-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IqpWvn+XpUcwtguvtQ1tULNuUB0b72foOamtTN0uB6EakQBestCiV3UBhY6HsZNU oU8QcYOLbTmDKB8YuLJ66Q== 0001005150-96-000056.txt : 19960326 0001005150-96-000056.hdr.sgml : 19960326 ACCESSION NUMBER: 0001005150-96-000056 CONFORMED SUBMISSION TYPE: SC 13E4/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960325 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ENTERPRISES INC CENTRAL INDEX KEY: 0000077231 STANDARD INDUSTRIAL CLASSIFICATION: GAS & OTHER SERVICES COMBINED [4932] IRS NUMBER: 231920170 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-36994 FILM NUMBER: 96538215 BUSINESS ADDRESS: STREET 1: 39 PUBLIC SQ STREET 2: WILKES BARRE CENTER CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 BUSINESS PHONE: 7178298843 MAIL ADDRESS: STREET 1: 39 PUBLIC SQUARE CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ENTERPRISES INC CENTRAL INDEX KEY: 0000077231 STANDARD INDUSTRIAL CLASSIFICATION: GAS & OTHER SERVICES COMBINED [4932] IRS NUMBER: 231920170 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4/A BUSINESS ADDRESS: STREET 1: 39 PUBLIC SQ STREET 2: WILKES BARRE CENTER CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 BUSINESS PHONE: 7178298843 MAIL ADDRESS: STREET 1: 39 PUBLIC SQUARE CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 SC 13E4/A 1 SC 13E4/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Schedule 13E-4/A ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) (Amendment No.1) PENNSYLVANIA ENTERPRISES, INC. (NAME OF ISSUER AND PERSON FILING STATEMENT) COMMON STOCK, NO PAR VALUE, STATED VALUE $10.00 PER SHARE (Title of Class of Securities) 708720107 (CUSIP Number of Class of Securities) THOMAS J. WARD SECRETARY PENNSYLVANIA ENTERPRISES, INC. WILKES-BARRE CENTER 39 PUBLIC SQUARE WILKES-BARRE, PENNSYLVANIA 18711 (717) 829-8843 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person Filing the Statement) COPY TO: GARETT J. ALBERT HUGHES HUBBARD & REED ONE BATTERY PARK PLAZA NEW YORK, NEW YORK 10004-1482 (212) 837-6000 MARCH 11, 1996 (Date Tender Offer First Published, Sent Or Given To Security Holders) Calculation of Filing Fee -----------------------------------------------------------------------------
Transaction Valuation* .. Amount of Filing Fee $78,000,000.............. $15,600
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 2,000,000 shares at $39.00 per share. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $15,600 Form or Registration No.: Schedule 13E-4 Filing Party: Pennsylvania Enterprises, Inc. Date Filed: March 11, 1996 This Amendment No. 1 amends and supplements the Issuer Tender Offer Statement on Schedule 13E-4 (the "Statement") dated March 11, 1996, filed by Pennsylvania Enterprises, Inc. (the "Company") relating to the Company's offer to purchase up to 2,000,000 shares of its Common Stock, no par value, stated value $10.00 per share (the "Shares") (including the associated common stock purchase rights issued pursuant to the Rights Agreement dated as of April 26, 1995, between the Company and Chemical Bank, as Rights Agent), at a price not greater than $39.00 nor less than $37.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated March 11, 1996, and the related Letter of Transmittal, copies of which were previously filed as Exhibits (a)(1) and (a)(2) to the Statement, respectively, and incorporated by reference therein. Terms defined in the Statement and not separately defined herein shall have the meanings specified in the Statement. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. Item 9 is hereby amended by supplementing the following Exhibits: (a)(2) Form of Letter of Transmittal together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (g) Pages 28 through 55 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Item 9 is hereby further amended by adding the following Exhibit: (a)(12) Form of Letter to Participants in the Pennsylvania Enterprises, Inc. Dividend Reinvestment and Stock Purchase Plan, dated March 22, 1996. 1 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Pennsylvania Enterprises, Inc. By: /s/ John F. Kell, Jr. ------------------------------------- Name: John F. Kell, Jr. Title: Vice President, Financial Services Dated: March 25, 1996 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ----------- ----------- (a)(2) Form of Letter of Transmittal together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(12) Form of Letter to Participants in the Pennsylvania Enterprises, Inc. Divident Reinvestment and Stock Purchase Plan, dated March 22, 1996. (g) Pages 28 through 55 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995. EX-2.(A) 2 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO ACCOMPANY SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF PENNSYLVANIA ENTERPRISES, INC. TENDERED PURSUANT TO THE OFFER TO PURCHASE DATED MARCH 11, 1996 THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED. TO: Chemical Mellon Shareholder Services, L.L.C., Depositary
By Mail: By Facsimile Transmission: By Hand or Overnight Courier: Reorganization Department (For Eligible Institutions Only) Reorganization Department P.O. Box 837 (201) 296-4293 120 Broadway Midtown Station To Confirm Receipt of Facsimile: 13th Floor New York, NY 10018 (201) 296-4100 New York, NY 10271
DESCRIPTION OF SHARES TENDERED SHARES TENDERED (ATTACH ADDITIONAL LIST, IF NECESSARY) PRINT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) TOTAL NUMBER OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES (PLEASE FILL IN EXACTLY AS NAME(S) NUMBER(S)* CERTIFICATE(S)* TENDERED** APPEAR(S) ON CERTIFICATE(S)) TOTAL SHARES: * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificate delivered to the Depositary are being tendered. See Instruction 4.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used if certificates are to be forwarded herewith or if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (hereinafter collectively referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 6 of the Offer to Purchase (as defined below). Stockholders who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 6 of the Offer to Purchase. See Instruction 2. Delivery of documents to the Company or to a Book-Entry Transfer Facility does not constitute a valid delivery. (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution _____________________________________________ Check Applicable Box: [ ] DTC [ ] PDTC Account No. _______________________________________________________________ Transaction Code No. ______________________________________________________ [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Stockholder(s) _______________________________________ Date of Execution of Notice of Guaranteed Delivery ________________________ Name of Institution that Guaranteed Delivery ______________________________ If delivery is by book-entry transfer: Name of Tendering Institution _____________________________________________ Account No. at [ ] DTC [ ] PDTC Transaction Code No. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 2 Ladies and Gentlemen: The undersigned hereby tenders to Pennsylvania Enterprises, Inc., a Pennsylvania corporation (the "Company"), the above-described shares of its Common Stock, no par value, stated value $10.00 per share (the "Shares") (including the associated common stock purchase rights (the "Rights) issued pursuant to the Rights Agreement, dated as of April 26, 1995, between the Company and Chemical Bank, as the Rights Agent), pursuant to the Company's offer to purchase up to 2,000,000 Shares at a price per Share hereinafter set forth, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated March 11, 1996 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Offer"). Unless the context otherwise requires, all references to Shares shall include the associated Rights. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after March 16, 1996 (collectively, "Distributions")) and constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Company, (b) present such Shares and all Distributions for registration and transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions and that, when and to the extent the same are accepted for payment by the Company, the Company will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer, including the undersigned's representation and warranty that (i) the undersigned has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies with Rule 14e-4. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The undersigned understands that the Company will determine a single per Share price (not greater than $39.00 nor less than $37.00 per Share) (the "Purchase Price") that it will pay for Shares validly tendered and not withdrawn pursuant to the Offer taking into account the number of Shares so tendered and the prices specified that will enable it to purchase 2,000,000 Shares (or such lesser number 3 of Shares as are validly tendered at prices not greater than $39.00 nor less than $37.00 per Share) pursuant to the Offer. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 2 or 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The undersigned also understands that unless the Rights are redeemed or become separately transferable in accordance with their terms, by tendering Shares the undersigned will also be tendering the associated Rights and that no separate consideration will be paid for such Rights. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if the Company does not accept for payment any of the Shares so tendered. 4 PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED (SEE INSTRUCTION 5) CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES. SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION [ ] The undersigned wants to maximize the chance of having the Company purchase all the Shares the undersigned is tendering (subject to the possibility of proration). Accordingly, by checking this one box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is willing to accept the Purchase Price resulting from the Dutch auction tender process. This action could result in receiving a price per Share as low as $37.00 or as high as $39.00. ______________________________ OR ______________________________ SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
[ ] $37.000 [ ] $37.500 [ ] $38.000 [ ] $38.500 [ ] $37.125 [ ] $37.625 [ ] $38.125 [ ] $38.625 [ ] $37.250 [ ] $37.750 [ ] $38.250 [ ] $38.750 [ ] $37.375 [ ] $37.875 [ ] $38.375 [ ] $38.875 [ ] $39.000
ODD LOTS (SEE INSTRUCTION 9) This section is to be completed ONLY if shares are being tendered by or on behalf of a person owning beneficially an aggregate of fewer than 100 Shares as of the close of business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as of the close of business on January 1, 1996. The undersigned either (check one box): [ ] was the beneficial owner of an aggregate of fewer than 100 Shares (including Shares held in the Dividend Reinvestment Plan and the Savings Plan (as such terms are defined in the Offer to Purchase)) as of the close of business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as of the close of business on January 1, 1996, all of which are being tendered, or [ ] is a broker, dealer, commercial bank, trust company or other nominee that (i) is tendering, for the beneficial owners thereof, Shares with respect to which it is the record owner, and (ii) believes, based upon representations made to it by each such beneficial owner, that such beneficial owner owned beneficially an aggregate of fewer than 100 Shares (including Shares held in the Dividend Reinvestment Plan and the Savings Plan) as of the close of business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as of the close of business on January 1, 1996, and is tendering all of such Shares. 5 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 6, 7 AND 8) To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue [ ] check and/or [ ] certificate(s) to: Name ___________________________________________________________ ________________________________________________________________ (Please Print) Address _____________________________________________________________ (Include Zip Code) ________________________________________________________________ (Taxpayer Identification or Social Security No.) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 6, 7 AND 8) To be completed ONLY if the check for the Purchase Price of Shares purchased and/or the certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown below the undersigned's signature(s). Mail [ ] check and/or [ ] certificate(s) to: Name ________________________________________________________________ _____________________________________________________________________ (Please Print) Address _____________________________________________________________ (Include Zip Code) CONDITIONAL TENDER A tendering stockholder may condition his or her tender of Shares upon the purchase by the Company of a specified minimum number of the Shares tendered hereby, all as described in the Offer to Purchase, particularly in Section 6 thereof. Unless at least such minimum number of Shares is purchased by the Company pursuant to the terms of the Offer, none of the Shares tendered hereby will be purchased. It is the tendering stockholder's responsibility to calculate such minimum number of Shares, and each stockholder is urged to consult his or her own tax advisor. Unless this box has been completed and a minimum specified, the tender will be deemed unconditional. Minimum number of Shares that must be purchased, if any are purchased: _____________ Shares 6 SOLICITED TENDERS (SEE INSTRUCTION 12) The Company will pay to any Soliciting Dealer, as defined in Instruction 12, a solicitation fee of $0.50 per Share for each Share tendered and purchased pursuant to the Offer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm:__________________________________________________________________- (Please Print) Name of Individual Broker or Financial Consultant:______________________________ Identification Number (if known):_______________________________________________ Address:________________________________________________________________________ (Include Zip Code) The following to be completed ONLY if customer's Shares held in nominee name are tendered. Name of Beneficial Owner Number of Shares Tendered (Attach additional list if necessary) _______________________ ___________________________ _______________________ ___________________________ _______________________ ___________________________ The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that: (i) it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder, in connection with such solicitation; (ii) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by the Company; and (iv) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer's returning a Notice of Solicited Tenders to the Depositary. 7 SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) ________________________________________________________________________________ Signature(s) of Owner(s) ________________________________________________________________________________ Dated: _________________, 1996 Name(s) ________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Please Print) Capacity (full title) __________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Area Code and Telephone No. ____________________________________________________ Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Name of Firm ___________________________________________________________________ Authorized Signature ___________________________________________________________ Dated: ____________________, 1996 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 6. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or photocopy thereof) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal on or prior to the Expiration Date (as defined in the Offer to Purchase). Stockholders who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) must be received by the Depositary on or prior to the Expiration Date and (c) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or photocopy thereof) and any other documents required by this Letter of Transmittal must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. Except as specifically permitted by Section 6 of the Offer to Purchase, no alternative or contingent tenders will be accepted. Fractional Shares will be purchased, unless proration of tendered Shares is required (in which case fractional Shares held by participants in the Dividend Reinvestment Plan and the Savings Plan (as such terms are defined in the Offer to Purchase) will be purchased). See Section 1 of the Offer to Purchase. By executing this Letter of Transmittal (or a photocopy thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the "Special Payment Instructions" or "Special Delivery Instructions" boxes on this Letter of Transmittal, as 9 promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to be validly tendered, the stockholder must check the box indicating the price per Share at which he or she is tendering Shares under "Price (In Dollars) Per Share at Which Shares Are Being Tendered" on this Letter of Transmittal. Only one box may be checked. If more than one box is checked or if no box is checked, there is no valid tender of Shares. A stockholder wishing to tender portions of his or her Share holdings at different prices must complete a separate Letter of Transmittal for each price at which he or she wishes to tender each such portion of his or her Shares. The same Shares cannot be tendered (unless previously validly withdrawn as provided in Section 4 of the Offer to Purchase) at more than one price. Stockholders wishing to maximize the possibility that their Shares will be purchased at the relevant Purchase Price may check the box on the Letter of Transmittal marked "Shares Tendered at Purchase Price Determined by Dutch Auction." Checking this box may result in a purchase price of the Shares so tendered at the minimum price of $37.00. 6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted. 7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Section 5 of the Offer to Purchase. 8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase Price of any Shares purchased is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal or if the check and/or 10 any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown below the signature of the person(s) signing this Letter of Transmittal, then the boxes captioned "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such stockholder at the Book-Entry Transfer Facility from which such transfer was made. 9. ODD LOTS. As described in the Offer to Purchase, if more than 2,000,000 Shares have been validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date, the Company will purchase first all Shares (excluding Shares held in a Savings Plan account) validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date by any stockholder (an "Odd Lot Owner") who owned beneficially an aggregate of fewer than 100 Shares (including any Shares held in the Dividend Reinvestment Plan and the Savings Plan and fractional shares) as of the close of business on March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as of the close of business on January 1, 1996, and who validly tenders all of such Shares (partial and conditional tenders will not qualify for this preference) and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery. 10. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required to provide the Depositary with either a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below, or in the case of certain foreign stockholders, a properly completed Form W-8. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering stockholder to 31% federal income tax backup withholding on the payment of the Purchase Price. The box in Part 2 of Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 2 is checked and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price thereafter until a TIN is provided to the Depositary. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent at the telephone number and address listed below. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal or other tender offer materials may be directed to the Information Agent and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 12. SOLICITED TENDERS. The Company will pay a solicitation fee of $0.50 per Share for any Shares tendered and accepted for payment and paid for pursuant to the Offer, covered by the Letter of Transmittal which designates, in the box captioned "Solicited Tenders," as having solicited and obtained the tender, the name of (i) any broker or dealer in securities, including the Dealer Manager in its capacity as a dealer or broker, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (iii) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer. No such fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No such fee shall be payable to a Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's own account. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of the Company, the Depositary, the Information Agent or the Dealer Manager for purposes of the Offer. 13. IRREGULARITIES. All questions as to the Purchase Price, the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding. The Company reserves 11 the absolute right to reject any or all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and the Company's interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 14. DIVIDEND REINVESTMENT PLAN. If a tendering stockholder desires to have tendered pursuant to the Offer Shares which such stockholder has accumulated through March 7, 1996, under the Dividend Reinvestment Plan, the election form included in the "Memorandum to Participants in the Dividend Reinvestment and Stock Purchase Plan" should be completed in lieu of this Letter of Transmittal with respect to such Shares. A participant in the Dividend Reinvestment Plan may complete only one such election form. If a participant submits more than one election form, the participant will be deemed to have elected to tender all Shares which such participant has accumulated under the Dividend Reinvestment Plan through March 7, 1996 at the lowest of the prices specified in such election forms. If a stockholder authorizes a tender of his or her Shares held in the Dividend Reinvestment Plan, all such Shares held in such stockholder's Dividend Reinvestment Plan account, including fractional Shares, will be tendered, unless otherwise specified in the election form. If a participant tenders all of his or her Shares held in a Dividend Reinvestment Plan account and all such Shares are purchased by the Company pursuant to the Offer, such tender will be deemed to be authorization and written notice to Chemical Bank, which administers the Dividend Reinvestment Plan, of termination of such stockholder's participation in the Dividend Reinvestment Plan, subject to a stockholder's right to recommence participation in accordance with the terms of the Dividend Reinvestment Plan. In the event that the election form included in the "Memorandum to Participants in the Dividend Reinvestment and Stock Purchase Plan" is not completed, no Shares held in the tendering stockholder's Dividend Reinvestment Plan account will be tendered. SAVINGS PLAN. If a tendering stockholder desires to have tendered pursuant to the Offer Shares which such stockholder has credited to his or her account as of January 1, 1996, under the Savings Plan, the election form included in the "Memorandum to Participants in the Savings Plan" should be completed in lieu of this Letter of Transmittal with respect to such Shares. A participant in the Savings Plan may complete only one such election form. If a participant submits more than one election form, the participant will be deemed to have elected to tender all Shares which have been credited to the account of such participant under the Savings Plan as of January 1, 1996, at the lowest of the prices specified in such election forms. If a stockholder authorizes a tender of his or her Shares held in the Savings Plan, all such Shares allocated to such stockholder's Savings Plan account(s), including fractional Shares, will be tendered, unless otherwise specified in the election form. In the event that the election form included in the "Memorandum to Participants in the Savings Plan" is not completed, no Shares allocated to the tendering stockholder's Savings Plan account(s) will be tendered. IMPORTANT TAX INFORMATION Under federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with either such stockholder's correct TIN on Substitute Form W-9 below or in the case of certain foreign stockholders, a properly completed Form W-8. If such stockholder is an individual, the TIN is his or her social security number. For businesses and other entities, the number is the employer identification number. If the Depositary is not provided with the 12 correct TIN or properly completed Form W-8, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to federal income tax backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9 is correct and that (1) the stockholder has not been notified by the Internal Revenue Service that he or she is subject to federal income tax backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified the stockholder that he or she is no longer subject to federal income tax backup withholding. Foreign stockholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign stockholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A PHOTOCOPY THEREOF) TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). 13 PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. SUBSTITUTE FORM W-9 Department of the Treasury Internal Revenue Service Payer's Request for Taxpayer Identification Number (TIN) and Certification ________________________________________________________________________________ Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. - -------------------------------------------------------------------------------- NAME (Please Print) - -------------------------------------------------------------------------------- ADDRESS - -------------------------------------------------------------------------------- CITY STATE ZIP CODE - -------------------------------------------------------------------------------- ________________________________________________________________________________ TIN ________________________ Social Security Number or Employer Identification Number Part 2 AWAITING TIN [ ] ________________________________________________________________________________ Part 3--CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number shown on this form is my correct taxpayer identification number (or a TIN has not been issued to me but I have mailed or delivered an application to receive a TIN or intend to do so in the near future), (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding and (3) all other information provided on this form is true, correct and complete. SIGNATURE ______________________________________ DATE__________________________ You must cross out item (2) above if you have been notified by the IRS that your are currently subject to backup withholding because of underreporting interest or dividends on your tax return. NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments of the Purchase Price made to me thereafter will be withheld until I provide a number. Signature ________________________________________ Date: ________________, 1996 14 The Information Agent: D.F. KING & CO., INC. 77 WATER STREET NEW YORK, NY 10005 (800) 714-3313 The Dealer Manager: LEGG MASON WOOD WALKER INCORPORATED 7 EAST REDWOOD STREET, 6TH FLOOR BALTIMORE, MD 21202 (410) 528-2231 15 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. Purpose of Form. -- A person who is required to file an information return with the IRS must obtain your correct Taxpayer Identification Number ("TIN") to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. Note: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester|Als form. How to Obtain a TIN. -- If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part I (or check box 2 of Substitute Form W-9), sign and date the form, and give it to the requester. Generally, you must obtain a TIN and furnish it to the requester by the time of payment. If the requester does not receive your TIN by the time of payment, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. Note: Writing "Applied for" (or checking box 2 of the Substitute Form W-9) on the form means that you have already applied for a TIN OR that you intend to apply for one in the near future. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. What is Backup Withholding? -- Persons making certain payments to you are required to withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: 1. You do not furnish your TIN to the requester, or 2. The IRS notifies the requester that you furnished an incorrect TIN, or 3. You are notified by the IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or 4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or 5. You do not certify your TIN. This applies only to reportable interest, dividend, broker, or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, if you are an exempt payee. 1 Payees and Payments Exempt From Backup Withholding. -- The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends generally not subject to backup withholding include the following: o Payments to nonresident aliens subject to withholding under section 1441. o Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. o Payments of patronage dividends not paid in money. o Payments made by certain foreign organizations. Payments of interest generally not subject to backup withholding include the following: o Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. o Payments of tax-exempt interest (including exempt-interest dividends under section 852). o Payments described in section 6049(b)(5) to nonresident aliens. o Payments on tax-free covenant bonds under section 1451. o Payments made by certain foreign organizations. o Mortgage interest paid by you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041(A)(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and their regulations. PENALTIES Failure to Furnish TIN. -- If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. 2 Civil Penalty for False Information With Respect to Withholding. -- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. Criminal Penalty for Falsifying Information. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. Misuse of TINs. -- If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS Name. -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. If you are a sole proprietor, you must furnish your individual name and either your Social Security Number ("SSN") or Employer Identification Number ("EIN"). SIGNING THE CERTIFICATION. 1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and Broker Accounts Considered Active During 1983. You are required to furnish your correct TIN, but you are not required to sign the certification. 2. Interest, Dividend, Broker and Barter Exchange Accounts Opened After 1983 and Broker Accounts Considered Inactive During 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. 3. Real Estate Transactions. You must sign the certification. You may cross out item 2 of the certification. 4. Other Payments. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. 5. Mortgage Interest Paid by You, Acquisition or Abandonment of Secured Property, or IRA Contributions. You are required to furnish your correct TIN, but you are not required to sign the certification. 6. Exempt Payees and Payments. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" on the form and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. 7. TIN "Applied for." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date the form. Signature. -- For a joint account, only the person whose TIN is shown in Part I should sign. Privacy Act Notice. -- Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. 3 What Name and Number to Give the Requester
For this type of account: Give name and SSN of: 1 Individual The individual 2 Two or more individuals (joint account) The actual owner of the account or, if combined 3 Custodian account of a minor (Uniform Gift to funds, the first individual on the account(1) Minors Act) The minor(2) 4 a. The usual revocable savings trust (grantor is The grantor-trustee(1) also trustee) b. So-called trust account that is not a legal or The actual owner(1) valid trust under state law 5 Sole proprietorship The owner(3) For this type of account: Give name and EIN of: 6 Sole proprietorship The owner(3) 7 A valid trust, estate, or pension trust The legal entity(4) 8 Corporate The corporation 9 Association, club, religious, charitable, educational, or The organization other tax-exempt organization 10 Partnership The partnership 11 A broker or registered nominee The broker or nominee 12 Account with the Department of Agriculture The public entity in the name of a public entity (such as a state or local government, school district or prison) that receives agricultural program payments _____________ (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor|Als name and furnish the minor|Als SSN. (3) Show your individual name. You may use your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed.
4 EX-12.(A) 3 EXHIBIT 12.(A) PEI PENNSYLVANIA ENTERPRISES INC. WILKES-BARRE CENTER 39 PUBLIC SQUARE, WILKES-BARRE, PENNSYLVANIA 18711-0601 March 22, 1996 Dear Participant in the Pennsylvania Enterprises, Inc. Dividend Reinvestment and Stock Purchase Plan: You recently received from Pennsylvania Enterprises, Inc. an Offer to Purchase up to 2,000,000 shares of its common stock (representing approximately 34.5% of the currently outstanding shares), at a price not greater than $39.00 nor less than $37.00 per share, dated March 11, 1996. Accompanying the Offer to Purchase were several transmittal documents, including an Election Form to be used to tender shares held in the Pennsylvania Enterprises, Inc. Dividend Reinvestment and Stock Purchase Plan (the "Dividend Reinvestment Plan"). The label affixed to the Election Form, however, mistakenly listed your total share ownership instead of only specifying the number of shares held by you in the Dividend Reinvestment Plan. Additionally, a separate Letter of Transmittal should have accompanied the Offer to Purchase, which must be used to tender shares held by you in your own name, should you elect to tender such shares. Accordingly, a new Election Form stating only the number of shares held by you in the Dividend Reinvestment Plan is enclosed. To properly tender shares held in the Dividend Reinvestment Plan, you must complete and return the enclosed Election Form in accordance with the instructions in the Election Form and the Memorandum to Participants in the Pennsylvania Enterprises, Inc. Dividend Reinvestment and Stock Purchase Plan which was mailed to you on March 11, 1996. Also enclosed is a Letter of Transmittal stating the number of shares held by you in your own name which must be completed in accordance with the instructions in the Letter of Transmittal and returned in addition to the Election Form, should you elect to tender shares held both in the Dividend Reinvestment Plan and in your own name. Both forms should be returned together to Chemical Mellon Shareholder Services, L.L.C. in the enclosed envelope. If you do not wish to participate in the offer, you do not need to take any action. Any questions, requests for assistance or requests for additional copies of the tender offer materials may be directed to D.F. King & Co., Inc. (the Information Agent), at the address and telephone number set forth on the back cover of the enclosed Letter of Transmittal. Sincerely, /s/Dean T. Casaday ------------------ President and Chief Executive Officer EX-99.(G) 4 PAGES FROM CO. ANNUAL REPORT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Pennsylvania Enterprises, Inc.: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Pennsylvania Enterprises, Inc. (a Pennsylvania corporation) and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related consolidated statements of income, common shareholders' investment, and cash flows for each of the three years in the period ended December 31, 1995. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 Pennsylvania Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Supplemental Schedule II, Valuation and Qualifying Accounts for the three-year period ended December 31, 1995 (see index of financial statements) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subject to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, N.Y. February 23, 1996
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1995* 1994* 1993* (Thousands of Dollars) OPERATING REVENUES $ 152,756 $ 167,992 $ 153,325 Cost of gas 84,372 98,653 86,557 OPERATING MARGIN 68,384 69,339 66,768 OTHER OPERATING EXPENSES: Operation 22,438 22,652 21,797 Maintenance 4,967 4,436 3,695 Depreciation 6,971 6,667 6,388 Income taxes 3,556 4,290 4,935 Taxes other than income taxes 9,918 10,807 10,055 Total other operating expenses 47,850 48,852 46,870 OPERATING INCOME 20,534 20,487 19,898 OTHER INCOME (DEDUCTIONS), NET (Note 4) 763 258 (472) INCOME BEFORE INTEREST CHARGES 21,297 20,745 19,426 INTEREST CHARGES: Interest on long-term debt 13,663 12,591 11,636 Other interest 1,844 1,223 1,299 Allowance for borrowed funds used during construction (94) (21) (47) Total interest charges 15,413 13,793 12,888 INCOME FROM CONTINUING OPERATIONS 5,884 6,952 6,538 DISCONTINUED OPERATIONS (Note 2): Income from discontinued operations 2,127 10,504 7,909 Estimated loss on disposal of discontinued operations, net of anticipated income during the phase-out period of $7,409,000 (net of related income taxes of $4,800,000) (5,961) - - Income (loss) with respect to discontinued operations (3,834) 10,504 7,909 INCOME BEFORE SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 2,050 17,456 14,447 SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 2,763 4,639 6,462 NET INCOME (LOSS) $ (713) $ 12,817 $ 7,985 COMMON STOCK: Earnings (loss) per share of common stock: Continuing operations $ .55 $ .43 $ .02 Discontinued operations (.67) 1.92 1.80 Net income (loss) before premium on redemption of subsidiary's preferred stock (.12) 2.35 1.82 Premium on redemption of subsidiary's preferred stock - (.18) - Earnings (loss) per share of common stock $ (.12) $ 2.17 $ 1.82 Weighted average number of shares outstanding 5,729,436 5,456,568 4,394,953 * See Note 2 regarding discontinued operations and restatement of consolidated financial statements. The accompanying notes are an integral part of the consolidated financial statements.
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995* 1994* (Thousands of Dollars) ASSETS UTILITY PLANT: At original cost, less acquisition adjustments of $386,000 $295,895 $284,080 Accumulated depreciation (76,882) (74,408) 219,013 209,672 OTHER PROPERTY AND INVESTMENTS 7,142 3,481 CURRENT ASSETS: Cash 629 330 Restricted cash - common stock subscribed (Note 5) - 2,532 Accounts receivable - Customers 21,066 16,883 Others 815 1,474 Reserve for uncollectible accounts (788) (937) Accrued utility revenues 10,319 9,004 Materials and supplies, at average cost 2,876 2,797 Gas held by suppliers, at average cost 15,140 20,025 Natural gas transition costs collectible 4,612 4,708 Deferred cost of gas and supplier refunds, net - 3,767 Prepaid expenses and other 3,486 1,483 58,155 62,066 DEFERRED CHARGES: Regulatory assets Deferred taxes collectible 30,015 31,696 Natural gas transition costs collectible 497 4,099 Other 2,516 3,131 Unamortized debt expense 2,630 3,539 Other - 3,552 35,658 46,017 NET ASSETS OF DISCONTINUED OPERATIONS 204,250 203,196 TOTAL ASSETS $524,218 $524,432 * See Note 2 regarding discontinued operations and restatement of consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995* 1994* (Thousands of Dollars) CAPITALIZATION AND LIABILITIES CAPITALIZATION (see accompanying statements): Common shareholders' investment (Notes 5 and 8) $162,739 $172,012 Preferred stock of PGE (Note 6) - Not subject to mandatory redemption, net 33,615 33,615 Subject to mandatory redemption 1,680 1,760 Long-term debt (Note 7) 106,706 220,705 304,740 428,092 CURRENT LIABILITIES: Current portion of long-term debt and preferred stock subject to mandatory redemption (Notes 6, 7 and 9) 116,081 3,290 Notes payable (Note 9) 10,180 - Accounts payable 18,531 17,781 Deferred cost of gas and supplier refunds, net 434 - Accrued general business and realty taxes 1,493 3,315 Accrued income taxes 526 3,136 Accrued interest 2,307 2,850 Accrued natural gas transition costs (Note 3) 2,278 2,356 Other 3,534 2,398 155,364 35,126 DEFERRED CREDITS: Deferred income taxes 48,835 46,600 Accrued natural gas transition costs (Note 3) 1,144 3,250 Unamortized investment tax credits 4,938 5,110 Operating reserves 3,709 2,383 Other 5,488 3,871 64,114 61,214 COMMITMENTS AND CONTINGENCIES (Notes 11 and 12) TOTAL CAPITALIZATION AND LIABILITIES $524,218 $524,432 * See Note 2 regarding discontinued operations and restatement of consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1995* 1994* 1993* (Thousands of Dollars) CASH FLOW FROM OPERATING ACTIVITIES: Income from continuing operations, net of subsidiary's preferred stock dividends $ 3,121 $ 2,313 $ 76 Effects of noncash charges to income - Depreciation 7,018 6,693 6,413 Deferred income taxes, net (251) 752 (2,472) Provisions for self insurance 2,652 1,030 1,510 Other, net 5,572 3,074 2,418 Changes in working capital, exclusive of cash and current portion of long-term debt - Receivables and accrued utility revenues (219) 1,435 (2,099) Gas held by suppliers 4,885 6,625 (5,038) Accounts payable 321 (4,375) (1,233) Deferred cost of gas and supplier refunds, net 5,715 5,784 (13,307) Other current assets and liabilities, net (6,509) (763) 1,187 Other operating items, net 2,628 (6,588) (4,014) Net cash provided (used) by continuing operations 24,933 15,980 (16,559) Net cash provided (used) by discontinued operations 3,764 552 (837) Net cash provided (used) by operating activities 28,697 16,532 (17,396) CASH FLOW FROM INVESTING ACTIVITIES: Additions to utility plant (20,615) (16,960) (14,011) Investment in non-regulated business (3,169) - - Other, net (4,934) 1,098 201 Net cash used for investing activities (28,718) (15,862) (13,810) CASH FLOW FROM FINANCING ACTIVITIES: Issuance of common stock 4,045 3,887 32,807 Common stock subscribed, net (Note 5) - 2,515 - Redemption of preferred stock of PGE (80) (30,080) (10,080) Dividends on common stock (12,605) (12,002) (9,805) Issuance of long-term debt 52,000 50,000 19,000 Repayment of long-term debt (53,535) (31,055) (30,678) Net increase in bank borrowings 10,500 15,370 32,247 Other, net (5) (1,724) (599) Net cash provided (used) for financing activities 320 (3,089) 32,892 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 299 (2,419) 1,686 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 330 2,749 1,063 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 629 $ 330 $ 2,749 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized) $ 27,951 $ 24,622 $ 23,992 Income taxes $ 8,748 $ 7,460 $ 6,931 * See Note 2 regarding discontinued operations and restatement of consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1995* 1994* (Thousands of Dollars) COMMON SHAREHOLDERS' INVESTMENT (Notes 5 and 8): Common stock, no par value (stated value $10 per share) Authorized - 15,000,000 shares Outstanding - 5,784,319 shares and 5,553,915 shares, respectively $ 57,843 $ 55,539 Common stock subscribed - 2,515 Additional paid-in capital 49,749 45,493 Retained earnings 55,147 68,465 Total common shareholders' investment 162,739 53.4% 172,012 40.2% PREFERRED STOCK of PGE, par value $100 per share Authorized - 997,500 shares (Note 6): Not subject to mandatory redemption, net - 4.10% cumulative preferred, 100,000 shares issued 10,000 10,000 9% cumulative preferred, 250,000 shares outstanding, net of issuance costs 23,615 23,615 Total preferred stock not subject to mandatory redemption, net 33,615 11.0% 33,615 7.8% Subject to mandatory redemption - 5.75% cumulative preferred, 17,600 and 18,400 shares outstanding, respectively 1,760 1,840 Less current redemption requirements (80) (80) Total preferred stock subject to mandatory redemption 1,680 0.6% 1,760 0.4% LONG-TERM DEBT (Note 7): First mortgage bonds 55,000 108,535 Notes 167,707 115,380 Less current maturities and sinking fund requirements (116,001) (3,210) Total long-term debt 106,706 35.0% 220,705 51.6% TOTAL CAPITALIZATION $ 304,740 100.0% $ 428,092 100.0% * See Note 2 regarding discontinued operations and restatement of consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements. PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Common Additional Common Stock Paid-In Retained Stock Subscribed Capital Earnings Total (Thousands of Dollars) Balance at December 31, 1992 $41,315 $ - $ 23,023 $ 70,806 $135,144 Net income for 1993 - - - 7,985 7,985 Issuance of common stock 12,825 - 19,982 - 32,807 Premium on redemption of preferred stock of PGE - - - (356) (356) Cash dividends on common stock ($2.20 per share) - - - (9,805) (9,805) Balance at December 31, 1993 54,140 - 43,005 68,630 165,775 Net income for 1994 - - - 12,817 12,817 Issuance of common stock 1,399 - 2,488 - 3,887 Common stock subscribed, net (Note 5) - 2,515 - - 2,515 Premium on redemption of preferred stock of PGE - - - (980) (980) Cash dividends on common stock ($2.20 per share) - - - (12,002) (12,002) Balance at December 31, 1994 55,539 2,515 45,493 68,465 172,012 Net loss for 1995 - - - (713) (713) Issuance of common stock 2,304 - 4,256 - 6,560 Common stock subscribed, net (Note 5) - (2,515) - - (2,515) Cash dividends on common stock ($2.20 per share) - - - (12,605) (12,605) Balance at December 31, 1995 $57,843 $ - $ 49,749 $ 55,147 $162,739 The accompanying notes are an integral part of the consolidated financial statements. PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business. Pennsylvania Enterprises, Inc. ("the Company") is a holding company whose principal subsidiary, PG Energy Inc. ("PGE"), a regulated public utility formerly known as Pennsylvania Gas and Water Company, distributes natural gas to a ten-county area in northeastern Pennsylvania, a territory that includes 116 municipalities, in addition to the cities of Scranton, Wilkes-Barre and Williamsport. The Company, through its remaining subsidiaries, Pennsylvania Energy Resources, Inc. ("PERI"), Pennsylvania Energy Marketing Company ("PEM") and Theta Land Corporation, is also engaged in various non-regulated activities, including energy-related services and the construction, maintenance and rehabilitation of natural gas distribution pipelines, which have not been significant to the operations of the Company as a whole. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, PGE, PERI, PEM and Theta. The consolidated financial statements also include the accounts of Keystone Pipeline Services, Inc. ("Keystone"), a wholly-owned subsidiary of PERI, from December 4, 1995, the date Keystone was acquired by PERI. All material intercompany accounts have been eliminated in consolidation. PGE, a wholly-owned subsidiary of Pennsylvania Enterprises, Inc., is a regulated public utility subject to the jurisdiction of the Pennsylvania Public Utility Commission ("PPUC") for rate and accounting purposes. The financial statements of PGE that are incorporated in these consolidated financial statements have been prepared in accordance with generally accepted accounting principles, including the provisions of Financial Accounting Standards Board ("FASB") Statement 71, "Accounting for the Effects of Certain Types of Regulation," which give recognition to the rate and accounting practices or regulatory agencies such as the PPUC. The operations of PERI, including Keystone from its date of acquisition, PEM and Theta, which are summarized in Note 4 to these consolidated financial statements, were not significant to the operations of the Company as a whole and are reflected in the consolidated financial statements in "Other Income (deductions), net." Use of Accounting Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates involve judgments with respect to, among other things, various future economic factors which are difficult to predict and are beyond the control of the Company. Therefore, actual amounts could differ from these estimates. Utility Plant and Depreciation. Utility plant is stated at cost, which represents the original cost of construction, including payroll, administrative and general costs, and an allowance for funds used during construction. The allowance for funds used during construction ("AFUDC") is defined as the net cost during the period of construction of borrowed funds used and a reasonable rate upon other funds when so used. Such allowance is charged to utility plant and reported as a reduction of interest expense (with respect to the cost of borrowed funds) in the accompanying consolidated statements of income. AFUDC varies according to changes in the level of construction work in progress and in the sources and costs of capital. The weighted average rate for such allowance was approximately 8% in 1995, 7% in 1994 and 8% in 1993. PGE provides for depreciation on a straight-line basis. Exclusive of transportation and work equipment, the annual provision for depreciation, as related to the average depreciable original cost of utility plant, was 2.75% in 1995, 2.77% in 1994 and 2.81% in 1993, respectively. When depreciable property is retired, the original cost of such property is removed from the utility plant accounts and is charged, together with the cost of removal less salvage, to accumulated depreciation. No gain or loss is recognized in connection with retirements of depreciable property, other than in the case of significant involuntary conversions or extraordinary retirements. Revenues and Cost of Gas. PGE bills its customers monthly based on estimated or actual meter readings on cycles that extend throughout the month. The estimated unbilled amounts from the most recent meter reading dates through the end of the period being reported on are recorded as accrued revenues. PGE generally passes on to its customers increases or decreases in gas costs from those reflected in its tariff charges. In accordance with this procedure, PGE defers any current under or over-recoveries of gas costs and collects or refunds such amounts in subsequent periods. Deferred Charges (Regulatory Assets). PGE generally accounts for and reports its costs in accordance with the economic effect of rate actions by the PPUC. To this extent, certain costs are recorded as deferred charges pending their recovery in rates. These amounts relate to previously-issued orders of the PPUC and are of a nature which, in the opinion of the Company, will be recoverable in future rates, based on such rate orders. In addition to deferred taxes collectible, which represent the probable future rate recovery of the previously unrecorded deferred taxes primarily relating to certain temporary differences in the basis of utility plant not previously recorded because of the regulatory rate practices of the PPUC, and natural gas transition costs collectible, the following deferred charges are included as "Other" regulatory assets: 1995 1994 Early retirement plan charges $ 710 $ 756 Low income usage reduction program 429 441 Computer software costs 415 1,006 Corrosion control costs 341 489 Customer assistance program 109 5 Other 512 434 Total $ 2,516 $ 3,131 The Company also records, as deferred charges, the direct financing costs incurred in connection with the issuance of long-term debt and redeemable preferred stock and equitably amortizes such amounts over the life of such securities. Cash and Cash Equivalents. For the purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased, which generally have a maturity of three months or less, to be cash equivalents. Such instruments are carried at cost, which approximates market value. Income Taxes. The Company provides for deferred taxes in accordance with the provisions of FASB Statement 109. The components of the Company's net deferred income tax liability relative to continuing operations as of December 31, 1995 and 1994, are shown below: 1995 1994 (Thousands of Dollars) Utility plant basis differences $51,822 $49,638 FERC Order 636 transition costs 700 1,371 Alternative minimum tax (1,947) (2,213) Operating reserves (1,300) (1,020) Other (440) (1,176) Net deferred income tax liability $48,835 $46,600 The provision for income taxes relative to continuing operations consists of the following components: 1995 1994 1993 (Thousands of Dollars) Included in operating expenses: Currently payable - Federal $ 2,845 $ 1,654 $ 4,535 State 1,169 1,128 2,021 Total currently payable 4,014 2,782 6,556 Deferred, net - Federal 198 1,785 (515) State (463) (105) (934) Total deferred, net (265) 1,680 (1,449) Amortization of investment tax credits (193) (172) (172) Total included in operating expenses 3,556 4,290 4,935 Included in other income, net: Currently payable - Federal 410 345 93 State 159 170 35 Total currently payable 569 515 128 Deferred, net - Federal - 10 7 State - 12 6 Total deferred, net - 22 13 Total included in other income, net 569 537 141 Total provision for income taxes $ 4,125 $ 4,827 $ 5,076 The components of deferred income taxes relative to continuing operations, which are recorded consistent with the treatment allowed by the PPUC for ratemaking purposes, are as follows: 1995 1994 1993 (Thousands of Dollars) Excess of tax depreciation over depreciation for accounting purposes $ 1,587 $ 1,197 $ 1,023 FERC Order 636 transition costs (670) 1,371 - Take-or-pay costs, net (281) (652) (1,126) Other, net (901) (214) (1,333) Total deferred taxes, net $ (265) $ 1,702 $(1,436) Included in: Operating expenses $ (265) $ 1,680 $(1,449) Other income, net - 22 13 Total deferred taxes, net $ (265) $ 1,702 $(1,436) The total provision for income taxes relative to continuing operations shown in the accompanying consolidated statements of income differs from the amount which would be computed by applying the statutory federal income tax rate to income before income taxes. The following table summarizes the major reasons for this difference: 1995 1994 1993 (Thousands of Dollars) Income before income taxes $10,009 $11,828 $11,687 Tax expense at statutory federal income tax rate $ 3,503 $ 4,140 $ 4,090 Increases (reductions) in taxes resulting from - State income taxes, net of federal income tax benefit 562 942 924 Amortization of investment tax credits (193) (172) (172) Other, net 253 (83) 234 Total provision for income taxes $ 4,125 $ 4,827 $ 5,076 Long Lived Assets. In March 1995, FASB Statement 121, "Accounting for the Impairment of Long-Lived Assets", was issued. The provisions of this statement, which are effective for fiscal years beginning after September 15, 1995, require that long-lived assets, identifiable intangibles, capital leases and goodwill be reviewed for impairment whenever events occur or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In addition, FASB Statement 121 requires that regulatory assets meet the recovery criteria of FASB Statement 71, "Accounting for Effects of Certain Types of Regulation", on an ongoing basis in order to avoid a writedown. The implementation of FASB Statement 121 in 1996 is not expected to have any significant impact on the Company or PGE since the carrying amount of all assets, including regulatory assets, is considered recoverable. (2) DISCONTINUED OPERATIONS On April 26, 1995, the Company and PGE signed a definitive agreement (the "Agreement") with American Water Works Company, Inc. ("American") and Pennsylvania-American Water Company ("Pennsylvania-American"), a wholly-owned subsidiary of American, providing for the sale to Pennsylvania-American of substantially all of the assets, properties and rights of PGE's water utility operations. Under the terms of the Agreement, Pennsylvania-American paid approximately $413.5 million consisting of $266.4 million in cash and the assumption of $147.1 million of PGE's liabilities, including $141.1 million of its long-term debt, to PGE on the February 16, 1996, closing date for the transaction. This price is subject to certain post-closing adjustments. PGE continued to operate the water utility business until the closing date. The sale price reflects a $6.5 million premium over the book value of the assets sold. However, after transaction costs and the net effect of other items, principally the write-off of certain deferred regulatory assets and deferred credits and the impact of pension and other postretirement benefit expenses relative to the early retirement plan (see Note 10 of the Notes to Consolidated Financial Statements), the sale resulted in an estimated after tax loss of $6.0 million, net of the expected income from the water operations during the phase-out period (which for financial reporting purposes was April 1, 1995, through February 15, 1996). The sale involved a gain for income tax purposes, primarily because of the accelerated depreciation that had been claimed by PGE with respect to the water utility plant that was sold. It is estimated that the income taxes payable on the sale, for which deferred income taxes had previously been provided, will be approximately $56.7 million. The net cash proceeds from the sale of approximately $209.1 million, net of the estimated $56.7 million payable for income taxes, are being used by the Company and PGE to retire debt, to repurchase stock and for working capital for their continuing operations. With the sale of PGE's water utility operations, the principal assets of the Company and PGE consist of PGE's gas utility operations and approximately 46,000 acres of land. The accompanying consolidated financial statements reflect PGE's water utility operations as "discontinued operations" effective March 31, 1995. Interest charges relating to indebtedness of PGE have been allocated to the discontinued operations based on the relationship of the gross water utility plant that was sold to the total of PGE's gross gas and water utility plant. This is the same method as was utilized by PGE and the PPUC in establishing the revenue requirements of both PGE's gas and water utility operations. None of the dividends on PGE's preferred stock nor any of the Company's interest expense has been allocated to the discontinued operations. Selected financial information for the discontinued operations as of December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993 is set forth below: Net Assets of Discontinued Operations As of December 31, 1995 1994 (Thousands of Dollars) Net utility plant $ 368,742 $ 359,399 Current assets (primarily accounts receivable and accrued revenues) 12,756 12,141 Deferred charges and other assets 25,752 31,103 Total assets being acquired by Pennsylvania-American 407,250 402,643 Liabilities being assumed by Pennsylvania-American Long-term debt 141,097 141,420 Other 5,983 13,168 147,080 154,588 Net assets being acquired by Pennsylvania-American 260,170 248,055 Estimated liability for income taxes on sale of discontinued operations (56,710) (55,542) Estimated net income of discontinued operations during the remainder of the phase-out period 790 - Other net assets of discontinued operations (written off as of March 31, 1995) - 10,683 Total net assets of discontinued operations $ 204,250 $ 203,196 Income From Discontinued Operations Years ended December 31, 1995* 1994 1993 (Thousands of Dollars) Operating revenues $ 15,640 $ 66,731 $ 53,363 Operating expenses, excluding income taxes Depreciation 1,946 7,672 5,911 Other operating expenses 6,929 29,005 27,140 8,875 36,677 33,051 Operating income before income taxes 6,765 30,054 20,312 Income taxes 1,403 6,850 2,948 Operating income 5,362 23,204 17,364 Other income 9 49 71 Allocated interest charges (3,244) (12,749) (9,526) Income from discontinued operations $ 2,127 $ 10,504 $ 7,909 * Reflects amounts only through March 31, 1995, the effective date of the discontinuance of PGE's water utility operations for financial statement purposes. Net Cash Provided (Used) by Discontinued Operations Years ended December 31, 1995* 1994 1993 (Thousands of Dollars) Income from discontinued operations $ 2,127 $ 10,504 $ 7,909 Noncash charges (credits) to income: Depreciation 1,946 7,672 5,911 Deferred treatment plant costs, net 145 581 (3,560) Deferred income taxes 447 5,146 4,170 Deferred water utility billings - (5,574) (582) Changes in working capital, exclusive of long-term debt 1,648 353 (2,041) Additions to utility plant (2,276) (20,980) (32,515) Utilization of restricted funds - 9,753 15,868 Net increase (decrease) in long-term debt 1,010 (6,834) 1,640 Other, net (1,283) (69) 2,363 Net cash provided (used) for discontinued operations $ 3,764 $ 552 $ (837) * Reflects amounts only through March 31, 1995, the effective date of the discontinuance of PGE's water utility operations for financial statement purposes. (3) RATE MATTERS Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania Public Utility Code, which require that the tariffs of gas distribution companies, such as PGE, be adjusted on an annual basis, and on an interim basis when circumstances dictate, to reflect changes in their purchased gas costs, the PPUC ordered PGE to make the following changes during 1995, 1994 and 1993 to the gas costs contained in its gas tariff rates: Change in Calculated Effective Rate per MCF Increase (Decrease) Date From To in Annual Revenue December 1, 1995 $2.42 $2.75 $ 9,600,000 May 15, 1995 3.68 2.42 (8,200,000) December 1, 1994 3.74 3.68 (1,800,000) December 1, 1993 2.79 3.74 28,800,000 The changes in gas rates on account of purchased gas costs have no effect on PGE's earnings since the change in revenue is offset by a corresponding change in the cost of gas. Quarterly Gas Cost Adjustment. Effective September 14, 1995, the PPUC adopted regulations that provide for the quarterly adjustment of the annual purchased gas cost rate of larger gas distribution companies, including PGE. Such adjustments are allowed when the actual purchased gas costs vary from the estimated costs reflected in the respective company's tariffs by 2% or more. Except for reducing the amount of any over or undercollections of gas costs, these regulations will not have any material effect on PGE's financial position or results of operations, and PGE will still be required to file an annual purchased gas cost rate. As of March 1, 1996, no such quarterly gas cost adjustments had been made to PGE's tariffs. Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas Transition Costs") are subject to recovery through the annual PGC rate filing. PGE was billed a total of $1.3 million of Gas Transition Costs by its interstate pipelines. Of this amount, $858,000 was recovered by PGE over a twelve-month period ended January 31, 1995, through an increase in its PGC rate, $252,000 are being recovered by PGE in its annual PGC rate that the PPUC approved effective December 1, 1995, and the recovery of the remaining $217,000 will be sought by PGE in its PGC rate that is effective December 1, 1996. The PGC Order also indicated that while Gas Supply Realignment and Stranded Costs (the "Non-Gas Transition Costs") are not natural gas costs eligible for recovery under the PGC rate filing mechanism, such costs are subject to full recovery by local distribution companies through the filing of a tariff pursuant to either the existing surcharge or base rate provisions of the Pennsylvania Public Utility Code. By Order of the PPUC entered August 26, 1994, PGE began recovering the Non-Gas Transition Costs that it estimates it will ultimately be billed pursuant to FERC Order 636 through the billing of a surcharge to its customers effective September 12, 1994. It is currently estimated that $9.6 million of Non-Gas Transition Costs will be billed to PGE, generally over a four-year period extending through the fourth quarter of 1997, of which $6.1 million had been billed to PGE and $4.4 million had been recovered from its customers as of December 31, 1995. PGE has recorded the estimated Non-Gas Transition Costs that remain to be billed to it and the amounts remaining to be recovered from its customers. (4) OTHER INCOME (DEDUCTIONS), NET Other income (deductions), net was comprised of the following elements: 1995 1994 1993 (Thousands of Dollars) Earnings of non-regulated subsidiaries $ 651 $ 395 $ 316 Write-off of expired advances relating to income taxes, net of related income taxes 227 - - Net interest income (expense) with respect to proceeds from the issuance of debt held in a construction fund 30 (91) (330) Gain on sale of investment in joint venture, net of related income taxes - 268 - Gain on sale of land and other property, net of related income taxes - 165 20 Holding company expenses, net of related income tax benefits (189) (209) (203) Premium on retirement/defeasance of debt (11) (40) (81) Amortization of preferred stock issuance costs, net of related income tax benefits (1) (227) (126) Other 56 (3) (68) Total $ 763 $ 258 $ (472) Summary financial data for non-regulated subsidiaries: Revenues $ 8,479 $ 9,127 $ 6,574 Expenses 7,828 8,732 6,258 Net income $ 651 $ 395 $ 316 Total assets (including, $66,000, $294,000 and $817,000, respectively, eliminated in consolidation) $ 5,272 $ 1,753 $ 2,534 (5) COMMON STOCK Customer Stock Purchase Plan. On July 28, 1994, the Company implemented a Customer Stock Purchase Plan (the "Customer Plan") which provided the residential customers of PGE with a method of purchasing newly-issued shares of the Company's common stock at a 5% discount from the market price. Under the terms of the Customer Plan, 88,231 shares ($2.4 million) and 59,537 shares ($1.7 million) of the Company's common stock were issued during 1995 and 1994, respectively. Effective May 9, 1995, the Company suspended the Customer Plan because of the significant reduction in its capital requirements resulting from the sale of PGE's water utility operations to Pennsylvania-American. On January 3, 1995, the Company issued 45,360 shares of its common stock for an aggregate consideration of $1.2 million with respect to payments received pursuant to the Customer Plan during the December, 1994, subscription period. The payments so received during December are reflected under the captions "Restricted cash - Common stock subscribed" and "Common shareholders' investment - - Common stock subscribed" in these consolidated financial statements as of December 31, 1994. Dividend Reinvestment and Stock Purchase Plan. Through the Company's Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders of shares of the Company's common stock may reinvest cash dividends and/or make cash investments in the common stock of the Company. Under the DRP, 116,505 shares ($3.3 million), 62,271 shares ($1.8 million) and 15,988 shares ($465,000) of common stock were issued during 1995, 1994 and 1993, respectively. The DRP was amended on May 5, 1994, to provide the Company's shareholders with a method of reinvesting cash dividends and making cash investments to purchase newly-issued shares of the Company's common stock at a 5% discount from the market price. Prior to such amendment, cash dividends were reinvested at 100% of the market price in newly-issued shares and cash investments were used to purchase shares of the Company's common stock on the open market. Effective May 9, 1995, the Company suspended the cash investment feature of the DRP and the 5% discount from the market price on the reinvestment of dividends under the DRP because of the significant reduction in capital requirements resulting from the sale of PGE's water utility operations to Pennsylvania-American. On January 3, 1995, the Company issued 51,565 shares of its common stock for an aggregate consideration of $1.3 million with respect to cash investments made pursuant to the DRP during the fourth quarter of 1994. The investments made during the fourth quarter are reflected under the captions "Restricted cash - common stock subscribed" and "Common shareholders' investment - Common stock subscribed" in these consolidated financial statements as of December 31, 1994. Employees' Savings Plan. Under the Company's Employees' Savings Plan (a section 401(k) plan) which became effective January 1, 1992, the Company issued an additional 19,468 shares ($628,000) in 1995, 18,100 shares ($540,000) in 1994 and 16,478 shares ($481,000) in 1993. Stock Option Plan. On June 3, 1992, the Company's shareholders approved the Pennsylvania Enterprises, Inc. 1992 Stock Option Plan (the "Plan"). Under the terms of the Plan, a total of 200,000 shares of authorized but unissued common stock were reserved and made available for distribution to eligible employees. Stock options awarded under the Plan may be either Incentive Stock Options or Non-qualified Stock Options. On April 7, 1993, Non-qualified Stock Options to purchase 45,000 shares of common stock were issued to eligible employees at an exercise price of $30 per share (the fair market value of the common stock on such date). These options, which expire on April 6, 2003, could not be exercised prior to April 7, 1994. As of December 31, 1995, the options for 400 such shares had expired, 4,800 had been exercised and 39,800 options remained outstanding. In addition, as of such date, 155,400 shares of authorized but unissued common stock were reserved for distribution to eligible employees under the terms of the Plan, including 400 shares for which previously granted options had expired. Shareholder Rights Plan. On April 26, 1995, the Company adopted a Shareholder Rights Plan under the terms of which each shareholder of record at the close of business on May 16, 1995, will receive a dividend distribution of one right ("Right" or "Rights") for each share of common stock held. Each Right will entitle shareholders to purchase from the Company one-half of a share of common stock. No less than two Rights, and only integral multiples of two Rights, may be exercised by holders of Rights at an exercise price of $100 per share of common stock (equivalent to $50 for each one-half share of common stock), subject to certain adjustments. The Rights will become exercisable only if a person or group acquires 15% or more of the Company's common stock, or commences a tender or exchange offer which, if consummated, would result in that person or group owning at least 15% of the common stock. Prior to that time, the Rights will not trade separately from the common stock. If a person or group acquires 15% or more of the Company's common stock, all other holders of Rights will then be entitled to purchase, by payment of the $100 exercise price upon the exercise of two Rights, the Company's common stock (or a common stock equivalent) with a value of twice the exercise price. In addition, at any time after a 15% position is acquired and prior to the acquisition by any person or group of 50% or more of the outstanding common stock, the Company's Board of Directors may, at its option, require each outstanding Right (other than Rights held by the acquiring person or group) to be exchanged for one share of common stock (or one common stock equivalent). If, following an acquisition of 15% or more of the Company's common stock, the Company is acquired by any person in a merger or other business combination transaction or sells more than 50% of its assets or earning power to any person (other than the sale of PGE's water utility operations to Pennsylvania- American), all other holders of Rights will then be entitled to purchase, by payment of the $100 exercise price upon the exercise of two Rights, common stock of the acquiring company with a value of twice the exercise price. The Company may redeem the Rights at $.005 per Right at any time prior to the time that a person or group has acquired 15% or more of its common stock. The Rights, which expire on May 16, 2005, do not have voting or dividend rights and, until they become exercisable, have no dilutive effect on the earnings per share of the Company. (6) PREFERRED STOCK Preferred Stock of PGE Subject to Mandatory Redemption On December 23, 1993, PGE redeemed 100,000 shares of its 9.50% 1988 series cumulative preferred stock at a price of $103.5625 per share (plus accrued dividends to the redemption date), which included a voluntary redemption premium of $3.5625 per share ($356,250 in the aggregate). On May 31, 1994, PGE redeemed the remaining 150,000 outstanding shares of its 9.50% 1988 series cumulative preferred stock, $100 par value, at a price of $103.5625 per share, which included a voluntary redemption premium of $3.5625 per share ($534,375 in the aggregate), plus accrued dividends. On December 16, 1994, PGE redeemed all 150,000 shares of its 8.90% cumulative preferred stock at a price of $102.97 per share, which included a voluntary redemption premium of $2.97 per share ($445,500 in the aggregate). The holders of the 5.75% cumulative preferred stock have a noncumulative right each year to tender to PGE and to require it to purchase at a per share price not exceeding $100, up to (a) that number of shares of the 5.75% cumulative preferred stock which can be acquired for an aggregate purchase price of $80,000 less (b) the number of such shares which PGE may already have purchased during the year at a per share price of not more than $100. Eight hundred such shares were acquired and cancelled by PGE in each of the three years in the period ended December 31, 1995, for an aggregate purchase price in each year of $80,000. As of December 31, 1995, the sinking fund requirements relative to PGE's 5.75% cumulative preferred stock (the only series of preferred stock subject to mandatory redemption that was outstanding as of such date) were $80,000 for each of the years 1996 through 2000. At PGE's option, the 5.75% cumulative preferred stock may currently be redeemed at a price of $102.00 per share ($1,795,200 in the aggregate). Preferred Stock of PGE Not Subject to Mandatory Redemption On August 18, 1992, PGE issued 250,000 shares of its 9% cumulative preferred stock, par value $100 per share, for aggregate net proceeds of approximately $23.6 million. The 9% cumulative preferred stock is not redeemable by PGE prior to September 15, 1997. Thereafter, it is redeemable at the option of PGE, in whole or in part, upon not less than 30 days' notice, at $100 per share plus accrued dividends to the date of redemption and at a premium of $8 per share if redeemed from September 15, 1997, to September 14, 1998, and a premium of $4 per share if redeemed from September 15, 1998, to September 14, 1999. At PGE's option, the 4.10% cumulative preferred stock may currently be redeemed at a redemption price of $105.50 per share or for an aggregate redemption price of $10,550,000. Dividend Information The dividends on the preferred stock of PGE in each of the three years in the period ended December 31, 1995, were as follows: Series 1995 1994 1993 (Thousands of Dollars) 4.10% $ 410 $ 410 $ 410 5.75% 103 108 113 8.90% - 1,280 1,335 9.00% 2,250 2,250 2,250 9.50% 1988 series - 591 2,354 Total $2,763 $4,639 $6,462 Dividends on all series of PGE's preferred stock are cumulative, and if dividends in an amount equivalent to four full quarterly dividends on all shares of preferred stock then outstanding are in default and until all such dividends have been paid, the holders of the preferred stock, voting separately as one class, shall be entitled to elect a majority of the Board of Directors of PGE. Additionally, PGE may not declare dividends on its common stock if any dividends on shares of preferred stock then outstanding are in default. (7) LONG-TERM DEBT Long-term debt consisted of the following components at December 31, 1995 and 1994: 1995 1994 (Thousands of Dollars) Indebtedness of the Company: 10.125% senior notes, due 1999, net of unamortized discount $ 29,906 $ 29,880 Term loan, due 1999 20,000 20,000 Total long-term debt of the Company 49,906 49,880 Indebtedness of PGE: First mortgage bonds - 8 % Series, due 1997 - 3,535 8.375% Series, due 2002 30,000 30,000 9.23 % Series, due 1999 10,000 10,000 9.34 % Series, due 2019 15,000 15,000 9.57 % Series, due 1996 - 50,000 55,000 108,535 Notes - Term loan, due 1996 50,000 - Bank borrowings, at weighted average interest rates of 6.62% and 5.28%, respectively (Note 9) 65,801 65,500 115,801 65,500 Less current maturities and sinking fund requirements (115,801) (3,210) Total long-term debt of PGE 55,000 170,825 Indebtedness of PERI: Term loan, due 2000 2,000 - Less current maturities (200) - Total long-term debt of PERI 1,800 - Total consolidated long-term debt $106,706 $220,705 Term Loan Agreements. On May 31, 1994, the Company borrowed $20.0 million pursuant to a five-year term loan agreement (the "Term Loan Agreement"), which loan matures on May 31, 1999. Borrowings under the Term Loan Agreement bear interest at LIBOR ("London Interbank Offered Rates") plus one-half of one percent (5.875% as of March 1, 1996). Under the terms of the Term Loan Agreement, the Company can choose interest rate periods of one, two, three or six months. The Company utilized the proceeds from such loan to purchase $20.0 million of PGE common stock. PGE used a portion of the proceeds it so received to redeem $15.0 million of its 9.50% cumulative preferred stock and to fund the $534,375 premium in connection with such redemption. The remaining $4.5 million of proceeds were used by PGE to repay a portion of its bank borrowings and for working capital purposes. On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan agreement, which matures on November 1, 1996. Proceeds from the loan, along with other funds provided by PGE, were utilized on October 13, 1995, to redeem the $50.0 million principal amount of PGE's 9.57% Series First Mortgage Bonds due September 1, 1996. On December 7, 1995, PERI borrowed $2.0 million pursuant to a five-year term loan agreement, which loan matures November 30, 2000. Borrowings under the agreement bear interest at a fixed rate of 6.54%. PERI used the proceeds it so received along with an equity investment from the Company to acquire all of the outstanding stock of Keystone Pipeline Services, Inc. (formerly known as Ford, Bacon & Davis Sealants, Inc.) from Ford, Bacon & Davis Companies, Inc., a wholly-owned subsidiary of Deutsche Babcock Technologies, Inc. Under the terms of the term loan agreement, PERI is required to make principal repayments of $200,000, $300,000, $400,000, $500,000 and $600,000 during the years 1996, 1997, 1998, 1999 and 2000, respectively. Maturities and Sinking Fund Requirements. As of December 31, 1995, the aggregate annual maturities and sinking fund requirements of long-term debt for each of the next five years ending December 31, were: Year Amount 1996 $116,001,000 (a) 1997 $ 300,000 1998 $ 400,000 1999 $ 60,500,000 (b) 2000 $ 600,000 (a) Includes $65.8 million of PGE bank borrowings outstanding as of December 31, 1995, and PGE's term loan in the principal amount of $50.0 million. Such amounts were repaid on February 16, 1996, with proceeds from the sale of PGE's water operations to Pennsylvania-American. (b) Includes the $20.0 million of borrowings outstanding as of December 31, 1995, under the Company's Term Loan Agreement due May 31, 1999, the Company's 10.125% Senior Notes in the principal amount of $30.0 million due June 15, 1999, and PGE's 9.23% Series First Mortgage Bonds in the principal amount of $10.0 million due September 1, 1999. (8) DIVIDEND RESTRICTIONS There are no dividend restrictions in the Restated Articles of Incorporation of the Company. However, the preferred stock provisions of PGE's Restated Articles of Incorporation and certain of the agreements under which the Company and PGE have issued long-term debt provide for certain dividend restrictions. As of December 31, 1995, $5,416,000 of the consolidated retained earnings of the Company were restricted against the payment of cash dividends on common stock under the most restrictive of these covenants. (9) BANK NOTES PAYABLE As of April 19, 1993, PGE entered into a revolving bank credit agreement, as subsequently amended (the "Credit Agreement") with a group of six banks under the terms of which $60.0 million was available for borrowing by PGE through May 31, 1996. The Credit Agreement was terminated on February 26, 1996, following the sale of PGE's water operations to Pennsylvania-American on February 16, 1996, and repayment of all borrowings outstanding under the Credit Agreement with proceeds from such sale. The interest rate on borrowings under the Credit Agreement was generally less than prime. The Credit Agreement also required the payment of a commitment fee of .195% per annum on the average daily amount of the unused portion of the available funds. PGE currently has four additional bank lines of credit with an aggregate borrowing capacity of $17.5 million which provide for borrowings at interest rates generally less than prime. Borrowings outstanding under two of these bank lines of credit with borrowing capacities of $2.5 million and $5.0 million mature on May 31, 1996, and June 30, 1996, respectively. Borrowings outstanding under the other two bank lines of credit with borrowing capacities of $3.0 million and $7.0 million mature on March 31, 1996, and May 31, 1996, respectively. As of March 1, 1996, PGE had no borrowings outstanding under these additional bank lines of credit. Additionally, PGE had one other bank line of credit outstanding as of December 31, 1995, with a borrowing capacity of $3.0 million, which was terminated following the sale of PGE's water operations. The commitment fees paid by PGE with respect to its revolving bank credit agreements totaled $26,000 in 1995, $97,000 in 1994 and $113,000 in 1993. Because of limitations imposed by the terms of PGE's preferred stock, PGE is prohibited, without the consent of the holders of a majority of the outstanding shares of its preferred stock, from issuing more than $12.0 million of unsecured debt due on demand or within one year from issuance. PGE had $10.0 million due on demand or within one year from issuance outstanding as of December 31, 1995. Information relating to PGE's bank lines of credit and borrowings under those lines of credit is set forth below: As of December 31, 1995 1994 1993 (Thousands of Dollars) Borrowings under lines of credit Short-term $ 10,000 $ - $ 2,000 Long-term 65,801 65,500 47,000 $ 75,801 $ 65,500 $ 49,000 Unused lines of credit Short-term $ - $ - $ 5,000 Long-term 4,699 2,000 13,000 $ 4,699 $ 2,000 $ 18,000 Total lines of credit Prime rate $ - $ - $ 2,000 Other than prime rate 80,500 67,500 65,000 $ 80,500 $ 67,500 $ 67,000 Short-term bank borrowings (a) Maximum amount outstanding $ 10,000 $ 5,692 $ 5,666 Daily average amount outstanding $ 2,581 $ 441 $ 637 Weighted daily average interest rate 6.513% 3.984% 4.046% Weighted average interest rate at year-end 6.334% - 4.208% Range of interest rates 6.290- 3.700- 3.750- 6.660% 6.000% 6.000% (a) PGE had no short-term bank borrowings outstanding as of December 31, 1994. (10) POSTEMPLOYMENT BENEFITS Pension Benefits The Company's retirement plan is a trusteed, noncontributory, defined benefit pension plan which covers substantially all employees of the Company except those of Keystone. Pension benefits are based on years of service and average final salary. The Company's funding policy is to contribute an amount necessary to provide for benefits based on service to date, as well as for benefits expected to be earned in the future by current participants. To the extent that the present value of these obligations is fully covered by assets in the trust, a contribution may not be made for a particular year. Under the terms of the agreement regarding the sale of PGE's water utility operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American assumed the accumulated benefit obligations relating to employees of PGE who accepted employment with Pennsylvania-American (the "Transferred Employees"). In this regard, plan assets in an amount equal to the actuarial present value of accumulated plan benefits relative to the Transferred Employees will be transferred to the American pension plan. In February, 1996, PGE began terminating additional employees as a result of the sale of its water operations and the transfer of fewer employees to Pennsylvania-American than originally expected. As a result of these actions, the Company recognized an estimated settlement loss of $200,000 ($117,000 net of the related income tax benefit) and curtailment gain of $2.7 million ($1.6 million net of related income taxes) in its determination of the estimated loss on the disposal of PGE's water utility operations. In December, 1995, as a result of the agreement to transfer fewer employees to Pennsylvania-American in connection with the sale of PGE's water utility operations than originally expected, the Company offered an Early Retirement Plan ("ERP") to its employees who would be 59 years of age or older and have a minimum of five years of service as of December 31, 1995. Of the 63 eligible employees, 50 elected to accept this offer and retire as of December 31, 1995, resulting in the recording, as of December 31, 1995, of an additional pension liability of $1.6 million reflecting the increased costs associated with the ERP. Such amount was charged to the estimated loss on the disposal of PGE's water utility operations. Net pension costs relative to continuing operations, including amounts capitalized, were $353,000, $309,000 and $244,000 in 1995, 1994 and 1993, respectively. The following items were the components of such net pension costs: [CAPTION] 1995 1994 1993 (Thousands of Dollars) [S] [C] [C] [C] Present value of benefits earned during the year $ 430 $ 549 $ 470 Interest cost on projected benefit obligations 1,459 1,400 1,321 Return on plan assets (1,502) 535 (1,720) Net amortization and deferral (34) (55) (53) Deferral of investment (loss) gain - (2,120) 226 Net pension cost $ 353 $ 309 $ 244 The funded status of the plan as of December 31, 1995 and 1994, was as follows: 1995 1994 (Thousands of Dollars) Actuarial present value of the projected benefit obligations: Accumulated benefit obligations Vested $ 29,100 $ 21,592 Nonvested 47 77 Total 29,147 21,669 Provision for future salary increases 7,841 7,565 Projected benefit obligations 36,988 29,234 Market value of plan assets, primarily invested in equities and bonds 34,000 30,457 Plan assets in excess of (less than) projected benefit obligations (2,988) 1,223 Unrecognized net transition asset as of January 1, 1986, being amortized over 20 years (2,155) (2,528) Unrecognized prior service costs 1,507 2,150 Unrecognized net (gain) loss 2,155 (1,644) Accrued pension cost at year-end $ (1,481) $ (799) The assumptions used in determining pension obligations were: 1995 1994 1993 Discount rate 7.00 % 8.75 % 8.00 % Expected long-term rate of return on plan assets 9.00 % 9.00 % 9.00 % Projected increase in future compensation levels 5.00 % 5.50 % 5.50 % Other Postretirement Benefits In addition to pension benefits, the Company provides certain health care and life insurance benefits for retired employees. All of the Company's employees, except those of Keystone, may become eligible for those benefits if they reach retirement age while working for the Company. The Company records the cost of retiree health care and life insurance benefits as a liability over the employees' active service periods instead of on a benefits-paid basis. Under the terms of the agreement regarding the sale of PGE's water utility operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American assumed the accumulated benefit obligation relating to the Transferred Employees, as well as 45% of PGE's retired employees as of that date. In this regard, plan assets in an amount equal to the actuarial present value of accumulated plan benefits relative to the Transferred Employees and 45% of the retired employees as of February 16, 1996, will be transferred to trusts established by Pennsylvania-American. In February, 1996, PGE began terminating additional employees as a result of the sale of its water operations and the transfer of fewer employees to Pennsylvania-American than originally expected. As a result of the transfer, early retirement and displacement of employees, the Company recognized an estimated settlement and curtailment loss of $385,000 ($225,000 net of the related income tax benefit) as part of the loss on the disposal of PGE's water utility operations. As a result of the ERP offered by the Company to certain of its employees, PGE recorded, as of December 31, 1995, an additional liability of $805,000, ($471,000 net of the related income tax benefit) reflecting the cost of future health care benefits required to be recognized under FASB Statement 88 in conjunction with the ERP. Such amount was charged to the estimated loss on disposal of PGE's water utility operations. The following items were the components of the net cost of postretirement benefits other than pensions relative to continuing operations for the years 1995, 1994 and 1993: 1995 1994 1993 (Thousands of Dollars) Present value of benefits earned during the year $ 127 $ 148 $ 124 Interest cost on accumulated benefit obligation 577 532 532 Return on plan assets (69) (4) - Net amortization and deferral 391 360 339 Net cost of postretirement benefits other than pensions 1,026 1,036 995 Less disbursements for benefits (555) (543) (540) Increase in liability for postretirement benefits other than pensions $ 471 $ 493 $ 455 Reconciliations of the accumulated benefit obligation to the accrued liability for postretirement benefits other than pensions as of December 31, 1995 and 1994, follow: 1995 1994 (Thousands of Dollars) Accumulated benefit obligation: Retirees $ 6,514 $ 9,021 Fully eligible active employees 850 1,628 Other active employees 1,074 1,305 8,438 11,954 Plan assets at fair value - 839 Accumulated benefit obligation in excess of plan assets 8,438 11,115 Unrecognized transition obligation being amortized over 20 years (5,438) (11,108) Unrecognized net gain (loss) (703) 885 Accrued liability for postretirement benefits other than pensions $ 2,297 $ 892 The assumptions used in determining other postretirement benefit obligations were: 1995 1994 1993 Discount rate 7.00 % 8.75 % 8.00 % Expected long-term rate of return on plan assets 9.00 % 9.00 % 9.00 % Projected increase in future compensation levels 5.00 % 5.50 % 5.50 % It was also assumed that the per capita cost of covered health care benefits would increase at an annual rate of 9% in 1996 and that this rate would decrease gradually to 5-1/2% for the year 2003 and remain at that level thereafter. The health care cost trend rate assumption had a significant effect on the amounts accrued. To illustrate, increasing the assumed health care cost trend rate by 1 percentage point in each year would increase the transition obligation as of January 1, 1995, by approximately $394,000 and the aggregate of the service and interest cost components of the net cost of postretirement benefits other than pensions for the year 1995 by approximately $50,000. Since PGE has not sought to increase its base gas rates, the $441,000 ($258,000 net of related income taxes), $447,000 ($256,000 net of related income taxes) and $407,000 ($232,000 net of related income taxes) of additional cost incurred in 1995, 1994 and 1993, respectively, as a result of the adoption of the provisions of FASB Statement 106 were expensed without any adjustment being made to its gas rates. Other Postemployment Benefits In December, 1992, FASB Statement 112, "Employers' Accounting for Postemployment Benefits," was issued. The provisions of this statement require the recording of a liability for postemployment benefits (such as disability benefits, including workers' compensation, salary continuation and the continuation of benefits such as health care and life insurance) provided to former or inactive employees, their beneficiaries and covered dependents. The Company consistently recorded liabilities for benefits of this nature prior to the effectiveness of FASB Statement 112, and included liabilities for employees scheduled to be terminated in 1996 as a result of the sale of water operations in its estimate of accrued costs relative to such sale as of December 31, 1995. The provisions of FASB Statement 112, which the Company adopted effective January 1, 1994, did not have a material impact on its financial position or results of operations. (11) CONSTRUCTION EXPENDITURES PGE estimates the cost of its 1996 construction program will be $28.9 million. It is anticipated that such expenditures will be financed with internally generated funds and bank borrowings, pending the periodic issuance of stock and long-term debt. (12) COMMITMENTS AND CONTINGENCIES Valve Maintenance On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently ratified by the PPUC (the "Emergency Order"), requiring PGE to survey its gas distribution system to verify the location and spacing of its gas shut off valves, to add or repair valves where needed and to establish programs for the periodic inspection and maintenance of all such valves and the verification of all gas service line information. On March 31, 1995, the PPUC adopted an Order approving a plan submitted by PGE for complying with the Emergency Order. PGE does not believe that compliance with the terms of such Order will have a material adverse effect on its financial position or results of operations. Environmental Matters PGE, like many gas distribution companies, once utilized manufactured gas plants in connection with providing gas service to its customers. None of these plants has been in operation since 1960, and several of the plant sites are no longer owned by PGE. Pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), PGE filed notices with the United States Environmental Protection Agency (the "EPA") with respect to the former plant sites. None of the sites is or was formerly on the proposed or final National Priorities List. The EPA has conducted site inspections and made preliminary assessments of each site and has concluded that no further remedial action is planned. While this conclusion does not constitute a legal prohibition against further regulatory action under CERCLA or other applicable federal or state law, the Company does not believe that additional costs, if any, related to these manufactured gas plant sites would be material to its financial position or results of operations since environmental remediation costs generally are recoverable through rates over a period of time. (13) QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED March 31, June 30, September 30, December 31, 1995 1995 1995 1995 (Thousands of Dollars, Except Per Share Amounts) Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216 Operating income 9,905 2,271 400 7,958 Income (loss) from continuing operations 5,669 (2,133) (4,159) 3,744 Loss with respect to discontinued operations (3,704) - - (130) Net income (loss) 1,965 (2,133) (4,159) 3,614 Earnings (loss) per share of common stock: (a) Continuing operations 1.00 (.37) (.72) .65 Discontinued operations (.65) - - (.02) Earnings (loss) per share of common stock (a) .35 (.37) (.72) .63 QUARTER ENDED March 31, June 30, September 30, December 31, 1994 1994 1994 1994 (Thousands of Dollars, Except Per Share Amounts) Operating revenues $ 80,233 $ 26,568 $ 14,356 $ 46,835 Operating income 10,884 2,192 515 6,784 Income (loss) from continuing operations 6,469 (2,342) (4,038) 2,112 Income from discontinued operations 2,079 2,757 2,915 2,865 Net income (loss) 8,548 415 (1,123) 4,977 Earnings (loss) per share of common stock: Continuing operations 1.20 (.43) (.74) .38 Discontinued operations .38 .51 .53 .52 Net income (loss) before premium on redemption of subsidiary's preferred stock 1.58 .08 (.21) .90 Premium on redemption of subsidiary's preferred stock - (.10) - (.08) Earnings (loss) per share of common stock 1.58 (.02) (.21) .82 (a) The total of the earnings per share for the quarters does not equal the earnings per share for the year, as shown elsewhere in the consolidated financial statements and supplementary data of this report, as a result of the Company's issuance of additional shares of common stock at various dates during the year.
Because of the seasonal nature of PGE's gas heating business, there are substantial variations in operations reported on a quarterly basis. (14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: o Long-term debt. The fair value of both the Company's and PGE's long-term debt has been estimated based on the quoted market price as of the respective dates for the portion of such debt which is publicly traded and, with respect to the portion of such debt which is not publicly traded, on the estimated borrowing rate as of the respective dates for long-term debt of comparable credit quality with similar terms and maturities. o Preferred stock subject to mandatory redemption. The fair value of PGE's preferred stock subject to mandatory redemption has been estimated based on the market value as of the respective dates for preferred stock of comparable credit quality with similar terms and maturities. The carrying amounts and estimated fair values of the Company's and PGE's financial instruments at December 31, 1995 and 1994, were as follows: 1995 1994 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (Thousands of Dollars) Long-term debt (including current portion): Company $ 49,906 $ 50,300 $ 49,880 $ 50,000 PGE 170,801 175,431 174,035 177,027 PERI 2,000 2,000 - - Preferred stock of PGE subject to mandatory redemption (including current portion) 1,760 1,795 1,840 1,877 The Company believes that the regulatory treatment of any excess or deficiency of fair value relative to the carrying amounts of these items, if such items were settled at amounts approximating those above, would dictate that these amounts be used to increase or reduce PGE's rates over a prescribed amortization period. Accordingly, any settlement would not result in a material impact on PGE's financial position or the results of operations of either the Company or PGE. -----END PRIVACY-ENHANCED MESSAGE-----