SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-2255
VIRGINIA ELECTRIC AND POWER COMPANY
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0418825
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
701 East Cary Street, Richmond, Virginia 23219 - 3932
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (804) 771-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
----- -----
At October 31, 1997, 171,484 shares of common stock, without par value, of the
registrant were outstanding.
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
INDEX
-----
Page
Number
------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1997 and 1996........................3
Consolidated Balance Sheets - September 30,
1997 and December 31, 1996 ...................................4-5
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1997 and 1996........................6
Notes to Consolidated Financial Statements...................7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............11-18
PART II. Other Information
Item 1. Legal Proceedings...................................................19
Item 5. Other Information...................................................19
The Company....................................................19
Regulation.....................................................20
Rates..........................................................21
Item 6. Exhibits and Reports on Form 8-K ................................22-23
<PAGE>
<TABLE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------- -------------- ------------- -------------
<S> <C>
Operating revenues $ 1,456.8 $ 1,177.1 $ 3,612.5 $ 3,371.0
Operating expenses:
Operation:
Fuel, net 457.5 256.6 1,003.1 745.4
Purchased power capacity, net 198.2 178.9 542.1 539.0
Other 143.7 142.0 436.6 404.6
Maintenance 42.2 67.1 158.0 187.0
Restructuring 29.7 4.6 38.8 29.2
Depreciation and amortization 130.0 125.7 392.2 376.0
Amortization of terminated
construction project costs 8.6 8.6 25.8 25.8
Taxes -Income 106.5 87.5 206.5 218.2
-Other 68.1 67.1 201.1 202.4
------------ ------------ ------------ -----------
Total 1,184.5 938.1 3,004.2 2,727.6
------------ ------------ ------------ -----------
Operating income 272.3 239.0 608.3 643.4
------------ ------------ ------------ -----------
Other income 6.0 1.3 7.9 6.1
------------ ------------ ------------ -----------
Income before interest charges 278.3 240.3 616.2 649.5
------------ ------------ ------------ -----------
Interest charges:
Interest on long-term debt 69.0 70.8 205.9 217.7
Other 6.7 5.8 22.3 16.6
Allowance for borrowed funds
used during construction (0.3) (0.3) (1.0) (1.6)
------------ ------------ ------------ ------------
Total 75.4 76.3 227.2 232.7
------------ ------------ ------------ -----------
Distributions - preferred
securities of subsidiary
trust, net 1.8 1.8 5.3 5.3
------------ ------------ ------------ -----------
Net income 201.1 162.2 383.7 411.5
Preferred dividends 9.0 8.9 26.7 26.6
------------ ------------ ------------ -----------
Balance available for
Common Stock $ 192.1 $ 153.3 $ 357.0 $ 384.9
============ ============ ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<CAPTION>
September 30, December 31,
1997 1996*
-------------- -------------
Utility plant (includes $241.8
plant under construction in
1997 and $180.1 in 1996) $ 14,744.1 $ 14,506.8
Less accumulated depreciation 5,621.1 5,218.3
-------------- -------------
9,123.0 9,288.5
Nuclear fuel, net 152.9 145.3
-------------- -------------
Net utility plant 9,275.9 9,433.8
-------------- -------------
Investments:
Nuclear decommissioning trust funds 533.2 443.3
Other 33.2 34.5
-------------- -------------
Total investments 566.4 477.8
-------------- -------------
Current assets:
Cash and cash equivalents 27.7 47.9
Accounts receivable:
Customer accounts receivable, net 461.0 354.8
Other 77.4 80.4
Accrued unbilled revenues 170.6 180.3
Materials and supplies:
Plant and general 145.8 148.7
Fossil fuel 67.9 76.8
Other 124.5 124.5
-------------- -------------
Total current assets 1,074.9 1,013.4
-------------- -------------
Deferred debits and other assets:
Regulatory assets 748.7 773.9
Unamortized debt issuance costs 24.6 24.7
Other 124.9 104.4
-------------- -------------
Total deferred debits and other assets 898.2 903.0
-------------- -------------
Total assets $ 11,815.4 $ 11,828.0
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The consolidated balance sheet at December 31, 1996 has been taken from the
audited consolidated financial statements at that date.
4
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<CAPTION>
September 30, December 31,
1997 1996*
-------------- -------------
Long-term debt $ 3,555.3 $ 3,579.4
-------------- -------------
Company obligated mandatorily
redeemable preferred securities
of subsidiary trust (**) 135.0 135.0
-------------- -------------
Preferred stock subject to
mandatory redemption 180.0 180.0
-------------- -------------
Preferred stock not subject to
mandatory redemption 509.0 509.0
-------------- -------------
Common stockholder's equity:
Common Stock 2,737.4 2,737.4
Other paid-in capital 16.9 16.9
Earnings reinvested in business 1,381.4 1,308.4
-------------- -------------
Total common stockholder's equity 4,135.7 4,062.7
-------------- -------------
Current liabilities:
Securities due within one year 294.5 311.3
Short-term debt 126.7 312.4
Accounts payable, trade 337.6 368.6
Taxes accrued 155.3 17.4
Payroll accrued 65.8 73.1
Severance costs accrued 27.6 50.2
Interest accrued 86.3 95.3
Other 181.7 158.7
-------------- -------------
Total current liabilities 1,275.5 1,387.0
-------------- -------------
Deferred credits and other liabilities:
Accumulated deferred income taxes 1,579.5 1,565.2
Deferred investment tax credits 242.6 255.3
Deferred fuel expenses 24.2 3.3
Other 178.6 151.1
-------------- -------------
Total deferred credits and other
liabilities 2,024.9 1,974.9
-------------- -------------
Commitments and contingencies (see Note b)
Total liabilities and shareholders'
equity $ 11,815.4 $ 11,828.0
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The balance sheet at December 31, 1996 has been taken from the audited
consolidated financial statements at that date.
(**) As described in Note (c) to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05%
Junior Subordinated Notes totaling $139.2 million principal amount constitutes
100% of the Trust's assets.
5
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended September 30,
1997 1996
-------------- -------------
Cash flow from (used in) operating activities:
Net income $ 383.7 $ 411.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 481.3 466.6
Allowance for other funds used during
construction (0.1) (2.6)
Deferred income taxes 19.2 53.8
Deferred investment tax credits, net (12.7) (12.8)
Noncash return on terminated construction
project costs - pretax (3.4) (5.0)
Deferred fuel expenses 21.0 (45.9)
Deferred capacity expenses (25.9) 14.8
Restructuring 33.2 16.2
Changes in:
Accounts receivable (103.2) 5.9
Accrued unbilled revenues 9.7 25.7
Materials and supplies 11.8 12.0
Accounts payable, trade (31.5) (25.7)
Taxes accrued 160.8 57.2
Accrued expenses (39.6) (46.7)
Other 9.2 10.6
-------------- -------------
Net cash flow from operating activities 913.5 935.6
-------------- -------------
Cash flow from (used in) financing activities:
Issuance of long-term debt 270.0 24.5
Repayment of short-term debt, net (185.7) (32.9)
Repayment of long-term debt (309.3) (236.8)
Common stock dividend payments (283.9) (288.0)
Preferred stock dividend payments (26.8) (26.7)
Other (11.3) (10.0)
-------------- --------------
Net cash flow used in financing activities (547.0) (569.9)
-------------- --------------
Cash flow from (used in) investing activities:
Utility plant expenditures
(excluding AFC-other funds) (269.9) (245.3)
Nuclear fuel (excluding AFC-other funds) (71.2) (84.2)
Nuclear decommissioning contributions (27.2) (27.2)
Purchase of assets (20.0) (14.6)
Other 1.6 (9.9)
-------------- --------------
Net cash flow used in investing activities (386.7) (381.2)
-------------- --------------
Decrease in cash and cash equivalents (20.2) (15.5)
Cash and cash equivalents at beginning of period 47.9 29.8
-------------- -------------
Cash and cash equivalents at end of period $ 27.7 $ 14.3
============== =============
Cash paid during the period for:
Interest (reduced for the net cost of borrowed
funds capitalized as AFC) $ 237.8 $ 222.9
Income taxes $ 82.4 $ 152.8
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
6
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Significant Accounting Policies
General
Virginia Electric and Power Company is a regulated public utility
engaged in the generation, transmission, distribution and sale of electric
energy within a 30,000 square mile area in Virginia and northeastern North
Carolina. It sells electricity to retail customers (including governmental
agencies) and to wholesale customers such as rural electric cooperatives and
municipalities. The Virginia service area comprises about 65 percent of
Virginia's total land area, but accounts for over 80 percent of its population.
In addition, the Company has recently organized a wholesale power group to
engage in off-system wholesale purchases and sales, and that group is developing
trading relationships beyond the geographic limits of Virginia Power's retail
service territory. As used herein, the terms "Virginia Power" and the "Company"
shall refer to the entirety of Virginia Electric and Power Company, including,
without limitation, its Virginia and North Carolina operations, and all of its
subsidiaries.
In the opinion of the management of Virginia Electric and Power
Company, the accompanying unaudited consolidated financial statements contain
all adjustments, including normal recurring accruals, necessary to present
fairly the financial position as of September 30, 1997, the results of
operations for the three- and nine-month periods ended September 30, 1997 and
1996, and the cash flows for the nine-month periods ended September 30, 1997 and
1996. Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation. The results of operations for
the interim periods are not necessarily indicative of the results to be expected
for the full year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, with all significant intercompany transactions and
accounts being eliminated on consolidation.
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,
disclosure of contingent liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements, and notes thereto, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
7
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(a) Significant Accounting Policies (continued)
Commodity Contracts
Virginia Power has organized a wholesale power group to engage in
off-system purchases and sales of energy and capacity. The Company's trading
activities include fixed-priced forward contracts and the purchase and sale of
over-the-counter options that require physical delivery of the underlying
commodity. Furthermore, in order to manage price risk associated with natural
gas requirements, the Company trades NYMEX natural gas futures contracts, as
well as options on such contracts.
Options and futures contracts are marked to market with resulting gains
and losses reported in earnings unless such instruments qualify, and are
designated, as hedges for accounting purposes. Fixed price forward contracts,
initiated for trading purposes, are also marked to market with resulting gains
and losses reported in earnings. For fixed price forward contracts and options
which require physical delivery of the underlying commodity, market value
reflects management's best estimates considering over-the-counter quotations,
time value and volatility factors of the underlying commitments. Futures
contracts and options on futures contracts are marked to market based on closing
exchange prices. No options or futures contracts were designated as hedges
during the nine months ended September 30, 1997.
Purchased options and options sold are reported in Deferred
Debits and Other Assets - Other and in Deferred Credits and Other Liabilities -
Other, respectively, until exercise or expiration. Gains and losses are reported
in Other Income. Electric options exercised are reflected in the recording of
related purchases or sales of electricity as Operating Expenses or Operating
Revenues, respectively. Upon expiration, electric options written are recognized
in Operating Revenues and options purchased are recognized in Operating
Expenses. Cash flows from fixed price forward contracts, options and futures
contracts are reported in Net Cash Flow from Operating Activities.
8
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(b) Contingencies
Nuclear Insurance
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $8.9 billion for a single nuclear incident. The Company is a
member of certain insurance programs that provide coverage for property damage
to members' nuclear generating plants, replacement power and liability in the
event of a nuclear incident. The Company may be subject to retrospective
premiums in the event of major incidents at nuclear units owned by covered
utilities (including the Company). For additional information, see Note C to
CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
Site Remediation
The Environmental Protection Agency (EPA) has identified the Company
and several other entities as Potentially Responsible Parties (PRPs) at two
Superfund sites located in Kentucky and Pennsylvania. The estimated future
remediation costs for the sites are in the range of $61.5 million to $72.5
million. The Company's proportionate share of the cost is expected to be in the
range of $1.7 million to $2.5 million, based upon allocation formulas and the
volume of waste shipped to the sites. As of September 30, 1997, the Company has
accrued a reserve of $1.7 million to meet its obligations at these two sites.
Based on a financial assessment of the PRPs involved at these sites, the Company
has determined that it is probable that the PRPs will fully pay the costs
apportioned to them.
The Company and Dominion Resources, Inc., along with Consolidated
Natural Gas, have remedial action responsibilities remaining at two coal tar
sites. Based on site studies and investigations performed at these sites, the
Company accrued a $2 million reserve to meet its estimated liability. As of
September 30, 1997, the Company had incurred remedial action costs for the two
sites totaling $2 million. The Company does not anticipate that it will be
liable for additional remedial action costs that are significant in amount.
9
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(b) Contingencies (continued)
In addition to the remedial action costs associated with the coal tar
sites, two civil actions have been instituted against the City of Norfolk and
Virginia Power. Several property owners have alleged that their property has
been contaminated by toxic pollutants originating from one of the coal tar sites
now owned by the City of Norfolk and formerly owned by the Company. The first
civil action resulted in a settlement with the plaintiff prior to the trial
date. In the remaining civil action, which was inactive pending the conclusion
of the first civil action, the plaintiffs are seeking compensatory damages of $2
million and punitive damages of $1 million. This suit is expected to become
active again now that the first suit has been settled, although no formal court
date has been set. It is too early in this case for the Company to predict its
outcome. The Company has filed answers denying liability.
The Company generally seeks to recover its costs associated with
environmental remediation from third party insurers. At September 30, 1997, any
pending or possible claims were not recognized as an asset or offset against
recorded obligations of the Company.
Virginia Jurisdictional Rates
In the proceeding in which the Company filed its alternative rate plan
and in the separate 1995 Annual Informational Filing proceeding, the Virginia
State Corporation Commission (Virginia Commission) entered an order on March 6,
1997 providing that the Company's rates shall become interim rates subject to
refund as of March 1, 1997.
(c) Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust
In 1995, the Company established Virginia Power Capital Trust I (VP
Capital Trust). VP Capital Trust sold 5,400,000 shares of Preferred Securities
for $135.0 million, representing preferred beneficial interests and 97%
beneficial ownership in the assets held by VP Capital Trust.
Virginia Power issued $139.2 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135.0 million realized from
the sale of the Preferred Securities and $4.2 million of common securities of VP
Capital Trust. The common securities represent the remaining 3% beneficial
ownership interest in the assets held by VP Capital Trust. The Notes constitute
100% of VP Capital Trust's assets.
(d) Preferred Stock
As of September 30, 1997, there were 1,800,000 and 5,090,140 issued and
outstanding shares of preferred stock subject to mandatory redemption and
preferred stock not subject to mandatory redemption, respectively. There are a
total of 10,000,000 authorized shares of the Company's preferred stock.
10
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" as defined by the
Private Securities Litigation Reform Act of 1995, including (without limitation)
discussions as to expectations, beliefs, plans, objectives and future financial
performance, or assumptions underlying or concerning matters discussed in this
document. These discussions, and any other discussions, including certain
contingency matters (and their respective cautionary statements) discussed
elsewhere in this report, that are not historical facts, are forward-looking
and, accordingly, involve estimates, projections, goals, forecasts, assumptions
and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements include
current governmental policies and regulatory actions (including those of FERC,
the EPA, the Nuclear Regulatory Commission and the Virginia Commission),
industry and rate structure, operation of nuclear power facilities, acquisition
and disposal of assets and facilities, operation and storage facilities,
recovery of the cost of purchased power, nuclear decommissioning costs, and
present or prospective wholesale and retail competition. The business and
profitability of Virginia Power are also influenced by economic and geographic
factors including political and economic risks, changes in and compliance with
environmental laws and policies, weather conditions and catastrophic
weather-related damage, competition for retail and wholesale customers, pricing
and transportation of commodities, market demand for energy, inflation, capital
market conditions, unanticipated changes in operating expenses and capital
expenditures, competition for new energy development opportunities and legal and
administrative proceedings. All such factors are difficult to predict, contain
uncertainties that may materially affect actual results, and may be beyond the
control of Virginia Power. New factors emerge from time to time and it is not
possible for management to predict all such factors, nor can it assess the
impact of each such factor on the business of the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and Virginia Power undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made.
11
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Liquidity and Capital Resources
Internal generation of cash during the first nine months of 1997
provided 177% of funds required for the Company's capital requirements compared
to 188% during the first nine months of 1996. With the completion of the Clover
Power Station in 1996, the Company is in a period in which internal cash
generation should exceed construction expenditures.
As detailed in the Consolidated Statements of Cash Flows, cash flow
from operating activities for the nine-month period ended September 30, 1997
decreased $22.1 million as compared to the nine-month period ended September 30,
1996 primarily as a result of milder weather during the first and second
quarters of 1997.
Cash from (used in) financing activities was as follows:
Nine Months Ended September 30,
1997 1996
------------ -----------
(Millions)
Mortgage bonds $ 200.0
Medium-term notes 60.0
Repayment of short-term debt, net (185.7) $ (32.9)
Issuance of tax exempt securities 10.0 24.5
Repayment of long-term debt (309.3) (236.8)
Dividends (310.7) (314.7)
Other (11.3) (10.0)
------------ -----------
Total $ (547.0) $ (569.9)
============ ===========
Financing activities for the first nine months of 1997 resulted in a
net cash outflow of $547.0 million.
In February 1997, the Company issued $200 million of First and
Refunding Mortgage Bonds of 1997, Series A, 6.75%, due February 1, 2007. The
proceeds from the sale of these bonds and cash provided by operating activities
were used to fund first quarter 1997 mandatory maturities of First and Refunding
Mortgage Bonds in the amount of $299.3 million.
In April 1997, the Industrial Development Authority of the Town of
Louisa, Virginia issued $10 million of Solid Waste and Sewage Disposal Revenue
Bonds that were secured by a pledge of payments to be made by the Company. The
proceeds from the sale of these bonds were used to finance certain solid waste
and sewage disposal equipment previously installed at the Company's North Anna
Power Station located in Louisa County, Virginia.
12
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
On July 2, 1997, the Company issued $60 million of its Medium Term
Notes, Series F, at an annual interest rate of 6.35%, maturing on July 2, 1999.
The proceeds from the sale of the notes were used to reduce commercial paper
borrowings.
The Company's commercial paper program, which is primarily used to
finance working capital for operations, is supported by credit facilities
totaling $500 million. Borrowings under the commercial paper program were $126.7
million at September 30, 1997, which is a decrease of $185.7 million from the
balance at December 31, 1996.
Cash from (used in) investing activities was as follows:
Nine Months Ended September 30,
1997 1996
------------ -----------
(Millions)
Utility plant expenditures $ (269.9) $ (245.3)
Nuclear fuel (71.2) (84.2)
Nuclear decommissioning contributions (27.2) (27.2)
Purchase of assets (20.0) (14.6)
Other 1.6 (9.9)
------------ -----------
Total $ (386.7) $ (381.2)
============ ===========
Investing activities for the first nine months of 1997 resulted in a
net cash outflow of $386.7 million, primarily due to $269.9 million of
construction expenditures, $71.2 million of nuclear fuel expenditures and $20.0
million for the purchase of a gas-fired combined cycle generator. Of the
construction expenditures, the Company spent approximately $177.9 million on
transmission and distribution projects, $34 million on production projects, $56
million on general support facilities, and $2 million on clean air projects.
Results of Operations
Balance available for Common Stock increased by $38.8 million for the
three months ended September 30, 1997 as compared to the same period in 1996,
primarily the result of warmer summer temperatures in 1997 compared to unusually
mild summer weather and higher storm damage costs in 1996. Balance available for
Common Stock decreased by $27.9 million for the nine months ended September 30,
1997 as compared to the same period in 1996. This decrease is the result of
unusually mild weather in the first and second quarters of 1997 and higher
depreciation expense resulting from assets placed in service during 1997.
13
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Operating Revenues
Operating revenues changed primarily due to the following:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 vs. 1996 1997 vs. 1996
------------- -------------
Weather $ 25.1 $ (86.8)
Customer growth 7.4 29.3
Base rate variance 11.8 (5.8)
Fuel rate variance 14.7 37.9
Other, net 36.3 21.4
------------ -----------
Total retail revenues 95.3 (4.0)
Sales for resale 181.2 230.7
Other operating revenues 3.2 14.8
------------ -----------
Total revenues $ 279.7 $ 241.5
============ ===========
Customer kilowatt-hour sales changed as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 vs. 1996 1997 vs. 1996
------------- -------------
Residential 7.6% (4.2)%
Commercial 6.6 (0.1)
Industrial 2.8 3.2
Public authorities 8.0 (1.8)
Total retail sales 6.5 (1.3)
Sales for resale 192.2 102.3
Total sales 33.5 14.0
Heating and cooling degree days during the third quarter were as follows:
1997 1996 Normal
---- ---- ------
Heating degree days 10 7 18
Percentage change
compared to prior year 42.9 (53.3)
Cooling degree days 973 881 1,067
Percentage change
compared to prior year 10.4 (24.5)
14
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Heating and cooling degree days during the first nine months were as follows:
1997 1996 Normal
---- ---- ------
Heating degree days 2,334 2,715 2,393
Percentage change
compared to prior year (14.0) 22.4
Cooling degree days 1,282 1,349 1,486
Percentage change
compared to prior years (5.0) (15.4)
Retail operating revenues and retail kilowatt-hour sales for the
three-month period ended September 30, 1997 increased as compared to the same
period in 1996. These increases reflect a 10.4% increase in cooling degree days
due to warmer weather experienced in the third quarter of 1997 compared to
milder weather during the third quarter of 1996.
Retail operating revenues and retail kilowatt-hour sales for the
nine-month period ended September 30, 1997 decreased as compared to the same
period in 1996. These decreases reflect a combination of decreased revenue
resulting from milder temperatures, evidenced by a 14% decrease in heating
degree days compared to the same period in 1996, offset partially by increased
revenue due to growth in the customer base and higher fuel revenues.
The increase in sales for resale for the three- and nine-month periods
ended September 30, 1997, as compared to the same periods in 1996, is due
primarily to the heightened power marketing and trading efforts by the Company's
wholesale power group.
Fuel, net
Fuel, net increased for the three- and nine-month periods ended
September 30, 1997, as compared to the same periods in 1996, as a result of an
increase in power purchased for resale by the Company's wholesale power group in
connection with the Company's power marketing efforts.
15
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Restructuring
The Company recorded $29.7 million and $38.8 million of restructuring
charges in the three months and nine months, respectively, ended September 30,
1997, as compared to $4.6 million and $29.2 million in the three months and nine
months, respectively, ended September 30, 1996. The restructuring costs are
associated with the implementation of Vision 2000, Virginia Power's strategic
plan to prepare for the increasingly competitive electric industry in the United
States, and the establishment of a $31.1 million reserve in 1997 for potential
costs related to the transition to competition for electric operations. The
$31.1 million reserve is consistent with Virginia Power's alternative regulatory
plan pending before the Virginia State Corporation Commission. The amount of
this reserve was estimated based on Virginia Power's projected 1997 earnings. To
the extent that actual results differ from those projections, the Company may
reverse a portion or all of the reserve.
Operation - Other and Maintenance
Other operating and maintenance expenses for the three months ended
September 30, 1997, decreased as compared to the same period in 1996 as a result
of lower service restoration costs due to fewer incidents of summer storm damage
in 1997 and the timing of planned nuclear outages. The increase in the expenses
for the nine months ended September 30, 1997, as compared to the same period in
the prior year, was attributable to transmission expenses associated with the
Company's increased off-system sales, expenses related to the growth of the
Company's energy services business, increased computer lease expenses, fees paid
to the Nuclear Regulatory Commission and lump sum merit payments to the
Company's employees. These increases were partially offset by a decrease in
salaries and wages pursuant to Vision 2000 involuntary separations and lower
service restoration costs.
Income Taxes
Income taxes increased for the three-month period ended September 30,
1997 and decreased for the nine-month period ended September 30, 1997, as
compared to the same periods in 1996, primarily as a result of changes in income
subject to taxation.
Contingencies
For information on contingencies, see Note (b) to CONSOLIDATED
FINANCIAL STATEMENTS.
16
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Future Issues
Competition
Presently, Virginia Power expects to continue to operate under
regulation and to recover its cost of providing traditional electric service.
However, the form of cost-based rate regulation under which Virginia Power
operates is likely to evolve as a result of various legislative or regulatory
initiatives, including Virginia Power's alternative regulatory plan filed with
the Virginia Commission on March 24, 1997. At this time, Virginia Power
management can predict neither the ultimate outcome of regulatory reform in the
electric utility industry nor the impact such changes would have on Virginia
Power.
For additional information, see Future Issues-Competition under
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
Other
Year 2000 Compliance
In January 1997, a formal corporate Year 2000 project team was
established to oversee the evaluation of the Company's computerized systems and
devices containing embedded microprocessors for possible remedial efforts
necessitated by the upcoming millennium change.
The project team recently completed its preliminary assessment of the
Company's critical systems in order to identify those that are Year 2000
compliant and those that require remediation or replacement. A significant
portion of the systems that may require remedial action involves vendor-supplied
equipment and microprocessors for which the complete evaluation of remedial
solutions is dependent on information yet to be obtained from suppliers and
other sources external to the Company. Until that information is obtained,
management cannot develop an estimate of the costs to be incurred.
The Company is continuing its evaluation of the impact of the Year 2000
issue on its operations and expects to complete that evaluation in early 1998.
Management believes the Year 2000 compliance issue is being addressed properly
at the Company to prevent any material adverse operational or financial impacts.
In addition, the Year 2000 issue may impact other entities with which the
Company transacts business; however, the Company cannot estimate or predict the
potential adverse consequences, if any, that could result from such entities'
failure to address this issue.
17
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Sale of Subsidiary
On August 6, 1997, the Company sold its wholly-owned subsidiary, A&C
Enercom, Inc. (A&C). Earlier this year, the TriTech division of A&C was
integrated into Evantage, the retail side of Virginia Power's energy services
business unit. Management believes that TriTech's experience in helping
commercial and industrial customers improve performance and increase
competitiveness, combined with its geographic presence around the country,
strengthens Evantage's position as an energy services provider. The sale of A&C
did not have a material impact on the Company's financial statements.
Environmental
On October 10, 1997, the Environmental Protection Agency released its
proposal to require 22 states, including North Carolina, Virginia and West
Virginia, to reduce and cap emissions of nitrogen oxides in each state. The EPA
will issue a final rule by September 1998. Although the proposal leaves it up to
each state to determine how to achieve the required reductions in emissions, the
caps were calculated based on emission limits of 0.15 lb. per million BTU of
heat input for utility boilers. If the states in which Virginia Power operates
choose to impose this limit, major additional emission control equipment, with
attendant significant capital and operating costs, could be required.
18
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
In reference to the state and federal lawsuits filed against Virginia
Power by Doswell Limited Partnership on April 2, 1997, the August 26, 1997
hearing on the demurrer in the state case was rescheduled and held on October
22, 1997. Virginia Power's demurrer was overruled and no trial date has been
set. In the federal case, Virginia Power's motion to dismiss and for summary
judgment was argued on October 1, 1997. The Court took the matter under
advisement. The case is presently set for trial on December 11, 1997, but this
is likely to be rescheduled.
In reference to the civil action filed in the Circuit Court of the City
of Norfolk against the City of Norfolk and Virginia Power in which property
owners sought $15 million for alleged contamination of their property by toxic
pollutants originating from a coal tar site formerly owned by the Company, the
parties reached a settlement prior to the scheduled August 18, 1997 trial date.
The related action by other property owners seeking $3 million is still pending,
but has not yet been scheduled for trial.
Item 5. Other Information
The Company
On September 12, 1997, the Board of Directors elected Thos. E. Capps as
Chairman, succeeding John B. Adams, Jr., who had held the position since 1994.
Mr. Capps is also Chairman of the Board of Directors of Dominion Resources,
Inc., the parent company of Virginia Power and three other major subsidiaries.
On October 17, 1997, by Consent of the Sole Shareholder, Dominion
Resources, Inc., the number of Virginia Power Directors was expanded to a
maximum of eighteen (18) and the following Directors were elected to serve for
terms expiring at the annual shareholder meetings for the years indicated below:
John B. Bernhardt 2000
John W. Harris 1998
Kenneth A. Randall 1999
Dr. Frank S. Royal 1998
Judith B. Sack 1999
S. Dallas Simmons 2000
David A. Wollard 1999
19
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
(Continued)
Regulation
General
In response to the 1997 Virginia General Assembly directive in Senate
Joint Resolution No. 259, on November 7, 1997, the Staff of the Virginia
Commission presented to the SJR 259 joint legislative subcommittee its Draft
Working Model for Restructuring the Electric Utility Industry in Virginia (Staff
Model). The Staff Model states that advancement of a competitive model for the
generation of electricity in Virginia should be pursued with deliberation and
with caution, and sets forth a two-phase, five-year transition period. In Phase
I (1998 - 2001), the Commission would conduct reviews of existing rates of
electric utilities in the state, consider issues of inter-class subsidies and
rate unbundling as well as study stranded cost issues and pursue a process that
would accommodate the formation of an Independent System Operator (ISO) and a
Regional Power Exchange (RPX). As described in the Staff Model, Phase I could
also include small-scale retail pilot programs of 1-2 years in duration, Phase
II (2000-2002) of the Staff Model would include further review by the Commission
and the General Assembly, consideration of reliability issues, disposition of
potential stranded costs and handling of other costs associated with moving to
retail competition. Phase II could possibly include the filing of retail access
programs by Virginia's electric utilities.
The joint subcommittee is scheduled to reconvene on December 17, 1997
to receive comments on the Staff Model.
Virginia
In reference to the consolidated alternative regulatory plan and the
1995 Annual Information Filing proceeding before the Virginia Commission, on
October 10, 1997, the Virginia Commission entered an Order Granting Motion for
Extension of Procedural Schedule in which it extended all dates for filing
testimony, exhibits, settlements, stipulations and responses by approximately 70
days, with the hearing to commence on April 28, 1998.
In reference to the proceeding before the Virginia Commission for
approval of certain power supply arrangements with Chesapeake Paper Products
Company (CPPC), on August 13, 1997 the Virginia Commission approved, in
substantial part, the proposed transactions between Virginia Power and CPPC's
successor in ownership, St. Laurent Paper Products Co. The Virginia Commission
required that a compliance filing be made no later than six months from the date
of its Order in which all agreements necessary to implement the project are to
be in final form. Thereafter, following opportunity for comment by parties to
the proceeding and the Virginia Commission Staff, the Virginia Commission will
review the filing expeditiously and issue a final order. The City of Richmond is
appealing the Commission's decision to the Virginia Supreme Court.
20
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
(Continued)
Environmental
On October 10, 1997, the Environmental Protection Agency released its
proposal to require 22 states, including North Carolina, Virginia and West
Virginia, to reduce and cap emissions of nitrogen oxides in each state. For a
detailed discussion, see Other under MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Nuclear
In reference to Virginia Power's joint petition with thirty-five other
utility petitioners against the U.S. Department of Energy (DOE) in the U.S.
Court of Appeals for the District of Columbia and a parallel lawsuit filed by
numerous states and state agencies, oral arguments were heard on the mandamus
petitions on September 25, 1997.
Rates
FERC
On September 11, 1997, FERC authorized the Company to sell power at
market-based rates but set for hearing the issue of Virginia Power's generation
dominance in localized areas within its service territory. On September 12,
1997, the Company requested reconsideration on the convening of such a hearing
and also filed an amendment of the tariff that would preclude sales at
market-based rates within its service territory.
Virginia
On October 31, 1997, the Company filed an application with the Virginia
Commission for a $45.6 million decrease in fuel rates, to take effect on
December 1, 1997. A procedural schedule has not yet been established by the
Commission.
In reference to Virginia Power's application to modify its cogeneration
and small power production rates under Schedule 19, on September 18, 1997, the
Virginia Commission Hearing Examiner issued a report recommending that the
Company offer Schedule 19 contracts for terms up to ten years, using a ten year
planning horizon to calculate avoided costs.
North Carolina
On October 10, 1997 the Company filed an application with the North
Carolina Commission for a $728,000 increase in fuel revenues. A hearing is
scheduled for November 18, 1997.
21
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3(i) - Restated Articles of Incorporation, as amended, as in effect on
September 12, 1994 (Exhibit 3(i), Form 8-K dated October 19, 1994, File
No. 1-2255, incorporated by reference).
3(ii) - Bylaws, as amended, as in effect on October 17, 1997 (filed herewith).
4(i) - Indenture of Mortgage of the Company, dated November 1, 1935, as
supplemented and modified by fifty-eight Supplemental Indentures,
Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985,
File No. 1-2255, incorporated by reference; Fifty-Ninth Supplemental
Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended March 31,
1986, File No. 1-2255, incorporated by reference; Sixtieth Supplemental
Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended September 30,
1986, File No. 1-2255, incorporated by reference; Sixty-First
Supplemental Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended
June 30, 1987, File No. 1-2255, incorporated by reference; Sixty-Second
Supplemental Indenture, Exhibit 4(ii), Form 8-K, dated November 3,
1987, File No. 1-2255, incorporated by reference; Sixty-Third
Supplemental Indenture, Exhibit 4(i), Form 8-K, dated June 8, 1988,
File No. 1-2255, incorporated by reference; Sixty-Fourth Supplemental
Indenture, Exhibit 4(i), Form 8-K, dated February 8, 1989, File No.
1-2255, incorporated by reference; Sixty-Fifth Supplemental Indenture,
Exhibit 4(i), Form 8-K, dated June 22, 1989, File No. 1-2255,
incorporated by reference; Sixty-Sixth Supplemental Indenture, Exhibit
4(i), Form 8-K, dated February 27, 1990, File No. 1-2255, incorporated
by reference; Sixty-Seventh Supplemental Indenture, Exhibit 4(i), Form
8-K, dated April 2, 1991, File No. 1-2255, incorporated by reference;
Sixty-Eighth Supplemental Indenture, Exhibit 4(i), Sixty-Ninth
Supplemental Indenture, Exhibit 4(ii), and Seventieth Supplemental
Indenture, Exhibit 4(iii), Form 8-K, dated February 25, 1992, File No.
1-2255, incorporated by reference; Seventy-First Supplemental
Indenture, Exhibit 4(i) and Seventy-Second Supplemental Indenture,
Exhibit 4(ii), Form 8-K, dated July 7, 1992, File No. 1-2255,
incorporated by reference; Seventy-Third Supplemental Indenture,
Exhibit 4(i), Form 8-K dated August 6, 1992, File No. 1-incorporated by
reference; Seventy-Fourth Supplemental Indenture, Exhibit 4(i), Form
8-K, dated February 10, 1993, File No. 1-2255, incorporated by
reference; Seventy-Fifth Supplemental Indenture, Exhibit 4(i), Form
8-K, dated April 6, 1993, File No. 1-2255, incorporated by reference;
Seventy-Sixth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated
April 21, 1993, File No. 1-2255, incorporated by reference.
Seventy-Seventh Supplemental Indenture, Exhibit 4(i), Form 8-K, dated
June 8, 1993, File No. 1-2255, incorporated by reference;
Seventy-Eighth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated
22
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
(Continued)
August 10, 1993, File No. 1-2255, incorporated by reference;
Seventy-Ninth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated
August 10, 1993, File No. 1-2255, incorporated by reference, Eightieth
Supplemental Indenture, Exhibit 4(i), Form 8-K dated October 12, 1993,
File No. 1-2255, incorporated by reference, Eighty-First Supplemental
Indenture, Exhibit 4(iii), Form 10-K for the fiscal year ended December
31, 1993, File No. 1-2255, incorporated by reference; Eighty-Second
Supplemental Indenture, Exhibit 4(i), Form 8-K, dated January 18, 1994,
File No. 1-2255, incorporated by reference, Eighty-Third Supplemental
Indenture, Exhibit 4(i), Form 8-K, dated October 19, 1994, File No.
1-2255, incorporated by reference, Eighty-Fourth Supplemental
Indenture, Exhibit 4(i), Form 8-K dated March 22, 1995, File No.
1-2255, incorporated by reference and Eighty-Fifth Supplemental
Indenture, Exhibit 4(i), Form 8-K dated February 20, 1997, File No.
1-2255, incorporated by reference.
4(ii) - Indenture, dated as of June 1, 1986, from Virginia Electric and Power
Company to Chemical Bank pursuant to which Medium-Term Notes, Series B
were issued (Exhibit 4(v), Form 10-K for the fiscal year ended December
31, 1993, File No. 1-2255, incorporated by reference).
4(iii) - Indenture, dated as of April 1, 1988, from Virginia Electric and
Power Company to Chemical Bank, Trustee, pursuant to which Medium-Term
Notes, Series C (Multi-Currency) were issued as supplemented and
modified by a First Supplemental Indenture, dated as of August 1, 1989,
pursuant to which Medium-Term Notes, Series D(Multi-Currency), Series E
and Series F were issued (Exhibit 4(vi), Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-2255, incorporated by reference).
4(iv) - Subordinated Note Indenture, dated as of August 1, 1995, between
Virginia Electric and Power Company and Chase Manhattan Bank (formerly
Chemical Bank), as Trustee, as supplemented (Exhibit 4(a), Form S-3
Registration Statement No. 333-20561 as filed on January 28, 1997,
incorporated by reference).
27 - Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K;
None.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIRGINIA ELECTRIC AND POWER COMPANY
Registrant
November 10, 1997
/S/ M. S. BOLTON, JR.
------------------------------
M. S. Bolton, Jr.
Controller
(Chief Accounting Officer)
VIRGINIA ELECTRIC AND POWER COMPANY
-----------------------------------------
BYLAWS
As amended and in effect on October 17, 1997
<PAGE>
BYLAWS
OF
VIRGINIA ELECTRIC AND POWER COMPANY
--------------------------
As amended and in effect on October 17, 1997
<PAGE>
TABLE OF CONTENTS
----------------
Article Page
------- ----
I Name......................................................1
II Shareholders' Meetings....................................1
III Annual Meeting............................................1
IV Special Meetings..........................................1
V Notice of Shareholders' Meetings and Voting Lists.........2
VI Waiver of Notice..........................................3
VII Quorum....................................................3
VIII Proxy and Voting..........................................3
IX Board of Directors........................................4
X Powers of Directors.......................................4
XI Executive and Other Committees............................4
XII Meetings of Directors and Quorum..........................5
XIII Action Without a Meeting..................................6
XIV Officers..................................................6
XV Eligibility of Officers...................................6
XVI Chairman of the Board of Directors and President..........6
XVII Vice Presidents...........................................7
XVIII Corporate Secretary.......................................8
XIX Treasurer.................................................8
XX Controller............................................... 8
XXI Resignations and Removals................................ 9
XXII Vacancies................................................ 9
XXIII Certificates for Shares.................................. 9
XXIV Transfer of Shares.......................................10
XXV Record Date..............................................10
XXVI Voting of Shares Held....................................11
XXVII Bonds, Debentures and Notes Issued Under an Indenture....11
XXVIII Amendments...............................................11
XXIX Emergency Bylaws.........................................11
<PAGE>
BYLAWS
OF
VIRGINIA ELECTRIC AND POWER COMPANY
------------
ARTICLE I.
Name.
The name of the Corporation is Virginia Electric and Power Company.
ARTICLE II.
Shareholders' Meetings.
All meetings of the Shareholders shall be held at such place, within or
without of the Commonwealth, as provided in the notice of the meeting given
pursuant to Article V. If the Chairman of the Board of Directors determines that
the holding of any meeting at the place named in the notice might be hazardous,
he may cause it to be held at some other place deemed by him suitable and
convenient, upon arranging notice to Shareholders who attend at the first place
and reasonable opportunity for them to proceed to the new place.
ARTICLE III.
Annual Meeting.
The Annual Meeting of the Shareholders shall be held on the third
Friday in April in each year if not a legal holiday, and if a legal holiday then
on the next succeeding Friday not a legal holiday. In the event that such Annual
Meeting is omitted by oversight or otherwise on the date herein provided for,
the Board of Directors shall cause a meeting in lieu thereof to be held as soon
thereafter as conveniently may be, and any business transacted or elections held
at such meeting shall be as valid as if transacted or held at the Annual
Meeting. Such subsequent meeting shall be called in the same manner as provided
for Special Shareholders' Meetings.
ARTICLE IV.
Special Meetings.
Special Meetings of the Shareholders shall be held whenever called by
the Chairman of the Board of Directors, the President, or a majority of the
Directors or in accordance with the provisions of Article III of the Articles of
Incorporation. Special Meetings of the Shareholders shall also be held following
the accrual or termination of voting rights of the Preferred Stock, whenever
requested to be called in the manner provided in Article III of the Articles of
Incorporation.
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<PAGE>
ARTICLE V.
Notice of Shareholders' Meetings and Voting Lists.
Written notice stating the place, day and hour of each Shareholders'
Meeting and the purpose or purposes for which the meeting is called shall be
given not less than 10 nor more than 60 days before the date of the meeting, or
such longer period as is specified below, by, or at the direction of, the Board
of Directors or its Chairman, the President or any Vice President or the
Corporate Secretary or any Assistant Corporate Secretary, by hand or by mail, to
each Shareholder of record entitled to vote at the meeting, at his or her
registered address and the person giving such notice shall make affidavit in
relation thereto. Such notice shall be deemed to be given when deposited in the
United States mails addressed to the Shareholder at his address as it appears on
the stock transfer books, with postage thereon prepaid or when hand delivered at
said address.
Notice of a Shareholders' Meeting to act on an amendment of the
Articles of Incorporation, on a plan of merger or share exchange, on a proposed
dissolution of the Corporation or on a proposed sale, lease or exchange, or
other disposition, of all, or substantially all, of the property of the
Corporation otherwise than in the usual and regular course of business, shall be
given in the manner provided above, not less than 25 nor more than 60 days
before the date of the meeting. Any notice of a Shareholders' Meeting to act on
an amendment of the Articles of Incorporation, a plan of merger or share
exchange or a proposed sale, lease or exchange, or other disposition of all, or
substantially all, of the property of the Corporation otherwise than in the
usual and regular course of business shall be accompanied by a copy of the
proposed amendment, plan of merger or exchange or agreement effecting the
disposition of assets.
Any meeting at which all Shareholders having voting power in respect of
the business to be transacted thereat are present, either in person or by proxy,
or of which those not present waive notice in writing, whether before or after
the meeting, shall be a legal meeting for the transaction of business
notwithstanding that notice has not been given as hereinbefore provided.
The officer or agent having charge of the share transfer books of the
Corporation shall make, at least 10 days before each meeting of Shareholders, a
complete list of the Shareholders entitled to vote at such meeting or any
adjournment thereof, with the address of and number of shares held by each. The
list shall be arranged by voting group and within each voting group by class or
series of shares. Such list, for a period of 10 days prior to such meeting,
shall be kept on file at the principal office of the Corporation. Any person who
shall have been a Shareholder of record for at least 6 months immediately
preceding his demand or who shall be the holder of record of at least 5% of all
the outstanding shares of the Corporation, upon demand stating with reasonable
particularity the purpose thereof, shall have the right to inspect such list, in
person, for any proper purpose if such list is directly connected with such
purpose, during usual business hours within the period of 10 days prior to the
meeting. Such list shall also be produced at the time and place of the meeting
and shall be subject to the inspection of any Shareholder during the whole time
of the meeting for the purposes thereof.
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<PAGE>
ARTICLE VI.
Waiver of Notice.
Notice of any Shareholders' Meeting may be waived by any Shareholder,
whether before or after the date of the meeting. Such waiver of notice shall be
in writing, signed by the Shareholder and delivered to the Corporate Secretary.
Any Shareholder who attends a meeting shall be deemed to have waived objection
to lack of notice or defective notice of the meeting, unless the Shareholder at
the beginning of the meeting objects to holding the meeting or transacting
business at the meeting and shall be deemed to have waived objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the Shareholder
objects to considering the matter when it is presented.
ARTICLE VII.
Quorum.
At any meeting of the Shareholders, a majority in number of votes of
all the shares issued and outstanding having voting power in respect of the
business to be transacted thereat, represented by such Shareholders of record in
person or by proxy, shall constitute a quorum, but a lesser interest may adjourn
any meeting from time to time and the meeting may be held as adjourned without
further notice. When a quorum is present at any meeting, a majority vote
represented thereat shall decide any question brought before such meeting,
unless the question is one upon which by express provision of law or of the
Articles of Incorporation or of these Bylaws a larger or different vote is
required, in which case such express provision shall govern and control the
decision of such question. The provisions of this Article are, however, subject
to the provisions of Article III of the Articles of Incorporation.
ARTICLE VIII.
Proxy and Voting.
Shareholders of record entitled to vote may vote at any meeting held,
in person or by proxy executed in writing by the Shareholder or by his duly
authorized attorney-in-fact, which shall be filed with the Corporate Secretary
of the meeting before being voted. A proxy shall designate only one person as
proxy, except that proxies executed pursuant to a general solicitation of
proxies may designate one or more persons as proxies. Proxies shall entitle the
holders thereof to vote at any adjournment of the meeting, but shall not be
valid after the final adjournment thereof. No proxy shall be valid after 11
months from its date unless the appointment form expressly provides for a longer
period of validity. Shareholders entitled to vote may also be represented by an
agent personally present, duly designated by power of attorney, with or without
power of substitution, and such power of attorney shall be produced at the
meeting on request. Each holder of record of stock of any class shall, as to all
matters in respect of which stock of any class has voting power, be entitled to
one vote for each share of stock of such class standing in his name on the
books.
-3-
<PAGE>
ARTICLE IX.
Board of Directors.
A Board of Directors shall be chosen by ballot at the Annual Meeting of
the Shareholders or at any meeting held in lieu thereof as hereinbefore provided
in Article III. The number of Directors may be fixed from time to time by
resolution of the Board of Directors, within a variable range of not less than
six nor more than eighteen. Except as otherwise provided in Article XXI hereof,
each Director shall serve until the next Annual Meeting of Shareholders and
until his successor is duly elected and qualified or until the number of
Directors is decreased. The foregoing provisions are, however, subject to
Article III of the Articles of Incorporation, if and whenever the same may
become applicable by the accrual of voting rights to the Preferred Stock.
ARTICLE X.
Powers of Directors.
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under the
direction of, the Board of Directors, subject to any limitation set forth in the
Articles of Incorporation and so far as this delegation of authority is not
inconsistent with the laws of the Commonwealth of Virginia, with the Articles of
Incorporation or with these Bylaws.
ARTICLE XI.
Executive and Other Committees.
The Board of Directors, by resolution passed by a majority of the whole
Board, may designate two or more of its number to constitute an Executive
Committee. If a quorum is present, the Committee may act upon the affirmative
vote of a majority of the Committee members present. When the Board of Directors
is not in session, the Executive Committee shall have and may exercise all of
the authority of the Board of Directors except that the Executive Committee
shall not (I) approve or recommend to Shareholders action that Virginia law
requires to be approved by Shareholders; (ii) fill vacancies on the Board of
Directors or any of its Committees or elect officers; (iii) Amend Articles of
Incorporation other than as permitted by statute; (iv) adopt, amend or repeal
these Bylaws; (v) approve a plan of merger not requiring Shareholder approval;
(vi) authorize or approve a distribution, except according to a general formula
or method prescribed by the Board of Directors; or (vii) authorize or approve
the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences, and limitations of a class or
series of shares, except that the Board of Directors may authorize the Executive
Committee to do so within limits specifically prescribed by the Board of
Directors. If the Executive Committee is created for any designated purpose, its
authority shall be limited to such purpose. The Executive Committee shall report
its action to the Board of Directors. Regular and special meetings of the
Executive Committee may be called and held subject to the same requirements with
-4-
<PAGE>
respect to time, place and notice as are specified in these Bylaws for regular
and special meetings of the Board of Directors. Members of the Executive
Committee shall receive such compensation for attendance at meetings as may be
fixed by the Board of Directors.
The Board of Directors, by resolution passed by a majority of the whole
board, may designate four of its number to constitute a Nominating Committee to
nominate future members of the Board of Directors. Such Nominating Committee
shall act to ensure that a majority of the membership of the boards of directors
of the Corporation and Dominion Resources, Inc. will be comprised of directors
serving on the boards of directors of both corporations.
The Board of Directors likewise may appoint from their number other
Committees from time to time, the number composing such Committees and the power
conferred upon the same to be subject to the foregoing exceptions for an
Executive Committee but otherwise as determined by vote of the Board of
Directors.
ARTICLE XII.
Meetings of Directors and Quorum.
Regular Meetings of the Board of Directors may be held at such places
within or without the Commonwealth of Virginia and at such times as the Board by
vote may determine from time to time, and if so determined no notice thereof
need be given. Special Meetings of the Board of Directors may be held at any
time or place either within or without the Commonwealth of Virginia, whenever
called by the Chairman of the Board of Directors, the President, any Vice
President, the Corporate Secretary, or three or more Directors, notice thereof
being given to each Director by the Corporate Secretary or an Assistant
Corporate Secretary, the Directors or the officer calling the meeting, or at any
time without formal notice provided all the Directors are present or those not
present waive notice thereof. Notice of Special Meetings, stating the time and
place thereof, shall be given by mailing the same to each Director at his
residence or business address at least two days before the meeting, or by
delivering the same to him personally or telephoning the same to him at his
residence or business address at least one day before the meeting, unless, in
case of exigency, the Chairman of the Board of Directors or the President shall
prescribe a shorter notice to be given personally or by telephoning each
Director at his residence or business address.
A written waiver of notice signed by the Director entitled to such
notice, whether before or after the date of the meeting, shall be equivalent to
the giving of such notice. A Director who attends or participates in a meeting
shall be deemed to have waived timely and proper notice of the meeting unless
the Director, at the beginning of the meeting or promptly upon his arrival,
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
A majority of the number of Directors fixed at the time in accordance
with the Bylaws shall constitute a quorum for the transaction of business, but a
lesser number may adjourn any meeting from time to time, and the meeting may be
held without further notice. The foregoing provision is, however, subject to
Article III of the Articles of Incorporation. When a quorum is present at any
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<PAGE>
meeting, a majority of the members present thereat shall decide any question
brought before such meeting, except as otherwise provided by law, by the
Articles of Incorporation or by these Bylaws.
ARTICLE XIII.
Action Without a Meeting.
Any action required to be taken at a meeting of the Directors, or any
action which may be taken at a meeting of the Directors or of a Committee, may
be taken without a meeting if a consent in writing (which may be in any number
of counterparts), setting forth the action so to be taken, shall be signed by
all of the Directors, or all of the members of the Committee, as the case may
be, either before or after such action is taken. Such consent shall have the
same force and effect as a unanimous vote.
ARTICLE XIV.
Officers.
The officers of the Corporation shall be a President, one or more Vice
Presidents, a Corporate Secretary, a Treasurer and a Controller. The Chairman of
the Board of Directors and the Vice Chairman shall also be an officer unless
they are not a full-time employee of the Corporation. The officers, the Chairman
of the Board of Directors and the Vice Chairman of the Board of Directors shall
be elected or appointed by the Board of Directors after each election of
Directors by the Shareholders, and a meeting of the Board of Directors may be
held without notice for the purpose of electing officers following the Annual
Meeting of the Shareholders.
The Board of Directors, in its discretion, may appoint one or more
Assistant Corporate Secretaries, one or more Assistant Treasurers, one or more
Assistant Controllers, and such other officers or agents as it may deem
advisable, and prescribe their duties.
ARTICLE XV.
Eligibility of Officers.
The Chairman of the Board of Directors, the Vice Chairman of the Board
of Directors and the President shall be Directors. Any person may hold more than
one office provided, however, that neither the Corporate Secretary, the
Treasurer nor the Controller shall at the same time hold the office of Chairman
of the Board of Directors or President.
ARTICLE XVI.
Chairman of the Board of Directors and President.
The Chairman of the Board of Directors shall preside at the meetings of
the Board of Directors. He may call meetings of the Board of Directors and of
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<PAGE>
any Committee thereof whenever he deems it necessary. He shall call to order,
and act as chairman of, all meetings of the Shareholders and prescribe rules of
procedure therefor. He shall perform the duties commonly incident to his office
and such other duties as the Board of Directors shall designate from time to
time.
The Board of Directors may designate the Chief Executive Officer of the
Corporation.
In the absence of the Chairman of the Board of Directors, the Vice
Chairman of the Board of Directors shall perform his duties. The Vice Chairman
of the Board of Directors shall perform the duties commonly incident to his
office and such other duties as the Board of Directors shall designate from time
to time. In the absence of the Vice Chairman of the Board of Directors, the
President shall perform his duties. The President shall perform the duties
commonly incident to his office and such other duties as the Board of Directors
shall designate from time to time. The Chief Executive Officer, the President
and each Vice President shall have authority to sign deeds and contracts and to
delegate such authority in such manner as may be approved by the Chief Executive
Officer or the President.
ARTICLE XVII.
Vice Presidents.
Except as otherwise provided by the Board of Directors, each Vice
President shall have the power to sign all certificates of stock, bonds, deeds
and contracts. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors shall designate from time to time. In the
event of the absence or disability of the President, the duties and powers of
the President shall be performed and exercised by the Vice President designated
to so act by the line of succession provided by the Board of Directors, or if
not so provided by the Board of Directors, in accordance with the following
order of priority:
(a) The Executive Vice Presidents in order of their seniority of first
election to such office, or if two or more shall have been first elected to such
office on the same day, in order of their seniority in age;
(b) The Senior Vice Presidents in order of their seniority of first
election to such office, or if two or more shall have been first elected to such
office on the same day, in order of their seniority in age;
(c) All other Vice Presidents at the principal office of the
Corporation in the order of their seniority of first election to such office or
if two or more shall have been first elected to such office on the same day, the
order of their seniority in age; and
(d) Any other persons that are designated on a list that shall have
been approved by the Board of Directors, such persons to be taken in such order
of priority and subject to such conditions as may be provided in the resolution
approving the list.
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<PAGE>
ARTICLE XVIII.
Corporate Secretary.
The Corporate Secretary shall keep accurate minutes of all meetings of
the Shareholders, the Board of Directors and the Executive Committee, shall
perform the duties commonly incident to his office, and shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. The Corporate Secretary shall have power, together with the
President or a Vice President, to sign certificates for shares of stock. In his
absence an Assistant Corporate Secretary shall perform his duties.
ARTICLE XIX.
Treasurer.
The Treasurer, subject to the order of the Board of Directors, shall
have the care and custody of the money, funds and securities of the Corporation
and shall have and exercise under the supervision of the Board of Directors, all
the powers and duties commonly incident to his office. He shall deposit all
funds of the Corporation in such bank or banks, trust company or trust companies
or with such firm or firms doing a banking business, as the Directors shall
designate. He may endorse for deposit or collection all checks, notes, et
cetera, payable to the Corporation or to its order, may accept drafts on behalf
of the Corporation, and, together with the President or a Vice President, may
sign certificates for shares of stock.
All checks, drafts, notes and other obligations for the payment of
money except bonds, debentures and notes issued under an Indenture shall be
signed either manually or, if and to the extent authorized by the Board of
Directors, through facsimile, by the Treasurer or an Assistant Treasurer or such
other officer or agent as the Board of Directors shall authorize. Checks for the
total amount of any payroll may be drawn in accordance with the foregoing
provisions and deposited in a special fund. Checks upon this fund may be drawn
by such person as the Treasurer shall designate.
ARTICLE XX.
Controller.
The Controller shall keep accurate books of account of the
Corporation's transactions and shall perform such other duties and have such
other powers as the Board of Directors shall designate from time to time.
-8-
<PAGE>
ARTICLE XXI.
Resignation and Removals.
Any Director may resign at any time by giving written notice to the
Board of Directors, to the Chairman of the Board of Directors, to the President
or to the Corporate Secretary, and any member of any Committee may resign by
giving written notice either as aforesaid or to the Committee of which he is a
member or the chairman thereof. Any officer may resign at any time by delivering
notice to the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time be not specified, upon receipt thereof; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
The Shareholders, at any meeting called for the purpose, by vote of a
majority of the stock having voting power issued and outstanding, may remove any
Director from office with or without cause and elect his successor; but this
provision is subject to Article III of the Articles of Incorporation, if and
whenever the same may become applicable by the accrual of voting rights to the
Preferred Stock. The Board of Directors, by vote of a majority of the entire
Board, may remove any officer, agent or member of any Committees elected or
appointed by them, with or without cause, from office.
ARTICLE XXII.
Vacancies.
If the office of any officer or agent, one or more, becomes vacant by
reason of death, disability, resignation, removal, disqualification or
otherwise, the Directors at the time in office, may, by a majority vote at a
meeting at which a quorum is present, choose a successor or successors who shall
hold office for the unexpired term or until his successor is duly elected and
qualified or his position is eliminated.
ARTICLE XXIII.
Certificates for Shares.
Every Shareholder shall be entitled to a certificate or certificates
for shares of record owned by him in such form as may be prescribed by the Board
of Directors, duly numbered and setting forth the number and kind of shares to
which such Shareholder is entitled. Such certificates shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Corporate Secretary or an Assistant Corporate Secretary. The Board of
Directors may also appoint one or more Transfer Agents and/or Registrars for its
stock of any class or classes and may require stock certificates to be
countersigned and/or registered by one or more of such Transfer Agents and/or
Registrars. If certificates for shares are signed by a Transfer Agent or by a
Registrar, the signatures thereon of the President or a Vice President and the
Treasurer or an Assistant Treasurer or the Corporate Secretary or an Assistant
Corporate Secretary may be facsimiles, engraved or printed. Any provisions of
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<PAGE>
these Bylaws with reference to the signing of stock certificates shall include,
in cases above permitted, such facsimiles. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on, any such certificate or certificates shall cease to be such officer or
officers of the Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of the Corporation.
Notwithstanding the foregoing, the Board of Directors may authorize the
issue of some or all of the shares of any or all of its classes or series
without certificates. Within a reasonable time after the issue or transfer of
shares without certificates, the Corporation shall send the Shareholder a
written statement of the information required on certificates by the Virginia
Stock Corporation Act or other applicable law.
ARTICLE XXIV.
Transfer of Shares.
Shares may be transferred by delivery of the certificate accompanied
either by an assignment in writing on the back of the certificate or by a
written power of attorney to sell, assign and transfer the same on the books of
the Corporation, signed by the person appearing by the certificate to be the
owner of the shares represented thereby, and shall be transferable on the books
of the Corporation upon surrender thereof so assigned or endorsed. The person
registered on the books of the Corporation as the owner of any shares shall be
entitled exclusively as the owner of such shares to receive dividends and to
vote in respect thereof. It shall be the duty of every Shareholder to notify the
Corporation of his address.
ARTICLE XXV.
Record Date.
For the purpose of determining the Shareholders entitled to notice of
or to vote at any meeting of Shareholders, or any adjournment thereof, or
entitled to receive payment of any dividend, or in order to make a determination
of Shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of Shareholders,
provided that such date shall not in any case be more than 70 days prior to the
date on which the particular action, requiring such determination of
Shareholders, is to be taken. If no record date shall be fixed for the
determination of Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or for the determination of the Shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of Shareholders in such cases. A determination of Shareholders entitled to
notice of or to vote at a Shareholders' meeting is effective for any adjournment
of the meeting unless the Board of Directors fixes a new record date, which it
shall do if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
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<PAGE>
ARTICLE XXVI.
Voting of Shares Held.
Unless the Board of Directors shall otherwise provide, the Chairman of
the Board of Directors, the President any Vice President, or the Corporate
Secretary may from time to time appoint one or more attorneys-in-fact or agents
of the Corporation, in the name and on behalf of the Corporation, to cast the
votes that the Corporation may be entitled to cast as a shareholder or otherwise
in any other corporation, any of whose stock or securities of which may be held
by the Corporation, at meetings of the holders of any such other corporations,
or to consent in writing to any action by any such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on behalf
of the Corporation such written proxies, consents, waivers or other instruments
as he may deem necessary or proper in the premises; or either the Chairman of
the Board of Directors, the President or the Corporate Secretary may himself
attend any meeting of the shareholders of any such other corporation and thereat
vote or exercise any or all other powers of the Corporation as the shareholder
of such other corporation.
ARTICLE XXVII.
Bonds, Debentures and Notes Issued Under an Indenture.
All bonds, debentures and notes issued under an Indenture shall be
signed by the President or any Vice President or such other officer or agent as
the Board of Directors shall authorize and by the Corporate Secretary or any
Assistant Corporate Secretary or by the Treasurer or any Assistant Treasurer or
such other officer or agent as the Board of Directors shall authorize.
The signature of any authorized officer of the Corporation on bonds and
debentures authenticated by a corporate trustee may be made manually or by
facsimile.
ARTICLE XXVIII.
Amendments.
All Bylaws shall be subject to alteration or repeal, and new Bylaws may
be made by the affirmative vote of a majority of the Directors. The Shareholders
entitled to vote, however, shall have the power to rescind, amend, alter or
repeal the Bylaws and to enact Bylaws which, if expressly so provided, may not
be amended, altered or repealed by the Board of Directors.
ARTICLE XXIX.
Emergency Bylaws.
The Emergency Bylaws provided in this Article XXIX shall be operative
during any emergency notwithstanding any different provision in the preceding
Articles of the Bylaws or in the Articles of Incorporation of the Corporation or
in the Virginia Stock Corporation Act. An emergency exists if a quorum of the
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<PAGE>
Corporation's Board of Directors cannot readily be assembled because of some
catastrophic event. To the extent not inconsistent with these Emergency Bylaws,
the Bylaws provided in the preceding Articles shall remain in effect during such
emergency and upon the termination of such emergency the Emergency Bylaws shall
cease to be operative unless and until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any officer
of the Corporation or by any Director. Notice shall be given by the person
calling the meeting. The notice shall specify the place of the meeting, which
shall be the principal office of the Corporation at the time if feasible, but
otherwise shall be any other place specified in the notice. The notice shall
also specify the time of the meeting. Notice may be given only to such of the
Directors as it may be feasible to reach at the time and by such means as may be
feasible at the time, including publication or radio. If given by mail,
messenger or telephone, the notice shall be addressed to the Director's address
or such other place as the person giving the notice shall deem most suitable.
Notice shall be similarly given, to the extent feasible, to the other persons
referred to in (b) below. Notice shall be given at least two days before the
meeting if feasible in the judgment of the person giving the notice, but
otherwise shall be given any time before the meeting as the person giving the
notice shall deem necessary.
(b) At any meeting of the Board of Directors, a quorum shall consist of
a majority of the number of Directors fixed at the time by Article IX of the
Bylaws. If the Directors present at any particular meeting shall be fewer than
the number required for such quorum, other persons present, as determined by the
following provisions and in the following order of priority, up to the number
necessary to make up such quorum, shall be deemed Directors for such particular
meeting:
(i) The Executive Vice Presidents;
(ii) The Senior Vice Presidents in the order of their
seniority of first election to such office, or if two or more
shall have been first elected to such office on the same day,
in the order of their seniority in age;
(iii) All other Vice Presidents at the principal office of the
Corporation in the order of their seniority of first election
to such office, or if two or more shall have been first
elected to such office on the same day, in the order of their
seniority in age; and
(iv) Any other persons that are designated on a list that
shall have been approved by the Board of Directors before the
emergency, such persons to be taken in such order of priority
and subject to such conditions as may be provided in the
resolution approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
Corporation for any reason shall be rendered incapable of discharging their
duties.
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<PAGE>
(d) The Board of Directors, before and during any such emergency, may,
effective in the emergency, change the principal office or designate several
alternative principal offices or regional offices, or authorize the officers so
to do.
No officer, Director or employee shall be liable for any action taken
in good faith in accordance with these Emergency Bylaws.
These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the Shareholders, except that
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action or inaction prior to the time of such repeal or
change. Any such amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
-13-
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