<PAGE>
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 March 31, 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 April 30, 1999, the latest practicable date for determination, 191,960,866
shares of common stock, without par value, of the registrant were outstanding.
1
<PAGE>
DOMINION RESOURCES, INC.
------------------------
INDEX
-----
Page
Number
------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income - Three 3
Months Ended March 31, 1999 and 1998
Consolidated Balance Sheets - March 31, 1999 4-5
and December 31, 1998
Consolidated Statements of Cash Flows 6-7
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Changes in 7
Other Comprehensive Income - Three Months
Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 8-18
Item 2. Management's Discussion and Analysis of Financial 19-31
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 32-33
Market Risk
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 35
Item 6. Exhibits and Reports on Form 8-K 36
2
<PAGE>
DOMINION RESOURCES, INC.
------------------------
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
(Millions, except per share amounts)
<S> <C> <C>
Operating revenues and income:
Virginia Power $ 1,088.4 $1,050.8
East Midlands 550.8
Nonutility 204.6 171.9
-------- -------
1,293.0 1,773.5
-------- -------
Operating expenses:
Fuel, net 218.1 226.1
Purchased power capacity, net 209.9 180.8
Supply and distribution-East Midlands 361.4
Other operation and maintenance 293.3 333.6
Depreciation, depletion
and amortization 178.4 216.9
Other 80.0 74.1
-------- -------
979.7 1,392.9
------ -------
Operating income 313.3 380.6
-------- -------
Other income 33.8 14.9
--------- ----
347.1 395.5
-------- --------
Fixed charges:
Interest charges, net 119.7 161.4
Preferred dividends and distributions
of subsidiary trusts 16.4 16.6
------- --------
136.1 178.0
------- -------
211.0 217.5
----- -----
Provision for income taxes 66.4 66.5
Minority interests 6.1 11.5
------ --------
Income before extraordinary item,
net of tax 138.5 139.5
Extraordinary item, net of tax 254.8 0.0
----- ---
Net income $ (116.3) $ 139.5
======= ======
Average shares of common stock 193.4 193.2
Earnings per common share:
Income before extraordinary item $ 0.72 $ 0.72
Net income $ (0.60) $ 0.72
Dividends paid per common share $ 0.645 $ 0.645
</TABLE>
- -----------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE>
DOMINION RESOURCES, INC.
------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998*
---------------------------------------------
(Millions)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 473.2 $ 425.6
Customer accounts receivable, net 663.0 777.8
Other accounts receivable 287.4 256.5
Materials and supplies:
Plant and general 144.8 142.0
Fossil fuel 97.0 95.0
Mortgage loans in warehouse 230.5 140.3
Commodity contract assets 162.8 179.8
Other 331.7 268.3
-------- ---------
2,390.4 2,285.3
-------- ---------
Investments:
Investments in affiliates 447.2 382.1
Available-for-sale securities 500.8 500.0
Nuclear decommissioning trust funds 743.1 705.1
Loans receivable, net 1,765.6 1,686.5
Investments in real estate 89.9 93.9
Other 304.1 263.0
------ --------
3,850.7 3,630.6
-------- --------
Property, plant and equipment: 18,283.9 18,106.0
Less accumulated depreciation, depletion
and amortization 7,601.0 7,469.4
-------- ---------
10,682.9 10,636.6
-------- ---------
Deferred charges and other assets:
Regulatory assets 209.9 620.0
Goodwill 148.4 150.0
Other 206.1 194.5
-------- ---------
564.4 964.5
------ ---------
Total assets $17,488.4 $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.
4
<PAGE>
DOMINION RESOURCES, INC.
------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998*
--------------------------------------------
(Millions)
<S> <C> <C>
Current liabilities:
Securities due within one year $ 493.0 $ 442.9
Short-term debt 658.5 300.8
Accounts payable, trade 625.2 698.5
Accrued interest 112.3 109.1
Accrued payroll 53.5 79.0
Accrued taxes 254.2 175.3
Commodity contract liabilities 232.6 265.8
Other 225.8 266.8
-------- --------
2,655.1 2,338.2
-------- --------
Long-term debt:
Virginia Power 3,448.0 3,464.7
Nonrecourse - nonutility 2,696.2 2,727.9
Dominion UK 54.0 55.6
Other 257.9 3.1
-------- --------
6,456.1 6,251.3
-------- --------
Deferred credits and other liabilities:
Deferred income taxes 1,656.5 1,792.5
Investment tax credits 159.2 221.4
Other 219.7 212.8
-------- --------
2,035.4 2,226.7
-------- --------
Total liabilities 11,146.6 10,816.2
-------- --------
Minority interest 300.3 310.9
-------- --------
Commitments and contingencies
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 3,831.1 3,933.4
Retained earnings 1,143.4 1,386.4
Accumulated other comprehensive income (23.2) (20.1)
Other 16.2 16.2
-------- --------
4,967.5 5,315.9
-------- --------
Total liabilities & shareholders'
equity $17,488.4 $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 (F) 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>
DOMINION RESOURCES, INC.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------------------------
(Millions)
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income $ (116.3) $ 139.5
Adjustments to reconcile net income to net cash:
Depreciation, depletion and amortization 200.4 234.8
Purchase and originations of mortgage loans (630.4) (491.4)
Proceeds from sales and principal collections
of mortgage loans 540.3 450.7
Extraordinary item, net of income taxes 254.8
Changes in assets and liabilities:
Accounts receivable 94.6 61.4
Accounts payable, trade (63.2) (64.2)
Accrued interest and taxes 3.0 36.8
Other changes (80.5) (1.7)
-------- ------
Net cash flows from operating activities 202.7 365.9
-------- ------
Cash flows from (used in) financing activities:
Issuance of common stock 307.7
Repurchase of common stock (107.2)
Issuance of long-term debt 1,123.0 980.4
Issuance of short-term debt 387.0 105.6
Repayment of long-term debt (892.3) (978.4)
Repayment of short-term debt (146.3)
Common dividend payments (124.6) (125.6)
Other (15.9) (27.8)
-------- ------
Net cash flows from financing activities 370.0 115.6
-------- ------
Cash flows from (used in) investing activities:
Utility capital expenditures-(excluding AFC) (155.1) (151.4)
Acquisition of natural gas and independent power
properties (52.3) (13.7)
Loan originations (537.0) (561.1)
Repayment of loan originations 464.3 378.3
Acquisition of businesses (133.2) (189.1)
Sale of business 24.1 99.5
Purchase of securities (50.3) (1.2)
Proceeds from sale of securities 46.5 14.0
Other (132.1) (81.8)
-------- ------
Net cash flows used in investing activities (525.1) (506.5)
-------- ------
Increase (decrease) in cash and cash equivalents 47.6 (25.0)
Cash and cash equivalents at beginning of period 425.6 321.7
-------- ------
Cash and cash equivalents at end of period $ 473.2 $ 296.7
======== ========
</TABLE>
6
<PAGE>
DOMINION RESOURCES, INC.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------------------------
(Millions)
<S> <C> <C>
Supplementary cash flows information:
Cash paid during the period for:
Interest (net of interest capitalized) $ 123.9 $150.3
Income taxes 6.5 8.3
- ------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
DOMINION RESOURCES, INC.
------------------------
CONSOLIDATED STATEMENT OF CHANGES IN OTHER COMPREHENSIVE INCOME
---------------------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------------------------
(Millions)
<S> <C> <C>
Other Comprehensive Income:
Unrealized gains (losses) on
on investment securities:
Pre-tax $ 0.6 $4.5
Tax (expense) benefit (0.2) (1.6)
----- -----
Net of tax 0.4 2.9
Foreign currency translation
adjustment (3.5) 4.8
---- -----
Increase (decrease) in other
comprehensive income (3.1) 7.7
Other comprehensive income at
beginning of period (20.1) (3.4)
------ ----
Other comprehensive income at
end of period $(23.2) $ 4.3
====== =====
- ----------------------
</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
Dominion Resources is a holding company headquartered in Richmond, Virginia. Its
primary business 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
$370 million.
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.
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. Dominion Resources' principal business
segment is Virginia Power.
The other reportable segments for the first three months of 1999 are Dominion
Energy and Dominion Capital. A description of these segments' products and
services are provided above. In 1998 and 1997, the other reportable segments
included Dominion U.K. which was sold by Dominion Resources on July 27, 1998.
A Corporate category includes the corporate costs of Dominion Resources' holding
company plus intercompany eliminations.
8
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
GENERAL
In the opinion of Dominion Resources' management, the accompanying unaudited
Consolidated Financial Statements contain all adjustments, consisting only of
normal recurring accruals, with the exception of the extraordinary item as
referred to in Note (B) below, necessary to present fairly the financial
position as of March 31, 1999, the results of operations for the three-month
periods ended March 31, 1999 and 1998, and cash flows for the three-month
periods ended March 31, 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.
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 $36.5 million and total expenses (including interest
and taxes) of $29.3 million for the three months ending March 31, 1999.
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.
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 (B) below.
9
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
(B) EXTRAORDINARY ITEM - DISCONTINUANCE OF SFAS NO. 71
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 a one-time
rate refund paid to customers in 1998 and a two-phased rate reduction and base
rate freeze through February 2002.
On March 25, 1999, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry in
Virginia. The major elements of the bill included:
. Phase-in of retail customer choice beginning in 2002 with full retail
customer choice by 2004; the schedule is to be determined by the Virginia
Commission, which has the authority to accelerate or delay implementation
under certain conditions; however, the phase-in of retail customer choice
may not be delayed beyond January 1, 2005;
. No mandatory divestiture of generating assets;
. Deregulation of generation in 2002;
. Capped base rates from January 1, 2001 to July 1, 2007;
. Recovery of net stranded costs through capped rates or a wires charge paid
by those customers opting, while capped rates are in effect, to purchase
energy from a competitive supplier;
. Cost-based recovery of fuel expenses until July 2007;
. Consumer protection safeguards;
. Establishment of default service beginning January 1, 2004; and
. Creation of a Legislative Transition Task Force to oversee the
implementation of the statute.
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. In addition, under companion legislation enacted by
Virginia in 1999, providers of electric service will be subject to corporate
income taxes in lieu of gross receipts taxes effective in 2001.
As discussed in Dominion Resources' annual report filed on Form 10-K for the
year ended December 31, 1998, the financial statements reflect regulatory assets
and liabilities under cost-based rate regulation in accordance with SFAS No. 71.
Rate-regulated companies are required to write off regulatory assets against
current earnings whenever changes in facts and circumstances result in those
assets no longer satisfying criteria for recognition as defined by SFAS No. 71.
The legislation's deregulation of generation is an event that requires
10
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
discontinuation of SFAS No. 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 continues to be subject
to deferral accounting.
In order to measure the amount of regulatory assets to be written off, Virginia
Power evaluated to what extent recovery of regulatory assets would be provided
through the capped rates during the transition period. Emerging Issues Task
Force (EITF) Issue No. 97-4, "Deregulation of the Pricing of Electricity Issues
Related to the Application of FASB Statements No. 71, Accounting for the Effects
of Certain Types of Regulation, and No. 101, Regulated Enterprises - Accounting
for the Discontinuance of Application of FASB Statement No. 71" (EITF Issue
97-4), provides guidance about writing off regulatory assets when SFAS No. 71 is
discontinued for only a portion of a utility's operations. The provisions of the
Virginia legislation provide an opportunity to recover generation-related costs,
including certain regulatory assets, through capped rates prior to July 2007.
Under EITF Issue 97-4 such generation-related regulatory assets will continue to
be recognized until they are recovered through capped rates. Generation-related
assets and liabilities that will not be recovered through the capped rates were
written off in the first quarter of 1999, resulting in an after-tax charge to
earnings of $254.8 million. Virginia Power's regulatory assets as of March 31,
1999, and December 31, 1998, are as follows:
March 31, December 31,
1999 1998
-------- --------
Income taxes recoverable through
future rates $ 57.0 $ 438.8
Cost of decommissioning DOE uranium
enrichment facilities 61.6 61.8
Deferred losses on reacquired debt, net 18.8 31.2
Nuclear design basis documentation cost 7.6 20.9
North Anna Unit 3 project termination
costs 9.8
Deferred fuel 34.7 27.7
Other 30.2 29.8
-------- --------
Total $ 209.9 $ 620.0
======== ========
In addition to the write-off of generation-related net regulatory assets
discussed above, the $254.8 million ($1.32 per share) charge included
approximately $18 million, after-tax, of other generation-related assets.
Pursuant to EITF Issue 97-4,a corresponding regulatory asset of $23 million,
representing the amount expected to be recovered during the transition period
related to these assets, was established. The extraordinary item also included
the write-off of approximately $38 million, after-tax, of deferred investment
tax credits.
Also, as discussed in Virginia Power's 1998 Form 10-K, the events or changes in
circumstances that cause discontinuance of SFAS No. 71, and write-off of
regulatory assets, also require a review of utility plant assets and long-term
power purchase contracts for possible impairment. This review is based on
estimates of possible future market prices, load growth, competition and many
11
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
other assumptions. Virginia Power evaluated its generation assets in accordance
with the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". These evaluations included
the effects of nuclear decommissioning and other currently identified
environmental expenditures. Based on these analyses which are highly dependent
on the underlying assumptions, no plant write-downs are appropriate at this
time.
Virginia Power reviewed its long-term power purchase commitments for potential
loss in accordance with SFAS No. 5, Accounting for Contingencies, and Accounting
Research Bulletin No. 43, Chapter 4, Inventory Pricing. Based on projections of
possible future market prices for wholesale electricity, the results of the
analyses of Virginia Power's long-term power purchase contracts indicated no
loss recognition is appropriate at this time. Other projections of possible
future market prices indicated a possible loss of $500 million. In the absence
of capped rates as provided by the legislation, the potential exposure related
to Virginia Power's power purchase contracts would be approximately $3.2
billion.
Significant estimates were required in recording the effect of the deregulation
legislation, including the resulting impact on the fair value determination of
generating facilities and estimated purchases under long-term power purchase
contracts. Such projections were based on estimated generation and estimated
future market prices for generation and are subject to future reevaluation.
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 legislation present a
reasonable opportunity to recover a substantial portion of the Company's
potentially stranded costs as more fully described in Virginia Power's 1998 Form
10-K, in Future Issues - Competition--Exposure to Potentially Stranded Costs,
Item 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ACCOUNTING CONDITION
AND RESULTS OF OPERATIONS.
(C) PROVISION FOR INCOME TAXES
--------------------------
Income before provision for income taxes, classified by source of income, before
minority interest was as follows:
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
U.S. $202.3 $175.6
Non U.S. 8.7 41.9
--- ----
Total $211.0 $217.5
===== =====
12
<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:
Three Months Ended
March 31,
1999 1998
---- ----
Percents
--------
U.S. statutory rate 35.0 35.0
Utility plant differences 1.5 1.9
Amortization of investment tax credits (2.0) (2.0)
Preferred dividends of Virginia Power 1.4 1.4
Nonconventional fuel credit (4.0) (2.8)
Benefits and taxes related to foreign
operations (2.0) (5.2)
State taxes, net of federal benefit 2.2 1.0
Other, net (0.6) 1.3
---- ----
Effective tax rate 31.5 30.6
==== ====
The effective income tax rate includes state and foreign income taxes.
(D) COMMON STOCK
------------
At March 31, 1999, there were 300,000,000 shares of common stock authorized of
which 192,004,353 were issued and outstanding. Common shares issued and
purchased during the referenced periods were as follows:
Three Months Ended
March 31,
1999 1998
---- ----
Employee Savings Plans 201,188
Dominion Direct Investment 770,943
Public Offering 6,775,000
Stock Repurchase (2,568,400)
Other 114,647 (61,429)
--------- ---------
Total Shares (2,453,753) 7,685,702
========= =========
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 $205.7 million to
date and continues to monitor market conditions for opportunities to repurchase
additional shares.
Also, effective August 1, 1998, purchases of shares required by Dominion Direct
Investment and the Employee Savings Plans are being acquired on the open market
instead of issuing new shares.
(E) PREFERRED STOCK - VIRGINIA POWER
--------------------------------
As of March 31, 1999, there were 1,800,000 and 5,090,140 issued and outstanding
shares of preferred stock subject to mandatory redemption and preferred stock
13
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
not subject to mandatory redemption, respectively. There is a total of
10,000,000 authorized shares of Virginia Power's preferred stock.
(F) 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
percent 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 represent the remaining 3 percent 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 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.
(G) RECENTLY ADOPTED ACCOUNTING STANDARDS
-------------------------------------
In 1998, the Emerging Issues Task Force reached consensus on Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities (EITF Issue 98-10). EITF Issue 98-10 requires energy trading
contracts to be recorded at fair value on the balance sheet with the changes in
fair value included in earnings and was effective January 1, 1999. Virginia
Power manages a portfolio of energy contracts which have been recorded at fair
value on the balance sheet with the changes in fair value included in earnings
as required by EITF 98-10. Therefore, the effect of the initial application of
EITF Issue 98-10 at January 1, 1999, was not material to Dominion Resources'
financial statements.
(H) 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
14
<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).
Effective March 31, 1999, Virginia Power implemented surety bonds to replace the
parent guarantee related to nuclear decommissioning. For additional information,
see Note (T) to THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in
Dominion Resources' Annual Report on Form 10-K for the year ended December 31,
1998.
Site Remediation
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 March 31, 1999, any
pending or possible claims were not recognized as an asset or offset against
recorded obligations of Virginia Power.
DOMINION RESOURCES AND ITS NONUTILITY SUBSIDIARIES
Dominion Resources
Effective July 27, 1998, Dominion Resources guaranteed for 90 days DR Group
Holdings' revolving credit agreement. DR Group Holdings is the indirect holder
of Dominion Resources' 80% ownership interest in the Corby Power Station. The
revolving credit agreement is with Bayerische Landesbank Girozentrale and
National Westminister Bank Plc. As of March 31, 1999, the total commitment and
outstanding balance of the agreement was 33.5 million pounds sterling ($54
million).
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 ($56.1 million at
October 30, 1998). The term of the agreement is five years. This agreement
replaces the short-term and five-year credit agreements described above with
Bayerische Landesbank Girozentrale and National Westminister Bank which totaled
33.5 million pounds sterling. Dominion Resources is guarantor to DR Group
Holdings for this revolving credit agreement.
15
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
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), must make certain improvements to the facility. Dominion Energy
has provided a guarantee of DECCO's financial obligation under this agreement.
Also, until the improvements are completed, Dominion Energy must fund up to
approximately $130 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 March 31, 1999, Dominion Capital had commitments to fund loans of
approximately $587 million.
For additional information regarding Contingencies, see Note (T) to THE NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS included in Dominion Resources' Annual Report
on Form 10-K for the year ended December 31, 1998.
(I) LINES OF CREDIT
---------------
Dominion Resources and its subsidiaries have lines of credit, revolving credit
agreements and bank commitments that provide for maximum borrowings of $5,349.8
million. At March 31, 1999, $2,049.7 million had been borrowed under such
agreements. In addition, these credit agreements supported $257.9 million of
Dominion Resources' commercial paper and $641.6 million of non-recourse
commercial paper issued by Dominion Resources' subsidiaries which was
outstanding at March 31, 1999. At March 31, 1999, $321.1 million of Dominion
Resources commercial paper is classified as long-term debt since it is supported
by revolving credit agreements that have expiration dates extending beyond one
year.
(J) LONG-TERM INCENTIVES
--------------------
During the first quarter of 1999, participants in the Dominion Resources, Inc.
Incentive Compensation Plan were awarded by the Board of Directors of Dominion
Resources 5,000 shares of common stock at $44.50 per share and 13,916 shares of
restricted stock at $44.50 per share and 10,842 shares at $42.25 per share.
For the three-month period ended March 31, 1999, 263 shares were issued
associated with exercised stock options from previous awards. As of March 31,
1999, options on 1,863 were exercisable from previous awards under the Dominion
Resources Long-term Incentive Plan.
16
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
(K) ACQUISITIONS
------------
San Juan Partners L.L.C.
In January 1999, Dominion Energy acquired San Juan Partners, L.L.C., a natural
gas investment company, for an initial price of $90.1 million in cash. On March
26, 1999, Dominion Energy completed the acquisition when San Juan Partners,
L.L.C. purchased all of the assets of the Burlington Resources Coal Seam Gas
Royalty Trust Estate (Trust), consisting principally of the Trust's interest in
certain coal bed methane gas producing properties located in the San Juan Basin
of New Mexico. The net all-cash purchase price of the Trust was $25 million.
(L) BUSINESS SEGMENTS
-----------------
Business segment financial information follows for the three months period ended
March 31, 1999 and 1998. Corporate includes intersegment eliminations.
<TABLE>
<CAPTION>
Virginia Dominion Dominion Dominion Corporate Consolidated
Power Capital Energy UK Operations Total
----- ------- ------ -- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
(millions,
except total
assets)
1999
Revenues $1,088.4 $107.6 $97.0 $1,293.0
Net Income $(149.1) $13.4 $20.8 $(1.4) $(116.3)
Total Assets
(billions) $11.5 $3.3 $2.4 $0.3 $17.5
1998
Revenues $1,050.8 $86.8 $85.1 $550.8 $1,773.5
Net Income $89.7 $13.4 $20.7 $22.4 $(6.7) $139.5
Total Assets
at 12/31/98
(billions) $12.0 $3.1 $2.2 $0.2 $17.5
</TABLE>
(M) SUBSEQUENT EVENTS
-----------------
Remington Energy Ltd.
In April 1999, Dominion Energy completed its purchase of all of the issued and
outstanding shares of Remington Energy Ltd., (Remington) a publicly traded
natural gas exploration and production company headquartered in Calgary,
Alberta, Canada.
Dominion Energy received tenders for approximately 93 percent of the outstanding
Remington common shares on March 29, 1999 and acquired the remaining shares
through statutory procedures. The total purchase price was $33 million. In
addition, Dominion Energy assumed $260 million of Remington's
17
<PAGE>
DOMINION RESOURCES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
debt and liabilities.
Revised Merger Offer - Consolidated Natural Gas Company
On May 11, 1999, the Board of Directors of Consolidated Natural Gas Company
(CNG) accepted an amended merger offer made by Dominion Resources on May 10,
1999.
Under the terms of the amended agreement, CNG shareholders will receive
consideration valued at $66.60 per share for each outstanding share of CNG
common stock . The merger consideration will be paid partly in Dominion
Resources common stock and partly in cash. The portion of the merger
consideration to be paid in stock is structured not exceed approximately 60% of
the total consideration.
The amended agreement also provides for a merger transaction which will occur
immediately before the CNG merger and in which approximately 15 to 20 percent of
the Dominion Resources shares outstanding will be acquired by Dominion Resources
for $43.00 per share in cash. The remaining shares will be replaced with new
Dominion Resources shares on a one for one basis.
The funds needed for the cash components of the transaction will be raised
initially through debt which is expected to be replaced over time through other
borrowings, the issuance of equity securities other than common stock and the
divestiture of non-core assets.
Under the amended agreement, the transaction will be accounted for using the
purchase method rather than pooling of interest accounting which was expected to
apply under the original merger agreement..
The transaction remains subject to approval by the shareholders of both
companies, receipt of opinions of counsel as to the tax-free nature of the stock
to be received by shareholders and approvals of various regulatory agencies at
state and federal levels.
18
<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 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, 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 compliance 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.
19
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
DOMINION RESOURCES - CONSOLIDATED
- ---------------------------------
RESULTS OF OPERATIONS
Earnings Per Share Three Months Ended
March 31,
1999 1998
---- ----
Virginia Power $(0.77) $0.46
Dominion UK 0.10
Nonutility 0.17 0.16
----- -----
Consolidated $(0.60) $0.72
====== =====
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 decreased $1.32 per share for the first quarter of 1999
when compared to the same time period in 1998. The decrease was due to the
write-off of generation related assets and liabilities at Virginia Power. The
amount of the write-off was $254.8 million, net of tax. The amount was recorded
on the financial statements as an extraordinary item. For more information on
the write-off, see Note (B) to THE NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
Operating Revenues and Operating Expenses
Operating revenues and operating expenses decreased by $480.5 million and $413.2
million, respectively during the first quarter of 1999 as compared to the same
period in 1998 primarily due to the sale of East Midlands. For more information
on the sale of East Midlands, see Note (C) Gain on Sale of DR Investments in the
Notes to the Consolidated Financial Statements included in Dominion Resources'
Annual Report on Form 10-K for the year ended December 31, 1998.
Extraordinary Item, Net of Income Tax
Virginia Power recorded a charge to earnings to reflect the write-off of assets
and liabilities related to its generation activities which will not be recovered
through capped rates. For more information on the extraordinary item, see Note
(B) to THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
Contingencies
For information on contingencies, see Note (H) to THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
20
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Cash flows from operating activities for the three months ended March 31, 1999
decreased by $163.2 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 quarter of 1999.
Cash Flows From Financing Activities
Cash flows from financing activities during the three-month period ending March
31, 1999 were $370 million and were due to the issuance of commercial paper:
. to satisfy the funding needs for loan and mortgage originations at Dominion
Capital; and
. to fund the acquisition of San Juan Partners, L.L.C. at Dominion Energy.
On February 19, 1999, the Board of Directors of Dominion Resources declared a
quarterly common stock dividend of $0.645 per share, payable March 20, 1999 to
holders of record at the close of business March 2, 1999.
In addition, Dominion Resources repurchased 2,568,400 shares of common stock
($107.2 million) during the first quarter of 1999. On July 20, 1998, the
Dominion Resources Board of Directors approved the repurchase of up to $650
million of Dominion Resources common stock.
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 three-month period ending
March 31, 1999 were $525.1 million. The primary reasons for the cash outflows
were:
. increase in loan originations at Dominion Capital's financial services
subsidiaries;
. utility plant (including nuclear fuel) expenditures at Virginia Power;
. Dominion Energy's acquisition of San Juan Partners, L.L.C.; and
. the funding to expand and upgrade certain independent power plants of
Dominion Energy.
21
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
FUTURE ISSUES
Power Generation Development
On April 14, 1999, Dominion Resources and a subsidiary of Consolidated Natural
Gas Company (CNG) signed an exclusive 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) to
NOTES TO THE CONSOLIDATED FINANCIAL STATMENTS 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 or lease, operate and maintain the facilities on a
50-50 ownership basis.
Year 2000 Compliance
Dominion Resources remains on schedule to complete all necessary work to prepare
the company for the year 2000. The following tables summaries our status and
projected timetable:
Percent of Critical Systems Year 2000 Ready
-------------------------------------------
Actual Planned
------ ------------------------
3/31/99 7/31/99 10/31/99
------- ------- --------
Virginia Power 96% 99% 99%*
Dominion Resources 10% 100% 100%
Dominion Energy 62% 84% 100%
Dominion Capital 95% 100% 100%
- ------------
* 100% planned to be ready by 12/31/99
We expect year 2000 costs to be within the range of $35 million and $45 million
dollars of which $17.6 million has been expended as of March 31, 1999. Of this
amount, $30 million to $40 million is for Virginia Power.
Dominion Resources will have all contingency plans identified and tested prior
to year-end 1999.
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. Minor
22
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
updates and final reviews of our contingency plans will be completed during the
second quarter of 1999. Year 2000 contingency plans will be refined and
validated throughout the remainder of 1999.
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:
. Minor variations in voltage or frequency with no significant effect on
electric service;
. 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;
. Temporary loss of some telecommunications functionality and other services
with no impact expected on electric service; and
. 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 and/or fuel 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 expects to
submit 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.
23
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
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.
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
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, (SFAS No. 133) is effective for the Company
beginning in 2000. 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. The Company has not yet quantified the impacts of adopting SFAS
No. 133 and has not yet determined the timing of, or method of, adoption.
VIRGINIA POWER
- --------------
RESULTS OF OPERATIONS
Revenue
Revenue for the three months ended March 31, 1999 varied from the same period in
the prior year primarily due to the following:
Change
(Millions)
Revenue - Electric Service
Customer growth $ 16.7
Weather 27.8
Base rate variance (28.1)
Fuel rate variance (9.5)
Other retail, net .5
------
Total retail 7.4
Other electric service 18.7
------
Total electric service 26.1
------
Revenue - Other 11.5
------
Total revenue $ 37.6
======
24
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
Electric service revenue consists of sales to retail customers in our service
territory at rates authorized by the Virginia and North Carolina Commissions and
sales to cooperatives and municipalities at wholesale rates authorized by FERC.
The primary factors affecting this revenue in the first three months of 1999
were customer growth, weather and changes in rates.
Customer growth - There were 41,565 new customer connections in the twelve
months ended March 31, 1999. These additional customers increased Virginia
Power's revenue by $16.7 million in the first quarter of 1999 compared to the
same period in 1998.
Weather - The cooler weather in the first quarter of 1999, as compared to 1998,
caused customers to use more electricity for heating, which increased retail
revenue by $27.8 million from the previous year. Heating degree days were as
follows:
1999 1998 Normal
---- ---- ------
Heating degree days 1,933 1,739 2,105
Percentage change compared to prior
year 11.2% (6.3)%
Base rates -- In 1998, as part of the settlement to resolve outstanding rate
proceedings, Virginia Power agreed to a two-phased rate reduction, $100 million
effective March 1, 1998 and an additional $50 million effective March 1, 1999,
with a base rate freeze through February 2002. The 1999 deregulation legislation
extended this base rate freeze until July 1, 2007.
Fuel rates - The decrease in fuel rate revenue is attributable to lower fuel
rates in effect during the first quarter of 1999, as compared to the same period
in 1998.
Other Revenues
Other revenue includes sales of electricity beyond our service territory,
natural gas, nuclear consulting services, energy management services and other
revenue. The growth in power marketing and natural gas revenue for the
three-month period ended March 31, 1999, as compared to the same period in 1998,
is primarily due to favorable changes in commodity prices and higher margins in
1999.
Fuel, net
Fuel, net decreased as compared to the first quarter of 1998 due to increased
deferral of fuel expenses as a result of higher fuel costs from changes in
Virginia Power's generation mix and lower fuel rates in 1999.
Purchased Power Capacity, net
Purchased power capacity, net increased as compared to the first quarter of
1998, primarily due to increased expenses associated with the restructuring of
25
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
certain contracts and the discontinuance of deferral accounting for such
expenses. This accounting change resulted from the 1998 rate settlement with the
Virginia Commission.
Operations and Maintenance
Operations and maintenance increased for the three-month period ended March 31,
1999, as compared to the same period in 1998, as a result of increased costs for
significant storm damage in early January.
Extraordinary item--Discontinuance of SFAS No. 71
On March 25, 1999, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry in
Virginia. See Note (B) Extraordinary Item - Discontinuance of SFAS No. 71, to
THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
Under this legislation, Virginia Power's base rates remain unchanged until July
2007. The legislation's deregulation of generation is an event that requires
discontinuation of SFAS No. 71 for our generation operations although recovery
of generation-related costs continues to be provided through the capped rates
and the wires charge assessed to those customers opting for alternate suppliers.
Our 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.
Under EITF Issue 97-4 generation-related assets and liabilities that will not be
recovered through the capped rates were written off in March 1999, resulting in
an after-tax charge to earnings of $254.8 million.
Contingencies
For information on contingencies, see Note (H) to tHE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
Operating activities resulted in $105.3 million decreased cash flow for the
three-month period ended March 31, 1999 as compared to the same period in 1998.
This decrease was primarily attributable to the timing of certain payments
related to normal operations and an increase in fuel expenses for which recovery
was not received in the first quarter. Internal generation of cash exceeded
Virginia Power's capital requirements during the first quarters of 1999 and
1998.
26
<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:
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
Issuance (repayment) of short-term debt $10.4 $(146.3)
Repayment of long-term debt and preferred stock (40.0)
Payment of dividends (107.2) (108.5)
Other (2.8) (0.3)
------- -------
Total $(139.6) $(255.1)
======= =======
On April 13, 1999, Virginia Power filed a $400 million medium- term note shelf
registration statement with the Securities and Exchange Commission (SEC). The
registration statement became effective on April 30, 1999. The remaining
principal amount of debt that can be issued from the currently effective
medium-term note shelf is only $20 million. Virginia Power has $625 million of
debt capacity under two other shelf registration statements. An additional
capital resource of $100 million in preferred stock also is registered with the
SEC.
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
$232.1 million at March 31, 1999.
Cash Flows Used in Investing Activities
Cash used in investing activities was as follows:
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
Plant expenditures (excluding AFC-other funds) $(137.1) $ (83.7)
Nuclear fuel (excluding AFC-other funds) (18.0) (20.8)
Nuclear decommissioning contributions (7.8) (21.6)
Other (0.2) 3.1
------- -------
Total $(163.1) $(123.0)
======= =======
Investing activities for the first three months of 1999 resulted in a net cash
outflow of $163.1 million primarily due to $137.1 million of construction
expenditures, $18.0 million of nuclear fuel expenditures and $7.8 million of
contributions to nuclear decommissioning trusts. Of the construction
expenditures, Virginia Power spent approximately $70.6 million on transmission
and distribution projects, $56.4 million on production projects and $9.7 million
on general support facilities.
27
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
FUTURE ISSUES
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 and an additional $0.5 billion
of potential losses in generation-related regulatory assets.
The legislation's deregulation of generation is an event that requires
discontinuation of SFAS No. 71 for our generation operations. Our 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 Extraordinary Item--Discontinuance of SFAS No.
71, Note (B) to THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
DOMINION ENERGY
- ---------------
RESULTS OF OPERATIONS
Net income during the first quarter ending March 31, 1999 was comparable to the
first quarter ending March 31, 1998.The 1999 financial results reflect higher
earnings from oil and gas operations, offset by a lower contribution from its
foreign power businesses.
28
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Cash flows from operations for the three months ended March 31, 1999 decreased
by $8.6 million as compared to the same period in 1998 reflecting the
consistency of net income between the two periods and the effect of immaterial
fluctuations due to normal operating activities.
Cash Flows From Financing Activities
Cash from (used in) financing activities was as follows:
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
Issuance of debt $ 146.8 $ 162.5
Investment from parent 85.0
Dividend payment (13.0) (12.3)
Other 00.0 (0.3)
------- -------
Total $ 218.8 $ 149.9
======= =======
During the first three months of 1999, cash flows from financing activities were
$218.8 million primarily due to intercompany borrowings to fund the acquisition
of San Juan Partners, L.L.C. and an equity contribution from Dominion Energy's
parent.
Cash Flows Used In Investing Activities
Cash from (used in) investing activities was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
<S> <C> <C>
Investment in natural gas assets $ (12.6) $ 1.0
Investment in power generation assets (39.7) (14.7)
Purchase of fixed assets (18.9) (32.4)
Acquisition of business (133.2) (189.1)
Sale of business 24.1 99.5
Other (51.5) (48.5)
------- -------
Total $(231.8) $(184.2)
======= =======
</TABLE>
During the first three months of 1999 cash flows used in investing activities
were $231.8 million primarily due to the acquisition of San Juan Partners,
L.L.C. in addition to continued expansion and development of power generation
assets.
29
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
Future Issues
Sale of Power
In April 1999, Elwood Energy LLC, (Elwood Energy) a joint venture between
subsidiaries of Dominion Energy and subsidiaries of 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 will each purchase one-half of
the power produced by Elwood Energy.
DOMINION CAPITAL
- ----------------
RESULTS OF OPERATIONS
Dominion Capital's net income in the first quarter ending March 31, 1999 was
comparable to the same period in 1998. The financial results reflect higher
earnings due to the improved performance from its four core financial services
operating units, which was offset by losses from non-core operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows Used In Operating Activities
Dominion Capital's cash flows used in operations for the three months ended
March 31, 1999 increased by $35.7 million as compared to the same period for
1998 primarily due to an increase in cash outflows from net mortgage
originations and sales.
Cash Flows From Financing Activities
Cash from financing activities was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
<S> <C> <C>
Issuance of long-term debt $ 847.1 $ 812.8
Repayment of long-term debt (843.6) (722.6)
Issuance of commercial paper 367.0 67.7
Investment from parent 25.0 24.1
Dividend payment (17.3) (14.2)
Issuance (repayment) of intercompany debt (189.8) 32.0
------- -------
Total $ 188.4 $ 199.8
======= =======
</TABLE>
During the first three months of 1999, Dominion Capital's cash flows from
financing activities were $188.4 million primarily due to funding needs for loan
and mortgage originations during the period.
30
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
Cash Flows Used In Investing Activities
Cash used in investing activities was as follows:
Three Months Ended
March 31,
1999 1998
---- ----
(Millions)
Loan originations $ (537.1) $ (561.1)
Repayments of loan originations 464.3 378.3
Purchase of securities (50.3) (1.2)
Proceeds from sale of securities 46.5 13.6
Other (53.4) 12.4
-------- --------
Total $ (130.0) $ (158.0)
======== ========
During the first three months of 1999, Dominion Capital's cash flows used in
investing activities were $130 million primarily due to net loan originations
and residual interest retained.
31
<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 investment 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 sales 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 the
level of market risk it faces.
32
<PAGE>
DOMINION RESOURCES, INC.
------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE
------------------------------------
DISCLOSURES ABOUT MARKET RISK
-----------------------------
(CONTINUED)
-----------
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 our 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 March 31, 1999 and
December 31, 1998. This hypothetical 10 percent change in commodity prices would
have resulted in a hypothetical loss of approximately $7.2 million and $13.5
million in the fair value of our commodity contracts as of March 31, 1999 and
December 31, 1998, respectively.
The sensitivity analysis does not include the price risks associated with
utility operations and utility fuel requirements, since these costs are
generally provided for through our capped rates, 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.
33
<PAGE>
DOMINION RESOURCES, INC.
------------------------
PART II. - OTHER INFORMATION
----------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Dominion Resources Annual Shareholders Meeting was held on April 16, 1999 and
the following issues were voted on by shareholders.
ELECTION OF DIRECTORS
The following Directors were elected to the Board of Directors for terms
expiring in the year 2000:
Votes
-----
Director For Withheld
- -------- --- --------
John W. Harris 168,820,145 3,122,656
Kenneth A. Randall 168,639,451 3,303,350
Judith B. Warrick 168,789,054 3,153,747
David A. Wollard 168,756,521 3,186,280
As a result of the Amendments to the Articles of Incorporation as described
below, the following incumbent Directors' terms will also expire in the year
2000.
Director
- --------
John B. Adams
Benjamin J. Lambert
Richard L. Leatherwood
Frank S. Royal
John B. Bernhardt
Thos. E. Capps
S. Dallas Simmons
Robert H. Spilman
AMENDMENTS TO DOMINION RESOURCES ARTICLES OF INCORPORATION
Shareholders approved the amendments to Dominion Resources Articles of
Incorporation to eliminate the classification of the Board of Directors and to
increase the number of Directors to a maximum number of 17 members as follows:
Votes Broker
For Against Abstained Non-Votes
--- ------- --------- ---------
141,652,286 8,453,778 2,280,682 19,556,056
INCENTIVE COMPENSATION PLAN
Shareholders approved the amendments to Dominion Resources Employee Incentive
Compensation Plan as follows:
Votes
For Against Abstained
--- ------- ---------
149,592,479 19,094,648 3,255,675
34
<PAGE>
DOMINION RESOURCES, INC.
------------------------
PART II. - OTHER INFORMATION
----------------------------
(CONTINUED)
ITEM 5. OTHER INFORMATION
- --------------------------
THE COMPANY
The Merger
With respect to the previously reported merger agreement between Dominion
Resources and Consolidated Natural Gas Company (CNG), on May 11, 1999, the CNG
Board of Directors accepted Dominion Resources' amended merger offer which
guarantees a fixed value of $66.60 for each share of CNG. The merger
consideration will be paid partly in Dominion Resources common stock and partly
in cash. In addition, the amended merger agreement also includes a first step
merger in which approximately 15 to 20 percent of the outstanding Dominion
Resources shares will be reacquired by Dominion Resources for $43.00 per share
in cash. For additional information, see Note (M) in NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
Restructuring
Dominion Resources announced in April 1999, a reorganization of its energy
businesses, effective May 1, along functional lines with the following areas of
focus:
. power generation/off-systems transactions;
. bulk power delivery and distribution; and
. oil and gas development, exploration and operation.
By 2002, when deregulation of generation is anticipated in Virginia, Dominion
Resources plans to conduct all of its power generation/off-systems businesses
through a new subsidiary (Dominion Generation, Inc.). No generating assets are
expected to be transferred from the Virginia Power corporate entity nor is it
anticipated that these assets will be operated by any entity other than Virginia
Power until deregulation. During this transition period, both Virginia Power and
Dominion Energy may use the name Dominion Generation to refer to their
generation activities.
VIRGINIA POWER
Competition
For a discussion on Virginia legislation requiring competition beginning in 2002
see Note (B) to THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS and VIRGINIA
POWER-Future Issues-Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Future Sources of Power
Virginia Power has requested approval from the Virginia Commission to construct
four gas-fired turbine generators in Virginia. At a January 1999 hearing the
Virginia Commission determined that the Rules Governing the Use of Bidding
Programs to Purchase Electricity from Other Power Suppliers apply to this
proposed transaction. The Virginia Commission ordered Virginia Power to issue a
Request for Proposals (RFP) and also ordered the Virginia Commission Staff to
review the solicitation process and set an expedited schedule requiring bidders
to submit responses no later than March 26, 1999. After a review of the bids,
the Virginia Commission Staff issued a report to the Virginia Commission with
its recommendations and the Virginia Commission
35
<PAGE>
DOMINION RESOURCES, INC.
------------------------
PART II. - OTHER INFORMATION
----------------------------
(CONTINUED)
issued another Order allowing bidders under the RFP to file a response to that
report. Virginia Power is currently awaiting action by the Virginia Commission.
Virginia Power has obtained the applicable zoning permits for the construction
of the generators and have applied for other required environmental permits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
3(i)- Articles of Incorporation as in effect April 16, 1999 (filed
herewith).
3(ii)- Bylaws as in effect April 16, 1999 (filed herewith).
10(i)- Dominion Resources, Inc. Incentive Compensation Plan as
restated effective April 16, 1999 (Exhibit 99, Form S-8
Registration Statement, File No. 333-78173, incorporated by
reference).
10(ii)- Employment agreement dated April 16, 1999 between Dominion
Resources and Thos. E. Capps (filed herewith).
10(iii)- Alliance Agreement, dated April 14, 1999, between Dominion
Resources, Inc. and CNG Power Company (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).
(b) Reports on Form 8-K
Dominion Resources filed a report on Form 8-K, dated March 29, 1999,
relating to Virginia Power's effect of the final legislation the
Governor of Virginia signed into law establishing the restructuring of
the electric utility industry in Virginia.
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)
May 14,1999
37
<PAGE>
EXHIBIT 3(i)
DOMINION RESOURCES, INC.
ARTICLES OF INCORPORATION
As Amended Effective April 16, 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 300,000,000 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.
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
1
<PAGE>
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;
2
<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.
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
3
<PAGE>
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.
4
<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,
5
<PAGE>
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.
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
6
<PAGE>
majority vote of a quorum or disinterested Directors, to
contract in advance to indemnify any Director or officer.
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
7
<PAGE>
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.
8
<PAGE>
EXHIBIT 3(ii)
DOMINION RESOURCES, INC.
BYLAWS
As Amended Effective April 16, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
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................................................ 5
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, 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..................................................................... 11
XXIII. Certificates for Shares....................................................... 12
XXIV. Transfer of Shares............................................................ 13
XXV. Record Date................................................................... 13
XXVI. Voting of Shares Held......................................................... 13
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.................................................... 17
</TABLE>
<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 Board of Directors determines that the holding of any meeting
at the place named in the notice might be hazardous, he may cause
it to be held at some other place deemed by him suitable and
convenient, upon arranging notice to Shareholders who attend at
the first place and reasonable opportunity for them to proceed to
the new place.
ARTICLE III. ANNUAL MEETING.
- --------------------------------------------------------------------------------
The Annual Meeting of the Shareholders shall be held on the third
Friday in April in each year if not a legal holiday, and if a
legal holiday then on the next succeeding Friday not a legal
holiday. In the event that such Annual Meeting is omitted by
oversight or otherwise on the date herein provided for, the Board
of Directors shall cause a meeting in lieu thereof to be held as
soon thereafter as conveniently may be, and any business
transacted or elections held at such meeting shall be as valid as
if transacted or held at the Annual Meeting. Such subsequent
meeting shall be called in the same manner as provided for
Special Shareholders' Meetings.
ARTICLE IV. SPECIAL MEETINGS.
- --------------------------------------------------------------------------------
Special Meetings of the Shareholders shall be held whenever
called by the Chairman of the Board of Directors, the President,
or a majority of the Directors. 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.
- --------------------------------------------------------------------------------
Written notice stating the place, day and hour of each
Shareholders' Meeting and the purpose or purposes for which the
meeting is called shall be given not less than 10 nor more than
60 days before the date of the meeting, or such longer period as
is specified below, by, or at the direction of, the Board of
Directors or its Chairman, the President or any Vice President or
the Corporate Secretary or any Assistant Corporate Secretary, by
mail, to each Shareholder of record entitled to vote at the
meeting, at his or her registered address and the person giving
such notice shall make affidavit in relation thereto. Such notice
shall be deemed to be given when deposited in the United States
mails addressed to the Shareholder at his address as it appears
on the stock transfer books, with postage thereon prepaid.
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.
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
<PAGE>
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 there at, 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
<PAGE>
provisions of this Article are, however, subject to the
provisions of the Articles of Incorporation.
ARTICLE VIII. PROXY AND VOTING.
- --------------------------------------------------------------------------------
Shareholders of record entitled to vote may vote at any meeting
held, in person or by proxy executed in writing 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.
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
<PAGE>
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.
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
<PAGE>
except that the Executive Committee shall not (i) approve or
recommend to Shareholders action that Virginia law requires to be
approved by Shareholders; (ii) fill vacancies on the Board of
Directors or any of its Committees or elect officers; (iii) Amend
Articles of Incorporation other than as permitted by statute;
(iv) adopt, amend or repeal these Bylaws; (v) approve a plan of
merger not requiring Shareholder approval; (vi) authorize or
approve a distribution, except according to a general formula or
method prescribed by the Board of Directors; or (vii) authorize
or approve the issuance or sale or contract for sale of shares,
or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the
Board of Directors may authorize the Executive Committee to do so
within limits specifically prescribed by the Board of Directors.
If the Executive Committee is created for any designated purpose,
its authority shall be limited to such purpose. The Executive
Committee shall report its action to the Board of Directors.
Regular and special meetings of the Executive Committee may be
called and held subject to the same requirements with 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.
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
<PAGE>
Board by vote may determine from time to time, and if so
determined no notice thereof need be given. Special Meetings of
the Board of Directors may be held at any time or place either
within or without the Commonwealth of Virginia, whenever called
by the Chairman of the Board of Directors, the President, any
Vice President, the Corporate Secretary, or three or more
Directors, notice thereof being given to each Director by the
Corporate Secretary or an Assistant Corporate Secretary, the
Directors or the officer calling the meeting, or at any time
without formal notice provided all the Directors are present or
those not present waive notice thereof. Notice of Special
Meetings, stating the time and place thereof, shall be given by
mailing the same to each Director at his residence or business
address at least two days before the meeting, or by delivering
the same to him personally or telephoning 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 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.
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
<PAGE>
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 shall also be
an officer unless he is not also a full-time employee of the
Corporation. The officers and the Chairman of the Board of
Directors shall be elected or appointed by the Board of Directors
after each election of Directors by the Shareholders, and a
meeting of the Board of Directors may be held without notice for
the purpose of electing officers following the Annual Meeting of
the Shareholders.
The Board of Directors, in its discretion, may appoint one or
more Assistant Corporate Secretaries, one or more Assistant
Treasurers, one or more Assistant Controllers, and such other
officers or agents as it may deem advisable, and prescribe their
duties.
ARTICLE XV. ELIGIBILITY OF OFFICERS.
- --------------------------------------------------------------------------------
The Chairman of the Board of Directors and the President shall be
Directors. Any person may hold more than one office provided,
however, that neither the Corporate Secretary, the Treasurer nor
the Controller shall at the same time hold the office of Chairman
of the Board of Directors or President.
ARTICLE XVI. DUTIES AND AUTHORITY OF CHAIRMAN OF THE BOARD
OF DIRECTORS, PRESIDENT AND OTHERS.
- --------------------------------------------------------------------------------
The Chairman of the Board of Directors shall preside at the
meetings of the Board of Directors. He may call meetings of the
Board of Directors and of any Committee thereof whenever he deems
it necessary. He shall call to order, and act as chairman of, all
meetings of the Shareholders and
<PAGE>
prescribe rules of procedure therefor. He shall perform the
duties commonly incident to his office and such other duties as
the Board of Directors shall designate from time to time.
The Board of Directors may designate the Chief Executive Officer
of the Corporation.
In the absence of the Chairman of the Board of Directors, the
President shall perform his duties. The President shall perform
the duties commonly incident to his office and such other duties
as the Board of Directors shall designate from time to time. The
Chief Executive Officer, the President and each Vice President
shall have authority to sign 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.
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;
(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.
<PAGE>
ARTICLE XVIII. CORPORATE SECRETARY.
- --------------------------------------------------------------------------------
The Corporate Secretary shall keep accurate minutes of all
meetings of the Shareholders, the Board of Directors and the
Executive Committee, 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.
- --------------------------------------------------------------------------------
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.
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.
<PAGE>
ARTICLE XX. CONTROLLER.
- --------------------------------------------------------------------------------
The Controller shall keep accurate books of account of the
Corporation's transactions and shall perform such other duties
and have such other powers as the Board of Directors shall
designate from time to time.
ARTICLE XXI. RESIGNATION AND REMOVALS.
- --------------------------------------------------------------------------------
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 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.
ARTICLE XXII. VACANCIES.
- --------------------------------------------------------------------------------
If the office of any officer or agent, one or more, becomes
vacant by reason of death, disability, resignation, removal,
disqualification or otherwise, the Directors at the time in
office, 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.
<PAGE>
ARTICLE XXIII. CERTIFICATES FOR SHARES.
- --------------------------------------------------------------------------------
Every Shareholder shall be entitled to a certificate or
certificates for shares of record owned by him in such form as
may be prescribed by the Board of Directors, duly numbered and
setting forth the number and kind of shares to which such
Shareholder is entitled. Such certificates shall be signed by
the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Corporate Secretary or an Assistant
Corporate Secretary. The Board of Directors may also appoint one
or more Transfer Agents and/or Registrars for its stock of any
class or classes and may require stock certificates to be
countersigned and/or registered by one or more of such Transfer
Agents and/or Registrars. If certificates for shares are signed,
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.
ARTICLE XXIV. TRANSFER OF SHARES.
- --------------------------------------------------------------------------------
Shares may be transferred by delivery of the certificate
accompanied either by an assignment in writing on the back of
the certificate or by a written power of attorney to sell,
assign and transfer the same on the books of the
<PAGE>
Corporation, signed by the person appearing by the certificate
to be the owner of the shares represented thereby, and shall be
transferable on the books of the Corporation upon surrender
thereof so assigned or endorsed. The person registered on the
books of the Corporation as the owner of any shares shall be
entitled exclusively as the owner of such shares, to receive
dividends and to vote in respect thereof. It shall be the duty
of every Shareholder to notify the Corporation of his address.
ARTICLE XXV. RECORD DATE.
- --------------------------------------------------------------------------------
For the purpose of determining the Shareholders entitled to
notice of or to vote at any meeting of Shareholders, or any
adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of Shareholders
for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of
Shareholders, provided that such date shall not in any case be
more than 70 days prior to the date on which the particular
action, requiring such determination of Shareholders, is to be
taken. If no record date shall be fixed for the determination of
Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or for the determination of the Shareholders
entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such
determination of Shareholders in such cases. A determination of
Shareholders entitled to notice of or to vote at a Shareholders'
meeting is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date, which it shall
do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting.
ARTICLE XXVI. VOTING OF SHARES HELD.
- --------------------------------------------------------------------------------
Unless the Board of Directors shall otherwise provide, the
Chairman of the Board of Directors, 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
<PAGE>
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 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.
- --------------------------------------------------------------------------------
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.
(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
<PAGE>
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.
ARTICLE XXX. SHAREHOLDER PROPOSALS.
- --------------------------------------------------------------------------------
To be properly brought before a meeting of Shareholders,
business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or (iii) otherwise
properly brought before the meeting by a Shareholder. In
addition to any other applicable requirements, for business to
be properly
<PAGE>
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 (i) 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, (ii) the name and address of record of the
Shareholder proposing such business, (iii) the class and number
of shares of the Corporation that are beneficially owned by the
Shareholder and (iv) 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.
ARTICLE XXXI. CONTROL SHARE ACQUISITIONS.
- --------------------------------------------------------------------------------
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 (i) fails to comply with the
provisions of Section 13.1-728.4 of the Act or (ii) 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 (i) 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 (ii) otherwise
determined by the Board of Directors. The redemption price
<PAGE>
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 (i) the
status of any person as an Acquiring Person under the Act, (ii)
the number of shares of the Corporation owned by such Acquiring
Person, (iii) the timeliness of compliance by any Acquiring
Person within Section 13.1-728.4 of the Act, or (iv) the
interpretation of the Act or this Article if made in good faith,
shall be conclusive and binding on all persons.
<PAGE>
EXHIBIT 10(ii)
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of April 16, 1999,
between DOMINION RESOURCES, INC. (the "Company") and THOS. E. CAPPS (the
"Executive").
RECITALS:
--------
The Board of Directors of the Company (the "Board of Directors") recognizes
that outstanding management of the Company is essential to advancing the best
interests of the Company, its shareholders and its subsidiaries. The Board of
Directors has and continues to believe that it is particularly important to have
stable, excellent management. The Board of Directors has and continues to
believe that this objective may be achieved by giving key management employees
assurances of financial security for a period of time, 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. To accomplish this purpose, the
Company and the Executive entered into an agreement as of June 20, 1997, which
replaced a prior agreement (the "1997 Employment Agreement").
The Board of Directors wishes to foster an atmosphere of cooperation among
the key management employees of the Company and its subsidiaries, and provide an
incentive for such
-1-
<PAGE>
employees to continue to contribute to the future growth and success of the
Company and its subsidiaries. To accomplish this objective, the Organization and
Compensation Committee of the Board of Directors (the "Committee") has
recommended, and the Board of Directors has approved, entering into a new
employment agreement with the Executive, which shall replace the Executive's
1997 Employment Agreement. The Company acknowledges that the Executive's
contributions to the past and future growth and success of the Company have been
and will continue to be substantial. The Company and the Executive are entering
into this Agreement to induce the Executive to remain an employee of the Company
and to continue to devote his full energy to the Company's affairs. The
Executive has agreed to continue to be employed by the Company under the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:
1. Employment. The Company will employ the Executive, and the Executive
----------
will continue in the employment of the Company, as Chief Executive Officer and
President of the Company for the period beginning on the date of this Agreement
and ending on the date of the Company's annual meeting of shareholders in 2005
(the "Term of this Agreement"), according to the terms of this Agreement.
2. Duties. The Company and the Executive agree that, during the Term of
------
this Agreement, the Executive will be Chief Executive Officer of the Company and
will report directly to the Board of Directors. During the Term of this
Agreement, the Executive will
-2-
<PAGE>
continue to exercise such authority and perform such executive duties as are
commensurate with his position as Chief Executive Officer. 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 of the Company with respect to the performance of his duties.
The Executive shall also be President of the Company and will perform such
executive duties as are commensurate with his position as President.
3. Effect on Other Agreements. This Agreement sets forth the entire
--------------------------
understanding of the parties with respect to the terms of the Executive's
employment with the Company and its subsidiaries. This Agreement supersedes and
replaces the Executive's 1997 Employment Agreement, which will terminate as of
the date on which this Agreement is executed. This Agreement supersedes and
replaces all agreements that were superseded and replaced by the 1997 Employment
Agreement, including the Executive's Employment Continuity Agreement, the letter
dated April 21, 1994 to the Executive from James F. Betts, the employment
agreement between the Executive and the Company dated August 12, 1994, the
employment agreement between the Executive and the Company dated April 12, 1995
as amended as of September 15, 1995 and any other employment agreements between
the Executive and the Company or a subsidiary (collectively, the "Prior
Agreements"). The term "employment agreement" as used in
-3-
<PAGE>
the preceding sentence does not include any retirement, incentive or benefit
plan or program in which the Executive participates or the credited service
agreement described in Section 5(c). The Executive and the Company agree that
the Executive's Prior Agreements are null and void.
4. Compensation and Benefits.
-------------------------
(a) During the Term of this Agreement, while the Executive is
employed by the Company, the Company will pay to the Executive the following
salary and incentive awards for services rendered to the Company:
(i) The Company will pay to the Executive an annual salary in an
amount not less than the base salary in effect for the Executive as of
the date on which this Agreement is executed. The Board of Directors
will evaluate the Executive's performance at least annually and will
consider annual increases in the Executive's salary based on the
Executive's performance.
(ii) The Executive will be entitled to receive incentive awards
based on the Executive's job performance, if and to the extent that
the Board of Directors determines that the Executive's performance
merits payment of an award. The Board of Directors will make its
determination consistent with the methodology used by the Board of
Directors for compensating its senior management employees.
(b) During the Term of this Agreement, while the Executive is
employed by the Company, the Executive will be eligible to participate in a
similar manner as other senior
-4-
<PAGE>
executives of the Company in retirement plans, cash and stock incentive plans,
fringe benefit plans and other employee benefit plans and programs provided by
the Company for its senior management employees from time to time.
5. Completion Benefits.
-------------------
(a) The Executive will be entitled to receive the following
additional benefits upon his termination of employment with the Company:
(i) The Executive's retirement benefits under the Company's
Retirement Plan and Benefit Restoration Plan will be computed using
compensation based on the Executive's highest rate of annual salary in
effect at any time during his employment. The supplemental benefit to
be provided under this subsection (i) will be provided as a
supplemental benefit under this Agreement and will not be provided
directly from the Retirement Plan.
(ii) The Executive's "Final Compensation" under the Company's
Executive Supplemental Retirement Plan (the "SRP") will be determined
by computing the "Incentive Compensation Amount" as if the Executive's
short-term incentive compensation target award was the unreduced
percentage (which will be at least 45%) of his salary midpoint as
approved by the Committee for the year (for example, for 1993 and
1994, the unreduced percentage was 45% of his salary midpoint, as
compared to the reduced target that was used for 1993 and 1994 in
order to make long-term compensation a larger part of the Executive's
incentive
-5-
<PAGE>
compensation for those years).
(iii) The benefit under the SRP will continue to be computed as
an equal periodic payment for 120 months, according to the SRP
document. However, this periodic payment will be payable for the
Executive's life (or for 120 payments, if longer).
(iv) All restricted stock held by the Executive as of the date
of termination of his employment will become fully vested (that is,
transferable and nonforfeitable) as of the date of termination of his
employment.
(v) The Company will pay to the Executive a single lump sum
payment equal to nine hundred fifty thousand dollars ($950,000) on the
day following the date of termination of his employment.
(b) In addition to the foregoing, the Executive will receive, upon
his termination of employment with the Company before the annual meeting of
shareholders in 2005, a single lump sum cash payment equal to the present value
of the annual base salary and annual cash incentive awards (computed as
described below) that the Executive is projected to receive for employment in
the "Calculation Year" to the extent otherwise not paid for services rendered.
For purposes of this Agreement, the Calculation Year is the period from the
annual meeting of shareholders in 2004 until the annual meeting of shareholders
in 2005. The lump sum will be computed as follows:
(i) For purposes of this calculation, the annual base salary
that the
-6-
<PAGE>
Executive is projected to receive for employment for the Calculation
Year will be calculated at the highest annual base salary rate in
effect for the Executive during the three-year period ending with the
last complete calendar year before his termination of employment. For
purposes of this calculation, the annual cash incentive awards that
the Executive is projected to receive for employment in the
Calculation Year will be calculated at a rate equal to the highest
annual cash incentive award paid to the Executive during the three-
year period ending with the last complete calendar year before his
termination of employment. Salary and bonus that the Executive elected
to defer will be taken into account for purposes of this Agreement
without regard to the deferral.
(ii) If the Executive has not yet received an annual cash
incentive award for the year in which his employment terminates, the
lump sum payment will be increased to include a pro-rated award for
the portion of the year preceding the Executive's termination of
employment. If the Executive has not yet received payment of his
annual cash incentive award for the year preceding his termination of
employment, the lump sum payment will be increased to include an award
for the year preceding the Executive's termination of employment. The
incentive award for the year or portion of the year preceding the
Executive's termination of employment will be determined according to
clause (i) above, unless the Board of Directors made a good faith
final determination of the amount of the applicable
-7-
<PAGE>
incentive award pursuant to Section 4(a)(ii) before the Executive's
termination of employment. If the Board of Directors made such a
determination, the applicable incentive award will be computed
according to the Board of Directors' determination.
(iii) Present value will be computed by the Company as of the
date of the Executive's termination of employment, based on a discount
rate equal to the applicable Federal short-term rate, as determined
under Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code"), compounded monthly, in effect on the date on which the
present value is determined.
(iv) The lump sum payment will be paid within 30 days after the
Executive's termination of employment.
(c) As set forth in the existing credited service agreement between
the Executive and the Company, the Executive will be credited with a total of 30
years of service for purposes of the Company's retirement plans.
6. Termination of Employment.
-------------------------
(a) During the Term of this Agreement, the Company may terminate the
Executive's employment only for Cause. During the Term of this Agreement, the
Executive may voluntarily terminate employment under the circumstances described
in clauses (i)-(v) of this subsection (a). After July 31, 1998, the Executive
may voluntarily terminate employment under the circumstance described in clause
(vi) of this subsection (a). If the Executive's employment is
-8-
<PAGE>
terminated for Cause, or if the Executive voluntarily terminates employment
pursuant to this Section 6(a), the Executive will be entitled to receive the
benefits described in subsection (b). Subject to the provisions of this
subsection (a), the Executive may voluntarily terminate employment after (i) the
Executive's base salary is reduced, (ii) the Executive is not in good faith
considered for incentive awards as described in Section 4(a)(ii), (iii) the
Company fails to provide benefits as required by Section 4(b), (iv) the
Executive's place of employment is relocated to a location further than 30 miles
from Richmond, Virginia, (v) the Executive's working conditions or management
responsibilities are substantially diminished (other than on account of the
Executive's disability, as defined in Section 7 below), or (vi) the Executive
voluntarily terminates employment on or after August 1, 1998 upon 90 days prior
written notice to the Company and the Committee consents in writing to such
termination. In order for clause (i), (ii), (iii), (iv) or (v) of this
subsection (a) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under
this subsection (a), (2) the Executive's voluntary termination under this
subsection must occur within 60 days after an event described in clause (i),
(ii), (iii), (iv) or (v) of the preceding sentence, or within 60 days after the
last in a series of such events, and (3) the Company must have failed to remedy
the event described in clause (i), (ii), (iii), (iv) or (v), as the case may be,
within 30 days after receiving the Executive's written notice. If the Company
remedies the event described in clause (i), (ii), (iii), (iv) or (v), as the
case may be, within 30 days after receiving the Executive's written notice, the
Executive may not terminate employment under this subsection (a) on account
-9-
<PAGE>
of the event specified in the Executive's notice.
(b) In accordance with the provisions of Section 6(a), the Executive
will be entitled to receive the following benefits determined as of the date of
his termination of employment:
(i) The Executive will receive the benefits described in
Section 5(a)(i), (ii), (iii), (iv) and (v) above as of the date of his
termination of employment. In addition, the Executive will receive the
single lump sum cash payment described in Section 5(b) of this
Agreement if such payment is not otherwise payable under the terms of
Section 5(b).
(ii) The Executive will be credited with a total of 30 years of
service and will be considered to have attained age 60 (if he has not
already done so) for purposes of the Company's retirement plans.
(iii) The Executive will be credited with age and service credit
through the end of the Term of this Agreement for purposes of
computing benefits under the Company's medical and other welfare
benefit plans, and the Company will continue the Executive's coverage
under the Company's welfare benefit plans as if the Executive remained
employed through the end of the Term of this Agreement.
Notwithstanding the foregoing, if the Company determines that giving
such age and service credit or continued coverage could adversely
affect the tax qualification or tax treatment of a benefit plan, or
otherwise have adverse
-10-
<PAGE>
legal ramifications, the Company may pay the Executive a lump sum cash
amount that reasonably approximates the after-tax value to the
Executive of such age and service credit and continued coverage
through the end of the Term of this Agreement, in lieu of giving such
credit and continued coverage.
(c) The amounts under this Agreement will be paid in lieu of
severance benefits under any severance plan or program maintained by the
Company. The amounts payable under this Agreement will not be reduced by any
amounts earned by the Executive from a subsequent employer or otherwise. If the
Executive voluntarily terminates employment prior to the end of the Term of this
Agreement for a reason not described in subsection (a) above or Section 7 below,
this Agreement will immediately terminate and the Executive shall be entitled to
the payment of the benefits under Sections 5(a), 5(b) and 5(c).
7. Disability or Death. If the Executive becomes disabled (as defined
-------------------
below) during the Term of this Agreement while he is employed by the Company,
the Executive shall be entitled to receive the benefits described in Sections
5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), 5(a)(v), 5(b), and 6(b)(ii) of this
Agreement as of the date on which he is determined by the Company to be
disabled. If the Executive dies during the Term of this Agreement while he is
employed by the Company, the benefits described in Sections 5(a)(i), 5(a)(ii),
5(a)(iii), 5(a)(iv), 5(a)(v), 5(b), and 6(b)(ii) will be provided to the
Executive's beneficiary designated under the terms of the applicable benefit
plan. The foregoing benefits will be provided in addition to any death,
disability and other benefits provided under Company benefit plans in which the
Executive
-11-
<PAGE>
participates. Except to the extent provided in this Section 7, the provisions of
Sections 1, 2, 4, 5 and 6 of this Agreement will terminate upon the Executive's
death or disability. The term "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 any and every duty 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.
8. Cause. For purposes of this Agreement, the term "Cause" means (i)
-----
material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive materially to
perform his duties and responsibilities to the Company, which continues after
the Executive receives notice of such refusal or failure, (iii) conviction of a
felony involving moral turpitude, or (iv) the use of drugs or alcohol that
interferes materially with the Executive's performance of his duties. The
foregoing acts or events will constitute "Cause" for purposes of this Agreement
only to the extent that they were committed on or after September 15, 1995
(i.e., the date on which the 1995 Employment Agreement was amended).
9. Parachute Tax. If the Company determines that any amounts payable
-------------
under this Agreement would be subject to the excise tax imposed under Code
Section 4999 on "excess parachute payments", the Company will compute the after-
tax amount that would be payable to
-12-
<PAGE>
the Executive if the total amounts that are payable to the Executive by the
Company, an affiliate, or a plan of the Company or an affiliate and are
considered "parachute payments" for purposes of Code Section 280G ("Parachute
Payments") were limited to the maximum amount that may be paid to the Executive
under Code Sections 280G and 4999 without imposition of the excise tax (this
after-tax amount is referred to as the "Capped Amount"). The Company will also
compute the after-tax amount that would be payable to the Executive if the total
Parachute Payments were payable without regard to the Code Sections 280G and
4999 limit (this after-tax amount is referred to as the "Uncapped Amount").
Notwithstanding anything in this Agreement to the contrary, if the Capped Amount
is greater than or equal to 97% of the Uncapped Amount, then the total benefits
and other amounts that are considered Parachute Payments and are payable to the
Executive under this Agreement will be reduced to the largest amount that will
result in no portion of any such payment being subject to the excise tax imposed
by Code Section 4999. Tax counsel selected by mutual consent of the Company and
the Executive will determine the amount of any such reduction in good faith. The
determination will be made before the payments are due and payable to the
Executive, to the extent possible. The Executive will determine which payments
will be reduced, subject to approval by the Company (which approval may not be
unreasonably withheld). The Executive will have no right to receive Parachute
Payments under this Agreement in excess of the reduced amount. The calculations
under this Section will be made in a manner consistent with the requirements of
Code Sections 280G and 4999, as in effect at the time the calculations are made.
-13-
<PAGE>
10. Indemnification. 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.
11. Form of Payment. All amounts payable under this Agreement (other than
---------------
restricted stock, which will be paid according to the terms of the Company's
Long-Term Incentive Plan and Incentive Compensation Plan) will be paid in cash,
subject to required income and payroll tax withholdings.
12. Administration. The Committee will be responsible for the
--------------
administration and interpretation of this Agreement on behalf of the Company. If
for any reason a benefit under this Agreement is not paid when due, the
Executive may file a written claim with the Committee. If the claim is denied or
no response is received within 90 days after the filing (in which case the claim
is deemed to be denied), the Executive may appeal the denial to the Board of
Directors within 60 days of the denial. The Executive may request that the Board
of Directors review the denial, the Executive may review pertinent documents,
and the Executive may submit issues and comments in writing. A decision on
appeal will be made within 60 days after the appeal is made, unless special
circumstances require that the Board of Directors extend the period for another
60 days. If the Company defaults in an obligation under this Agreement, the
Executive makes a written claim pursuant to the claims procedure described
above, and the Company fails to remedy the default within the claims procedure
period, then all amounts payable to the Executive under this Agreement will
become due and owing.
-14-
<PAGE>
13. Assignment. 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. If the Company is consolidated or merged with or
into another corporation, or if another entity purchases all or substantially
all of the Company's assets, the surviving or acquiring corporation will succeed
to the Company's rights and obligations under this Agreement. 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 (or
other beneficiary designated under the terms of the applicable benefit plan)
will receive any amounts payable under this Agreement after the death of the
Executive.
14. 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.
15. 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
-15-
<PAGE>
attention of the Chairman of the Committee. 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.
16. Miscellaneous. 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.
-16-
<PAGE>
WITNESS the following signatures.
DOMINION RESOURCES, INC.
By: /s/ K. A. RANDALL
---------------------------
Kenneth A. Randall,
Chairman, Organization and
Compensation Committee
Dated: April 19, 1999
/s/ THOS. E. CAPPS
---------------------------
Thos. E. Capps
Dated: April 19, 1999
-17-
<PAGE>
EXHIBIT 10(iii)
ALLIANCE AGREEMENT
THIS ALLIANCE AGREEMENT (the "Agreement") is made as of April 14, 1999,
between CNG POWER COMPANY, a Delaware corporation ("CNG"), and DOMINION
RESOURCES, INC., a Virginia corporation ("DRI").
INTRODUCTION
A. DRI, though its subsidiaries, is engaged in the business of developing,
owning and operating energy facilities, including gas-fired electric generation
facilities. DRI desires to expand its ownership of energy facilities
principally in the area from New England to the states comprising the Mid-
America Interconnected Network.
B. CNG is engaged in the business of developing and owning independent
power projects.
C. In order to further DRI's desire to expand its ownership of energy
facilities in the area which includes major portions of the pipeline system of
CNG's Affiliates, and to further CNG's desire to expand the market for gas along
the pipeline system of CNG's Affiliates through the development of gas-fired
electric generation facilities, DRI and CNG have entered into this Agreement.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
"Acceptance Notice" shall have the meaning set forth in Section 7.3
"Affiliate" shall mean as to any Person, any other Person that directly or
indirectly controls, is controlled by, or is under common control with such
first Person. A Person shall be deemed to control another Person if such Person
(i) possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise, or (ii) owns or
controls 10 percent or more of the equity securities of such other Person.
"Agreement" shall have the meaning set forth in the first paragraph hereof.
"Alliance Information" shall mean all data, evaluations, projections and
other information provided by one Party to the other pursuant to this Agreement
and all information developed by or on behalf of the Parties pursuant to their
activities under this Agreement (including, without limitation Development Site
locations).
<PAGE>
"CNG" shall have the meaning set forth in the first paragraph hereof.
"CNG Manager" shall have the meaning set forth in Section 2.4(b).
"Confidential Information" shall have the meaning set forth in Section
5.1(a).
"Development Area" means the area within a three-mile radius of a
Development Site.
"Development Entity" shall have the meaning set forth in Section 3.4(a).
"Development Sites" means, for any date, all of the Existing Sites and any
Development Sites which have been identified by the Management Committee
pursuant to Section 3.1 on or before such date, less any Development Sites which
the Management Committee has eliminated from the list of Development Sites prior
to such date pursuant to Section 3.1.
"Dominion Manager" shall have the meaning set forth in Section 2.4(b).
"DRI" shall have the meaning set forth in the first paragraph hereof.
"Existing Sites" shall have the meaning set forth in Section 3.1.
"Facilities" shall mean gas-fired electric generation facilities.
"Management Committee" shall have the meaning set forth in Section 2.4(a).
"Manager" shall have the meaning set forth in Section 2.4(b).
"No Purchase Termination" shall have the meaning set forth in Section 7.3.
"Notes" shall have the meaning set forth in Section 5.1(b).
"Party" shall mean each of CNG and DRI.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other legal entity.
"Purchase Termination" shall have the meaning set forth in Section 7.3.
"Receipt Date" shall have the meaning set forth in Section 7.2.
"Receiving Party" shall have the meaning set forth in Section 7.2.
2
<PAGE>
"Representative" shall mean, with respect to a Party, the officers,
directors, employees, agents, representatives and advisors of such Party and its
Affiliates.
"Resolution Period" shall have the meaning set forth in Section 7.1(b).
"Response" shall have the meaning set forth in Section 7.4.
"Sites" shall have the meaning set forth in Section 2.2.
"Tendered Interest" shall have the meaning set forth in Section 7.4(a).
"Terminating Party" shall have the meaning set forth in Section 7.2.
"Termination Date" shall have the meaning set forth in Section 7.2.
"Termination Notice" shall have the meaning set forth in Section 7.2.
"Termination Price" shall have the meaning set forth in Section 7.2.
"Transfer Agreement" shall have the meaning set forth in Section 7.2.
"Transfer of Control" shall mean: (i) with respect to DRI, the transfer of
ownership or control of a majority of the voting equity interests in DRI,
whether in one transaction or a series of transactions, to a Person and any
Affiliates of such Person or (ii) with respect to CNG, the transfer of ownership
or control of a majority of the voting equity interests in either CNG or
Consolidated Natural Gas Company, whether in one transaction or a series of
transactions, to a Person and any Affiliates of such Person.
ARTICLE II
THE ALLIANCE
SECTION 2.1 BASIC AGREEMENT. On the terms and subject to the conditions
set forth in this Agreement, the Parties hereby agree to form an alliance to
undertake the activities contemplated herein.
SECTION 2.2 PURPOSE OF THE ALLIANCE. The purpose of the alliance will be
to identify and evaluate potential sites ("Sites") for the development of
Facilities to be located generally along the pipeline system of CNG's Affiliates
in Ohio, Pennsylvania, New York, West Virginia and Virginia, and, through one or
more Affiliates of the Parties, to seek to develop, own, operate and maintain
such Facilities and to market power and other energy products generated thereby.
SECTION 2.3 RIGHTS OF PARTIES IN ALLIANCE INFORMATION AND RIGHTS. All
Alliance Information and all permits and development rights in or with respect
to any Development Site owned or controlled by either Party or its Affiliates
shall be available
3
<PAGE>
for use by both Parties in connection with the identification, evaluation and
development of Development Sites.
SECTION 2.4 MANAGEMENT COMMITTEE.
(a) The management of the Parties' activities pursuant to this
Agreement will be conducted through a management committee (the "Management
Committee") which will be empowered to set policy for, and to make all decisions
in respect of, any activities conducted by the Parties hereunder. The acts of
the Management Committee shall bind the Parties.
(b) The Management Committee shall consist of four individuals
(each, a "Manager"). DRI shall be entitled to appoint two Managers to the
Management Committee (each a "Dominion Manager"). CNG shall be entitled to
appoint two Managers to the Management Committee (each a "CNG Manager"). In
addition, each Party shall appoint one or more alternates for each Manager
appointed by it. Each alternate shall have all of the powers of the regular
Manager in the regular Manager's absence, declination or inability to serve from
time to time. Notwithstanding the foregoing, each Dominion Manager and
alternative Dominion Manager shall be an employee of Dominion or an Affiliate
thereof when appointed by Dominion and at all times thereafter while serving in
such position, and each CNG Manager and alternate CNG Manager shall be an
employee of CNG or an Affiliate thereof when appointed by CNG and at all times
thereafter while serving in such position.
(c) The Management Committee shall meet at least monthly during
the first year after the date hereof and thereafter, at least quarterly, which
meetings may be held by telephonic conference. Special meetings of the
Management Committee may be called from time to time by any Manager. A quorum
shall consist of at least one DRI Manager and one CNG Manager. In lieu of a
meeting, action of the Management Committee may be taken by the unanimous
written consent of the Managers.
(d) The unanimous approval of the Managers present at a meeting at
which a quorum is present shall be required for the Management Committee to act
or to refrain from acting.
(e) The Management Committee may adopt such rules as the Managers
consider necessary to govern its operations, provided such rules are not
inconsistent with this Agreement.
(d) The Management Committee may designate such officers and other
agents, and may grant such Persons such rights and powers, as the Management
Committee may deem appropriate.
4
<PAGE>
ARTICLE III
THE SITES
SECTION 3.1 SITE IDENTIFICATION. The Parties have identified those Sites
listed on Exhibit A attached hereto as potential development sites for
---------
Facilities (the "Existing Sites"). During the term of this Agreement, the
Parties shall seek to identify additional potential Sites for the development of
Facilities. The Management Committee shall establish procedures for identifying
additional potential Sites, including the information needed to assist in such
identification, and each Party shall provide to the other Party such information
which it then has available to it (either directly or through its Affiliates) to
aid in such identification. At such time as the Management Committee identifies
a potential Site, it shall designate such Site in a writing signed by at least
one Manager appointed by each Party, whereupon such Site shall become a
"Development Site". If the Management Committee determines that a Development
Site cannot feasibly be developed for a Facility and the Management Committee
specifies that such Site be deleted from the list of Development Sites, then
such Site shall no longer be deemed a Development Site.
SECTION 3.2 SITE EVALUATION.
(a) The Management Committee shall establish procedures for
evaluating Development Sites and shall seek to prioritize those Development
Sites which appear to have the greatest potential for successful development.
Each Party shall provide to the other Party such information as shall be
necessary or appropriate to assist in the evaluation of Development Sites, to
the extent such information is then available to such Party (either directly or
through its Affiliates).
(b) Except as otherwise decided by the Management Committee, the
Parties will consider the following general criteria for evaluating potential
Development Sites: (i) a nominal 14 percent internal rate of return after tax;
(ii) an emphasis on projects which are generally accretive in their first year
of operations to DRI and CNG; (iii) an equity structure that provides for 50
percent ownership interest by each of DRI and CNG; (iv) an expectation that
projects will be developed with equity funds until the most beneficial long-term
financing structure is in place; (v) an expectation that projects will be
project- or portfolio-financed, as appropriate, to maximize value; (vi) an
expectation that projects will be leveraged to the maximum extent practicable;
(vii) an expectation that tax efficient structures favorable to each Party will
be used to the extent possible; and (viii) such additional or alternative
criteria as the Management Committee deems appropriate with respect to the
Development Site in question.
SECTION 3.3 EMPLOYEES AND CONTRACTORS. Upon the request of the Management
Committee, each Party shall make available to the other Party such employees of
that Party or its Affiliates as shall be necessary and available to assist in
the performance or furtherance of the objectives of this Agreement. To the
extent that qualified employees of the Parties or their Affiliates are not
available for such purposes,
5
<PAGE>
the Management Committee may hire or authorize the hiring of third party
contractors for the performance of any such activities.
SECTION 3.4 SITE DEVELOPMENT.
(a) If the Management Committee determines that a Development Site
is suitable for development of a Facility, then the Parties shall form a
separate limited liability company or other entity (a "Development Entity") to
pursue such development. The Parties anticipate that each such Development
Entity shall be formed pursuant to an operating agreement (or other appropriate
formation documents) to be mutually agreed upon between the Parties as and when
needed. CNG or its Affiliates and DRI or its Affiliates shall each own 50
percent of the equity interests in any such development or Development Entity.
In addition, each of CNG and DRI acknowledges and agrees that it will cause the
appropriate level of mutually agreeable equity support to be provided to the
Affiliate of such Party that owns the interest in the Development Entity.
(b) During the term of this Agreement, (i) except for development
that is conducted by the Parties pursuant to this Agreement, neither Party shall
develop (either directly or through its Affiliates) any Facility within a
Development Area, or acquire any interest in any Facility in a Development Area,
or, if a Development Site is owned or leased by a Party or its Affiliates, sell
or lease (either directly or through its Affiliates) to another Person such
Development Site and (ii) the Parties, acting pursuant to this Agreement, shall
have the exclusive right to develop any Facility within the Development Areas.
The terms of this Section 3.4(b) shall survive any termination of this
Agreement.
ARTICLE IV
EXPENSES
Except as set forth in the following sentence, each Party shall bear all
expenses incurred by it in connection with this Agreement and the investigation
and evaluation of Development Sites pursuant to this Agreement. All third party
costs incurred by either Party on behalf of the alliance contemplated hereby or
in connection with this Agreement which have been approved by the Management
Committee shall be borne equally by the Parties.
ARTICLE V
CONFIDENTIALITY
SECTION 5.1 CONFIDENTIALITY.
(a) "Confidential Information" means any and all plans,
information, processes, procedures, trade secrets, compositions, improvements,
devices, programs, know-how, inventions, discoveries, concepts and designs,
information regarding business operations, plans and strategies, products or
services, data, marketing and distribution plans, site locations, methods and
techniques and all other information and other materials whether written or oral
(whatever the form or storage medium) provided by a
6
<PAGE>
Party to the other Party or its Representatives and any analyses, compilations,
studies or other documents prepared by either Party or its Affiliates or their
respective Representatives which contain or otherwise reflect such information.
"Confidential Information" does not include information which: (i) is or was
already in a Party's possession prior to contacts with the other Party; (ii) is
or becomes generally available to the public other than as a result of a
disclosure by a Party or its Representatives (other than the Party whose
information is at issue); or (iii) becomes available to a Party or its
Representatives on a non-confidential basis from a source other than the other
Party or its Representatives; provided that such source is not known to be bound
by a confidentiality agreement or other obligation of secrecy with respect to
such information.
(b) To maintain the confidentiality of the Confidential Information, each
Party, for itself and its Representatives with access to Confidential
Information, agrees, during the period from the date hereof until the second
anniversary of the termination of this Agreement: (i) not to use any
Confidential Information supplied by the other Party, or any copies, extracts,
notes, analyses, summaries, or other material prepared by them or their
Representatives based upon the Confidential Information supplied by the other
Party (collectively, "Notes") except for the purpose of identifying, evaluating
or developing a Development Site as contemplated by this Agreement; (ii) not to
disclose any Confidential Information supplied by the other Party or its
Representatives or Notes other than to their Representatives with a need to know
the information contained therein for the purpose of assisting its
identification, evaluation or development of a Development Site; provided, that
--------
such Representatives shall have agreed to be bound by the terms of this
Agreement and each Party shall be responsible for a breach of this agreement by
its Representatives; and (iii) not to disclose the terms of this Agreement, that
Confidential Information has been made available, that it or its Representatives
have inspected any Confidential Information, or that it has identified a
Development Site or is evaluating or planning to develop such Development Site
or has had, is having or proposes to have any discussions with respect thereto;
provided that (i) such disclosure may be made if required, in the written
- --------
opinion of counsel to a Party, by applicable law or rule of a stock exchange on
which a Party's shares are listed if in the event of any such required
disclosure the Party shall, prior to such disclosure being made, notify the
other Party and in good faith seek to agree upon the form and content thereof,
and (ii) nothing contained herein shall prohibit a Party from using Confidential
Information solely provided or developed by it or its Representatives in any
manner or for any purpose such Party desires.
ARTICLE VI
ASSIGNMENT
No Party may assign, sell, give, exchange, pledge, encumber or otherwise
transfer (including, without limitation, transfers upon dissolution,
reorganization or merger), whether voluntary or involuntary, any interest in
this Agreement, without the consent of the other Party, which consent may be
withheld in the sole and absolute discretion of such other Party.
7
<PAGE>
ARTICLE VII
DISPUTE RESOLUTION
SECTION 7.1 DEADLOCK.
(a) If the Parties disagree with respect to the identification,
evaluation or development of a Development Site or with respect to any other
matter that is material to the operation, financial success, capital
requirements or liability of the alliance activities, and if such disagreement
is not otherwise resolved within a period of thirty (30) days, then either Party
may declare a "material deadlock," which declaration shall be given in writing
to the other Party.
(b) Upon declaration of a material deadlock in accordance with
Section 7.1(a), DRI and CNG shall each cause one or more of their respective
senior executive officers to negotiate in good faith with the designated senior
executive officers of the other in an effort to resolve the dispute within the
next sixty (60) days (the "Resolution Period").
SECTION 7.2 TERMINATION NOTICE. If the Parties are unable to resolve the
dispute within the Resolution Period in accordance with the provisions of
Section 7.1(b), either Party (the "Terminating Party") may initiate the
termination procedures of this Agreement by delivering a written notice (the
"Termination Notice") to the other Party (the "Receiving Party") within thirty
(30) days after the end of the Resolution Period requesting the termination of
this Agreement. The Termination Notice shall specify the applicable
"Termination Price" (as defined below) and a date on which the termination shall
occur (the "Termination Date"), which date shall be not less than 60 nor more
than 180 days after the date on which the Termination Notice is received by the
Receiving Party (the "Receipt Date"). If the Receipt Date does not occur within
thirty (30) days following the end of the Resolution Period, then this Agreement
shall continue in full force and effect.
Notwithstanding anything to the contrary contained herein, if prior to the
second anniversary of the date of this Agreement (i) a Transfer of Control
occurs with respect to a Party (or in the case of CNG, with respect to either
CNG or Consolidated Natural Gas Company) or (ii) a written agreement (a
"Transfer Agreement") is entered into pursuant to which a Transfer of Control
would occur with respect to a Party (or in the case of CNG, with respect to
either CNG or Consolidated Natural Gas Company) upon the consummation of such
agreement, then, in either such case, such Party shall be deemed to have given a
Termination Notice and the Receipt Date shall be deemed to have occurred as of
the earlier of the date on which such Transfer of Control occurs or the date on
which the Receiving Party receives notice or has knowledge that a Transfer
Agreement has been executed; provided, however, the provisions of this paragraph
shall not be applicable to, and no Termination Notice shall be deemed given upon
the occurrence of, a Transfer of Control arising from a merger of Consolidated
Natural Gas Company and DRI or their Affiliates.
8
<PAGE>
SECTION 7.3 TERMINATION PRIOR TO SECOND ANNIVERSARY. If the Receipt Date
occurs or is deemed to occur before the second anniversary of the date of this
Agreement, then the Termination Price shall be an amount equal to all
unreimbursed expenses incurred by the Terminating Party in connection with this
Agreement, from the date hereof to the date on which the Receipt Date occurs.
The Terminating Party shall deliver to the Receiving Party, together with the
Termination Notice, such documentation as shall be reasonably necessary to
substantiate the calculation of such Termination Price; provided, however, that
-----------------
if the Termination Notice is deemed given in accordance with the last sentence
of Section 7.2 hereof, then the Receiving Party shall make its best estimate of
the Termination Price, which shall be subject to verification by the Terminating
Party.
The Receiving Party shall have the right to terminate this Agreement by
written notice delivered to the Terminating Party (the "Acceptance Notice")
within sixty (60) days after the Receipt Date. If the Receiving Party does not
give the Acceptance Notice within such sixty (60) day period or if the Receiving
Party specifies in such Acceptance Notice that it elects not to purchase the
Terminating Party's interest in this Agreement (a "No Purchase Termination"),
then this Agreement shall terminate on the Termination Date, at which time all
Alliance Information and all development rights provided by a Party shall first
be distributed to such Party, the alliance shall then be dissolved and all
assets and liabilities of the Parties incurred in connection with this Agreement
and approved by the Management Committee shall be distributed equally to the
Parties; provided, however, if the Terminating Party is deemed to have given a
Termination Notice pursuant to the last sentence of Section 7.2, and the
Receiving Party fails to give an Acceptance Notice within sixty (60) days after
the Receipt Date or specifies in a timely Acceptance Notice that it elects not
to terminate this Agreement as a result of any such Transfer of Control or
Transfer Agreement, then this Agreement shall continue in full force and effect
as if such deemed Termination Notice was never given.
If the Receiving Party gives the Acceptance Notice within sixty (60) days
after the Receipt Date and specifies therein that it elects to purchase the
Terminating Party's interest in this Agreement (a "Purchase Termination"), then
this Agreement shall terminate on the Termination Date, at which time the
Receiving Party shall pay the Termination Price to the Terminating Party in cash
or by wire transfer and the Terminating Party shall execute and deliver to the
Receiving Party such instruments of conveyance, assignment and transfer as shall
be necessary to transfer to the Receiving Party all of the Termination Party's
right, title and interest in and to this Agreement, all permits, contracts and
development rights associated with the Development Sites, and such other
documents of conveyance as the Receiving Party shall reasonably request to fully
consummate the transactions contemplated in this Section. In the event of a
Purchase Termination under this Section 7.3, then from the Termination Date to
the fifth anniversary of this Agreement, the Receiving Party, by itself or with
partners, shall have the exclusive right (which right shall survive any
termination of this Agreement) to develop all of the Development Sites and any
Facility within any of the Development Areas and neither the Terminating Party
nor its Affiliates nor their respective successors or assigns shall have the
right during such period, by themselves or with others, to develop any Facility
within any Development Area, to acquire an interest in any
9
<PAGE>
Development Site or in any Facility within a Development Area, or, if the
Terminating Party or its Affiliates already owns an interest in a Development
Site, to sell, lease or otherwise transfer such interest to another Person for
the development of such Site. The Terminating Party shall execute, and shall
cause its Affiliates to execute, from time to time such additional documents as
shall be requested by the Receiving Party to further confirm such exclusive
development rights.
SECTION 7.4 TERMINATION AFTER SECOND ANNIVERSARY.
(a) If the Termination Notice is given after the second
anniversary of this Agreement, then the Termination Notice shall include (i) an
offer on the part of the Terminating Party to terminate this Agreement and to
sell the Terminating Party's entire interest (the "Tendered Interest") in this
Agreement and the Development Sites and (ii) the price and terms on which the
Terminating Party will sell the Tendered Interest; provided, however, in no
event shall such terms provide for a closing within less than 120 nor more than
180 days after the Receipt Date or terms and conditions which differ materially
from those typical for the purchase of a 50 percent ownership interest in an
ongoing partnership. Within sixty (60) days after the Receipt Date, the
Receiving Party shall give a written notice (the "Response") to the Terminating
Party stating whether the Receiving Party elects to purchase the Tendered
Interest on the terms and conditions set forth in the Termination Notice.
(b) If the Receiving Party does not elect within such sixty (60)
days after the Receipt Date to purchase the Tendered Interest on the terms set
forth in the Termination Notice, then the Receiving Party shall be required to
sell, and the Terminating Party shall be required to purchase, all of the
Receiving Party's interest in this Agreement and the Development Sites on the
same terms and conditions as were set forth in the Termination Notice with
respect to the Terminating Party's Tendered Interest.
(c) The election made in the Response shall be binding on all
Parties. If there is no Response given within the time specified above, the
Receiving Party shall be deemed to have agreed to sell to the Terminating Party
as provided in Section 7.4(b) all of the Receiving Party's interests in this
Agreement and the Development Sites.
7.5 CLOSING AND DEFAULT. The purchase and sale of a Party's interests
pursuant to Section 7.3 and Section 7.4 shall be closed at the principal office
of the Party purchasing such interests on the date specified in the Termination
Notice (provided, however, if no closing date is specified in the Termination
Notice, then the closing shall occur 180 days after the Receipt Date). The
seller of such Party's interests shall convey such interests at the closing free
and clear of all liens, security interests and encumbrances.
7.6 EFFECT ON ONGOING PROJECTS. No termination of this Agreement pursuant
to this Article 7 shall effect a termination or sale of any development projects
or site development plans as to which the Parties have formed a Development
Entity pursuant to Section 3.4(a) hereof. Except as set forth in the charter
documents of such Development
10
<PAGE>
Entity, such Development Entity and the Parties rights, obligations and
ownership therein and thereunder shall continue to the same extent and manner as
set forth in such charter documents.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
SECTION 8.1 REPRESENTATIONS AND WARRANTIES OF CNG. CNG hereby makes the
following representations and warranties to DRI:
(a) CNG is a Delaware corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is qualified to do
business in those states where the nature of its business requires it to be so
qualified and has the legal power and authority to own its properties, to carry
on its business as now being conducted, to enter into this Agreement, to carry
out the transactions contemplated hereby and to perform and carry out all
covenants and obligations on its part to be performed under and pursuant to this
Agreement.
(b) The execution, delivery and performance by CNG of this
Agreement have been duly authorized by all necessary corporate action, and do
not and will not require any consent or approval of CNG's board of directors or
shareholders other than that which has been obtained.
(c) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and the fulfillment of and compliance
with the provisions of this Agreement, do not and will not conflict with or
constitute a breach of or a default under, any of the terms, conditions or
provisions of any legal requirements, or any organizational documents,
agreement, deed of trust, mortgage, loan agreement, other evidence of
indebtedness or any other agreement or instrument to which CNG is a party or by
which it or any of its property is bound, or result in a breach of or a default
under any of the foregoing, and CNG has obtained all permits, licenses,
approvals and consents of governmental authorities required for the execution
and delivery of this Agreement.
(d) This Agreement constitutes the legal, valid and binding
obligation of CNG enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights
generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(e) There is no pending, or to the knowledge of CNG, threatened
action or proceeding affecting CNG before any governmental authority which
purports to affect the legality, validity or enforceability of this Agreement.
11
<PAGE>
SECTION 8.2 REPRESENTATIONS AND WARRANTIES OF DRI. DRI hereby makes the
following representations and warranties to CNG:
(a) DRI is a Virginia corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia, is
qualified to do business in those states where the nature of its business
requires it to be so qualified and has the legal power and authority to own its
properties, to carry on its business as now being conducted, to enter into this
Agreement, to carry out the transactions contemplated hereby and to perform and
carry out all covenants and obligations on its part to be performed under and
pursuant to this Agreement.
(b) The execution, delivery and performance by DRI of this
Agreement have been duly authorized by all necessary corporate action, and do
not and will not require any consent or approval of DRI's board of directors or
shareholders other than that which has been obtained.
(c) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and the fulfillment of and compliance
with the provisions of this Agreement, do not and will not conflict with or
constitute a breach of or a default under, any of the terms, conditions or
provisions of any legal requirements, or any organizational documents,
agreement, deed of trust, mortgage, loan agreement, other evidence of
indebtedness or any other agreement or instrument to which DRI is a party or by
which it or any of its property is bound, or result in a breach of or a default
under any of the foregoing, and DRI has obtained all permits, licenses,
approvals and consents of governmental authorities required for the execution
and delivery of this Agreement.
(d) This Agreement constitutes the legal, valid and binding
obligation of DRI enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights
generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(e) There is no pending, or to the knowledge of DRI, threatened
action or proceeding affecting DRI before any governmental authority which
purports to affect the legality, validity or enforceability of this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 TERM. The term of this Agreement shall commence on the date
of this Agreement and shall terminate on the fifth anniversary of such date.
12
<PAGE>
SECTION 9.2 NOTICES. Notices and communications given pursuant to this
Agreement (including Termination Notices, Acceptance Notices and Responses)
shall be in writing and shall be delivered by hand, telefax, commercial courier
or registered or certified mail (return receipt requested and postage prepaid),
to the following addresses (or at such other address for a party as shall be
specified by like notice):
If to DRI:
James F. Stutts
Vice President and General Counsel
Dominion Resources, Inc.
120 Tredegar Street
Richmond, Virginia 23219
Fax: (804) 819-2233
with a copy to:
Michael J. Schewel
McGuire, Woods, Battle & Boothe, LLP
901 East Cary Street
Richmond, Virginia 23219
Fax: (804) 775-1061
If to CNG:
Stephen E. Williams
Senior Vice President and General Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222
Fax: (412) 690-7633
with a copy to:
Gary Jeffries
Senior Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222
Fax (412) 316-7230
All such notices shall be deemed to be effective when received or, if acceptance
of delivery is refused, upon tender of delivery. Notices given by telecopy
shall be followed by a copy of the notice given by overnight courier service.
13
<PAGE>
SECTION 9.3 AMENDMENT. This Agreement may be amended only in a writing
evidenced by the consent of all of the Parties.
SECTION 9.4 INVALIDITY. If any provision of this Agreement shall be held
invalid, the same shall not affect in any respect whatsoever the validity of the
remainder of this Agreement.
SECTION 9.5 BINDING EFFECT. This Agreement shall be binding upon, and
shall inure to the benefit of, the Parties hereto and their respective
successors and assigns.
SECTION 9.6 PRESS RELEASES. Neither DRI nor CNG shall make any press
release or public statement about the Agreement or the transactions contemplated
hereby until each party has approved the timing and content of such press
release.
SECTION 9.7 RELATIONSHIP OF PARTIES. It is understood and agreed that the
relationship of the Parties is limited to that specifically contained herein.
Neither DRI nor CNG nor any of their respective Affiliates, employees or agents
shall be construed to be the agent, employee or representative of the other,
except as provided in Section 2.4 hereof, and neither Party has the authority to
bind the other or to incur any obligation on its behalf. As between the Parties,
nothing in this Agreement shall be deemed to constitute any such Party a partner
or joint venturer of any other Party or to create a fiduciary relationship
between such Parties.
SECTION 9.8 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which, when taken together,
shall constitute one and the same instrument.
SECTION 9.9 FURTHER ASSURANCES. The Parties agree that they will
cooperate with each other and will execute and deliver, or cause to be
delivered, all such other instruments, and will take such other actions, as any
Party hereto may reasonably request from time to time in order to effectuate the
provisions and purposes hereof.
SECTION 9.10 COMPLETE AGREEMENT. This Agreement constitutes the complete
and exclusive statement of the agreement among the Parties with respect to the
alliance and the parties rights and obligations regarding the Development Sites.
It supersedes all prior agreements.
SECTION 9.11 DEFAULT; EXPENSES OF LITIGATION. If a Party defaults in the
performance of its obligations hereunder (including a default by such Party
(either directly or through its Affiliates) of the exclusivity provisions
hereof), then the non-defaulting Party shall be entitled to all remedies
available at law or equity (including specific performance and injunctive
relief). If either Party commences litigation to enforce the terms of this
Agreement, then the prevailing Party in such litigation shall be entitled to
recover from the other Party all legal fees and expenses incurred by the
prevailing Party in connection therewith.
14
<PAGE>
SECTION 9.12 GOVERNING LAW, JURISDICTION. This Agreement shall be
governed by the laws of the State of New York, without giving effect to its
choice of laws rules. Furthermore, each Party agrees to subject itself to the
jurisdiction of the courts of the State of New York and has designated an agent
for service of process.
SECTION 9.13 GUARANTY OF CONSOLIDATED NATURAL GAS COMPANY. Within 5
business days of the date hereof, CNG shall cause Consolidated Natural Gas
Company to deliver to DRI a guaranty supporting performance of all of CNG's
obligations under this Agreement. Such guaranty shall be acceptable in form and
substance to DRI in its reasonable discretion.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
WITNESS the following signatures.
CNG POWER COMPANY
By: /s/ Thomas E. Dodd
--------------------------------------
Name: Thomas E. Dodd
Title: Vice President and General Manager
DOMINION RESOURCES, INC.
By: /s/ Thomas N. Chewning
--------------------------------------
Name: Thomas N. Chewning
Title: Executive Vice President
16
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
STATE, SITE NAME OF SITE UTILITY CONNECTION COMMENTS
NUMBER LATITUDE & LONGITUDE
------------------------------------
Transmission Interface Point
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OH-1 Warren County CG&E, CSP(AEP), Non-attainment area, put back on
DP&L [Joint list at request of market team
------------------------------------
ownership line] 345 Kv line between Fostor and
Greene Substations
- --------------------------------------------------------------------------------------------------------------
OH-2 Clinton County CG&E, CSP(AEP), Possible access to Cinergy via
39d31m long, 83d53m lat DP&L [Joint joint ownership line (56 percent
ownership line] loaded line)
345 Kv line between Clinton and
Greene Substations
- --------------------------------------------------------------------------------------------------------------
OH-2a Washington Compressor Dayton P&L or AEP Electric transmission is an issue,
Station/ Fayette County CNG owns 60 acres
- --------------------------------------------------------------------------------------------------------------
OH-3 Pickaway County, west CG&E, CSP(AEP), OH Commission likes, possible
39d42m39.1s long, DP&L [Joint access to Cinergy
------------------------------------
83d10m38.4s lat ownership line] 345Kv tie line between Stuart and
Beatty substations
- --------------------------------------------------------------------------------------------------------------
OH-4 Pickaway County, east CG&E, CSP(AEP), OH Commission likes, possible line
39d45m38s long 82d59m20s DP&L [Joint to Cinergy
------------------------------------
lat ownership line] 345KV line between Marquis and
Bixby substations
- --------------------------------------------------------------------------------------------------------------
OH-4a Groveport Compressor Dayton P&L or AEP CNG owns 20 acres, on 138KV line,
Station/Fairfield County in flood plain
- --------------------------------------------------------------------------------------------------------------
OH-5 Fairfield County, west Dayton P&L or AEP Inside AEP, access to joint
ownership line
- --------------------------------------------------------------------------------------------------------------
OH-6 Fairfield County, east Dayton P&L or AEP Inside AEP, access to joint
ownership line
- --------------------------------------------------------------------------------------------------------------
OH-7 Newark Compressor AEP CNG owns 89 acres, access to joint
Station/Licking County ownership line, arch. site on
property
- --------------------------------------------------------------------------------------------------------------
OH-8 Muskingum County AEP In AEP
- --------------------------------------------------------------------------------------------------------------
OH-9 Coshocton County AEP In AEP, non-attainment for SO2
- --------------------------------------------------------------------------------------------------------------
OH-9a Gilmore Compressor AEP 138KV transmission
Station/Tuscarawas
- --------------------------------------------------------------------------------------------------------------
OH-10 Carroll Compressor AEP CNG owns 101 acres, inside AEP,
Station, Carroll County 765Kv line
- --------------------------------------------------------------------------------------------------------------
OH-11 Carroll County, east First Energy Possible non-attainment for SO2
and PM10
------------------------------------
345Kv line between Sammis and
South Canton substations
- --------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
STATE, SITE NAME OF SITE UTILITY CONNECTION COMMENTS
NUMBER LATITUDE & LONGITUDE
------------------------------------
Transmission Interface Point
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OH-12 Jefferson County Ohio Edison Non-attainment for SO2 & PM10
- --------------------------------------------------------------------------------------------------------------
OH-13 Columbiana County, First Energy Ohio Commission likes
------------------------------------
west 345Kv line between Sammis and
Highland substations
- --------------------------------------------------------------------------------------------------------------
OH-14 Columbiana County, central Duquesne/First Ohio Commission likes
Energy or First
------------------------------------
Energy 345Kv tie line between Beaver
Valley and Hanna substations or
345 KV line between Mansfield and
Champerlain substations
- --------------------------------------------------------------------------------------------------------------
OH-15 Columbiana County, east First Energy Ohio Commission likes
40d47m long,
------------------------------------
80d32m30s lat 345Kv line between Mansfield and
Highland substations
- --------------------------------------------------------------------------------------------------------------
OH-16 Orrville Site, Wayne AEP 138KV transmission, gas issues
County
- --------------------------------------------------------------------------------------------------------------
OH-17 WCI Steel Site, Trumball Possible cogen, DE will
County investigate
- --------------------------------------------------------------------------------------------------------------
OH-18 Wood County Toledo Edision/First CNG owns 500 acres, access
Energy through LDC
- --------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
STATE, SITE NUMBER NAME OF SITE UTILITY CONNECTION COMMENTS
LATITUDE & LONGITUDE
--------------------------------------
Transmission Interface Point
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PA-1 Greene County Allegheny
--------------------------------------
39d47m14s long, 80d24m46s 500KV line between Kammer and Ft.
lat Martin substations or the 500Kv
line between the Harrison or Wylie
Ridge substations
- ------------------------------------------------------------------------------------------------------------
PA-2 South Bend Facility/ Allegheny/PJM or PJM On border w/ PJM, near Keystone
Indiana County Station, CNG owns 100 acres
--------------------------------------
40d40m long, 79d21m lat 500Kv tie line between the Keystone
and Yukon substations or the 500Kv
line between the Keystone and
Conemaugh substations
- ------------------------------------------------------------------------------------------------------------
PA-3 Jefferson County Penn Electric
- ------------------------------------------------------------------------------------------------------------
PA-4 Clearfield County Penn Electric Environmental Issues
- ------------------------------------------------------------------------------------------------------------
PA-5 Elk County Allegheny
- ------------------------------------------------------------------------------------------------------------
PA-6 McKean County Allegheny
- ------------------------------------------------------------------------------------------------------------
PA-7 Potter County Allegheny
- ------------------------------------------------------------------------------------------------------------
PA-8 Tioga County Penn Electric Transmission may be an issue
- ------------------------------------------------------------------------------------------------------------
PA-9 Beaver Compressor Dusquense Non-attainment 03, CO, SO2, PM-10;
Station//Beaver County CNG owns 300 acres
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Note: All PA. Will be non
attainment for ozone, market in PJM
west is not attractive
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
STATE, SITE NAME OF SITE UTILITY CONNECTION COMMENTS
NUMBER LATITUDE & LONGITUDE
---------------------------------
Transmission Interface Point
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WV-1 Pleasants County Allegheny or Possible interface site between
Allegheny to AEP AEP and Allegheny, 500Kv line
---------------------------------
interface 500 Kv line between the Belmont
and Harrison substations or the
500 Kv tie line at the Belmont
substation
- ------------------------------------------------------------------------------------------------------
WV-2 Marshall/Wetzel County AEP
- ------------------------------------------------------------------------------------------------------
WV-3 Marshall County AEP
- ------------------------------------------------------------------------------------------------------
WV-4 Doddridge/Tyler County Allegheny 500Kv transmission, gas
constraints
---------------------------------
500Kv line between the Belmont
and Harrison substations
- ------------------------------------------------------------------------------------------------------
WV-5 Doddridge County Allegheny 500Kv transmission, gas
constraints
---------------------------------
500Kv line between the Belmont
and Harrison substations
- ------------------------------------------------------------------------------------------------------
WV-6 Harrison County Allegheny
- ------------------------------------------------------------------------------------------------------
WV-7 Marion County Allegheny Gas constraints
- ------------------------------------------------------------------------------------------------------
WV-8 Taylor/Preston County Allegheny Gas Constraints plus close to
Class 1 area
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
STATE, SITE NAME OF SITE UTILITY CONNECTION COMMENTS
NUMBER LATITUDE & LONGITUDE
---------------------------------
Transmission Interface Point
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NY-1 Montgomery County Niagara Mohawk West of constraint
---------------------------------
42d54m long 345Kv line between Scotland and
74d18m lat Edic substations or 345 Kv (built
to 765) line between Scotland and
Marcy substations
- ------------------------------------------------------------------------------------------------------
NY-2 Schenectady County Niagara Mohawk West of constraint
---------------------------------
42d50m long 230 Kv line between Porter and
74d3m lat Rotterdam substations
- ------------------------------------------------------------------------------------------------------
NY-3 Albany County Niagara Mohawk West of constraint
---------------------------------
42d45m long 345Kv line between Scotland and
74d07m30s lat Edic substations or 345 Kv (built
to 765) line between Scotland and
Marcy substations
- ------------------------------------------------------------------------------------------------------
NY-4 Rensselear County, Niagara Mohawk or NY
north 42d41m long State Electric & Gas
---------------------------------
73d42m30s lat 345Kv line between Alps and
Reynolds substations
- ------------------------------------------------------------------------------------------------------
NY-5 Rensselear County, Niagara Mohawk or NY
south 42d41m long State Electric & Gas
---------------------------------
73d42m30s lat 345 Kv line between Alps and
Scotland substations
- ------------------------------------------------------------------------------------------------------
NY-6 Rochester Rochester Gas & Elec. DE will investigate
Or Niagara Mohawk
---------------------------------
Later
- ------------------------------------------------------------------------------------------------------
NY-7 Utica West of transmission constraint
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,008
<OTHER-PROPERTY-AND-INVEST> 5,526
<TOTAL-CURRENT-ASSETS> 2,390
<TOTAL-DEFERRED-CHARGES> 564
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 17,488
<COMMON> 3,831
<CAPITAL-SURPLUS-PAID-IN> 16
<RETAINED-EARNINGS> 1,120
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,968
180
509
<LONG-TERM-DEBT-NET> 6,456
<SHORT-TERM-NOTES> 659
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 493
0
<CAPITAL-LEASE-OBLIGATIONS> 15
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,208
<TOT-CAPITALIZATION-AND-LIAB> 17,488
<GROSS-OPERATING-REVENUE> 1,293
<INCOME-TAX-EXPENSE> 66
<OTHER-OPERATING-EXPENSES> 980
<TOTAL-OPERATING-EXPENSES> 980
<OPERATING-INCOME-LOSS> 313
<OTHER-INCOME-NET> 34
<INCOME-BEFORE-INTEREST-EXPEN> 347
<TOTAL-INTEREST-EXPENSE> 120
<NET-INCOME> (116)
16
<EARNINGS-AVAILABLE-FOR-COMM> (116)
<COMMON-STOCK-DIVIDENDS> 125
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 203
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
