File No. 70-09517
As filed with the Securities and Exchange Commission on December 15, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
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AMENDMENT NO. 3
TO
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Dominion Resources, Inc. Consolidated Natural Gas
120 Tredegar Street Company
Richmond, VA 23219 CNG Tower, 625 Liberty Avenue
Pittsburgh, PA 15222
(Name of company filing this statement and
address of principal executive offices)
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Dominion Resources, Inc. Consolidated Natural Gas
Company
(Name of top registered holding company
parent of each applicant or declarant)
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James F. Stutts Stephen E. Williams
Vice President and Senior Vice President and
General Counsel General Counsel
Dominion Resources, Inc. Consolidated Natural Gas
120 Tredegar Street Company
Richmond, VA 23219 CNG Tower, 625 Liberty Avenue
Pittsburgh, PA 15222
(Name and address of agent for service)
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The Commission is also requested to send
copies of any communication in connection with
this matter to:
Norbert F. Chandler, Esq.
General Attorney & Assistant Secretary
Consolidated Natural Gas Company
CNG Tower, 625 Liberty Street
Pittsburgh, PA 15222
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APPLICATION-DECLARATION
UNDER
SECTIONS 6(a), 7, 9(a), 10, 11(b)(2), 32 and 33
AND
RULES 42, 53 and 54
OF
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FOR APPROVAL OF
ISSUANCE OF SECURITIES
AND
RELATED MATTERS
TABLE OF CONTENTS
Page
Item 1. Description of Proposed Transactions..................................1
A. Introduction and General Request..................................1
B. Issuance of Securities; Incurrence of Indebtedness; Provision of
Guarantees and other Credit Support...............................3
1. DRI and its Subsidiaries other than Virginia Power and
its Subsidiaries..............................................7
2. Virginia Power and its Subsidiaries..........................18
3. CNG and its Subsidiaries.....................................19
C. Dominion Direct Investment, Incentive Compensation Plans and other
Employee Benefit Plans...........................................25
1. Dominion Direct Investment...................................25
2. Incentive Compensation Plans.................................26
3. Other Employee Benefit Plans.................................28
Item 2. Fees, Commissions and Expenses.......................................28
Item 3. Applicable Statutory Provisions......................................29
A. Issuance of Securities; Incurrence of Indebtedness; Provision of
Guarantees and other Credit Support..............................29
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Page
B. Complexity of Capital Structure..................................30
Item 4. Regulatory Approvals.................................................31
Item 5. Procedure............................................................31
Item 6. Exhibits and Financial Statements....................................32
Item 7. Information as to Environmental Effects..............................35
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APPLICATION-DECLARATION
UNDER
SECTIONS 6(a), 7, 9(a), 10, 11(b)(2), 32 and 33
AND
RULES 42, 53 and 54
OF
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FOR APPROVAL OF
ISSUANCE OF SECURITIES
AND
RELATED MATTERS
Dominion Resources, Inc. and Consolidated Natural Gas Company hereby amend
and restate in its entirety their Application-Declaration in File No. 70-09517.
Item 1. Description of Proposed Transactions.
A. Introduction and General Request.
This Application-Declaration is submitted in connection with the proposed
merger of Dominion Resources, Inc., a Virginia corporation and currently a
holding company exempt from the registration requirements of the Public Utility
Holding Company Act of 1935 (the "1935 Act") pursuant to Section 3(a)(1) thereof
and Rule 2 thereunder ("DRI"), and Consolidated Natural Gas Company, a Delaware
corporation and a registered holding company under the 1935 Act ("CNG"),
pursuant to the Amended and Restated Agreement and Plan of Merger dated as of
May 11, 1999 (the "Merger Agreement"). After entering into an initial Agreement
and Plan of Merger dated as of February 19, 1999, as amended and restated as of
March 31, 1999, the Boards of Directors of DRI and CNG approved a revised
structure for their Merger following CNG's receipt of an unsolicited offer from
a third party. The companies negotiated a revised merger agreement and entered
into the revised merger agreement as of May 11, 1999. In this Application, any
references to the Merger Agreement refer to the revised merger agreement entered
into as of May 11, 1999 unless otherwise noted.
The Merger Agreement contemplates a two-step merger transaction. In the
first step, a wholly owned subsidiary of DRI ("SPV") will merge (the "First
Merger") with and into DRI in a transaction in which DRI will be the surviving
corporation. The First Merger and the issuance of shares of DRI common stock to
DRI shareholders in connection therewith do not require Commission approval
under the 1935 Act. In the second step, CNG will either merge (the "Second
Merger") (i) with and into another wholly owned subsidiary of DRI ("CNG
Acquisition") in a transaction in which CNG Acquisition will be the surviving
corporation (which is the preferred structure for the Second Merger) or (ii)
with and into DRI in a transaction in which DRI will be the surviving
corporation (the alternative structure for the Second Merger). The Second Merger
is the subject of the Application of DRI and CNG on Form U-1 (File No. 70-09477)
previously filed with the Commission (the "Merger
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Application"), and which is hereby incorporated by reference herein. The First
and the Second Merger are each conditioned on the other occurring. The First
Merger and the Second Merger are herein together referred to as the "Merger". As
a result of the Merger and the other transactions contemplated by the Merger
Agreement (collectively, irrespective of the transaction structure actually
implemented, the "Transaction"), CNG will cease to exist and either CNG
Acquisition, as the successor in interest to CNG, will become a direct
subsidiary of DRI or each of CNG's four public utility subsidiaries will become
direct subsidiaries of DRI. As a result of the Merger, CNG's non-utility
subsidiaries will each become direct or indirect subsidiaries of CNG Acquisition
or DRI, as the case may be. Following completion of the Merger, irrespective of
the transaction structure actually implemented, DRI and, if applicable, CNG
Acquisition will register as a holding company pursuant to Section 5 of the 1935
Act. A more fulsome description of the Merger and the other transactions
contemplated by the Merger Agreement is contained in the Merger Application.
This Application-Declaration seeks authorization and approval of the
Commission with respect to the financing arrangements, ongoing financing
activities and other matters pertaining to, DRI and CNG and their subsidiaries
after giving effect to the Merger and the registration of DRI as a holding
company. Specifically, this Application-Declaration seeks authorization and
approval of the Commission:
(i) under Sections 6(a) and 7:
(1) for DRI to issue common stock of DRI to shareholders of CNG
in connection with the Second Merger;
(2) for DRI to maintain in effect and to amend, renew, extend
and/or replace its existing universal shelf registration under the
Securities Act of 1933 up to the aggregate dollar amount specified
below and, pursuant to such shelf registration, to issue additional
equity, preferred and/or debt securities for general corporate
purposes for the period from and after the Merger through December 31,
2002 (the "Authorization Date");
(3) for DRI and its subsidiaries, including CNG, to maintain in
effect for the period from and after the Merger through the
Authorization Date, all existing credit facilities and financing
arrangements and to maintain outstanding all indebtedness and similar
obligations created thereunder as of the date of the closing of the
Merger (including, without limitation, any such facilities, financing
arrangements, indebtedness or similar obligations incurred in
connection with or to finance the Merger) and to amend, renew, extend
and/or replace any of such credit facilities, financing arrangements,
indebtedness or similar obligations up to the aggregate dollar amounts
specified below, provided that no such amendment, renewal, extension
and/or replacement which is effected following completion of the
Merger shall provide for an increase in the aggregate amount of
indebtedness to be incurred or for a final maturity date relating to
such indebtedness which occurs after the Authorization Date unless
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the Commission shall otherwise approve or such amendment, renewal,
extension and/or replacement shall not require Commission approval
under applicable provisions of the 1935 Act and rules and regulations
promulgated thereunder; and
(4) for DRI and its subsidiaries, including CNG, to incur
additional indebtedness and similar obligations including, without
limitation, guarantees and other credit support in the amounts and on
the terms described below;
(ii) under Sections 9(a), 10, 32 and 33 and Rules 53 and 54 for DRI
and CNG to make additional investments in non-utility businesses consistent
with the business plans of DRI and CNG including in exempt wholesale
generators within the meaning of Section 32 of the Act ("EWGs") and foreign
utility companies within the meaning of Section 34 of the Act ("FUCOs") all
as more specifically described below;
(iii) under Sections 6(a) and 7 for the issuance by DRI of up to 45.5
million shares of common stock under dividend reinvestment and stock-based
management incentive and employee benefit plans all as more specifically
described below; and
(iv) under other sections of the 1935 Act and applicable rules and
regulations of the Commission promulgated thereunder with respect to the
related matters described in this Application-Declaration.
B. Issuance of Securities; Incurrence of Indebtedness; Provision of
Guarantees and other Credit Support.
DRI is and, prior to the closing of the Second Merger DRI will continue to
be, a holding company exempt from the registration requirements of the 1935 Act
pursuant to Rule 2 promulgated thereunder and, thus, is not now, and until the
closing of the Second Merger will not be, subject to Sections 6(a) and 7 of the
1935 Act. CNG now is, and following completion of the Second Merger, CNG
Acquisition will be, a registered holding company subject to the provisions of
Sections 6(a) and 7 of the 1935 Act.
Shareholders of DRI will, in connection with the First Merger, be given the
option to receive either $43.00 in cash or 1 share of DRI common stock in
exchange for each share of DRI common stock held, subject to limitations on the
aggregate amount of cash that may be distributed in connection with the First
Merger. The First Merger, the exchange of DRI common stock thereby contemplated
and any incurrence of indebtedness to obtain cash necessary to make any payments
to DRI shareholders in exchange for their shares of DRI common stock in
connection with the First Merger do not require Commission approval under the
1935 Act. DRI will, in connection with the Second Merger, be incurring
indebtedness and will also be issuing common stock to shareholders of CNG.
Indebtedness will be incurred to finance cash payments to DRI shareholders in
connection with the First Merger and to finance the cash component of the Merger
consideration to be paid to CNG shareholders in connection with the Second
Merger. DRI anticipates that such cash will initially be obtained through the
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issuance of commercial paper under an expanded DRI commercial paper program
backed by a combination of short-term and long-term credit facilities similar to
the types of credit facilities that DRI currently has in place and other
short-term credit facilities. The effective cost of this short-term financing to
DRI will not exceed 250 basis points over the London Interbank Offered Rate
(LIBOR).
After closing of the Merger, DRI anticipates replacing a significant
portion of the commercial paper program (and some or all of the initial
short-term acquisition financing) with proceeds from (i) the issuance of debt,
preferred and/or convertible securities, (ii) the timely divestiture of DRI's
financial services subsidiary, Dominion Capital, Inc. and (iii) the sale of
other non-core assets which do not support the combined company's MAIN to Maine
strategy. DRI common stock to be issued to CNG Shareholders in connection with
the Second Merger has been registered on Form S-4 under the Securities Act of
1933. The DRI common stock to be issued in connection with the Transaction is
described in DRI's Registration Statement on Form S-4 under the Securities Act
of 1933 (Registration No. 333-75669) which, as amended, was declared effective
by the Commission in May 1999. Such Registration Statement is hereby
incorporated by reference herein. DRI's acquisition capital structure will
approximate 30% common equity and 70% debt and convertible securities. As a
result of the acquisition financing, DRI's consolidated capital structure will
approximate 60-65% debt securities, 5-10% preferred securities and 30-35% common
equity. Appendix A hereto contains the unaudited pro forma combined consolidated
balance sheet of DRI and and its subsidiary companies showing the reported
condition of DRI as at September 30, 1999 for the twelve month period then
ended, the reported condition for CNG as at September 30, 1999 for the twelve
month period then ended, the pro forma adjustments necessary to account for the
Merger and the pro forma balance sheet for the combined company as at September
30, 1999 for the same period.
Table No. 1 below sets forth a summary of the historical capital structures
of DRI and CNG as at September 30, 1999, and the pro forma consolidated capital
structure of DRI, as the parent holding company of the combined DRI-CNG system,
as at September 30, 1999.
Table No. 1
DRI and CNG Historical Capital Structures
(Dollar amounts in millions) (as reported) (unaudited)
DRI % of Total CNG % of Total
Common Equity $5,005 35.0% $2,353 50.1%
Preferred Securities 894 6.2% 0.0%
Debt (inc. short term) 8,406 58.8% 2,344 49.9%
Total: $14,305 100.0% $4,697 100.0%
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DRI Pro Forma Consolidated Capital Structure
(Dollar amounts in millions) (unaudited)
Amount % of Total
Common Equity $7,608 33.0%
Preferred Securities 894 3.9%
Debt (inc. short term) 14,537 63.1%
Total: $23,039 100.0%
DRI anticipates improving its consolidated capital structure by
significantly reducing debt levels through cash generated by the asset
divestitures described above, issuance of preferred and/or convertible
securities and from cash flow from operations. Specifically, in refinancing the
approximately $4.5 billion required for the cash portion of the Merger
Consideration, DRI anticipates that it will use up to $1.6 billion in proceeds
from asset sales to pay down short-term debt incurred and will issue up to $600
million in equity securities or securities convertible into equity securities.1
The balance of the refinancing will be using debt securities with a maturity not
to exceed 50 years and interest rates not in excess of 500 basis points over the
comparable term LIBOR. DRI will register its equity, preferred and debt
securities on a new universal shelf registration statement to be filed under the
Securities Act of 1933. Apart from DRI common stock issued to CNG shareholders
in connection with the Merger which is registered in DRI's Registration
Statement on Form S-4 (Registration No. 333-75669), additional securities issued
to finance the Merger will, to the extent that registration under the Securities
Act of 1933 is required, be issued under this new universal shelf registration.
Aside from the financing required in connection with the Merger, DRI, has,
consistent with applicable law and DRI's normal business practice and in order
to make reasonable provision for the anticipated financing needs of itself and
its subsidiaries, caused to be established a universal shelf registration with
respect to DRI equity, preferred and debt securities and has entered into a
number of credit facilities with outside lenders, issued debt securities and
guaranteed or otherwise supported the obligations of its non-utility
subsidiaries. The existing universal shelf registration statement and these
credit facilities and other financing arrangements are described in further
detail in this Item 1, Section B.1 below.
DRI's sole public utility subsidiary, Virginia Electric and Power Company,
a Virginia corporation ("Virginia Power"), finances its and its subsidiaries'
operations on a stand-alone basis through the issuance of preferred stock, bonds
and commercial paper and in compliance with applicable legal and regulatory
requirements of the states of Virginia and North Carolina, the states in which
Virginia Power carries on its regulated utility operations,
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1 Convertible securities can be issued at a lower cost of funds to DRI than
straight equity while obtaining some equity credit from rating agencies.
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except that one of Virginia Power's subsidiaries, Virginia Power Energy
Marketing, Inc., also receives credit support from DRI in the form of a $200
million guarantee in connection with gas hedging/purchasing. These financing
arrangements are described in this Item 1, Section B.2 below. Each of these
existing financings and credit support arrangements would have been permitted
without prior Commission approval pursuant to Rule 52 if at the time such
financings and credit support arrangements were entered into DRI had been a
registered holding company under the 1935 Act with two exceptions: (i) the DRI
guarantee referred to above and (ii) certain short-term financing which, under
applicable Virginia law, Virginia Power is permitted to incur without prior
approval of the Virginia State Corporation Commission (the "VSCC"). DRI and
Virginia Power anticipate further securities issuances by Virginia Power after
completion of the Merger. All such further securities issuances will be effected
in compliance with applicable law, including the 1935 Act and Rule 52.
CNG has, consistent with applicable law, including the 1935 Act, and CNG's
normal business practice and in order to make reasonable provision for the
anticipated financing needs of itself and its subsidiaries, entered into both
external and intrasystem financing arrangements and guaranteed or otherwise
supported the obligations of its subsidiaries, both utility and non-utility.
These financing arrangements are described in this Item 1, Section B.3 below.
The Commission has expressly approved these financing arrangements by CNG
pursuant to the 1935 Act except when applicable rules of the Commission permit
such arrangements to be entered into without prior Commission authorization.
In entering into the Merger Agreement and seeking to combine their
companies, both DRI and CNG recognize that successful integration of their
operations and activities cannot be achieved overnight. DRI and CNG have
established a Transition Team to oversee the process of integrating their
companies but, for both practical and legal reasons, this integration cannot be
fully implemented until after the receipt of required shareholder and regulatory
approvals and the actual closing of the Second Merger. Moreover, any requirement
that might be imposed on DRI to the effect that, upon closing of the Second
Merger, DRI and its subsidiaries must replace their existing financing and
credit arrangements with new financing and credit arrangements typical of those
historically employed by existing registered electric systems would (i) impose
substantial economic costs on the companies and (ii) cause substantial
disruption to their ongoing business activities as the companies, their
investors and the financial markets seek to understand such new arrangements.
Such a requirement would, in view of ongoing liberalization of the 1935 Act
regulation generally applicable to financings by registered holding companies,
undermine the interests of the companies and the interests of their investors
and consumers and would, therefore, be detrimental to the public interest and
the interests of investors and consumers. Thus, for a period of time following
the closing of the Merger, DRI and CNG and their respective subsidiaries are
seeking to maintain their existing financing arrangements and other commitments
and to continue to carry on their newly combined business without undue
interruption. Consequently, DRI and CNG request that the Commission authorize
DRI and CNG and their subsidiaries, through the Authorization Date, to continue
to finance their operations in the same manner as prior to closing of the Merger
all as more specifically described herein. In that connection, DRI commits that
from
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and after the Merger and for the period through the Authorization Date DRI, as
the registered holding company parent of the combined consolidated DRI-CNG
system, will maintain and will cause each of its public utility subsidiaries to
maintain at least 30% common equity in its respective capital structure.
Appendix A hereto illustrates that on a pro forma basis as at September 30,
1999, DRI would, after giving effect to the Merger, have 33% common equity in
its capital structure. Appendix B hereto illustrates that each public utility
subsidiary of the combined company would have had in excess of 30% common equity
in its capital structure at September 30, 1999.
1. DRI and its Subsidiaries other than Virginia Power and its
Subsidiaries.
DRI 's existing universal shelf registration filed with the Commission on
September 12, 1997 (Registration No. 333-35501) covers equity, preferred and
debt securities and allows DRI to issue any one or more of the foregoing types
of securities singly or in combination, provided that the aggregate principal
amount of proceeds of securities issuances that may be obtained pursuant to such
securities issuances under the universal shelf registration does not exceed
$950,000,000. As of the date of this Application-Declaration, DRI issued common
stock pursuant to the universal shelf registration and derived $275,000,000 of
proceeds from such issuance.
Following completion of the Merger, DRI proposes to maintain in effect its
existing universal shelf registration as in effect at the time of the Merger and
to amend, renew, extend or replace such universal shelf registration as
necessary. DRI further proposes to continue to issue equity, preferred and/or
debt securities pursuant to its universal shelf registration and/or any
amendment, renewal, extension or replacement thereof and may issue securities
thereunder for the purpose of refinancing indebtedness incurred to finance the
cash component of the consideration to be paid to DRI shareholders in connection
with the First Merger and to CNG shareholders in connection with the Second
Merger. Accordingly, DRI hereby requests authorization, from and after the
Merger and continuing through the period ending on the Authorization Date, to
issue equity, preferred and/or debt securities, singly or in combination,
pursuant to such existing universal shelf registration and/or any amendment,
renewal, extension or replacement thereof so long as the aggregate principal
amount of proceeds of securities issuances that may be thereby obtained does not
exceed $1,500,000,000. The dividends payable on preferred stock and the interest
rate and maturity of debt securities which may be issued pursuant to this
authorization will be determined at the time of issuance and will not exceed
those generally obtainable at the time of issuance for securities having the
same or reasonably similar maturities, terms, conditions and features issued by
utility companies or utility holding companies of reasonably comparable credit
quality; provided, however, that in any event the cost of money in respect of
such securities shall not exceed 500 basis points over LIBOR. Disclosure of
information relating to any such securities issuances in any fiscal quarter of
DRI, for 1935 Act reporting requirements, will be made to the Commission
pursuant to Rule 24, within 60 days following the end of the fiscal quarter in
which the issuance occurs.
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DRI also maintains in effect the following additional separate credit and
financing facilities:
(i) DRI sells its commercial paper in regional and national markets.
Proceeds of commercial paper issuances are used for general corporate
purposes and are made available to DRI's non-utility subsidiaries
pursuant to intercompany credit agreements described below. DRI's
non-utility subsidiaries repay these financings through cash flows and
proceeds of permanent financings. DRI commercial paper is supported by
bank lines of credit maintained by DRI. At December 31, 1998, the
aggregate outstanding maximum face amount of DRI commercial paper was
$3,100,000.
(ii) DRI has entered into an Amended and Restated Credit Agreement dated as
of April 3, 1996 as amended by the First Amendment thereto dated as of
April 2, 1997 (the "DRI Credit Agreement") among DRI, the lenders
identified therein, and NationsBank, N.A., as agent for said lenders,
pursuant to which the lenders have, subject to the terms and
conditions set forth in the Credit Agreement, agreed to make loans to
DRI in an aggregate principal amount not to exceed $300 million at any
one time outstanding. Proceeds of loans may be used for general
corporate purposes and to support commercial paper. The commitment of
the lenders under the DRI Credit Agreement will expire on April 3,
2002 if not theretofore canceled or terminated in accordance with the
terms thereof.
(iii)DRI has entered into a Second Amended and Restated Short-Term Credit
Agreement dated as of March 31, 1999 (the "DRI Short-Term Credit
Agreement") among DRI, the lenders identified therein, and
NationsBank, N.A., as administrative agent for said lenders, pursuant
to which the lenders have, subject to the terms and conditions set
forth in the DRI Short-Term Credit Agreement, agreed to make loans to
DRI in an aggregate principal amount not to exceed $300 million at any
one time outstanding. Proceeds of loans may be used for general
corporate purposes and to support commercial paper. The commitment of
the lenders under the DRI Short-Term Credit Agreement will expire 364
days after the date thereof if not theretofore canceled or terminated
in accordance with the terms thereof.
(iv) DRI also has in place an Indenture dated as of December 1, 1997 (the
"DRI Indenture") between DRI and The Chase Manhattan Bank pursuant to
which DRI may, subject to the terms and conditions set forth in the
DRI Indenture, issue an unlimited amount of Junior Subordinated
Debentures in one or more series. As of the date of this
Application-Declaration, DRI has entered into a First Supplemental
Indenture dated December 1, 1997 with The Chase Manhattan Bank
pursuant to which DRI has issued $257,700,000 aggregate principal
amount of 7.83% Junior Subordinated Debentures to Dominion Resources
Capital Trust I which has in turn issued $250,000,000 aggregate
principal amount of Capital Securities to investors in an offering
under Rule
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144a under the Securities Act of 1933. Proceeds of the issuance of the
Capital Securities by Dominion Resources Capital Trust I are used
solely to acquire Junior Subordinated Debentures. Payments on account
of the Junior Subordinated Debentures are used by Dominion Resources
Capital Trust I to make payments on account of the Capital Securities.
Proceeds of the issuance of the Junior Subordinated Debentures are
used by DRI for general corporate purposes including debt repayment.
Amounts in respect of the Capital Securities are guaranteed by DRI
pursuant to the Capital Securities Guarantee Agreement dated as of
December 8, 1997 between DRI and The Chase Manhattan Bank, as
guarantee trustee, and the New Capital Securities Guarantee Agreement
dated as of June 18, 1998 between DRI and The Chase Manhattan Bank, as
Trustee.
(v) DRI has also entered into a five year End Loaded Lease Financing (the
"ELLF"). The ELLF is structured as an off-balance sheet financing with
a single purpose grantor trust, the lessor, formed to purchase,
improve and own certain assets which are then leased to DRI. The lease
structure is designed to permit DRI to finance the assets on an
off-balance sheet basis while allowing DRI to maintain control of the
property and retain the benefits of ownership for tax purposes. The
assets which are financed under the ELLF include an office building
and two aircraft. Payments made by DRI under this leasing arrangement
are intended to cover the periodic interest and principal payments
required to be made by the lessor which has financed its acquisition
of the lease assets. The estimated aggregate amount of lease payments
that DRI is required to make under the lease are $12,500,000.
(vi) DRI also has issued a Note in the face amount of $28,400,000 due 2008
which bears interest at a rate of 9.25% per annum with respect to the
financing of the office building occupied by Virginia Power. As of
December 31, 1998, the principal balance outstanding of the Note was
$18,600,000.
(vii)DRI has also entered into a Guarantee Agreement dated as of October
30, 1998 in favor of Bayerische Landesbank Girozentrale in connection
with the Pounds Sterling 33,500,000 Committed Multi-Currency Revolving
Advances Facility dated as of October 30, 1998 between DR Group
Holdings, a company organized under the laws of the United Kingdom,
and Bayerische Landesbank Girozentrale.
As discussed above, DRI will be incurring additional indebtedness,
anticipated to be in the form of an expanded commercial paper program and other
short-term credit facilities, to finance the cash component of the consideration
to be paid to DRI shareholders in connection with the First Merger and to CNG
shareholders in connection with the Second Merger. In addition, it is possible
that, prior to the Merger, DRI will seek to increase the commitments of the
lenders, and borrow, under the DRI Credit Agreement and the DRI Short- Term
Credit Agreement and/or enter into additional credit facilities renewing,
extending
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and/or replacing the DRI Credit Agreement and the DRI Short-Term Credit
Agreement. It is also possible that, prior to the Merger, DRI will seek to issue
additional Junior Subordinated Debentures to Dominion Resources Capital Trust I
(or to another trust vehicle under a similar financing arrangement) and that in
connection with such issuance Dominion Resources Capital Trust I (or such other
trust vehicle) will issue additional Capital Securities to investors.
DRI hereby requests Commission authorization to maintain in effect the
above described financing arrangements, any additional financing arrangements
entered into by DRI prior to the completion of the Merger and any amendments,
renewals, extensions or replacements thereof entered into prior to completion of
the Merger. DRI further requests Commission authorization, during the period
from and after the Merger through the Authorization Date, to amend, renew,
extend and/or replace any financing arrangement entered into by DRI prior to
completion of the Merger and which remains in effect on the date the Merger is
completed; provided that no such amendments, renewal, extension and/or
replacement which is effected following completion of the Merger shall provide
for an increase in the aggregate amount of indebtedness to be incurred (taking
into account all outstanding DRI financing arrangements) or for a cost of money
to exceed 500 basis points over LIBOR or for a final maturity date of more than
50 years unless the Commission shall otherwise approve or such amendment,
renewal, extension and/or replacement shall not require Commission approval
under the 1935 Act and the rules and regulations promulgated thereunder. DRI
further requests authorization to enter into additional financing arrangements
similar to those described above in paragraphs (i) through (vii) above for the
period from and after the Merger through the Authorization Date; provided that
the additional aggregate principal amount of debt obligations incurred by DRI
pursuant to this separate request for authorization shall not exceed
$250,000,000, the cost of money relative to such financing shall not exceed 500
basis points over LIBOR and the final maturity of securities issued shall not
exceed 50 years.
Within 90 days following completion of the Merger, DRI will, pursuant to
Rule 24, notify the Commission of all financing arrangements entered into by DRI
prior to the Merger and which will remain in effect upon the closing of the
Merger. Thereafter, DRI will, pursuant to Rule 24, notify the Commission of all
DRI financings occurring within any fiscal quarter of DRI within 60 days
following the end of such fiscal quarter.
In addition to the foregoing financing facilities, DRI also supports the
operations of its non-utility subsidiaries through capital contributions,
guarantees and other support arrangements. These other support arrangements
include covenants of DRI to maintain a specific level of ownership of the
companies involved and to maintain a minimum net worth for such subsidiaries.
DRI's non-utility businesses are principally conducted through Dominion Energy,
Inc., a Virginia corporation and a wholly owned subsidiary of DRI ("DEI" and,
together with its subsidiaries, the "DEI Companies"), and Dominion Capital,
Inc., a Virginia corporation and a wholly owned subsidiary of DRI ("DCI" and,
together with its subsidiaries, the "DCI Companies"). As discussed in further
detail in this Item 1, Section C below, the DEI Companies are principally
involved in energy-related businesses and the DCI Companies are principally
involved in financial services businesses. An organizational chart of DRI and
its subsidiaries is annexed hereto as Exhibit E-3.
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a. DRI Investment in and Support of the DEI Companies.
As of December 31, 1998, DEI had paid in capital from equity investments
made by DRI of $456,400,000. As of the date of this Application-Declaration,
except as described below, DRI has not entered into any capital contribution
agreement or similar arrangement which expressly requires DRI to make any
additional cash capital contributions to DEI or any of the other DEI Companies.
As of the date of this Application-Declaration, DRI has entered into an
Intercompany Credit Agreement dated as of August 31, 1987 between DRI and DEI
pursuant to which DEI may, subject to the terms and conditions of the
Intercompany Credit Agreement, borrow up to $350,000,000 aggregate principal
amount at any one time outstanding from DRI. Proceeds of borrowings may be used
by DEI for general corporate and working capital purposes.
As of the date of this Application-Declaration, DRI has guaranteed
$122,312,000 aggregate principal amount of payment obligations of the DEI
Companies pursuant to the following agreements:
(i) Liquidity Support Agreement dated as of February 27, 1998 made by DRI
in favor of Commonwealth Edison Company in support of the obligations
of Kincaid Generation, L.L.C. under its Power Purchase Agreement with
Commonwealth Edison Company. DEI holds both a direct (1%) and an
indirect (99%) equity interest in Kincaid Generation, L.L.C. The
Liquidity Support Agreement requires DRI to make up to $22,000,000 of
capital contributions to DEI if required in order to enable DEI to
fulfill its obligations relating to the Power Purchase Agreement.
(ii) Backstop Cash Management Agreement dated as of April 28, 1998 between
DRI, Kincaid Generation, L.L.C. and LaSalle National Bank, as
collateral trustee, pursuant to which DRI is required to guarantee the
repayment of certain amounts into collateral accounts maintained by
the collateral agent if Kincaid Generation, L.L.C. takes advances from
such accounts, the repayment of which advances is guaranteed, in the
first instance, by DEI.
(iii)Backstop Equity Subscription Agreement dated as of April 28, 1998
between DRI, Kincaid Generation, L.L.C. and LaSalle National Bank, as
collateral trustee, pursuant to which DRI is required to make up to
$100,312,000 of capital contributions to Kincaid Generation, L.L.C. in
connection with financing arrangements entered into by Kincaid
Generation, L.L.C. and guaranteed, in the first instance, by DEI.
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DEI has entered into an arrangement with Bank of America Leasing and
Capital Group, an affiliate of NationsBank, with respect to a $825,000,000 lease
financing for the construction and lease of ten to fourteen new gas fired
turbines and associated equipment to be installed at a number of new power
generation facilities currently under development by DEI. The terms of this
arrangement require DRI to guarantee the obligations of the lessee under the
lease financing documents. It is anticipated that the above generation
facilities will be "eligible facilities" within the meaning of Section 32(a)(2)
of the Act and the owners will qualify as EWGs.
DRI hereby requests authorization to maintain in place the foregoing
guarantee and other credit support arrangements following completion of the
Merger and any other guarantees and other credit support arrangements entered
into by DRI prior to completion of the Merger and which remain in effect on the
date the Merger is completed. DRI further requests authorization for the period
from and after the Merger through the Authorization Date to provide additional
guarantees or other credit support for the DEI Companies; provided that the
aggregate additional cash amount guaranteed by DRI pursuant to this
authorization does not exceed $1,500,000,000. Securities issuances, including
guarantees and other credit support, made by DEI and the other DEI Companies
will be effected in compliance with all applicable laws and regulations,
including, if applicable, the 1935 Act and Rule 52.
As of the date of this Application-Declaration, DRI has entered into
additional support agreements on behalf of the DEI Companies under which DRI has
no current payment obligation or quantifiable monetary exposure. These
agreements are all in the nature of contractual undertakings on the part of DRI
to maintain ownership levels in the specified DEI Companies and to cause the
specified DEI Companies to maintain a minimum net worth (or similar
undertakings). The descriptions of these agreements are included herein for
informational purposes only as any equity investments made by DRI in the DEI
Companies pursuant to these agreements would be expressly permitted without
Commission authorization under Rule 45(b)(4). Such agreements in effect as of
the date of this Application-Declaration are the following:
(i) Support Agreement dated as of October 21, 1987 made in connection with
the $143,900,000 Loan Agreement between Rumford Cogeneration Company
and Bank of America National Trust and Savings Association. DEI is a
limited partner of Rumford Cogeneration Company. The Support Agreement
requires DRI to maintain direct or indirect ownership of at least 50%
or more of the voting shares of DEI.
(ii) Support Agreement dated as of July 19, 1993 made in connection with
the Loan Agreement and the Investment Agreement, each between Belize
Electric Company Ltd. and Commonwealth Development Corporation and
International Finance Corporation. DEI holds an indirect equity
interest in Belize Electric Company Ltd. The Support Agreement
requires DRI to maintain ownership of at least a majority of the
voting stock of DEI, to maintain the net worth of DEI at not less than
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$10,000,000 and to cause DEI to, directly or indirectly, to maintain
100% ownership of Dominion Energy Central America, which holds 95% of
the voting stock of Belize Electric Company Limited.
(iii)Support Agreement dated as of February 8, 1996 made by DRI in favor
of DEI in connection with the $400,000,000 Multi-Currency Credit
Agreement between DEI, the lenders party thereto and ABN AMRO North
America, Inc. as agent. The Support Agreement requires DRI to maintain
100% ownership of DEI voting stock, to maintain a net worth of
$10,000,000 for DEI and to cause DEI to maintain $500,000 of specified
eligible investments.
(iv) Support Agreement dated as of April 9, 1998 made by DRI in favor of
DEI in connection with the Extending Revolving Term Loan Agreement
between Dominion Energy Canada, Ltd., the lenders party thereto and
The Bank of Nova Scotia, as agent. DEI owns 100% of Dominion Energy
Canada, Ltd. The Support Agreement requires DRI to maintain 100%
ownership of DEI voting stock, to maintain a net worth of $10,000,000
for DEI and to cause DEI to maintain $500,000 of specified eligible
investments.
It is possible that, prior to completion of the Merger, DRI will make
additional equity investments in and/or provide additional guarantees or other
credit support for or on behalf of the DEI Companies. Prior to completion of the
Merger, none of such additional equity investments and/or additional guarantees
or other credit support will require Commission approval under the 1935 Act.
Following completion of the Merger, DRI may make additional equity investments
in the DEI Companies without prior Commission authorization under Rule 45(b)(4)
and will provide guarantees and other credit support to the DEI Companies in
compliance with all applicable provisions of the 1935 Act and rules, regulations
and orders under the 1935 Act which are or may be applicable to DRI.
Within 90 days following completion of the Merger, DRI will, pursuant to
Rule 24, notify the Commission of all equity investments in, and guarantees or
other credit support for or on behalf of, the DEI Companies made or provided
prior to the Merger and which will remain in effect upon closing of the Merger.
Thereafter, DRI will, pursuant to Rule 24, notify the Commission of all further
equity investments in, and guarantees or other credit support for or on behalf
of, the DEI Companies made or provided during any fiscal quarter of DRI within
60 days following the end of such fiscal quarter.
b. DRI Investment in and Support of the DCI Companies.
As of December 31, 1998, DCI had paid in capital from equity investments
made by DRI of $593,500,000. As of the date of this Application-Declaration,
except as described below, DRI has not entered into any capital contribution
agreement or similar
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arrangement which expressly requires DRI to make additional cash capital
contributions to DCI or any of the other DCI Companies.
As of the date of this Application-Declaration, DRI has entered into an
Intercompany Credit Agreement dated as of December 20, 1985 between DRI and DCI
pursuant to which DCI may, subject to the terms and conditions of the
Intercompany Credit Agreement, borrow up to $250,000,000 aggregate principal
amount at any one time outstanding from DRI. Proceeds of borrowings by DCI may
be used for general corporate and working capital purposes.
As of the date of this Application-Declaration, DRI has guaranteed
$47,500,000 aggregate principal amount of payment obligations of the DCI
Companies and has provided liquidity support pursuant to the following
agreements:
(i) Guaranty Agreement dated as of May 13, 1996 by DRI in favor of DYNEX
Capital, Inc. (formerly Resource Mortgage Capital, Inc.). The Guaranty
was given in connection with a $47,500,000 promissory note made by
Dominion Mortgage Services, Inc., an indirect wholly owned subsidiary
of DRI.
(ii) Support Agreement dated as of February 5, 1999 made by DRI in favor of
DCI in connection with the implementation of a $400,000,000 commercial
paper financing program by DCI. The Support Agreement requires DRI to
maintain 100% ownership of DCI voting stock, to maintain a net worth
of $100,000,000 for DCI and to provide liquidity support for DCI.
DRI hereby requests authorization to maintain in place the foregoing
guarantee and other credit support arrangements following completion of the
Merger and any other guarantees and other credit support arrangements entered
into by DRI prior to completion of the Merger and which remain in effect on the
date the Merger is completed. DRI further requests authorization for the period
from and after the Merger through the Authorization Date to provide additional
guarantees or other credit support for the DCI Companies; provided that the
aggregate additional cash amount guaranteed by DRI pursuant to this
authorization does not exceed $1,600,000,000. Securities issuances, including
guarantees and other credit support, made by DCI and the other DCI Companies
will be effected in compliance with all applicable laws and regulations
including, if applicable, the 1935 Act and Rule 52.
As of the date of this Application-Declaration, DRI has entered into the
additional support agreements on behalf of the DCI Companies under which DRI has
no current payment obligation or quantifiable monetary exposure. These
agreements are all in the nature of contractual undertakings on the part of DRI
to maintain ownership levels in the specified DCI Companies and to cause the
specified DCI Companies to maintain a minimum net worth (or similar
undertakings). The descriptions of these agreements are included herein for
informational purposes only as any equity investments made by DRI in the DCI
Companies
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pursuant to these agreements would be expressly permitted without Commission
authorization under Rule 45(b)(4). Such agreements in effect as of the date of
this Application-Declaration are the following:
(i) Support Agreement dated as of May 20, 1997, as amended from time to
time made by DRI in favor of DCI in connection with the Letter of
Credit Reimbursement Agreement between DCI and The Bank of Nova
Scotia. The Support Agreement requires DRI to maintain 100% ownership
of DCI and to maintain a net worth for DCI of $50,000,000.
(ii) Support Agreement dated as of November 7, 1997, as amended, made by
DRI in favor of DCI in connection with the Credit Agreement between
DCI, the lenders party thereto and ABN AMRO Bank N.V., as agent. The
Support Agreement requires DRI to maintain 100% ownership of DCI
voting stock and to maintain a net worth of $100,000,000 for DCI.
(iii)Support Agreement dated as of May 12, 1999, as amended, made by DRI
in favor of DCI in connection with the Letter of Credit Reimbursement
Agreement between DCI and Citibank, N.A. The Support Agreement
requires DRI to maintain 100% ownership of DCI and to maintain a net
worth of $50,000,000 for DCI.
(iv) Support Agreement dated as of November 3, 1998, as amended, made by
DRI in favor of DCI in connection with the Credit Agreement between
DCI, the lenders party thereto and The Chase Manhattan Bank, as agent.
The Support Agreement requires DRI to maintain 100% ownership of DCI
voting stock and to maintain a net worth of $100,000,000 for DCI.
It is possible that, prior to completion of the Merger, DRI will make
additional equity investments in and/or provide additional guarantees or other
credit support for or on behalf of the DCI Companies. Prior to completion of the
Merger, none of such additional equity investments and/or additional guarantees
or other credit support will require Commission approval under the 1935 Act.
Following completion of the Merger, DRI may make additional equity investments
in the DCI Companies without prior Commission authorization under Rule 45(b)(4)
and will provide guarantees and other credit support to the DCI Companies in
compliance with all applicable provisions of the 1935 Act and rules, regulations
and orders under the 1935 Act which are or may be applicable to DRI.
Within 90 days following completion of the Merger, DRI will, pursuant to
Rule 24, notify the Commission of all equity investments in, and guarantees or
other credit support for or on behalf of, the DCI Companies made or provided
prior to the Merger and which will remain in effect upon closing of the Merger.
Thereafter, DRI will, pursuant to Rule 24, notify the Commission of all further
equity investments in, and guarantees or other credit support for
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or on behalf of, the DCI Companies made or provided during any fiscal quarter of
DRI within 60 days following the end of such fiscal quarter.
c. Investment in EWGs and FUCOs.
Each of DRI and CNG also holds investments in various EWGs and FUCOs. DRI's
specific EWG investments are described in detail in DRI's Exemption Statement on
Form U-3A-2 for the fiscal year ended December 31, 1998 and filed with the
Commission in File No. 69-278. Such Exemption Statement on Form U-3A-2 is hereby
incorporated by reference herein. CNG's specific EWG and FUCO investments are
described below and are also described in more detail in CNG's Annual Report on
Form U5S for the fiscal year ended December 31, 1998 and filed with the
Commission in File No. 30-203. Such Annual Report on Form U5S is hereby
incorporated by reference herein. However, in order to obtain the cash required
in connection with the Merger and in order to focus DRI's efforts on achieving
its MAIN to Maine strategy, DRI has announced its intention to divest its
interests (and the interests it will acquire from CNG) in non-U.S. EWG and FUCO
holdings. In that connection, DRI has already entered into an agreement with
Duke Energy International, a subsidiary of Duke Energy Corporation, pursuant to
which DRI has agreed to sell to Duke all of DRI's interest in its Latin American
projects and, in fact, certain of such projects have already been so sold. On a
pro forma consolidated basis at December 31, 1998, DRI and CNG together have
invested $918,700,000 in EWGs and FUCOs which represents 32% of pro forma
consolidated retained earnings at December 31, 1998. These historical pro forma
figures do not reflect the sale of DRI's Latin American projects (and the sale
of the non-U.S. projects to be acquired from CNG) nor do they reflect certain
accounting adjustments that will be required to be made under GAAP after giving
effect to the Merger. After giving effect to (i) the accounting treatment for
the Merger which will result in a consolidating accounting adjustment that will
eliminate CNG's retained earnings and (2) the sale of DRI's Latin American
assets (and the sale of the non-U.S. projects to be acquired from CNG), DRI's
investment in EWGs and FUCOs will total approximately $68,000,000, which
represents 5% of the pro forma combined consolidated retained earnings at
September 30, 1999. DRI and CNG have submitted a separate
Application-Declaration requesting authorization to invest up to 100% of
consolidated retained earnings of DRI (as the registered holding company parent
of the combined DRI-CNG system) in EWGs and FUCOs (File No. 70-9555).
d. Summary of Outstanding Securities and Additional Requested
Authority for DRI and its Subsidiaries other than Virginia
Power and its Subsidiaries.
In summary, by this Application-Declaration DRI advises the Commission that
DRI will issue approximately $4.5 billion of commercial paper and/or short-term
securities to finance the cash consideration to be paid to DRI and CNG
shareholders in connection with the Merger. As these securities will be issued
prior to the Merger, no authorization of the Commission under the Act is
required for their issuance. DRI does, however, seek Commission authorization to
refinance these short-term securities with the cash proceeds of asset sales and
the issuance of additional securities. As discussed infra in Item 3.A, the
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issuance of securities for the purpose of effecting a merger is expressly
permitted by Section 7(c)(2)(A) of the 1935 Act. DRI represents that (i) any
debt securities issued in connection with such refinancing shall not have a
maturity of greater than 50 years and shall not have a rate of interest in
excess of 500 basis points over the comparable term LIBOR and (ii) to the extent
that registration under the Securities Act of 1933 is required, such securities
shall be issued under a new universal shelf registration or another DRI
registration statement under the Securities Act of 1933. DRI further represents
that it will maintain at least 30% common equity in its capital structure.
In addition, DRI seeks the following financing authority through the
Authorization Date for DRI and its subsidiaries other than Virginia Power and
its subsidiaries.
(i) in connection with the financing needs of DRI's ongoing business and
operations and to fund additional acquisitions of assets and
businesses in support of DRI's MAIN to Maine strategy, authority for
DRI to issue equity, preferred and/or debt securities under DRI's
existing universal shelf registration and/or any amendment, renewal,
extension or replacement thereof so long as the aggregate principal
amount of proceeds of securities issuances that may thereby be
maintained does not exceed $1.5 billion, provided that in any event,
the cost of money in respect of such securities shall not exceed 500
basis points over LIBOR and the maturity of any such debt securities
shall not exceed 50 years from date of issuance. While the proceeds of
such securities issuances may be used for the purpose of investing in
EWGs and FUCOs, the Applicants are not requesting authority in this
Application to make such investments beyond the safe harbor limits set
forth in Rule 53 promulgated under the Act;
(ii) to maintain in effect the specific credit facilities identified in
Item I.B.1, and any amendments, renewals, extensions or replacements
thereof for a cost of money not to exceed 500 basis points over LIBOR
and, in the case of debt securities, a maturity not to exceed 50
years;
(iii)for general corporate purposes, authority for DRI to issue up to $250
million principal amount of debt securities having a maturity of not
more than 50 years and a cost of money not to exceed 500 basis points
over LIBOR;
(iv) in connection with the financing needs of the DEI Companies and in
order to provide the appropriate level of credit support for the DEI
Companies in connection with ongoing growth and expansion, to maintain
in effect the existing credit facilities with and guarantees and other
credit support of the DEI Companies identified in Item I.B.2 and to
provide additional guarantees and other credit support for the DEI
Companies in an aggregate amount not to exceed $1.5 billion; and
(v) in connection with the financing needs of the DCI Companies and in
order to provide the appropriate level of credit support for the DCI
Companies in
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connection with ongoing growth and expansion, to maintain in effect
the existing credit facilities with and guarantees and other credit
support of the DCI Companies identified in Item I.B.3 and to provide
additional guarantees and other credit support for the DCI Companies
in an aggregate amount not to exceed $1.6 billion. The amount of
financing authorization requested for the DCI Companies is designed to
provide the DCI Companies with adequate financial resources to meet
DCI's business plans for growth and expansion and in order to ensure
that DRI manages its investment in DCI to maximize the value
ultimately received by DRI from the sale of DCI as contemplated
following consummation of the Merger.
2. Virginia Power and its Subsidiaries.
As noted above, DRI's sole public utility subsidiary, Virginia Power,
finances its operations and the operations of its subsidiaries on a stand-alone
basis and independent of any credit support from DRI, except that one of
Virginia Power's subsidiaries, Virginia Power Energy Marketing, Inc., receives
credit support from DRI in the form of a $200 million guarantee in connection
with gas hedging/purchasing. All financings undertaken by Virginia Power, all
investments made by Virginia Power and all support arrangements undertaken by
Virginia Power in support of its subsidiaries are subject to the jurisdiction of
the VSCC which has regulatory jurisdiction over Virginia Power.
Financing transactions undertaken by Virginia Power generally require
specific approval of the VSCC. There is, however, a limited exception for
short-term financing transactions which do not require specific VSCC approval.
Under Virginia Code Sections 56- 65 and 56-65.1, without prior VSCC approval,
Virginia regulated utilities may incur debt of less than 12 months maturity
provided that the aggregate amount of debt so incurred does not exceed 12% of
the total capitalization of the utility. Pursuant to this authority, Virginia
Power has, as of the date of this Application-Declaration, entered into two
364-day credit facilities in support of its commercial paper program, one in the
amount of $20,000,000 and the other in the amount of $19,500,000. DRI hereby
requests authorization of the Commission to continue to provide credit support
to Virginia Power Energy Marketing, Inc. in an amount not to exceed $300,000,000
and also for Virginia Power to continue in effect the above-specified credit
facilities after completion of the Merger and to amend, renew, extend and/or
replace such credit facilities and/or enter into new credit facilities of
similar duration in accordance with Virginia law, provided that in any event the
aggregate amount of indebtedness incurred under such facilities shall not exceed
the lesser of $75,000,000 and 12% of Virginia Power's total capitalization and
the interest rate under any of such facilities shall not exceed 500 basis points
over LIBOR.
Any future financings undertaken by Virginia Power will be undertaken in
compliance with all applicable laws, rules and regulations including, after
completion of the Merger, the 1935 Act and Rule 52. Exhibit E-8 hereto, contains
the information which would have been required by Rule 52(c) and form U-6B-2 to
be filed with the Commission with respect to all financing arrangements entered
into by Virginia Power and its subsidiaries as of
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the date of this Application-Declaration if such financing arrangements had been
effected in compliance with Rule 52. Within 90 days following completion of the
Merger, DRI will, pursuant to Rule 24, notify the Commission of all financing
arrangements entered into by Virginia Power and its subsidiaries prior to the
Merger and which will remain in effect upon closing of the Merger. Thereafter,
DRI will, pursuant to Rule 24, notify the Commission of all further financing
arrangements undertaken by Virginia Power and its subsidiaries in compliance
with Rule 52 during any fiscal quarter of DRI within 60 days following the end
of such fiscal quarter.
3. CNG and its Subsidiaries.
By Commission order dated March 28, 1996, Holding Co. Act Release No.
35-26500 (the "Omnibus Order"), CNG was authorized to engage in various
financing and related transactions through March 31, 2001. The Omnibus Order
allows CNG financing if CNG meets the following conditions: (i) CNG's long-term
debt must be rated investment grade by at least one nationally recognized
statistical rating organization; (ii) CNG's common equity, as reflected in its
most recent Form l0-K or Form l0-Q and as adjusted to reflect subsequent events
that affect capitalization, will be at least 30% of consolidated capitalization;
(iii) the effective cost of money for debt may not exceed 300 basis points over
the interest rate on United States Treasury securities of a comparable term;
(iv) the effective cost of money for preferred stock and other fixed securities
may not exceed 500 basis points over the interest rate on 30-year United States
Treasury securities; (v) the maturity of debt may not be more than 50 years;
(vi) issuance expenses in connection with an offering of securities, including
any underwriting fees, commissions or other similar compensation, may not exceed
5% of the total amount of securities being issued; (vii) proceeds of the
proposed financing may not be used to invest in an EWG or a FUCO; (viii) at the
time of each financing transaction, CNG must be in compliance with the
requirements of Rules 53 and 54 under the Act; and (ix) proceeds of the proposed
financing by subsidiaries of CNG must be used only in connection with their
respective existing businesses.
Under the Omnibus Order CNG may issue and sell common stock, preferred
stock, short-term debt, long-term debt and other securities from time to time
through March 3l, 2001, provided that the aggregate amount of short-term and
revolving debt outstanding at any one time and the aggregate amount of common
stock, preferred stock, long-term debt and other securities issued during the
period shall not exceed $7 billion. All sales and issuances of common stock,
short-term debt and long-term debt by CNG subsequent to March 28, 1996 have
occurred pursuant to the Omnibus Order.
CNG issues and sells commercial paper under the Omnibus Order to dealers at
the discount rate prevailing at the date of issuance for comparable commercial
paper. The dealers reoffer such commercial paper at a discount to investors. The
amount of commercial paper outstanding at any one time varies according to the
seasonal working capital needs of CNG. There was $558,900,000 principal amount
of CNG commercial paper outstanding on December 31, 1998.
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Currently outstanding under the Omnibus Order is a Credit Agreement dated
as of June 27, 1997 ("CNG Credit Agreement"), among CNG and several banks with
The Chase Manhattan Bank, as agent. The CNG Credit Agreement provides a line of
credit of up to $775 million as back-up for commercial paper. The CNG Credit
Agreement had a termination date of June 26, 1998, but was first extended by
amendment to terminate June 25, 1999 and subsequently amended to increase the
line of credit to $1,000,000,000 with a termination date of June 22, 2000. No
loans are currently outstanding under the Credit Agreement.
As of December 31, 1998, CNG had an aggregate of $1,392,875,000 principal
amount of senior debentures outstanding (excluding current maturities). Of this
amount, $950,000,000 principal amount were issued under an Indenture, dated as
of April 1, 1995, between CNG and United States Trust Company of New York, as
trustee. The remaining $442,875,000 principal amount was issued pursuant to an
Indenture, dated as of May 1, 1971, between CNG and The Chase Manhattan Bank, as
successor trustee. Until the effective date of the Omnibus Order each sale and
issuance of a series of debentures by CNG was required to be individually
authorized by Commission order under the Act. Subsequent to March 28, 1996,
sales and issuances of debenture series have been pursuant to the Omnibus Order
authorization, with the Commission being notified of each such sale and issuance
through the filing of quarterly Rule 24 certificates. In September 1999, CNG
issued an additional $400,000,000 principal amount of senior notes under the
April 1, 1995 indenture.
CNG had a universal shelf registration effective under the Securities Act
of 1933, Registration Statement No. 333-25347, pursuant to which it made public
offerings of stock or debt in the aggregate amount of approximately
$1,062,000,000 through September 1999. It is expected that CNG will soon file a
new debt shelf registration in the amount of $1,000,000,000.
CNG from time to time under the Omnibus Order has issued and sold common
stock, frequently to satisfy the requirements of stock related obligations of
employee benefit plans and the CNG Dividend Reinvestment Plan. Such issuances
are reported to the Commission on quarterly Rule 24 certificates.
CNG's financing of its subsidiaries through the purchase of debt or common
stock of such subsidiaries is done primarily pursuant to Rule 52 under the 1935
Act. Certificates of Notification on Form U-6B-2 with respect to these
transactions are filed as exhibits to CNG's quarterly Rule 24 certificates.
However, short-term debt sales by CNG's Ohio and Pennsylvania utility company
subsidiaries to CNG do not require prior state commission approval and thus do
not qualify for the use of Rule 52; such sales are made pursuant to the Omnibus
Order.
CNG is authorized under the Omnibus Order to enter into guarantee
arrangements, obtain letters of credit and otherwise provide credit support with
respect to the obligations of subsidiaries which were parties to the proceeding.
The aggregate amount of all such arrangements cannot exceed $2 billion. As of
June 30, 1999, there is approximately $209.8 million in such guarantees was
outstanding. Certain subsidiaries of CNG have
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authority under the Omnibus Order to enter into such arrangements with respect
to the obligations of their respective subsidiaries.
The Omnibus Order also contains provisions concerning types of securities
other than customary short-term debt, long-term debt and stock; interest rate
and equity swaps; acquisition of affiliate securities; charter amendments and
financing entities.
There are several individual outstanding authorizations granted to CNG
system companies under the Act outside of the Omnibus Order. These are as
follows.
CNG Money Pool. By orders dated June 12 and July 16, 1986 (Holding Co.
Act Release No. 35-24128 and Holding Co. Act Release No. 35-24150 (g),
respectively, as amended by orders dated May 27, 1987 (Holding Co. Act
Release No. 35-24399), February 14, 1990 (Holding Co. Act Release No.
35-25040), May 13, 1991 (Holding Co. Act Release No. 35-25311), April
8, 1994 (Holding Co. Act Release No. 35- 26021), and July 18, 1997
(Holding Co. Act Release No. 35-26742), the Commission authorized the
establishment and operation of the Consolidated System Money Pool.
Iroquois Pipeline. By orders dated January 9, 1991, February 28, 1991,
May 7, 1991, July 6, 1993 and September 12, 1996 (Holding Co. Act
Release Nos. 35-25239, 35- 25263, 35-25308, 35-25845 and 35-26571,
respectively) the Commission authorized CNG Transmission Corporation
("CNGT") to provide financing to its wholly owned subsidiary, CNG
Iroquois, Inc. ("CNGI"), for use relating to CNGI's 16% general
partnership interest in Iroquois Gas Transmission System L.
P.("Iroquois"). The interstate pipeline owned by Iroquois was
completed in 1992. The financing of CNGT's interest in Iroquois was
accomplished through the purchase by CNGT of common stock of CNGI.
Related authorizations concerning credit support expire on June 30,
2001.
Hub Market Center. By order dated October 21, 1994, Holding Co. Act
Release No. 35-26148, the Commission authorized CNG to provide its
subsidiary, CNG Power Company ("CNG Power") with up to $2 million in
financing to be used by CNG Power to invest in its special purpose
wholly owned subsidiary, CNG Market Center Services, Inc. ("CNGMC").
Such financing can be provided by CNG through the purchase of CNG
Power common stock, the making of open account advances or long-term
loans to CNG Power, in any combination thereof. CNGMC owns a 50%
general partnership interest in CNG/Sabine Center, which operates a
market center or "super- hub" at points along the 7,400 mile pipeline
system of CNGT. This authorization expires on July 1, 2004.
Energy Related Services. By orders dated August 28, 1995 and August
27, 1997 (Holding Co. Act Release No. 35-26363 and Holding Co. Act
Release No. 35-26757, respectively), the Commission authorized CNG
Products and Services, Inc. ("CNGP&S") to engage in the business of
providing several categories of energy- related services to customers
of CNG's local distribution companies and to others,
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primarily customers of utilities not affiliated with CNG. CNG was
authorized to provide CNGP&S with up to $10 million of financing
through the sale of debt and common stock to its immediate parent, or
through the obtaining of open account advances from such parent. This
authorization expires on December 31, 2000.
Partnering. By orders dated July 26, 1995 and December 30, 1997
(Holding Co. Act Release No. 35-26341 and Holding Co. Act Release No.
35-26807), the Commission authorized a former wholly-owned subsidiary
of CNG, CNG Energy Services Corporation ("Energy Services"), to
acquire ownership interests with nonaffiliates in projects that
involve gas-related activities. The dollar limit on such investments
is $200 million. Pursuant to this authorization, Energy Services
formed CNG Main Pass Gas Gathering Corporation and CNG Main Pass Oil
Gathering System. In connection with the sale of Energy Services to an
unaffiliated third party, ownership in these two companies was
transferred to CNG, and the authority to "partner" with nonaffiliates
without prior Commission approval was transferred to CNG Producing
Company. See Commission order dated July 29, 1998, HCAR No. 26900.
This partnering authorization expires on December 31, 2002.
Power Services Guarantees. By order dated August 2, 1996, Holding Co.
Act Release No. 35-26551, the Commission authorized CNG to issue
parent guarantees of up to an aggregate of $250 million on behalf of
its wholly-owned subsidiary, CNG Power Services Corporation ("CNG
Power Services"). CNG Power Services is engaged in the purchase and
sale of electricity at wholesale. This authorization expires on March
31, 2001.
Energy Marketing. By order dated January 15, 1997, Holding Co. Act
Release No. 35-26652, the Commission authorized Energy Services to
invest up to $250 million to expand its business to market electricity
and other energy commodities and to engage in fuel management and
other incidental related activities. In pursuit of such activities,
Energy Services was authorized to acquire interests in other entities,
including corporations, partnerships, limited liability companies, and
joint ventures. CNG Retail Corporation was formed on January 30, 1997
pursuant to the order to engage in the business of selling natural
gas, electricity and other products at retail. Pursuant to Holding Co.
Act Release No. 35-26900, dated July 29, 1998, CNG Retail Corporation
became a direct subsidiary of CNG and succeeded to the authorizations
and reporting obligations under the order subsequent to the sale of
Energy Services by CNG to an unaffiliated party. This authorization
expires on December 31, 2001.
CNG International. By order dated May 30, 1996, Holding Co. Act
Release No. 35-26523, the Commission authorized CNG to form CNG
International Corporation ("CNG International"), to acquire directly
or through intermediary companies interests in foreign EWG's and FUCOs
as defined in Sections 32 and 33 of the Act, respectively. The order
also authorized CNG to provide CNG International up to $300 million
credit support with respect to its investments. Jurisdiction was
retained over
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CNG's request to invest up to $300 million in certain foreign energy
activities including foreign gas pipelines.
By supplemental order dated October 25, 1996, Holding Co. Act Release
No. 35-26595, the Commission released jurisdiction over proposed
investments of up to an aggregate of $75 million in two gas pipelines,
one in Bolivia and the other in Argentina. No direct investment was
made by CNG International under this authorization, and the
authorization is regarded as having lapsed.
By supplemental order dated November 19, 1996, Holding Co. Act Release
No. 35-26608, the Commission released jurisdiction over a proposed
investment of up to $75 million in three gas pipelines in Australia.
Approximately $38.8 million in these projects was consummated in late
1996. As a result of such transaction, CNG International now
indirectly holds a 30% ownership interest in Epic Energy Pty Ltd., an
Australian company.
By supplemental order dated February 12, 1998, Holding Co. Act Release
No. 35-26824, the Commission released jurisdiction over a proposed
investment of up to $165 million by CNG International in the Alinta
gas pipeline in Western Australia. In March 1998, CNG International
paid approximately $143.2 million to acquire its 33% equity interest
in the pipeline, through intermediate companies including Epic Energy
Australia Trust.
By supplemental order dated April 9, 1999, Holding Co. Act Release No.
35-27002, the Commission released jurisdiction over a proposed
investment of up to $100 million by CNG International in a gas
pipeline being privatized by the state of Victoria, Australia. CNG
International was not the winning bidder for the pipeline, and no
investment will be made pursuant to this authorization.
The Commission has retained jurisdiction over the remaining requests
of CNG and CNG International to invest in other foreign energy
activities.
CNG and CNG International have pending before the Commission an
application to invest up to an additional $750 million to acquire
interests, through December 31, 2003, in entities engaged in gas
related activities permitted by the Gas Related Activities Act of
1990, and to be able to make such investments in entities engaged in
gas transportation and storage activities without any additional
case-by-case approval of the Commission. The application also seeks
authority for CNG and CNG International to make guarantees and provide
other credit support to CNG International, and for both companies to
make guarantees and provide such support to subsidiaries of CNG
International. The aggregate amount of such support would be $750
million. The Commission gave public notice of the application in
Holding Co. Act Release No. 35- 26992, dated March 19,1999.
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It is possible that, prior to the Merger, CNG and its subsidiaries will
undertake additional financing transactions pursuant to Rule 52, the Omnibus
Order and/or other, including new, express Commission authorization.
DRI and CNG hereby request Commission authorization to maintain in effect
the above described financing arrangements and to extend through the
Authorization Date all of the above described authorizations which are stated to
expire prior to the Authorization Date, to maintain in effect all additional
financing arrangements entered into by CNG or any of its subsidiaries prior to
completion of the Merger and any renewals, extensions and/or replacements of any
of the foregoing financing arrangements entered into by CNG or any of its
subsidiaries prior to completion of the Merger. DRI and CNG further request
Commission authorization, during the period from and after the Merger through
the Authorization Date, to renew, extend and/or replace any financing
arrangement entered into by CNG or any of its subsidiaries prior to completion
of the Merger and which remains in effect on the date the Merger is completed;
provided that no such renewal, extension and/or replacement which is effected
following completion of the Merger shall provide for an increase in the
aggregate amount of indebtedness incurred (taking into account all outstanding
CNG financing arrangements) or for a final maturity date which occurs after the
Authorization Date unless the Commission shall otherwise approve or such
renewal, extension and/or replacement shall not require Commission approval
under the 1935 Act and the rules and regulations promulgated thereunder. In
addition, the following changes in the Omnibus Order authorizations are hereby
requested:
1. That the aggregate amount of financing permitted under the
Omnibus Order, as extended, be increased from $7 billion to $10
billion.
2. That the aggregate amount of guarantees and credit support that
may be given by CNG and its subsidiaries be increased from $2
billion to $3 billion.
3. That CNG be authorized to give guarantees and other credit
support for the benefit of any of its direct and indirect
subsidiaries as needed to support such subsidiary's normal course
of business.
4. That the restriction (condition (vii)) of not using proceeds of
proposed financing to invest in EWGs and FUCOs be deleted and
that CNG be permitted to invest in EWGs and FUCOs through
non-utility intermediate subsidiaries.
Financings of CNG subsidiaries beyond the amounts authorized in some of the
orders discussed above may be permitted to occur under Rule 52.
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C. Dominion Direct Investment, Incentive Compensation Plans and other
Employee Benefit Plans.
DRI proposes, from time to time during a period of five years from the date
of an Order issued by the Commission, to issue and/or acquire in open market
transactions or by some other method which complies with applicable law and
Commission interpretations then in effect up to 45,500,000 shares of DRI common
stock under DRI's direct stock purchase and dividend reinvestment plan, certain
incentive compensation plans and certain other employee benefit plans described
below.
1. Dominion Direct Investment.
DRI maintains Dominion Direct Investment ("Dominion Direct"), a direct
stock purchase plan with a dividend reinvestment feature, and CNG maintains a
dividend reinvestment plan. Dominion Direct will remain in effect following
consummation of the Merger. The CNG plan will terminate and participants in the
CNG plan will be eligible to become participants in Dominion Direct.
The purpose of Dominion Direct is to provide eligible participants with a
convenient and economical way to purchase DRI common stock and to increase
ownership in DRI by reinvesting dividends and/or making optional monthly
investments. Current shareholders of DRI and new investors residing in the U.S.
who would like to become DRI shareholders are eligible to participate. Foreign
citizens are eligible to participate as long as their participation would not
violate any laws in their home countries.
At DRI's discretion, shares of DRI common stock purchased under Dominion
Direct will be either newly issued or purchased on the open market by an
independent agent selected by the Dominion Direct administrator. As of the date
of this Application, the independent agent is purchasing shares in the open
market for Dominion Direct. Following consummation of the Merger, the decision
whether shares are to be purchased directly from DRI or in the open market will
be based on DRI's need for common equity and other factors considered relevant
by DRI. Any determination by DRI to change the manner in which shares will be
purchased for Dominion Direct, and implementation of any such change, will
comply with applicable law and Commission interpretations then in effect.
Net proceeds from the sale of newly issued shares of DRI common stock will
be added to the general corporate funds of DRI and will be used to meet its
capital requirements and the capital requirements of its subsidiaries. DRI will
not receive any proceeds from shares acquired in the open market.
A full statement of the current provisions of Dominion Direct is included
in DRI's Registration Statement on Form S-3 (Exhibit H-1.1 hereto).
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2. Incentive Compensation Plans.
DRI currently maintains the DRI Incentive Compensation Plan (the "DRI
Incentive Compensation Plan") in which employees of Virginia Power and employees
and certain outside directors of DRI participate. CNG currently maintains
several stock incentive plans including the 1997 Stock Incentive Plan, the 1995
Employee Stock Incentive Plan, the 1991 Stock Incentive Plan, the Long-Term
Incentive Plan and the Non-Employee Directors' Restricted Stock Plan
(collectively, the "CNG Plans"). The DRI Incentive Compensation Plan will remain
in effect following consummation of the Merger. Immediately following
consummation of the Merger, with respect to the CNG Plans under which the
delivery of CNG common stock is required for payment:
o DRI and CNG will use their respective best efforts to take such
action as may be necessary so that all benefits, grants of awards
and options are converted to the right to receive cash from DRI
equal to the fair value of each such benefit, grant of award or
option as determined in good faith by DRI and CNG using
recognized valuation methodologies.
(a) Set forth below is a summary of certain features of the DRI
Incentive Compensation Plan, which summary is qualified by
reference to such plan (Exhibit H-2 hereto).
The DRI Incentive Compensation Plan is administered by a committee
comprised of DRI outside directors. All employees of DRI and its subsidiaries
are eligible to receive incentive awards under the DRI Incentive Compensation
Plan if the committee determines that the employee has contributed, or can be
expected to contribute, significantly to his or her employer. The committee has
the power and complete discretion to select eligible employees and outside
directors to receive awards, the type of awards granted and the terms and
conditions of such awards. Approximately 11,000 employees and 13 non-employee
directors of DRI are currently eligible to receive awards under the plan.
There are currently 11 million shares available under the DRI Incentive
Compensation Plan and the annual limit of awards to any one individual is 1.5
million shares.
The following types of awards may be granted under the DRI Incentive
Compensation Plan: performance grants, restricted stock, goal-based stock, stock
options and stock appreciation rights.
Performance Grants. Performance grants are subject to the achievement of
pre- established performance goals comprised of objective and quantifiable
performance criteria. The committees set target and maximum amounts payable
under each performance grant. The employee receives appropriate payments at the
end of the performance period if the performance goals (and other terms and
conditions of the award) were met. The actual payments under a performance grant
can be cash, DRI common stock, or both. Performance
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grants are administered to comply with Section 162(m) of the Internal Revenue
Code of 1986, as amended, (the "Code").
The aggregate maximum cash amount payable pursuant to a performance grant
to any employee in any year cannot exceed 0.5% of DRI's consolidated operating
income, before taxes and interest. The committees must make performance grants
prior to the 90th day of the period for which the performance grant relates or
the completion of 25% of such period.
Restricted Stock Awards. Restricted stock awards consist of shares of DRI
common stock which are subject to certain terms and conditions. Recipients are
not able to sell or transfer restricted stock until the restrictions stated in
the award agreement have been met. The restricted stock is forfeited if the
applicable terms and conditions are not met.
Goal-Based Stock Awards. Goal-based stock is DRI common stock subject to
performance goals. The stock is not issued to the employee until the committee
certifies that the performance goals (and any other terms and conditions) have
been met.
Stock Options and Stock Appreciation Rights. Stock options may be granted
to eligible employees subject to terms and conditions established by the
committee. The exercise price of an option must be at least 100% of the fair
market value of DRI common stock on the date that the option is granted. Options
may be either incentive stock options or nonqualified stock options. Stock
appreciation rights may be granted on all or any part of an option, and are
subject to terms and conditions established by the committee. Stock appreciation
rights also may be granted separately. A stock appreciation right entitles the
employee to receive an amount equal to the excess of (i) the fair market value
on the date of exercise of stock covered by the surrendered stock appreciation
right over (ii) the price of the stock on the date the stock appreciation right
was granted. The award can be paid in stock or cash, or both.
When granting incentive awards, the committee can allow the awards to
become fully exercisable upon a change of control. Employees cannot sell,
transfer or pledge their interest in performance grants and goal-based stock
awards. Employees cannot sell, transfer or pledge shares of restricted stock
until such stock becomes unrestricted. Options and stock appreciation rights may
be transferred by a participant according to the terms and conditions for such
awards.
Following shareholder approval at the 1997 Annual Meeting, the DRI
Incentive Compensation Plan became effective as of January 1, 1997. On April 16,
1999, DRI shareholders approved an amendment to the DRI Incentive Compensation
Plan increasing authorized shares from 3 million to 11 million and allowing
outside directors to participate. The additional shares were registered under
the Securities Act of 1933 in May, 1999. The Incentive Plan will terminate at
the close of business on December 31, 2006 unless the DRI board of directors
terminates the plan prior to that date.
The DRI board of directors can amend or terminate the plan; however,
shareholder approval is required of amendments that would (i) increase the
number of shares
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of DRI common stock that is reserved and available for issuance under the plan;
(ii) materially change or impact which employees are eligible to participate in
the plan; or (iii) materially change the benefits that eligible employees may
receive under the plan. Notwithstanding the foregoing, the DRI board can amend
the plan as necessary and without shareholder approval to ensure that the plan
continues to comply with Section 162(m) of the Code and Rule 16b-3.
3. Other Employee Benefit Plans.
Both DRI and CNG have plans, in addition to the plans described above, that
provide for the issuance of shares of common stock. DRI maintains the DRI
Employee Savings Plan, the Virginia Power Hourly Employee Savings Plan and the
Dominion Subsidiary Savings Plan (the "DRI 401(k) Plans"), which will be
maintained following consummation of the Merger. CNG maintains the CNG Employee
Stock Ownership Plan (the "ESOP") and the Thrift Plan of CNG and its
Participating Subsidiaries (the "Thrift Plan"), both of which will, at the
election of DRI, either be maintained and modified to provide for the issuance
of DRI common stock in lieu of CNG common stock, or terminated, with CNG common
stock held under the plans converted into shares of common stock of DRI and
participants in the plans becoming participants in the DRI 401(k) Plans. Each of
the plans is qualified for purposes of 401(a) of the Code.
The DRI 401(k) Plans. The DRI 401(k) Plans allows participating employees
to elect to defer a portion of their compensation and have such funds invested
in designated investment media selected by the participants, including a common
stock fund of the sponsoring company.
The Thrift Plan. The Thrift Plan allows participating employees to elect to
have a certain percentage of their compensation withheld and invested in any
combination of ten investment options, including investment in shares of CNG
common stock. CNG matches a percentage of the contributions made by
participants. The percentage matched depends on the length of time the
participant has been employed. As of December 31, 1998, there were approximately
8,451,000 shares of CNG common stock held by trusts under the Thrift Plan.
The ESOP. The ESOP is an employee stock ownership plan established by CNG
in 1976. CNG currently makes contributions to the ESOP to the extent it obtains
a tax deduction for such contributions. As of December 31, 1998, there were
475,083 shares of CNG common stock held in the ESOP.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with seeking the authorizations herein requested are
estimated as follows:
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Fee, Commission or Expense Thousands
Legal Fees and Expenses 50
=====
Total $ 50
Item 3. Applicable Statutory Provisions.
The following sections of the 1935 Act and the Commission's rules
thereunder are or may be directly or indirectly applicable to the proposed
transactions for which authorization is sought in this Application-Declaration.
Section of/Rule under Transactions to which such Section/Rule is or
the 1935 Act may be applicable
Sections 6(a), 7, 11(b)(2) Issuance of Securities; Incurrence of Indebtedness;
Provision of Guarantees and other Credit Support
Sections 9(a), 10, 32, 33 Investment in Non-Utility Businesses, including
Rules 53 and 54 EWGs and FUCOs
Sections 6(a), 7 Issuance of Securities in connection with
Rule 42 Dividend Reinvestment Plans and Stock-Based
Employee Benefit Plans
A. Issuance of Securities; Incurrence of Indebtedness; Provision of
Guarantees and other Credit Support.
DRI's proposed issuance of securities in connection with the Mergers
including the proposed issuance of common stock to shareholders of CNG in
connection with the Second Merger is expressly permitted by Section 7(c)(2)(A)
of the 1935 Act as such securities are to be issued "solely...for the purpose of
effecting a merger." DRI's limited credit support for its non-utility
subsidiaries is also expressly permitted by the 1935 Act under Section
7(c)(1)(C). The particular question that arises in the current situation relates
to the existence and future issuance of debt securities by DRI generally.
Section 1(b) of the 1935 Act identifies the issuance of securities "upon
the basis of fictitious or unsound asset values having no fair relation to the
sums invested in or the earning capacity of the properties" as one of the
particular evils the 1935 Act was designed to address. The Commission has
historically interpreted this provision of the statute, together with the
technical criteria set forth in Section 7(d) of the statute, as prohibiting
leverage at both the operating company and holding company level on the basis of
the same assets or earnings. However, debt incurred by DRI at the holding
company level has been incurred in compliance
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with all applicable laws and regulations and is not the type of leverage
identified as a matter of concern under the 1935 Act. Thus, DRI should not be
required to terminate its own credit arrangements upon closing of the Merger and
should be expressly permitted and authorized to continue its financing
activities as it has done in the past.
DRI submits that its continued maintenance of indebtedness at the DRI level
does not constitute the type of leverage that the 1935 Act was intended to
restrict because Virginia Power, DRI's sole public utility subsidiary today, and
the entire CNG system (which contains numerous companies and each of which will
become a subsidiary of DRI after completion of the Merger) each finance on a
stand-alone basis without reliance on or recourse to DRI except for the limited
guarantee of Virginia Power Energy Marketing, Inc. provided by DRI. Moreover,
DRI receives and will receive no financing benefit from either Virginia Power or
CNG beyond that of an equity shareowner. As described above in detail, leverage
incurred by DRI finances the operations of DRI's non-utility businesses and
other operations of DRI, such as maintenance of office buildings, and does not
finance the operations of Virginia Power and will not finance the utility
operations of CNG's public utility subsidiaries. The Commission has previously
authorized registered holding companies to incur indebtedness at the holding
company level to finance the operations of their public utility subsidiaries
when such subsidiaries were not financing on a stand-alone basis, see infra, the
discussion relating to CNG's Omnibus Order, and with respect to other operations
conducted at the subsidiary level. See, Cinergy Corp., Holding Co. Act Release
No. 35-26909 (Aug. 21, 1998) and General Public Utilities Corporation, Holding
Co. Act Release No. 35-26559 (Aug. 23, 1996).
Finally, the financings undertaken by DRI have been fully disclosed
pursuant to the Federal securities laws, have been scrutinized by rating
agencies and are completely in keeping with financing arrangements of many
exempt holding company systems. As the operating utilities of DRI (e.g.,
Virginia Power and CNG and its subsidiaries, together) will be self-financing,
leverage at the DRI level does not adversely impact the public interest or the
interest of consumers which are, in the first instance, protected by state level
regulatory review of financings. The interest of investors is, as the Commission
has itself acknowledged, "been largely addressed by developments in the federal
securities laws and the securities markets themselves." Entergy Corporation, 55
SEC Docket 2035, 2045 (1993).
B. Complexity of Capital Structure
Another question that arises in the current situation is whether the
proposed issuances of securities at both the DRI and subsidiary levels results
in an unduly complicated capital structure as proscribed by Section 11(b)(2) of
the 1935 Act. DRI submits that far from being unduly complicated, its capital
structure is in fact quite simple and is intentionally designed to facilitate
the ability of investors to evaluate the merits of regulated versus diversified
businesses and to shield consumers and investors in operating company debt
securities and preferred stock from the types of risks identified in Section
1(b) of the 1935 Act described above. Moreover, the types of financings proposed
to be undertaken by DRI are expressly permitted by Section 7(c)(2)(A) and
Section 7(c)(1)(C) of the 1935 Act. It can hardly be suggested that the issuance
of securities by a registered holding company in
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compliance with Section 7 of the 1935 Act was intended by Congress to result in
a capital structure of undue complexity as proscribed by Section 11(b)(2) of the
1935 Act. Moreover, following completion of the Merger, DRI, as the registered
holding company parent of the combined DRI-CNG system, proposes to refinance the
short-term indebtedness incurred in connection with the Merger with the proceeds
of asset sales and new equity, convertible and long-term debt securities. The
refinancing is intended, within a reasonable time frame following completion of
the Merger, to put in place a stronger capital structure for the combined
DRI-CNG system which provides the combined system with better financing
resources and access to the capital markets.
In addition, as described in detail above, both Virginia Power and the CNG
system will be largely financed on a stand-alone basis and DRI has committed
that each of Virginia Power and CNG's operating public utility subsidiaries will
maintain at least 30% common equity in their respective capital structures. In
addition, DRI, as the registered holding company parent of the combined DRI-CNG
system, has committed to maintain at least 30% common equity in its consolidated
capital structure. These constraints and the constraints imposed by rating
agencies and the capital markets generally as well as state regulators will
serve as limits on DRI's ability to issue securities on, in the words of Section
1(b) of the 1935 Act, "the basis of fictitious or unsound asset values having no
fair relation to the sums invested in or the earning capacity of the properties"
or on "the basis of paper profits from intercompany transactions, or in
anticipation of excessive revenues from subsidiary public utility companies". In
fact, the issuance of securities at the DRI level in support of the Merger
shields Virginia Power from paying the cost of the Merger and the issuance of
DRI securities in support of diversified operations shields the DRI system's
operating public utility subsidiaries, including those of CNG, from lending
their credit in support of such diversified operations or bearing the risks of
such diversified operations.
Item 4. Regulatory Approvals.
Virginia Natural Gas, Inc., a wholly-owned subsidiary of CNG, is a public
utility subject to regulation by the Virginia State Corporation Commission
(VSCC). Hope Gas, Inc., a wholly-owned subsidiary of CNG, is a public utility
subject to regulation by the West Virginia Public Service Commission. Virginia
Power, a wholly-owned subsidiary of DRI, is a public utility subject to
regulation by the VSCC and the North Carolina Utilities Commission. The Peoples
Natural Gas Company, a wholly-owned subsidiary of CNG, is a public utility
subject to regulation by the Pennsylvania Public Utility Commission (PAPUC). The
East Ohio Gas Company (East Ohio), a wholly-owned subsidiary of CNG, is a public
utility subject to regulation by the Public Utilities Commission of Ohio (PUCO).
None of such state commissions nor any other regulatory agency has jurisdiction
over the transactions for which authority is sought herein.
Item 5. Procedure.
The Commission is respectfully requested to issue and publish, not later
than October 15, 1999, the requisite notice under Rule 23, with respect to the
filing of this Application-Declaration, such notice to specify a date not later
than November 9, 1999 by which comments may be entered and a date not later than
November 10, 1999 as the date after
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which an order of the Commission granting and permitting this
Application-Declaration to become effective may be entered by the Commission.
The Commission is respectfully requested to issue its order granting the
authorizations herein requested no later than the date the Commission issues its
order approving the Second Merger and the other matters contained in the Merger
Application.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the
Transaction. The Division of Investment Management may assist in the preparation
of the Commission's decision. There should be no waiting period between the
issuance of the Commission's order and the date on which it is to become
effective.
Item 6. Exhibits and Financial Statements.
A-1 Application-Declaration on Form U-1 filed by DRI and CNG seeking
authority for the Merger. (File No. 70-09477 and incorporated by
reference herein)
A-2 Joint Proxy/Registration Statement on Form S-4 of DRI and CNG. (File
No. 333-75669 and incorporated by reference herein)
B-1 DRI Registration Statement on Form S-3. (File No. 333-35501 and
incorporated by reference herein)
B-2 DRI Credit Agreement. (Previously filed)
B-3 DRI Short-Term Credit Agreement. (Previously filed)
B-4.1 DRI Indenture. (Filed as Exhibit 4.1 to Form S-4 Registration, File
No. 333-50653, April 21, 1998 and incorporated by reference herein)
B-4.2 First Supplemental Indenture. (Filed as Exhibit 4.1 to Form S-4
Registration, File No. 333-50653, April 21, 1998 and incorporated by
reference herein)
B-5 ELLF. (Previously filed)
B-6 Promissory Note due 2008. (Previously filed)
B-7 Guarantee Agreement dated as of October 30, 1998 in favor of
Bayerische Landesbank Girozentrale. (Previously filed)
C-1 Intercompany Credit Agreement dated as of August 31, 1987 with DEI.
(Previously filed)
C-2 Liquidity Support Agreement dated as of February 27, 1998 made by DRI
in favor of Commonwealth Edison Company. (Previously filed)
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C-3 Backstop Cash Management Agreement dated as of April 28, 1998 between
DRI, Kincaid Generation, L.L.C. and LaSalle National Bank, as
collateral trustee. (Previously filed)
C-4 Backstop Equity Subscription Agreement dated as of April 28, 1998
between DRI, Kincaid Generation, L.L.C. and LaSalle National Bank, as
collateral trustee. (Previously filed)
C-5 Support Agreement dated as of October 21, 1987 made in connection with
the $143,900,000 Loan Agreement between Rumford Cogeneration Company
and Bank of America National Trust and Savings Association.
(Previously filed)
C-6 Support Agreement dated as of July 19, 1993 made in connection with
the Loan Agreement and the Investment Agreement, each between Belize
Electric Company Ltd. and Commonwealth Development Corporation and
International Finance Corporation. (Previously filed)
C-7 Support Agreement dated as of February 8, 1996 made by DRI in favor of
DEI in connection with the $400,000,000 Multi-Currency Credit
Agreement between DEI, the lenders party thereto and ABN AMRO North
America, Inc. as agent. (Previously filed)
C-8 Support Agreement dated as of April 9, 1998 made by DRI in favor of
DEI in connection with the Extending Revolving Term Loan Agreement
between Dominion Energy Canada, Ltd., the lenders party thereto and
The Bank of Nova Scotia, as agent. (Previously filed)
C-9 Indicative Term Sheet with respect to DEI/Bank of American Leasing and
Capital Group financing. (Previously filed)
D-1 Intercompany Credit Agreement dated as of December 20, 1985 with DCI.
(Previously filed)
D-2 Guaranty Agreement dated as of May 13, 1996 by DRI in favor of DYNEX
Capital, Inc. (formerly Resource Mortgage Capital, Inc.) (Previously
filed)
D-3 Support Agreement dated as of February 5, 1999 made by DRI in favor of
DCI. (Previously filed)
D-4 Support Agreement dated as of May 20, 1997 made by DRI in favor of
DCI. (Previously filed)
D-5 Support Agreement dated as of November 7, 1997, as amended, made by
DRI in favor of DCI in connection with the Credit Agreement between
DCI, the lenders party thereto and ABN AMRO Bank N.V., as agent.
(Previously filed)
33
<PAGE>
D-6 Support Agreement dated as of June 30, 1998, as amended, made by DRI
in favor of DCI in connection with the Letter of Credit Reimbursement
Agreement between DCI and Citibank, N.A. (Previously filed)
D-7 Support Agreement dated as of November 3, 1998, as amended, made by
DRI in favor of DCI. (Previously filed)
E-1 Press Release issued by DRI re Virginia Power restructuring.
(Previously filed)
E-2 DRI Exemption Statement on Form U-3A-2 for the fiscal year ended
December 31, 1998. (File No. 69-278 and incorporated by reference
herein)
E-3 Organizational Chart of DRI Subsidiaries. (Previously filed)
F-1 CNG Annual Report on Form U5S for the fiscal year ended December 31,
1998. (File No. 30-203 and incorporated by reference herein)
F-2 CNG Credit Agreement. (Previously filed)
F-2A Amendment to CNG Credit Agreement. (Previously filed)
H-1.2 CNG Registration Statement on Form S-3. (File No. 333-25347 and
incorporated by reference herein)
H-1.2 Dominion Direct. (Filed as Registration Statement on Form S-3, File
No. 333-46043, effective February 11, 1998 and incorporated by
reference herein)
H-2 DRI Incentive Compensation Plan. (Filed as Registration Statement on
Form S-8, File No. 333-25587, effective April 22, 1997 and
Registration Statement on Form S-8, as amended, effective May 10, 1999
and incorporated by reference herein)
H-3 Virginia Power Hourly Employee Savings Plan. (Filed as Registration
Statement on Form S-8, File No. 333-09167, effective July 30, 1996 as
amended effective September 22, 1999 and incorporated by reference
herein)
H-4 Dominion Subsidiary Savings Plan. (Filed as Registration Statement on
Form S-8, File No. 333-62705, effective September 15, 1995 and
incorporated by reference herein)
H-5.1 Withdrawn
H-5.2 Withdrawn
H-5.3 Withdrawn
H-6 Withdrawn
34
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H-7 Withdrawn
H-8 Withdrawn
H-9 Withdrawn
I Form of Notice. (Previously filed)
J-1 Opinion of Counsel.
J-2 Past Tense Opinion of Counsel. (To be filed by amendment)
Item 7. Information as to Environmental Effects.
The Transaction neither involves a "major federal action" nor
"significantly affects the quality of the human environment" as those terms are
used in Section 10(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Section 4321, et seq. The only federal actions related to the Transaction
pertain to the Commission's approval of this Application- Declaration under the
1935 Act and the Commission's clearance and declaration of the effectiveness of
the Joint Proxy and Registration Statement of DRI and CNG on Form S-4 pursuant
to the Securities Exchange Act of 1934 and the other approvals and actions
described in Item 4 of this Application-Declaration. Consummation of the
Transaction will not result in changes in the operations of DRI, CNG or any of
their respective subsidiaries that would have any impact on the environment. No
federal agency is preparing an environmental impact statement with respect to
this matter.
35
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Pursuant to the Public Utility Holding Company Act of 1935, each of the
undersigned companies has caused this Application-Declaration to be signed on
its behalf by the undersigned thereunto duly authorized.
DOMINION RESOURCES, INC. CONSOLIDATED NATURAL GAS COMPANY
By: /s/ James F. Stutts By: /s/ Stephen E. Williams
Name: James F. Stutts Name: Stephen E. Williams
Title: Vice President and Title: Senior Vice President and
General Counsel General Counsel
Date: December 15, 1999 Date: December 15, 1999
36
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
December 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Dominion Resources, Inc. and Consolidated Natural Gas Company
(File No. 70-09517)
Ladies and Gentlemen:
This opinion is furnished to the Securities and Exchange Commission (the
"Commission") in connection with the filing with the Commission of the
Application-Declaration on Form U-1 (File 70-09517) (the "Application") of
Dominion Resources, Inc. ("DRI") and Consolidated Natural Gas Company ("CNG")
under the Public Utility Holding Company Act of 1935, as amended (the "Act").
The Application requests that the Commission authorize and approve the financing
arrangements and ongoing financing activities of DRI and CNG and their
subsidiaries and other related matters (collectively, the "Financings")
pertaining to, DRI and CNG and their subsidiaries after giving effect to the
merger of DRI and CNG (the "Merger") and the registration of DRI as a holding
company.
In connection with this opinion, we have examined originals or copies
certified or otherwise identified to our satisfaction of such corporate records
of DRI and CNG and each of their subsidiaries as to which financing authority is
sought in the Application (each, an "Issuer" and collectively, the "Issuers"),
certificates of public officials, certificates of officers and representatives
of each of the Issuers, and other documents as we have deemed necessary in order
to render the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as copies. As to
any facts material to our opinion, we have, when relevant facts were not
independently established, relied upon the aforesaid agreements, instruments,
certificates and documents.
The opinions expressed below with respect to the Financings described in
the Application are subject to the following further assumptions and conditions:
a. Each Financing shall have been duly authorized and approved, to the
extent required by the governing corporate documents and applicable state
laws, by the Board of Directors of the Issuer proposing to effect such
Financing.
b. All required approvals, authorizations, and consents, and all
filings and registrations with, all applicable federal and state
commissions and regulatory authorities with respect to each Financing shall
have been obtained or made, as the case may be.
c. The Commission shall have duly entered an appropriate order with
respect to each Financing as described in the Application granting and
permitting the Application to become effective under the Act and the rules
and regulations thereunder.
d. The registration statement of DRI on Form S-3 (no. 333-35501) filed
with the Commission on September 12, 1997, and declared effective on
September 17, 1997, and each other registration statement filed by any
Issuer under the Securities Act of 1933 in connection with any Financing
shall be and shall remain effective pursuant to the Securities Act of 1933,
as amended; no stop order shall have been entered with respect thereto; and
the issuance of securities thereunder shall have been consummated in
compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
Based on the foregoing, and subject to the assumptions and conditions set
forth herein, we are of the opinion that when the Commission has taken the
action requested in the Application:
1. All state laws applicable to each proposed Financing will have been
complied with.
2. Each Issuer is a corporation validly organized, duly existing and in
good standing in its respective jurisdiction of organization.
3. The shares of DRI common stock to be issued in connection with any
Financing by DRI will be validly issued, fully paid and nonassessable,
and the holders thereof will be entitled to the rights and privileges
appertaining thereto set forth in the restated Articles of
Incorporation of DRI.
4. Each debt security to be issued by any Issuer in connection with any
Financing by such Issuer will be a valid and binding obligation of
such Issuer in accordance with its terms.
5. No Financing by any Issuer will violate the legal rights of the
holders of any securities issued by such Issuer.
We are members of the State Bar of New York and we express no opinion as to
the laws of any jurisdiction other than the Act under the federal laws of the
United States. In rendering the foregoing opinion, as to all matters governed by
the laws of the States of Virginia, West Virginia, Pennsylvania, Ohio and North
Carolina, we have relied, without independent inquiry, solely upon the opinions
of local counsel.
We hereby consent to the use of this opinion as an exhibit to the
Application.
Very truly yours,
/s/ LeBoeuf, Lamb, Greene & MacRae, L.L.P.
