SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
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 1-8489
DOMINION RESOURCES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1229715
-------- ----------
(State or other jurisdiction (I.R.S. employer
incorporation or organization) identification no.)
120 Tredegar Street
Richmond, Virginia 23219
- ------------------ -----
(Address of principal executive offices) (Zip Code)
(804) 819-2000
--------------
Registrant's telephone number
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 July 31, 1999, the latest practicable date for determination, 191,979,845
shares of common stock, without par value, of the registrant were outstanding.
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
INDEX
Page
Number
------
PART I. Financial Information
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Income - Three and Six 3
Months Ended June 30, 1999 and 1998
Consolidated Balance Sheets - June 30, 1999 4-5
and December 31, 1998
Consolidated Statements of Cash Flows - 6
Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Changes in 7
Other Comprehensive Income - Three and Six Months
Ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements 8-17
Item 2. Management's Discussion and Analysis of Financial 18-30
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 31-32
Market Risk
PART II. Other Information
Item 1. Legal Proceedings 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 34-36
Item 6. Exhibits and Reports on Form 8-K 36
</TABLE>
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues and income:
Virginia Power $ 1,086.7 $ 906.0 $2,175.1 $1,956.8
East Midlands 458.7 1,009.5
Nonutility 228.6 220.5 433.2 392.4
-------- ------- ----- -----
1,315.3 1,585.2 2,608.3 3,358.7
-------- ------- ------- -------
Operating expenses:
Fuel, net 243.1 244.4 461.2 470.5
Purchased power capacity, net 198.5 203.5 408.4 384.3
Impairment of regulatory assets 158.6 158.6
Supply and distribution-East Midlands 293.5 654.9
Other operation and maintenance 336.4 369.9 631.3 703.4
Depreciation, depletion
and amortization 175.8 170.9 354.2 387.8
Other 65.6 77.3 144.1 151.5
-------- ------- ----- -----
1,019.4 1,518.1 1,999.2 2,911.0
-------- ------- ------- -------
Operating income 295.9 67.1 609.1 447.7
-------- ------- ----- -----
Other income 14.9 18.1 48.7 33.0
-------- ---- ---- ----
310.8 85.2 657.8 480.7
-------- ------- ----- ------
Fixed charges:
Interest charges, net 119.2 176.4 238.9 337.8
Preferred dividends and distributions
of subsidiary trusts 16.6 16.7 33.0 33.3
-------- ------- ---- ----
135.8 193.1 271.9 371.1
-------- ------- ----- -----
175.0 (107.9) 385.9 109.6
Provision (benefit) for income taxes 53.4 (32.2) 119.7 34.3
Minority interests 4.2 7.0 10.3 18.5
-------- ------- ---- ----
Income (loss) before extraordinary
Item 117.4 (82.7) 255.9 56.8
Extraordinary item, net of tax 254.8
-------- ------- ----- -----
Net income (loss) $ 117.4 $ (82.7) $ 1.1 $ 56.8
======== ======= ======= =======
Average shares of common stock - basic
and diluted 192.0 195.8 192.8 194.4
Basic and diluted earnings per share:
Income (loss) before extraordinary
item $0.61 $(0.42) $1.33 $0.29
Extraordinary item $(1.32)
Net income (loss) $0.61 $(0.42) $0.01 $0.29
Dividends paid per common share $0.645 $0.645 $1.29 $1.29
- -----------------
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<CAPTION>
June 30, December 31,
1999 1998*
--------------------------------------------
(Millions)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 238.9 $ 425.6
Customer accounts receivable, net 894.1 777.8
Other accounts receivable 324.4 256.5
Materials and supplies:
Plant and general 143.3 142.0
Fossil fuel 103.3 95.0
Mortgage loans in warehouse 170.6 140.3
Commodity contract assets 283.5 179.8
Other 323.5 268.3
-------- --------
2,481.6 2,285.3
-------- --------
Investments:
Investments in affiliates 448.6 382.1
Available-for-sale securities 494.9 500.0
Nuclear decommissioning trust funds 780.0 705.1
Loans receivable, net 1,719.7 1,686.5
Investments in real estate 90.5 93.9
Other 372.8 263.0
------- -------
3,906.5 3,630.6
------- -------
Property, plant and equipment:
Property, plant and equipment 18,814.8 18,106.0
Less accumulated depreciation, depletion
and amortization 7,807.4 7,469.4
-------- --------
11,007.4 10,636.6
-------- --------
Deferred charges and other assets:
Regulatory assets 215.0 620.0
Goodwill 146.7 150.0
Other 235.3 194.5
-------- --------
597.0 964.5
------- -------
Total assets $17,992.5 $17,517.0
======== ========
- ------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
* The Balance Sheet at December 31, 1998 has been derived from the audited
Consolidated Financial Statements at that date.
</TABLE>
4
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
June 30, December 31,
1999 1998*
--------------------------------------------
(Millions)
Current liabilities:
<S> <C> <C>
Securities due within one year $ 390.4 $ 442.9
Short-term debt 842.4 300.8
Accounts payable, trade 904.6 698.5
Accrued interest 111.9 109.1
Accrued payroll 66.2 79.0
Accrued taxes 151.7 175.3
Commodity contract liabilities 338.0 265.8
Other 207.7 266.8
-------- --------
3,012.9 2,338.2
-------- --------
Long-term debt:
Virginia Power 3,509.8 3,464.7
Nonrecourse - nonutility 2,758.0 2,727.9
Dominion UK 52.9 55.6
Other 300.0 3.1
-------- --------
6,620.7 6,251.3
-------- --------
Deferred credits and other liabilities:
Deferred income taxes 1,643.2 1,792.5
Investment tax credits 155.0 221.4
Other 223.2 212.8
-------- --------
2,021.4 2,226.7
-------- --------
Total liabilities 11,655.0 10,816.2
-------- --------
Minority interest 298.2 310.9
-------- --------
Commitments and contingencies (Note I)
Company obligated mandatory redeemable
preferred securities ** 385.0 385.0
-------- --------
Virginia Power preferred stock:
Subject to mandatory redemption 180.0 180.0
-------- --------
Not subject to mandatory redemption 509.0 509.0
-------- --------
Common shareholders' equity:
Common stock - no par 3,831.7 3,933.4
Retained earnings 1,136.2 1,386.4
Accumulated other comprehensive
income (18.8) (20.1)
Other 16.2 16.2
------- --------
4,965.3 5,315.9
Total liabilities & shareholders'
equity $17,992.5 $17,517.0
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
* The Balance Sheet at December 31, 1998 has been derived from the audited
Consolidated Financial Statements at that date.
** As described in Note(G)to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, the
7.83% and 8.05% Junior Subordinated Notes totaling $257.7 and $139.2
million principal amounts constitute 100% of the Trusts' assets.
5
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------------------------
(Millions)
Cash flows from (used in) operating activities:
<S> <C> <C>
Net income $ 1.1 $ 56.8
Adjustments to reconcile net income to net cash:
Depreciation, depletion and amortization 396.4 431.0
Purchase and originations of mortgage loans (1,145.8) (999.7)
Proceeds from sales and principal collections
of mortgage loans 1,115.5 867.2
Extraordinary item, net of income taxes 254.8
Deferred income taxes (103.7)
Impairment of regulatory assets 158.6
Provision for rate refund 186.3
Changes in assets and liabilities:
Accounts receivable (153.8) (91.5)
Accounts payable, trade 156.6 177.6
Accrued interest and taxes (79.0) (16.0)
Other changes (117.5) (45.6)
-------- -------
Net cash flows from operating activities 428.3 621.0
-------- -------
Cash flows from (used in) financing activities:
Issuance of common stock 348.5
Repurchase of common stock (109.0)
Issuance of long-term debt 2,552.9 2,245.3
Issuance of short-term debt 253.5 60.4
Repayment of long-term debt (2,203.5) (1,871.9)
Common dividend payments (248.4) (251.9)
Other (10.3) (48.9)
-------- ---------
Net cash flows from financing activities 235.2 481.5
-------- ---------
Cash flows from (used in) investing activities:
Utility capital expenditures (316.4) (308.0)
Acquisition of natural gas and independent power
properties (151.8) (37.4)
Loan originations (1,052.6) (1,110.2)
Repayment of loan originations 1,023.6 788.4
Acquisition of businesses (166.6) (343.8)
Purchase of securities (90.7) (38.8)
Purchase of other investments (51.0)
Proceeds from sale of securities 100.3 54.1
Other (145.0) (57.2)
-------- ---------
Net cash flows used in investing activities (850.2) (1,052.9)
-------- --------
Increase (decrease) in cash and cash equivalents (186.7) 49.6
Cash and cash equivalents at beginning of period 425.6 321.6
-------- -------
Cash and cash equivalents at end of period $ 238.9 $ 371.2
======== ========
</TABLE>
6
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN OTHER COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Millions)
Other Comprehensive Income:
Unrealized gains (losses) on investment securities:
<S> <C> <C> <C> <C>
Pre-tax $ 7.0 $ 7.3 $ 4.0
Tax (3.4) (4.0) (1.1)
---- ---- ----
Net of tax 3.6 3.3 2.9
Foreign currency translation
adjustments 0.8 $1.2 (2.0) 5.9
--- ---- ---- ---
Increase in other
comprehensive income 4.4 1.2 1.3 8.8
Accumulated other comprehensive
income at beginning of period (23.2) 4.3 (20.1) (3.3)
----- --- ----- ----
Accumulated other comprehensive
income at end of period $(18.8) $5.5 $(18.8) $ 5.5
====== ==== ====== =====
</TABLE>
- ----------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
7
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) DOMINION RESOURCES AND INTERIM REPORTING POLICIES
NATURE OF OPERATIONS
General Organization and Legal Description
Dominion Resources is a holding company headquartered in Richmond, Virginia. Its
principal subsidiary is Virginia Electric and Power Company (Virginia Power),
which is a regulated public utility. Virginia Power is 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 government agencies) and to wholesale
customers such as rural electric cooperatives, power marketers and
municipalities. The Virginia service area comprises about 65 percent of
Virginia's total land area, but accounts for 80 percent of its population.
Virginia Power's wholesale power group engages in off-system wholesale purchases
and sales of electricity and purchases and sales of natural gas beyond the
geographic limits of Virginia Power's service territory.
Dominion Resources' subsidiary Dominion Energy is engaged in independent power
production and the acquisition and sale of natural gas and oil reserves. Some of
the independent power and natural gas and oil businesses are located in foreign
countries. In Latin America, Dominion Energy is engaged in power generation. In
Canada, Dominion Energy is engaged in natural gas exploration, production and
storage. Dominion Energy's net investment in foreign operations is approximately
$412 million at June 30, 1999. See Note (L).
Dominion Capital is Dominion Resources' financial services subsidiary. Dominion
Capital's primary business is financial services which includes commercial
lending, merchant banking and residential mortgage lending.
Dominion Resources' United Kingdom subsidiary, Dominion U.K. Holding, Inc., owns
an 80% interest in Corby Power Station, a 350 megawatt natural gas fired
facility located in Northamptonshire, about 90 miles north of London.
Dominion Resources translates foreign currency financial statements by adjusting
balance sheet accounts using the exchange rate at the balance sheet date and
income statement accounts using the average exchange rate for the reporting
period.
GENERAL
In the opinion of Dominion Resources' management, the accompanying unaudited
Consolidated Financial Statements contain all adjustments, including normal
recurring accruals, necessary to present fairly the financial position as of
June 30, 1999, the results of operations for the three-month and six-month
periods ended June 30, 1999 and 1998, and cash flows for the six-month periods
ended June 30, 1999 and 1998.
These Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes included in the Dominion Resources
Annual Report on Form 10-K for the year ended December 31, 1998.
The Consolidated Financial Statements include the accounts of Dominion Resources
and its subsidiaries, with all significant intercompany transactions and
accounts being eliminated on consolidation.
8
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Dominion Resources uses the equity method when accounting for its 80% investment
in Corby Power Ltd. (Corby) as the company believes that Corby's governing
agreements give substantive participating rights to the minority shareholder.
Corby owns and operates a 350-megawatt gas-fired power station in England. Corby
had total revenues of $27.1 million and total expenses of $30.7 million for the
second quarter ending June 30, 1999. Also, Corby had total revenues of $63.6
million and total expenses of $60 million for the six month period ending June
30, 1999.
Interest and taxes were included in total expenses for each time period.
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 liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The results of operations for the interim periods are not necessarily
indicative of the results expected for the full year. Information for quarterly
periods is affected by seasonal variations in sales, rate changes, timing of
fuel expense recovery and other factors.
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
Under Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS No. 128), Dominion Resources computation of diluted earnings per share is
the same as basic earnings per share. The computation did not include the 6.9
million nonqualified stock options to purchase common shares because they are
antidilutive. For more information, see Note K to the Notes to the Consolidated
Financial Statements.
As discussed in the Dominion Resources' Form 8-K, filed March 29, 1999, Virginia
Power discontinued the application of Statement of Financial Accounting
Standards No. 71 (SFAS No. 71), Accounting for the Effects of Certain Types of
Regulation, to its generation operations. The effect thereof was an after-tax
charge of $254.8 million. See Note (C) below.
Segment Reporting
Effective December 31, 1998, Dominion Resources adopted SFAS No. 131, Disclosure
About Segments of an Enterprise and Related Information. Dominion Resources has
defined Dominion Resources segments based on product, geographic location and
regulatory environment.
In preparation for the transition to competition for electric generation in
Virginia, beginning May 1, 1999 Dominion Resources began to evaluate the
operating results and financial information across Virginia Power's and Dominion
Energy's current organizational structure. Although the employees and assets
involved remain with their respective companies, Dominion Resources currently
evaluates the companies of Dominion Energy and Virginia Power in the following
business segments:
o generation-related operations of both Virginia Power and Dominion Energy
(referred to as Dominion Generation);
o regulated electric transmission and distribution services (referred to as
Virginia Power - Wires Business); and
9
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
o oil and gas operations of Dominion Energy (referred to as Dominion Energy -
Gas Operations).
In addition to the business segments mentioned above, Dominion Resources also
reviews the following as business segments:
o the financial services of Dominion Capital;
o Dominion UK which was sold by Dominion Resources on July 27, 1998; and
o Corporate Operations.
The Corporate Operations category includes:
o corporate costs of Dominion Resources' holding company,
o Corby Power (UK)operations,
o intercompany eliminations,
o impact of the impairment of regulatory assets and one-time refund recorded
as a result of the settlement of Virginia Power's 1998 Virginia
jurisdictional rate proceedings in the second quarter of 1998, and
o extraordinary item recorded in the first quarter of 1999. See Note C to the
Notes to the Consolidated Financial Statements.
For more information on business segments, see Note (M) to the Notes to the
Consolidated Financial Statements.
(B) DOMINION RESOURCES, Inc. and CONSOLIDATED NATURAL GAS COMPANY MERGER
On June 30, 1999, the shareholders of Dominion Resources and Consolidated
Natural Gas Company (CNG) approved the pending merger of the companies at each
company's Special Meeting of Shareholders.
Also, the Pennsylvania Public Utility Commission and the West Virginia Public
Service Commission have approved the merger, subject to certain conditions
agreed to by Dominion Resources and CNG. The Virginia State Corporation
Commission and the North Carolina Utilities Commission have set dates for
consideration of the proposed merger.
Filings are also pending with the Department of Justice, Federal Trade
Commission, the Securities and Exchange Commission and the Federal Energy
Regulatory Commission and other agencies.
(C) VIRGINIA JURISDICTIONAL RATES
In 1998, Virginia Power negotiated a settlement with the Virginia State
Corporation Commission (Virginia Commission) that resolved then outstanding rate
proceedings. As part of the settlement, Virginia Power agreed to a one-time rate
refund paid to customers in 1998 and a two-phased rate reduction and base rate
freeze through February 2002. For additional information, see Note (R) to the
Notes to Consolidated Financial Statements included in Dominion Resources'
Annual Report on Form 10-K for the year ended December 31, 1998.
In March 1999, the Governor of Virginia signed into law legislation establishing
a detailed plan to restructure the electric utility industry in Virginia. Such
legislation will deregulate generation by 2002 with the phase-in of retail
customer choice beginning at that time. Under this legislation, Virginia Power's
base rates will remain generally unchanged until July 2007 and recovery of
generation-related costs will continue to be provided through the capped rates.
The legislation's deregulation of generation required discontinuation of SFAS
No.
10
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
71 for Virginia Power's generation operations in the first quarter of 1999.
Virginia Power's transmission and distribution operations continue to meet the
criteria for recognition of regulatory assets and liabilities as defined by SFAS
No. 71. In addition, fuel expense continues to be subject to deferral
accounting.
The effect of discontinuing SFAS No. 71 was an after-tax charge to earnings of
$254.8 million. The $254.8 million charge included the write-off of
generation-related assets that were not expected to be recovered during the
transition period. It also included the write-off of approximately $38 million,
after-tax, of deferred investment tax credits.
Also, in conjunction with the discontinuance of SFAS No. 71, Virginia Power
reviewed its utility plant assets and long-term power purchase contracts for
possible impairment. No impairments were recorded based on Virginia Power's
analyses which were highly dependent on the underlying assumptions. Significant
estimates were required in recording the effect of the deregulation legislation,
including the fair value determination for generating facilities and estimated
purchases under long-term power purchase contracts.
Virginia Power remains subject to numerous risks including, among others,
exposure to long-term power purchase commitment losses, environmental
contingencies, changes in tax laws, decommissioning costs, inflation, increased
capital costs, and recovery of certain other items. Management believes the
stable rates that are provided until July 2007 by the 1999 legislation present a
reasonable opportunity to recover a substantial portion of Virginia Power's
potentially stranded costs as more fully described in Dominion Resources' 1998
annual report on Form 10-K in Competition--Exposure to Potentially Stranded
Costs, Management's Discussion and Analysis of Financial Condition and Results
of Operations. See also Note (B) to the Notes to Consolidated Financial
Statements included in Dominion Resources' Form 10-Q for the period ended March
31, 1999 for further discussion of the impact of the discontinuation of SFAS No.
71 and impairment review.
(D) PROVISION FOR INCOME TAXES
Income before provision for income taxes, classified by source of income, before
minority interest was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Millions)
U.S. $168.8 $(129.7) $371.0 $45.9
Non U.S. 6.2 21.8 14.9 63.7
--- ---- ---- ----
Total $175.0 $(107.9) $385.9 $109.6
===== ====== ===== =====
11
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The statutory U.S. federal income tax rate reconciles to the effective income
tax rates as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Percents
<S> <C> <C> <C> <C>
U.S. statutory rate 35.0 (35.0) 35.0 35.0
Utility plant differences 0.1 12.4 0.8 16.0
Amortization of investment tax
credits (2.0) (3.9) (2.0) (7.7)
Preferred dividends of Virginia
Power 1.8 2.9 1.6 5.7
Nonconventional fuel credit (5.1) (5.4) (4.5) (10.9)
Benefits and taxes related to
foreign operations (0.2) (4.5) (1.2) (14.9)
State taxes, net of federal
benefit 1.7 3.7 1.9 5.7
Other, net (0.8) (0.1) (0.6) 2.4
---- ----- ---- ---
Effective tax rate 30.5 (29.9) 31.0 31.3
==== ==== ==== ====
</TABLE>
The effective income tax rate includes state and foreign income taxes.
(E) COMMON STOCK
At June 30, 1999, there were 300,000,000 shares of Dominion Resources common
stock authorized of which 191,979,845 were issued and outstanding. Common shares
issued and purchased during the referenced periods were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Employee Savings Plans 198,168 399,356
Dominion Direct Investment 816,411 1,587,354
Public Offering 6,775,000
Stock Repurchase (50,000) (2,618,400)
Other 25,492 8,414 140,139 (53,015)
------- --------- ---------- ---------
Total Shares (24,508) 1,022,993 (2,478,261) 8,708,695
======= ========= ========== =========
</TABLE>
On July 20, 1998, the Dominion Resources Board of Directors authorized the
repurchase of up to $650 million (approximately 8 percent) of Dominion Resources
common stock outstanding. Dominion Resources has repurchased $207.5 million to
date and continues to monitor market conditions for opportunities to repurchase
additional shares.
Also, effective August 1, 1998, shares required by Dominion Direct Investment
and the Employee Savings Plans are being acquired on the open market instead of
issuing new shares.
(F) PREFERRED STOCK - VIRGINIA POWER
As of June 30, 1999, 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 10,000,000
authorized shares of Virginia Power's preferred stock.
12
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(G) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
In December 1997, Dominion Resources established Dominion Resources Capital
Trust I (DR Capital Trust). DR Capital Trust sold 250,000 shares of capital
securities for $250 million, representing preferred beneficial interests and 97%
beneficial ownership in the assets held by DR Capital Trust.
Dominion Resources issued $257.7 million of 7.83% Junior Subordinated Debentures
(Debentures) in exchange for the $250 million realized from the sale of the
capital securities and $7.7 million of common securities of DR Capital Trust.
The common securities which are held by Dominion Resources represent the
remaining 3% beneficial ownership interest in the assets held by DR Capital
Trust. The Debentures constitute 100 percent of DR Capital Trust's assets.
In 1995, Virginia Power established Virginia Power Capital Trust I (VP Capital
Trust). VP Capital Trust sold 5,400,000 shares of preferred securities for $135
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 million realized from
the sale of the preferred securities and $4.2 million of common securities of VP
Capital Trust. The common securities which are held by Virginia Power 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.
(H) RECENTLY ADOPTED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, which defers the effective date of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. As a
result, Dominion Resources must adopt SFAS No. 133 no later than January 1,
2001. SFAS No. 133 requires that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
The FASB-sponsored Derivatives Implementation Group that is addressing
implementation issues related to SFAS No. 133 has tentatively concluded that
certain long-term power purchase contracts may be considered derivatives under
SFAS No. 133. Dominion Resources has not yet quantified the impacts of adopting
SFAS No. 133 and has not yet determined the timing of, or method of, adoption.
(I) CONTINGENCIES
VIRGINIA POWER
Nuclear Insurance
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $9.7 billion for a single nuclear incident. Virginia Power 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
13
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
of a nuclear incident. Virginia Power may be subject to retrospective premiums
in the event of major incidents at nuclear units owned by covered utilities
(including Virginia Power).
For additional information, see Note (T) to the Notes to the Consolidated
Financial Statements included in Dominion Resources' Annual Report on Form 10-K
for the year ended December 31, 1998.
Environmental Matters
The Environmental Protection Agency (EPA) has identified Virginia Power 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 $61.8 million to $69.5
million. Virginia Power's proportionate share of the cost is expected to be in
the range of $1.6 million to $2.2 million, based upon allocation formulas and
the volume of waste shipped to the sites. Virginia Power 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, Virginia Power has determined
that it is probable that the PRPs will fully pay the costs apportioned to them.
Virginia Power generally seeks to recover its costs associated with
environmental remediation from third party insurers. At June 30, 1999, any
pending or possible claims were not recognized as an asset or offset against
such obligations of Virginia Power.
In April 1999, Virginia Power was notified by the Department of Justice of
alleged noncompliance with the EPA's oil spill, prevention, control and
countermeasures plans and facility response requirements at one of its power
stations. If, in a legal proceeding, such instances of noncompliance are deemed
to have occurred, Virginia Power may be required to remedy any alleged
deficiencies and pay civil penalties. Settlement of this matter is currently in
negotiation and is not expected to be material to Virginia Power's financial
condition or results of operations.
DOMINION RESOURCES AND ITS NONUTILITY SUBSIDIARIES
Dominion Resources
DR Group Holdings Guarantee
On October 30, 1998, DR Group Holdings entered into a revolving credit agreement
with Bayerische Landesbank Girozentrale. The total commitment and outstanding
balance of the agreement is 33.5 million pounds sterling ($52.9 million at June
30, 1999). Dominion Resources is guarantor to DR Group Holdings for this
revolving credit agreement.
Dominion Energy
Subsidiaries of Dominion Energy have general partnership interests in certain of
its energy ventures. These subsidiaries may be required to fund future
operations of these investments, if operating cash flow is insufficient.
Under an agreement related to the acquisition and financing of the Kincaid Power
Station, Dominion Energy's wholly-owned subsidiary, Dominion Energy Construction
Company (DECCO), completed certain improvements to the facility. Dominion Energy
has provided a guarantee of DECCO's financial obligation under this agreement.
Also, Dominion Energy must fund up to approximately $142
14
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
million, less cash generated, in additional equity that may be required by
Kincaid Generation LLC (KGL), the owner of the Kincaid Power Station. Dominion
Resources has guaranteed Dominion Energy's obligation to make such equity
infusions to KGL.
Dominion Capital
As of June 30, 1999, Dominion Capital had commitments to fund loans of
approximately $591.9 million.
For additional information regarding Contingencies, see Note (T) to the Notes to
the Consolidated Financial Statements included in Dominion Resources' Annual
Report on Form 10-K for the year ended December 31, 1998.
(J) LINES OF CREDIT
Dominion Resources and its subsidiaries have lines of credit, revolving credit
agreements and bank commitments that provide for maximum borrowings of $5,156.3
million. At June 30, 1999, $2,153.4 million had been borrowed under such
agreements. In addition, these credit agreements supported $383.9 million of
Dominion Resources' commercial paper and $538.9 million of non-recourse
commercial paper issued by Dominion Resources' subsidiaries which was
outstanding at June 30, 1999. At June 30, 1999, $363.6 million of Dominion
Resources and its subsidiaries commercial paper is classified as long-term debt
since it is supported by revolving credit agreements that have expiration dates
extending beyond one year.
(K) LONG-TERM INCENTIVES
1999 Option Awards:
On May 17, 1999 Dominion Resources awarded 6.9 million of nonqualified stock
options under its Long Term Incentive Plan to employees and directors of
Dominion Resources, Virginia Power and Dominion Energy. Currently, the total
number of shares authorized to be issued under the Plan is 11 million. The
exercise price for the options is $41.25 which is equal to the market price of
Dominion Resources common stock on the date of the grant. These options vest
over three years and expire on May 17, 2009.
Accounting Treatment:
In 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123
Accounting for Stock Based Compensation. Under SFAS No. 123, compensation cost
is measured at the grant date based on the fair value of the award and is
recognized over the service (or vesting) period. However, as permitted under
SFAS No. 123, the company instead measures compensation cost in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations. Under this standard, compensation cost is
measured as the difference between the market price of the company's common
stock and the exercise price of the option at the grant date. Accordingly, no
compensation expense has been recognized for the May 1999 stock option grant.
Had compensation cost associated with the May 1999 stock options been determined
under SFAS No. 123 based on the fair market value at the grant
15
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
date, such cost would have been approximately $1.8 million, net of related
income taxes, for the three month and six month periods ended June 30, 1999. In
addition, basic earnings per share for the three months ended June 30, 1999,
would have decreased by $0.01 due to the issuance of the 6,939,000 stock options
on May 17, 1999. Basic earnings per share for the six month period ended June
30, 1999, and fully diluted earnings per share for both the three and six month
periods ended June 30, 1999, would not have been affected.
The fair value of those options granted in May 1999 was estimated on the date of
grant using the Black-Scholes option pricing model. The following assumptions
were used:
o expected dividend yield of 5.88%,
o expected volatility of 15.5%,
o risk-free interest rate of 5.53% and
o expected lives of six years. The fair value of each option at the date of
the grant was $4.10.
Previous Option Awards:
For the six-month period ended June 30, 1999, 1,013 shares were issued
associated with exercised stock options from previous awards. These previous
awards were made under the Dominion Resources' Long-Term Incentive Plan which
expired in 1997 and was replaced with the Dominion Resources Incentive
Compensation Plan. As of June 30, 1999, options on 1,113 shares were exercisable
from previous awards under the Dominion Resources Long-term Incentive Plan.
Other Stock Awards:
In addition, during the first six months of 1999, the Board of Directors of
Dominion Resources awarded certain participants in the Dominion Resources, Inc.
Incentive Compensation Plan 5,000 shares of common stock at $44.50 per share,
13,916 shares of restricted stock at $44.50 per share and 10,842 shares at
$46.75 per share.
(L) SUBSEQUENT EVENTS
DOMINION ENERGY
On August 1, 1999, Dominion Energy reached an agreement to sell its interests in
approximately 1,200 megawatts of gross generation capacity located in Latin
America. The interests will be sold to Duke Energy International for $405
million.
The interests being sold are located in Argentina, Belize, Bolivia and Peru and
generate electricity from hydroelectric, natural gas and diesel fuel sources.
The transaction is expected to close by year end 1999 following governmental
approvals. It is estimated that the transaction will result in a one-time,
non-recurring after-tax loss in the range of $10 million to $15 million. This
estimate is subject to the closing date of the transaction, which is dependent
on the timing of governmental approvals. In addition, the estimate could be
affected by the results of operations between August 1, 1999 and the closing
date.
16
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Dominion Resources plans to use the proceeds from this sale to fund the
repurchase of outstanding common stock pursuant to our current corporate
repurchase program or in connection with the merger with CNG.
(M) BUSINESS SEGMENTS
Business segment financial information follows for the three month and six month
periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Virginia Dominion
Power- Energy-
Wires Dominion Dominion Dominion Gas Corporate Consolidated
Business Capital Generation UK Operations Operations Total
-------- ------- ---------- -- ---------- ---------- -----
(millions,
except total
assets)
Three Months
Ended June 30,
1999
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $270.4 $120.8 $853.5 $64.7 $5.9 $1,315.3
Net Income $38.6 $22.5 $49.5 $9.4 $(2.6) $117.4
Total Assets
(billions) $4.6 $3.2 $8.8 $1.2 $0.2 $18.0
1998
Revenues $266.4 $124.2 $843.5 $423.8 $41.7 $(114.4) $1,585.2
Net Income $30.3 $32.3 $46.1 $9.0 $5.3 $(205.7) $(82.7)
Total Assets
at 12/31/98
(billions) $4.6 $3.1 $8.8 $0.2 $0.8 $17.5
Six Months
Ended June 30,
1999
Revenues $550.9 $228.4 $1,705.7 $111.8 $11.5 $2,608.3
Net Income $79.7 $35.9 $123.8 $20.5 $(258.8) $1.1
1998
Revenues $538.1 $211.0 $1,667.5 $934.8 $76.9 $(69.6) $3,358.7
Net Income $62.1 $45.7 $117.9 $30.2 $12.0 $(211.1) $56.8
</TABLE>
17
<PAGE>
DOMINION RESOURCES, INC.
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.
The business and financial condition of Dominion Resources are influenced by a
number of factors including political and economic risks, market demand for
energy, inflation, capital market conditions, governmental policies, legislative
and regulatory actions (including those of the Federal Energy Regulatory
Commission (FERC), the Securities and Exchange Commission (SEC), the
Environmental Protection Agency, the Department of Energy, the Nuclear
Regulatory Commission, the Virginia Commission and the North Carolina Utilities
Commission), industry and rate structure and legal and administrative
proceedings. Some other important factors that could cause actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include changes in and compliance with environmental laws and
policies, weather conditions and catastrophic weather-related damage, present or
prospective wholesale and retail competition, competition for new energy
development opportunities, pricing and transportation of commodities, operation
of nuclear power facilities, acquisition and disposition of assets and
facilities, effects of the merger with CNG, recovery of the cost of purchased
power, nuclear decommissioning costs, the ability of Dominion Resources, its
suppliers, and its customers to successfully address Year 2000 readiness issues,
exposure to changes in the fair value of commodity contracts, counter-party
credit risk and unanticipated changes in operating expenses and capital
expenditures. All such factors are difficult to predict, contain uncertainties
that may materially affect actual results, and may be beyond the control of
Dominion Resources. 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 Dominion Resources.
Any forward-looking statement speaks only as of the date on which such statement
is made, and Dominion Resources 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.
Business Segments
In preparation for the transition to competition for electric generation in
Virginia, beginning May 1, 1999 Dominion Resources began to evaluate the
operating results and financial information across Virginia Power's and Dominion
Energy's current organizational structure. Although the employees and assets
involved remain with their respective companies, Dominion Resources currently
evaluates the companies of Dominion Energy and Virginia Power in the following
business segments:
o the generation-related operations of both Virginia Power and Dominion
Energy (referred to as Dominion Generation);
18
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
o the regulated electric transmission and distribution services (referred to
as Virginia Power - Wires Business); and
o oil and gas operations of Dominion Energy (Dominion Energy - Gas
Operations).
As discussed above and in Note A to the Notes to the Consolidated Financial
Statements, because Dominion Resources evaluates separate financial information
for its business segments, it is required pursuant to Statement of Financial
Standards No. 131 Disclosures About Segments of an Enterprise and Related
Information to report on each segment separately. These six business segments
are:
o Dominion Generation,
o Virginia Power - Wires Business,
o Dominion Energy - Gas Operations,
o Dominion Capital (financial services operations),
o Dominion UK, and
o Corporate Operations (corporate costs of Dominion Resources' holding
company, Corby Power (UK) operations, intercompany eliminations, plus the
impact of the impairment of regulatory assets and one-time refund recorded
as a result of the settlement of Virginia Power's 1998 Virginia
jurisdictional rate proceedings in the second quarter of 1998 and the
extraordinary item (See Note C) recorded in the first quarter of 1999).
Dominion Resources has structured its Management's Discussion and Analysis of
Financial Condition and Results of Operations to reflect the above mentioned
business segments.
Certain activities discussed under Liquidity and Capital Resources are currently
evaluated based on existing legal entities rather than the operating segments
defined by the new organizational structure.
RESULTS OF OPERATIONS
We have organized our discussion of Results of Operations into the following
subsections:
1. Dominion Resources - Consolidated
2. Virginia Power - Wires Business
3. Dominion Generation
4. Dominion Energy - Gas Operations
5. Dominion Capital
1. DOMINION RESOURCES - CONSOLIDATED
Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Virginia Power-Wires Business $0.20 $0.15 $ 0.41 $ 0.32
Dominion Generation 0.26 0.24 0.64 0.60
Dominion Capital 0.12 0.17 0.19 0.23
Dominion Energy-Gas Operations 0.05 0.03 0.11 0.06
Dominion UK 0.00 0.04 0.00 0.14
Corporate Operations (0.02) (1.05) (1.34) (1.06)
----- ----- ---- ----
Consolidated $0.61 $(0.42) $ 0.01 $ 0.29
===== ====== ====== ======
</TABLE>
19
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The results of operations for the interim periods are not necessarily
indicative of the results expected for the full year. Information for
quarterly periods is affected by seasonal variations in sales, rate changes,
timing of fuel expense recovery and other factors.
Consolidated earnings increased $1.03 per share for the second quarter of 1999
when compared to the same time period in 1998. The increase was primarily due to
the one-time charge associated with Virginia Power's rate settlement in the
second quarter of 1998.
Consolidated earnings decreased by $0.28 per share during the first six months
of 1999 as compared to the same period in 1998 primarily due to the write-off of
generation related assets and liabilities at Virginia Power in the first quarter
of 1999. The amount of the write-off was $254.8 million, net of tax, ($1.32 per
share) and was recorded on the financial statements as an extraordinary item.
This write-off was offset by a one-time charge of $201 million, net of tax
($1.03 per share) associated with the rate settlement in the second quarter of
1998 with the Virginia Commission. See Note (C) to the Notes to Consolidated
Financial Statements.
Operating Income
Operating income increased by $228.8 million and $161.4 million during the
second quarter and first six months of 1999, respectively, as compared to the
same periods in 1998, primarily due to the impairment of regulatory assets and
one-time rate refund recorded in the second quarter of 1998 discussed above. The
increase was offset by the absence of Dominion UK's East Midlands operations
which was sold in the third quarter of 1998.
Interest Charges, Net
Interest charges, net decreased by $57.2 million and $98.9 million during the
three month and six month periods ended June 30, 1999, respectively, as compared
to the same periods in 1998 primarily due to the absence of East Midlands debt
because of the sale of East Midlands in the third quarter of 1998.
Extraordinary Item, Net of Income Tax
Extraordinary item, net of income tax consists of a charge to earnings which
represents the write-off of assets and liabilities related to Virginia Power's
generation activities which will not be recovered through capped rates. For more
information on the extraordinary item, see Note (C) to the Notes to the
Consolidated Financial Statements.
2. VIRGINIA POWER - WIRES BUSINESS
The business segment Virginia Power-Wires Business includes customer service,
bulk power transmission, distribution and metering services that continue to be
subject to cost-based regulation.
Changes in the results of operations for the six-month period ended June 30,
1999, as compared to the same period in 1998, were due to increased revenues for
electric transmission services, increased customers and lower expenses which
were partially offset by increased storm costs and the rate reductions resulting
from the 1998 rate settlement.
20
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
3. DOMINION GENERATION
The business segment Dominion Generation consists of the combined generation
operations of Dominion Energy and Virginia Power.
Operating Revenue and Income
Operating revenues and income increased for the first six months of 1999 when
compared to the same period in 1998 primarily due to customer growth and weather
as well as power marketing and natural gas revenue which increased due to
favorable changes in commodity prices in 1999. These increases were partially
offset by the net impact of the 1998 rate settlement as it related to ongoing
revenues and depreciation.
Operating Expenses
Operating expenses for the six month period ended June 30, 1999 increased as
compared to the comparable period in 1998, primarily due to:
o increased expenses associated with the restructuring of certain power
purchase contracts and the discontinuance of deferral accounting for such
expenses, plus
o increased costs for planned outages.
4. DOMINION ENERGY - GAS OPERATIONS
The business segment Dominion Energy - Gas Operations consists of the gas and
oil operations of Dominion Energy.
Increases in the results of operations for the three-month and six-month periods
ended June 30, 1999 as compared to the same periods in 1998 resulted primarily
from the effects of higher oil and gas production. This incremental production
was related to increased reserves obtained through acquisition activities.
5. DOMINION CAPITAL
The business segment Dominion Capital's net income decreased during the second
quarter and first six months of 1999 as compared to the same periods in 1998
primarily due to the timing of net investment gains in 1998 partially offset by
a higher earnings contribution from the four financial services units in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have organized our discussion of Liquidity and Capital Resources into the
following subsections:
1. Dominion Resources - Consolidated
2. Virginia Power
3. Dominion Energy
4. Dominion Capital
The reason that these sections are organized along legal entity lines rather
than by business segment is that we continue to analyze these matters internally
by legal entity.
21
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DOMINION RESOURCES - CONSOLIDATED
Cash Flows From Operating Activities
Cash flows from operating activities for the six months ended June 30, 1999
decreased by $192.7 million as compared to the same period in 1998. The decrease
was primarily due to normal operations and an increase in fuel expenses for
which recovery was not received in the first six months of 1999.
Cash Flows From Financing Activities
Financing activities provided cash flows of $235.2 million during the first six
months of 1999 resulting primarily from the issuance of commercial paper but was
offset by the repurchase of common stock and the payment of common stock
dividends.
On July 12, 1999, the Board of Directors of Dominion Resources declared a
quarterly common stock dividend of $0.645 per share, payable September 20, 1999
to holders of record at the close of business August 27, 1999.
On July 20, 1998, the Dominion Resources Board of Directors approved the
repurchase of up to $650 million of Dominion Resources common stock. As part of
this program, Dominion Resources repurchased 2,618,400 shares of common stock
($109 million) during the first six months of 1999.
On March 31, 1999, Dominion Resources increased its bank lines of credit to $600
million by replacing the April 1, 1998, $200 million short-term credit agreement
with a new $300 million 364-day facility. Dominion Resources uses these credit
agreements to support its commercial paper borrowings. The proceeds from these
borrowings are used to finance Dominion Resources nonutility subsidiaries'
working capital for operations.
Cash Flows Used In Investing Activities
Net cash flows used in investing activities during the first six months of 1999
were $850.2 million. The primary reasons for the cash outflows were:
o utility plant (including nuclear fuel) expenditures at Virginia Power;
o Dominion Energy's acquisition of San Juan Partners, LLC and Remington
Energy, Ltd.; and
o funding to expand and upgrade certain independent power plants owned by
Dominion Energy.
VIRGINIA POWER
Cash Flows From Operations
Operating activities resulted in $121 million decreased cash flow for the
six-month period ended June 30, 1999 as compared to the same period in 1998.
This decrease was primarily attributable to an increase in fuel expenses for
which recovery was not received in the first six months and to the timing of
certain payments related to normal operations. Internal generation of cash
exceeded Virginia Power's capital requirements during the first six months of
1999 and 1998.
22
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cash Flows Used in Financing Activities
Cash used in financing activities was as follows:
Six Months Ended
June 30,
1999 1998
---- ----
(Millions)
Issuance (repayment) of short-term debt, net $ 95.7 $ (25.0)
Repayment of long-term debt (249.0) (217.5)
Issuance of long-term debt 230.0 150.0
Payment of dividends (211.6) (208.9)
Other (10.1) (7.4)
----- ----
Total $(145.0) $(308.8)
====== ======
In April 1999, Virginia Power established a $400 million medium-term note shelf
registration (Series G) with the Securities and Exchange Commission. In June
1999, Virginia Power issued $150 million in aggregate principal of unsecured
Senior Notes, Series 1999-A, with an annual coupon rate of 6.7%, due June 30,
2009; and $80 million of Medium-Term Notes, Series G, with an annual coupon rate
of 6.3%, due June 21, 2001.
During the first two quarters of 1999, Virginia Power retired $249 million in
aggregate principal amount of mandatory debt maturities.
As of June 30, 1999, Virginia Power has available for its use to meet capital
requirements $915 million of remaining principal amount under its currently
effective shelf registrations with the Securities and Exchange Commission.
Virginia Power has a commercial paper program that is supported by two credit
facilities totaling $500 million. Proceeds from the sale of commercial paper are
primarily used to provide working capital. Net borrowings under the program were
$317.5 million at June 30, 1999.
Cash Flows Used in Investing Activities
Cash used in investing activities was as follows:
Six Months Ended
June 30,
1999 1998
---- ----
(Millions)
Plant expenditures $(296.0) $(190.4)
Nuclear fuel (20.4) (25.7)
Nuclear decommissioning contributions (16.8) (33.5)
Other (3.2) (6.9)
------ ------
Total $(336.4) $(256.5)
====== ======
Investing activities for the first six months of 1999 resulted in a net cash
outflow of $336.4 million primarily due to $296 million of construction
expenditures, $20.4 million of nuclear fuel expenditures and $16.8 million of
contributions to nuclear decommissioning trusts. Of the construction
23
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
expenditures, Virginia Power spent approximately $143.5 million on the projects
within the business segment Virginia Power Wires Business projects, $123.6
million on the projects of the business segment Dominion Generation and $22.1
million on general support facilities.
DOMINION ENERGY
Cash Flows From Operating Activities
Cash flows from operations for the six months ended June 30, 1999 decreased by
$5 million as compared to the same period in 1998 primarily due to ordinary
business operations.
Cash Flows From Financing Activities
Cash from (used in) financing activities was as follows:
Six Months Ended
June 30,
1999 1998
---- ----
(Millions)
Issuance of long-term debt $ 10.1 $339.6
Investment from parent 115.0
Dividend payment (28.2) (23.7)
Issuance (repayment) of intercompany debt 159.2 (5.6)
Other (7.5) 17.9
----- -----
Total $248.6 $328.2
===== =====
During the first six months of 1999, cash flows from financing activities were
$248.6 million primarily due to intercompany borrowings and an equity
contribution from Dominion Energy's parent. Proceeds were used primarily to fund
the acquisition of Remington Energy, Ltd. and San Juan Partners, LLC by the
business segment Dominion Energy-Gas Operations.
Cash Flows Used In Investing Activities
Cash from (used in) investing activities was as follows:
Six Months Ended
June 30,
1999 1998
---- ----
(Millions)
Investment in natural gas assets $(211.7) $(125.6)
Investment in power generation assets (102.6) (198.0)
Other (39.5) (65.4)
----- ------
Total $(353.8) $(389.0)
====== ======
During the first six months of 1999, cash flows used in investing activities
were $353.8 million primarily due to the following:
o the acquisition by the Dominion Energy-Gas Operations business segment of
San Juan Partners, L.L.C. and Remington Energy, Ltd. and
o the Dominion Generation business segment's investment in expansion and
upgrade activities at certain of its independent power plants.
24
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DOMINION CAPITAL
Cash Flows Used In Operating Activities
Dominion Capital's cash flows from operations for the six months ended June 30,
1999 increased by $82.8 million as compared to the same period for 1998
primarily due to an increase in cash flows from net mortgage originations and
sales.
Cash Flows From Financing Activities
Cash from financing activities was as follows:
Six Months Ended
June 30,
1999 1998
---- ----
(Millions)
Issuance of long-term debt $ 1,847.4 $ 1,577.4
Repayment of long-term debt (1,954.5) (1,347.7)
Issuance of commercial paper 243.1 178.3
Investment from parent 50.0 49.1
Dividend payment (34.0) (24.7)
Issuance (repayment) of intercompany debt (76.6) (62.4)
Other 0.1
-------- -------
Total $ 75.4 $ 370.1
======== ========
During the first six months of 1999, Dominion Capital's cash flows from
financing activities were $75.4 million due to funding needs for a net increase
in finance receivables (originations less amounts syndicated and repaid).
Cash Flows Used In Investing Activities
Cash used in investing activities was as follows:
Six Months Ended
June 30,
1999 1998
---- ----
(Millions)
Loan originations $(1,052.6) $(1,110.2)
Repayments of loan originations 1,023.6 788.4
Purchase of securities (90.7) (27.6)
Proceeds from sale of securities 100.3 29.3
Purchase of other investments (51.0)
Other (50.1) 14.9
------ --------
Total $(120.5) $ (305.2)
======= =======
During the first six months of 1999, Dominion Capital's cash flows used in
investing activities were $120.5 million primarily due to the funding for
commercial lending activities.
Contingencies
For information on contingencies, see Note (I) to the Notes to the Consolidated
Financial Statements.
25
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
FUTURE ISSUES
DOMINION RESOURCES - CONSOLIDATED
CNG Merger
On June 30, 1999, shareholders of Dominion Resources and Consolidated Natural
Gas Company (CNG) approved the pending merger of the companies at each companies
Special Meeting of Shareholders.
Also, the Pennsylvania Public Utility Commission and the West Virginia Public
Service Commission have approved the merger, subject to certain conditions
agreed to by Dominion Resources and CNG. The Virginia State Corporation
Commission (Virginia Commission) and the North Carolina Utilities Commission
have set dates for consideration of the proposed merger.
Filings are also pending with the Department of Justice, Federal Trade
Commission, the Securities and Exchange Commission and the Federal Energy
Regulatory Commission and other agencies.
On August 9, 1999, Dominion Resources and CNG announced that they have agreed to
sell CNG's Virginia Natural Gas, Inc. (VNG) its local gas distribution
subsidiary under an agreement with the Staff of the Virginia Commission
(Virginia Commission Staff). In exchange, the Virginia Commission Staff will
support the proposed merger of Dominion Resources and CNG. The agreement states
that Dominion Resources has one year after the merger is completed to sell VNG
to a third party. If the sale of VNG is not completed within the timeframe of
one year, VNG will be spun off as an independent company with the common stock
distributed to Dominion Resources shareholders. Both deadlines are subject to
reasonable extensions, which may be granted by the Virginia Commission.
The Virginia Commission is not bound by the agreement but will consider it
during its deliberations about the merger as well as any comments or testimonies
by other parties to the proceeding.
Power Generation Development
On April 14, 1999, Dominion Resources and a subsidiary of CNG signed an
agreement to develop natural gas-fired power generation facilities along CNG's
natural gas pipeline system. This agreement is not conditional upon the proposed
merger between Dominion Resources and CNG. For additional information on the
proposed merger, see Note X in Dominion Resources' Annual Report on Form 10-K
for the year ended December 31, 1998.
Under terms of the agreement the companies have identified 45 potential
development sites along CNG's natural gas pipeline network in Ohio,
Pennsylvania, New York, West Virginia and Virginia. Dominion Resources and CNG
affiliates will develop, own, operate and maintain the facilities on a 50-50
ownership basis.
On May 25, 1999, Dominion Resources and CNG announced that subsidiaries of the
two companies expect to jointly construct and operate natural gas-fired electric
generating facilities in Wood County in Ohio and Armstrong County in
Pennsylvania. They also announced that they are evaluating several sites in
Muskingum County in Ohio and Pleasants County in West Virginia. Final site
selection for each county is expected in the near future.
26
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
VIRGINIA POWER
Competition
On March 25, 1999, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry in
Virginia which will provide for customer choice beginning in 2002. Under this
legislation, Virginia Power's base rates will remain unchanged until July 2007
and recovery of generation-related costs will continue to be provided through
the capped rates and the wires charge assessed to those customers opting for
alternate suppliers. In the absence of the capped rates, Virginia Power would be
exposed, on a pre-tax basis, to approximately $3.2 billion of potential losses
related to long-term power purchase commitments.
The legislation's deregulation of generation is an event that required
discontinuation of SFAS No. 71 for Virginia Power's generation operations.
Virginia Power's transmission and distribution operations continue to meet the
criteria for recognition of regulatory assets and liabilities as defined by SFAS
No. 71. In addition, cost-based recovery of fuel expenses continues until July
2007.
Virginia Power is subject to a base rate freeze at reduced revenue levels until
July 2007. In addition, Virginia Power remains subject to numerous risks
including, among others, exposure to long-term power purchase commitment losses,
environmental contingencies, changes in tax laws, decommissioning costs,
inflation, increased capital costs, and recovery of certain other items.
Virginia Power believes the stable rates that are provided until July 2007 by
the legislation present a reasonable opportunity to recover a substantial
portion of Virginia Power's potentially stranded costs as more fully described
in Virginia Power's 1998 Form 10-K. See Competition--Exposure to Potentially
Stranded Costs, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
For additional information, see Note (C) to the Notes to the Consolidated
Financial Statements.
DOMINION ENERGY
Sale of Power
In April 1999, Elwood Energy LLC, (Elwood Energy) a joint venture between
subsidiaries of Dominion Energy and Peoples Energy Corporation signed agreements
with Commonwealth Edison Company (ComEd) and Engage Energy US, L.P. (Engage) to
sell all generating capacity from its natural gas-fired facility. Under the
agreements, ComEd and Engage have each contracted for one-half of the generating
capacity of Elwood Energy.
In July 1999, Elwood Energy began commercial operations.
Sale of Latin American Interests
For information on Dominion Energy's sale of its interests in Latin American
generating capacity to Duke Energy International, see Note (L) to the Notes to
the Consolidated Financial Statements.
27
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DOMINION CAPITAL
As reported in the merger proxy sent to shareholders of both companies, Dominion
Resources expects to divest its financial services subsidiary, Dominion Capital.
However, no formal plan of disposal has been adopted.
YEAR 2000 COMPLIANCE
DOMINION RESOURCES CONSOLIDATED
Dominion Resources remains on schedule to complete all necessary work to prepare
the company for the year 2000. The following table summarizes our status and
projected timetable:
Percent of Critical Systems Year 2000 Ready
Actual Planned
------ -------
6/30/99 7/31/99 10/31/99
Virginia Power 99% 99% 99%*
Dominion Resources 75% 100% 100%
Dominion Energy 78% 84% 100%
Dominion Capital 100% 100% 100%
* 100% planned to be ready by 12/31/99
We expect year 2000 costs to be within the range of $30 million to $40 million
dollars of which $28 million to $33 million relates to Virginia Power.
The estimate of $30 million to $40 million is a change from our previous range
of $35 million to $45 million. This downward revision is largely due to the
current status of the following:
o remediation and testing of critical and non-critical components,
o assessment of critical suppliers,
o contingency planning, and
o scope of rollover activities.
Actual year 2000 costs of $25.1 million have been expended as of June 30, 1999.
Expenses not yet incurred relate to contingency planning, communications
activities, remediation of non-critical systems and continued remediation
validation.
In addition to our remediation programs directed at our critical information
systems, embedded systems and external relationships, our year 2000 readiness
efforts include evaluation of reasonably likely worst case scenarios and the
development of contingency plans to address how we would respond to problems,
should they occur. Our contingency planning efforts to support continuity of
operations into and beyond the year 2000 are essentially complete. These plans
will continue to be refined and validated throughout the remainder of 1999.
28
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
As part of our contingency planning process, we have considered and evaluated,
and continue to evaluate, reasonably likely worst case scenarios and their
impact on critical business processes. Based on our evaluations, such potential
scenarios could include the following:
o minor variations in voltage or frequency with no significant effect on
electric service;
o temporary loss of a portion of generation capacity, including possibly
non-utility generators; however, such loss is not expected to be sufficient
to adversely affect electric service;
o temporary loss of some telecommunications functionality and other services
with no impact expected on electric service; and
o temporary loss of a small portion of commercial and industrial customer
loads due to customer year 2000 issues with no expected adverse impact on
stability of electric service.
When considering these scenarios or others specifically related to our major
subsidiary, Virginia Power, we first take into account that Virginia Power, and
the entire electric power industry, already have extensive contingency plans in
place for many events such as extreme heat, storms, equipment failures, sudden
loss of customer load or sudden loss of a generation unit.
Year 2000 contingency plans address the scenarios recommended in the North
American Electric Reliability Council Year 2000 Contingency Planning Guide, as
well as additional company specific scenarios. For example, one contingency plan
prescribes that in the event voice communications fail, satellite phones will be
used to provide operational information to our operations center and to other
utilities.
Our contingency planning efforts also include developing precautionary measures.
Precautionary measures are intended to place us in a position to mitigate the
impact of year 2000 related problems, in the unlikely event problems occur.
Examples of precautionary measures include planned additional staffing in key
operational positions to facilitate quick responses to unusual situations, and
having extra supplies on hand to minimize the impact if we experience
interrupted access to key supplies.
In addition, Virginia Power is actively participating in industry contingency
planning efforts at the regional and national level. Virginia Power submitted
its finalized contingency plans to the North American Electric Reliability
Council in June 1999. Virginia Power successfully participated in the first
nationwide drill by electric utilities on April 9, 1999, coordinated by the
North American Electric Reliability Council. The exercise simulated the partial
failure of some primary voice and data communications to demonstrate the ability
of electric utilities to communicate operating information using backup systems.
No actual communications systems or generating units were shut down during the
exercise. Service to Virginia Power's customers was not affected. Virginia Power
will participate in the second nationwide drill on September 8-9, 1999.
Dominion Resources cannot estimate or predict the potential adverse
consequences, if any, that could result from a third party's failure to
effectively address the year 2000 issue, but believes that any impact would be
short-term in nature and would not have a material adverse impact on results of
operations. Based on Dominion Resources' and industry analyses to date, we do
not believe the most reasonably likely worst case scenarios identified above, if
they were to occur, would have a material adverse affect on Dominion Resources'
businesses or results of operations.
29
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
For additional information, see Year 2000 Compliance, Management's Discussion
and Analysis of Operations in Dominion Resources' Annual Report on Form 10-K for
the year ended December 31, 1998.
RECENTLY ISSUED ACCOUNTING STANDARD
For information on recently issued accounting standards, see Note (H) to the
Notes to Consolidated Financial Statements.
30
<PAGE>
DOMINION RESOURCES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
MARKET RATE SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
Dominion Resources is exposed to market risk because it utilizes financial
instruments, derivative financial instruments and derivative commodity
instruments. The market risks inherent in these instruments are represented by
the potential loss due to adverse changes in commodity prices, equity security
prices, interest rates and foreign currency exchange rates as described below.
Interest rate risk generally is related to Dominion Resources' and its
subsidiaries' outstanding debt as well as their commercial, consumer, and
mortgage lending activities. Currency risk exists principally through Dominion
Energy's investments in Canada and some debt denominated in European currencies
associated with Dominion Energy's investments in South America. Dominion
Resources is exposed to equity price risk through various portfolios of equity
securities. Commodity price risk is experienced in Dominion Resources'
subsidiaries Dominion Energy and Virginia Power. They are exposed to effects of
market shifts in the prices they receive and pay for natural gas and
electricity.
Dominion Resources uses derivative commodity instruments to hedge exposures of
underlying electric, gas production, and gas procurement operations and is also
involved in trading activities, which also use these instruments.
Dominion Resources is also exposed to price risk associated with the
nonfinancial assets and liabilities of power production operations, including
underlying fuel requirements and natural gas operations.
Dominion Resources uses the Sensitivity Analysis methodology to disclose the
quantitative information for the interest rate, commodity price and foreign
exchange risks. Sensitivity analysis provides a presentation of the potential
loss of future earnings, fair values, or cash flows from market risk sensitive
instruments over a selected time period due to one or more hypothetical changes
in interest rates, foreign currency exchange rates, commodity prices, or other
similar price changes. The Tabular Presentation methodology is used to disclose
equity price market risk. The tabular presentation of summarized information
requires disclosure of key terms and information for market risk sensitive
instruments.
Interest Rate Risk - Non-Trading Activities
Dominion Resources manages its interest rate risk exposure by maintaining a mix
of fixed and variable rate debt. In addition, Dominion Resources enters into
interest rate sensitive derivatives. Examples of these derivatives are swaps,
forwards and futures contracts.
Dominion Resources, as part of its routine risk management policy, reviews its
exposure to market risk.
Gas Commodity Price Risk - Non-Trading Activities
Dominion Energy is exposed to the impact of market fluctuations in the sales
price Dominion Energy receives for its produced natural gas and oil. To reduce
price risk caused by market fluctuations, Dominion Energy generally follows a
policy of hedging a portion of its natural gas and oil sales commitments by
selecting derivative commodity instruments whose historical price fluctuations
correlate strongly with those of the production being hedged. Dominion Energy
enters into options, swaps, and collars to mitigate a loss in revenues, should
natural gas or oil prices decline in future production periods. Dominion Energy
also mitigates price risk by entering
31
<PAGE>
DOMINION RESOURCES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
(CONTINUED)
into fixed price sale agreements with physical purchasers of natural gas. The
impact of a change in oil and natural gas commodity prices on Dominion Energy's
financial condition at a point in time is not necessarily representative of the
effect of price movements during the year.
When conducting sensitivity analysis of the change in the fair value of Dominion
Energy's oil and natural gas contracts which would result from a hypothetical
change in the future market price of oil and natural gas, the fair value of the
contracts are determined from option pricing models which take into account the
market prices of oil and natural gas in future periods, the volatility of the
market prices in each period, as well as the time value factors of the
underlying commitments. In most instances, market prices and volatility are
determined from quoted prices on the futures exchange.
Dominion Resources has determined a hypothetical decrease in fair value for the
oil and natural gas contracts assuming a 10% unfavorable change in market prices
and comparing it to the fair value of the contracts based on market prices at
June 30, 1999 and December 31, 1998. This hypothetical 10% change in market
prices would have resulted in a decrease in fair value of approximately $19.3
million and $8 million as of June 30, 1999 and December 31, 1998, respectively.
Electric and Gas Commodity Price Risk - Trading Activities
As part of its strategy to market energy from its generation capacity and to
manage related risks, Virginia Power manages a portfolio of derivative commodity
contracts held for trading purposes. These contracts are sensitive to changes in
the prices of natural gas and electricity. Virginia Power employs established
policies and procedures to manage the risks associated with these price
fluctuations and uses various commodity instruments, such as futures, swaps and
options, to reduce risk by creating offsetting market positions. In addition,
Virginia Power seeks to use its generation capacity, when not needed to serve
customers in its service territory, to satisfy commitments to sell energy.
Based on the sensitivity analysis methodology discussed previously in this
section, Virginia Power has determined a hypothetical loss by calculating a
hypothetical fair value for each contract assuming a 10 percent unfavorable
change in the market prices of the related commodity and comparing it to the
fair value of the contracts based on market prices at June 30, 1999 and December
31, 1998. This hypothetical 10 percent change in commodity prices would have
resulted in a hypothetical loss of approximately $8.6 million and $13.5 million
in the fair value of our commodity contracts as of June 30, 1999 and December
31, 1998, respectively.
The sensitivity analysis does not include the price risks associated with
utility fuel requirements, since these costs are generally provided for through
our rates established by the regulatory commissions having jurisdiction over
fuel cost recovery, nor does it include risks that are either nonfinancial or
nonquantifiable. In addition, provisions are made in the financial statements to
address credit risk.
The risk associated with Dominion Resources' use of these instruments has not
materially changed from that discussed in Market Rate Sensitive Instruments and
Risk Management under MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS AND
FINANCIAL CONDITION included in Dominion Resources' Annual Report on Form 10-K
for the year ended December 31, 1998.
32
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
VIRGINIA POWER
In April 1999, Virginia Power was notified by the Department of Justice of
alleged noncompliance with the EPA's oil spill, prevention, control and
countermeasures plans and facility response requirements at one of its power
stations. If, in a legal proceeding, such instances of noncompliance are deemed
to have occurred, Virginia Power may be required to remedy any alleged
deficiencies and pay civil penalties. Settlement of this matter is currently in
negotiation and is not expected to be material to Virginia Power's financial
condition or results of operations
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Dominion Resources Annual Meeting of Shareholders was held on April 16, 1999 and
the results were reported in Dominion Resources first quarter March 31, 1999
Form 10-Q, dated May 14, 1999.
Dominion Resources Special Meeting of Shareholders relating to the merger with
Consolidated Natural Gas Company (CNG) was held on June 30, 1999 and the
following items were voted on:
Item 1. The First Merger - The adoption and approval of the merger agreement
with respect to the First Merger in which a subsidiary of Dominion Resources
will be merged into Dominion Resources and Dominion will survive.
Votes Broker
For Against Abstained Non-Votes
--- ------- --------- ---------
149,146,583 1,796,543 1,274,248 20,978,781
Item 2. The Second Merger - The adoption and approval of the merger
agreement with respect to the Second Merger in which CNG will
either (i) be merged into another subsidiary of Dominion Resources
and the Dominion Resources subsidiary will survive, or (ii) be
merged directly into Dominion Resources, with Dominion Resources as
the surviving entity. The Second Merger includes the issuance of
Dominion Resources common stock for the merger.
Votes Broker
For Against Abstained Non-Votes
--- ------- --------- ---------
148,665,084 2,140,072 1,412,218 20,978,781
Item 3. Amendments to Dominion Resources Articles of Incorporation -
Shareholders approved the amendment to Dominion Resources Articles
of Incorporation to increase the number of authorized common stock,
without par value, to 500,000,000 shares.
Votes
For Against Abstained
--- ------- ---------
166,289,111 4,929,558 1,978,482
33
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
ITEM 5. OTHER INFORMATION
THE COMPANY
The Merger
Shareholders of Dominion Resources and CNG have approved the pending merger
between the companies (See Item 4. above).
With respect to state regulatory approvals regarding the merger, the
Pennsylvania Public Utility Commission and the West Virginia Public Service
Commission have approved the merger, subject to certain conditions agreed to by
Dominion Resources and CNG. Applications are still pending before the Virginia
Commission and the North Carolina Utilities Commission, which have set dates for
consideration of the proposed merger. Filings are also pending with the
Department of Justice, the Federal Trade Commission, the Securities and Exchange
Commission, The Federal Energy Regulatory Commission (FERC) and other agencies.
As reported in the merger proxy sent to shareholders of both companies, Dominion
Resources expects to divest its financial services subsidiary, Dominion Capital,
and certain other non-core assets to help finance the merger. No formal plan of
disposal has been adopted for Dominion Capital.
On August 1, 1999, Dominion Energy reached an agreement to sell its interests in
approximately 1,200 megawatts of gross generation capacity located in Latin
America. The interests will be sold to Duke Energy International for $405
million. Dominion Resources plans to use the proceeds from the sale of its Latin
American interests to fund the repurchase of its common stock outstanding,
either pursuant to our current corporate repurchase program or in connection
with the merger with CNG.
For additional information, see Notes (E) and (L) to the Notes to the
Consolidated Financial Statements.
On August 9, 1999, Dominion Resources and CNG announced that they have agreed to
sell CNG's Virginia Natural Gas, Inc. (VNG), its local gas distribution
subsidiary under an agreement with the Staff of the Virginia Commission. In
exchange, the Virginia Commission staff will support the proposed merger of
Dominion Resources and CNG. The agreement states that Dominion Resources has one
year after the merger is completed to sell VNG to a third party. If the sale of
VNG is not completed within the timeframe of one year, VNG will be spun off as
an independent company with the common stock distributed to Dominion Resources
shareholders. Both deadlines are subject to reasonable extensions, which may be
granted by the Virginia Commission. The Virginia Commission is not bound by the
agreement but will consider it during its deliberations about the merger as well
as any comments or testimonies by other parties to the proceeding.
34
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
VIRGINIA POWER
Regulation
Virginia
As previously reported, on March 20, 1998, the Virginia Commission issued an
Order instructing Virginia Power and AEP-Virginia, as the Commonwealth's two
largest investor-owned utilities, each to design and file a retail access pilot
program. Virginia Power filed a report on November 2, 1998, describing the
details, objectives and characteristics of the proposed retail access pilot
program. On December 3, 1998, the Virginia Commission issued an Order setting
its retail access pilot program proposal for hearing on June 29, 1999, to
consider the remaining issues and details. On May 6, 1999, the Hearing Examiner
issued a ruling changing the hearing date to September 8, 1999. On August 6,
1999, the Hearing Examiner issued a report on interim rules for the introduction
of electric and natural gas retail competition in Virginia. There is a 21-day
comment period on the recommendations that will require final approval by the
Virginia Commission.
FERC
On June 3, 1999, Virginia Power, together with American Electric Power Services
Corporation, Consumers Energy Company, The Detroit Edison Company, and First
Energy Corporation, on behalf of themselves and their public utility operating
company subsidiaries filed with FERC applications under Sections 205 and 203 of
the Federal Power Act for approval of the proposed Alliance Regional
Transmission Organization (Alliance RTO).
The application seeks approval to create the Alliance RTO. If accepted, the
Alliance RTO would operate the transmission systems of the companies, ensure
transmission reliability and provide non-discriminatory access to the
transmission grid. The applications include a proposed Alliance RTO open access
transmission tariff that would cover service into, from and through the Alliance
RTO.
Rates
North Carolina
As previously reported, on November 6, 1998, Virginia Power filed for approval
of a new Schedule 19 which governs purchases from cogenerators and small power
producers. On July 16, 1999, the North Carolina Commission issued an order
directing Virginia Power to file, on or before July 26, 1999, a long-term
standard contract terms and conditions for five, ten and fifteen year periods
for qualifying hydro-electric facilities and small power producers. Virginia
Power filed for a 30-day extension to provide the required information which was
granted by the North Carolina Commission.
Sources of Power
Virginia Power established a new one-hour integrated service area summer peak
demand of 16,216 Mw on July 6, 1999. Also on July 6, 1999, Virginia Power
established a new system energy output record for a 24-hour period of 326,188
Mwh.
Future Sources of Power
As previously reported, Virginia Power requested approval from the Virginia
35
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
Commission to construct four gas-fired turbine generators in Virginia. On May
14, 1999, the Virginia Commission approved the construction of the four
gas-fired turbine generators in Virginia. A Petition to Appeal the approval was
filed by an opposing party July 13, 1999, in the Virginia Supreme Court. The
same party has appealed the air permit issued to Virginia Power by the
Department of Environmental Quality. Virginia Power will participate in both of
the appeals in support of upholding the applicable order and permit.
Construction of the units has begun with commercial operation expected by mid
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3 (i) - Articles of Incorporation as in effect August 9, 1999
(filed herewith).
3 (ii) - Bylaws as in effect July 12, 1999 (filed herewith).
10(i)* - Form of Employment Continuity Agreement for certain
officers of Dominion Resources (filed herewith).
10(ii)* - First Amendment, dated July 12, 1999 to the Form of
Employment Agreement (Exhibit 10(xxx), Form 10-K for
the fiscal year ended December 31, 1997, File No.
1-8489, incorporated by reference) between Dominion
Resources and David L. Heavenridge (filed herewith).
10(iii)*- Form of Amendment to Employment Agreements for
certain officers of Dominion Resources including
Thos. E. Capps, Thomas N. Chewning and Thomas F.
Farrell, II (filed herewith).
11- Statement re: computation of per share earnings
(included in this Form 10-Q on page 3)
27- Financial Data Schedule (filed herewith).
* - Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
None
36
<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.
DOMINION RESOURCES, INC.
Registrant
BY JAMES L. TRUEHEART
------------------
James L. Trueheart
Senior Vice President and Controller
(Principal Accounting Officer)
August 12, 1999
37
EXHIBIT 3(i)
DOMINION RESOURCES, INC.
ARTICLES OF INCORPORATION
As amended and restated
Effective August 9, 1999
<PAGE>
- ------------------------------------------------------------------------------
ARTICLE I. NAME
- ------------------------------------------------------------------------------
The name of the Corporation is Dominion Resources, Inc.
ARTICLE II. PURPOSE
- ------------------------------------------------------------------------------
The purpose for which the Corporation is organized is to
transact any and all lawful business, not required to be
specifically stated in the Articles of Incorporation, for
which corporations may be incorporated under the Virginia
Stock Corporation Act.
ARTICLE III. STOCK
- ------------------------------------------------------------------------------
DIVISION A -- COMMON STOCk
The Corporation shall have authority to issue 500,000,000
shares of Common Stock without par value.
Dividends may be paid upon the Common Stock out of any assets
of the Corporation available for dividends remaining after
full dividends on the outstanding Preferred Stock at the
dividend rate or rates therefor, together with the full
additional amount required by any participation right, with
respect to all past dividend periods and the current dividend
period shall have been paid or declared and set apart for
payment and all mandatory sinking fund payments that shall
have become due in respect of any series of the Preferred
Stock shall have been made.
In the event of any liquidation, dissolution or winding up of
the Corporation the Board of Directors may, after satisfaction
of the rights of the holders of all shares of preferred Stock,
or the deposit in trust of money adequate for such
satisfaction, distribute in kind to the holders of the Common
Stock all then remaining assets of the Corporation or may
sell, transfer or otherwise dispose of all or any of such
remaining assets of the Corporation and receive payment
therefor wholly or partly in cash and/or in stock and/or in
obligations and may sell all or any part of the consideration
received therefor and distribute all or the balance thereof in
kind to the holders of the Common Stock.
<PAGE>
The holders of the Common Stock shall, to the exclusion of the
holders of the Preferred Stock, have the sole and full power
to vote for the election of directors and for all other
purposes without limitation except only as otherwise recited
or provided in the provisions of these Articles of
Incorporation applicable to the Preferred Stock.
Subject to the provisions of these Articles of Incorporation
applicable to the Preferred Stock, the Corporation may from
time to time purchase or otherwise acquire for a consideration
or redeem (if permitted by the terms thereof) share of Common
Stock or shares of any other class of stock hereafter created
ranking junior to the Preferred Stock in respect of dividends
or assets and any shares so purchased or acquired may be held
or disposed of by the Corporation from time to time for its
corporate purposes or may be retired as provided by law.
DIVISION B --- PREFERRED STOCk
The Corporation shall have authority to issue 20,000,000
shares of Preferred Stock.
The Board of Directors is hereby empowered to cause any class
of the Preferred Stock of the Corporation to be issued in
series with such of the variations permitted by clauses
(a)-(k) below, as shall be determined by the Board of
Directors.
The shares of Preferred Stock of different classes or series
may vary as to:
(a) the designation of such class or series, the number of
shares to constitute such class or series and the stated
value thereof;
(b) whether the shares of such class or series shall have
voting rights, in addition to any voting rights provided by
law, and, if so, the terms of such voting rights, which (i)
may be general or limited, and (ii) may permit more that
one vote per share;
(c) the rate or rates (which may be fixed or variable) at
which dividends, if any, are payable on such class or
series, whether any such dividends shall be cumulative,
and, if so, from what dates, the conditions and dates upon
which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any
other series of such class;
(d) whether the shares of such class or series shall be
subject to redemption by the Corporation, and, if so, the
times, prices and other conditions of such redemption;
<PAGE>
(e) the amount or amounts payable upon shares of such class or
series upon, and the rights of the holders of such class or
series in, the voluntary or involuntary liquidation,
dissolution or winding up, or upon any distribution of the
assets, of the Corporation;
(f) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund
and, if so, the extent to and manner in which any such
retirement or sinking fund shall be applied to the purchase
or redemption of the shares of such series for retirement
or other corporate purposes and the terms and provisions
relative to the operation thereof;
(g) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any class or
any other series of such class or any other securities
(including common stock) and, if so, the price or prices or
the rate or rates of conversion or exchange and the method,
if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding
upon the payment of dividends or the making of other
distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock
or shares of stock of any other class or any other series
of such class;
(i) the conditions or restrictions, if any, upon the creation
of indebtedness of the Corporation or upon the issue of any
additional stock, including additional shares of such class
or series or of any other series of such class or of any
other class;
(j) the ranking (be it pari passu, junior or senior) of each
class or series as to the payment of dividends, the
distribution of assets and all other matters; and
(k) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications,
limitations and restrictions thereof, insofar they are not
inconsistent with the provisions of these Articles of
Incorporation, to the full extent permitted in accordance
with the laws of the Commonwealth of Virginia.
<PAGE>
In the event of any liquidation, dissolution or winding up of
the Corporation, after there shall have been paid to or set
aside for the holders of the Preferred Stock the full
preferential amounts to which they are respectively entitled
under the provisions of these Articles of Incorporation
applicable to the Preferred Stock, the holders of the
Preferred Stock shall have no claim to any of the remaining
assets of the Corporation.
The powers, preferences and relative, participating, optional
and other special rights of each class or series of Preferred
Stock, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other
classes and series at any time outstanding. All shares of
Preferred Stock of each series shall be equal in all respects.
DIVISION C -- GENERAL PROVISIONs
The number of authorized shares of capital stock of the
Corporation, or the amount of capital represented thereby, may
be increased or decreased in the manner and subject to the
conditions and limitations prescribed by the laws of the
Commonwealth of Virginia, as they now and may hereafter exist,
and subject to the provisions hereinafter contained.
Any and all shares of Preferred Stock and Common Stock of the
Corporation, at the time authorized but not issued and
outstanding may be issued and disposed of by the Board of
Directors of the Corporation in any lawful manner,
consistently, in the case of shares of Preferred Stock, with
the requirements set forth in the provisions of these Articles
of Incorporation applicable to the Preferred Stock, at any
time and from time to time, for such considerations as may be
fixed by the Board of Directors of the Corporation.
The Board of Directors shall have authority from time to time
to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working
capital or for any other proper purpose or purposes, and to
reduce, abolish or add to any such reserve or reserves from
time to time as said board may deem to be in the interests of
the Corporation; and said board shall likewise have power to
determine in its discretion what part of the assets of the
Corporation available for dividends in excess of such reserve
or reserves shall be declared as dividends and paid to the
stockholders of the Corporation.
No stockholder shall have any pre-emptive right to acquire
unissued shares of the Corporation or to acquire any
securities convertible into or exchangeable for such shares or
to acquire any options, warrants or rights to purchase such
shares.
<PAGE>
Each holder of record of outstanding shares of stock entitled
to vote at any meeting of stockholders shall, as to all
matters in respect of which such stock has voting power, be
entitled to one vote for each share of such stock held by him,
as shown by the stock books of the Corporation, and may cast
such vote in person or by proxy. Except as herein expressly
provided, or mandatorily provided by the laws of the
Commonwealth of Virginia, a quorum at any meeting shall
consist of a majority of the shares outstanding, and a
plurality vote of such quorum shall govern.
The Board of Directors of the Corporation may, by resolution,
determine that only a part of the consideration which it is to
receive for any shares of stock which it shall issue shall be
capital and that the balance of such consideration (not
greater, however, that the excess of such consideration over
the par value, if any, of such shares) shall be capital
surplus of the Corporation.
ARTICLE IV. OFFICES
- ------------------------------------------------------------------------------
The principal office of the Corporation in the Commonwealth of
Virginia is to be located in the City of Richmond.
ARTICLE V. DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------
The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors consisting
of not less than ten nor more than seventeen Directors, the
exact number of Directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of
the Directors then in office or at least two-thirds of the
shares entitled to vote at a meeting of Stockholders. Each
Director shall hold office until the next annual meeting and
until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement,
disqualification or removal from office. No decrease in the
number of directors shall shorten the term of any incumbent
Director.
Notwithstanding, the foregoing, whenever the holders of any
one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class
or series, to elect Directors at an annual or special meeting
of stockholders, the election, term of office, filling of
vacancies and other features of such Directorships shall be
governed by the terms of these Articles of Incorporation
applicable thereto, and such Directors so elected shall not be
divided into classes pursuant to this Article V unless
expressly provided by such terms.
<PAGE>
If the office of any Director shall become vacant, the
Directors at the time in office, whether or not a quorum, may,
by majority vote of the Directors then in office, choose a
successor who shall hold office until the next annual meeting
of stockholders. Vacancies resulting from the increase in the
number of Directors shall be filled in the same manner.
Directors of the Corporation may be removed by stockholders of
the Corporation only for cause and with the affirmative vote
of at least two-thirds of the outstanding shares entitled to
vote.
Advance notice of stockholder nominations for the election of
Directors shall be given in the manner provided in the Bylaws
of the Corporation.
Notwithstanding any other provision of the Articles of
Incorporation or the Bylaws, the affirmative vote of at least
two-thirds of the outstanding shares entitled to vote shall be
required to amend, alter, change or repeal, or to adopt any
provision inconsistent with the purpose and intent of, this
Article V or Articles IV and IX of the Bylaws.
ARTICLE VI. LIMIT ON LIABILITY AND INDEMNIFICATION
- ------------------------------------------------------------------------------
1. To the full extent that the Virginia Stock Corporation Act,
as it exists on the date hereof or may hereafter be
amended, permits the limitation or elimination of the
liability of directors or officers, a Director or officer
of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages.
2. To the full extent permitted and in the manner prescribed
by the Virginia Stock Corporation Act and any other
applicable law, the Corporation shall indemnify a Director
or officer of the Corporation who is or was a party to any
proceeding by reason of the fact that he is or was such a
Director or officer or is or was serving at the request of
the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The Board of
Directors is hereby empowered, by majority vote of a quorum
or disinterested Directors, to contract in advance to
indemnify any Director or officer.
<PAGE>
3. The Board of Directors is hereby empowered, by majority
vote of a quorum of disinterested Directors, to cause the
Corporation to indemnify or contract in advance to
indemnify any person not specified in Section 2 of this
Article who was or is a party to any proceeding, by reason
of the fact that he is or was an employee or agent of the
Corporation, or is or was serving at the request of the
Corporation as director, officer, employee or agent of
another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, to the same
extent as if such person were specified as one to whom
indemnification is granted in Section 2.
4. The Corporation my purchase and maintain insurance to
indemnify it against the whole or any portion of the
liability assumed by it in accordance with this Article an
may also procure insurance, in such amounts as the Board of
Directors may determine, on behalf of any person who is or
was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any
liability asserted against or incurred by any such person
in any such capacity or arising from his status as such,
whether or not the Corporation would have power to
indemnify him against such liability under the provisions
of this Article.
5. In the event there has been a change in the composition of
a majority of the Board of Directors after the date of the
alleged act or omission with respect to which
indemnification is claimed, any determination as to
indemnification and advancement of expenses with respect to
any claim for indemnification made pursuant to Section 2 of
this Article VI shall be made by special legal counsel
agreed upon by the Board of Directors and the proposed
indemnitee. If the Board of Directors and the proposed
indemnitee are unable to agree upon such special legal
counsel, the Board of Directors and the proposed indemnitee
each shall select a nominee, and the nominees shall select
such special legal counsel.
6. The provisions of this Article VI shall be applicable to
all actions, claims, suits or proceedings commenced after
the adoption hereof, whether arising from any action taken
or failure to act before or after such adoption. no
amendment, modification or repeal of this Article shall
diminish the rights provided hereby or diminish the right
to indemnification with respect to any claim, issue or
matter in any then pending or subsequent proceeding that is
based in any material respect on any alleged action or
failure to act prior to such amendment, modification or
repeal.
7. Reference herein to Directors, officers, employees or
agents shall include former Directors, officers, employees
and agents and their respective heirs, executors and
administrators.
EXHIBIT 3(ii)
DOMINION RESOURCES, INC.
BYLAWS
As Amended, effective July 12, 1999
<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....................................................4
IX. Board of Directors..................................................4
X. Powers of Directors.................................................5
XI. Executive and Other Committees......................................6
XII. Meetings of Directors and Quorum....................................7
XIII. Action Without a Meeting............................................8
XIV. Officers............................................................8
XV. Eligibility of Officers ............................................8
XVI. Duties and Authority of Chairman of the Board of Directors, Vice
Chairman, President and Others....................................9
XVII. Vice Presidents.....................................................9
XVIII. Corporate Secretary................................................10
XIX. Treasurer..........................................................10
XX. Controller.........................................................11
XXI. Resignations and Removals..........................................11
XXII. Vacancies .........................................................12
XXIII. Certificates for Shares............................................12
XXIV. Transfer of Shares.................................................13
XXV. Record Date........................................................13
XXVI. Voting of Shares Held..............................................14
XXVII. Bonds, Debentures and Notes Issued Under an Indenture .............14
XXVIII. Amendments.........................................................14
XXIX. Emergency Bylaws...................................................15
XXX. Shareholder Proposals..............................................17
XXXI. Control Share Acquisitions.........................................18
<PAGE>
ARTICLE I. NAME.
- ------------------------------------------------------------------------------
The name of the Corporation is Dominion Resources, Inc.
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 meeting 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 Vice
Chairman, the President, or a majority of the Directors.
Special Meetings of the Shareholders may 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 the Articles of Incorporation.
<PAGE>
ARTICLE V. NOTICE OF SHAREHOLDERS' MEETINGS AND VOTING LISTS.
- ------------------------------------------------------------------------------
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 Vice Chairman, the President or
any Vice President or the Corporate Secretary or any Assistant
Corporate Secretary, to each Shareholder of record entitled to
vote at the meeting. Notice may be given by mail to a
Shareholder at his or her registered address and such notice
will 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. Alternatively, notice may be given to a Shareholder
by electronic transmission as permitted by the Virginia Stock
Corporation Act or any other applicable law.
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 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 or 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 or 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 herein
before provided.
<PAGE>
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 place of business 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.
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 the Articles of Incorporation.
<PAGE>
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 or by
proxy authorized by any means permitted by the Virginia Stock
Corporation Act or other applicable law, in each case by the
Shareholder or by his or her duly authorized officer,
director, employee or agent, which proxy shall be filed with
or received by 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 shares of any class shall, as to all matters in
respect of which shares of any class have voting power, be
entitled to one vote for each share of stock of such class
standing in his name on the books.
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 herein before provided.
<PAGE>
Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of
Directors shall be made by the Board of Directors or a
committee appointed by the Board of Directors or by any
Shareholder entitled to vote in the election of Directors
generally. However, any Shareholder entitled to vote in the
election of Directors generally may nominate one or more
persons for election as Directors at a meeting only if written
notice of such Shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Corporate
Secretary of the Corporation not later than 60 days in advance
of such meeting (except that, if public disclosure of the
meeting is made less than 70 days prior to the meeting, the
notice need only be received within 10 days following such
public disclosure). Each such notice shall set forth: (a) the
name and address of the Shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a
representation that the Shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the
Shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the
nomination or nominations are to be made by the Shareholder;
(d) such other information regarding each nominee proposed by
such Shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a
Director of the Corporation if so elected. The Chairman of the
meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
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.
<PAGE>
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 (a) approve or recommend to Shareholders action that
Virginia law requires to be approved by Shareholders; (b) fill
vacancies on the Board of Directors or any of its Committees
or elect officers; (c) Amend Articles of Incorporation other
than as permitted by statute; (d) adopt, amend or repeal these
Bylaws; (e) approve a plan of merger not requiring Shareholder
approval; (f) authorize or approve a distribution, except
according to a general formula or method prescribed by the
Board of Directors; or (g) 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 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 likewise may appoint from their number,
from the directors of affiliated corporations or from officers
of the Corporation 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 provided that any Committee empowered to
exercise the authority of the Board of Directors shall be
composed only of members of the Board of Directors. The Board
of Directors may designate one or more Directors to represent
the Corporation at meetings of committees of affiliated
corporations. Members of such committees, and Directors so
designated, shall receive such compensation for attendance at
meetings as may be fixed by the Board of Directors.
<PAGE>
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 Vice Chairman, 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 or
telegraphing 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, the Vice
Chairman or the President shall prescribe a shorter notice to
be given personally or by telephoning or telegraphing 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 the Articles of Incorporation. When a quorum is present at
any 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.
<PAGE>
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 officers unless they are not also
full-time employees of the Corporation. The officers and the
Chairman of the Board of Directors and the Vice Chairman 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 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,
Vice Chairman or President.
<PAGE>
ARTICLE XVI. DUTIES AND AUTHORITY OF CHAIRMAN OF THE BOARD
OF DIRECTORS, VICE CHAIRMAN, PRESIDENT AND OTHERS.
- ------------------------------------------------------------------------------
The Chairman of the Board of Directors or the Vice Chairman
shall preside at the meetings of the Board of Directors. He
may call meetings of the Board of Directors and of 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. The
Chairman and the Vice Chairman shall perform the duties
commonly incident to such 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 or
the Vice Chairman, the President shall perform their 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 certificates for shares of stock, bonds,
deeds and contracts and to delegate such authority in such
manner as may be approved by the Chief Executive Officer or
the President.
If the Chairman, Vice Chairman and President are unable to
serve as Chairman of any Shareholders' Meeting, then the
Corporate Secretary, may serve in their place.
ARTICLE XVII. VICE PRESIDENTS.
- ------------------------------------------------------------------------------
Each Vice President shall perform such 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;
<PAGE>
(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.
ARTICLE XVIII. CORPORATE SECRETARY.
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The Corporate Secretary shall keep accurate minutes of all
meetings of the Shareholders, the Board of Directors and the
Executive Committee, respectively, 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 Chief Executive Officer,
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.
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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
Chief Executive Officer, the President or a Vice President,
may sign certificates for shares of stock.
<PAGE>
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.
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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.
ARTICLE XXI. RESIGNATION AND REMOVALS.
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Any Director or officer may resign at any time by giving
written notice to the Board of Directors, to the Chairman of
the Board of Directors, to the Vice Chairman, 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 cause
and elect his successor. The Board of Directors, by vote of a
majority of the entire Board, may remove any officer, agent or
member of any Committees with or without cause from office.
<PAGE>
ARTICLE XXII. VACANCIES.
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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, if a quorum, 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.
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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, either manually or by facsimile, engraved or
printed, 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 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.
<PAGE>
ARTICLE XXIV. TRANSFER OF SHARES.
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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.
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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. The Board of Directors is
authorized to delegate the determination of a record date to
the Corporate Secretary for any meeting of Shareholders. 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 or Corporate
Secretary, as the case may be, fixes a new record date, which
shall be done if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
<PAGE>
ARTICLE XXVI. VOTING OF SHARES HELD.
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Unless the Board of Directors shall otherwise provide, the
Chairman of the Board of Directors, the Vice Chairman, the
Chief Executive Officer, 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 Vice Chairman, the Chief Executive Officer, 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.
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All bonds, debentures and notes issued under an indenture
shall be signed by the Chief Executive Officer, 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,
debentures and notes authenticated by a corporate trustee may
be made manually or by facsimile.
ARTICLE XXVIII. AMENDMENTS.
- ------------------------------------------------------------------------------
Both the Board of Directors and the Shareholders shall have
the power to alter, amend or repeal the Bylaws of the
Corporation or to adopt new Bylaws, but Bylaws enacted by the
Shareholders, if expressly so provided, may not be altered,
amended or repealed by the Directors.
Notwithstanding the foregoing, Articles IV and IX of these
Bylaws may not be amended, altered, changed or repealed
without the affirmative vote of at least two-thirds of the
outstanding shares of the Corporation entitled to vote.
<PAGE>
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 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 time and place 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.
<PAGE>
(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 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;
(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.
(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.
<PAGE>
ARTICLE XXX. SHAREHOLDER PROPOSALS.
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To be properly brought before a meeting of Shareholders,
business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors or
(c) otherwise properly brought before the meeting by a
Shareholder. In addition to any other applicable requirements,
for business to be properly brought before an Annual Meeting
by a Shareholder, the Shareholder must have given timely
notice thereof in writing to the Corporate Secretary of the
Corporation. To be timely, a Shareholder's notice must be
given, either by personal delivery or by United States
registered or certified mail, postage prepaid, to the
Corporate Secretary of the Corporation not later than 90 days
prior to the date of the anniversary of the immediately
preceding Annual Meeting. A Shareholder's notice to the
Corporate Secretary shall set forth as to each matter the
Shareholder proposes to bring before the Annual Meeting (a) a
brief description of the business desired to be brought before
the Annual Meeting, including the complete text of any
resolutions to be presented at the Annual Meeting, with
respect to such business, and the reasons for conducting such
business at the meeting, (b) the name and address of record of
the Shareholder proposing such business, (c) the class and
number of shares of the Corporation that are beneficially
owned by the Shareholder and (d) any material interest of the
Shareholder in such business. In the event that a Shareholder
attempts to bring business before an Annual Meeting without
complying with the foregoing procedure, the Chairman of the
meeting may declare to the meeting that the business was not
properly brought before the meeting and, if he shall so
declare, such business shall not be transacted.
<PAGE>
ARTICLE XXXI. CONTROL SHARE ACQUISITIONS.
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In the event that any acquiring person (an Acquiring Person)
as defined in Section 13.1-728.1 of the Virginia Stock
Corporation Act (the Act), either (a) fails to comply with the
provisions of Section 13.1-728.4 of the Act or (b) fails to
obtain the approval of the Shareholders of the Corporation at
any meeting held pursuant to Section 13.1-728.5, then the
Corporation shall have authority, upon approval by resolution
of the Board of Directors to call for redemption, at anytime
within 60 days after the last acquisition of any such shares
by such Acquiring Person or the date of such meeting, as the
case may be, and thereafter to redeem on such date within such
60-day period as may be specified in such resolution (the
Redemption Date) all shares of Common Stock of the Corporation
theretofore acquired by the Acquiring Person in a control
share acquisition (as defined in Section 13.1-728.1 of the
Act) and then owned beneficially by such Acquiring Person, as
such number of shares may be either (a) shown on any control
share acquisition statement or any statement or report filed
by the Acquiring Person with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended, or (b) otherwise determined by the Board of
Directors. The redemption price shall be paid in cash on the
Redemption Date against delivery at the principal office of
the Corporation of certificates evidencing the shares so
redeemed.
All determinations by the Board of Directors as to (a) the
status of any person as an Acquiring Person under the Act, (b)
the number of shares of the Corporation owned by such
Acquiring Person, (c) the timeliness of compliance by any
Acquiring Person within Section 13.1-728.4 of the Act, or (d)
the interpretation of the Act or this Article if made in good
faith, shall be conclusive and binding on all persons.
Exhibit 10.(i)
FORM OF
EMPLOYMENT CONTINUITY AGREEMENT
THIS AGREEMENT dated as of __________________, 1999 (the "Agreement
Date") is made by and between Virginia Power, a Virginia corporation, Dominion
Resources, Inc. ("DRI"), a Virginia corporation, (and together with Virginia
Power, the "Company") and ______________________ (the "Executive").
ARTICLE I
PURPOSES
The Board of Directors of Virginia Power (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued services of the Executive, despite the
possibility or occurrence of a Change in Control of DRI. The Board believes that
this objective may be achieved by giving key management employees assurances of
financial security in case of a pending or threatened change in control, so that
they will not be distracted by personal risks and will continue to devote their
full time and best efforts to the performance of their duties. The Board also
wants to provide the Executive with compensation and benefits arrangements upon
a Change in Control which are competitive with those of similarly situated
corporations.
ARTICLE II
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall have the
following meanings:
2.1 "Agreement Term" means the period commencing on the Agreement
Date and ending on the third anniversary of the Agreement Date. Commencing on
the third anniversary of the Agreement Date and each subsequent anniversary of
the Agreement Date, the Agreement Term shall be automatically extended for an
additional one-year term, unless at least 30 days prior to the last day of any
such extended Agreement Term, the Company shall give notice to the Executive
that the Agreement Term shall not be extended. The Agreement Term shall also
include the Employment Period.
2.2 "Accrued Obligation" See Section 5.4(a).
2.3 "Annual Base Salary" See Section 3.1(a).
2.4 "Annual Bonus" See Section 3.1(b).
2.5 "Bonus Plan" See Section 3.2(b).
<PAGE>
2.6 "Cause" See Section 4.3.
2.7 "Change in Control" means:
(a) any person, including a "group" as defined in Section
13(d)(3) of the Act becomes the owner or beneficial owner of DRI securities
having 20% or more of the combined voting power of the then outstanding DRI
securities that may be cast for the election of DRI's directors (other than as
a result of an issuance of securities initiated by DRI, or open market purchases
approved by the DRI Board, as long as the majority of the DRI Board approving
the purchases is also the majority at the time the purchases are made); or
(b) as the direct or indirect result of, or in connection
with, a cash tender or exchange offer, a merger or other business combination, a
sale of assets, a contested election, or any combination of these transactions,
the persons who were directors of DRI before such transactions cease to
constitute a majority of the DRI Board, or any successor's board, within two
years of the last of such transactions.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Company Certificate" See Section 6.1.
2.10 "Disability" See Section 4.1.
2.11 "Disability Effective Date" See Section 4.1
2.12 "Effective Date" means the first date during the Agreement Term
on which a Change in Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change in Control occurs and the Executive's employment
with the Company had terminated prior to the date on which the Change in Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control, or (b) otherwise
arose in connection with or in anticipation of a Change in Control, then for all
purposes of this Agreement, the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
2.13 "Employment Period" means the period commencing on the Effective
Date and ending on the third anniversary of such date.
2.14 "Excise Taxes" See Section 6.1(a).
2.15 "Gross-up Payment" See Section 6.1(a).
2.16 "Performance Period" See Section 3.2(b).
2.17 "Plans" See Section 3.2(c).
2
<PAGE>
2.18 "Potential Parachute Payments" See Section 6.1(a).
2.19 "Severance Incentive" means the greater of (i) the target annual
incentive under an Incentive Plan applicable to the Executive for the
Performance Period in which the Termination Date occurs, or (ii) the highest
actual annual incentives paid (or payable, to the extent not previously paid) to
the Executive under the Incentive Plan during the three calendar years preceding
the calendar year in which the Termination Date occurs.
2.20 "Termination Date" means the date of termination of the
Executive's employment; provided, however, that if the Executive's employment is
terminated by reason of Disability, then the Termination Date shall be the
Disability Effective Date (as defined in Section 4.1(a)).
2.21 "Welfare Plans" See Section 3.2(d).
ARTICLE III
TERMS OF EMPLOYMENT
3.1 Position and Duties.
(a) The Company hereby agrees to continue the Executive in its
employ during the Employment Period and, subject to Article IV of this
Agreement, the Executive agrees to remain in the employ of the Company subject
to the terms and conditions hereof.
(b) During the Employment Period, the Executive (i) will devote his
knowledge, skill and best efforts on a full-time basis to performing his duties
and obligations to the Company (with the exception of absences on account of
illness or vacation in accordance with the Company's policies and civic and
charitable commitments not involving a conflict with the Company's business),
and (ii) will comply with the directions and orders of the Board of Directors,
the Chief Executive Officer or other superior officer of the Company with
respect to the performance of his duties.
3.2 Compensation.
(a) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and, thereafter, at least annually, and shall be
increased at any time and from time to time as shall be substantially consistent
with increases in base salary awarded to other peer executives of the Company.
Annual Base Salary shall not be reduced after any such increase unless such
reduction is part of a policy, program or arrangement applicable to peer
executives of the Company and of any successor entity, and the term Annual Base
Salary as used in this Agreement shall refer to Annual Base Salary as so
adjusted.
3
<PAGE>
(b) Annual Bonus. In addition to Annual Base Salary, the
Company shall make or cause to be made to the Executive an incentive award (the
"Annual Bonus") for each Performance Period which ends during the Employment
Period. "Performance Period" means each period of time designated in accordance
with any annual incentive award arrangement ("Bonus Plan") which is based upon
performance. The Executive's target and maximum Annual Bonus with respect to any
Performance Period shall not be less than the largest target and maximum annual
incentive award payable with respect to the Executive under the Company's annual
incentive program as in effect at any time in the three-year period immediately
preceding the Effective Date.
(c) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
("Plans") applicable generally to other peer executives of the Company, but in
no event shall such Plans provide the Executive with incentives or savings and
retirement benefits which, in each case, are less favorable, in the aggregate
than the greater of (i) those provided by the Company for the Executive under
such Plans as in effect at any time during the 90-day period immediately
preceding the Effective Date, or (ii) those provided generally at any time after
the Effective Date to other peer executives of the Company. The Plans shall
include both tax-qualified retirement plans and nonqualified retirement plans.
(d) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs ("Welfare Plans") provided by the Company
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance benefits), but in no event shall such Welfare Plans provide
the Executive with benefits which are less favorable, in the aggregate than the
greater of (i) those provided by the Company for the Executive under such
Welfare Plans as were in effect at any time during the 90-day period immediately
preceding the Effective Date, or (ii) those provided generally at any time after
the Effective Date to other peer executives of the Company.
(e) Other Employee Benefits. During the Employment Period,
the Executive shall be entitled to other employee benefits and perquisites in
accordance with the most favorable plans, practices, programs and policies of
the Company, as in effect with respect to the Executive at any time during the
90-day period immediately preceding the Effective Date, or if more favorable, as
in effect generally with respect to other peer executives of the Company. These
other employee benefits and perquisites include, but are not limited to,
vacation, use of a company car, parking benefits and financial planning.
4
<PAGE>
(f) Stock Incentives. At the Effective Date, the Executive
shall become fully vested in any and all stock incentive awards granted to the
Executive under the Dominion Resources, Inc. Incentive Compensation Plan or any
other plan or arrangement ("Incentive Plans") which have not become exercisable
as the Effective Date. All forfeiture conditions that as of the Effective Date
are applicable to any deferred stock unit, restricted stock or restricted share
units awarded to the Executive by the Company pursuant to any Incentive Plan or
otherwise shall lapse immediately at the Effective Date.
(g) Subsidiaries. To the extent that immediately prior to the
Effective Date, the Executive has been on the payroll of, and participated in
the incentive or employee benefit plans of, a subsidiary of DRI, the references
to the Company contained in Sections 3.2(a) through 3.2(f) and the other
Sections of this Agreement referring to benefits to which the Executive may be
entitled shall be read to refer to such subsidiary.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Disability. During the Agreement Term, the Company may terminate
the Executive's employment upon the Executive's Disability. The Executive's
employment shall terminate effective on the 30th day (the "Disability Effective
Date") after the Executive's receipt of written notice of termination from the
Company unless, before the Disability Effective Date, the Executive shall have
resumed the full-time performance of the Executive's duties. "Disability" means
a condition, resulting from bodily injury or disease, that renders, and for a
six consecutive month period has rendered, the Executive unable to perform
substantially the duties pertaining to his employment with the Company. A return
to work of less than 14 consecutive days will not be considered an interruption
in the Executive's six consecutive months of disability. Disability will be
determined by the Company on the basis of medical evidence satisfactory to the
Company.
4.2 Death. The Executive's employment shall terminate automatically
upon the Executive's death during the Agreement Term.
4.3 Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
means (a) fraud or material misappropriation with respect to the business or
assets of the Company, (b) persistent refusal or willful failure of the
Executive to perform substantially his duties and responsibilities to the
Company, which continues after the Executive receives notice of such refusal or
failure, (c) conviction of a felony or crime involving moral turpitude, or (d)
the use of drugs or alcohol that interferes materially with the Executive's
performance of his duties.
5
<PAGE>
4.4 Constructive Termination. The Executive may terminate the
Executive's employment for Constructive Termination at any time during the
Employment Period. "Constructive Termination" means any material breach of this
Agreement by the Company during the Employment Period, including:
(a) the failure to maintain the Executive in the office or
position, or in a substantially equivalent office or position, held by the
Executive immediately prior to the Effective Date;
(b) a material adverse alteration in the nature or scope of the
Executive's position, duties, functions, responsibilities or authority as
compared to the nature or scope immediately prior to the Effective Date;
(c) a reduction of the Executive's Annual Base Salary in
violation of Section 3.2(a) or a reduction in the Executive's Annual Bonus in
violation of Section 3.2(b);
(d) a failure by the Company to provide the Executive with
increase in Annual Base Salary or participation in Bonus Plans or Incentive
Plans comparable to peer executives of the Company;
(e) the failure of any successor to the Company to assume this
Agreement;
(f) a relocation of more than 50 miles of (i) the Executive's
workplace, or (ii) the principal offices of the Company (if such offices are
the Executive's workplace), in each case without the consent of the Executive;
or
(g) any failure by the Company to comply with Section 3.2(f).
An act or omission shall not constitute Constructive Termination
unless (1) the Executive gives written notice to the Company indicating that the
Executive intends to terminate employment under this Section 4.4; (2) the
Executive's voluntary termination occurs within 60 days after the Executive
knows or reasonably should know of an event described in subsection (a)-(g)
above, or within 60 days after the last in a series of such events, and (3) the
Company has failed to remedy the event described in subsection (a)-(g) above as
the case may be, within 30 days after receiving the Executive's written notice.
If the Company remedies the event described in subsection (a)-(g), as the case
may be, within 30 days after receiving the Executive's written notice, the
Executive may not terminate employment under this Section 4.4 on account of the
event specified in the Executive's notice.
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ARTICLE V
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Constructive Termination or by the
Company Other Than for Cause or Disability. If, during the Employment Period,
the Company shall terminate the Executive's employment other than for Cause or
Disability, or if the Executive shall terminate employment for Constructive
Termination, the Company's obligations to the Executive shall be as follows:
(a) The Company shall, within thirty business days of such
termination of employment, pay the Executive a cash payment equal to the sum of
the following amounts:
(i) to the extent not previously paid, the Annual Base
Salary and any accrued paid time off through the Termination Date;
(ii) an amount equal to the product of (i) the Annual Bonus
(as defined in Section 3.2(b)) for the Performance Period in which the
Termination Date occurs multiplied by (ii) a fraction, the numerator of which
is the number of days actually worked during such Performance Period, and the
denominator of which is 365; or, if greater, the amount of any Annual
Incentive paid or payable to the Executive with respect to the Performance
Period for the year in which the Termination Date occurs;
(iii) all amounts previously deferred by the Executive
under any nonqualified deferred compensation plan sponsored by the Company,
together with any accrued earnings thereon, and not yet paid by the Company;
and
(b) The Company shall, within thirty business days of such
termination of employment, pay the Executive a cash payment equal to three (3)
times the sum of the Executive's Annual Base Salary and the Severance Incentive.
(c) On the Termination Date, the Executive shall become fully
vested in any and all stock incentive awards granted to the Executive under any
Plan which have not become exercisable as of the Termination Date and all stock
options (including options vested as of the Termination Date) shall remain
exercisable until the applicable option expiration date. All forfeiture
conditions that as of the Termination Date are applicable to any deferred stock
unit, restricted stock or restricted share units awarded to the Executive by the
Company pursuant to the LTIP, a successor plan or otherwise shall lapse
immediately.
(d) Except as provided in subsections (e) and (f), during the
Employment Period (or until such later date as any Welfare Plan of the Company
may specify), the Company shall continue to provide to the Executive and the
Executive's family welfare benefits (including, without limitation, disability,
individual life and group life insurance benefits, but excluding medical or
other health plans) which are at least as favorable as those provided under the
most favorable Welfare Plans of the Company applicable (i) with respect to the
Executive and his family during the 90-day period immediately preceding the
Termination Date, or (ii) with respect to other peer executives and their
families during the Employment Period. In determining benefits under such
Welfare Plans, the Executive's annual compensation attributable to base salary
and incentives for any plan year or calendar year, as applicable, shall be
deemed to be not less than the Executive's Annual Base Salary and Annual
Incentive. The cost of the welfare benefits provided under this Section 5.1(d)
shall not exceed the cost of such benefits to the Executive immediately before
the Termination Date or, if less, the Effective Date. Notwithstanding the
foregoing, if the Executive obtains comparable coverage under any Welfare Plans
sponsored by another employer, then the amount of coverage required to be
provided by the Company hereunder shall be reduced by the amount of coverage
provided by such other employer's Welfare Plans.
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(e) If the Executive elects to convert any group term life
insurance to an individual policy, the Company shall pay all premiums for 12
months and the Executive shall cease to participate in the Company's group term
life insurance.
(f) The Executive's eligibility for any retiree medical
coverage shall be determined under the relevant plan, with additional age or
service credited provided in the Executive's employment agreement, if any. The
Executive's rights under this Section shall be in addition to and not in lieu of
any post-termination continuation coverage or conversion rights the Executive
may have pursuant to applicable law, including, without limitation, continuation
coverage required by Section 4980B of the Code ("COBRA Continuation Coverage").
If the Executive is not eligible for retiree medical coverage and elects to
receive COBRA Continuation Coverage, the Company shall pay all of the required
premiums for the Executive and/or the Executive's family for 12 months after the
Termination Date. For purposes of determining eligibility for and the time of
commencement of retiree benefits under any Welfare Plans of the Company, the
Executive's credited service shall be the Executive's credited service at the
Termination Date plus five years and the Executive's age shall be deemed to be
the Executive's age at the Termination Date plus five years. If the Executive is
eligible for additional credited service or deemed age under an employment
agreement or other contract with the Company, the additional service and age
provided by this Section 5.1(f) shall be in addition to any service and/or age
credit provided under an employment agreement or contract.
(g) The Executive shall be fully vested in the Company's
Executive Supplemental Retirement Plan and Benefit Restoration Plan or any
successor or replacement plans (the "Supplemental Plans"). For purposes of the
Supplemental Plans, the Executive's credited service shall be the Executive's
credited service at the Termination Date plus five years and the Executive's age
shall be deemed to be the Executive's age at the Termination Date plus five
years. The amount payable under Section 5.1(b) of this Agreement shall be taken
into account for purposes of determining the amount of benefits to which the
Executive is entitled under the Supplemental Plans as though the amount was
earned equally over the Employment Period. If the Executive is eligible for
additional credited service or deemed age under an employment agreement or other
contract with the Company, the additional service and age provided by this
Section 5.1(g) shall be in addition to any service and/or age credit provided
under an employment agreement or contract.
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(h) The Company shall, at its sole expense, as incurred, pay
on behalf of Executive up to $25,000 in fees and costs charged by a nationally
recognized outplacement firm selected by the Executive to provide outplacement
service for one year after the Termination Date.
5.2 If by the Company for Cause. If the Company terminates the
Executive's employment for Cause during the Employment Period, this Agreement
shall terminate without further obligation by the Company to the Executive,
other than the obligation immediately to pay the Executive in cash the
Executive's Annual Base Salary through the Termination Date, plus any accrued
paid time off, in each case to the extent not previously paid.
5.3 If by the Executive Other Than for Constructive Termination. If
the Executive terminates employment during the Employment Period other than for
Constructive Termination, Disability or death, this Agreement shall terminate
without further obligation by the Company, other than the obligation immediately
to pay the Executive in cash the Executive's Annual Base Salary through the
Termination Date, plus any accrued paid time off, in each case to the extent not
previously paid.
5.4 If by the Company for Disability. If the Company terminates the
Executive's employment by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further obligation to
the Executive, other than:
(a) the Company shall pay the Executive in cash all amounts
specified in Sections 5.1(a)(i), (ii), (iii) and 5(b), in each case, to the
extent unpaid as of the Termination Date (such amounts collectively, the
"Accrued Obligations"),
(b) the Executive shall be fully vested in the Company's
Supplemental Plans and shall be entitled to immediate payment of any benefits
under the Supplemental Plans; and
(c) the Executive's right after the Disability Effective Date
to receive disability and other benefits at least equal to the greater of (1)
those provided under the most favorable disability Plans applicable to disabled
peer executives of the Company in effect immediately before the Termination
Date, or (2) those provided under the most favorable disability Plans of the
Company in effect at any time during the 90-day period immediately before the
Effective Date.
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5.5 If upon Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligation to the Executive's legal
representatives under this Agreement, other than the obligation immediately to
pay the Executive's estate or beneficiary in cash all Accrued Obligations (as
defined in Section 5.4(a)) and to provide the benefits as stated in Section
5.4(b). In addition, the Executive's family shall be entitled to receive death
benefits at least equal to the most favorable death benefits provided under
Plans and Welfare Plans of the Company to the surviving families of peer
executives of the Company, but in no event shall such Plans and Welfare Plans
provide benefits which in each case are less favorable, in the aggregate, than
the most favorable of those provided by the Company to the Executive under such
Plans in effect at any time during the 90-day period immediately before the
Effective Date.
ARTICLE VI
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
6.1 Gross-up for Certain Taxes.
(a) If the Company determines that any benefit received or
deemed received by the Executive from the Company pursuant to this Agreement
or otherwise, whether or not in connection with a Change in Control (such
monetary or other benefits collectively, the "Potential Parachute Payments") is
or will become subject to any excise tax under Section 4999 of the Code or any
similar tax payable under any United States federal, state, local or other law
(such excise tax and all such similar taxes collectively, "Excise Taxes"), then
the Company shall, within 30 business days after such determination, pay the
Executive an amount (the "Gross-up Payment") equal to the product of:
(i) the amount of such Excise Taxes multiplied by
(ii) the Gross-up Multiple (as defined in Section 6.3).
The Gross-up Payment is intended to compensate the Executive for all
Excise Taxes payable by the Executive with respect to the Potential Parachute
Payments and any federal, state, local or other income or other taxes or Excise
Taxes payable by the Executive with respect to the Gross-up Payment.
(b) The determination of the Company described in Section
6.1(a), including the detailed calculations of the amounts of the Potential
Parachute Payments, Excise Taxes and Gross-Up Payment and the assumptions
relating thereto, shall be set forth in a written certificate of the Company's
independent auditors (the "Company Certificate") delivered to the Executive. The
Executive may at any time request the preparation and delivery to the Executive
of a Company Certificate. The Company shall cause the Company Certificate to be
delivered to the Executive as soon as reasonably possible after such request.
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6.2 Additional Gross-up Amounts. If for any reason it is later
determined pursuant to a final judgment of a court of competent jurisdiction or
a determination by the Company that the amount of Excise Taxes payable by the
Executive is greater than the amount determined by the Company pursuant to
Section 6.1, then the Company shall pay the Executive an amount (which shall
also be deemed a Gross-up Payment) equal to the product of:
(a) the sum of (i) such additional Excise Taxes and (ii) any
interest, fines, penalties, expenses or other costs incurred by the Executive
as a result of having taken a position in accordance with a determination made
pursuant to Section 6.1 multiplied by
(b) the Gross-up Multiple.
6.3 Gross-up Multiple. The Gross-up Multiple shall equal a fraction,
the numerator of which is one (1.0), and the denominator of which is one (1.0)
minus the sum, expressed as a decimal fraction, of the effective after-tax
marginal rates of all federal, state, local and other income and other taxes and
any Excise Taxes applicable to the Gross-up Payment. If different rates of tax
are applicable to various portions of a Gross-up Payment, the weighted average
of such rates shall be used.
6.4 Amount Increased or Contested.
(a) The Executive shall notify the Company in writing (an
"Executive's Notice") of any claim by the IRS or other taxing authority (an
"IRS Claim") that, if successful, would require the payment by the Executive of
Excise Taxes in respect of Potential Parachute Payments in an amount in excess
of the amount of such Excise Taxes determined in accordance with Section 6.1.
Such Executive's Notice shall include a copy of all notices and other documents
or correspondence received by the Executive in respect of such IRS Claim. The
Executive shall give the Executive's Notice as soon as practicable. If before
the deadline for a response to the IRS ("IRS Claim Deadline"), the Company shall
(i) deliver to the Executive a Company Certificate to the
effect that the IRS Claim has been reviewed by the Company and,
notwithstanding the IRS Claim, the amount of Excise Taxes, interest and
penalties payable by the Executive is either zero or an amount less than
the amount specified in the IRS Claim,
(ii) pay to the Executive an amount (which shall also be
deemed a Gross-Up Payment) equal to the positive difference between (A) the
product of the amount of Excise Taxes, interest and penalties specified in
the Company Certificate, if any, multiplied by the Gross-Up Multiple, and
(B) the portion of such product, if any, previously paid to Executive by
the Company, and
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(iii) direct the Executive pursuant to Section 6.4(d) to
contest the balance of the IRS Claim,
then the Executive shall pay only the amount, if any, of Excise
Taxes, interest and penalties specified in the Company Certificate. In no event
shall the Executive pay an IRS Claim earlier than 30 days after having given an
Executive's Notice to the Company (or, if sooner, the IRS Claim Deadline).
(b) At any time after the payment by the Executive of any
amount of Excise Taxes or related interest or penalties in respect of Potential
Parachute Payments, the Company may in its discretion require the Executive to
pursue a claim for a refund (a "Refund Claim") of all or any portion of such
Excise Taxes, interest or penalties as the Company may specify by written notice
to the Executive.
(c) If the Company notifies the Executive in writing that the
Company desires the Executive to contest an IRS Claim or to pursue a Refund
Claim, the Executive shall:
(i) give the Company all information that it reasonably
requests in writing from time to time relating to such IRS Claim or Refund
Claim, as applicable,
(ii) take such action in connection with such IRS Claim o
Refund Claim (as applicable) as the Company reasonably requests in writing
from time to time, including accepting legal representation with respect
thereto by an attorney selected by the Company, subject to the approval of
the Executive (which approval shall not be unreasonably withheld or
delayed),
(iii) cooperate with the Company in good faith to contest
such IRS Claim or pursue such Refund Claim, as applicable,
(iv) permit the Company to participate in any proceedings
relating to such IRS Claim or Refund Claim, as applicable, and
(v) contest such IRS Claim or prosecute such Refund
Claim (as applicable) to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company may from time to time determine in its discretion.
The Company shall control all proceedings in connection with such IRS
Claim or Refund Claim (as applicable) and in its discretion may cause the
Executive to pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the IRS or other taxing authority in respect of
such IRS Claim or Refund Claim (as applicable); provided that (i) any extension
of the statute of limitations relating to payment of taxes for the taxable year
of the Executive relating to the IRS Claim is limited solely to such IRS Claim,
(ii) the Company's control of the IRS Claim or Refund Claim (as applicable)
shall be limited to issues with respect to which a Gross-Up Payment would be
payable, and (iii) the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the IRS or other taxing authority.
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(d) The Company may at any time in its discretion direct the
Executive to (i) contest the IRS Claim in any lawful manner or (ii) pay the
amount specified in an IRS Claim and pursue a Refund Claim; provided, however,
that if the Company directs the Executive to pay an IRS Claim and pursue a
Refund Claim, the Company shall advance the amount of such payment to the
Executive on an interest-free basis and shall indemnify the Executive, on an
after-tax basis, for any income or other applicable taxes or Excise Tax, and any
related interest or penalties imposed with respect to such advance.
(e) The Company shall pay directly all legal, accounting and
other costs and expenses (including additional interest and penalties) incurred
by the Company or the Executive in connection with any IRS Claim or Refund
Claim, as applicable, and shall indemnify the Executive, on an after-tax basis,
for any income or other applicable taxes, Excise Tax and related interest and
penalties imposed on the Executive as a result of such payment of costs and
expenses.
6.5 Refunds. If, after the receipt by the Executive of any payment or
advance of Excise Taxes advanced by the Company pursuant to Section 6.4, the
Executive receives any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 6.4)
promptly pay the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section 6.4, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such determination within 30 days after the
Company receives written notice of such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-up Payment
required to be paid. Any contest of a denial of refund shall be controlled by
Section 6.4.
ARTICLE VII
EXPENSES AND INTEREST
7.1 Legal Fees and Other Expenses. The Company will pay all
reasonable fees and expenses, if any, (including, without limitation, legal fees
and expenses) that are incurred by the Executive to enforce this Agreement and
that result from a breach of this Agreement by the Company.
7.2 Interest. If the Company does not pay any amount due to the
Executive under this Agreement within three days after such amount became due
and owing, interest shall accrue on such amount from the date it became due and
owing until the date of payment at a annual rate equal to 200 basis points above
the base commercial lending rate published in The Wall Street Journal in effect
from time to time during the period of such nonpayment.
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ARTICLE VIII
NO ADVERSE EFFECT ON POOLING OF INTERESTS
Any benefits provided to the Executive under this Agreement may be
reduced or eliminated to the extent necessary, in the reasonable judgment of the
DRI Board, to enable the Company to account for a merger, consolidation or
similar transaction as a pooling of interests; provided that (i) the DRI Board
shall have exercised such judgment and given the Executive written notice
thereof prior to the Effective Date and (ii) the determination of the DRI Board
shall be supported by a written certificate of the Company's independent
auditors, a copy of which shall be provided to the Executive before the
Effective Date.
ARTICLE IX
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to receive when due
the payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Any claim which the Company may have against the Executive, whether for
a breach of this Agreement or otherwise, shall be brought in a separate action
or proceeding and not as part of any action or proceeding brought by the
Executive to enforce any rights against the Company under this Agreement.
9.2 No Mitigation. The Executive shall not have any duty to mitigate
the amounts payable by the Company under this Agreement by seeking new
employment following termination. Except as specifically otherwise provided in
this Agreement, all amounts payable pursuant to this Agreement shall be paid
without reduction regardless of any amounts of salary, compensation or other
amounts which may be paid or payable to the Executive as the result of the
Executive's employment by another employer.
ARTICLE X
NON-EXCLUSIVITY OF RIGHTS
10.1 Waiver of Other Severance Rights. To the extent that payments
are made to the Executive pursuant to Section 5.1 of this Agreement, the
Executive hereby waives the right to receive benefits under any plan or
agreement (including an offer of employment or employment contract) of the
Company or its subsidiaries which provides for severance benefits (except as
provided in Section 5.1(b).
10.2 Other Rights. Except as provided in Section 10.1, this Agreement
shall not prevent or limit the Executive's continuing or future participation in
any benefit, bonus, incentive or other plans provided by the Company or any of
its subsidiaries and for which the Executive may qualify, nor shall this
Agreement limit or otherwise affect such rights as the Executive may have under
any other agreements with the Company or any of its subsidiaries. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan of the Company or any of its subsidiaries and any other payment
or benefit required by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly modified by this
Agreement.
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ARTICLE XI
MISCELLANEOUS
11.1 No Assignment. The Executive's rights under this Agreement may
not be assigned or transferred in whole or in part, except that the personal
representative of the Executive's estate will receive any amounts payable under
this Agreement after the death of the Executive. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal representatives.
11.2 Successors. The rights and obligations of the Company under this
Agreement will inure to the benefit of and will be binding upon the successors
and assigns of the Company. Before or upon a Change in Control, the Company
shall obtain the agreement of the surviving or acquiring corporation that it
will succeed to the Company's rights and obligations under this Agreement.
11.3 Rights Under the Agreement. The right to receive benefits under
the Agreement will not give the Executive any proprietary interest in the
Company or any of its assets. Benefits under the Agreement will be payable from
the general assets of the Company, and there will be no required funding of
amounts that may become payable under the Agreement. The Executive will for all
purposes be a general creditor of the Company. The interest of the Executive
under the Agreement cannot be assigned, anticipated, sold, encumbered or pledged
and will not be subject to the claims of the Executive's creditors.
11.4 Notice. For purposes of this Agreement, notices and all other
communications must be in writing and are effective when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed to the Executive or his personal representative at his last known
address. All notices to the Company must be directed to the attention of the
Corporate Secretary with a copy to the General Counsel. Such other addresses may
be used as either party may have furnished to the other in writing. Notices of
change of address are effective only upon receipt.
11.5 Miscellaneous. The Executive and the Company agree that,
effective as of the execution of this Agreement, any prior Employment Continuity
Agreement between the Executive and the Company is null and void. This
instrument contains the entire agreement of the parties. To the extent not
governed by federal law, this Agreement will be construed in accordance with the
laws of the Commonwealth of Virginia, without reference to its conflict of laws
rules. No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of
similar or dissimilar provisions or conditions. The invalidity or
unenforceability of any provision of this Agreement will not affect the validity
or enforceability of any other provision of this Agreement, which will remain in
full force and effect. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement.
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11.6 Tax Withholding. The Company may withhold from any amounts
payable under this Agreement any federal, state or local taxes that are required
to be withheld pursuant to any applicable law or regulation.
IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement
as of the date first above written.
___________________________
Executive
VIRGINIA POWER
By:________________________ Title:_______________________
DOMINION RESOURCES, INC.
By:________________________ Title:_______________________
16
EXHIBIT 10(ii)
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT BETWEEN
DOMINION RESOURCES, INC. AND
DAVID L. HEAVENRIDGE
WHEREAS, DOMINION RESOURCES, INC. (the "Company") entered into an
EMPLOYMENT AGREEMENT (the "Agreement") effective as of September 12, 1997,
with DAVID L. HEAVENRIDGE (the "Executive");
WHEREAS, Section 15 of the Agreement permits the modification of such
Agreement;
NOW THEREFORE, the Company and the Executive desire to modify the
Agreement and therefore agree as follows:
A. Section 5 (a) (ii), relating to Compensation and Benefits, is
amended by inserting the following sentence at the end thereof:
Any awards made as of or after the date of a vote of the Company's
shareholders approving the merger of the Company and Consolidated
Natural Gas, Inc. will be made payable in cash.
B. New subsections (e) and (f), relating to Termination of
Employment, are added immediately following Section 6(d):
(e) If the Company terminates the Executive's
employment, other than for Cause, during the Term
of this Agreement after the date of a vote of the
Company's shareholders approving the merger of the
Company and Consolidated Natural Gas, Inc. or if
the Executive voluntarily terminates employment
after a Change Event (as defined below), the
Company shall pay the Executive the benefits
described in this subsection (e).
(i) The Executive's retirement benefits under
the Company's Retirement Plan and Benefit
Restoration Plan will be computed based on the
greater of (A) the Executive's years of credited
service (as determined pursuant to the terms of
the Retirement Plan), or (B) thirty (30) years of
credited service. In addition, the Executive's
retirement benefits under the Company's
Retirement Plan and Benefit Restoration Plan will
be computed based as if the Executive's age is
the greater of (A) the Executive's age, or (B)
age sixty (60). Any supplemental benefit to be
provided under this subsection (d) will be
provided as a supplemental benefit under this
Agreement and will not be provided directly from
the Retirement Plan.
(ii) Any outstanding restricted stock awards
will become fully vested as of the date of the
Executive's termination of employment.
<PAGE>
(iii) The Executive will be deemed to have
attained age 55 for the "Extended Coverage"
provision of the Medical Benefits section of the
Dominion Resources, Inc. Flexible Benefits Plan
or, at the Company's option, the Company will
provide equivalent coverage as determined by the
Company. The Executive will be credited with 30
years of service for the purpose of determining
the Executive's life insurance coverage as a
retiree under the "Life Insurance Reduction
Table" of the Life Insurance Benefits section of
the Flexible Benefits Plan. The Company will
provide coverage under the Flexible Benefits Plan
or, at the Company's option, the Company will
provide an individual life insurance policy.
(iv) For purposes of this Agreement, a Change
Event is the consummation of the sale or other
disposition of a Controlling Stock Interest or
Substantial Assets in all three of (1) First
Source, Inc., (2) First Dominion Capital, Inc.
and (3) Saxon Mortgage, Inc. For this purpose, a
Controlling Stock Interest is at least 60% of the
stock of the corporation, and Substantial Assets
are at least 80% of the assets of the
corporation, excluding any assets that are
retained by the Company or an Affiliate. In the
case of a series of events and/or transactions
relating to the above corporations, the Change
Event shall be deemed to occur when the last
transaction is completed.
(v) The Company will be obligated to pay the
supplemental benefit relating to the Retirement
Plan to the Executive under either Section 5(c)
or Section 6(e)(i), but not both. Otherwise, the
payment of any benefits under this subsection (e)
will not affect the Executive's entitlement to
any other amounts under this Agreement. The
provisions of this subsection (e) shall survive
the termination of this Agreement.
(f) If the Company terminates the Executive's
employment, other than for Cause, after the end of
the Term of this Agreement but prior to a Change Event
described in paragraph (e)(iv) above, the Company
shall pay the Executive the benefits described in
subsection (e). The provisions of this subsection
(f) shall survive the termination of this
Agreement.
WITNESS the following signatures.
Dominion Resources, Inc.
Dated: July 12, 1999 By: /s/ THOS. E. CAPPS
----------------------------
Thos. E. Capps
Dated: July 12, 1999 By: /s/ DAVID L. HEAVENRIDGE
--------------------------
David L. Heavenridge
Exhibit 10.(iii)
FORM OF AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment is made to the Employment Agreement (the "Agreement")
between _______________(the "Executive") and Dominion Resources, Inc. (the
"Company") dated __________, 19__.
The Company and the Executive desire to modify the Agreement and
therefore agree as follows:
If the Company terminates the Executive's employment, other than for
Cause (as defined in the Agreement), during the term of the Agreement, the
Executive will be entitled to receive the following additional benefits stated
in paragraphs 1 and 2 below.
1. The Executive shall become fully vested in any and all stock
options granted to the Executive under any Company plan which have
not become exercisable as of the Executive's termination of
employment.
2. All of the Executive's stock options (including options
vested under paragraph 1) shall remain exercisable until the
applicable option expiration date.
If the Company terminates the Executive's employment, other than for
Cause, during the term of the Agreement under circumstances in which the
Executive is entitled to benefits similar to the benefits that would have been
payable if the Company had terminated the Executive's employment other than for
Cause, the Executive will be entitled to receive the additional benefits stated
in paragraphs 1 and 2 above.
In all other respects, the Agreement shall continue in effect.
WITNESS the following signatures.
Dominion Resources, Inc.
Dated:_________________ By:________________________
Executive
Dated:_________________ By:________________________
Executive
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