratio. In the event of any
reclassification, stock split or stock dividend with respect to
the PFG Common Stock, PFG Preferred Stock or Resources Common
Stock, any change or conversion of the PFG Common Stock, PFG
Preferred Stock or Resources Common Stock into other securities
or any other dividend or distribution with respect thereto other
than cash dividends and distributions permitted under this
Agreement (or if a record date with respect to any of the
foregoing should occur), prior to the Effective Time, appropriate
and proportionate adjustments, if any, shall be made to the
Common Stock Exchange Ratio and the Preferred Stock Exchange
Ratio (collectively, the "PFG Exchange Ratio"), and all
references to the PFG Exchange Ratio in this Agreement shall be
deemed to be to such PFG Exchange Ratio as so adjusted.
(h) No Liability. Neither Resources, Keystone nor the
Surviving Corporation shall be liable to any holder of PFG Common
Stock or PFG Preferred Stock for any such PFG Common Stock or PFG
Preferred Stock (or dividends or distributions with respect
thereto), or cash delivered to a public official pursuant to any
abandoned property, escheat or similar law.
(i) Withholding Rights. Resources shall be entitled
to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of PFG Common Stock or
PFG Preferred Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the
Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Resources, such
withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of PFG Common Stock
or PFG Preferred Stock in respect of which such deduction and
withholding was made by Resources.
(j) Lost Certificates. If any PFG Certificate shall
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such PFG
Certificate to be lost, stolen or destroyed and, if required by
Resources, the posting by such person of a bond, in such
reasonable amount as Resources may direct, as indemnity against
any claim that may be made against it with respect to such PFG
Certificate, the PFG Exchange Agent will issue in exchange for
such lost, stolen or destroyed PFG Certificate any Resources
Common Stock, any cash in lieu of fractional shares of Resources
Common Stock and any dividends or other distributions to which
the holders thereof are entitled pursuant to this Section 2.2.
Section 2.3 Stock Transfer Books. At the Effective Time,
the stock transfer books of PFG shall be closed and there shall
be no further registration of transfers of shares of PFG Common
Stock or PFG Preferred Stock on the records of PFG. From and
after the Effective Time, the holders of the PFG Certificates
representing shares of PFG Common Stock or PFG Preferred Stock
outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to shares of PFG Common Stock or
PFG Preferred Stock represented thereby, except as otherwise
provided herein or applicable law. On or after the Effective
Time, any PFG Certificates presented to the PFG Exchange Agent or
the Surviving Corporation for any reason shall be converted into
the right to receive shares of Resources Common Stock, any cash
in lieu of fractional shares of Resources Common Stock and any
dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.2.
Section 2.4 Stock Options. (a) PFG shall take all actions
necessary to provide that, immediately prior to the Effective
Time, each and every unexpired and unexercised option (each, a
"PFG Option") that is outstanding immediately prior to the
Effective Time, as listed in Section 2.4 of the PFG Disclosure
Schedule (as defined below), whether or not then vested or
exercisable, shall, effective as of the Effective Time and
subject to any required consent of the option holder, be
cancelled. In consideration therefor, all outstanding PFG
Options as of the Effective Time shall be exchanged for such
aggregate number of shares of Resources Common Stock, rounded up
to the nearest whole number, as shall have a market value,
calculated using the Resources Closing Market Price, equal the
PFG Option Amount (as defined below). Resources shall take such
necessary actions as may be required of it to implement the
foregoing. As used in this Agreement, "PFG Option Amount" shall
mean an amount equal to the product of (i) the number of shares
of PFG Common Stock subject to all such PFG Options and (ii) the
excess, if any, of the implied market value of the Common Stock
Exchange Ratio at the close of business on the last business day
prior to the Closing Date, over the exercise price per share of
such PFG Options; provided, that this Section 2.4(a) shall not
require any action that violates the rights of the optionee under
the PFG Options or any agreements in respect thereof.
(b) At the Effective Time, any shares of PFG Common
Stock awarded as restricted stock of PFG shall be converted into
Resources Common Stock in accordance with Section 2.1(b) hereof,
subject to the same terms, conditions and restrictions as in
effect with respect to such awards immediately prior to the
Effective Time.
Section 2.5 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, shares, if any, of PFG Common
Stock that are issued and outstanding immediately prior to the
Effective Time that are held by any shareholder who has not voted
such shares in favor of the Merger and who shall have delivered a
written notice of intention to demand payment of fair value of
such shares in the manner provided in Section 1574 of the
Corporation Law shall not be converted into or be exchangeable
for the right to receive the consideration provided in Section
2.1(b) unless and until such holder shall have failed to perfect
or shall have effectively withdrawn or lost his right to be paid
fair value under the Corporation Law. If such holder shall have
to failed to perfect or shall have effectively withdrawn or lost
such right, his shares of PFG Common Stock shall thereupon be
deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the
consideration provided in Section 2.1(b) without any interest
thereon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF RESOURCES AND KEYSTONE
Resources and Keystone each hereby represents and warrants
to PFG that:
Section 3.1 Organization and Qualification; Subsidiaries.
Resources and each subsidiary of Resources, including without
limitation Keystone (collectively, the "Resources subsidiaries"),
has been duly organized, and is validly existing and in good
standing under the laws of the jurisdiction of its incorporation
or organization, as the case may be, and has the requisite power
and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as
it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or
in the aggregate, (A) have a Resources Material Adverse Effect
(as defined below) or (B) prevent or materially delay the
performance of this Agreement by Resources or Keystone.
Resources and each of the Resources subsidiaries is duly
qualified or licensed to do business, and is in good standing, in
each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to
be so qualified or licensed and in good standing that would not,
individually or in the aggregate, (A) have a Resources Material
Adverse Effect or (B) prevent or materially delay the performance
of this Agreement by Resources or Keystone. Section 3.1 of the
Resources Disclosure Schedule (as defined below) sets forth a
correct list of the Resources subsidiaries and the percentage, as
of the date of this Agreement, of the total equity interests and
total voting power owned by Resources or a Resources subsidiary
(identifying such owner) in each Resources subsidiary. For
purposes of this Agreement, "Resources Material Adverse Effect"
means any change in or effect on the business of Resources and
the Resources subsidiaries that is, or is reasonably likely to
be, materially adverse to the business, assets, liabilities
(contingent or otherwise), condition (financial or otherwise) or
results of operations of Resources and the Resources subsidiaries
taken as a whole. Except for the Resources subsidiaries and the
equity interests disclosed in Section 3.1 of the Resources
Disclosure Schedule, neither Resources nor any Resources
subsidiary owns any equity interest in any person as of the date
of this Agreement.
Section 3.2 Articles of Incorporation and By-Laws. The
copies of Resources' Articles of Incorporation and By-Laws that
are referenced as exhibits to Resources' Form 10-K for the year
ended December 31, 1996 are complete and correct copies thereof.
Such Articles of Incorporation and By-Laws are in full force and
effect.
Section 3.3 Capitalization. The authorized capital stock
of Resources consists of (a) 390,000,000 shares of Resources
Common Stock, and (b) 10,000,000 shares of preferred stock, $.01
par value (the "Resources Preferred Stock"). As of June 10,
1997, (i) 164,360,072 shares of Resources Common Stock were
issued and outstanding, all of which were validly issued and
fully paid and nonassessable, (ii) no shares of Resources Common
Stock were held in the treasury of Resources or by Resources
subsidiaries, (iii) 3,148,977 shares of Resources Common Stock
were reserved for issuance pursuant to the Resources Incentive
Plans (as defined below) and the Resources Dividend Reinvestment
Plan ("Resources DRIP"), and (iv) no shares of Resources
Preferred Stock were issued and outstanding. Since June 10, 1997
to the date hereof, no shares of Resources Common Stock have been
issued, except those reserved for issuance as of such date
pursuant to the Resources Incentive Plans or the Resources DRIP.
Except as disclosed in Section 3.3 of the Resources Disclosure
Schedule or in any Resources Reports (as defined below) filed
with the Securities and Exchange Commission (the "SEC") in 1997
as Form 10-K or Form 10-Q or proxy statement, as of the date
hereof, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which
Resources is a party or by which Resources is bound relating to
the issued or unissued capital stock of Resources or any
Resources subsidiary or obligating Resources or any Resources
subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, Resources or any Resources subsidiary.
All shares of Resources Common Stock subject to issuance as
aforesaid, upon issuance prior to the Effective Time on the terms
and conditions specified in the instruments pursuant to which
they are issuable, will be duly authorized, validly issued, fully
paid and nonassessable. There are no outstanding contractual
obligations of Resources or any Resources subsidiary to
repurchase, redeem or otherwise acquire any shares of Resources
Common Stock or any capital stock of any Resources subsidiary.
Each outstanding share of capital stock of each Resources
subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Resources or another
Resources subsidiary is free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal,
agreements, limitations on Resources' or such other Resources
subsidiary's voting rights, pledges and other encumbrances of any
nature whatsoever, except where failure to own such shares free
and clear would not, individually or in the aggregate, have a
Resources Material Adverse Effect. As used in this Agreement,
"Resources Incentive Plans" means, collectively, the Amended and
Restated Employee Stock Ownership Plan dated October 26, 1988, as
amended, the Incentive Compensation Plan and the Directors
Deferred Compensation Plan.
Section 3.4 Authority Relative to This Agreement. Each of
Resources and Keystone has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its
respective obligations hereunder and to consummate the
transactions (including, without limitation, the Merger)
contemplated herein to be consummated by such party. The
execution and delivery of this Agreement by Resources and
Keystone and the consummation by Resources and Keystone of such
transactions have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on
the part of Resources or Keystone are necessary to authorize this
Agreement or to consummate such transactions. This Agreement has
been duly authorized and validly executed and delivered by
Resources and Keystone and constitutes a legal, valid and binding
obligation of Resources and Keystone, enforceable against
Resources and Keystone in accordance with its terms, except to
the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a
proceeding at law or in equity). No vote of holders of Resources
Common Stock is necessary to approve the issuance of the shares
of Resources Common Stock in the Merger.
Section 3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Resources and
Keystone do not, and the performance of this Agreement by
Resources and Keystone will not, (i) conflict with or violate any
provision of the Articles of Incorporation or By-Laws of
Resources or any equivalent organizational documents of any
Resources subsidiary, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.5(b) have
been obtained and all filings and obligations described in
Section 3.5(b) have been made, conflict with or violate any law,
statute, ordinance, rule, regulation, order, judgment or decree
(collectively, "law" as such term is used throughout this
Agreement) applicable to Resources or any Resources subsidiary or
by which any property or asset of Resources or any Resources
subsidiary is bound or affected, or (iii) subject to obtaining
any third party consents set forth in Section 3.5(a) of the
Resources Disclosure Schedule, result in any breach of, loss of
benefit under, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Resources or any
Resources subsidiary pursuant to, or require the consent of any
other party to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation, except, with respect to clauses (ii) and (iii),
for any such conflicts, violations, breaches, defaults, failure
to obtain consents, or other occurrences which would not,
individually or in the aggregate, (A) have a Resources Material
Adverse Effect or (B) prevent or materially delay the performance
of this Agreement by Resources or Keystone.
(b) Except as set forth in Section 3.5(b) of the
Resources Disclosure Schedule, the execution and delivery of this
Agreement by Resources and Keystone do not, and the performance
of this Agreement by Resources and Keystone will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority
("Governmental Entity"), including under or pursuant to (i) the
Securities Exchange Act of 1934, as amended (together with the
rules and regulations promulgated thereunder, the "Exchange
Act"), (ii) the Securities Act of 1933, as amended (together with
the rules and regulations promulgated thereunder, the "Securities
Act"), (iii) state securities laws, (iv) state utility laws,
rules and regulations, (v) the NYSE rules, (vi) state takeover
laws, (vii) pre-merger notification requirements of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and (vii) the Public Utility Holding Company Act of
1935, as amended (together with the rules and regulations
promulgated thereunder, "PUHCA"), except where failure to obtain
such consents, approvals, authorizations or permits, or to make
such filings or notifications, would not, individually or in the
aggregate, (A) prevent or materially delay the performance of
this Agreement by Resources or Keystone or (B) have a Resources
Material Adverse Effect.
Section 3.6 Permits; Compliance. Each of Resources and the
Resources subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for Resources or any Resources
subsidiary to own, lease and operate its properties or to carry
on its business as it is now being conducted (the "Resources
Permits"), except where the failure to have, or the suspension or
cancellation of, any of the Resources Permits would not,
individually or in the aggregate, (A) have a Resources Material
Adverse Effect or (B) prevent or materially delay the performance
of this Agreement by Resources or Keystone, and, as of the date
of this Agreement, no suspension or cancellation of any of the
Resources Permits is pending or, to the actual knowledge of the
executive officers of Resources, threatened, except where the
failure so to have, or the suspension or cancellation of, any of
the Resources Permits would not, individually or in the
aggregate, (A) have a Resources Material Adverse Effect or (B)
prevent or materially delay the performance of this Agreement by
Resources or Keystone. Neither Resources nor any Resources
subsidiary is, to the best of Resource's knowledge, in conflict
with, or in default or violation of, (i) any law applicable to
Resources or any Resources subsidiary or by which any property or
asset of Resources or any Resources subsidiary is bound or
affected or (ii) any Resources Permits, except for any such
conflicts, defaults or violations that would not, individually or
in the aggregate, (A) have a Resources Material Adverse Effect or
(B) prevent or materially delay the performance of this Agreement
by Resources or Keystone.
Section 3.7 SEC Filings; Financial Statements. (a)
Resources and the Resources subsidiaries have filed all forms,
reports and documents required to be filed by them under
applicable law or NYSE rules, including filings with the Federal
Energy Regulatory Commission ("FERC"), the Pennsylvania Public
Utility Commission ("PUC"), the SEC and NYSE, since January 1,
1994 through the date of this Agreement (collectively, the
"Resources Reports"), except for such filings which would not
have a Resources Material Adverse Effect. The Resources Reports
(i) were prepared in accordance with the requirements of the
Exchange Act, PUHCA and other applicable law and (ii) did not at
the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were
made, not misleading, except for matters which would not
reasonably be expected to have a Resources Material Adverse
Effect.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the
Resources Reports was prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated (except as may
be indicated in the notes thereto) and each presented fairly, in
all material respects, the consolidated financial position of
Resources and the consolidated Resources subsidiaries as at the
respective dates thereof and for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case
of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or
in the aggregate, to have a Resources Material Adverse Effect).
(c) Except as and to the extent set forth in the
consolidated balance sheet of Resources and the consolidated
Resources subsidiaries as of December 31, 1996, including the
notes thereto, neither Resources nor any Resources subsidiary has
any material liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in notes thereto
prepared in accordance with GAAP, except for liabilities or
obligations incurred in the ordinary course of business since
December 31, 1996 that would not, individually or in the
aggregate, (A) have a Resources Material Adverse Effect or (B)
prevent or materially delay the performance of this Agreement by
Resources or Keystone.
Section 3.8 Absence of Certain Changes or Events. Since
January 1, 1997, except as set forth in Section 3.8 of the
Resources Disclosure Schedule, Resources and the Resources
subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since
such date, there has not been (a) any Resources Material Adverse
Effect, (b) any event that would reasonably be expected to
prevent or materially delay the performance of this Agreement by
Resources or Keystone, or (c) any damage, destruction or loss
(whether or not covered by insurance) to any of the assets or
properties of Resources or any of the Resources subsidiaries that
individually or in the aggregate is reasonably likely to have a
Resources Material Adverse Effect.
Section 3.9 Continuity of Business Enterprise. Resources
intends that PFG should continue at least one significant
historic business line of PFG, or use at least a significant
portion of PFG's historic business assets in a business, in each
case within the meaning of Treasury Regulation Section 1.368-
1(d).
Section 3.10 Pooling of Interests. As of the date hereof,
Resources believes that the Merger will qualify as a pooling of
interests for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PFG
PFG hereby represents and warrants to Resources and Keystone
that:
Section 4.1 Organization and Qualification; Subsidiaries.
PFG and each subsidiary of PFG (the "PFG subsidiaries") has been
duly organized and is validly existing and in good standing under
the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has the requisite power and
authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the
aggregate, (A) have a PFG Material Adverse Effect (as defined
below) or (B) prevent or materially delay the performance of this
Agreement by PFG. PFG and each of the PFG subsidiaries is duly
qualified or licensed to do business and is in good standing in
each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to
be so qualified or licensed and in good standing that would not,
individually or in the aggregate, (A) have a PFG Material Adverse
Effect or (B) prevent or materially delay the performance of this
Agreement by PFG. Section 4.1 of the PFG Disclosure Schedule
sets forth a correct list of the PFG subsidiaries and the
percentage, as of the date of this Agreement, of the total equity
interests and total voting power owned by PFG or a PFG subsidiary
(identifying such owner) in each PFG subsidiary. For purposes of
this Agreement, "PFG Material Adverse Effect" means any change in
or effect on the business of PFG and the PFG subsidiaries that is
or is reasonably likely to be materially adverse to the business,
assets, liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of PFG and the
PFG subsidiaries taken as a whole. Except for the PFG
subsidiaries and the equity interests disclosed in Section 4.1 of
the PFG Disclosure Schedule, neither PFG nor any PFG subsidiary
owns any equity interest in any person as of the date of this
Agreement.
Section 4.2 Articles of Incorporation, By-Laws and
Shareholders Agreement. Prior to the date of this Agreement, PFG
has furnished to Resources complete and correct copies of PFG's
Articles of Incorporation and By-Laws and Shareholders Agreement.
Such Articles of Incorporation and By-Laws and Shareholders
Agreement are in full force and effect.
Section 4.3 Capitalization. The authorized capital stock
of PFG consists of (a) 2,000,000 shares of PFG Common Stock,
$1.00 par value, (b) 500,000 shares of preferred stock, no par
value ("PFG No Par Stock"), and (c) 2,000,000 shares of PFG $1.40
Cumulative Preferred Stock ("PFG Preferred Stock"). As of the
date of this Agreement, (i) 717,583 shares of PFG Common Stock
(including any restricted shares) were issued and outstanding,
all of which are validly issued and fully paid and nonassessable,
(ii) no shares of PFG Common Stock were held in the treasury of
PFG or by PFG subsidiaries, (iii) 14,350 shares of PFG Common
Stock were reserved for issuance upon the exercise of current
stock options, (iv) 717,583 shares of PFG Preferred Stock were
issued and outstanding, all of which are validly issued, fully
paid and non-assessable, and (v) no shares of PFG No Par Stock
were issued and outstanding. Except for agreements entered into
concerning an exchange or conversion of PFG Preferred Stock for
or into PFG Common Stock as contemplated by Section 2.1(c) and
stock options described in Section 4.3 of the PFG Disclosure
Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which
PFG is a party or by which PFG is bound relating to the issued or
unissued capital stock of PFG or any PFG subsidiary or obligating
PFG or any PFG subsidiary to issue or sell any shares of capital
stock of or other equity interests in, PFG or any PFG subsidiary.
All shares of PFG Common Stock reserved for issuance as
aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be
validly issued, fully paid and nonassessable. Except as to the
PFG Preferred Stock and PFG Options, there are no outstanding
contractual obligations of PFG or any PFG subsidiary to redeem or
otherwise acquire any PFG shares or any capital stock of any PFG
subsidiary. Each outstanding share of capital stock of each PFG
subsidiary is validly issued, fully paid and nonassessable and
each such share owned by PFG or another PFG subsidiary is free
and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on
PFG's or such other PFG subsidiary's voting rights, charges and
other encumbrances of any nature whatsoever, except where failure
to own such shares free and clear would not, individually or in
the aggregate, have a PFG Material Adverse Effect. There are no
material outstanding contractual obligations of PFG or any PFG
subsidiary to make any investment (in the form of a loan, capital
contribution or otherwise) in, any PFG subsidiary or any other
person, other than guarantees by PFG of any indebtedness of any
PFG subsidiary and as described in Section 4.3 of the PFG
Disclosure Schedule. Neither PFG nor any PFG subsidiary owns any
Resources Common Stock.
Section 4.4 Authority Relative to This Agreement. PFG has
all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder
and to consummate the transactions (including, without
limitation, the Merger) contemplated herein to be consummated by
PFG. Except for approval and adoption by PFG's shareholders of
the Merger and this Agreement in accordance with applicable law
and PFG's Articles of Incorporation and By-Laws, which approval
and adoption is the subject of the Voting Agreement, and except
for approval by the holders of PFG Preferred Stock required for
the redemption of such PFG Preferred Stock, the execution and
delivery of this Agreement by PFG and the consummation by PFG of
such transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on
the part of PFG are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly
authorized and validly executed and delivered by PFG and
constitutes a legal, valid and binding obligation of PFG,
enforceable against PFG in accordance with its terms, except to
the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a
proceeding at law or in equity).
Section 4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by PFG does not,
and the performance of this Agreement by PFG will not, (i)
conflict with or violate any provision of the Articles of
Incorporation or By-Laws of PFG or any equivalent organizational
documents of any PFG subsidiary, (ii) assuming that all consents,
approvals, authorizations and other actions described in Section
4.5(a) of the PFG Disclosure Schedule have been obtained and all
filings described in Section 4.5(b) of the PFG Disclosure
Schedule have been made, conflict with or violate any law
applicable to PFG or any PFG subsidiary or by which any property
or asset of PFG or any PFG subsidiary is bound or affected, or
(iii) subject to obtaining any third party consents set forth in
Section 4.5(a) of the PFG Disclosure Schedule (such consents
being hereinafter referred to as the "PFG Required Consents"),
result in any breach of, loss of benefit under, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any
property or asset of PFG or any PFG subsidiary pursuant to, or
require the consent of any other party to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation, except, with respect
to-clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults, failure to obtain consent, or other
occurrences which would not, individually or in the aggregate,
(A) have a PFG Material Adverse Effect or (B) prevent or
materially delay the performance of this Agreement by PFG.
(b) Except as set forth on Section 4.5(b) of the PFG
Disclosure Schedule, the execution and delivery of this Agreement
by PFG do not, and the performance of this Agreement by PFG will
not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity,
including under or pursuant to (i) the Exchange Act, (ii) the
Securities Act, (iii) state securities laws, (iv) state utility
laws, rules and regulations, (v) NYSE rules, (vi) state takeover
laws, (vii) pre-merger notification requirements of the HSR Act,
and (vii) PUHCA, except where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, (A)
prevent or materially delay the performance of this Agreement by
PFG or (B) have a PFG Material Adverse Effect.
Section 4.6 Permits; Compliance. PFG and each of the PFG
subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for PFG or any PFG subsidiary to
own, lease and operate its properties or to carry on its business
as it is now being conducted (the "PFG Permits"), except where
the failure to have, or the suspension or cancellation of any of
the PFG Permits would not, individually or in the aggregate, (A)
have a PFG Material Adverse Effect or (B) prevent or materially
delay the performance of this Agreement by PFG, and, as of the
date of this Agreement, no suspension or cancellation of, any of
the PFG Permits is pending or, to the actual knowledge of the
executive officers of PFG, threatened, except where the failure
to have, or the suspension or cancellation of, any of the PFG
Permits would not, individually or in the aggregate, (A) have a
PFG Material Adverse Effect or (B) prevent or materially delay
the performance of this Agreement by PFG. Neither PFG nor any
PFG subsidiary is, to the best of PFG's knowledge, in conflict
with, or in default or violation of, (i) any law applicable to
PFG or any PFG subsidiary or by which any property or asset of
PFG or any PFG subsidiary is bound or affected or (ii) any PFG
Permits, except for any such conflicts, defaults or violations
that would not, individually or in the aggregate, (A) have a PFG
Material Adverse Effect or (B) prevent or materially delay the
performance of this Agreement by PFG.
Section 4.7 Filings; Financial Statements. (a) PFG has
filed all forms, reports and documents required to be filed by it
under applicable law, including all filings with FERC, the PUC,
the Maryland Public Service Commission and the SEC, since January
1, 1994 through the date of this Agreement (collectively, the
"PFG Reports"), except for such filings which would not have a
PFG Material Adverse Effect. The PFG Reports (i) were prepared
in accordance with applicable law, and (ii) did not at the time
they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading, except for matters which would not reasonably be
expected to have a PFG Material Adverse Effect. Neither PFG nor
any PFG subsidiary is subject to the periodic reporting
requirements of the Exchange Act. The PFG capital stock is not
registered or required to be registered under the Exchange Act.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) which PFG has made
available to Resources was prepared in accordance with GAAP, in
each case applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and
each presented fairly, in all material respects, the consolidated
financial position of PFG and the consolidated PFG subsidiaries
as of the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in
the case of unaudited statements, to normal and recurring year-
end adjustments which were not and are not expected, individually
or in the aggregate, to have a PFG Material Adverse Effect).
(c) Except as and to the extent set forth on the
consolidated balance sheet of PFG and the consolidated PFG
subsidiaries as of December 31, 1996, including the notes
thereto, neither PFG nor any of the PFG subsidiaries has any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in
accordance with GAAP, except for liabilities or obligations
incurred in the ordinary course of business since December 31,
1996 that would not, individually or in the aggregate, (A) have a
PFG Material Adverse Effect or (B) prevent or materially delay
the performance of this Agreement by PFG.
Section 4.8 Absence of Certain Changes or Events. Since
January 1, 1997, except as contemplated by or as disclosed in
Section 4.8 of the PFG Disclosure Schedule, PFG and the PFG
subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since
such date, there has not been (a) any PFG Material Adverse
Effect, (b) any event that would reasonably be expected to
prevent or materially delay the performance of this Agreement by
PFG, (c) any material change by PFG in its accounting methods,
principles or practices, (d) any declaration, setting aside or
payment of any dividend or distribution in respect of the PFG
capital stock or any redemption, purchase or other acquisition of
any of PFG's securities, (e) any increase in the compensation or
benefits of or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock
option (including without limitation, the granting of stock
options, stock appreciation rights, performance awards or
restricted stock awards), or other employee benefit plan, or any
other increase in the compensation payable or to become payable
to any executive officers of PFG or any PFG subsidiary except in
the ordinary course of business consistent with past practice or
except as required by applicable law, or (f) any damage,
destruction or loss (whether or not covered by insurance) to any
of the assets or properties of PFG or any of the PFG subsidiaries
that individually or in the aggregate is reasonably likely to
have a PFG Material Adverse Effect.
Section 4.9 Employee Benefit Plans; Labor Matters.
(a) Section 4.9(a) of the PFG Disclosure Schedule,
contains a true and complete list of each deferred compensation,
incentive compensation, equity compensation plan, and "welfare"
plan, fund or program (within the meaning of SECTION 3(1) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")); "pension" plan, fund or program (within the meaning
of SECTION 3(2) of ERISA); each employment, termination or severance
agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by
PFG or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with PFG would be deemed a
"single employer" within the meaning of SECTION 4001(b) of ERISA,
or to which PFG or an ERISA Affiliate is a party, whether written or
oral, for the benefit of any employee, former employee, director
or former director of PFG, or any of the predecessors of such
companies (the "PFG Plans").
(b) With respect to each PFG Plan, PFG has heretofore
delivered or made available to Resources and Keystone true and
complete copies of each of the PFG Plans and any amendments
thereto (or if the PFG Plan is not a written plan, a description
thereof), any related trust or other funding vehicle, the latest
version of any reports or summaries required under ERISA or the
Code and the most recent determination letter received from the
Internal Revenue Service (the "IRS") with respect to each PFG
Plan intended to qualify under Code SECTION 401.
(c) Except as set forth in Section 4.9(c) of the PFG
Disclosure Schedule, no liability under Title IV or SECTION 302 of
ERISA has been incurred by PFG or any ERISA Affiliate that has
not been satisfied in full, and no condition exists that presents
a material risk to PFG, or any of its ERISA Affiliates, of
incurring any such liability, other than (i) liability for
premiums due the Pension Benefit Guaranty Corporation (which
premiums have been paid when due) or (ii) liabilities which would
not have a PFG Material Adverse Effect.
(d) Except as set forth in Section 4.9(d) of the PFG
Disclosure Schedule, with respect to each PFG Plan subject to
Title IV of ERISA (each, a "PFG Title IV Plan"), the present
value of accrued benefits under such plan, based upon the
actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such plan's actuary with
respect to such plan, did not exceed, as of its latest valuation
date, the then current value of the assets of such plan allocable
to such accrued benefits.
(e) Except as set forth in Section 4.9(e) of the PFG
Disclosure Schedule, no PFG Title IV Plan is a "multiemployer
pension plan," as defined in SECTION 3(37) of ERISA, nor is any PFG
Title IV Plan a plan described in SECTION 4063(a) of ERISA. If any PFG
Title IV Plan is a "multiemployer pension plan," to the best of
PFG's knowledge the aggregate withdrawal liability of PFG and its
ERISA affiliates, computed as if a complete withdrawal by PFG and
its ERISA affiliates had occurred under each such PFG Plan on the
date hereof, would not result in a PFG Material Adverse Effect.
(f) Each PFG Plan has been operated and administered
in all material respects in accordance with its terms and
applicable law, including but not limited to ERISA and the Code,
except as would not have a PFG Material Adverse Effect.
(g) Except as set forth in Section 4.9(g) of the PFG
Disclosure Schedule, each PFG Plan intended to be "qualified"
within the meaning of SECTION 401(a) of the Code has received a
favorable IRS determination letter with respect to such
qualifications.
(h) Except as set forth in Section 4.9(h) of the PFG
Disclosure Schedule, no PFG Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not
insured) for employees or former employees of PFG or any PFG
subsidiary for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by
applicable law, (ii) death benefits under any "pension plan," or
(iii) benefits the full cost of which (based on COBRA rates for
medical benefits) is borne by the current or former employee (or
his beneficiary).
(i) Except as set forth in Section 4.9(i) of the PFG
Disclosure Schedule, there are no pending or, to the best of
PFG's knowledge, threatened claims by or on behalf of any PFG
Plan, by any employee, beneficiary or alternate payee covered
under any such PFG Plan, or otherwise involving any such PFG Plan
(other than routine claims for benefits) against PFG that would
have a PFG Material Adverse Effect.
(j) Except as set forth in Section 4.9(j) of the PFG
Disclosure Schedule, (i) the consummation or announcement of any
transaction contemplated by this Agreement will not (either alone
or upon the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or
otherwise) becoming due from PFG or any of the PFG subsidiaries
to any officer, employee, former employee, partner, director or
former director thereof or to the trustee under any "rabbi trust"
or similar arrangement, or (B) benefit under any PFG Plan being
established or becoming accelerated, vested or payable and (ii)
neither PFG nor any of the PFG subsidiaries is a party to (A) any
management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change
in control), bonus or other contract for personal services with
any officer, director, partner or employee, (B) any consulting
contract with any person who prior to entering into such contract
was a director, partner or officer of PFG or (C) any plan,
agreement, arrangement or understanding similar to any of the
foregoing.
(k) As of the date hereof, except as set forth in
Section 4.9(k) of the PFG Disclosure Schedule, neither PFG nor
any of the PFG subsidiaries is a party to any collective
bargaining agreement or other labor agreement with any union or
labor organization. Except as set forth in Section 4.9(k) of the
PFG Disclosure Schedule, to the best knowledge of PFG, as of the
date hereof, there is no current union representation question
involving employees of PFG or any of the PFG subsidiaries, nor
does PFG know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to
organize any such employees. Except as disclosed in Section
4.9(k) of the PFG Disclosure Schedule, (i) there is no unfair
labor practice, employment discrimination or other complaint
against PFG or the PFG subsidiaries pending, or to the best
knowledge of PFG, threatened, which has or reasonably may be
expected by PFG to have a PFG Material Adverse Effect, (ii) there
is no strike, dispute, slowdown, work stoppage or lockout
pending, or to the best knowledge of PFG, threatened, against or
involving PFG or any of the PFG subsidiaries which has or,
insofar as reasonably can be foreseen, would have, a PFG Material
Adverse Effect and (iii) there is no proceeding, claim, suit,
action or governmental investigation pending or, to the best
knowledge of PFG, threatened, in respect of which any director,
officer, partner, employee or agent of PFG or any of the PFG
subsidiaries is or may be entitled to claim indemnification from
PFG or any of the PFG subsidiaries pursuant to their respective
governing documents or as provided in the indemnification
agreements listed in Section 4.9(k) of the PFG Disclosure
Schedule which would result in a PFG Material Adverse Effect.
Section 4.10 Properties; No Liens. Except as stated in
Section 4.10 of the PFG Disclosure Schedule, PFG and/or the PFG
subsidiaries have sufficient title to, or valid leasehold
interests in, all real property owned or leased by them to permit
the operation of their business as a whole substantially as such
business has been operated heretofore without a PFG Material
Adverse Effect. None of such properties or any other assets of
PFG or any PFG subsidiary (whether real or personal) is subject
to any liens, except for (i) liens otherwise disclosed in Section
4.10 of the PFG Disclosure Schedule, (ii) liens for current taxes
not yet due and payable or delinquent, (iii) mechanics',
carriers', workmen's and similar liens arising in the ordinary
course of business in respect of amounts that are not yet due and
payable or are being disputed in good faith, (iv) lessors' liens
with respect to property leased by PFG or the PFG subsidiaries
and (v) liens that do not individually or in the aggregate
materially affect the marketability or insurability of the
property and do not materially impair the use of such property of
PFG and the PFG subsidiaries taken as a whole.
Section 4.11 Contracts; Debt Instruments. Set forth in
Section 4.11 of the PFG Disclosure Schedule is a list, as of the
date of this Agreement, of (i) each executory contract that
requires the expenditure by PFG or any of the PFG subsidiaries of
more than $300,000 in any given fiscal year or $500,000 in the
aggregate (collectively, "PFG Material Contracts"). As of the
date of this Agreement, other than the PFG Material Contracts, as
disclosed in Section 4.11 of the PFG Disclosure Schedule or as
specifically listed in the PFG Reports, neither PFG nor any PFG
subsidiary is a party to any contract, agreement, letter of
intent or similar instrument that (i) is not cancellable without
penalty by PFG or such PFG subsidiary upon thirty (30) or fewer
days' notice and (ii) requires the expenditure by PFG or such PFG
subsidiary of more than $300,000 per annum or $500,000 in the
aggregate or the provisions of goods or services by PFG for
consideration of more than $300,000 per annum or $500,000 in the
aggregate. Each PFG Material Contract and each contract listed
in Section 4.11 of the PFG Disclosure Schedule pursuant to this
Section to which PFG or any PFG subsidiary is a party is a valid
and binding agreement of PFG or such PFG subsidiary party
thereto, and is enforceable in accordance with its terms except
to the extent enforcement may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (whether considered in a
proceeding of law or equity), and is in full force and effect to
the best knowledge of PFG. To the best knowledge of PFG, neither
PFG nor any PFG subsidiary is in violation of or in default under
(nor does there exist any condition which upon the passage of
time or the giving of notice would cause such a violation of or
default under) any PFG Material Contract, loan or credit
agreement, note, bond, mortgage, indenture or lease, or any other
contract, agreement, arrangement or understanding to which it is
a party or by which it or any of its properties or assets is
bound, except for violations or defaults that would not,
individually or in the aggregate, result in a PFG Material
Adverse Effect.
Section 4.12 Litigation. Except as disclosed in Section
4.12 of the PFG Disclosure Schedule, (i) there is no suit, claim,
action, proceeding or investigation pending or, to the knowledge
of PFG, threatened, nor are there, to the knowledge of PFG, any
investigations or reviews pending or threatened against, relating
to or affecting PFG, or any PFG subsidiary, that would have a PFG
Material Adverse Effect, (ii) there have not been any
developments since January 1, 1997 with respect to such disclosed
claims, suits, actions, proceedings, investigations or reviews
that would have a PFG Material Adverse Effect and (iii) there are
no judgments, decrees, injunctions, rules or orders (other than
rules or orders of general effect in PFG's industry) of any
court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to PFG
or any PFG subsidiary, which would have a PFG Material Adverse
Effect.
Section 4.13 Environmental Matters.
(a) Compliance. Except as set forth in Section
4.13(a) of the PFG Disclosure Schedule, PFG and each of the PFG
subsidiaries is in compliance with all applicable Environmental
Laws (as hereinafter defined) except for noncompliance that would
not have a PFG Material Adverse Effect. Except as set forth in
Section 4.13(a) of the PFG Disclosure Schedule, and except for
matters that have been fully resolved, neither PFG, nor any PFG
subsidiary, has received any written communication from any
person or Governmental Entity that alleges that PFG or any PFG
subsidiary is not in such compliance with applicable
Environmental Laws (as defined below) where such noncompliance
would have a PFG Material Adverse Effect.
(b) Environmental Permits. Except as set forth in
Section 4.13(b) of the PFG Disclosure Schedule, each of PFG and
the PFG subsidiaries has obtained all environmental, health and
safety permits and governmental authorizations (collectively, the
"Environmental Permits") necessary for the construction of their
facilities or the conduct of their operations, and all such
permits are in good standing or, where applicable, a renewal
application has been timely filed and is pending agency approval,
and PFG and each PFG subsidiary are in material compliance with
all terms and conditions of the Environmental Permits except
where the absence of such permits or such noncompliance would not
have a PFG Material Adverse Effect.
(c) Environmental Claims. Except as set forth in
Section 4.13(c) of the PFG Disclosure Schedule, there is no
Environmental Claim (as hereinafter defined) pending or, to the
best of PFG's knowledge, threatened (i) against PFG or any PFG
subsidiary, (ii) against any person or entity whose liability for
any Environmental Claim PFG or any PFG subsidiary has or may have
retained or assumed either contractually or by operation of law
or (iii) against or concerning any real or personal property or
operations which PFG or any PFG subsidiary owns, leases or
manages, in whole or in part which, if adversely determined,
would have a PFG Material Adverse Effect.
(d) Release. Except as set forth in Sections 4.13(c)
or (d) of the PFG Disclosure Schedule, and except Releases (as
hereinafter defined) of Hazardous Materials (as hereinafter
defined) the liability for which would not reasonably be likely
to have a PFG Material Adverse Effect, neither PFG nor any PFG
subsidiary has knowledge of the presence of any Releases of any
Hazardous Material that has occurred on any of the properties
owned, leased or occupied by PFG or its subsidiaries or any
predecessor of PFG or its subsidiaries which requires
investigation, assessment, monitoring, remediation or cleanup
under Environmental Laws.
(e) Disclosure. PFG has disclosed to Resources and
Keystone all material facts that PFG reasonably believes form the
basis of a PFG Material Adverse Effect arising from the cost of
pollution control equipment currently required or known to be
required in the future, current remediation costs or remediation
costs known to be required in the future, or any other
environmental matter affecting PFG or its subsidiaries that would
have a PFG Material Adverse Effect. To the best of its
knowledge, PFG has delivered to Resources prior to the date
hereof copies of each environmental investigation, study, audit
test, review or other analysis (including all Phase I
environmental assessments) conducted of the properties or
operations of PFG and its subsidiaries within the last five
years.
(f) Environmental Assessment. Resources shall have
the right at any time up to ninety (90) days prior to the Closing
Date, at its own risk and expense, to conduct or have conducted
an environmental assessment of the properties of PFG and its
subsidiaries ("Properties") and shall provide the results of any
such environmental assessment to PFG. PFG will provide Resources
(or its contractor) with reasonable access to the Properties to
conduct the environmental assessment, provided that Resources or
its contractor complies with PFG's safety and industrial hygiene
procedures. Not later than ninety (90) days prior to the Closing
Date, Resources shall advise PFG of any material environmental
conditions of the Properties that Resources finds unacceptable.
For the purpose of this Section 4.13(f), such conditions shall be
"material" only if such conditions will cost in excess of
$1,000,000 in the aggregate to cure or remedy, such conditions
have not on or before the date of this Agreement been disclosed
to Resources by PFG, such conditions are not the subject of
agreements which have been disclosed to Resources between PFG and
a responsible Governmental Entity, the cure or remedy costs for
such conditions would not reasonably be expected to be
recoverable through PFG's rates, and such conditions are
unacceptable because, excluding the plugging of abandoned wells,
removal and disposal of in-service equipment and waste,
byproducts and other materials generated in the course of
operations and not released onto the Properties, and similar
matters encountered in the ordinary course of operations in the
business of PFG on and after the date of the Agreement, such
conditions are subject to remediation, now or in the future,
under Environmental Laws, or because they create or would create
with notice or the passage of time or both, liability under
Environmental Laws, which remediation or liability would have a
PFG Material Adverse Effect.
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands,
demand letters, directives, claims, proceedings or notices by any
Governmental Entity or other person alleging in writing violations
of or liability under Environmental Laws, or demanding remediation
of conditions which, with notice, the passage of time, or both
would constitute violations of Environmental Laws, arising out of,
based on or resulting from (a) the presence, Release or
threatened Release into the environment, of any Hazardous
Materials at any location, whether or not owned, operated, leased
or managed by PFG or any subsidiary or joint venture of PFG or
(b) circumstances forming the basis of any violation of any
Environmental Law.
(ii) "Environmental Laws" means all federal, state,
and local laws, rules and regulations, judgments or final orders as
in effect on the date of this Agreement relating to pollution or
protection of human health or the environment or Releases or
threatened Releases of Hazardous Materials, to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, including, without
limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability
Act, the National Environmental Policy Act, the Oil Pollution Act
of 1990, the Resource Conservation and Recovery Act of 1976, the
Hazardous and Solid Waste Amendments Act, the Outer Continental
Shelf Act, the Superfund Amendments and Reauthorization Act, the
Rivers and Harbors Act, and the Toxic Substances Control Act,
all as amended through the Effective Date; (b) any toxic tort
cause of action of any kind whatsoever arising from or relating
to Hazardous Materials, or the alleged emission, Release or
discharge of Hazardous Materials into ambient air, surface water,
ground water, or soil; and (c) any other law or regulation
relating to Hazardous Materials, or the emission, Release, or
discharge of Hazardous Materials into ambient air, surface water,
ground water, or soil.
(iii) "Hazardous Materials" means (a) any petroleum
or petroleum products, radioactive materials, asbestos in any form
that is or could become friable, urea formaldehyde foam
insulation, and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls; (b) any
chemicals, materials or substances which are now defined as or
included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic
pollutants", or words of similar import, under any Environmental
Law; and (c) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under
any Environmental Law in a jurisdiction in which PFG or any
subsidiary or joint venture of PFG operates (for purposes of this
Section 4.13).
(iv) "Release" means any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere, soil, surface water,
groundwater or property.
Section 4.14 Trademarks, Patents and Copyrights. Except to
the extent the inaccuracy of any of the following (or the
conditions giving rise to such inaccuracy), individually or in
the aggregate, would not have a PFG Material Adverse Effect, to
the best knowledge of PFG, each of PFG and the PFG subsidiaries
owns or possesses adequate licenses or other legal rights to use
all patents, patent rights, trademarks, trademark rights, trade
names, trade dress, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks,
mask works, know-how and other proprietary rights and information
used or held for use in connection with the business of PFG and
the PFG subsidiaries as currently conducted or as contemplated to
be conducted, and PFG has no knowledge of any assertion or claim
challenging the validity of any of the foregoing. To the best
knowledge of PFG, the conduct of the business of PFG and the PFG
subsidiaries as currently conducted and as contemplated to be
conducted did not, does not and will not infringe in any way any
patent, patent right, license, trademark, trademark right, trade
dress, trade name, trade name right, service mark, mask work or
copyright of any third party that, individually or in the
aggregate, would have a PFG Material Adverse Effect. To the best
knowledge of PFG, there are no infringements of any proprietary
rights owned by or licensed by or to PFG or any PFG subsidiary
that, individually or in the aggregate, would have a PFG Material
Adverse Effect.
Section 4.15 Taxes. "Taxes", as used in this Agreement,
means any federal, state, county, local or foreign taxes,
charges, fees, levies, or other assessments, including all net
income, gross income, sales and use, ad valorem, transfer, gains,
profits, excise, franchise, real and personal property, gross
receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp,
custom duties, severance or withholding taxes or charges imposed
by any governmental entity, and includes any interest and
penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination,
settlement or litigation of any Tax liability. "Tax Return", as
used in this Agreement, means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes including, where permitted or required, combined
or consolidated returns for any group of entities that includes
PFG or any PFG subsidiary.
(a) Filing of Timely Tax Returns. Except as set forth
in Section 4.15(a) of the PFG Disclosure Schedule, PFG and each
PFG subsidiary has filed all Tax Returns required to be filed by
each of them under applicable law, except where any failure to
file or pay any Tax attributable thereto would not have a PFG
Material Adverse Effect. All Tax Returns were in all material
respects (and, as to Tax Returns due on or before the Effective
Time but not filed as of the date hereof, will be) true, complete
and correct and filed on a timely basis and in a manner
prescribed by law, except where any failure would not have a PFG
Material Adverse Effect.
(b) Payment of Taxes. PFG and each PFG subsidiary
has, within the time and in the manner prescribed by law, paid
(and until the Effective Time will pay within the time and in the
manner prescribed by law) all Taxes that are shown in their Tax
Returns as currently due and payable.
(c) Tax Reserves. PFG and the PFG subsidiaries have
established (and until the Effective Time will maintain) on their
books and records reserves for all Taxes and deferred income
taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets
of PFG or any of the PFG subsidiaries except liens for Taxes not
yet due.
(e) Withholding Taxes. PFG and each of the PFG
subsidiaries have complied (and until the Effective Time will
comply) in all material respects with the provisions of the Code
relating to the payment and withholding of Taxes, including,
without limitation, the withholding and reporting requirements
under Code SECTIONSECTION 1441 through 1464, 3401 through 3406,
and 6041 and 6049, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by
law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required, except for non-
compliance or withholding failures that would not have a PFG
Material Adverse Effect. Except as set forth in Section 4.15(e)
of the PFG Disclosure Schedule, to the best of PFG's knowledge,
PFG and each of PFG's subsidiaries have complied in all respects
with the foregoing withholding and reporting requirements.
(f) Extensions of Time for Filing Tax Returns.
Neither PFG nor any PFG subsidiary has requested any extension of
time within which to file any Tax Return, which Tax Return has
not since been filed, except as to the 1996 year.
(g) Waivers of Statute of Limitations. Neither PFG
nor any PFG subsidiary has executed any outstanding waivers or
comparable consents regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns, except for
waivers or consents previously executed for Tax periods as to
which the applicable statute of limitations has, notwithstanding
such waivers or consents, expired.
(h) No Outstanding Deficiency. No Deficiency for any
Taxes has been proposed, asserted or assessed against PFG or any
PFG subsidiary that has not been fully resolved and there is no
outstanding amount payable by PFG or any PFG subsidiary with
respect to any such deficiency that has not been previously paid.
(i) Audit, Administrative and Court Proceedings. No
audits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes or Tax Returns of
PFG or any PFG subsidiary.
(j) Powers of Attorney. Except as disclosed in
Section 4.15(j) of the PFG Disclosure Schedule, no power of
attorney currently in force has been granted by PFG or any PFG
subsidiary concerning any Tax matter.
(k) Tax Rulings. Except as disclosed in Section
4.15(k) of the PFG Disclosure Schedule, neither PFG nor any PFG
subsidiary has received a Tax Ruling (as defined below) or
entered into a Closing Agreement (as defined below) with any
taxing authority that would have a continuing PFG Material
Adverse Effect after the Effective Time. "Tax Ruling", as used
in this Agreement shall mean a written ruling of a taxing
authority relating to Taxes. "Closing Agreement", as used in
this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes.
(l) Availability of Tax Returns. PFG and the PFG
subsidiaries have made available to Resources and Keystone
complete and accurate copies of (i) all federal and state income
Tax Returns, and any amendments thereto, filed by PFG or any of
the PFG subsidiaries since January 1, 1995, (ii) all audit
reports received from any taxing authority relating to any
federal and state income Tax Return filed by PFG or any of the
PFG subsidiaries since January 1, 1995 and (iii) any Closing
Agreements with respect to federal and state income taxes entered
into by PFG or any of the PFG subsidiaries with any taxing
authority since January 1, 1995.
(m) Tax Sharing Agreements. Except as disclosed in
Section 4.15(m) of the PFG Disclosure Schedule, no agreements
relating to allocating or sharing of Taxes exist between or among
PFG and any of the PFG subsidiaries.
(n) Code SECTION 168. No property of PFG or any of the
PFG subsidiaries is property that PFG or any PFG subsidiary or any
party to this transaction is or will be required to treat as
being owned by another person pursuant to the provisions of Code
SECTION 168(f)(8) (as in effect prior to its amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Code SECTION 168 which would result in a PFG Material
Adverse Effect.
(o) Code SECTION 481 Adjustments. Except as set forth
in Section 4.15(o) of the PFG Disclosure Schedule, neither PFG nor
any of the PFG subsidiaries is required to include in income any
adjustment pursuant to Code SECTION 481(a) by reason of a voluntary
change in accounting method initiated since January 1, 1993, by
PFG or any of the PFG subsidiaries, and to the best knowledge of
PFG, the IRS has not proposed any adjustments since January 1,
1993, pursuant to Code SECTION 481 or any change in accounting method.
(p) Code SECTION 6662. All transactions that could give
rise to an understatement of federal income tax (within the
meaning of Code SECTION 6662) that could reasonably be expected to
result in a PFG Material Adverse Effect have been adequately
disclosed on the Tax Returns of PFG and the PFG subsidiaries in
accordance with Code SECTION 6662(d)(2)(B) for Tax Returns filed
after December 31, 1989.
(q) Acquisition Indebtedness. Except as set forth in
Section 4.15(q) of the PFG Disclosure Schedule, no indebtedness
of PFG or any of the PFG subsidiaries is "corporate acquisition
indebtedness" within the meaning of Code SECTION 279(b), except as
would not have a PFG Material Adverse Effect.
(r) Intercompany Transactions. Except as set forth in
Section 4.15(r) of the PFG Disclosure Schedule, neither PFG nor
any of the PFG subsidiaries has engaged in any intercompany
transactions within the meaning of Treasury Regulations SECTION
1.1502-13 or deferred intercompany transactions (within the meaning
of Treasury Regulations SECTION 1.1502-13 prior to amendment in
T.D. 8597) for which any income remains unrecognized as of the
close of the last taxable year prior to the Effective Time, except
as would not have a PFG Material Adverse Effect if such income were
recognized currently.
(s) Code SECTION 280G. Except as set forth in Section
4.15(s) of the PFG Disclosure Schedule, neither PFG nor any of
the PFG subsidiaries is a party to any agreement, contract, or
arrangement that could result, on account of the transactions
contemplated hereunder, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of
Code SECTION 280G.
(t) Code SECTION 1502. Except as set forth in Section
4.15(t) of the PFG Disclosure Schedule, there are no excess loss
accounts among PFG and any of the PFG Subsidiaries under the
consolidated return regulations promulgated under Code SECTION 1502.
(u) Tax-Free Reorganization. PFG is not aware of any
reason why the Merger, if consummated as of the date hereof,
would not be treated as a tax-free reorganization under Code
SECTION 368(a).
Section 4.16 Broker. No broker, finder or investment
banker (other than First Union Capital Markets Group ("First
Union")) is entitled to any brokerage, finders or other fee or
commission in connection with the Merger based upon arrangements
made by or on behalf of PFG. PFG has heretofore made available to
Resources a complete and correct copy (or adequate summaries of
the material terms) of all agreements between PFG and First Union
pursuant to which such firm would be entitled to any payment
relating to the Merger.
Section 4.17 Insurance. Each of PFG and the PFG
subsidiaries is, and has been continuously since January 1, 1994,
insured with financially responsible insurers in such amounts and
against such types of risks as are set forth in Section 4.17 of
the PFG Disclosure Schedule. Except as set forth in Section 4.17
of the PFG Disclosure Schedule, neither PFG nor the PFG
subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy of PFG
or the PFG subsidiaries.
Section 4.18 Opinion of Financial Advisor. PFG has
received the opinion of First Union, to the effect that, as of
the date thereof, the number of shares of Resources Common Stock
to be received pursuant to the Common Stock Exchange Ratio by the
holders of shares of PFG Common Stock in connection with the
Merger is fair to such holders from a financial point of view.
PFG has provided a true and correct copy of such opinion to
Resources.
Section 4.19 Assets. Subject to ordinary wear and tear and
subject to scheduled or necessary repairs or replacements in the
ordinary course of business, all material assets of PFG and each
of the PFG subsidiaries are in good operating condition and
repair.
Section 4.20 Pooling of Interests. As of the date hereof,
PFG believes that the Merger will qualify as a pooling of
interests for accounting purposes.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business by PFG Pending the Closing.
After the date hereof and prior to the Effective Time, PFG agrees
as to itself and the PFG subsidiaries, except as expressly
contemplated, required or permitted in this Agreement (including,
without limitation, the implementation of Section 2.4 hereof, the
redemption of the PFG Preferred Stock as provided in Section
2.1(c)(ii) hereof, or in connection with any merger of PFG and
its subsidiaries contemplated in this Agreement) or to the extent
Resources shall otherwise consent in writing, that:
(a) Ordinary Course of Business. PFG shall, and shall
cause each of the PFG subsidiaries to, carry on its respective
businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use all
commercially reasonable efforts to preserve substantially intact
its present business organizations and goodwill, preserve the
goodwill and relationships with customers, suppliers and others
having business dealings with them and, subject to prudent
management of workforce needs and ongoing programs currently in
force, its present management and workforce. Except as set forth
in Section 5.1(a) of the PFG Disclosure Schedule, PFG shall not,
nor shall PFG permit any of the PFG subsidiaries to, enter into a
new line of business involving any investment of assets or
resources in excess of $100,000 by PFG and the PFG subsidiaries
taken as a whole.
(b) Dividends; Changes in Stock. PFG shall not, nor
shall PFG permit any of the PFG subsidiaries to (i) declare or
pay any dividends on or make other distributions in respect of
any of its capital stock other than to PFG or its wholly-owned
subsidiaries and other than cash dividends paid in accordance
with PFG's current practice as described in Section 5.1(b) of the
PFG Disclosure Schedule, provided, that, in the event the
Effective Time does not occur by November 1, 1998, and to the
extent that PFG and Resources have obtained by such date
appropriate relief from the SEC (which each of PFG and Resources
shall use reasonable efforts to obtain) to the effect that the
payment of any such PFG Incremental Dividends (as defined below)
would not prevent the Merger from being accounted as a pooling-
of-interests (the "SEC Dividend Relief"), PFG may thereafter
increase its dividend payout ratio in respect of the PFG Common
Stock to the same level as the Resources dividend payout ratio in
respect of the Resources Common Stock (as calculated for the
immediately preceding quarter), with respect to earnings of PFG
attributable to periods after November 1, 1998 (the amount of any
such dividends over and above PFG's then current dividends being
referred to herein as the "PFG Incremental Dividends"); (ii)
split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of, or in substitution for, shares of its
capital stock; or (iii) redeem, repurchase or otherwise acquire
any shares of its capital stock.
(c) Issuance of Securities. Except as contemplated by
Section 2.1(c) of this Agreement, PFG shall not, nor shall PFG
permit any of the PFG subsidiaries to, issue, agree to issue,
deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock of any class or any
securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares or convertible or
exchangeable securities.
(d) Governing Documents. Except as set forth in
Section 5.1(d) of the PFG Disclosure Schedule, PFG shall not, nor
shall PFG permit any of the PFG subsidiaries to, amend or propose
to amend its respective Articles of Incorporation and By-Laws, or
agree to amend the Shareholders Agreement.
(e) No Acquisitions. Except as set forth in Section
5.1(e) of the PFG Disclosure Schedule, PFG shall not, nor shall
PFG permit any of the PFG subsidiaries to, expend, or make
commitments to expend more than $100,000 in the aggregate to
acquire, or in connection with public proposals to acquire, or
agreements to acquire, or agree to acquire, by merger or
consolidation with, or by purchase or otherwise, a substantial
equity interest in or a substantial portion of the assets of, any
business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire
or agree to acquire a material amount of assets, other than in
the ordinary course of business consistent with past practice.
(f) No Dispositions. Except as set forth in Section
5.1(f) of the PFG Disclosure Schedule, or in the ordinary course
of business, PFG shall not, nor shall PFG permit any of the PFG
subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, any of its assets in any disposition which exceeds
$150,000 or dispositions which in the aggregate exceed $400,000
per annum.
(g) Indebtedness. PFG shall not, nor shall PFG permit
any of the PFG subsidiaries to, incur or guarantee any
Indebtedness (as defined below) other than short-term
Indebtedness in the ordinary course of business consistent with
past practice not to exceed (i) $25,000,000 at any given time
prior to June 30, 1998 or (ii) $30,000,000 at any given time
after June 30, 1998. For purposes of this subsection (g),
"Indebtedness" shall mean all indebtedness for borrowed money, or
the creation, assumption or incurrence thereof, and guarantees of
any of the foregoing.
(h) Compensation, Benefits. PFG shall not, nor shall
PFG permit any of the PFG subsidiaries to, (i) enter into, adopt
or amend (except as may be required by applicable law), or
increase the amount or accelerate the payment or vesting of any
benefit or amount payable under, any employee benefit plan or
other contract, agreement, commitment, arrangement, plan or
policy maintained by, contributed to or entered into by such
party or any of its subsidiaries, or increase, or enter into any
contract, agreement, commitment or arrangement to increase in any
manner, the compensation or fringe benefits, or otherwise to
extend, expand or enhance the engagement, employment or any
related rights, of any director, officer or other employee of
such party or any of its subsidiaries, except for normal
increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in an increase in
benefits or compensation expense to PFG or its subsidiaries
exceeding 4% per annum, or (ii) enter into or amend any
employment, severance, special pay arrangement with respect to
termination of employment or other similar contract, agreement or
arrangement with any director or officer, except as set forth in
Section 5.1(h) of the PFG Disclosure Schedule.
(i) PUHCA. PFG shall not, nor shall PFG permit any of
the PFG subsidiaries to, except as required or contemplated by
this Agreement, voluntarily engage in any activities which are
reasonably expected to cause a change in its status, or that of
the PFG subsidiaries, under PUHCA, or which are reasonably
expected to impair the ability of Resources to claim an exemption
as of right under Rule 2 of PUHCA following the Merger.
(j) Tax-Free Status. PFG shall not, nor shall PFG
permit any of the PFG subsidiaries to, take any actions which are
reasonably expected to adversely affect the status of the Merger
as a tax-free transaction (except as to dissenters' rights and
fractional shares) under Code SECTION 368(a).
(k) Affiliate Transactions. Except as set forth in
Section 5.1(k) of the PFG Disclosure Schedule, PFG shall not, nor
shall PFG permit any of the PFG subsidiaries to, enter into any
agreement or arrangement with any of its respective affiliates on
terms to PFG or the PFG subsidiaries materially less favorable
than could be reasonably expected to have been obtained with an
unaffiliated third party on an arm's-length basis.
(l) Cooperation, Notification. PFG shall, and shall
cause the PFG subsidiaries to, except as to matters which are
subject to privileges provided under applicable law or which are
subject to confidentiality agreements, rules, or orders
(provided, that PFG shall use reasonable efforts to pursue such
appropriate remedies or exceptions as would enable Resources to
be provided with such information, including all information
relating to environmental matters) (i) confer on a regular and
frequent basis with one or more representatives of Resources to
discuss material operational matters and the general status of
its ongoing operations; (ii) upon PFG's officers becoming aware,
promptly notify Resources of any significant changes in PFG's
business, properties, assets, condition (financial or other),
results of operations or prospects; (iii) upon PFG's officers
becoming aware, advise Resources of any change or event which has
had or, insofar as reasonably can be foreseen, is reasonably
likely to result in, a PFG Material Adverse Effect; and (iv)
promptly provide Resources with copies of all filings made by PFG
or any of the PFG subsidiaries with any state or federal court,
administrative agency, commission or other Governmental Entity in
connection with this Agreement and the transactions contemplated
hereby.
(m) Rate Matters. PFG shall, and shall cause the PFG
subsidiaries to, discuss with Resources any changes in its or the
PFG subsidiaries' rates or charges, standards of service or
accounting from those in effect on the date of this Agreement and
consult with Resources prior to making any filing (or any
amendment thereto), or effecting any agreement, commitment,
arrangement or consent, whether written or oral, formal or
informal, with respect thereto, and PFG will not voluntarily and
intentionally make any filing to change its rates on file with
the FERC that would have a PFG Material Adverse Effect.
(n) Third-Party Consents. PFG shall, and shall cause
the PFG subsidiaries to, use reasonable efforts to obtain all PFG
Required Consents. PFG shall promptly notify Resources of any
failure or prospective failure to obtain any such consents and,
if requested by Resources, shall provide copies of all PFG
Required Consents obtained by PFG.
(o) No Breach, Etc. PFG shall not, nor shall PFG
permit any of the PFG subsidiaries to, voluntarily take any
action which is reasonably expected to result in a material
breach of any provision of this Agreement or the Voting
Agreement.
(p) Capital Expenditures. Except as set forth in
Section 5.1(p) of the PFG Disclosure Schedule or as required by
law (including as required under a consent order), PFG shall not,
nor shall PFG permit any of the PFG subsidiaries to, make capital
expenditures (including environmental expenditures) during any
fiscal year in excess of 110% of the amount budgeted for such
fiscal year by PFG for such expenditures as set forth in Section
5.1(p) of the PFG Disclosure Schedule, provided, that PFG shall
promptly notify Resources upon making capital expenditures during
any fiscal year at 105% of the amount budgeted for such fiscal
year.
(q) Contracts. Except as set forth on Section 5.1(q)
of the PFG Disclosure Schedule, PFG shall not, nor shall PFG
permit any of the PFG subsidiaries to, except in the ordinary
course of business consistent with past practice, modify, amend,
terminate, renew or fail to use reasonable business efforts to
renew, any material contract or agreement to which PFG or any PFG
subsidiary is a party or waive, release or assign any material
rights or claims, except where no PFG Material Adverse Effect,
either individually or in the aggregate, would result.
(r) Insurance. PFG shall, and shall cause the PFG
subsidiaries to, use reasonable efforts, subject to the
availability of equivalent coverages and rates, to maintain with
financially responsible insurance companies their existing or
substantially equivalent insurance.
(s) Permits. PFG shall, and shall cause the PFG
subsidiaries to, use reasonable efforts to maintain in effect all
existing governmental permits which are material to the
operations and businesses of PFG or the PFG subsidiaries.
(t) Discharge of Liabilities. PFG shall not, nor
shall PFG permit any of the PFG subsidiaries to, pay, discharge
or satisfy any material claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or
in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of such
party, or incurred in the ordinary course of business consistent
with past practice.
(u) Pooling-of-Interests. PFG shall not, nor shall
PFG permit any of its subsidiaries to, take any actions which are
reasonably expected to prevent Resources and Keystone from
accounting for the Merger as a pooling-of-interests in accordance
with GAAP and applicable SEC regulations.
(v) Goodwill and Ongoing Business. PFG shall, and
shall cause each of the PFG subsidiaries to, use reasonable
efforts to (i) maintain and keep its material properties and
assets in good repair and condition, subject to ordinary wear and
tear and scheduled or necessary repairs or replacements in the
ordinary course of business, consistent with past practice, and
maintain supplies and inventories in quantities consistent with
past practice, and (ii) with respect to any gas trading and
transactions, comply with prudent policies, practices and
procedures with respect to risk management and trading
limitations.
Section 5.2 Notices of Certain Events. PFG and Resources
and Keystone shall each give prompt notice to the other of (i)
any notice or other communication from any person alleging that
the consent of such person is or may be required in connection
with the Merger, (ii) any notice or other communication from any
Governmental Entity in connection with the Merger, (iii) any
actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge, threatened in writing against,
relating to or involving or otherwise affecting PFG, Resources or
their subsidiaries that relate to the consummation of the Merger,
(iv) the occurrence of a default or event that, with notice or
lapse of time or both, will become a default under any PFG
Material Contract; and (v) any change that could result in a
Resources Material Adverse Effect or a PFG Material Adverse
Effect or is likely to delay or impede the ability of either
Resources or PFG to consummate the transactions contemplated by
this Agreement or to fulfill its obligations set forth herein.
Section 5.3 Contractual Consents. Prior to or at the
Effective Time, PFG and Resources and Keystone shall each use its
respective reasonable efforts to prevent the occurrence, as a
result of the Merger, of any event which constitutes a default
(or an event which with notice or lapse of time or both would
become a default) under any material contract, agreement, lease,
license, permit, franchise or other instrument or obligation to
which it or any of its subsidiaries is a party.
Section 5.4 Merger of PFG Subsidiaries. Upon the request
of Resources following the obtaining of any required third party
consents and other approvals, PFG shall use reasonable efforts to
cause each of the PFG subsidiaries to be merged with and into PFG
in accordance with the Corporation Law at or prior to the
Effective Time. As a result of such mergers, the separate
corporate existence of each such PFG subsidiary would cease and
PFG would be the surviving corporation.
Section 5.5 Keystone Shareholder Approval. Prior to the
Effective Time, Resources shall take all actions necessary to
obtain the approval of the shareholder of Keystone and satisfy
the condition provided in Section 7.1(c).
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Registration Statement; Disclosure Documents.
(a) As may be necessary to effect the transactions contemplated
by this Agreement in accordance with applicable law, as promptly
as practicable after the execution of this Agreement, Resources
shall, with PFG's cooperation, prepare and file with the SEC a
registration statement of Resources (together with all
amendments, the "Registration Statement") in connection with the
registration under the Securities Act of the shares of Resources
Common Stock to be issued to the shareholders of PFG pursuant to
the Merger. Resources shall use its reasonable efforts to cause
the Registration Statement to become effective as promptly as
practicable, and, prior to the effective date of the Registration
Statement (the "Registration Statement Effective Date"),
Resources shall take all or any action required under any
applicable laws in connection with the issuance of Resources
Common Stock pursuant to the Merger. PFG or Resources, as the
case may be, shall furnish all information concerning PFG or
Resources as the other party may reasonably request in connection
with such actions and the preparation of the Registration
Statement and any disclosure documents distributed by PFG to its
shareholders ("Disclosure Documents"). As promptly as
practicable after the Registration Statement Effective Date, the
prospectus contained in the Registration Statement and the
Disclosure Documents shall be mailed by Resources to the
shareholders of PFG. Resources shall cause the Registration
Statement to comply as to form and substance in all material
respects with the applicable requirements of (i) the Exchange
Act, (ii) the NYSE, (iii) the Securities Act, and (iv) the
Corporation Law.
(b) As promptly as possible following the Registration
Statement Effective Date, PFG shall take all action necessary to
hold, and shall hold, a meeting of its shareholders to vote upon
the Merger. PFG shall promptly distribute the prospectus and the
Disclosure Documents to its shareholders, setting forth the
recommendation of the board of directors of PFG to the
shareholders of PFG to approve and adopt this Agreement and the
Merger, in accordance with the Corporation Law (such approval and
adoption by PFG's common shareholders being hereinafter referred
to as the "PFG Shareholder Approval"). PFG shall use its best
efforts to secure the PFG Shareholder Approval.
(c) Resources and PFG shall cooperate with each other
with respect to the preparing and filing of any amendment or
supplement to the Registration Statement. Resources will advise
PFG promptly after it receives notice of the time when the
Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of
the suspension of the qualification of Resources Common Stock
issuable in connection with the Merger for offering or sale in
any jurisdiction, or of any request by the SEC or the NYSE for
amendment of the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional
information.
(d) The information supplied by PFG for inclusion in
the Registration Statement shall comply with the requirements of
the Securities Act and the Exchange Act and shall not, at (i) the
time the Registration Statement is declared effective, and (ii)
the Effective Time, contain any untrue statement of a material
fact or fail to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time, any
event or circumstance relating to PFG or any PFG subsidiary, or
their respective officers or directors, should be discovered by
PFG that should be set forth in an amendment or a supplement to
the Registration Statement, PFG shall promptly inform Resources.
All documents that PFG is responsible for filing with any
Governmental Entity in connection with the Merger will comply as
to form and substance in all material aspects with the applicable
requirements of the Corporation Law, the Exchange Act, the
Securities Act, and PUHCA, subject to compliance by Resources
with Section 6.1(e) of this Agreement.
(e) The information supplied by Resources in the
Registration Statement and the Disclosure Documents shall comply
with the requirements of the Securities Act and the Exchange Act
and shall not, at (i) the time the Registration Statement is
declared effective, (ii) the time the prospectus contained in the
Registration Statement and the Disclosure Documents (or any
amendment thereof or supplement thereto) are first mailed to the
shareholders of PFG, and (iii) the Effective Time, contain any
untrue statement of a material fact or fail to state any material
fact required to be stated therein or necessary in order to make
the statements therein not misleading. If at any time prior to
the Effective Time any event or circumstance relating to
Resources or any Resources subsidiary, or their respective
officers or directors, should be discovered by Resources that
should be set forth in an amendment or a supplement to the
Registration Statement or the Disclosure Documents, Resources
shall promptly inform PFG. All documents that Resources is
responsible for filing with the SEC or any other Governmental
Entity in connection with the Merger will comply as to form and
substance in all material respects with the applicable
requirements of the Corporation Law, the Exchange Act, the
Securities Act, and PUHCA, subject to compliance by PFG with
Section 6.1(d) of this Agreement.
Section 6.2 Access to Information. (a) Except as required
pursuant to any confidentiality agreement or similar agreement or
arrangement to which PFG or Resources or any of their respective
subsidiaries is a party or pursuant to applicable law or the
regulations or requirements of any stock exchange or other
regulatory organization with whose rules the parties are required
to comply, from the date of this Agreement to the Effective Time,
PFG and Resources shall (and shall cause their respective
subsidiaries to) furnish promptly such information concerning,
and provide reasonable access during normal business hours with
respect to, the business, properties, contracts, assets,
liabilities, personnel and other aspects of such party and its
subsidiaries as the other party or its Representatives may
reasonably request. Each party shall use reasonable efforts to
accommodate the other party's request for information or access
in the event the first party is subject to a confidentiality
agreement. No investigation conducted pursuant to this Section
6.2 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
(b) The parties shall comply with, and shall cause
their respective Representatives to comply with, all of their
respective obligations under the confidentiality agreement dated
January 22, 1997 (the "Merger Confidentiality Agreement") between
PFG and Resources with respect to the information disclosed
pursuant to this Section 6.2.
Section 6.3 No Solicitations. (a) PFG shall immediately
cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted heretofore with
respect to any Competing Transaction (as defined below). From
and after the date hereof, PFG shall not, and shall cause its
subsidiaries not to, authorize or permit any of its
representatives to, and shall use reasonable efforts to cause
such persons not to, directly or indirectly: initiate, solicit
or encourage (including by way of furnishing information), or
take any other action to facilitate the making of any offer or
proposal which constitutes or may reasonably be expected to lead
to a Competing Transaction, or, in the event of an unsolicited
Competing Transaction or proposal thereto, engage in negotiations
or provide any confidential information or data to any person
relating to any Competing Transaction. PFG shall notify
Resources orally and in writing of any such inquiries, offers or
proposals (including, without limitation, the terms and
conditions of any such proposal and the identity of the person
making it), within 24 hours of the receipt thereof.
(b) A "Competing Transaction" means any of the
following involving PFG or any of its subsidiaries (other than
the Merger contemplated by this Agreement): (i) a merger,
consolidation, share exchange, business combination or other
similar transaction; (ii) any sale, lease, exchange, transfer or
other disposition of 10% or more of the assets PFG and its
subsidiaries, taken as a whole; or (iii) a takeover bid, tender
offer or exchange offer for, or any other acquisition of, 10% or
more of the outstanding voting securities of such party.
Section 6.4 Directors' and Officers' Indemnification and
Insurance. For a period of at least six years after the
Effective Time, Resources shall cause the Surviving Corporation
to (a) maintain in effect the current policies of directors' and
officers' liability insurance and fiduciary liability insurance
maintained by PFG (provided that the Surviving Corporation or
Resources may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are,
in the aggregate, no less advantageous to the insured in any
material respect) with respect to claims arising from facts or
events which occurred on or before the Effective Time, and (b) to
indemnify the present and past directors and officers of PFG to
the fullest extent to which PFG is permitted to indemnify such
officers and directors under its charter and by-laws and
applicable law.
Section 6.5 Further Action; Consents; Filings. Upon the
terms and subject to the conditions hereof, PFG, Resources and
Keystone shall use its reasonable efforts to (i) take, or cause
to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable law or
otherwise to consummate and make effective the Merger, (ii)
obtain from Governmental Entities, including without limitation
the PUC, any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by PFG,
Resources and Keystone or any of their subsidiaries in connection
with the authorization, execution and delivery of this Agreement
and the consummation of the Merger, (iii) make all necessary
filings, and thereafter make any other submissions, either
required or deemed appropriate by each of the parties, with
respect to this Agreement and the Merger under the Securities
Act, the Exchange Act, PUHCA, the HSR Act and any other
applicable law. PFG, Resources and Keystone shall cooperate and
consult with each other in connection with the making of all such
filings, including providing copies of all such documents to the
nonfiling party and its advisors prior to filing, and none of the
parties will file any such document if any of the other parties
shall have reasonably objected to the filing of such document.
Section 6.6 Public Announcements. Subject to each party's
disclosure obligations imposed by applicable law or regulations,
Resources and PFG shall cooperate with each other in the
development and distribution of all news releases and other
public information disclosures with respect to this Agreement or
any of the transactions contemplated hereby and shall not issue
any public announcement or statement prior to consultation with
the other party.
Section 6.7 Stock Exchange Listing. Resources shall use
its reasonable efforts to cause the shares of Resources Common
Stock to be issued in the Merger to be approved for listing on
the NYSE, subject to official notice of issuance, prior to the
Effective Time.
Section 6.8 Disclosure Schedules. On the date of this
Agreement, (i) PFG shall deliver to Resources a schedule (the
"PFG Disclosure Schedule"), which shall be accompanied by a
certificate signed by an executive officer of PFG stating the PFG
Disclosure Schedule is being delivered pursuant to this Section
6.8 and (ii) Resources shall deliver to PFG a schedule (the
"Resources Disclosure Schedule"), which shall be accompanied by a
certificate signed by an executive officer of Resources stating
the Resources Disclosure Schedule is being delivered pursuant to
this Section 6.8. The PFG Disclosure Schedule and the Resources
Disclosure Schedule are collectively referred to herein as the
"Disclosure Schedules." The Disclosure Schedules, when so
delivered, shall be deemed to constitute an integral part of this
Agreement and to modify the respective representations,
warranties, covenants or agreements of the parties hereto
contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the
Disclosure Schedules. Anything to the contrary contained herein
or in the Disclosure Schedules notwithstanding, any and all
statements, representations, warranties or disclosures set forth
in the Disclosure Schedules shall be deemed to have been made on
and as of the date of this Agreement.
Section 6.9 Redemption as to PFG Preferred Stock. As
promptly as possible following the date hereof, PFG shall take
all actions necessary to redeem shares of PFG Preferred Stock in
accordance with the terms of such PFG Preferred Stock, provided,
that there may remain outstanding as of the Effective Time shares
of PFG Preferred Stock the holders of which have agreed that such
PFG Preferred Stock shall be converted into the right to receive
shares of Resources Common Stock in accordance with Section
2.1(c)(i) hereof and which shall have satisfied any requirement
that the holders of the outstanding PFG Preferred Stock have
approved the Merger. Under no circumstances shall there be any
shares of PFG Preferred Stock outstanding following the Effective
Time.
Section 6.10 Registration Rights. The holders of shares of
PFG Common Stock as of the Effective Time shall have registration
rights to the extent set forth in Exhibit B hereto.
Section 6.11 Shareholder Agreement; Transfer of Shares.
Unless and until this Agreement shall have been terminated or the
Effective Time shall have occurred, PFG shall take all actions as
may be necessary under the Voting Agreement and the Shareholders
Agreement to prevent the transfer of "Restricted Shares," as
defined in the Shareholders Agreement, to any transferee who is
not or does not become a party to the Shareholders Agreement in
accordance with its terms, except for transfers expressly
permitted pursuant to Sections 2(c) and (d) of the Shareholders
Agreement.
Section 6.12 Affiliates. Each of Resources and PFG shall
use its reasonable best efforts to cause each director and
executive officer of such party to deliver to the other party, as
soon as practicable after the date of this Agreement, and in any
event prior to the date of the shareholders meeting called by PFG
pursuant to Section 6.1(b) hereof, a written agreement in the
applicable form attached hereto as Exhibit C.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1 Conditions to the Obligations of Each Party to
Consummate the Merger. The obligations of PFG, on one hand, and
Resources and Keystone, on the other hand, to consummate the
Merger, or to permit consummation of the Merger, are subject to
the satisfaction or, if permitted by applicable law, waiver of
the following conditions:
(a) Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and
no proceeding for that purpose shall have been initiated by the
SEC.
(b) PFG Shareholder Approval. The PFG Shareholder
Approval shall have been duly obtained.
(c) Keystone Shareholder Approval. The approval of
the shareholder of Keystone for the Merger shall have been duly
obtained.
(d) No Injunction. No court of competent jurisdiction
shall have issued or entered any order which is then in effect
and has the effect of making any of the transactions contemplated
by this Agreement, including the Merger, illegal, or otherwise
prohibiting their consummation.
(e) HSR Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(f) Consents and Approvals. All consents, approvals
and authorizations shall have been obtained from all Governmental
Entities, including without limitation the PUC, except where the
failure to obtain any such consents, approvals and authorizations
would not result in a change in or effect on the business of
Resources or PFG that is, or is reasonably likely to be,
materially adverse to the business, assets, liabilities
(contingent or otherwise), condition (financial or otherwise) or
results of operations of PFG and its subsidiaries, taken as a
whole.
(g) Listing. The shares of Resources Common Stock to
be issued pursuant to this Agreement shall have been authorized
for listing on the NYSE subject to official notice of issuance.
Section 7.2 Conditions to the Obligations of Resources and
Keystone. The obligations of Resources and Keystone to
consummate the Merger are subject to the satisfaction or, if
permitted by applicable law, waiver of the following further
conditions.
(a) Representations and Warranties. The
representations and warranties of PFG contained in this Agreement
which are qualified as to materiality shall be true and correct
and which are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement
and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Time, except
where any such failure or failures to be so true and correct
(without regard to materiality or knowledge qualifiers contained
therein), in the aggregate, would not have a PFG Material Adverse
Effect, and Resources shall have received a certificate of the
President of PFG to such effect.
(b) Covenants. PFG shall have performed or complied
in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it
on or prior to the Effective Time, and Resources shall have
received a certificate of the President of PFG to that effect.
(c) Agreements of PFG Shareholders. The Voting
Agreement in the form attached hereto as Exhibit A shall have
been executed and delivered by the parties thereto, and such
agreement shall be in full force and effect.
(d) PFG Material Adverse Effect. No PFG Material
Adverse Effect shall have occurred.
(e) Pooling-of-Interests. Resources shall have
received a letter from its independent public accountants, dated
as of the Closing Date, in form and substance reasonably
satisfactory to Resources, stating that the Merger will qualify
as a pooling-of-interests transaction under GAAP and applicable
SEC regulations.
(f) Dissenters' Rights. To the extent that
dissenters' rights may be available to holders of shares of PFG
Common Stock under the Corporation Law, the number of shares of
PFG Common Stock which perfect their dissenters' rights under the
Corporation Law shall not constitute more than 5% of the number
of issued and outstanding shares of PFG Common Stock.
(g) PFG Preferred Stock. At the Effective Time, no
shares of PFG Preferred Stock shall be deemed to be outstanding.
Section 7.3 Conditions to the Obligations of PFG. The
obligations of PFG to consummate the Merger are subject to the
satisfaction or, if permitted by applicable law, waiver of the
following further conditions:
(a) Representations and Warranties. The
representations and warranties of Resources and Keystone
contained in this Agreement which are qualified as to materiality
shall be true and correct and which are not so qualified shall be
true and correct in all material respects, in each case as of the
date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of
the Effective Time, except where any such failure or failures to
be so true and correct (without regard to materiality or
knowledge qualifiers contained therein), in the aggregate, would
not have a Resources Material Adverse Effect, and PFG shall have
received a certificate of the President of Resources and Keystone
to such effect.
(b) Covenants. Resources and Keystone shall have
performed or complied in all material respects with all
agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the Effective
Time, and PFG shall have received a certificate of the President
of Resources to that effect.
(c) Pooling-of-Interests. PFG shall have received a
letter from its independent public accountants, dated as of the
Closing Date, in form and substance reasonably satisfactory to
PFG, stating that the Merger will qualify as a pooling-of-
interests transaction under GAAP and applicable SEC regulations.
(d) Resources Material Adverse Effect. No Resources
Material Adverse Effect shall have occurred.
(e) Tax Opinion. PFG shall have received an opinion
of PFG's counsel, in form and substance reasonably satisfactory
to PFG, dated the Closing Date, to the effect that the Merger
will be treated as a tax-free reorganization under Code SECTION
368(a) unless the failure to receive such opinion of counsel is
a result either of acts of PFG or PFG's shareholders or
circumstances within the control of PFG or PFG's shareholders.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and
adoption of this Agreement, as follows:
(a) by mutual written consent duly authorized by the
board of directors of each of PFG, Resources and Keystone;
(b) by either PFG or Resources if the Effective Time
shall not have occurred on or before August 31, 1998 (the
"Expiration Date"); provided, however, that the right to
terminate this Agreement under this Section 8.1(b) shall not be
available to the party whose failure to fulfill any obligation
under this Agreement shall have been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the
Expiration Date; and provided, further, that if on the Expiration
Date the conditions to the Merger set forth in Section 7.1(f)
shall not have been fulfilled but all other conditions to the
Merger shall be fulfilled or shall be capable of being fulfilled,
then the Expiration Date shall be extended to May 31, 1999.
(c) by either PFG or Resources and Keystone, if any
state or federal law, order, rule or regulation is adopted or
issued, which has the effect, as supported by the written opinion
of outside counsel, for such party of prohibiting the Merger, or
if any order preventing the consummation of the Merger shall have
been entered by any court of competent jurisdiction and shall
have become final and nonappealable;
(d) by PFG, upon a breach of any representation,
warranty, covenant or agreement on the part of Resources set
forth in this Agreement, such that the conditions set forth in
Section 7.3 would not be satisfied ("Terminating Resources
Breach"); provided, however, that, if such Terminating Resources
Breach is curable by Resources through the exercise of its
reasonable efforts and for so long as Resources continues to
exercise such reasonable efforts, PFG may not terminate this
Agreement under this Section 8.1(d);
(e) by Resources and Keystone, upon breach of any
representation, warranty, covenant or agreement on the part of
PFG set forth in this Agreement, such that the conditions set
forth in Section 7.2 would not be satisfied ("Terminating PFG
Breach"); provided, however, that, if such Terminating PFG Breach
is curable by PFG through reasonable efforts and for so long as
PFG continues to exercise such reasonable efforts, Resources may
not terminate this Agreement under this Section 8.1(e); or
(f) by PFG, if, as of the Closing Date, the Resources
Closing Market Price shall be less than $16.00 per share.
Section 8.2 Effect of Termination. In the event of
termination of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become void, there shall be no
liability under this Agreement on the part of PFG, Resources,
Keystone or any of their respective shareholders, officers or
directors, and all rights and obligations of each party hereto
shall cease; provided, however, that nothing herein shall relieve
any party from liability for the breach of any of its
representations and warranties or the breach of any of its
covenants or agreements set forth in this Agreement or from
obligations under Section 6.2(b) and Section 8.5.
Section 8.3 Amendment. This Agreement may not be amended
except by an instrument in writing signed by both parties.
Section 8.4 Waiver. At any time prior to the Effective
Time, any party may (a) extend the time for the performance of
any obligation or other act of the other party (b) waive any
inaccuracy in the representations and warranties contained in
this Agreement or in any document delivered pursuant to this
Agreement, and (c) waive compliance with any agreement or
condition contained in this Agreement. Any waiver of a condition
set forth in Article VII, or any determination that such a
condition has been satisfied, will be effective only if made in
writing by the party entitled to the satisfaction of such
condition and, unless otherwise specified in such writing, shall
thereafter operate as a waiver (or satisfaction) of such
condition for any and all purposes of this Agreement. Any such
extension or waiver shall be valid if set forth in an instrument
in writing signed by the party or parties to be bound.
Section 8.5 Expenses. All expenses incurred in connection
with this Agreement and the Merger shall be paid by the party
incurring such expenses if the Merger is not consummated for any
reason other than a Terminating Resources Breach or a Terminating
PFG Breach.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements of
each of PFG, Resources and Keystone set forth in this Agreement
shall not survive following the Effective Time, other than
Sections 6.4 and 6.10 hereof. Each party agrees that, except for
the representations and warranties contained in this Agreement,
or in any agreements attached hereto or any certificate delivered
pursuant to this Agreement, no party has made any other
representations and warranties, and each party hereby disclaims
any other representations and warranties made by itself or any of
its officers, directors, employees, agents, financial and legal
advisors or other representatives with respect to the execution
and delivery of this Agreement or the transactions contemplated
in this Agreement, notwithstanding the delivery or disclosure to
any other party or any party's representatives of any
documentation or other information with respect to any one or
more of the foregoing.
Section 9.2 Notices. All notices, requests, claims,
demands and other communications under this Agreement shall be in
writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by telecopy and
facsimile or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this
Section 9.2):
if to PFG:
Penn Fuel Gas, Inc.
55 South Third Street
Oxford, PA 19363
Attention: Terry H. Hunt, President
Telecopier: (610) 998-0657
with a copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
Attention: Martin B. McNamara
Telecopier: (214) 698-3400
if to Resources or Keystone:
PP&L Resources, Inc.
Two North Ninth Street
Allentown, PA 18101
Attention: Robert J. Grey
Telecopier: (610) 774-4455
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Michael P. Rogan
Telecopy: (202) 393-5760
Section 9.3 Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a specified person means a person
who directly or indirectly through one or more intermediaries
controls is controlled by, or is under common control with, such
specified person;
(b) "business day" means any day on which banks are
not required or authorized to close in the cities of New York or
Philadelphia;
(c) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "knowledge" means, with respect to any matter in
question, that the executive officers of PFG or Resources (i)
have knowledge of such matter, or (ii) after due investigation,
should have known of such matter;
(e) "person" means an individual, corporation,
company, limited liability company, partnership, limited
partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political
subdivision, agency or instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of any person means
any corporation, limited liability company, partnership, joint
venture or other legal entity of which such person (either alone
or through or together with any other subsidiary) owns, directly
or indirectly, more than 50% of the stock or other equity
interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing
body of such corporation or other legal entity.
Section 9.4 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially
adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in
order that the Merger be consummated as originally contemplated
to the fullest extent possible.
Section 9.5 Assignment; Binding Effect; Benefit. Neither
this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any party (whether by operation of
law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties and
their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the
provisions of Sections 6.4 and 6.10 and Exhibit B hereto
(collectively, the "Third Party Provisions"), nothing in this
Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. The Third
Party Provisions may be enforced by the beneficiaries thereof.
Section 9.6 Incorporation of Exhibits. The PFG Disclosure
Schedule, the Resources Disclosure Schedule and all Schedules and
Exhibits attached to this Agreement and referred to in this
Agreement are hereby incorporated herein and made a part of this
Agreement for all purposes as if fully set forth herein.
Section 9.7 Specific Performance. The parties to this
Agreement agree that irreparable damage would occur in the event
any provision of this Agreement was not performed in accordance
with the terms of this Agreement and that the parties shall be
entitled to specific performance of the terms of this Agreement,
in addition to any other remedy at law or equity.
Section 9.8 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
Commonwealth of Pennsylvania to the greatest extent permissible
by law without reference to the conflicts-of laws provisions
thereof.
Section 9.9 Headings. The descriptive headings contained
in this Agreement are included for convenience of reference only
and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 9.10 Counterparts. This Agreement may be executed
and delivered (including by facsimile transmission) in one or
more counterparts, and by the different parties in separate
counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall
constitute one and the same agreement.
Section 9.11 Entire Agreement. This Agreement (including
the Exhibits, the PFG Disclosure Schedule and the Resources
Disclosure Schedule) and the Merger Confidentiality Agreement
constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement
shall be binding upon any party unless made in writing and signed
by all parties.
Section 9.12 Submission to Jurisdiction; Venue. The
parties unconditionally and irrevocably agree and consent to the
exclusive jurisdiction of and service of process and venue in,
the United States District Court for the Eastern District of
Pennsylvania and the courts of the Commonwealth of Pennsylvania
located in Philadelphia and waive any objection with respect
thereto, for the purpose of any action, suit or proceeding
arising out of or relating to this Agreement or the transactions
contemplated hereby and further agree not to commence any such
action, suit or proceeding except in any such court. Each party
irrevocably waives any right to a jury trial. Each party
irrevocably waives any objections or immunities to jurisdiction
to which it may otherwise be entitled or become entitled
(including immunity to pre-judgment attachment, post-judgment
attachment and execution) in any legal suit, action, or
proceeding against it arising out of or relating to this
Agreement or the transactions contemplated hereby which is
instituted in any such court.
Section 9.13 Possible PFG Subsidiary Mergers.
Notwithstanding anything to the contrary provided elsewhere in
this Agreement, any merger between PFG and any PFG subsidiary
which may be consummated prior to the Effective Time shall not
constitute a PFG Material Adverse Effect, result in the breach of
any covenant of PFG contained in this Agreement, or be a basis
for any representation and warranty of PFG contained in this
Agreement to be deemed incorrect. All references to PFG and any
PFG subsidiaries in this Agreement shall be deemed to be
references to PFG and PFG's subsidiaries as they may exist after
any such merger is consummated in accordance with this Section
9.13, and no amendment or restatement of this Agreement shall be
required by or in connection with any change in the identity or
name of PFG or any PFG subsidiaries or any other change which may
result from any such merger.
IN WITNESS WHEREOF, each of PFG, Keystone and Resources have
caused this Agreement to be executed as of the date first written
above by their respective officers thereunto duly authorized.
PENN FUEL GAS, INC.
By: /s/ Terry H. Hunt
----------------------------------
Name: Terry H. Hunt
Title: President and Chief
Executive Officer
PP&L RESOURCES, INC.
By: /s/ William F. Hecht
---------------------------------
Name: William F. Hecht
Title: Chairman, President and
Chief Executive Officer
KEYSTONE MERGER CORP.
By: /s/ William F. Hecht
---------------------------------
Name: William F. Hecht
Title: Chairman, President and
Chief Executive Officer
EXHIBIT A
SEE ANNEX II
EXHIBIT B
REGISTRATION RIGHTS
Capitalized terms used in this Exhibit B and not
otherwise defined in this Exhibit B shall have the meanings
ascribed to such terms in the Agreement and Plan of Merger to
which this Exhibit B is attached.
Section 1. Certain Definitions. For purposes of this
Exhibit B, (i) each person who immediately prior to the Effective
Time was a PFG shareholder and such person's successors or
assigns are referred to individually as a "Subject Holder" and
collectively as the "Subject Holders"; (ii) the shares of
Resources Common Stock delivered to the Subject Holders pursuant
to the Agreement and any shares issued in exchange or replacement
of such shares are referred to as the "Registerable Securities";
and Marilyn Ware Lewis or the successor representative designated
by Ms. Lewis is referred to as the "Subject Holders'
Representative."
Section 2. Demand Registration Rights. The Subject
Holders, acting through the Subject Holders' Representative, may
at any time deliver up to two notices to Resources demanding that
Resources register the transfer of the Registerable Securities
described in such notice ("Demand Registration Rights Election").
The Demand Registration Rights Election must request the
registration of the transfer of at least 1.25% of the then
outstanding number of shares of Resources Common Stock. A Demand
Registration Rights Election requesting the registration of the
transfer of a lesser number shall be ineffective.
The Demand Registration Rights Election shall (i)
identify the Subject Holder(s) and (ii) describe the proposed
transaction in such detail as Resources may reasonably request
(including the number of shares to be sold, transferred or
otherwise disposed ("Transferred")). Resources shall, within ten
(10) business days of the receipt of the Demand Registration
Rights Election, (i) deliver to the Subject Holders making such
election and the Subject Holders' Representative an opinion of
independent counsel of national reputation, in such form as is
reasonably acceptable to the Subject Holders' Representative,
that may be relied upon by each Subject Holder and the Subject
Holders' Representative to the effect that such Registerable
Securities may be Transferred as proposed by the Subject Holders
without registration or restriction under the Securities Act or
applicable regulations thereunder, or (ii) advise the Subject
Holders' Representative that Resources believes that the proposed
Transfer would require registration of the Registerable
Securities ("Registration Required Determination"). It shall be
the sole responsibility of the Subject Holders demanding
registration and the Subject Holders' Representative to notify
any other Subject Holders who may wish to have their shares
registered pursuant to this Exhibit B.
Section 3. Demand Registration Statement. (a) In the
event Resources makes a Registration Required Determination,
Resources shall promptly after making the Registration Required
Determination prepare and file with the SEC a registration
statement registering the transfer of such Registerable
Securities ("Demand Registration Statement,") and shall use
reasonable efforts to cause the SEC to declare the Demand
Registration Statement effective.
(b) If the SEC fails to declare a Demand Registration
Statement effective other than because of the Subject Holders
request to withdraw such registration statement or an issue
involving the Subject Holders, then the Demand Registration
Rights Election shall not count as one of the Subject Holders'
demand registration rights.
Section 4. Delay in Filing the Demand Registration
Statement. Notwithstanding anything to the contrary in this
Exhibit B, however, Resources may delay filing the Demand
Registration Statement or request the SEC not to declare such
registration statement effective if Resources determines in the
exercise of its reasonable and good faith judgment that filing
such a registration statement would (i) adversely interfere with
Resources offering of securities, (ii) adversely interfere with a
possible acquisition or business combination involving Resources
and another company or (iii) cause a premature disclosure of any
material information which would negatively and materially impact
Resources' business or operations. If Resources delays filing a
Demand Registration Statement because Resources makes the
foregoing determination, Resources shall promptly give the
Subject Holders' Representative, on behalf of the Subject
Holders, notice of such determination along with a written
statement of the general reasons for the postponement and the
approximate period of the delay. Resources shall file or request
the SEC to declare effective the delayed Demand Registration
Statement as soon as the reason for delay no longer exists;
provided, that Resources shall use reasonable efforts not to
unreasonably delay, under the circumstances, the filing or
effectiveness of any Demand Registration Statement.
Section 5. Preparation of a Demand Registration
Statement. Each Subject Holder electing to Transfer his or her
Registerable Securities pursuant to a Demand Registration
Statement shall provide such information to Resources in
connection with Resources' preparation of the Demand Registration
Statement and enter into such usual and customary agreements in
connection with the Demand Registration Statement as Resources
may reasonably request. Resources shall deliver a copy of each
Demand Registration Statement and any amendments or supplements
to such Demand Registration Statement to each Subject Holder
whose Registerable Securities are a subject of such Demand
Registration Statement before filing them with the SEC and
provide such Subject Holder a reasonable opportunity to comment
on such documents.
Section 6. Indemnification. With respect to each
Demand Registration Statement:
(a) Indemnification by the Subject Holders. Each
Subject Holder shall indemnify and hold harmless Resources, each
of Resources' affiliates, agents, directors, employees, and
officers, each person who controls Resources within the meaning
of the Securities Act, every other Subject Holder and each
underwriter and investment banker that Resources has engaged in
connection with a Demand Registration Statement against any
claims made against Resources or any such person with respect to
any untrue statement or alleged untrue statement concerning such
Subject Holder contained in a Demand Registration Statement or
any omission or alleged omission from a Demand Registration
Statement concerning such Subject Holder of a material fact
required to be stated in such registration statement or necessary
to make the statements in such registration statement not
misleading, provided that no Subject Holder shall have any
indemnity obligation for claims directly or indirectly related or
arising with respect to any such untrue statement, alleged untrue
statement, omission, or alleged omission unless either made or
omitted in reliance upon written information furnished to
Resources by such Subject Holder for inclusion in such Demand
Registration Statement. For purposes of this Section 6, a Demand
Registration Statement shall include any preliminary or final
prospectus contained in a Demand Registration Statement and any
amendments or supplements to a Demand Registration Statement. If
any Subject Holder whose Registerable Securities are a subject of
a Demand Registration Statement becomes aware of any material
misstatement or omission in such Demand Registration Statement,
the Subject Holder shall immediately notify Resources of such
misstatement or omission. The indemnity obligation of each
Subject Holder under this Section 6 shall be limited to an amount
equal to the proceeds that such Subject Holder received from the
sale of his or her Registerable Securities pursuant to the
respective Demand Registration Statement.
(b) Indemnification by Resources. Resources shall
indemnify and hold harmless each Subject Holder whose
Registerable Securities are being registered against any claims
made against such Subject Holder with respect to any untrue
statement or alleged untrue statement contained in a Demand
Registration Statement, or any omission or alleged omission from
a Demand Registration Statement of a material fact required to be
stated in such registration statement or necessary to make the
statements in such registration statement not misleading,
provided that Resources shall not have any indemnity obligation
for claims directly or indirectly related or arising with respect
to any untrue statement, alleged untrue statement, omission, or
alleged omission made or omitted in reliance upon written
information furnished to Resources by such Subject Holder
(including the description of the plan of distribution provided
for inclusion in such Demand Registration Statement). If
Resources becomes aware of any material misstatement or omission
with respect to a Demand Registration Statement, Resources shall
immediately notify each affected Subject Holder of such
misstatement or omission.
Section 7. Miscellaneous.
(a) In connection with a Demand Registration Statement,
Resources shall use reasonable efforts to register and qualify the
Transfer of the respective Registerable Securities under the
securities laws of all states and other jurisdictions within the
continental United States of America as requested by any Subject
Holder, provided that Resources shall not be required to register
or qualify to transact business in any such state or jurisdiction
in connection with any such registration or qualification or
subject itself to taxation by any such state or jurisdiction.
(b) Resources shall pay all reasonable costs, fees,
and expenses incurred in connection with the preparation and
filing of a Demand Registration Statement, provided that each
Subject Holder shall pay his or her own accounting and legal fees
and expenses and shall bear any underwriter's or broker's
discount or commission and any Transfer taxes attributable to the
Transfer of his or her Registerable Securities.
(c) Resources shall provide the Subject Holders with a
reasonable number of copies of: (i) the preliminary prospectus
with respect to any Demand Registration Statement, if Resources
and one or more Subject Holders agree to distribute such
preliminary prospectus, (ii) the final prospectus with respect to
any Demand Registration Statement, and (iii) the amendments and
supplements to any such final prospectus, if any.
(d) If in connection with any Demand Registration
Statement Resources obtains a legal opinion or comfort letter for
the benefit of any underwriters participating in the distribution
of the Registerable Securities, Resources shall use reasonable
efforts to cause the law firm or certified public accounting firm
rendering such opinion or comfort letter, respectively, to
deliver copies of such opinion or comfort letter to each Subject
Holder and permit Subject Holders to rely upon them.
(e) No Demand Registration Rights Election shall be
valid or binding on Resources unless it contains or is
accompanied by a consent and agreement by the affected Subject
Holder to be bound by all terms of this Exhibit B.
(f) The registration rights set forth in this Exhibit
B are personal to each Subject Holder and nontransferable, except
in connection with the transfer of Registerable Securities to the
spouse, children or grandchildren of such Subject Holder, any
other Subject Holder or a trust for the benefit of any of the
foregoing.
EXHIBIT C
FORMS OF AFFILIATE LETTERS
EXHIBIT C.1
FORM OF AFFILIATE AGREEMENT
FOR PENN FUEL GAS, INC.
Gentlemen:
The undersigned is a holder of shares of Common Stock,
par value $1.00 ("PFG Common Stock"), of Penn Fuel Gas, Inc., a
Pennsylvania corporation ("PFG"). PP&L Resources, Inc., a
Pennsylvania corporation ("Resources"), Keystone Merger Corp., a
Pennsylvania corporation and wholly owned subsidiary of Resources
("Keystone"), and PFG have entered into an Agreement and Plan of
Merger, dated as of June 26, 1997 (the "Merger Agreement"),
pursuant to which, among other things, Keystone will merge with
and into PFG (the "Merger"). Upon consummation of the Merger,
the undersigned will be entitled to receive shares of common
stock, par value $0.01, of Resources ("Resources Common Stock"),
in exchange for shares of PFG Common Stock held by the
undersigned. This agreement is hereinafter referred to as the
"Letter Agreement."
A. The undersigned represents and warrants to, and agrees
with, Resources as follows:
1. The undersigned has read this Letter Agreement and
has discussed its requirements to the extent the undersigned felt
necessary, with counsel for the undersigned or counsel for PFG.
2. The undersigned hereby agrees that, without the
prior written consent of Resources, the undersigned will not,
pledge, sell or otherwise reduce the undersigned's risk relative
to any shares of PFG Common Stock or Resources Common Stock
during the period beginning thirty days prior to the effective
date of the Merger and continuing until financial results
covering at least thirty days of combined operations have been
published following the effective date of the Merger, provided,
however, that this paragraph shall not prevent the undersigned
from selling, transferring or disposing of a number of shares of
Resources Common Stock or PFG Common Stock which amounts to less
than 1% of the PFG Common Stock then outstanding and less than
10% of the shares of such stock owned by the undersigned as long
as such sale, transfer or disposition will not, in the reasonable
judgment of accountants to Resources, interfere with or prevent
the Merger from being accounted for as a "pooling of interests."
B. The undersigned agrees:
1. To use all reasonable efforts to cause the
following to refrain from any action that would violate this
Letter Agreement if taken directly by the undersigned: (i) the
undersigned's spouse, (ii) any relative of the undersigned or the
undersigned's spouse occupying the undersigned's home, (iii) any
trust or estate in which the undersigned, his or her spouse or
any such relative owns at least 10% beneficial interest or of
which any of them serves as trustee, executor or in any similar
capacity and (iv) any corporation or other organization in which
the undersigned, his or her spouse or any such relative owns at
least 10% of any class of equity securities or of the equity
interest.
2. Execution of this letter should not be construed
as an admission on the part of the undersigned that the
undersigned is an "affiliate" of PFG as described in applicable
law and regulations or as a waiver of any rights the undersigned
may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
It is understood and agreed that this Letter Agreement
shall terminate and be of no further force and effect if the
Merger Agreement is terminated in accordance with its terms. It
is also understood and agreed that this Letter Agreement shall
terminate and be of no further force and effect forthwith upon
such time as financial results covering at least thirty days of
combined operations following the effective date of the Merger
have been published
This Letter Agreement shall be binding on the
undersigned's heirs, legal representatives and successors.
Very truly yours,
______________________________
Accepted this __ day
of June, 1997
PP&L Resources, Inc.
By_______________________
Name:
Title:
EXHIBIT C.2
FORM OF AFFILIATE AGREEMENT
FOR PP&L RESOURCES, INC.
Gentlemen:
The undersigned, a holder of shares of Common Stock,
par value $0.01 ("Resources Common Stock"), of PP&L Resources
Inc., a Pennsylvania corporation ("Resources"), acknowledges that
the undersigned might be considered to be an "affiliate" of
Resources for purposes of generally accepted accounting
principles ("GAAP") as such term relates to pooling of interests
accounting treatment for certain business combinations under GAAP
and the interpretations of the SEC or its staff, including,
without limitation, Section 201.01 of the SEC's Codification of
Financial Reporting Policies ("Section 201.01") and the SEC's
Staff Accounting Bulletin No. 65.
Resources, Keystone Merger Corp., a Pennsylvania
Corporation and wholly owned subsidiary of Resources
("Keystone"), and Penn Fuel Gas, Inc., a Pennsylvania corporation
("PFG"), have entered into an Agreement and Plan of Merger, dated
as of June 26, 1997 (the "Merger Agreement"), pursuant to which,
among other things, Keystone will merge with and into PFG (the
"Merger"). This agreement is hereinafter referred to as the
"Letter Agreement."
The undersigned represents and warrants to, and agrees
with, Resources as follows:
1. The undersigned has read this Letter Agreement and
the Merger Agreement and has discussed their requirements and
other applicable limitations upon the ability of the undersigned
to sell, pledge, transfer or otherwise dispose of shares of
Resources Common Stock to the extent the undersigned felt
necessary, with counsel for the undersigned or counsel for
Resources.
2. Notwithstanding the foregoing and any other
agreements on the part of the undersigned in connection with
Resources Common Stock and any other capital stock of Resources,
and PFG Common Stock and any other capital stock of PFG, the
undersigned hereby represents and warrants that the undersigned
did not and agrees that the undersigned will not, without the
prior written consent of Resources, pledge, sell or otherwise
reduce the undersigned's risk relative to any shares of PFG
Common Stock or Resources Common Stock during the period
beginning thirty days prior to the effective date of the Merger
and continuing until financial results covering at least thirty
days of combined operations have been published following the
effective date of the Merger within the meaning of Section
201.01, provided, however, that this paragraph shall not prevent
the undersigned from selling, transferring or disposing (in each
case, with prior written approval of Resources) of such number of
shares of Resources Common Stock or PFG Common Stock as will not,
in the reasonable judgment of accountants to Resources, interfere
with or prevent the Merger from being accounted for as a "pooling
of interests."
3. Execution of this letter should not be construed
as an admission on the part of the undersigned that the
undersigned is an "affiliate" of Resources as described in the
first paragraph of this letter or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned
is such an affiliate on or after the date of this letter.
It is understood and agreed that this Letter Agreement
shall terminate and be of no further force and effect if the
Merger Agreement is terminated in accordance with its terms. It
is also understood and agreed that this Letter Agreement shall
terminate and be of no further force and effect when financial
results covering at least thirty days of combined operations
following the effective date of the Merger have been published
within the meaning of Section 201.01.
This Letter Agreement shall be binding on the
undersigned's heirs, legal representative and successors.
Very truly yours,
_______________________________
Accepted this __ day
of June, 1997
PP&L Resources, Inc.
By________________________
Name:
Title:
ANNEX II
CONFORMED COPY
VOTING AGREEMENT
VOTING AGREEMENT
This Voting Agreement (this "Agreement"), is dated as of
June 26, 1997, by and among Marilyn Ware Lewis (the "Business
Manager"), in her capacity as Business Manager (as defined in the
Shareholders Agreement by and among Penn Fuel Gas, Inc., a
Pennsylvania corporation ("PFG") and certain of its shareholders
dated as of November 19, 1992 and amended as of April 15, 1994
(the "Shareholders Agreement")), in her capacity as attorney-in-
fact pursuant to the powers of attorney identified on Schedule 1
hereto (the "Powers of Attorney"), and individually only with
respect to Section 3.2; PFG; and PP&L Resources, Inc., a
Pennsylvania corporation ("Resources").
WITNESSETH:
WHEREAS, simultaneously herewith, PFG and Resources are
entering into an Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"), which provides, among other
things, that PFG will merge with and into a subsidiary of
Resources ("Newco") with PFG continuing as the surviving
corporation (the "Merger");
WHEREAS, as of the date hereof, the shareholders who are
party to the Shareholders Agreement or who have executed Powers
of Attorney (the "Shareholders") own in the aggregate the number
of shares (the "Shares") of Common Stock, par value $1.00 per
share, of PFG set forth on Schedule 1 hereto;
WHEREAS, pursuant to the terms of the Shareholders Agreement
and the Powers of Attorney, the Business Manager has exclusive
voting rights with respect to the Shares; and
WHEREAS, as a condition to the willingness of Resources to
enter into the Merger Agreement, Resources is requiring that the
Business Manager agree, and in order to induce Resources to enter
into the Merger Agreement, the Business Manager has agreed, to
enter into this Agreement with respect to the Shares.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement Regarding the Merger. The
Business Manager hereby agrees that, during any time prior to the
Effective Time while this Agreement is in effect, at any meeting
of the shareholders of PFG, however called, and in any action by
consent of the shareholders of PFG, the Business Manager shall
vote all of the Shares: (a) in favor of the Merger, the Merger
Agreement (as amended from time to time) and the transactions
contemplated by the Merger Agreement, and (b) against any
proposal for any recapitalization, merger, sale of assets, or
other business combination between PFG and any person or entity
(other than the Merger) or any other action or agreement that
would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of PFG under the
Merger Agreement or which could result in any of the conditions
to PFG's obligations under the Merger Agreement not being
fulfilled. The Business Manager acknowledges receipt and review
of a copy of the Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE BUSINESS MANAGER
Section 2.1 Authority Relative to this Agreement. The
Business Manager represents and warrants that the Business
Manager has all necessary power and authority to execute and
deliver this Agreement and to perform her obligations hereunder;
and this Agreement has been duly and validly executed and
delivered by the Business Manager and, assuming the due
authorization, execution and delivery by Resources and PFG,
constitutes a legal, valid and binding obligation of the Business
Manager, enforceable against the Business Manager in accordance
with its terms.
Section 2.2 No Conflict. The Business Manager represents
and warrants that:
(a) The execution and delivery of this Agreement by
the Business Manager does not, and the performance of this
Agreement by the Business Manager shall not, (i) conflict with or
violate the Shareholders Agreement, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable
to the Business Manager or by which the Shares are bound or
affected or (iii), to the best of the Business Manager's
knowledge, result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which the Business Manager is a party or by which
the Business Manager or the Shares are bound or affected.
(b) The execution and delivery of this Agreement by
the Business Manager does not, and the performance of this
Agreement by the Business Manager shall not, require any consent,
approval, authorization or permit of, or filing with or
notification to, any Governmental Entity (as such term is defined
in the Merger Agreement).
Section 2.3 Title to Shares. PFG represents and warrants
that, as of the date of this Agreement, the record and beneficial
owners of the Shares are as set forth on Schedule 1 hereto.
ARTICLE III
COVENANTS
Section 3.1 No Inconsistent Agreements. The Business
Manager hereby covenants and agrees that, except as contemplated
by this Agreement and the Merger Agreement, the Business Manager
shall not enter into any voting agreement, consent to amend the
Shareholders' Agreement or grant a proxy or power of attorney
with respect to the Shares which is inconsistent with this
Agreement or the Merger Agreement.
Section 3.2 Further Amendment to or Termination of
Shareholders Agreement. The Business Manager hereby represents
that she is the "Business Manager" and a "Sibling" as defined in
the Shareholders Agreement, and the Business Manager hereby
covenants and agrees that the Business Manager shall not during
the term of this Agreement (1) sign any writing amending or
terminating the Shareholders Agreement, (2) resign her duties or
relinquish her rights as "Business Manager" as defined in the
Shareholders Agreement or (3) voluntarily surrender the Powers of
Attorney or transfer any record or beneficial ownership of any
Shares pursuant to the Powers of Attorney except to a person who
is a party to or bound by the Shareholders Agreement.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate
only upon the termination of the Merger Agreement.
Section 4.2 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of
this Agreement was not performed in accordance with the terms
hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy
at law or in equity.
Section 4.3 Entire Agreement. This Agreement, together
with the Merger Agreement (including the attachments thereto),
constitutes the entire agreement among the Business Manager, PFG
and Resources with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the
parties with respect thereto.
Section 4.4 Amendment. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 4.5 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of
the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in
order that the terms of this Agreement remain as originally
contemplated to the fullest extent possible.
Section 4.6 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
Commonwealth of Pennsylvania without reference to the conflicts
of laws thereof.
Section 4.7 Counterparts. This Agreement may be executed
in one or more counterparts and it is not necessary that
signatures of all parties appear on the same counterpart, but
such counterparts together shall constitute but one and the same
agreement.
Section 4.8 Successors. This agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns, including any successor to the
Business Manager.
IN WITNESS WHEREOF, the Business Manager, PFG and Resources
have caused this Agreement to be duly executed on the date
hereof.
MARILYN WARE LEWIS
/s/ Marilyn Ware Lewis
------------------------------------
Marilyn Ware Lewis
PENN FUEL GAS, INC.
By: /s/ Terry H. Hunt
--------------------------------
Name: Terry H. Hunt
Title: President & Chief Executive
Officer
PP&L RESOURCES, INC.
By: /s/ William F. Hecht
--------------------------------
Name: William F. Hecht
Title: Chairman, President and
Chief Executive Officer
SCHEDULE 1
1. 347,407 shares of common stock, par value $1.00 per share,
of Penn Fuel Gas, Inc., are subject to the Shareholders
Agreement as defined in the accompanying Voting Agreement.
2. 331,959 shares of common stock, par value $1.00 per share,
of Penn Fuel Gas, Inc., are subject to the Powers of
Attorney as defined in the accompanying Voting Agreement.
3. The record and beneficial owners of the Shares, as defined
in the accompanying Voting Agreement and listed in items 1
and 2 of this Schedule 1, are as set forth in a listing
separately provided by Penn Fuel Gas, Inc. to PP&L
Resources, Inc., at the date of the accompanying Voting
Agreement.
ANNEX III
DISSENTERS RIGHTS
1571 APPLICATION AND EFFECT OF SUBCHAPTER. (a) General
rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to
dissent from, and to obtain payment of the fair value of his
shares in the event of, any corporate action, or to otherwise
obtain fair value for his shares, where this 1 part expressly
provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in
conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 22704(c) (relating to dissenters rights upon
election).
Section 2705(d) (relating to dissenters rights upon renewal
of election).
Section 2907(a) (relating to proceedings to terminate breach
of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions. (1) Except as otherwise provided in
paragraph (2), the holders of the shares of any class or series
of shares that, at the record date fixed to determine the
shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c)
or 1952(d) is to be voted on, are either:
((A) listed on a national securities exchange; or
((B) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights
shall be available without regard to the exception provided in
that paragraph in the case of:
(i) Shares converted by a plan if the shares are not
converted solely into shares of the acquiring, surviving, new or
other corporation or solely into such shares and money in lieu of
fractional shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all
shareholders of the class to vote thereon and require for the
adoption of the plan or the effectuation of the transaction the
affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets of another
corporation by the issuance of shares, obligations or otherwise,
with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or
other person, shall not be entitled to the rights and remedies of
dissenting shareholders provided in this subchapter regardless of
the fact, if it be the case, that the acquisition was
accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholder to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided
by statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote at
a meeting of shareholders, there shall be included in or enclosed
with the notice of meeting:
(1) A statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain payment of
the fair value of their shares by complying with the terms of
this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall
also be applicable to any transaction described in any statute
other than this part that makes reference to this subchapter for
the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective. This
subchapter may not be relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to
restriction on equitable relief), 1904 (relating to de facto
transaction doctrine abolished) and 2512 (relating to dissenters
rights procedure). (Last amended by Act 198, L. '90, eff. 12-19-
90.)
1572 DEFINITIONS. The following words and phrases when used
in this subchapter shall have the meanings given to them in this
section unless the context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by
the dissenter before the corporate action or the successor by
merger, consolidation, division, conversion or otherwise of that
issuer. A plan of division may designate which of the resulting
corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in
the plan of division.
"Dissenter." A shareholder or beneficial owner who is
entitled to and does assert dissenters rights under this
subchapter and who has performed every act required up to the
time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before
the effectuation of the corporate action to which the dissenter
objects taking into account all relevant factors, but excluding
any appreciation or depreciation in anticipation of the corporate
action.
"Interest." Interest from the effective date of the
corporate action until the date of payment at such rate as is
fair and equitable under all the circumstances, taking into
account all relevant factors including the average rate currently
paid by the corporation on its principal bank loans. (Last
amended by Act 198, L. '90, eff. 12-19-90.)
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS. (a) Record
holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of
the shares registered in his name only if he dissents with
respect to all of the shares of the same class or series
beneficially owned by any one person and discloses the name and
address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in
the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of
shares of a business corporation who is not the record holder may
assert dissenters rights with respect to shares held on his
behalf and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not
dissent with respect to some but less than all shares of the same
class or series owned by the owner, whether or not the shares so
owned by him are registered in his name. (Last amended by Act
169, L. '92, eff. 2-16-93.)
1574 NOTICE OF INTENTION TO DISSENT. If the proposed
corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to
dissent and obtain payment of the fair value of his shares must
file with the corporation, prior to the vote, a written notice of
intention to demand that he be paid the fair value of his shares
if the proposed action is effectuated, must effect no change in
the beneficial ownership of his shares from the date of such
filing continuously through the effective date of the proposed
action and must refrain from voting his shares in approval of
such action. A dissenter who fails in any respect shall not
acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice
required by this section.
1575 NOTICE TO DEMAND PAYMENT. (a) General rule. If the
proposed corporate action is approved by the required vote at a
meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who
gave due notice of intention to demand payment of the fair value
of their shares and who refrained from voting in favor of the
proposed action. If the proposed corporate action is to be taken
without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of
the fair value of their shares a notice of the adoption of the
plan or other corporate action. In either case, the notice
shall:
(1) State where and when a demand for payment must be sent
and certificates for certificated shares must be deposited in
order to obtain payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand
for payment is received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the shareholder,
or the person on whose behalf the shareholder dissents, acquired
beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set
for receipt of the demand and deposit of certificated shares
shall be not less than 30 days from the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT,
ETC. (a) Effect of failure of shareholder to act. A shareholder
who fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as required
by a notice pursuant to section 1575 (relating to notice to
demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are
not represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall
retain all other rights of a shareholder until those rights are
modified by effectuation of the proposed corporate action. (Last
amended by Act 198, L. '90, eff. 12-19-90.)
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES. (a)
Failure to effectuate corporate action. Within 60 days after the
date set for demanding payment and depositing certificates, if
the business corporation has not effectuated the proposed
corporate action, it shall return any certificates that have been
deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When
uncertificated shares have been released from transfer
restrictions and deposited certificates have been returned, the
corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after
effectuation of the proposed corporate action, or upon timely
receipt of demand for payment if the corporate action has already
been effectuated, the corporation shall either remit to
dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that
the corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will be
made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of
the issuer of the shares held or owned by the dissenter for a
fiscal year ending not more than 16 months before the date of
remittance or notice together with the latest available interim
financial statements.
(2) A statement of the corporation's estimate of the fair
value of the shares.
(3) A notice of the right of the dissenter to demand
payment or supplemental payment, as the case may be, accompanied
by a copy of this subchapter.
(d) Failure to make payment. If the corporation does not
remit the amount of its estimate of the fair value of the shares
as provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for
payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records
relating to any transferred uncertificated shares shall bear a
similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the
corporation other than those that the original dissenters had
after making demand for payment of their fair value. (Last
amended by Act 198, L. '90, eff. 12-19-90).
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES. (a)
General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such
amount, or remits payment of its estimate of the fair value of a
dissenter's shares as permitted by section 1577(c) (relating to
payment of fair value of shares) and the dissenter believes that
the amount stated or remitted is less than the fair value of his
shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for
payment of the amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter
does not file his own estimate under subsection(a) within 30 days
after the mailing by the corporation of its remittance or notice,
the dissenter shall be entitled to no more than the amount stated
in the notice or remitted to him by the corporation. (Last
amended by Act 198, L. '90, eff. 12-19-90.)
1579 VALUATION PROCEEDINGS GENERALLY. (a) General
rule. Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section
1578 (relating to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business
corporation may file in court an application for relief
requesting that the fair value of shares be determined by the
court.
(b) Mandatory joinder of dissenters. All dissenters,
wherever residing, whose demands have not been settled shall be
made parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant
to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and
interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the
court shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party
shall be entitled to recover the amount by which the fair value
of his shares is found to exceed the amount, if any, previously
remitted, plus interest.
(e) Effect of corporation's failure to file application. If
the corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has not
already settled his claim against the corporation may do so in
the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to
file an application shall be paid the corporation's estimate of
the fair value of the shares and no more, and may bring an
action to recover any amount not previously remitted.
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS. (a)
General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally),
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except that
any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by
dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack
of good faith appears. Fees and expenses of counsel and of
experts for the respective parties may be assessed as the court
deems appropriate against the corporation and in favor of any or
all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the
fees and expenses are assessed acted in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner in respect to
the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the
court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award to
those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 7.01 of the Bylaws of the Registrant reads as follows:
"Section 7.01. Indemnification of Directors and Officers.
(a) RIGHT TO INDEMNIFICATION. Except as prohibited by law, every
director and officer of the corporation shall be entitled as of right to
be indemnified by the corporation against reasonable expense and any
liability paid or incurred by such person in connection with any actual
or threatened claim, action, suit or proceeding, civil, criminal,
administrative, investigative or other, whether brought by or in the
right of the corporation or otherwise, in which he or she may be
involved, as a party or otherwise, by reason of such person being or
having been a director or officer of the corporation or by reason of the
fact that such person is or was serving at the request of the corporation
as a director, officer, employee, fiduciary or other representative of
another corporation, partnership, joint venture, trust, employee benefit
plan or other entity (such claim, action, suit or proceeding hereinafter
being referred to as "action"). Such indemnification shall include the
right to have expenses incurred by such person in connection with an
action paid in advance by the corporation prior to final disposition of
such action, subject to such conditions as may be prescribed by law.
Persons who are not directors or officers of the corporation may be
similarly indemnified in respect of service to the corporation or to
another such entity at the request of the corporation to the extent the
board of directors at any time denominates such person as entitled to the
benefits of this Section 7.01. As used herein, "expense" shall include
fees and expenses of counsel selected by such persons; and "liability"
shall include amounts of judgments, excise taxes, fines and penalties,
and amounts paid in settlement.
(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a)
of this Section 7.01 is not paid in full by the corporation within thirty
days after a written claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim, and, if successful in whole or in
part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. It shall be a defense to any such action that the
conduct of the claimant was such that under Pennsylvania law the
corporation would be prohibited from indemnifying the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board
of directors, independent legal counsel and its shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
the conduct of the claimant was not such that indemnification would be
prohibited by law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
shareholders) that the conduct of the claimant was such that
indemnification would be prohibited by law, shall be a defense to the
action or create a presumption that the conduct of the claimant was such
that indemnification would be prohibited by law.
(c) INSURANCE AND FUNDING. The corporation may purchase and
maintain insurance to protect itself and any person eligible to be
indemnified hereunder against any liability or expense asserted or
incurred by such person in connection with any action, whether or not the
corporation would have the power to indemnify such person against such
liability or expense by law or under the provisions of this Section 7.01.
The corporation may create a trust fund, grant a security interest, cause
a letter of credit to be issued or use other means (whether or not
similar to the foregoing) to ensure the payment of such sums as may
become necessary to effect indemnification as provided herein.
(d) NON-EXCLUSIVITY; NATURE AND EXTENT OF RIGHTS. The right of
indemnification provided for herein (1) shall not be deemed exclusive of
any other rights, whether now existing or hereafter created, to which
those seeking indemnification hereunder may be entitled under any
agreement, by-law or charter provision, vote of shareholders or directors
or otherwise, (2) shall be deemed to create contractual rights in favor
of persons entitled to indemnification hereunder, (3) shall continue as
to persons who have ceased to have the status pursuant to which they were
entitled or were denominated as entitled to indemnification hereunder and
shall inure to the benefit of the heirs and legal representatives of
persons entitled to indemnification hereunder and (4) shall be applicable
to actions, suits or proceedings commenced after the adoption hereof,
whether arising from acts or omissions occurring before or after the
adoption hereof. The right of indemnification provided for herein may not
be amended, modified or repealed so as to limit in any way the
indemnification provided for herein with respect to any acts or omissions
occurring prior to the effective date of any such amendment, modification
or repeal."
Directors and officers of the registrant may also be indemnified in
certain circumstances pursuant to the statutory provisions of general
application contained in Pennsylvania law.
The registrant presently has insurance policies which, among other
things, include liability insurance coverage for officers and directors
under which officers and directors are covered against any "loss" by
reason of payment of damages, judgments, settlements and costs, as well
as charges and expenses incurred in the defense of actions, suits or
proceedings. "Loss" is specifically defined to exclude fines and
penalties, as well as matters deemed uninsurable under the law pursuant
to which the insurance policy shall be construed. The policies also
contain other specific exclusions, including illegally obtained personal
profit or advantage, and dishonesty.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
**2 Agreement and Plan of Merger by and among the Registrant,
Keystone Merger Corp., and Penn Fuel Gas, Inc., dated June
26, 1997 (included as Annex I to the Prospectus in Part I of
this Registration Statement).
3(a) Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit B to the Proxy Statement of PP&L and
Registration Statement of Registrant, dated March 9, 1995).
3(b) Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to Registrant's Registration Statement No.
33-5794).
**5 Opinion and Consent of Michael A. McGrail with respect to
the legality of securities to be issued in the Merger.
**8 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to tax disclosure.
**10 Voting Agreement by and among the Registrant, Marilyn Ware
Lewis and Penn Fuel Gas, Inc., dated June 26, 1997 (included
as Annex II to the Prospectus in Part I of this Registration
Statement).
**23(a) Consent of Michael A. McGrail (contained in its opinion in
Exhibit 5 above).
**23(b) Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in its opinion in Exhibit 8 above).
**23(c) Consent of Deloitte & Touche LLP.
**23(d) Consent of Price Waterhouse LLP.
**23(e) Consent of KPMG Peat Marwick LLP.
**24 Powers of Attorney.
** Filed Herewith
(b) FINANCIAL STATEMENT SCHEDULES
Not Applicable.
(c) REPORTING OPINION OR APPRAISAL
Not Applicable.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security holders
that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the prospectus
to provide such interim financial information.
(3) That, prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(4) That every prospectus (i) that is filed pursuant to the
immediately preceding paragraph or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described under Item 20 above or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(7) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Allentown, Commonwealth of Pennsylvania, on August 12, 1997.
PP&L RESOURCES, INC.
By: /s/ William F. Hecht
--------------------------
William F. Hecht
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Chairman, President, Chief
Executive Officer and
/s/ William F. Hecht Director (Principal Executive
- --------------------- Officer) August 12, 1997
William F. Hecht
Senior Vice President -
/s/ Ronald E. Hill Financial (Principal
- --------------------- Financial Officer) August 12, 1997
Ronald E. Hill
Vice President and
/s/ J. J. McCabe Controller (Principal
- --------------------- Accounting Officer) August 12, 1997
J. J. McCabe
*
- --------------------- Director
Frederick M. Bernthal
*
- --------------------- Director
Nance K. Dicciani
*
- --------------------- Director
William J. Flood
*
- -------------------- Director
Elmer D. Gates
*
- -------------------- Director
Stuart Heydt
*
- -------------------- Director
Clifford L. Jones
*
- -------------------- Director
Ruth Leventhal
Executive Vice
* President
- -------------------- and Director
Francis A. Long
*
- -------------------- Director
Norman Robertson
*By: /s/ William F. Hecht
-----------------------
William F. Hecht
Attorney-in-fact
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
**2 Agreement and Plan of Merger by and among the Registrant,
Keystone Merger Corp., and Penn Fuel Gas, Inc., dated
June 26, 1997 (included as Annex I to the Prospectus in
Part I of this Registration Statement).
3(a) Articles of Incorporation of the Registrant (incorporated
by reference to Exhibit B to the Proxy Statement of PP&L
and Registration Statement of Registrant, dated March 9,
1995).
3(b) Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to Registrant's Registration Statement
No. 33-5794).
**5 Opinion and Consent of Michael A. McGrail with respect to
the legality of securities to be issued in the Merger.
**8 Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom LLP with respect to tax disclosure.
**10 Voting Agreement by and among the Registrant, Marilyn
Ware Lewis and Penn Fuel Gas, Inc., dated June 26, 1997
(included as Annex II to the Prospectus in Part I of
this Registration Statement).
**23(a) Consent of Michael A. McGrail (contained in its opinion
in Exhibit 5 above).
**23(b) Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in its opinion in Exhibit 8 above).
**23(c) Consent of Deloitte & Touche LLP.
**23(d) Consent of Price Waterhouse LLP.
**23(e) Consent of KPMG Peat Marwick LLP.
**24 Powers of Attorney.
** Filed Herewith
Exhibit 5
[LETTERHEAD OF PENNSYLVANIA POWER & LIGHT COMPANY]
July 30, 1997
PP&L Resources, Inc.
Two North Ninth Street
Allentown, Pennsylvania 18101
Dear Sirs:
I am Senior Counsel of Pennsylvania Power &
Light Company, a direct subsidiary of PP&L Resources,
Inc. ("Resources"), and, as such, am familiar with its
affairs, including the proposed Merger (as defined
below).
With respect to the Registration Statement on
Form S-4 (the "Registration Statement") to be filed by
Resources on or about the date hereof with the Securities
and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), in
connection with the issuance by Resources of up to
6,800,000 shares of its Common Stock, par value $.01 per
share (the "Shares"), in connection with a proposed
merger (the "Merger") of Keystone Merger Corp., a
Pennsylvania corporation and a wholly-owned subsidiary of
Resources, with and into Penn Fuel Gas, Inc., a
Pennsylvania corporation ("PFG"), with PFG surviving the
Merger as a wholly-owned subsidiary of Resources,
pursuant to an Agreement and Plan of Merger, dated as of
June 26, 1997 (the "Merger Agreement"), I hereby advise
you as follows:
1. Resources is a corporation validly
organized and existing under the laws of the Commonwealth
of Pennsylvania.
2. When the Shares have been issued in
accordance with the terms of the Merger Agreement as set
forth in the Registration Statement, as the same may be
amended, the Shares will be validly issued, fully paid
and nonassessable.
I hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the
use of my name in the Registration Statement and the
prospectus constituting a part thereof under the caption
"Legal Matters."
Very truly yours,
/s/ Michael A. McGrail
Michael A. McGrail
Exhibit 8
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
August 12, 1997
PP&L Resources, Inc.
Two North Ninth Street
Allentown, PA 18101
Ladies and Gentlemen:
You have requested our opinion regarding the
discussion of certain U.S. federal income tax
consequences under the caption "Certain Federal Income
Tax Consequences of the Merger" in the Prospectus (the
"Prospectus"), which is included in the registration
Statement on Form S-4, as amended (the "Registration
Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of
1933, as amended (the "Securities Act"). The Prospectus
relates to the proposed Merger, as defined in the
Agreement and Plan of Merger attached as Annex I thereto
(the "Agreement"), among Penn Fuel Gas, Inc., a
Pennsylvania corporation ("PFG"), PP&L Resources, Inc., a
Pennsylvania corporation ("Resources") and Keystone
Merger Corp., a Pennsylvania corporation and wholly-owned
subsidiary of Resources ("Keystone"), of Keystone with
and into PFG, with PFG as the surviving corporation.
This opinion is delivered in accordance with the
requirements of Item 601(b)(8) of Regulation S-K under
the Securities Act. Unless otherwise defined herein,
each capitalized term has the meaning ascribed to it in
the Agreement.
We have reviewed the Prospectus and such other
materials as we have deemed necessary or appropriate as a
basis for our opinion, and have considered the applicable
provisions of the Internal Revenue Code of 1986, as
amended, Treasury regulations, pertinent judicial
authorities, rulings of the Internal Revenue Service, and
such other authorities as we have considered relevant to
such opinion. In our examination, we have assumed the
legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified
or photostatic copies, and the authenticity of the
originals of such latter documents.
Based solely upon the foregoing, and subject to
(i) the Merger being consummated in the manner described
in the Agreement, and (ii) the accuracy of facts
concerning the Merger that have come to our attention
during the engagement, we are of the opinion that under
current United States federal income tax law:
Although the discussion set forth in
the Prospectus under the heading "Certain
Federal Income Tax Consequences of the Merger"
does not purport to discuss all possible United
States federal income tax consequences of the
Merger to Resources, PFG or holders of shares
of PFG Common Stock or PFG Preferred Stock,
such discussion constitutes, in all material
respects, a fair and accurate summary of the
United States federal income tax consequences
discussed under such heading.
Except as set forth above, we express no
opinion to any party as to the tax consequences, whether
federal, state, local or foreign, of the Merger. We
disclaim any undertaking to advise you of any subsequent
changes of the facts stated or assumed herein or any
subsequent changes in applicable law.
In accordance with the requirements of Item
601(b)(23) of Regulation S-K under the Securities Act, we
hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement. In giving this
consent, we do not admit that we come within the category
of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this
Registration Statement of PP&L Resources, Inc. on Form S-
4 of our report dated February 3, 1995 on the
consolidated statements of income, shareowners' common
equity, and cash flows of Pennsylvania Power & Light
Company and its subsidiaries for the year ended December
31, 1994, prior to restatement, appearing in the Annual
Report on Form 10-K of PP&L Resources, Inc. for the year
ended December 31, 1996 and to the reference to us under
the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 12, 1997
EXHIBIT 23(d)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by
reference in the Prospectus constituting part of this
Registration Statement on Form S-4 of PP&L Resources,
Inc. of our report dated February 3, 1997 appearing on
page 41 of PP&L Resources, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996. We also
consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Philadelphia, Pennsylvania
August 12, 1997
Exhibit 23(e)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Penn Fuel Gas, Inc.:
We consent to the inclusion in the registration statement on
Form S-4 of PP&L Resources, Inc. of our report dated April
4, 1997, with respect to the consolidated balance sheets of
Penn Fuel Gas, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income,
retained earnings, and cash flows for each of years in the
three-year period ended December 31, 1996. Such report
refers to a change in 1995 in the method of recognizing
revenues from sales of natural gas to residential and small
commercial customers and also a change in 1995 in the method
of accounting for postretirement benefits other than
pensions.
We also consent to the reference to our firm under the
heading "Experts" appearing elsewhere herein.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
August 13, 1997
EXHIBIT 24
PP&L RESOURCES, INC.
ISSUANCE OF COMMON STOCK IN CONNECTION WITH MERGER
POWER OF ATTORNEY
The undersigned directors of PP&L Resources, Inc. (the
"Company"), a Pennsylvania corporation, hereby appoint William F.
Hecht, Ronald E. Hill and Robert J. Grey their true and lawful
attorney, and each of them their true and lawful attorney, with
power to act without the other and with full power of substitution
and resubstitution, to execute for the undersigned directors and
in their names to file with the Securities and Exchange
Commission, Washington, D.C., under provisions of the Securities
Act of 1933, as amended, a registration statement or registration
statements for the registration under provisions of the Securities
Act of 1933, as amended, and any other rules, regulations or
requirements of the Securities and Exchange Commission in respect
thereof, of Common Stock of the Company to be issued in connection
with its Agreement and Plan of Merger with Keystone Merger Corp.
and Penn Fuel Gas, Inc., and any and all amendments thereto,
whether said amendments add to, delete from or otherwise alter any
such registration statement or registration statements, or add or
withdraw any exhibits or schedules to be filed therewith and any
and all instruments in connection therewith. The undersigned
hereby grant to said attorneys and each of them full power and
authority to do and perform in the name of and on behalf of the
undersigned, and in any and all capabilities, any act and thing
whatsoever required or necessary to be done in and about the
premises, as fully and to all intents and purposes as the
undersigned might do, hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals this 25th day of June, 1997.
/s/ Frederick M. Bernthal L.S. /s/ Stuart Heydt L.S.
------------------------------ --------------------------
Frederick M. Bernthal Stuart Heydt
/s/ Nance K. Dicciani L.S. /s/ Clifford L. Jones L.S.
------------------------------ --------------------------
Nance K. Dicciani Clifford L. Jones
/s/ William J. Flood L.S. /s/ Ruth Leventhal L.S.
------------------------------ --------------------------
William J. Flood Ruth Leventhal
/s/ Elmer D. Gates L.S. /s/ Frank A. Long L.S.
------------------------------ --------------------------
Elmer D. Gates Frank A. Long
/s/ William F. Hecht L.S. /s/ Norman Robertson L.S.
------------------------------ --------------------------
William F. Hecht Norman Robertson
