Filed pursuant to Rule 424(b)(5)
Registration No. 333-55904
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated March 2, 2001)
6,000,000 Upper DECS/SM/ Equity Income Securities
Consisting of 6,000,000 Corporate Units
[LOGO] Dominion
[LOGO OF DOMINION RESOURCES INC.]
DOMINION RESOURCES, INC.
-------------
Each Upper DECS Equity Income Security being offered will be a Corporate
Unit, which is a unit consisting of a stock purchase contract and a senior note
issued by Dominion.
. The stock purchase contract will obligate the holder to purchase from
Dominion, no later than May 15, 2006, for a price of $50, the following
number of common shares of Dominion:
. if the average closing price of the common shares over the 20-trading
day period ending May 10, 2006, equals or exceeds $81.33, 0.6148 common
shares;
. if the average closing price over the period is less than $81.33 but
greater than $59.80, a number of common shares equal to $50 divided by
the average closing price; and
. if the average closing price over the period is less than or equal to
$59.80, 0.8361 common shares.
. The senior note will have a principal amount of $50. The holder will
pledge the senior note to secure the holder's obligation to purchase the
common shares under the related stock purchase contract.
. Payments will accumulate under the stock purchase contracts and the senior
notes at the combined rate of 8.75% per year, payable on February 15, May
15, August 15 and November 15, of each year, beginning May 15, 2002.
We have applied to list the Corporate Units on the New York Stock Exchange,
or NYSE, under the symbol "D PrU." On March 13, 2002, the last reported sale
price of our common stock on the NYSE was $60.60 per share.
Investing in the Corporate Units involves risks. For a description of these
risks, see "Risk Factors" beginning on page S-13.
The underwriter has agreed to purchase the Corporate Units from Dominion for
a purchase price of $48.50 per Corporate Unit. The proceeds to Dominion from
the sales of the Corporate Units will be $291,000,000.
The Corporate Units may be offered by the underwriter from time to time to
purchasers directly or through agents, or through brokers in brokerage
transactions on the New York Stock Exchange, or to dealers in negotiated
transactions or in a combination of such methods of sale, at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices.
The underwriter may also purchase up to an additional 600,000 Corporate
Units from us for $48.50 per unit within 30 days of the date of this prospectus
supplement to cover overallotments, if any.
Under a separate prospectus supplement, we are concurrently offering
9,400,000 shares of our common stock, excluding any overallotment option. This
offering and the common stock offering are not contingent upon each other.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The Corporate Units will be ready for delivery on or about March 20, 2002.
-------------
Salomon Smith Barney
March 13, 2002
/SM/Service mark of Salomon Smith Barney Inc.
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is the prospectus supplement,
which describes the specific terms of the Equity Income Securities we are
offering and certain other matters relating to us and our financial condition.
The second part, the base prospectus, gives more general information about
securities we may offer from time to time, some of which does not apply to the
Equity Income Securities we are offering. Generally, when we refer to the
prospectus, we are referring to both parts of this document combined. If the
description of the Equity Income Securities in the prospectus supplement
differs from the description of stock purchase contracts and
stock purchase units in the accompanying base prospectus, you should rely on
the information in the prospectus supplement.
You should rely only on the information contained in this document or to
which this document refers you. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate as of the date of this
document. Our business, financial condition, results of operations and
prospects may have changed since that date.
TABLE OF CONTENTS
Prospectus Supplement Prospectus
Page
----
Where You Can Find More Information.......... S-3
Forward-Looking Information.................. S-3
Prospectus Supplement Summary................ S-4
Risk Factors................................. S-13
Dominion..................................... S-16
Use of Proceeds.............................. S-19
Common Share Dividends and Price Range....... S-20
Capitalization............................... S-21
Ratio of Earnings to Fixed Charges........... S-22
Accounting Treatment......................... S-22
Description of the Equity Income Securities.. S-23
Description of the Purchase Contracts........ S-26
Certain Provisions of the Purchase Contracts,
the Purchase Contract Agreement and the
Pledge Agreement........................... S-37
Description of the Senior Notes.............. S-40
Book-Entry Procedures and Settlement......... S-48
United States Federal Income Tax
Consequences............................... S-50
ERISA Considerations......................... S-61
Underwriting................................. S-64
Legal Matters................................ S-66
Experts...................................... S-66
Page
----
About This Prospectus.......................... 2
Where You Can Find More Information............ 2
Dominion....................................... 3
The Trust...................................... 4
Use of Proceeds................................ 4
Ratio of Earnings to Fixed Charges............. 4
Description of Debt Securities................. 5
Additional Terms of Senior Debt Securities..... 13
Additional Terms of the Junior Subordinated
Debentures................................... 14
Description of the Trust Preferred Securities.. 16
Description of the Guarantee................... 27
Relationship Among the Trust Preferred
Securities, the Guarantee and the Junior
Subordinated Debentures Held by the Trust.... 30
Accounting Treatment........................... 31
Description of Capital Stock................... 31
Virginia Stock Corporation Act and the Articles
and the Bylaws............................... 33
Description of Stock Purchase Contracts and
Stock Purchase Units......................... 35
Plan of Distribution........................... 36
Legal Opinions................................. 37
Experts........................................ 37
S-2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, and Chicago. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. You may also read and copy these
documents at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and later information that we file
with the SEC will automatically update or supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act), until such time as all of
the securities covered by this prospectus supplement have been sold:
.. Annual Report on Form 10-K for the year ended December 31, 2001; and
.. Current Reports on Form 8-K/A and Form 8-K, filed January 11, 2002 and
January 29, 2002
You may request a copy of these filings, at no cost, by writing or
telephoning us at: Corporate Secretary, Dominion, 120 Tredegar Street,
Richmond, Virginia 23219, Telephone (804) 819-2000.
FORWARD-LOOKING INFORMATION
We have included certain information in this document which is "forward
looking information" as defined by the Private Securities Litigation Reform Act
of 1995. Examples include discussions as to our expectations, beliefs, plans,
goals, objectives and future financial or other performance or assumptions
concerning matters discussed in this document. This information, by its nature,
involves estimates, projections, forecasts and uncertainties that could cause
actual results or outcomes to differ substantially from those expressed.
Our business is influenced by many factors that are difficult to predict,
involve uncertainties that may materially affect actual results and are often
beyond our ability to control. We have identified a number of these factors in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our most recent Annual Report on Form 10-K, which is
incorporated by reference in this prospectus, and we refer you to that report
for further information. The factors identified include weather conditions,
fluctuations in energy-related commodities prices and the effect these could
have on our earnings and the underlying value of our assets, trading
counterparty credit risk, capital market conditions, the risks of operating
businesses in regulated industries that are in the process of becoming
deregulated and completing the divestiture of Dominion Capital, Inc. and CNG
International. Although we strive to mitigate market risk through our risk
management activities, changes in commodity prices can have an adverse impact
on earnings and asset values.
S-3
PROSPECTUS SUPPLEMENT SUMMARY
In this prospectus supplement, the words "Dominion," "Company," "we," "our"
and "us" refer to Dominion Resources, Inc., a Virginia corporation, and its
subsidiaries and predecessors, unless the context otherwise indicates.
The following summary contains basic information about this offering. It may
not contain all the information that is important to you. The "Description of
the Equity Income Securities," "Description of the Purchase Contracts,"
"Certain Provisions of the Purchase Contracts, the Purchase Contract Agreement
and the Pledge Agreement" and "Description of the Senior Notes" sections of
this prospectus supplement contain more detailed information regarding the
terms and conditions of the Equity Income Securities. The following summary is
qualified in its entirety by reference to the detailed information appearing
elsewhere in this prospectus supplement and in the accompanying base prospectus.
DOMINION
Dominion is a fully integrated gas and electric energy holding company
headquartered in Richmond, Virginia. As of December 31, 2001, we had
approximately $34 billion in assets.
Our primary operating segments are:
Dominion Energy--Dominion Energy manages our 22,000 megawatt portfolio of
electric power generation, our 7,600 miles of gas transmission pipeline and a
959 billion cubic foot natural gas storage
network. It also guides our generation growth strategy and our commodity
trading, marketing and risk management activities. We currently operate
generation facilities in Virginia, West Virginia, Connecticut, North Carolina
and Illinois.
Dominion Delivery--Dominion Delivery manages our local electric and gas
distribution systems serving 3.8 million customers, our 6,000 miles of
electric transmission lines and our customer service operations. We currently
operate transmission and distribution systems in Virginia, West Virginia,
North Carolina, Pennsylvania and Ohio. Dominion Delivery also includes our
managing equity interest in Dominion Fiber Ventures, LLC, which owns Dominion
Telecom with its 14,700 route-mile fiber optic network (including 4,600
route-miles of lit fiber) and related telecommunications and advanced data
services located principally in the northeast quadrant of the United States.
Dominion Exploration & Production--Dominion Exploration & Production
manages our onshore and offshore oil and gas exploration and production
activities including the properties acquired from our November 2001
acquisition of Louis Dreyfus Natural Gas Corp. With approximately 4.9
trillion cubic feet of proved natural gas equivalent reserves and 450 billion
cubic feet of annual production, Dominion Exploration & Production is one of
the nation's largest independent oil and gas operators. We operate on the
outer continental shelf and deep water areas of the Gulf of Mexico, western
Canada, the Appalachian Basin, the Permian Basin, the Mid-Continent Region
and other selected regions in the continental United States.
Dominion's address and telephone number are Dominion, 120 Tredegar Street,
Richmond, Virginia 23219, Telephone (804) 819-2000.
S-4
THE OFFERING
Corporate Units
Dominion is offering 6,000,000 Upper DECS Equity Income Securities,
consisting of 6,000,000 Corporate Units, to the public for $50 each. Each
Corporate Unit is a unit consisting of two parts:
.. a purchase contract for Dominion's common shares; and
.. a senior note.
Purchase Contract
Dominion has entered into a purchase contract agreement with JPMorgan Chase
Bank, which will act as purchase contract agent for all of the holders of the
Corporate Units, and for all of the holders of the Treasury Units, described
below. The purchase contract that you purchase, as a component of the Corporate
Units, will be issued under the purchase contract agreement. It creates a
contractual arrangement between you and Dominion for the purchase of Dominion's
common shares.
Under the purchase contract, you will be obligated to purchase, for each of
your Corporate Units, common shares at a purchase price of $50. You will not be
obligated to pay the purchase price, and you will not receive your common
shares, until May 15, 2006, which has been set as the purchase contract
settlement date. The number of common shares that you will be entitled to
receive on that date will depend on the average closing price of the common
shares over a 20 trading-day period prior to that date. Until you actually
purchase the common shares, your obligation to pay the $50 purchase price will
be secured by the
senior note that is a part of your Corporate Units, which will be pledged as
collateral. More information about the purchase contracts is provided under the
heading "Description of the Purchase Contracts" starting on page S-26.
Senior Note
Each Corporate Unit you purchase also will include a senior note. The
principal amount of each senior note is $50. The entire principal amount of the
senior notes will become due and payable on May 15, 2008.
Payments to Corporate Unit Holders
As a holder of a Corporate Unit, you will be entitled to receive cash
payments consisting of (1) payments under the purchase contract and (2)
interest payments on the senior note, at a combined rate of 8.75% per year.
.. Payments under the Purchase Contract. Dominion will pay you quarterly
contract adjustment payments of $0.375 (which is equal to 3.0% per year of
the $50 stated amount) on your purchase contract. Dominion will pay the
contract adjustment payments on February 15, May 15, August 15 and November
15 of each year, with the first payment being made on May 15, 2002 and the
last payment being made on May 15, 2006, unless your purchase contract is
settled or terminates before that date.
.. Interest Payments on the Senior Note. In addition, Dominion will pay you
quarterly cash interest payments on your senior note on the same dates that
S-5
contract adjustment payments are made. You will receive an interest payment
of $0.71875 each quarter. This amount is equal to 5.75% per year of the $50
principal amount. Interest payments will
accumulate from March 20, 2002 and will continue until reset as described
under "Settlement of Purchase Contracts; Remarketing -- Interest Rate Reset."
Limited Voting Rights
You will not have any voting or other rights with respect to the common
shares until you pay the $50 purchase price and purchase the common shares.
Prior to that purchase, if you hold Corporate Units, you may vote only with
respect to the modification of the senior notes.
Pledge Arrangement
When you purchase a Corporate Unit, you will pledge the senior note that is a
part of that Corporate Unit as collateral to secure your obligation to purchase
common shares on May 15, 2006 under the related purchase contract. Dominion has
entered into a pledge agreement under which Bank One Trust Company, N.A. will
act as collateral agent and hold your senior note until the $50 purchase price
has been paid. Even though your senior note will be pledged as collateral, you
will be the beneficial owner of the senior note.
Treasury Units
Once you own Corporate Units, you may create Treasury Units by substituting
U.S. Treasury securities for the Dominion senior notes that are a part of the
Corporate Units. A Treasury Unit will be a unit consisting of:
.. a purchase contract for Dominion's common shares that is identical to the
purchase contract that is a part of the Corporate Unit; and
.. a 1/20 undivided beneficial ownership interest in a zero-coupon U.S.
treasury security that has a principal amount at maturity of $1,000 and
matures on or before May 12, 2006, the business day prior to the purchase
contract settlement date (the "Treasury Security").
Terms of Substitution
You may substitute Treasury Securities for senior notes at any time on or
prior to 5:00 p.m., New York City time, on the Election Date, which is the
fourth business day prior to February 15, 2006, the Initial Remarketing Date.
Because the Treasury Security has a principal amount at maturity of $1,000, you
must substitute Treasury Units for Corporate Units in multiples of 20. In order
to make a substitution, you must:
.. for each group of 20 Corporate Units you wish to substitute, transfer a
Treasury Security to Bank One Trust Company, N.A., which is acting as the
securities intermediary under the pledge arrangement. The securities
intermediary then will deposit the Treasury Security in the collateral
account maintained under the pledge arrangement. The Treasury Security will
become the collateral supporting your obligation to purchase the common
shares, and the collateral agent will release $1,000 principal amount of
senior notes from the pledge. Those senior notes then will be freely
tradable and will not be a part of a Corporate Unit or a Treasury Unit;
.. submit your Corporate Units in multiples of 20. For each group of 20
Corporate
S-6
Units you submit, you will receive 20 Treasury Units; and
.. pay to the collateral agent any fees or expenses incurred in connection with
the substitution.
Payments to Treasury Unit Holders
If you substitute Treasury Units for Corporate Units, you will continue to
receive contract adjustment payments under your purchase contract, but you will
not receive any other distributions on the Treasury Units. Instead, you will
accrue original issue discount on the Treasury Securities that you deposited
with the securities intermediary. As long as you continue to own the senior
notes that had been a part of your Corporate Units, you will receive interest
payments on them, separately from the Treasury Units.
Recreating Corporate Units
Once you have created Treasury Units, you may subsequently recreate Corporate
Units at any time on or prior to 5:00 p.m., New York City time, on the Election
Date. Because the Treasury Security has a principal amount at maturity of
$1,000, you must recreate Corporate Units from Treasury Units in multiples of
20. In order to recreate Corporate Units, you must:
.. for each group of 20 Corporate Units to be recreated, transfer $1,000
aggregate principal amount of senior notes to the securities intermediary.
The securities intermediary then will deposit the senior notes in the
collateral account maintained under the pledge arrangement. The $1,000
principal amount of senior notes will become the collateral supporting your
obligation to purchase the common shares, and the collateral agent will
release the Treasury Security from the pledge. That Treasury Security then
will be freely tradable and will not be a part of any Equity Income Security;
.. submit your Treasury Units in multiples of 20. For each group of 20 Treasury
Units you submit, you will receive 20 Corporate Units; and
.. pay to the collateral agent any fees or expenses incurred in connection with
the substitution.
Settlement of Purchase Contracts; Remarketing
.. Settlement of Purchase Contracts. For each purchase contract that is a part
of your Corporate Units, you will be obligated to pay, on May 15, 2006, $50
to purchase Dominion's common shares. You may in certain circumstances
choose to deliver a cash payment of $50. If these circumstances do not apply
or if you do not deliver separate cash, your senior note held as collateral
under the pledge arrangement will be remarketed and the proceeds will be
used to pay the amount due under your purchase contract. Except as described
below, Dominion will be responsible for all costs and expenses incurred in
connection with the remarketing.
.. Remarketing of Senior Notes. On February 15, 2006, which we call the Initial
Remarketing Date, the Underwriter will remarket:
. senior notes that are part of Corporate Units; and
. senior notes that are not part of Corporate Units, including those
S-7
resulting from the creation of Treasury Units, to the extent the holders
of those senior notes elect to have those senior notes remarketed.
.. Remarketing Procedures.
. Beginning on the Initial Remarketing Date, February 15, 2006, the
Underwriter will use commercially reasonable efforts to sell your senior
notes, together with all other senior notes being remarketed, for the
remarketing value.
If the initial remarketing is not successful, then the Underwriter may
attempt to remarket the senior notes on one or more later dates until May 2,
2006, the ninth business day before the purchase contract settlement date.
Between that date and May 5, 2006, the sixth business day before the purchase
contract settlement date, you may elect to settle your purchase contract in
cash. If you do so, you must deliver the cash to the purchase contract agent by
11:00 a.m., New York City time on May 8, 2006, the fifth business day before
the purchase contract settlement date.
If the senior notes have not been successfully remarketed before then, on May
10, 2006, the third business day before the purchase contract settlement date,
the Underwriter will make a final attempt to remarket the senior notes. If this
attempt is unsuccessful, a failed remarketing will have occurred.
. If the remarketing is successful, then:
. your senior notes will be sold, and the interest rate on the senior notes
will be reset to be the lowest rate that the Underwriter determined was
necessary to allow it to receive the remarketing value;
. proceeds will be applied as described below; and
. you will receive the common shares.
.. Remarketing Value. The "remarketing value" will be equal to the sum of
(a) unless the remarketing occurs on the third business day before the
purchase contract settlement date, the value on the remarketing date of
an amount of Treasury securities that will pay, on or before the
quarterly interest payment date falling on the purchase contract
settlement date, an amount of cash equal to the aggregate interest
scheduled to be payable on that quarterly interest payment date on each
senior note that is included in the remarketing, assuming for this
purpose that the interest rate on the senior notes remains the initial
interest rate;
(b) the value on the remarketing date of an amount of Treasury securities
that will pay, on or before the purchase contract settlement date, an
amount of cash equal to $50 for each senior note that is included in the
remarketing; and
(c) an amount equal to 0.25% of the principal amount of each senior note that
is included in the remarketing. This amount will be retained by the
Underwriter as a remarketing fee.
.. Application of Proceeds. Unless a remarketing occurs on the third business
day preceding the purchase contract settlement date, proceeds of any
remarketing of senior
S-8
notes that are part of Corporate Units, less the remarketing fee, will be used
to purchase a Treasury portfolio equal to clauses (a) and (b) of the definition
of the remarketing value, which will be pledged to secure the obligations of
the holders of Corporate Units under the related purchase contracts, except as
set forth below. The cash payments received in respect of the pledged Treasury
portfolio and/or permitted investments underlying the Corporate Units following
the remarketing will be used to satisfy the holders' obligation to purchase
Dominion's common shares and to pay to holders of Corporate Units an amount
equal to the next interest payment on the senior notes on the purchase contract
settlement date. If a remarketing occurs on the third business day preceding
the purchase contract settlement date, the proceeds of the remarketing will not
be used to purchase the Treasury portfolio but such proceeds, less the
remarketing fee, will be paid in direct settlement of the obligations of
holders of Corporate Units to purchase Dominion's common shares.
.. Interest Rate Reset. After the senior notes have been remarketed, the
interest rate on all outstanding senior notes, including those senior notes
that were not remarketed, will be the rate determined by the remarketing. If
the Underwriter cannot remarket the senior notes, the interest rate will be
equal to a two-year benchmark rate plus a spread ranging from 300 to 700 basis
points depending on the credit ratings of the senior notes at that time.
.. Failed Remarketing. If the Underwriter cannot remarket the senior notes, then
Dominion, acting through the collateral agent, will be entitled to exercise its
rights as a secured party and take possession of your senior notes. Your
obligation to purchase the common shares then will be fully satisfied, and you
will receive the common shares.
.. Alternatives to Remarketing. If you have created Treasury Units at any time
before 5:00 p.m. New York City time on the Election Date and retained your
senior notes and you choose not to participate in the remarketing, or if as a
holder of Corporate Units you elect under the circumstances described above to
pay cash for your common shares, then:
. Dominion will receive $50 in cash from you (either directly or on
settlement of Treasury Units) for each of your purchase contracts;
. you will receive the common shares;
. your senior notes will be released from the pledge arrangement and
distributed to you; and
. interest payments on the senior notes will be payable at the reset rate
determined by the underwriter in the remarketing.
Settlement of Treasury Units
Unless you notify the purchase contract agent by 11:00 a.m., New York City
time, on the second business day preceding the purchase contract settlement
date that you will pay for the common shares with cash, and make such payment
by 11:00 a.m., New York City time, on the business day preceding the purchase
contract settlement date, upon settlement of the Treasury Units Dominion will
receive the proceeds at
S-9
maturity of the Treasury Securities being held as collateral under the pledge
arrangement. This will satisfy your obligation to deliver the purchase price
for the common shares, and you will receive the common shares.
Number of Common Shares Purchased
Unless you elect to settle your purchase contracts early (see "Description of
the Purchase Contracts--Early Settlement by Delivering Cash" starting on page
S-31), the number of common shares you will receive under each purchase
contract will depend on the average of the closing price per share (or the last
reported sale price, if no closing price is reported) of the common shares as
reported on the New York Stock Exchange for a period of 20 trading days ending
on May 10, 2006. This date is the third trading day prior to the purchase
contract settlement date. If, for any trading day, the trading of the common
shares is suspended, or if the common shares do not trade at least once on the
NYSE on that day, then that day will not be considered to be part of the
20-trading day period.
The number of common shares you will receive for each Corporate Unit will be
determined by one of the following settlement rates:
.. if the average closing price equals or exceeds $81.33, you will receive
0.6148 common shares;
.. if the average closing price is less than $81.33 but greater than $59.80,
you will receive a number of common shares equal to $50 divided by the
average closing price, rounded upward or downward to the nearest 1/10,000th
of a share; and
.. if the average closing price is less than or equal to $59.80, you will
receive 0.8361 common shares.
In certain circumstances, the applicable settlement rate will be subject to
adjustment. You can find more information about the settlement rate starting on
page S-28.
Dominion will not issue any fractional common shares. If, however, you are
settling more than one purchase contract, then any fractional common shares
will be aggregated. For any fractional share not issuable, Dominion will pay
you the value of that fractional share in cash.
Early Settlement
You may satisfy your obligation to purchase common shares under your purchase
contract before the purchase contract settlement date. If you choose early
settlement, you must pay $50 in cash on or before 5:00 p.m., New York City
time, on the Election Date.
To effect early settlement:
.. you must deliver to the purchase contract agent a notice indicating your
election to "settle early;"
.. you must deliver a cash payment of $50 for each purchase contract being
settled;
.. you will receive, for each Corporate Unit or Treasury Unit you surrender,
both:
. 0.6148 common shares, regardless of the market price of the common shares
on the date of early settlement and subject to adjustment in certain
circumstances; and
. your senior note if you are settling a Corporate Unit or a 1/20 undivided
S-10
beneficial interest in a Treasury Security if you are settling Treasury
Units.
You will not receive any further contract adjustment payments from Dominion.
You will continue to receive interest payments on your senior note.
You may settle Treasury Units early only in multiples of 20.
Tax Event Redemption
If the tax laws change or are interpreted in a way that adversely affects our
tax consequences with respect to the senior notes, then we may elect to redeem
the senior notes. If the senior notes are redeemed before a successful
remarketing, the money received from the redemption will be used by the
collateral agent to purchase a portfolio of zero-coupon U.S. Treasury
securities that mature on or before each payment date of the senior notes
through the purchase contract settlement date, in an aggregate amount equal to
the principal on the senior notes included in Corporate Units and the interest
that would have been due on such payment date on the senior notes included in
Corporate Units. These Treasury securities will replace the senior notes as the
collateral securing your obligations to purchase our common shares under the
purchase contracts. If the senior notes are redeemed, then each unit will
consist of a purchase contract for our common shares and an ownership interest
in the portfolio of Treasury securities.
After a tax event redemption has occurred, you may not recreate Corporate
Units out of Treasury Units.
Termination of Purchase Contracts
The purchase contracts will terminate immediately and automatically if
certain bankruptcy, insolvency or reorganization events occur with respect to
Dominion. If the purchase contracts terminate upon one of these events, then
your rights and obligations under your purchase contracts also will terminate,
including your right to
receive accrued contract adjustment payments and your obligation to pay for,
and your right to receive, common shares. Upon termination, you will receive
your senior note or your Treasury Security or, if senior notes have been
redeemed or remarketed, your proportionate interest in the portfolio of
Treasury securities purchased with the proceeds of the redemption or
remarketing. If Dominion becomes the subject of a bankruptcy case, then there
may be a delay between the time the purchase contracts terminate and the time
you receive your pledged senior note or Treasury Security, as the case may be.
You may find more information about how the purchase contracts terminate on
page S-36.
Listing on an Exchange
Dominion's common shares are traded on the New York Stock Exchange under the
ticker symbol "D."
We have applied to list the Corporate Units on the NYSE under the symbol "D
PrU." If either the Treasury Units or the senior notes are traded at a volume
that satisfies applicable exchange listing requirements, then Dominion will try
to list those securities on the national securities exchanges or associations
on which the Corporate Units are then listed or quoted.
S-11
United States Federal Income Tax Consequences
Because a Corporate Unit will consist of a purchase contract and a senior
note, the purchase price of each Corporate Unit will be allocated between the
purchase contract and the related senior note in proportion to their relative
fair market values at the time of purchase. Dominion expects that at the date
of issuance of the Corporate Units, the fair market value of each purchase
contract will be $0 and the fair market value of each senior note will be $50.
Dominion intends to report the contract adjustment payments as income to you,
but you may want to consult your tax advisor concerning alternative
characterizations.
The senior notes will be subject to Treasury regulations concerning
contingent payment debt instruments. As such, you will be subject to federal
income tax on the accrual of original issue discount in respect of the senior
notes.
If you own Treasury Units you will be required to include in gross income
your allocable share of any original issue discount or acquisition discount on
the Treasury Securities that accrues in any year.
Because there is no statutory, judicial or administrative authority directly
addressing the tax treatment of the Equity Income Securities or instruments
similar to the Equity Income Securities, you are urged to consult your own tax
advisor concerning the tax consequences of an investment in the Equity Income
Securities.
For additional information, see "United States Federal Income Tax
Consequences" starting on page S-50.
Use of Proceeds
We intend to use the net proceeds from the sale of the Corporate Units for
general corporate purposes, including the repayment of debt. See "Use of
Proceeds" on page S-19. This debt may include a portion of our short-term debt,
including commercial paper.
S-12
RISK FACTORS
An investment in Equity Income Securities involves a number of risks. Some of
these risks are risks shared with any investor in our securities; others are
related to the nature of the Equity Income Securities and Corporate Units
themselves. Before deciding to buy any Equity Income Securities you should
carefully consider the following information, together with the other
information in this prospectus supplement, the accompanying prospectus and the
documents that are incorporated by reference in this prospectus supplement
about risks concerning an investment in Equity Income Securities.
The Corporate Units consist of purchase contracts to acquire Dominion's
common shares and senior notes issued by Dominion. When considering an
investment in Corporate Units, you are making an investment decision with
regard to the common shares and the senior notes as well as the Corporate
Units. You should carefully review the information in this prospectus
supplement and the accompanying prospectus about all of these securities.
Risks Relating to the Terms of the Offered Securities
The number of common shares that you will receive under a purchase contract
will depend on our future common share price; you will bear the risk of decline
in equity value.
The terms of the Equity Income Securities differ from those of ordinary
convertible securities. The number of common shares that you will receive upon
the settlement of a purchase contract is not fixed, but instead will depend on
the market value of the common shares near the time of settlement. The
aggregate market value of the common shares you may receive upon settlement of
the purchase contract may be more or less than the stated amount of $50 per
Equity Income Security. If the market value of the common shares near the time
of settlement is less than or equal to $59.80, the aggregate market value of
the common shares issuable upon settlement generally will be less than $50, and
the investment in the Equity Income Securities will result in a loss.
Therefore, you will bear the full risk of a decline in the market value of the
common shares prior to settlement of the purchase contracts. Any such loss
could be substantial.
The opportunity for equity appreciation is less than for common share ownership.
The aggregate market value of the common shares you may receive upon
settlement of a purchase contract generally will exceed the stated amount of
$50 only if the average closing price of the common shares over the 20-trading
day period preceding settlement equals or exceeds $81.33, which we call the
"Threshold Appreciation Price." The Threshold Appreciation Price represents an
appreciation of approximately 34% over the current market price. Therefore,
during the period prior to settlement, an investment in the Equity Income
Securities affords less opportunity for equity appreciation than a direct
investment in the common shares. If the applicable average closing price
exceeds $59.80, which we call the "Reference Price," but falls below the
Threshold Appreciation Price, you will realize no equity appreciation on the
common shares for the period during which you own the purchase contract.
Furthermore, if the applicable average closing price exceeds the
S-13
Threshold Appreciation Price, the value of the shares you will receive under
the purchase contract will be approximately 74.5% of the value of the shares
you could have purchased with $50 at the time of this offering. See
"Description of the Purchase Contracts-- General" starting on page S-26 for an
illustration of the number of common shares that you would receive at various
average market prices.
The market price of the common shares is uncertain.
It is impossible to know whether the market price of the common shares will
rise or fall. Numerous factors influence the trading prices of the common
shares including those described under "Forward-Looking Information" on page
S-3. The trading prices of the Equity Income Securities will be directly
affected by the trading prices of the common shares.
The number of common shares issuable upon settlement of purchase contracts will
be adjusted only for certain specified transactions.
The number of common shares issuable upon settlement of each purchase
contract is subject to adjustment only for share splits and combinations, share
dividends and certain other specified transactions involving Dominion. See
"Description of the Purchase Contracts--Anti-Dilution Adjustments" starting on
page S-34. The number of common shares issuable upon settlement of each
purchase contract is not subject to adjustment for other events, such as
employee share programs, offerings of common shares for cash (including the
Dominion Direct Investment dividend reinvestment and stock purchase program) or
in connection with acquisitions or certain other transactions involving
Dominion, which may adversely affect the price of the common shares. The terms
of the Equity Income Securities do not restrict Dominion's ability to offer
common shares in the future or to engage in other transactions that could
dilute the common shares. Dominion has no obligation to consider the interests
of the holders of the Equity Income Securities for any reason.
You will have no rights as common shareholders.
Until you acquire common shares upon settlement of your purchase contract, you
will have no rights with respect to the common shares, including voting rights,
rights to respond to tender offers and rights to receive any dividends or other
distributions on the common shares. Upon settlement of your purchase contract,
you will be entitled to exercise the rights of a holder of common shares only
as to actions for which the applicable record date occurs after the settlement
date.
Trading markets for Equity Income Securities and senior notes are subject to
uncertainties.
It is impossible to predict how the Corporate Units, the Treasury Units and
the senior notes will trade in the secondary market or whether the market for
any of these securities will be liquid or illiquid. There currently is no
secondary market for the Equity Income Securities to be issued in this
offering, and there can be no assurance as to the liquidity of any trading
market that may develop, the ability of holders to sell their securities in
that market or whether any such market will continue.
S-14
We have applied and expect the Corporate Units to be approved for listing on
the NYSE under the symbol "D PrU." However, listing on the NYSE does not
guarantee the depth or liquidity of the market for the Corporate Units. If
holders of the Corporate Units convert their Corporate Units into Treasury
Units by substituting Treasury Securities for the senior notes, the liquidity
of the Corporate Units could be adversely affected. Moreover, if the number of
Corporate Units falls below the NYSE's requirement for continued listing,
whether as a result of the conversion of Corporate Units into Treasury Units or
otherwise, the Corporate Units could be delisted from the NYSE, or trading in
the Corporate Units could be suspended.
The Underwriter has advised Dominion that it presently intends to make a
market for the Corporate Units, the Treasury Units and the senior notes.
However, it is not obligated to do so and it may discontinue any market making
at any time.
Your pledged securities will be encumbered.
Although holders of Equity Income Securities will be beneficial owners of the
underlying pledged senior notes, in the case of Corporate Units, and pledged
Treasury Securities, in the case of Treasury Units, those pledged securities
will be pledged to secure the obligations of the holders under the purchase
contracts. Therefore, for so long as the purchase contracts remain in effect,
holders will not be allowed to withdraw their pledged securities from this
pledge arrangement except in the limited circumstances described in this
prospectus supplement.
Delivery of securities is subject to potential delay if Dominion becomes
subject to a bankruptcy proceeding.
Notwithstanding the automatic termination of the purchase contracts, if
Dominion becomes the subject of a case under the Bankruptcy Code, imposition of
an automatic stay under Section 362 of the Bankruptcy Code may delay the
delivery to you of your securities being held as collateral under the pledge
arrangement.
The purchase contract agent has limited obligations to you.
The purchase contract agent will have only limited obligations to you as a
holder of the Equity Income Securities under the terms of the purchase contract
agreement. The purchase contract agreement is not an indenture under the Trust
Indenture Act of 1939. Therefore, the purchase contract agent will not qualify
as a trustee under the Trust Indenture Act, and you will not benefit from the
protections of that law, such as disqualification of an indenture trustee for
"conflicting interests," provisions preventing an indenture trustee from
improving its own position at the expense of the security holders and the
requirement that an indenture trustee deliver reports at least annually with
respect to the indenture trustee and the securities. See "Certain Provisions of
the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement--Information Concerning the Purchase Contract Agent" on page S-39.
S-15
We may redeem the senior notes upon the occurrence of a tax event.
We have the option to redeem the senior notes, on not less than 20 days nor
more than 60 days prior written notice, in whole but not in part, at any time
if a tax event occurs and continues under the circumstances described in this
prospectus supplement. See "Description of the Senior Notes--Tax Event
Redemption." If we exercise this option, we will redeem the senior notes at the
redemption price (described later in this prospectus supplement) plus accrued
and unpaid interest, if any, to the date of redemption. If we redeem the senior
notes, we will pay the redemption price in cash to the holders of the senior
notes. If the tax event redemption occurs prior to the successful remarketing
of the senior notes, the redemption price payable to you as a holder of the
Corporate Units will be distributed to the collateral agent, who in turn will
apply an amount equal to the redemption price to purchase a portfolio of
zero-coupon U.S. Treasury securities on your behalf, and will remit the
remainder of the redemption price, if any, to you. These Treasury securities
will be substituted for the senior notes as collateral to secure your
obligations under the purchase contracts related to the Corporate Units. If
your senior notes are not components of Corporate Units, you, rather than the
collateral agent, will receive the related redemption payments. There can be no
assurance as to the effect on the market prices for the Corporate Units if we
substitute the Treasury securities as collateral in place of any senior notes
so redeemed. A tax event redemption will be a taxable event to the holders of
the senior notes.
Risks Relating to an Investment in Dominion
Our business is influenced by many factors that are difficult to predict,
involve uncertainties that may materially affect actual results and are often
beyond our ability to control. We have identified a number of these factors in
our Annual Report on Form 10-K for the year ended December 31, 2001 under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors and Cautionary Statements That May Affect
Future Results," which is specifically incorporated by reference into this
prospectus. See "Where You Can Find More Information" on page S-3 of this
prospectus supplement.
DOMINION
Dominion is a fully integrated gas and electric energy holding company
headquartered in Richmond, Virginia. As of December 31, 2001, we had
approximately $34 billion in assets.
Our primary operating segments are:
Dominion Energy--Dominion Energy manages our 22,000 megawatt portfolio of
electric power generation, our 7,600 miles of gas transmission pipeline and a
959 billion cubic foot natural gas storage network. It also guides our
generation growth strategy and our commodity trading, marketing and risk
management activities. We currently operate generation facilities in
Virginia, West Virginia, Connecticut, North Carolina and Illinois.
S-16
Dominion Delivery--Dominion Delivery manages our local electric and gas
distribution systems serving 3.8 million customers, our 6,000 miles of
electric transmission lines and our customer service operations. We currently
operate transmission and distribution systems in Virginia, West Virginia,
North Carolina, Pennsylvania and Ohio. Dominion Delivery also includes our
managing equity interest in Dominion Fiber Ventures, LLC, which owns Dominion
Telecom with its 14,700 route-mile fiber optic network (including 4,600
route-miles of lit fiber) and related telecommunications and advanced data
services located principally in the northeast quadrant of the United States.
Dominion Exploration & Production--Dominion Exploration & Production
manages our onshore and offshore oil and gas exploration and production
activities, including the properties acquired from our November 2001
acquisition of Louis Dreyfus Natural Gas Corp. With approximately 4.9
trillion cubic feet of proved natural gas equivalent reserves and 450 billion
cubic feet of annual production, Dominion Exploration & Production is one of
the nation's largest independent oil and gas operators. We operate on the
outer continental shelf and deep water areas of the Gulf of Mexico, western
Canada, the Appalachian Basin, the Permian Basin, the Mid-Continent Region
and other selected regions in the continental United States.
Competitive Strengths
We believe that we are well positioned in the new energy environment based on
our following competitive strengths:
Size and Scale--Our size and scale give us the critical mass needed to
provide the financial strength, flexibility and economies of scale necessary
to compete in the new energy marketplace. In addition, our size has provided
better access to capital and improved opportunities for expansion.
MAIN to Maine Focus--We are concentrating our efforts in the Midwest,
Northeast and Mid-Atlantic regions of the United States, which we call the
"MAIN to Maine" region. In the power industry, "MAIN" means the Middle
American Interconnected Network, which comprises the states of Missouri,
Illinois, Wisconsin, Michigan and Indiana. The MAIN to Maine region is home
to approximately 40% of the nation's demand for energy. It also has some of
the nation's highest energy prices and, as a result, is rapidly moving toward
industry deregulation and restructuring.
Integrated Asset Base--We have the capability to discover and produce gas,
store it, sell it or use it to generate power; we can generate electricity to
sell
to customers in our retail markets or in wholesale transactions. This
optionality gives us the ability to produce and sell energy in whatever form
we find most useful and economic. We also operate North America's largest
natural gas storage system, which gives us the flexibility to provide supply
when it is most economically advantageous to do so. As a fully integrated
enterprise active in all aspects of the energy supply chain, we have the
ability to optimize the value of our energy portfolio to maximize return on
invested capital.
S-17
Market Knowledge--We capitalize on our in-depth knowledge of our trading
and customer markets. Specifically, our knowledge of the energy trading
market allows us to not only manage market risks but also to maximize the
value of our energy portfolio. As our industry deregulates, we know that we
must remain focused on reliably and efficiently serving our customer base in
order to retain existing customers and add new ones.
Investor Focus--The financial interests of our employees and management are
strongly aligned with the interests of our investor base. They own
approximately 15.5 million shares and together would be Dominion's largest
shareholder. Incentive programs in the form of stock options further align
the interests of our employees with those of our investors.
Focused Growth
Our growth strategy is focused on the MAIN to Maine region and building on the
platform provided by our current asset base.
Dominion Energy--We currently have 22,000 megawatts of generation capacity
and expect this to grow to 26,000 megawatts by 2005. In 2001 we added the
2,000 megawatt Millstone nuclear facility in Connecticut to our portfolio and
approximately 650 megawatts of gas-fired peaking generation. We have sited
four new generation plants with combined capacity of approximately 2,000
megawatts along the Dominion gas pipelines in Ohio, Pennsylvania and West
Virginia. Additional anticipated capacity expansion of 2,000 megawatts is
also planned. To support these plans, we have contracted to acquire General
Electric turbines sufficient for our generation expansion.
Dominion Delivery--We expect continued growth in our distribution business
as a result of increasing our customer base and improving our operational
efficiencies through technological advances and development. We have targeted
expansion of Dominion Telecom's fiber optic network by focusing on markets
not primarily targeted by the expansion strategies of major
telecommunications companies.
Dominion Exploration & Production--
Including our acquisition of Louis Dreyfus, we expect to increase our BCFe
production by approximately 25% in 2002 and 15-20% through 2004. We
anticipate that this growth will be primarily drill-bit driven from existing
resources including our offshore and Gulf Coast exploration program and the
development of properties acquired from our acquisition of Louis Dreyfus.
Because of the changes our industry is undergoing, we continue to encounter
opportunities for acquisitions of assets and business combinations that would
be consistent with our strategic principles. We regularly investigate any
opportunities we learn about that may increase shareholder value or build on
our existing asset platform. We often participate in bidding and negotiating
processes for those transactions. Any acquisitions or combinations of this type
will likely require us to access external financing sources or issue additional
equity. Additionally, recent capital conditions in our industry have weakened
some of our competitors and may require some of our competitors to divest
assets, which may increase acquisition opportunities for us.
S-18
Principal Subsidiaries
Dominion's principal subsidiaries include Virginia Electric and Power Company
(Dominion Virginia Power), a regulated public utility engaged in the
generation, transmission, distribution and sale of electric energy in Virginia
and northeastern North Carolina, and CNG, a producer, transporter, distributor
and retail marketer of natural gas serving customers in Pennsylvania, Ohio,
West Virginia, New York and various cities in the Northeast and Mid-Atlantic
and Dominion Energy, Inc., an independent power and natural gas subsidiary.
For additional information about our company, see "Where You Can Find More
Information" on page S-3 of this prospectus supplement.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the Corporate Units for
general corporate purposes, including the repayment of debt and equity
contributions to subsidiaries. This debt may include a portion of our
short-term debt, including commercial paper. At February 28, 2002 the weighted
average maturity date of Dominion's approximately $488 million of outstanding
commercial paper was approximately 38.24 days and the weighted average interest
rate was 2.18%.
S-19
COMMON SHARE DIVIDENDS AND PRICE RANGE
The common shares are listed on the New York Stock Exchange under the symbol
"D." The following table sets forth the range of intra-day high and low sale
prices, as reported on the NYSE Composite Tape, and the cash dividends declared
on the common shares for the periods indicated:
Price Range High Low Dividends
----------- ------ ------ ---------
1999
First Quarter.......................... $47 1/16 $36 7/8 $0.645
Second Quarter......................... 44 13/16 36 9/16 0.645
Third Quarter.......................... 47 3/16 43 0.645
Fourth Quarter......................... 49 3/8 39 1/4 0.645
2000
First Quarter.......................... $43 1/8 $34 13/16 $0.645
Second Quarter......................... 47 1/2 38 1/16 0.645
Third Quarter.......................... 59 13/16 42 13/16 0.645
Fourth Quarter......................... 67 15/16 50 3/4 0.645
2001
First Quarter.......................... $68.00 $55.31 $0.645
Second Quarter......................... 69.99 59.47 0.645
Third Quarter.......................... 64.15 55.13 0.645
Fourth Quarter......................... 62.97 55.30 0.645
2002
First Quarter (through March 13, 2002). $62.56 $57.34 $0.645
On March 13, 2002, the last reported sale price of the common stock on the
NYSE was $60.60 per share.
Dividends on our common stock are paid as declared by Dominion's board of
directors. On February 15, 2002 our board of directors declared a dividend of
$0.645 per share payable on March 20, 2002 to shareholders of record on March
1, 2002. Dividends are typically paid on the 20/th of March, June, September
and December. Dividends can be paid by check or electronic deposit, or may be
reinvested. /
As of December 31, 2001, we had approximately 264.7 million shares of
common stock outstanding.
S-20
CAPITALIZATION
The table below shows our capitalization on a consolidated basis as of
December 31, 2001. The "As Adjusted for Completed or Pending Offerings" column
reflects our capitalization after giving effect to our January 22, 2002
issuance of $250,000,000 3.875% Medium Term Notes; the January 30, 2002
offering by Dominion Virginia Power of $650,000,000 of 5 3/8% Senior Notes due
2007; the redemption by Dominion Virginia Power of approximately $200 million
of outstanding mortgage bonds on February 8, 2002; and the March 13, 2002
agreement to sell 9,400,000 shares of our Common Stock to Salomon Smith Barney
Inc. which is expected to settle on March 18, 2002 (the "Completed or Pending
Offerings"), and the use of the net proceeds from the Completed or Pending
Offerings.
The "As Fully Adjusted" column reflects our capitalization after giving
effect to the Completed or Pending Offerings, this offering of Equity Income
Securities, and the use of the net proceeds from these offerings.
You should read this table along with our audited financial statements
contained in our most recent Annual Report on Form 10-K. See "Where You Can
Find More Information" on page S-3.
December 31, 2001
-------------------------------
As Adjusted
for Completed
or Pending As Fully
Actual Offerings Adjusted
------- ------------- ---------
(in millions)
Short-term debt1........................................ $ 3,213 $ 1,965 $ 1,674
Long-term debt:
Upper DECS Equity Income Securities and other stock
purchase units..................................... 413 413 713
Other................................................ 11,706 12,406 12,406
------- ------- ---------
Total................................................ 12,119 12,819 13,119
Obligated mandatorily redeemable preferred securities of
subsidiary trusts..................................... 1,132 1,132 1,132
Preferred stock......................................... 384 384 384
Total common shareholders' equity....................... 8,368 8,930 8,897/2/
------- ------- ---------
Total capitalization.................................... $25,216 $25,230 $ 25,206
======= ======= =========
--------
1 Includes securities due within one year.
/2/ Reflects an adjustment of approximately $33 million representing the
present value of the contract adjustment payments related to the Equity
Income Securities.
S-21
RATIO OF EARNINGS TO FIXED CHARGES
These computations reflect Dominion's consolidated earnings and consolidated
fixed charges including proportionate interests in the earnings and fixed
charges of certain other companies in which we hold an equity interest. For
this ratio, earnings is determined by adding total fixed charges (excluding
interest capitalized), income taxes, minority common stockholders equity in net
income and amortization of interest capitalized to income from continuing
operations after eliminating equity in undistributed earnings and adding back
losses of companies of which at least 20% but less than 50% of total equity is
owned by Dominion. For this purpose, total fixed charges consists of (1)
interest on all indebtedness and amortization of debt discount and expense, (2)
interest capitalized and (3) an interest factor attributable to rentals.
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
Twelve Months Ended December 31,
----------------------------------------------------------------------------------------------------------------------------------
2001/1/ 2000/2 / 1999 1998 19973
------- -------- ---- ---- -----
1.82 1.56 2.35 2.28 1.91
Twelve Months Ended December 31,
----------------------------------------------------------------------------------------------------------------------------------
2001/1/ 2000/2 / 1999 1998 19973
------- -------- ---- ---- -----
1.82 1.56 2.35 2.28 1.91
--------
1 Earnings for the twelve months ended December 31, 2001 includes a one-time
$220 million charge related to the buyout of power purchase contracts and
non-utility generating plants previously serving the company under long-term
contracts, a one-time $40 million charge associated with the divestiture of
Saxon Capital, Inc., a $281 million charge from a write-down of Dominion
Capital assets, a $151 million charge associated with Dominion's estimated
Enron exposure, and $105 million in restructuring charges associated with a
senior management restructuring initiative announced in November and other
restructuring costs. Excluding these items from the calculation above results
in a ratio of earnings to fixed charges for the twelve months ended December
31, 2001 of 2.56x.
2 Earnings for the twelve months ended December 31, 2000 includes $579 million
in restructuring and other acquisiton-related costs resulting from the CNG
acquisition and a write-down at Dominion Capital, Inc. Dominion is required
to divest its financial services business as a result of the acquisition of
CNG. Excluding these items from the calculation above results in a ratio of
earnings to fixed charges for the twelve months ended December 31, 2000 of
2.10x.
3 Earnings for the twelve months ended December 31, 1997 includes the one-time
charge of $157 million for the windfall profits tax levied by the United
Kingdom government. Excluding this charge from the calculation above results
in a ratio of earnings to fixed charges for the twelve months ended December
31, 1997 of 2.12x.
ACCOUNTING TREATMENT
The purchase contracts are forward transactions in Dominion's common shares.
Upon settlement of a purchase contract, Dominion will receive the stated amount
of $50 on the purchase contract and will issue the required number of common
shares. The stated amount received will be credited to the common stock account
in shareholders' equity. The present value of the contract adjustment payments
will initially be charged to equity, with an offsetting credit to liabilities.
Prior to the issuance of common shares upon settlement of the purchase
contracts, Dominion expects that the Equity Income Securities will be
considered in Dominion's earnings per share calculations using the treasury
stock method. Under this method, the number of common shares used in
calculating earnings per share is deemed to be increased by the excess, if any,
of the number of shares issuable upon settlement of the purchase contracts over
the number of shares that could be purchased by Dominion in the market at the
average market price during the period using the proceeds receivable upon
settlement. As a result, Dominion expects there will be no dilutive effect on
its earnings per share except during periods when the average market price of
the common shares is above the Threshold Appreciation Price.
S-22
DESCRIPTION OF THE EQUITY INCOME SECURITIES
The following description sets forth certain terms of the Equity Income
Securities. It supplements the description of the Stock Purchase Contracts and
Stock Purchase Units in the accompanying prospectus and, to the extent it is
inconsistent with the prospectus, replaces the description in the prospectus.
The terms of the Equity Income Securities will include those stated in the
purchase contract agreement between Dominion and the purchase contract agent.
The following description of certain terms of the Equity Income Securities and
the descriptions of certain terms of the purchase contract agreement, the
purchase contracts and the pledge agreement under the captions "Description of
the Purchase Contracts," "Certain Provisions of the Purchase Contracts, the
Purchase Contract Agreement and the Pledge Agreement" and "Description of the
Senior Notes" in this prospectus supplement and "Description of Capital
Stock--Common Stock" in the accompanying prospectus contain a description of
all of their material terms but do not purport to be complete. For additional
information, you should refer to the forms of the purchase contract agreement,
including the forms of the Equity Income Securities, and the pledge agreement,
including definitions of certain terms used therein, that will be filed with
the SEC as exhibits to a Current Report on Form 8-K.
Corporate Units
Each Corporate Unit offered hereby is a unit initially consisting of:
.. a stock purchase contract under which (1) the holder will purchase from
Dominion
on the purchase contract settlement date (May 15, 2006), or upon early
settlement, for $50, a number of newly issued common shares equal to the
Settlement Rate described below under "Description of the Purchase
Contracts--General" and (2) Dominion will pay contract adjustment payments to
the holder; and
.. a senior note with a principal amount of $50.
The senior note will be pledged under the pledge agreement to secure the
holder's obligation to purchase common shares under the purchase contract.
The purchase price of each Corporate Unit will be allocated between the
purchase contract and the senior note comprising such Corporate Unit in
proportion to their respective fair market values at the time of purchase.
Dominion expects that, at the time of issuance, the fair market value of each
purchase contract will be $0 and the fair market value of each senior note will
be $50. Although this position will not be binding on the IRS, it will
generally be binding on each beneficial owner of a Corporate Unit. See "United
States Federal Income Tax Consequences--Corporate Units--Allocation of Purchase
Price" on page S-51.
So long as an Equity Income Security is in the form of Corporate Unit, the
related senior note will be pledged to the collateral agent to secure the
holder's obligation to purchase common shares under the related purchase
contract.
Creating Treasury Units by Substituting Treasury Securities
Each holder of Corporate Units may create Treasury Units by substituting for
the
S-23
senior notes that are a part of the Corporate Units a number of Treasury
Securities having an aggregate principal amount equal to the aggregate
principal amount of those senior notes.
Each Treasury Unit will be a unit consisting of:
.. a stock purchase contract under which (1) the holder will purchase from
Dominion on the purchase contract settlement date, or upon early settlement,
for $50, a number of newly issued common shares equal to the Settlement Rate
and (2) Dominion will pay contract adjustment payments to the holder; and
.. a 1/20 undivided beneficial ownership interest in a zero-coupon Treasury
Security that has a principal amount at maturity equal to $1,000 and matures
on or prior to May 12, 2006, the business day prior to the purchase contract
settlement date.
The term "business day" means any day other than Saturday or Sunday or a day
on which banking institutions in New York City are authorized or required by
law or executive order to remain closed or a day on which the indenture trustee
for the senior notes is closed for business.
The Treasury Security will be pledged under the pledge agreement to secure
the holder's obligation to purchase common shares under the purchase contract.
Holders of Corporate Units may create Treasury Units at any time on or before
5:00 p.m., New York City time, on the Election Date. Because Treasury
Securities are issued in integral multiples of $1,000, holders of Corporate
Units may create Treasury Units only in integral multiples of 20.
To create 20 Treasury Units, a Corporate Units holder is required to:
.. deposit with the securities intermediary a Treasury Security having a total
principal amount at maturity of $1,000; and
.. transfer to the purchase contract agent 20 Corporate Units, accompanied by a
notice stating that the Corporate Units holder has deposited a Treasury
Security with the securities intermediary and requesting that the purchase
contract agent instruct the collateral agent to release the related $1,000
principal amount of senior notes.
Upon receiving instructions from the purchase contract agent and confirmation
of receipt of the Treasury Security by the securities intermediary, the
collateral agent will cause the securities intermediary to release the related
$1,000 principal amount of senior notes from the pledge and deliver them to the
purchase contract agent, on behalf of the holder, free and clear of Dominion's
security interest. The purchase contract agent then will:
.. cancel the 20 Corporate Units;
.. transfer the related $1,000 principal amount of senior notes to the holder;
and
.. deliver 20 Treasury Units to the holder.
The Treasury Security will be substituted for the senior notes and will be
pledged to the collateral agent to secure the holder's obligation to purchase
common shares under the related purchase contracts. The senior notes thereafter
will trade separately from the Treasury Units.
Holders who create Treasury Units or recreate Corporate Units, as discussed
below, will be responsible for any fees or expenses payable to the collateral
agent in connection with substitutions of collateral.
S-24
See "Certain Provisions of the Purchase Contracts, the Purchase Contract
Agreement and the Pledge Agreement--Miscellaneous" on page S-40.
Recreating Corporate Units
Each holder of Treasury Units may recreate Corporate Units by:
.. depositing with the securities intermediary $1,000 principal amount of
senior notes; and
.. transferring to the purchase contract agent 20 Treasury Units, accompanied
by a notice stating that such holder has deposited $1,000 principal amount
of senior notes with the securities intermediary and requesting that the
purchase contract agent instruct the collateral agent to release the related
Treasury Security.
Upon receiving instructions from the purchase contract agent and confirmation
of receipt of the senior notes by the securities intermediary, the collateral
agent will cause the securities intermediary to release the related Treasury
Security from the pledge and deliver it to the purchase contract agent, on
behalf of the holder, free and clear of Dominion's security interest therein.
The purchase contract agent then will:
.. cancel the 20 Treasury Units;
.. transfer the related Treasury Security to the holder; and
.. deliver 20 Corporate Units to the holder.
So long as a Tax Event Redemption has not occurred, holders of Treasury Units
may recreate Corporate Units at any time on or before 5:00 p.m., New York City
time, on the Election Date.
Current Payments
Holders of Corporate Units will be entitled to receive aggregate cash
distributions at a rate of 8.75% of the $50 purchase price per year from and
after March 20, 2002, payable quarterly in arrears, subject to increase as
described under "Description of the Purchase Contracts--Contract Adjustment
Payments" starting on page S-32. The quarterly payments on the Corporate Units
will consist of (1) contract adjustment payments payable by Dominion at the
rate of 3.00% of the stated amount per year until May 15, 2006 and (2)
cumulative cash interest payments payable on the related senior notes payable
at the rate of 5.75% of the principal amount per year.
If a holder of Corporate Units creates Treasury Units by substituting
Treasury Securities for the senior notes, the only payments that such holder
will receive on the Treasury Units will be the quarterly contract adjustment
payments. Instead of payments with respect to any senior notes, original issue
discount will accrue on the related Treasury Securities.
Listing of the Corporate Units, the Treasury Units and the Senior Notes
We have applied to list the Corporate Units on the NYSE under the symbol "D
PrU." If the Treasury Units or the senior notes are separately traded to a
sufficient extent that applicable exchange listing requirements are met,
Dominion will try to cause them to be listed on the same national securities
exchange as the Corporate Units are listed.
Miscellaneous
Dominion or its affiliates may purchase from time to time any of the Equity
Income Securities that are then outstanding by tender, in the open market or by
private agreement.
S-25
DESCRIPTION OF THE PURCHASE CONTRACTS
General
Each purchase contract that is a part of an Equity Income Security will
obligate its holder to purchase, and Dominion to sell, on the purchase contract
settlement date, a number of newly issued common shares equal to the rate
described below (the "Settlement Rate"), for $50 in cash unless the purchase
contract terminates prior to such date or is settled early at the holder's
option. The number of common shares issuable upon settlement of each purchase
contract on the purchase contract settlement date will be determined as
follows, subject to adjustment as described under "--Anti-Dilution Adjustments"
below:
.. If the Applicable Market Value (as defined below) is greater than or equal
to the Threshold Appreciation Price of $81.33, then each purchase contract
will be settled for 0.6148 common shares. The Threshold Appreciation Price
represents an appreciation of approximately 34% above the current market
price.
.. If the Applicable Market Value is less than the Threshold Appreciation Price
but greater than the Reference Price, then each purchase contract will be
settled for a number of common shares determined by dividing the stated
amount of $50 by the Applicable Market Value.
.. If the Applicable Market Value is less than or equal to the Reference Price,
then each purchase contract will be settled for 0.8361 common shares.
For illustrative purposes only, the following table shows the number of
common shares issuable upon settlement of each purchase contract at various
assumed Applicable Market Values. The table assumes that there will be no
adjustments to the Settlement Rate described under "--Anti-Dilution
Adjustments" below. There can be no assurance that the actual Applicable Market
Value will be within the range set forth below.
Given the Reference Price of $59.80 and the Threshold Appreciation Price of
$81.33, a holder of a Corporate Unit would receive on the purchase contract
settlement date the following number of common shares:
Applicable Market Value Number of Common Shares
----------------------- -----------------------
$50.00 0.8361
$59.80 0.8361
$70.00 0.7143
$81.33 0.6148
$90.00 0.6148
As the foregoing table illustrates, if, on the purchase contract settlement
date, the Applicable Market Value is greater than or equal to $81.33, Dominion
will be obligated to deliver 0.6148 common shares for each purchase contract.
As a result, if the applicable market value exceeds $81.33, the value of the
common shares a holder would receive under the purchase contract would be
approximately 74.5% of the value of the common shares a holder could have
purchased with $50 at the time of this offering. If, on the purchase contract
settlement date, the Applicable Market Value is less than $81.33 but greater
than $59.80, Dominion will be obligated to deliver a number of common shares
equal to $50 divided by the Applicable Market Value, and Dominion would retain
all appreciation in the market value of the common shares for that period. If,
on the purchase contract settlement date, the Applicable Market Value is less
than or equal to $59.80, Dominion will be obligated to deliver 0.8361 common
shares for each
S-26
purchase contract, regardless of the market price of the common shares. As a
result, the holder would realize the entire loss on the decline in market value
of the common shares for that period.
The "Applicable Market Value" means the average of the Closing Prices of the
common shares on each of the 20 consecutive Trading Days ending on the third
Trading Day preceding the purchase contract settlement date.
The "Closing Price" of the common shares, on any date of determination, means:
(1) the closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the common shares on the NYSE on such date or, if
the common shares are not listed for trading on the NYSE on any such date,
as reported in the composite transactions for the principal United States
securities exchange on which the common shares are so listed, or if the
common shares are not so listed on a United States national or regional
securities exchange, as reported by The Nasdaq Stock Market; or
(2) if the common shares are not so reported, the last quoted bid price for the
common shares in the over-the-counter market as reported by the National
Quotation Bureau or a similar organization, or, if such bid price is not
available, the average of the mid-point of the last bid and ask prices of
the common shares on such date from at least three nationally recognized
independent investment banking firms retained for this purpose by Dominion.
"Trading Day" means a day on which the common shares:
(1) are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business; and
(2) have traded at least once on the national or regional securities exchange
or association or over-the-counter market that is the primary market for
the trading of the common shares.
No fractional common shares will be issued by Dominion upon settlement of a
purchase contract. In lieu of a fractional share, the holder will receive an
amount of cash equal to such fraction multiplied by the Applicable Market
Value. If, however, a holder surrenders for settlement at one time more than
one purchase contract, then the number of common shares issuable pursuant to
such purchase contracts will be computed based upon the aggregate number of
purchase contracts surrendered.
Prior to the settlement of a purchase contract, the common shares underlying
the purchase contract will not be outstanding for any purpose, and the holder
of the purchase contract will not have any voting rights, rights to dividends
or other distributions or other rights or privileges of a shareholder of
Dominion by virtue of holding such purchase contract.
By accepting a Corporate Unit or a Treasury Unit, a holder will be deemed to
have:
.. irrevocably authorized the purchase contract agent as attorney-in-fact to
enter into and perform under the related purchase contract on behalf of such
holder;
.. agreed to be bound by, and to have consented to, the terms and provisions of
the related purchase contract;
.. irrevocably authorized the purchase contract agent as attorney-in-fact to
enter
S-27
into and perform under the pledge agreement on behalf of such holder; and
.. agreed to be bound by the pledge arrangement contained in the pledge
agreement.
In addition, each holder of Corporate Units or Treasury Units will be deemed
to have agreed to treat itself as the owner of the related senior notes, or the
Treasury Securities, as the case may be, in each case for U.S. federal, state
and local income and franchise tax purposes.
Settlement of Corporate Units
For each purchase contract that is a part of a Corporate Unit, you will be
obligated to pay, on May 15, 2006, the purchase contract settlement date, $50
to purchase the number of Dominion's common shares based on the settlement rate
in effect on that date unless your purchase contract is terminated before that
date or you exercise your early settlement right or cash settlement right.
Settlement on the purchase contract settlement date of a purchase contract that
is part of a Corporate Unit will occur as follows:
. if the senior note comprising part of your Corporate Unit has been
successfully remarketed, a portion of proceeds of the Treasury portfolio
purchased with proceeds from the remarketing (and/or permitted
investments), in the case of a remarketing before the third business day
preceding the purchase contract settlement date, or cash proceeds from the
remarketing, in the case of a remarketing on the third business day
preceding the purchase contract settlement date, will be automatically
applied to satisfy in full your obligation to pay the purchase price for
the common stock and you will receive the common stock on the purchase
contract settlement date;
. if the senior note comprising part of your Corporate Unit has not been
successfully remarketed on or before the ninth business day preceding the
purchase contract settlement date, you may deliver (1) a notice electing to
settle your purchase contract by cash on the sixth business day before the
purchase contract settlement date and (2) a cash payment of $50 on the
fifth business day before the purchase contract settlement date, and you
will receive upon the cash settlement, the senior note that had been
pledged to secure that payment and, on the purchase contract settlement
date, the common shares; or
. if the senior note comprising part of your Corporate Unit has not been
remarketed on or before the third business day preceding the purchase
contract settlement date, which we call a failed remarketing, Dominion will
act through the collateral agent to exercise our rights as a secured party
and take possession of the senior note comprising part of your Corporate
Unit, in which case your obligation to pay the purchase price for the
common shares will be fully satisfied and you will receive the common
shares on the purchase contract settlement date.
No purchase contract adjustment payments will accrue after the purchase
contract settlement date.
Settlement of Treasury Units
Unless you notify the purchase contract agent by the second business day
preceding
S-28
the purchase contract settlement date and you deliver a cash payment of $50 by
5:00 p.m., New York City time, on the business day preceding the purchase
contract settlement date, we will receive the proceeds from the Treasury
Securities being held as collateral under the pledge arrangement. This will
satisfy your obligation to deliver the purchase price for the common shares,
and you will receive the common shares on the purchase contract settlement date.
No purchase contract adjustment payments will accrue after the purchase
contract settlement date.
Settlement by Remarketing
Under the remarketing agreement between Dominion and the Underwriter, the
Underwriter will agree to use its commercially reasonable efforts to remarket
all senior notes that are included in Corporate Units, as well as other senior
notes whose holders elect to have them remarketed.
The senior notes which are the subject of the remarketing will be remarketed
on one or more occasions from February 15, 2006 until the ninth business day
before the purchase contract settlement date and, if necessary, on the third
business day preceding the purchase contract settlement date. Unless the
remarketing takes place on the third business day preceding the purchase
contract settlement date, the proceeds of any remarketing of senior notes that
are part of Corporate Units will be used to purchase a Treasury portfolio equal
to the remarketing value less the remarketing fee.
The "remarketing value" will be equal to the sum of:
(a) unless the remarketing occurs on the third business day before the
purchase contract settlement date, the value on the remarketing date of
an amount of Treasury securities that will pay, on or before the
quarterly interest payment date falling on the purchase contract
settlement date, an amount of cash equal to the aggregate interest
scheduled to be payable on that quarterly interest payment date on each
senior note that is included in the remarketing, assuming, for this
purpose, that the interest rate on the senior notes remains the initial
rate;
(b) the value on the remarketing date of an amount of Treasury securities
that will pay, on or before the purchase contract settlement date, an
amount of cash equal to $50 for each senior note that is included in the
remarketing; and
(c) an amount equal to 0.25% of the principal amount of each senior note that
is included in the remarketing. This amount will be retained by the
Underwriter as a remarketing fee.
Unless the remarketing takes place on the third business day preceding the
purchase contract settlement date, the Treasury portfolio will be pledged to
secure the obligations of the holders of Corporate Units under the related
purchase contracts. The cash payments received when the pledged Treasury
portfolio matures will be used to satisfy the holders obligation to purchase
Dominion common stock on the purchase contract settlement date and to pay
interest scheduled to be paid on that date.
If a remarketing occurs on the third business day preceding the purchase
contract settlement date, the proceeds of the remarketing, less the remarketing
fee, will be paid to settle the obligations of participating holders of
Corporate Units under their purchase contracts.
S-29
If the Underwriter cannot establish a reset rate on the Initial Remarketing
Date enabling the Underwriter to remarket the senior notes offered for
remarketing at a price equal to the remarketing value, then the Underwriter may
attempt to establish a new reset rate in connection with one or more subsequent
attempts to remarket the senior notes until the ninth business day preceding
the purchase contract settlement date and, if necessary, in a final remarketing
attempt on the third business day preceding the purchase contract settlement
date. Any such remarketing will be at a price equal to the remarketing value
(determined on the basis of the senior notes being remarketed) on the
rescheduled remarketing date.
If the Underwriter cannot remarket the senior notes on or before the ninth
business day preceding the purchase contract settlement date or on the third
business day preceding the purchase contract settlement date, or the
remarketing may not commence or be consummated in accordance with applicable
law, a "failed remarketing" will occur, and Dominion acting through the
collateral agent, will be entitled to exercise its rights as a secured party
and, subject to applicable law, retain the senior notes pledged as collateral
under the pledge agreement or sell them in one or more private sales. In either
case, the obligations of the holders under the related purchase contracts would
be deemed to be satisfied in full. If Dominion exercises its rights as a
secured creditor, any accrued and unpaid interest payments on these senior
notes will be paid in cash by Dominion to the purchase contract agent for
payment to the holders of the Corporate Units of which those senior notes are a
part to, but excluding, the purchase contract settlement date. Dominion will
cause a notice of any failed remarketing to be published no later than the
business day preceding the purchase contract settlement date in a daily
newspaper in the English language of general circulation in New York City,
which we expect to be The Wall Street Journal. We would also expect to release
this information by means of Bloomberg and Reuters news services.
Notice to Settle with Cash
If the remarketing has not occurred on or before the ninth business day
preceding the purchase contract settlement date, a holder of a Corporate Unit
wishing to settle the related purchase contract with cash must notify the
purchase contract agent by delivering a "Notice to Settle with Cash" by 11:00
a.m., New York City time, on the sixth business day preceding the purchase
contract settlement date. A holder of a Treasury Unit wishing to settle the
related purchase contract with cash must notify the purchase contract agent by
delivering a "Notice to Settle with Cash" by 11:00 a.m., New York City time, on
the second business day preceding the purchase contract settlement date. A
holder of Treasury Units wishing to settle the related purchase contract with
cash must give notice and settle such contracts in increments of 20 Treasury
Units.
A holder wishing to settle with cash must deliver to the securities
intermediary the cash payment in the form of a certified or cashier's check or
by wire transfer, in each case in immediately available funds payable to or
upon the order of the securities intermediary. Payment must be delivered by
11:00 a.m., New York City time, on the fifth business day before the purchase
contract settlement date in the case of a Corporate Unit, or by 11:00 a.m., New
York City time, on the business day before the purchase
S-30
contract settlement date in the case of Treasury Units. Upon receipt of the
cash payment, the related senior notes or Treasury Securities, as the case may
be, will be released from the pledge arrangement and transferred to the
purchase contract agent for distribution to the holder of the related Units. If
the payment is not delivered by that time and date, then the related senior
notes will be included in any remarketing that occurs on the third business day
before the purchase contract settlement date or Dominion will receive at
maturity the principal amount of the related Treasury Securities in full
satisfaction of the holder's obligations under the related purchase contract.
Any cash received by the securities intermediary upon the cash settlement
described above will be invested promptly in permitted investments and paid to
Dominion on the purchase contract settlement date.
Early Settlement by Delivering Cash
You may satisfy your obligation to purchase common stock under your purchase
contract at any time before 5:00 p.m., New York City time, on the Election Date
by paying cash. If you choose to settle the purchase contracts by paying cash,
you will be required to pay $50 in cash by 5:00 p.m., New York City time, on
the Election Date. If you are settling purchase contracts that are part of
Treasury Units, you will only be able to do so in multiples of 20.
To effect early settlement, you will be required to do the following by 5:00
p.m., New York City time, on the Election Date:
. You must deliver to the purchase contract agent a notice indicating your
election to settle the purchase contracts with cash.
. You must also deliver to the purchase contract agent a cash payment of (1)
$50 for each purchase contract being settled and (2) if the delivery is
made at any time from a record date to the next quarterly purchase contract
adjustment payment date, an amount equal to the quarterly purchase contract
adjustment payment payable on that purchase contract adjustment payment
date with respect to the purchase contract.
You will receive, for each Corporate Unit or Treasury Unit you surrender,
both:
. 0.6148 Dominion common shares, regardless of the closing price of the
common stock on the date of early settlement but subject to specified
anti-dilution adjustments; and
. your senior note, if you are settling a Corporate Unit, or a 1/20 undivided
beneficial interest in a Treasury Security, if you are settling a Treasury
Unit.
Following the early settlement of your purchase contracts, you will no longer
receive any purchase contract adjustment payments unless your purchase contract
is settled after a record date but before the next quarterly purchase contract
adjustment payment date, in which case you will receive one final purchase
contract adjustment payment. In the case of early settlement of a Corporate
Unit, so long as you continue to hold your senior note, you will continue to
receive interest payments on your senior note from the date of settlement and
continuing until your senior note matures on May 15, 2008. Interest on your
senior note will accrue at the rate of 5.75%
S-31
per year to, but excluding, the earlier of the remarketing settlement date (the
third business day following a successful remarketing) and the purchase
contract settlement date. On and after the earlier of the remarketing
settlement date and the purchase contract settlement date, interest on your
senior note will accrue at the reset rate. In the case of early settlement of
Treasury Units, you will receive Treasury Securities which will not pay
interest but accrue original issue discount until payment of the full principal
amount thereof on the maturity of such securities.
Optional Remarketing
Holders of senior notes that are not included in Corporate Units may elect to
have their senior notes included in the remarketing by delivering their senior
notes with a notice of that election to the collateral agent by 5:00 p.m., New
York City time, on the Election Date. The collateral agent will hold these
senior notes in an account separate from the collateral account in which the
senior notes pledged to secure holders of Corporate Units will be held.
On the business day before the Initial Remarketing Date, the collateral agent
will deliver these separated senior notes to the Underwriter for remarketing.
The Underwriter will use its commercially reasonable efforts to remarket the
separated senior notes included in the remarketing on the remarketing date at a
price equal to the remarketing value. After deducting the remarketing fee of 25
basis points (0.25% of the principal amount), the Underwriter will remit to the
collateral agent the remaining portion of the proceeds attributable to these
senior notes for payment to these participating holders.
If the Underwriter cannot remarket the senior notes, as described above, then
the Underwriter will return the senior notes to the collateral agent to
release to the holders promptly following the failed remarketing.
Contract Adjustment Payments
Contract adjustment payments will be fixed at a rate per year of 3.00% of the
$50 stated amount per purchase contract, subject to increase as described
below. Contract adjustment payments payable for any period will be computed (1)
for any full quarterly period on the basis of a 360-day year of twelve 30-day
months, (2) for any period shorter than a full quarterly period but a month or
longer, on the basis of a 30-day month and (3) for periods of less than a
month, on the basis of the actual number of days elapsed per 30-day month.
Contract adjustment payments will accrue from March 20, 2002 and will be
payable quarterly in arrears on February 15, May 15, August 15, and November 15
of each year, commencing May 15, 2002, and will be made on outstanding
Corporate and Treasury Units to, but not including, the purchase contract
settlement date.
If a Reset Transaction (as defined below) occurs, the rate at which the
contract adjustment payments accrue will be adjusted to equal the Adjusted
Contract Adjustment Payment Rate from the effective date of the Reset
Transaction to, but not including, the earlier of:
.. the effective date of any later Reset Transaction, or
.. the purchase contract settlement date.
"Reset Transaction" means a merger, consolidation or statutory share exchange
to which the entity that is the issuer of the common shares for which the
purchase contracts are then to be settled is a party, a sale of all or
substantially all the assets of
S-32
that entity, a recapitalization of the common shares or a distribution
described in clause (4) of the first paragraph under "--Anti-Dilution
Adjustments" below, after the effective date of which transaction or
distribution the purchase contracts are then to be settled for:
.. shares of an entity that has a Dividend Yield on its common stock for its
four fiscal quarters preceding the public announcement of that transaction
or distribution that was more than 250 basis points (2.50%) higher than the
Dividend Yield on Dominion's common shares, or other common shares then
issuable upon settlement of the purchase contracts, for the four fiscal
quarters preceding the public announcement of such transaction or
distribution; or
.. shares of an entity that announces a dividend policy prior to the effective
date of the transaction or distribution which policy, if implemented, would
result in a Dividend Yield on that entity's common shares for the next four
fiscal quarters that would result in such a 250 basis point increase.
The "Adjusted Contract Adjustment Payment Rate," with respect to any Reset
Transaction, will be the rate per year that is the arithmetic average of the
rates quoted by two Reference Dealers selected by Dominion or its successor as
the rate at which contract adjustment payments should accrue so that the fair
market value, expressed in dollars, of a Corporate Unit immediately after the
later of:
.. the public announcement of the Reset Transaction, or
.. the public announcement of a change in dividend policy in connection with
the Reset Transaction,
will equal the average Trading Price of a Corporate Unit for the 20 Trading
Days immediately preceding the date of public announcement of the Reset
Transaction. However, the Adjusted Contract Adjustment Payment Rate will not be
less than 3.00% per year.
The "Dividend Yield" on any security for any period means the dividends paid
or proposed to be paid under an announced dividend policy on such security for
such period divided by, if with respect to dividends paid on such security, the
average Closing Price of such security during such period and, if with respect
to dividends proposed to be paid on such security, the Closing Price of such
security on the effective date of the related Reset Transaction.
"Reference Dealer" means a dealer engaged in the trading of convertible
securities.
"Trading Price" of a security on any date of determination means:
.. the closing sale price or, if no closing sale price is reported, the last
reported sale price of a security, regular way, on the NYSE on such date;
.. if that security is not listed for trading on the NYSE on any such date, the
closing sale price as reported in the composite transactions for the
principal United States securities exchange on which that security is so
listed;
.. if that security is not so listed on a United States national or regional
securities exchange, the closing sale price as reported by The Nasdaq Stock
Market;
.. if that security is not so reported, the price quoted by Interactive Data
Corporation for that security or, if Interactive Data
S-33
Corporation is not quoting such price, a similar quotation service selected
by Dominion;
.. if that security is not so quoted, the average of the mid-point of the last
bid and ask prices for that security from at least two dealers recognized as
market-makers for such security; or
.. if that security is not so quoted, the average of the last bid and ask
prices for that security from a Reference Dealer.
Contract adjustment payments will be payable to the holders of purchase
contracts as they are registered on the books and records of the purchase
contract agent on the relevant record dates. So long as the Equity Income
Securities remain in book-entry only form that record date will be the business
day prior to the relevant payment dates. Contract adjustment payments will be
paid through the purchase contract agent, which will hold amounts received in
respect of the contract adjustment payments for the benefit of the holders of
the purchase contracts that are a part of such Equity Income Security. Subject
to any applicable laws and regulations, each payment will be made as described
under "--Book-Entry Issuance" below. If the Equity Income Securities do not
remain in book-entry only form, the relevant record dates will be the 15th
business day prior to the relevant payment dates. If any date on which contract
adjustment payments are to be made is not a business day, then payment of the
contract adjustment payments payable on that date will be made on the next day
that is a business day and without any interest in respect of any such delay.
However, if such business day is in the next calendar year, payment will be
made on the prior business day.
Anti-Dilution Adjustments
The formula for determining the Settlement Rate will be subject to adjustment
(as set forth in the purchase contract) upon the occurrence of specified
events, including:
(1) the payment of dividends and other distributions on Dominion's common
shares made in common shares;
(2) the issuance to all holders of common shares of rights, options or
warrants entitling them, for a period of up to 45 days, to subscribe for
or purchase common shares at less than their Current Market Price;
(3) subdivisions, splits or combinations of common shares;
(4) distributions to all holders of common shares of evidences of
indebtedness or assets, including securities but excluding any dividend
or distribution covered by clause (1) or (2) above and any dividend or
distribution paid exclusively in cash;
(5) distributions consisting exclusively of cash to all holders of common
shares in an aggregate amount that, together with (a) other all-cash
distributions made within the preceding 12 months and (b) any cash plus
the fair market value, as of the expiration of the tender or exchange
offer referred to below, of consideration payable in respect of any
tender or exchange offer by Dominion or any of its subsidiaries for all
or any portion of the common shares concluded within the preceding 12
months, exceeds 15% of Dominion's total market capitalization on the date
of the distribution; total market
S-34
capitalization is the product of the Current Market Price of the common
shares multiplied by the number of common shares then outstanding; and
(6) the successful completion of a tender or exchange offer made by Dominion
or any of its subsidiaries for the common shares that involves an
aggregate consideration having a fair market value that, together with
(a) any cash and the fair market value of other consideration payable in
respect of any tender or exchange offer by Dominion or any of its
subsidiaries for the common shares concluded within the preceding 12
months and (b) the total amount of any all-cash distributions to all
holders of Dominion's common shares made within the preceding 12 months,
exceeds 15% of Dominion's total market capitalization on the expiration
of such tender or exchange offer.
"Current Market Price" per common share on any day means the average of the
daily Closing Prices for the five consecutive Trading Days selected by Dominion
commencing not more than 30 Trading Days before, and ending not later than, the
earlier of the day in question and the day before the "ex date" with respect to
the issuance or distribution requiring such computation. For purposes of this
paragraph, the term "ex date," when used with respect to any issuance or
distribution, will mean the first date on which the common shares trade regular
way on the applicable exchange or in the applicable market without the right to
receive such issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the common shares
are converted into the right to receive other securities, cash or property,
each purchase contract then outstanding would become, without the consent of
the holder of the related Corporate Unit or Treasury Unit, as the case may be,
a contract to purchase on the purchase contract settlement date only the kind
and amount of securities, cash and other property receivable upon consummation
of the transaction by a holder of the number of common shares that would have
been received by the holder of the related Corporate Unit or Treasury Unit
immediately prior to the date of consummation of the transaction if the holder
had then settled such purchase contract.
If at any time Dominion makes a distribution of property to its shareholders
that would be taxable to shareholders as a dividend for United States federal
income tax purposes (for example, distributions of evidences of indebtedness or
assets of Dominion, but generally not share dividends or rights to subscribe to
capital shares) and, under the Settlement Rate adjustment provisions of the
purchase contract agreement, the Settlement Rate is increased, such increase
may give rise to a taxable dividend to holders of the Equity Income Securities.
See "United States Federal Income Tax Consequences--Purchase
Contracts--Adjustment to Settlement Rate" on page S-56.
In addition, Dominion may make such increases in the Settlement Rate as it
deems advisable in order to avoid or diminish any income tax to holders of its
capital shares resulting from any dividend or distribution of capital shares,
or rights to acquire capital
S-35
shares, or from any event treated as such for income tax purposes or for any
other reason.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate will be required
unless the adjustment would require an increase or decrease of at least 1% in
the Settlement Rate. However, any adjustments not required to be made by
reason of the foregoing will be carried forward and taken into account in any
subsequent adjustment.
Whenever the Settlement Rate is adjusted, Dominion must deliver to the
purchase
contract agent a certificate setting forth the Settlement Rate, detailing the
calculation of the Settlement Rate and describing the facts upon which the
adjustment is based. In addition, Dominion must notify the holders of the
Equity Income Securities of the adjustment within ten business days of any
event requiring such adjustment and describe in reasonable detail the method by
which the Settlement Rate was adjusted.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of common shares issuable upon early settlement of a
purchase contract.
If an adjustment is made to the Settlement Rate, an adjustment also will be
made to the Applicable Market Value solely to determine which Settlement Rate
will be applicable on the purchase contract settlement date.
Termination
The purchase contract agreement, the purchase contracts and the obligations
and rights of Dominion and of the holders of the Equity Income Securities
thereunder, including the holders' right to receive contract adjustment
payments and the obligation and right to purchase and receive common shares,
will terminate immediately and automatically upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to Dominion.
Upon termination, the collateral agent will release the related senior notes
or Treasury Securities, as the case may be, or if senior notes have been
redeemed or remarketed, your proportionate interest in the portfolio of
Treasury securities purchased with the proceeds of the redemption or
remarketing, from the pledge arrangement and cause the securities intermediary
to transfer such senior notes or Treasury Securities to the purchase contract
agent for distribution to the holders of Equity Income Securities. Upon
termination, however, that release and distribution may be subject to a delay.
If Dominion becomes the subject of a case under the Bankruptcy Code, the delay
may occur as a result of the automatic stay under the Bankruptcy Code and
continue until such automatic stay has been lifted. We expect any such delay to
be limited. There is, however, no directly controlling legal authority with
respect to the effect of a bankruptcy filing on the termination and release
provisions of an instrument like the Equity Income Securities.
Pledged Securities and Pledge Agreement
The senior notes or the portfolio of Treasury securities that are a part of
the Corporate Units or, if substituted, the Treasury Securities that are a part
of the Treasury Units (collectively, the "Pledged Securities") will be pledged
to the collateral agent for the benefit of Dominion under the pledge agreement
to secure the obligations of the holders of the Equity Income
S-36
Securities to purchase common shares under the related purchase contracts. The
rights of the holders of the Equity Income Securities with respect to the
Pledged Securities will be subject to Dominion's security interest therein. No
holder of Corporate Units or Treasury Units will be permitted to withdraw the
Pledged Securities related to such Corporate Units or Treasury Units from the
pledge arrangement except:
(1)to substitute Treasury Securities for the related senior notes;
(2)to substitute senior notes for the related Treasury Securities (for both
(1) and (2), as provided for under "Description of the Equity Income
Securities--Creating Treasury Units by Substituting Treasury Securities"
and "--Recreating Corporate Units" on pages S-23 and S-25);
(3) upon delivery of specified Treasury Securities when electing not to
participate in a remarketing; and
(4)upon early settlement, settlement for separate cash or termination of the
related purchase contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, each holder of Corporate Units will be
entitled, through the purchase contract agent and the collateral agent, to all
of the proportional rights and preferences of the related senior notes (or,
following the remarketing or tax event redemption, the holders' proportional
interest in the related Treasury portfolio), including interest payments,
voting and other rights, and each holder of Treasury Units will retain
beneficial ownership of the related Treasury Securities pledged in respect of
the related purchase contracts. Dominion will have no interest in the Pledged
Securities other than its security interest.
The securities intermediary will distribute, upon receipt of interest on the
Pledged Securities, payments to the purchase contract agent, which in turn will
distribute those payments, together with contract adjustment payments received
from Dominion, to the holders in whose names the Equity Income Securities are
registered at the close of business on the record date prior to the date of
such distribution.
Book-Entry Issuance
The depositary for the Equity Income Securities will be DTC. The Equity
Income Securities will be issued only as fully registered securities registered
in the name of Cede & Co., DTC's nominee. The Equity Income Securities will be
issued in accordance with the procedures set forth under "Book-Entry Procedures
and Settlement" starting on page S-48.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACTS, THE PURCHASE CONTRACT AGREEMENT
AND THE PLEDGE AGREEMENT
General
Distributions on the Equity Income Securities will be payable, the purchase
contracts and documents related thereto will be settled and transfers of the
Equity Income Securities will be registrable at the office of the purchase
contract agent in the Borough of Manhattan, New York City. In addition, if the
Equity Income Securities do not remain in book-entry form, Dominion has the
option to pay distributions on the Equity Income Securities by check mailed to
the address of the person entitled thereto as shown on Dominion's security
register.
S-37
No service charge will be made for any registration of transfer or exchange
of the Equity Income Securities, except for any tax or other governmental
charge that may be imposed in connection therewith.
Modification
Subject to limited exceptions, Dominion and the purchase contract agent may
not modify the terms of the purchase contracts or the purchase contract
agreement without the consent of the holders of not less than a majority of the
outstanding purchase contracts, except that no modification may, without the
unanimous consent of the holders of each outstanding purchase contract affected
thereby:
.. change any payment date;
.. change the amount or type of collateral required to be pledged to secure a
holder's obligations under the purchase contract, impair the right of the
holder of any purchase contract to receive interest on the collateral, or
otherwise adversely affect the holder's rights in or to the collateral;
.. reduce any contract adjustment payments or change the place or currency of
payment;
.. impair the right to institute suit for the enforcement of a purchase
contract;
.. reduce the number of common shares purchasable under a purchase contract,
increase the purchase price of the common shares on settlement of any
purchase contract, change the purchase contract settlement date or otherwise
adversely affect the holder's rights under a purchase contract; or
.. reduce the above-stated percentage of outstanding purchase contracts whose
holders' consent is required for the modification or amendment of the
provisions of the purchase contracts or the purchase contract agreement.
However, if any amendment or proposal would adversely affect only the
Corporate Units or only the Treasury Units, then only the affected class of
holders will be entitled to vote on the amendment or proposal, and the
amendment or proposal will not be effective except with the consent of the
holders of not less than a majority of the class or, if referred to in the
listed items above, all of the holders of the class.
Subject to limited exceptions, Dominion, the collateral agent, the securities
intermediary and the purchase contract agent may not modify the terms of the
pledge agreement without the consent of the holders of not less than a majority
of the outstanding purchase contracts, except that no modification may, without
the unanimous consent of the holders of each outstanding Equity Income Security
adversely affected thereby:
.. change the amount or type of collateral underlying an Equity Income
Security, impair the right of the holder of any Equity Income Security to
receive interest on the underlying collateral or otherwise adversely affect
the holder's rights in or to the collateral;
.. otherwise effect any action that, under the purchase contract agreement,
would require the consent of the holders of each outstanding Equity Income
Security affected thereby; or
.. reduce the above-stated percentage of outstanding purchase contracts whose
holders' consent is required for the amendment.
S-38
However, if any amendment or proposal would adversely affect only the Corporate
Units or only the Treasury Units, then only the affected class of holders will
be entitled to vote on the amendment or proposal, and the amendment or proposal
will not be effective except with the consent of the holders of not less than a
majority of the class or, if referred to in the items listed above, all of the
holders of the class.
No Consent to Assumption
Each holder of Corporate Units or Treasury Units will be deemed under the
terms of the purchase contract agreement, by his or her acceptance of such
Units, to have expressly withheld any consent to the assumption (also known as
affirmance) of the related purchase contracts by Dominion, its receiver,
liquidator or trustee if Dominion becomes the subject of a case under the
Bankruptcy Code or other similar state or federal law providing for
reorganization or liquidation.
Consolidation, Merger, Sale or Conveyance
Dominion will agree in the purchase contract agreement that it will not merge
or consolidate with any other entity or sell, assign, transfer, lease or convey
all or substantially all of its properties and assets to any other entity or
group of affiliated entities unless:
.. either Dominion is the continuing corporation or the successor corporation
is a corporation organized under the laws of the United States of America, a
state thereof or the District of Columbia and that this corporation
expressly assumes all the obligations of Dominion under the purchase
contracts, the purchase contract agreement and the pledge agreement by one
or more supplemental agreements in form reasonably satisfactory to the
purchase contract agent and the collateral agent; and
.. Dominion or that successor corporation is not, immediately after such
merger, consolidation, sale, assignment, transfer, lease or conveyance, in
default in the performance of any covenant or condition underlying the
purchase contract, the purchase contract agreement or the pledge agreement.
Governing Law
The purchase contracts, the purchase contract agreement and the pledge
agreement will be governed by, and construed in accordance with, the laws of
the State of New York.
Information Concerning the Purchase Contract Agent
JPMorgan Chase Bank will be the purchase contract agent. The purchase
contract agent will act as the agent for the holders of the Equity Income
Securities from time to time. The purchase contract agent will not be obligated
to take any discretionary action in connection with a default under the terms
of the Equity Income Securities or the purchase contract agreement.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement also
will contain provisions under which the purchase contract agent may resign or
be replaced. Resignation or replacement would be effective upon the acceptance
of appointment by a successor.
S-39
Information Concerning the Collateral Agent
Bank One Trust Company, N.A. will be the collateral agent. The collateral
agent will act solely as the agent of Dominion and will not assume any
obligation or relationship of agency or trust for or with any of the holders of
the Equity Income Securities except for the obligations owed by a pledgee of
property to the owner thereof under the pledge agreement and applicable law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement also will contain provisions under which
the collateral agent may resign or be replaced. Resignation or replacement
would be effective upon the acceptance of appointment by a successor.
Information Concerning the Securities Intermediary
Bank One Trust Company, N.A. will be the securities intermediary. All
property delivered to the securities intermediary pursuant to the purchase
contract agreement or the pledge agreement will be credited to a collateral
account established by the securities intermediary for the collateral agent.
The securities intermediary will treat the purchase contract agent as entitled
to exercise all rights relating to any financial asset credited to such
collateral account, subject to the provisions of the pledge agreement.
Information Concerning the Transfer Agents and Registrars
Dominion and Continental Stock Transfer & Trust Company are transfer agents
and registrars. You may contact Dominion at the address listed on page S-3 or
Continental at 2 Broadway, New York, New York 10004.
Miscellaneous
The purchase contract agreement will provide that Dominion will pay all fees
and expenses related to (1) the retention of the collateral agent and the
securities intermediary and (2) the enforcement by the purchase contract agent
of the rights of the holders of the Equity Income Securities. However, holders
who elect to substitute the related Pledged Securities, thereby creating
Treasury Units or recreating Corporate Units, will be responsible for any fees
or expenses payable in connection with the substitution, as well as for any
commissions, fees or other expenses incurred in acquiring the Pledged
Securities to be substituted. Dominion will not be responsible for any of those
fees or expenses.
DESCRIPTION OF THE SENIOR NOTES
The following description sets forth the specific terms of the senior notes.
It supplements, and should be read together with, the description of the Senior
Debt Securities in the accompanying prospectus under the captions "Description
of Debt Securities" and "Additional Terms of Senior Debt Securities" and, to
the extent it is inconsistent with the prospectus, replaces the description in
the prospectus. The senior notes form a part of the Corporate Units and, under
certain circumstances, will trade separately from the purchase contracts also
forming a part of the Corporate Units. The senior notes will be issued under an
indenture dated as of June 1, 2000, between Dominion and JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank), as indenture trustee, as
supplemented and amended by the Tenth Supplemental Indenture, dated as of March
1, 2002. The descriptions in this prospectus supplement
S-40
and the accompanying prospectus contain a description of the material terms of
the senior notes and the indenture but do not purport to be complete. For
additional information, refer to the indenture that is incorporated by
reference into the Registration Statement and the Tenth Supplemental Indenture
and the form of senior notes that will be filed with the SEC as an exhibit to a
Current Report on Form 8-K. Capitalized terms used in this section not
otherwise defined in this prospectus supplement have the meanings set forth in
the indenture.
General
The senior notes will be unsecured senior obligations of Dominion. The senior
notes will be limited in aggregate principal amount to $330,000,000.
The senior notes will not be subject to a sinking fund provision. The entire
principal amount of the senior notes will mature and become due and payable,
together with any accrued and unpaid interest thereon, on May 15, 2008.
The senior notes will initially be issued in the form of one or more fully
registered global certificates deposited with DTC. Under limited circumstances,
the senior notes may be issued in certificated form in exchange for the global
certificates. See "Book-Entry Procedures and Settlement" starting on page S-48.
If the senior notes are issued in certificated form, the senior notes will be
in denominations of $50 and integral multiples thereof and may be transferred
or exchanged at the offices described below. Payments on senior notes issued as
global certificates will be made to DTC, a successor depositary or, if no
depositary is used, to a paying agent for the senior notes. If the senior notes
are issued in certificated form, principal and interest will be payable, the
transfer of the senior notes will be registrable and the senior notes will be
exchangeable for senior notes of other denominations of a like aggregate
principal amount at the corporate trust office or agency of the indenture
trustee in New York City. However, at the option of Dominion, payment of
interest may be made by check.
Ranking
The senior notes will be our direct, unsecured and unsubordinated
obligations, will rank equally with all of our other senior unsecured
indebtedness and will rank senior in right of payment to all our subordinated
indebtedness. The senior notes will be effectively subordinated to our secured
debt, if any.
Because we are a holding company and conduct all of our operations through
our subsidiaries, our ability to meet our obligations under the senior notes is
dependent on the earnings and cash flows of those subsidiaries and the ability
of those subsidiaries to pay dividends or to advance or repay funds to us.
Holders of senior notes will generally have a junior position to claims of
creditors of our subsidiaries, including trade creditors, debtholders, secured
creditors, taxing authorities, guarantee holders and any preferred
stockholders. As of December 31, 2001, Dominion Virginia Power had
approximately 3.84 million issued and outstanding shares of preferred stock. In
addition to trade debt, most of our operating subsidiaries have ongoing
corporate debt programs used to finance their business activities. As of
December 31, 2001, our subsidiaries had approximately $9 billion of outstanding
long-term debt (including securities due within one year).
S-41
The indenture contains no restrictions on the amount of additional
indebtedness that we may incur.
Interest
Each senior note will bear interest at the rate of 5.75% per year from March
20, 2002 until the earlier of the remarketing settlement date or the purchase
contract settlement date. At that time, the interest rate on all outstanding
senior notes, whether or not a part of Corporate Units, will be reset.
Interest will be payable quarterly in arrears on February 15, May 15, August
15 and November 15 of each year (each an "Interest Payment Date"), commencing
May 15, 2002, to the person in whose name that senior note is registered,
subject to certain exceptions, at the close of business on the business day
preceding such Interest Payment Date. If the senior notes do not remain in
book-entry only form, the record dates will be 15 business days prior to each
Interest Payment Date.
The Reset Rate will be equal to the rate per year that results from the
remarketing of the senior notes as described below under "--Interest Rate Reset
by Remarketing." However, if a failed remarketing occurs, the Reset Rate will
be equal to (1) the Two-Year Benchmark Rate plus (2) a spread ranging from 300
to 700 basis points based on the credit ratings of the senior notes at that
time.
The amount of interest payable on the senior notes for any period will be
computed (1) for any full quarterly period on the basis of a 360-day year of
twelve 30-day months, (2) for any period shorter than a full quarterly period,
on the basis of a 30-day month and (3) for any period less than a month, on the
basis of the actual number of days elapsed per 30-day month. If any date on
which interest is payable on the senior notes is not a business day, then
payment of the interest payable on that date will be made on the next day that
is a business day (and without any interest or other payment in respect of any
such delay) and with the same force and effect as if made on such date.
However, if such business day is in the next calendar year, then such payment
will be made on the preceding business day.
Interest Rate Reset by Remarketing
The interest rate on all senior notes, whether or not a part of Corporate
Units, will be reset to an interest rate sufficient to allow a remarketing of
the senior notes that are part of the Corporate Units at a price equal to the
remarketing value, except as set forth below, except that the reset interest
rate may not exceed the maximum amount allowed by law. The reset rate will be
determined on the remarketing date and will be effective as to all senior notes
commencing on the earlier of the remarketing settlement date, which will be
three business days following the successful remarketing, or the purchase
contract settlement date.
If the remarketing is successful, the reset rate will be the rate per year
that results from the remarketing of the senior notes that are a part of the
Corporate Units and the separated senior notes as to which the holders have
requested remarketing. Commencing on February 15, 2006, the Initial Remarketing
Date, the Underwriter will use its commercially reasonable efforts to remarket
the senior notes subject to the remarketing. If the Underwriter cannot
establish a reset rate meeting the specified requirements, and as a result the
senior notes
S-42
cannot be remarketed, the senior notes will continue to bear their initial
interest rate until a reset rate may be determined.
If the remarketing is not successful on or before the ninth business day
preceding the purchase contract settlement date or on the third business day
preceding the purchase contract settlement date, the Underwriter will cause the
interest rate to be reset at an annual interest rate equal to (1) the Two-Year
Benchmark Rate plus (2) a spread ranging from 300 to 700 basis points based on
the credit ratings of the senior notes at that time.
If the holders of senior notes have elected not to have their senior notes
remarketed and on the third business day preceding the purchase contract
settlement date none of the Corporate Units includes a senior note, the reset
rate will be the rate determined by the Underwriter, in its sole discretion, as
the rate that, in its judgment, would have been established had a remarketing
been held on the third business day preceding the purchase contract settlement
date.
"Two-Year Benchmark Rate" means the bid side rate displayed at 10:00 a.m.,
New York City time, on the third business day preceding the purchase contract
settlement date for direct obligations of the United States having a maturity
comparable to the remaining term to maturity of the senior notes, as agreed
upon by Dominion and the Underwriter. This rate will be as displayed in the
Telerate system or, if the Telerate system is no longer available or, in the
judgment of the Underwriter, after consultation with Dominion, no longer an
appropriate system from which to obtain such rate, such other nationally
recognized quotation system as, in the judgment of the Underwriter, after
consultation with Dominion, is appropriate. If this rate is not so displayed,
the Two-Year Benchmark Rate will be calculated by the Underwriter as the yield
to maturity for direct obligations of the United States having a maturity
comparable to the remaining term to maturity of the senior notes, expressed as
a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis, and computed by taking the arithmetic mean of the
secondary market bid rates, as of 10:30 a.m., New York City time, on the third
business day preceding the purchase contract settlement date of three leading
United States government securities dealers selected by the Underwriter after
consultation with Dominion. These dealers may include the Underwriter or an
affiliate. However, if, in the judgment of the Underwriter, after consultation
with Dominion, direct obligations of the United States are no longer
appropriate benchmarks for the purpose of setting the Reset Rate if a Failed
Remarketing has occurred, the Underwriter and Dominion will agree upon another
Two-Year Benchmark Rate.
Remarketing
All senior notes will be remarketed beginning February 15, 2006, except for
those senior notes that are not part of a Corporate Unit, the holders of which
do not elect to have their senior notes remarketed, as described under
"--Optional Remarketing." The senior notes that are included in the Corporate
Units will be remarketed on the Initial Remarketing Date, unless the
Underwriter delays the remarketing to a later date as described below.
Notice of the remarketing, including the specific Treasury securities
(including the CUSIP numbers and/or the principal terms thereof) that must be
delivered by holders
S-43
who elect not to participate in the remarketing and to create Treasury Units,
will be given to holders on the seventh business day before the Election Date.
A holder electing not to participate in the remarketing and wishing to create
Treasury Units must notify the purchase contract agent of such election and
deliver such specified Treasury Securities to the purchase contract agent not
later than 5:00 p.m., New York City time, on the Election Date. A holder of
Corporate Units who does not create Treasury Units and does not deliver the
Treasury Securities will be deemed to have elected to participate in the
remarketing.
We will enter into a remarketing agreement with the Underwriter, as
remarketing agent, under which it will agree to use its commercially reasonable
efforts to sell the senior notes that are included in Corporate Units at a
price equal to the remarketing value as described under "Description of the
Purchase Contracts--Settlement by Remarketing."
The remarketing agreement provides that the remarketing agent will incur no
liability to Dominion or to any holder of the Corporate Units or the senior
notes in its individual capacity or as remarketing agent for any action or
failure to act in connection with a remarketing or otherwise, except as a
result of the negligence or willful misconduct on its part. The remarketing
agent will receive 0.25% of the principal amount of the proceeds received in
the remarketing as its remarketing fee.
Dominion has agreed to indemnify the remarketing agent against certain
liabilities, including liabilities under the Securities Act of 1933, arising
out of or in connection with its duties under the remarketing agreement.
The remarketing agreement also will provide that the remarketing agent may
resign and be discharged from its duties and obligations thereunder. However,
no resignation will become effective unless a nationally recognized
broker-dealer has been appointed by Dominion as successor remarketing agent and
the successor remarketing agent has entered into a remarketing agreement with
Dominion. In that case, Dominion will use reasonable efforts to appoint a
successor remarketing agent and enter into a remarketing agreement with that
person as soon as reasonably practicable.
Optional Remarketing
Holders of senior notes that are not included in Corporate Units may elect to
have their senior notes included in the remarketing by delivering their senior
notes with a notice of that election to the collateral agent by 5:00 p.m., New
York City time, on the Election Date. The collateral agent will hold these
senior notes in an account separate from the collateral account in which the
senior notes pledged to secure holders of Corporate Units will be held.
On the business day preceding the Initial Remarketing Date, the collateral
agent will deliver these separated senior notes to the Underwriter for
remarketing. The Underwriter will use its commercially reasonable efforts to
remarket the separately held senior notes included in the remarketing on the
remarketing date at a price equal to the remarketing value. After deducting the
remarketing fee equal to 25 basis points (0.25%) of the principal amount of
each of these senior notes which is included in the remarketing from the total
proceeds of the remarketing of the senior notes that are not part of Corporate
Units,
S-44
the Underwriter will remit to the collateral agent the remaining portion of the
proceeds attributable to these senior notes for payment to these participating
holders.
If the Underwriter cannot remarket the senior notes by the final remarketing
date, as described above, then the Underwriter will promptly return the senior
notes to the collateral agent to release to the holders promptly following the
failed remarketing.
Failed Remarketing
If despite using its commercially reasonable efforts, the Underwriter cannot
remarket all of the relevant senior notes, other than to us, as contemplated
under "--Remarketing" above neither on or before the ninth business day
preceding the purchase contract settlement date nor on the third business day
preceding the purchase contract settlement date or the remarketing may not
commence or be consummated in accordance with applicable law, a "failed
remarketing" will have occurred. If there is a failed remarketing:
. The Underwriter will so advise DTC, the indenture trustee, the purchase
contract agent, the collateral agent and Dominion that a failed remarketing
has occurred.
. We will, acting through the collateral agent, exercise our right as a
secured party to dispose of the senior notes in accordance with applicable
law and that disposition will be deemed to satisfy in full each holder's
obligation to purchase common stock under the related purchase contracts.
. We will cause a notice of any failed remarketing to be published no later
than the business day preceding the purchase contract settlement date in a
daily newspaper in the English language of general circulation in New York
City, which we expect to The Wall Street Journal. We would also expect to
release this information by means of Bloomberg and Reuters news services.
Tax Event Redemption
If a tax event occurs and is continuing, Dominion may, at its option, redeem
the senior notes in whole, but not in part, at any time at a price, which we
refer to as the "redemption price," equal to, for each senior note, the
redemption amount referred to below plus accrued and unpaid interest, if any,
to the date of redemption. Installments of interest on senior notes which are
due and payable on or prior to a redemption date will be payable to holders of
the senior notes registered as such at the close of business on the relevant
record dates. If a tax event redemption occurs prior to a successful
remarketing of the senior notes, the redemption price for the senior notes
forming part of Corporate Units at the time of the tax event redemption will be
distributed to the collateral agent, who in turn will purchase the applicable
Treasury portfolio described below on behalf of the holders of Corporate Units
and remit the remainder of the redemption price, if any, to the purchase
contract agent for payment to the holders. The Treasury portfolio will be
substituted for the redeemed senior notes and will be pledged to the collateral
agent to secure the obligations of the holders of the Corporate Units to
purchase shares of our common stock under the purchase contracts.
"Tax event" means the receipt by Dominion of an opinion of nationally
recognized tax counsel experienced in such
S-45
matters (which may be McGuireWoods LLP) to the effect that there is more than
an insubstantial risk that interest payable by Dominion on the senior notes on
the next interest payment date will not be deductible, in whole or in part, by
Dominion for United States federal income tax purposes as a result of any
amendment to, change in, or announced proposed change in, the laws, or any
regulations thereunder, of the United States or any political subdivision or
taxing authority thereof or therein affecting taxation, any amendment to or
change in an official interpretation or application of any such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority or any official interpretation or pronouncement that provides for a
position with respect to any such laws or regulations that differs from the
generally accepted position on the date of this prospectus supplement, which
amendment, change, or proposed change is effective or which interpretation or
pronouncement is announced on or after the date of this prospectus supplement.
If a tax event redemption occurs prior to a successful remarketing of the
senior notes, the Treasury portfolio to be purchased on behalf of the holders
of the Corporate Units will consist of a portfolio of zero-coupon U.S. Treasury
securities consisting of interest or principal strips of U.S. Treasury
securities that mature on or prior to the purchase contract settlement date in
an aggregate amount equal to the aggregate principal amount of the senior notes
included in the Corporate Units on the tax event redemption date and with
respect to each scheduled interest payment date on the senior notes that occurs
after the tax event redemption date and on or before the purchase contract
settlement date, interest or principal strips of U.S. Treasury securities that
mature on or prior to the interest payment date in an aggregate amount equal to
the aggregate interest payment that would be due on the aggregate principal
amount of the senior notes on that date if the interest rate of the senior
notes were not reset on the applicable remarketing date.
"Redemption amount" means for each senior note the product of the principal
amount of the senior note and a fraction whose numerator is the treasury
portfolio purchase price and whose denominator is, in the case of a tax event
redemption occurring prior to a successful remarketing of the senior notes, the
aggregate principal amount of senior notes included in the Corporate Units, and
in the case of a tax event redemption date occurring after a successful
remarketing of the senior notes, the aggregate principal amount of the senior
notes. Depending on the amount of the treasury portfolio purchase price, the
redemption amount could be less than or greater than the principal amount of
the senior notes.
"Treasury portfolio purchase price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City to the
quotation agent on the third business day immediately preceding the tax event
redemption date for the purchase of the treasury portfolio for settlement on
the tax event redemption date.
"Quotation agent" means the Underwriter or any of its successors or any other
primary U.S. government securities dealer in New York City selected by Dominion.
Notice of any redemption will be mailed at least 20 days but not more than 60
days before the redemption date to each
S-46
registered holder of senior notes to be redeemed at its registered address.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the senior notes. If any
senior notes are called for redemption, neither we nor the trustee will be
required to register the transfer of or exchange the senior notes to be
redeemed.
Limitation on Liens
While any of the senior notes are outstanding, we are not permitted to create
liens upon any Principal Property (as defined below) or upon any shares of
stock of any Material Subsidiary (as defined below), which we now own or own in
the future, to secure any of our debt, unless at the same time we provide that
any out-standing senior notes will also be secured by that lien on an equal and
ratable basis. However, we are generally permitted to create the following
types of liens:
(1) purchase money liens on future property acquired by us; liens of any kind
existing on property or shares of stock at the time they are acquired by
us; conditional sales agreements and other title retention agreements on
future property acquired by us (as long as none of those liens cover any of
our other properties);
(2) liens on our property or any shares of stock of any Material Subsidiary
that exist as of the date the senior notes are first issued; liens on the
shares of stock of any corporation, which liens existed at the time that
corporation became a Material Subsidiary; certain liens typically incurred
in the ordinary course of business;
(3) liens in favor of the United States (or any State), any foreign country or
any department, agency or instrumentality or political subdivision of those
jurisdictions, to secure payments pursuant to any contract or statute or to
secure any debt incurred for the purpose of financing the purchase price or
the cost of constructing or improving the property subject to those liens,
including, for example, liens to secure debt of the pollution control or
industrial revenue bond type;
(4) debt that we may issue in connection with a consolidation or merger of
Dominion or any Material Subsidiary with or into any other company
(including any of our affiliates or Material Subsidiaries) in exchange for
secured debt of that company (Third Party Debt) as long as that debt (i) is
secured by a mortgage on all or a portion of the property of that company,
(ii) prohibits secured debt from being incurred by that company, unless the
Third Party Debt is secured on an equal and ratable basis or (iii)
prohibits secured debt from being incurred by that company;
(5) debt of another company that we must assume in connection with a
consolidation or merger of that company, with respect to which any of our
property is subjected to a lien;
(6) liens on any property that we acquire, construct, develop or improve after
the date the senior notes are first issued that are created before or
within 18 months after the acquisition, construction, development or
improvement of the property and secure the payment of the purchase price or
related costs;
(7) liens in favor of Dominion, our Material Subsidiaries or our wholly-owned
subsidiaries;
S-47
(8) the replacement, extension or renewal of any lien referred to above in
clauses (1) through (7) as long as the amount secured by the liens or the
property subject to the liens is not increased; and
(9) any other lien not covered by clauses (1) through (8) above as long as
immediately after the creation of the lien the aggregate principal amount
of debt secured by all liens created or assumed under this clause (9) does
not exceed 10% of our common shareholders' equity.
When we use the term "lien" in this section, we mean any mortgage, lien,
pledge, security interest or other encumbrance of any kind; "Material
Subsidiary" means each of our subsidiaries whose total assets (as determined in
accordance with GAAP) represent at least 20% of Dominion's total assets on a
consolidated basis; and "Principal Property" means any of Dominion's plants or
facilities located in the United States that in the opinion of our Board of
Directors or management is of material importance to the business conducted by
Dominion and our consolidated subsidiaries taken as whole.
Book-Entry Issuance
The depositary for the senior notes will be DTC. The senior notes will be
issued only as fully registered securities registered in the name of Cede &
Co., DTC's nominee. The senior notes will be issued in accordance with the
procedures set forth under "Book-Entry Procedures and Settlement" below.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Upon issuance, all book-entry securities will be represented by one or more
fully registered global certificates. Each global security will be deposited
with DTC or its custodian and will be registered in the name
of DTC or a nominee of DTC. DTC will thus be the only registered holder of
these securities.
The following is based on information furnished to us by DTC:
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities of its participants ("Participants") and to
facilitate the clearance and settlement of securities transactions among its
Participants in these securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical
movement of securities certificates. DTC's Participants include securities
brokers and dealers (including the underwriters), banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. Persons who are not Participants may
beneficially own securities held by DTC only through Participants.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange LLC and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others
including securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or
S-48
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.
Purchases of securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each actual purchaser of securities
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased securities. Transfers of
ownership interests in the securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
securities, unless use of the book-entry system for the securities is
discontinued.
DTC has no knowledge of the actual Beneficial Owners of the securities. DTC's
records reflect only the identity of the Direct Participants to whose accounts
the securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Although voting with respect to the securities is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to securities. Under its usual procedures, DTC would mail an
Omnibus Proxy to us as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Payments on the securities will be made to DTC in immediately available
funds. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive
payments on the relevant payment date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the account of customers in bearer form or
registered in "street name", and will be the responsibility of the Participant
and not of DTC or Dominion, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment to DTC is our responsibility,
disbursement of the payments to Direct Participants is the responsibility of
DTC, and disbursement of the payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as provided in this prospectus supplement, a Beneficial Owner of
securities will not be entitled to receive physical delivery of securities.
Accordingly,
S-49
each Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the securities. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of securities in definitive
form. These laws may impair the ability to transfer beneficial interests in a
global security.
DTC may discontinue providing its services as securities depositary with
respect to the securities at any time by giving reasonable notice to us. Under
those circumstances, if a successor securities depositary is not obtained,
securities certificates will be printed and delivered to the holders of record.
Additionally, we may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depositary) with respect to the
securities. In that event, certificates for the securities will be printed and
delivered to the holders of record.
We have no responsibility for the performance by DTC or its Participants of
their respective obligations as described in this prospectus supplement or
under the rules and procedures governing their respective operations.
T+5 Settlement
We expect that delivery of the Equity Income Securities will be made against
payment therefor on or about the delivery date specified on the cover page of
this prospectus supplement, which will be the fifth business day following the
date hereof (this settlement cycle being referred to as T+5"). Under Rule
15c6-1 of the SEC under the Exchange Act, trades in the secondary market
generally are required to settle in three business days, unless the parties to
that trade expressly agree otherwise. Accordingly, purchasers who wish to trade
Corporate Units on the date hereof will be required, by virtue of the fact that
the Corporate Units initially will settle in T+5, to specify an alternate
settlement cycle at the time of any such trade to prevent a failed settlement
and should consult their own advisors.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Equity Income
Securities, the senior notes and the common shares acquired under a purchase
contract. Unless otherwise stated, this summary applies only to "U.S. Holders"
who purchase Corporate Units upon original issuance for an amount equal to the
initial offering price and who hold the Equity Income Securities, the senior
notes and the common shares acquired under the purchase contract as capital
assets.
A "U.S. Holder" is:
.. a person who is a citizen or resident of the United States;
.. a corporation or partnership created or organized in or under the laws of
the United States or any subdivision thereof;
.. an estate the income of which is subject to United States federal income
taxation, regardless of its source; or
.. a trust (1) that is subject to the supervision of a court within the United
States and the control of one or more
S-50
"United States persons" as described in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended (the "Code") or (2) that has a valid
election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
The tax treatment of a holder may vary depending on the holder's particular
situation. This summary does not deal with special classes of holders. For
example, this summary does not address:
.. tax consequences to holders who may be subject to special tax treatment,
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, or
tax-exempt investors;
.. tax consequences to traders in securities that elect to use a mark-to-market
method of accounting;
.. tax consequences to persons who will hold the Equity Income Securities, the
senior notes or the common shares acquired under the purchase contract as a
position in a "straddle", "synthetic security", "hedge", "integrated
transaction", "constructive sale transaction" or "conversion transaction";
.. tax consequences to holders of Equity Income Securities, senior notes or
common shares acquired under a purchase contract whose functional currency
is not the U.S. dollar;
.. tax consequences to shareholders, partners or beneficiaries of a holder of
Equity Income Securities, senior notes or common shares acquired under a
purchase contract;
.. alternative minimum tax consequences, if any; or
.. any state, local or foreign tax consequences.
If you are not a United States person (within the meaning of Section 7701
(a)(30) of the Code), you are urged to consult your own tax advisors regarding
the United States federal income tax consequences of an investment in the
Equity Income Securities, including the potential application of United States
withholding taxes.
This summary is based upon the Code, Treasury regulations (including proposed
Treasury regulations) issued thereunder, IRS rulings and pronouncements and
judicial decisions now in effect, all of which are subject to change, possibly
on a retroactive basis. Any changes may be applied retroactively in a manner
that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a U.S. Holder.
No statutory, administrative or judicial authority directly addresses the
treatment of the Equity Income Securities or instruments similar to the Equity
Income Securities for United States federal income tax purposes. As a result,
no assurance can be given that the IRS will agree with the tax consequences
described herein. You are urged to consult your own tax advisors with respect
to the tax consequences to you of the purchase, ownership and disposition of
the Equity Income Securities in light of your own particular circumstances,
including the tax consequences under state, local, foreign and other tax laws
and the possible effects of changes in United States federal or other tax laws.
Corporate Units
Allocation of Purchase Price
A U.S. Holder's acquisition of a Corporate Unit will be treated as an
S-51
acquisition of a unit consisting of the purchase contract and the senior note
that comprise the Corporate Unit. The purchase price of each Corporate Unit
will be allocated between the purchase contract and the senior note in
proportion to their respective fair market values at the time of purchase. This
allocation will establish the U.S. Holder's initial tax bases in the purchase
contract and the senior note. Dominion will report the fair market value of
each senior note as $50 and the fair market value of each purchase contract as
$0. Although this position will not be binding on the IRS, it will be binding
upon each U.S. Holder unless the U.S. Holder explicitly discloses a contrary
position on a statement attached to the U.S. Holder's timely filed United
States federal income tax return for the taxable year in which a Corporate Unit
is acquired. Thus, absent such disclosure, a U.S. Holder should allocate the
purchase price for a Corporate Unit in accordance with the foregoing. The
remainder of this discussion assumes that this allocation of the purchase price
will be respected for United States federal income tax purposes. If the
allocation were not respected by the IRS, the senior notes could be deemed to
be issued at a discount, and you could be subject to the Treasury regulations
requiring the accrual of additional original issue discount on a
constant-yield-to-maturity method regardless of your regular method of
accounting.
Senior Notes
Accrual of Interest
Because of the manner in which the interest rate on the senior notes is
reset, the notes will be classified as contingent payment debt obligations
under applicable Treasury regulations. All payments on the senior notes,
including stated interest, will be taken into account under the Treasury
regulations, and actual cash payments of interest on the senior notes will not
be reported separately as taxable income. As discussed more fully below, the
effect of the Treasury regulations will be to:
.. require all holders, regardless of their usual method of tax accounting, to
use the accrual method with respect to the senior notes;
.. possibly result in the accrual of original issue discount by each holder in
excess of stated interest payments the holder actually receives; and
.. generally result in ordinary rather than capital treatment of any gain, and
to some extent loss, on the sale, exchange, or other disposition of the
senior notes.
Under the contingent payment debt obligation rules, holders will be required
to include original issue discount in income each year, regardless of their
usual method of tax accounting, based on the comparable yield of the senior
notes. In order to determine a holder's income, these rules require Dominion to
determine, as of the issue date, the comparable yield for the senior notes. The
comparable yield of the senior notes will generally be the rate at which
Dominion would issue a fixed rate debt instrument with terms and conditions
similar to the senior notes.
Dominion is required to provide the comparable yield to the holders and,
solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the senior notes and
estimates the amount and timing of contingent payments on the senior notes.
Dominion has determined that the
S-52
comparable yield is an annual rate of 6.364% compounded quarterly. Based on the
comparable yield, the projected payment schedule per senior note is $0.44 for
the period ending on May 15, 2002; $0.72 for each subsequent quarter ending on
or before the Initial Remarketing Date; $0.98 for each quarter ending after the
Initial Remarketing Date; and $50.98 at maturity. Under the supplemental
indenture governing the senior notes, Dominion will agree, and by acceptance of
a beneficial interest in the senior notes, each holder will be deemed to have
agreed, for United States federal income tax purposes, to be bound by
Dominion's determination of the comparable yield and projected payment schedule.
The comparable yield and the projected payment schedule are not provided for
any purpose other than the determination of each holder's interest accruals and
adjustments thereof in respect of the senior notes and do not constitute a
representation regarding the actual amount of the payment on a senior note.
The amount of original issue discount on a senior note for each accrual
period is determined by multiplying the comparable yield of the senior note,
adjusted for the length of the accrual period, by the senior note's adjusted
issue price at the beginning of the accrual period, determined in accordance
with the rules set forth in the contingent payment debt obligation regulations.
The adjusted issue price of each senior note at the beginning of each accrual
period will equal $50, increased by any original issue discount previously
accrued on the senior note and decreased by the fixed payments and by the
contingent payments projected to be made on the senior note. The amount of
original issue discount so determined is then allocated on a ratable basis to
each day in the accrual period that a holder held the senior note. Dominion is
required to provide information returns stating the amount of original issue
discount accrued on senior notes held of record by persons other than
corporations and other exempt owners.
If after the remarketing date, the remaining accounts of principal and
interest payable on the senior notes differ from the payments set forth on the
projected payment schedule, negative or positive adjustments reflecting such
differences should be taken into account by a holder as adjustments to interest
income in a reasonable manner over the period to which they relate.
Sales, Exchanges or Other Dispositions of Senior Notes
Gain on the sale, exchange or other disposition of a senior note up to and
including the remarketing date generally will be treated as ordinary income.
Loss from the disposition of a senior note up to and including the remarketing
date will be treated as ordinary loss to the extent of a holder's prior net
interest inclusions (reduced by the total net negative adjustments previously
allowed as an ordinary loss). Any loss in excess of such amount will be treated
as capital loss. Gain recognized on the sale, exchange or other disposition of
a senior note after the remarketing date will be ordinary income to the extent
attributable to the excess, if any, of the present value of the total remaining
principal and interest payments due on the senior note over the total remaining
payments set forth on the projected payment schedule for the senior note. Any
gain recognized in excess of such amount and
S-53
any loss recognized on such sale, exchange or other disposition generally will
be treated as capital gain or loss. Capital gain of individuals derived in
respect of capital assets held for more than one year will be subject to tax at
a maximum rate of 20%. The deductibility of capital losses is subject to
limitations.
Special rules apply in determining the tax basis of a note. A holder's basis
in a note is generally increased by original issue discount such holder
previously accrued on the note, and reduced by the fixed payments and by the
contingent payments projected to be made.
Remarketing or Tax Event Redemption of the Senior Notes
A remarketing or tax event redemption of the senior notes will be a taxable
event for holders of such senior notes which will be subject to tax in the
manner described below under "--Sale or Disposition of Equity Income
Securities."
Ownership of the Treasury Portfolio
After the remarketing settlement date, a holder's Corporate Unit will include
an interest in a Treasury portfolio instead of a senior note. Dominion and, by
acquiring Corporate Units, the holders agree to treat the holders as the
owners, for United States federal, state and local income and franchise tax
purposes, of the Treasury portfolio that is a part of the Corporate Units. Each
holder's initial tax basis in its applicable ownership interest of the Treasury
portfolio will equal the holder's pro rata portion of the amount paid by the
remarketing agent for the Treasury portfolio. Each holder's adjusted tax basis
in the Treasury portfolio will be increased by the amount of original issue
discount included in income with respect thereto and decreased by the amount of
cash received in respect of the Treasury portfolio.
Interest Income and Original Issue Discount
The Treasury portfolio will consist of stripped U.S. Treasury securities.
Following a remarketing of the senior notes, holders of Corporate Units will be
required to treat their pro rata portion of each U.S. Treasury security in the
Treasury portfolio as a bond that was originally issued on the date the
collateral agent acquired the relevant U.S. Treasury securities and that has
original issue discount equal to the holders' pro rata portion of the excess of
the amounts payable on such U.S. Treasury securities over the value of the U.S.
Treasury securities at the time the collateral agent acquires them on behalf of
the holders of Corporate Units. A holder, whether on the cash or accrual method
of tax accounting, will be required to include original issue discount (other
than original issue discount on short term U.S. Treasury securities as defined
below) in income for United States federal income tax purposes as it accrues on
a constant yield to maturity basis. The amount of such excess will constitute
only a portion of the total amounts payable in respect of the Treasury
portfolio. Consequently, a portion of each scheduled payment to holders will be
treated as a return of the holders' investment in the Treasury portfolio and
will not be considered current income for United States federal income tax
purposes.
In the case of any U.S. Treasury security with a maturity of one year or less
from the date of its issue (a "short-term U.S. Treasury security"), in general
only accrual basis taxpayers will be required to include original issue
discount in income as it
S-54
accrues. Unless an accrual basis holder elects to accrue the original issue
discount on a short-term U.S. Treasury security on a constant yield to maturity
basis, the original issue discount will be accrued on a straight line basis.
Purchase Contracts
Income from Contract Adjustment Payments
There is no direct authority addressing the treatment of the contract
adjustment payments under current law, and the treatment is unclear. Contract
adjustment payments may constitute taxable income to a U.S. Holder when
received or accrued, in accordance with the U.S. Holder's method of tax
accounting. To the extent Dominion is required to file information returns with
respect to contract adjustment payments, it intends to report the contract
adjustment payments as taxable income to each U.S. Holder. U.S. Holders should
consult their own tax advisors concerning the treatment of contract adjustment
payments, including the possibility that any payment may be treated as a loan,
purchase price adjustment, rebate or payment analogous to an option premium,
rather than being includible in income on a current basis. The treatment of
contract adjustment payments could affect a U.S. Holder's tax basis in a
purchase contract or in the common shares acquired under a purchase contract or
the amount realized by a U.S. Holder upon the sale or disposition of an Equity
Income Security or the termination of a purchase contract. See "--Acquisition
of Common Shares under a Purchase Contract," "--Termination of Purchase
Contract" and "--Sale or Disposition of Equity Income Securities."
Acquisition of Common Shares under a Purchase Contract
A U.S. Holder generally will not recognize gain or loss on the purchase of
common shares under a purchase contract, except possibly with respect to any
cash received in lieu of a fractional common share. Subject to the following
discussion, a U.S. Holder's aggregate initial tax basis in
the common shares acquired under a purchase contract generally should equal the
purchase price paid for the common shares plus the U.S. Holder's tax basis in
the purchase contract, if any, less the portion of the purchase price and tax
basis allocable to the fractional share. Payments of contract adjustment
payments that have been received in cash by a U.S. Holder but not included in
income should reduce the U.S. Holder's tax basis in the purchase contract or in
the common shares to be received thereunder. See "--Income from Contract
Adjustment Payments." The holding period for common shares acquired under a
purchase contract will commence on the day of the acquisition of such common
shares.
Ownership of Common Shares Acquired under the Purchase Contract
Any dividend on common shares paid by Dominion out of its current or
accumulated earnings and profits (as determined for United States federal
income tax purposes) will be includible in income by the U.S. Holder when
received. Any such dividend will be eligible for the dividends received
deduction if received by an otherwise qualifying corporate U.S. Holder that
meets the holding period and other requirements for the dividends received
deduction.
Upon a sale or exchange of common shares, a U.S. Holder generally will
recognize capital gain or loss equal to the
S-55
difference between the amount realized and the U.S. Holder's adjusted tax basis
in the common shares. Capital gains of individuals derived in respect of
capital assets held for more than one year are subject to capital gains tax
rates which are lower than ordinary income tax rates. A U.S. Holder's ability
to deduct capital losses is subject to limitations.
Early Settlement of Purchase Contract
A U.S. Holder will not recognize gain or loss on the receipt of the U.S.
Holder's proportionate share of the senior notes or Treasury Securities upon
early settlement of a purchase contract and will have the same tax basis in
such senior notes or Treasury Securities as before such early settlement.
Termination of Purchase Contract
If a purchase contract terminates, a U.S. Holder will recognize capital gain
or loss equal to the difference between the amount realized (if any) upon such
termination and the U.S. Holder's adjusted tax basis (if any) in the purchase
contract at the time of the termination. Payments of contract adjustment
payments received by a U.S. Holder but not included in income should either
reduce the U.S. Holder's tax basis in the purchase contract or result in an
amount realized on the termination of the purchase contract. Any contract
adjustment payments included in a U.S. Holder's income but not paid should
increase the U.S. Holder's tax basis in the purchase contract (see "--Income
from Contract Adjustment Payments" above). Capital gains of individuals derived
in respect of capital assets held for more than one year are subject to capital
gains tax rates which are lower than ordinary income tax rates. A U.S. Holder's
ability to deduct capital losses is subject to limitations. A U.S. Holder will
not recognize gain or loss on the receipt of the U.S. Holder's proportionate
share of senior notes or Treasury Securities upon termination of the purchase
contract and will have the same tax basis in such senior notes or Treasury
Securities as before the termination.
If a termination of the purchase contract occurs when it has negative value,
see "--Sale or Disposition of Equity Income Securities." U.S. Holders should
consult their tax advisors regarding a termination of the purchase contract at
a time when the purchase contract has negative value.
Adjustment to Settlement Rate
U.S. Holders of Equity Income Securities might be treated as receiving a
constructive distribution from Dominion if (1) the Settlement Rate is adjusted
and as a result of such adjustment the proportionate interest of U.S. Holders
of Equity Income Securities in the assets or earnings and profits of Dominion
is increased and (2) the adjustment is not made under a bona fide, reasonable
anti-dilution formula. An adjustment in the Settlement Rate would not be
considered made under a bona fide formula if the adjustment were made to
compensate a U.S. Holder for certain taxable distributions with respect to the
common shares. Thus, under certain circumstances, an increase in the Settlement
Rate might give rise to a taxable dividend to U.S. Holders of Equity Income
Securities even though the U.S. Holders would not receive any cash related
thereto.
Treasury Units
Substitution of Treasury Securities to Create Treasury Units
A U.S. Holder of Corporate Units that delivers Treasury Securities to the
securities intermediary in substitution for senior notes
S-56
generally will not recognize gain or loss upon the delivery of the Treasury
Securities or the release of the senior notes to the U.S. Holder. The U.S.
Holder will continue to include in income any interest on the senior notes, and
the U.S. Holder's basis in the senior notes and the purchase contract will not
be affected by the delivery and release.
Ownership of Treasury Securities
A U.S. Holder's initial tax basis in the Treasury Securities that are part of
the Treasury Units will be equal to the amount paid for the Treasury
Securities. A U.S. Holder generally will include in income any original issue
discount or acquisition discount includible with respect to the Treasury
Securities. In general, you will be required to include in income each year
that you hold a Treasury Security the portion of the original issue discount or
acquisition discount that accrues on the Treasury Security in such year.
Substitution of Senior Notes to Recreate Corporate Units
A U.S. Holder of Treasury Units that delivers senior notes to the securities
intermediary to recreate Corporate Units generally will not recognize gain or
loss upon the delivery of such senior notes or the release of the Treasury
Securities to the U.S. Holder. The U.S. Holder will continue to include in
income any interest, original issue discount or acquisition discount with
respect to such Treasury Securities and the senior notes, and the U.S. Holder's
tax basis in the Treasury Securities, the senior notes and the purchase
contract will not be affected by such delivery and release.
Sale or Disposition of Equity Income Securities
Upon a disposition of Equity Income Securities, a U.S. Holder will be treated
as having sold, exchanged or disposed of the purchase contracts and the senior
notes, or, in the case of Treasury Units, the Treasury Securities, that
comprise such Equity Income Securities and generally will have capital gain or
loss equal to the difference between the portion of the proceeds to the U.S.
Holder allocable to the purchase contracts and the senior notes, or Treasury
Securities, as the case may be, and the U.S. Holder's respective adjusted tax
bases in the purchase contract and the senior notes, or Treasury Securities.
For purposes of determining gain or loss, your proceeds will not include any
amount equal to accrued and unpaid interest on the senior note or Treasury
Security or any amount with respect to accrued contract adjustment payments not
previously included in income, which amounts will be treated as ordinary
income. Capital gains of individuals derived in respect of capital assets held
for more than one year are subject to capital gains tax rates which are lower
than ordinary income tax rates. A U.S. Holder's ability to deduct capital
losses is subject to limitations. If a disposition of the Equity Income
Securities occurs when the purchase contract has negative value, the U.S.
Holder should be considered to have received additional consideration for the
senior notes or Treasury Securities in an amount equal to the negative value
and to have paid the amount to be released from the U.S. Holder's obligation
under the purchase contract. U.S. Holders should consult their tax advisors
regarding a disposition of the Equity Income Securities at a time when the
purchase contract has negative value.
Payments to a U.S. Holder of contract adjustment payments that have not
previously been included in the income of the U.S. Holder should either reduce
the U.S. Holder's tax basis in the purchase
S-57
contract or result in an increase in the amount realized on the disposition of
the purchase contract. Any contract adjustment payments included in a U.S.
Holder's income but not paid should increase the U.S. Holder's tax basis in the
purchase contract. See "--Corporate Units--Purchase Contracts--Income from
Contract Adjustment Payments."
Non-United States Holders
The following summary discusses the U.S. federal income tax consequences to
Non-United States Holders. You are a "Non-United States Holder" if you are not
a U.S. Holder. This summary does not represent a detailed description of the
federal income tax consequences to Non-United States Holders in light of their
particular circumstances. For example, it does not represent a detailed
description of the U.S. federal income tax consequences applicable to
Non-United States Holders subject to special treatment under the U.S. federal
income tax laws (including if the Non-United States Holder is a "controlled
foreign corporation", "passive foreign investment company" or "foreign personal
holding company"). As discussed above, the Equity Income Securities will be
treated by the holders and by Dominion as a unit consisting of a purchase
contract and a senior note or Treasury Security, as the case may be. The
following discussion is subject to the discussion below concerning backup
withholding.
United States Federal Withholding Tax
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest (including original issue discount) on a senior note or
Treasury Security provided that:
.. the Non-United States Holder does not actually (or constructively) own 10%
or more of the total combined voting power of all classes of Dominion's
voting stock within the meaning of the Code and the U.S. Treasury
Regulations;
.. the Non-United States Holder is not a controlled foreign corporation that is
related to Dominion through stock ownership;
.. the Non-United States Holder is not a bank whose receipt of interest on the
senior notes or Treasury Securities is described in Section 881(c)(3)(A) of
the Code; and
.. (a) the Non-United States Holder provides its name and address on an IRS
Form W-8BEN (or successor form), and certifies, under penalty of perjury,
that such holder is not a U.S. person or (b) if a Non-United States Holder
holds its senior notes or Treasury Securities through certain foreign
intermediaries, such holder satisfies the certification requirements of
applicable United States Treasury regulations. Special certification
requirements apply to certain Non-United States Holders that are
pass-through entities rather than individuals.
If a Non-United States Holder cannot satisfy the requirements described
above, payments of premium, if any, and interest (including original issue
discount) made to such holder will be subject to the 30% United States federal
withholding tax, unless such holder provides us with a properly executed (1)
IRS Form W-8BEN (or other applicable form) claiming an exemption from, or
reduction in the rate of, withholding under the benefit of an applicable tax
treaty or (2) IRS Form W-8ECI (or other applicable form) stating that interest
paid on the senior notes or Treasury Securities is not subject to withholding
tax because it is effectively
S-58
connected with a holder's conduct of a trade or business in the United States.
The 30% United States federal withholding tax will not apply to any gain that
a holder realizes on the sale, exchange, or other disposition of the Corporate
Units, Treasury Units, Treasury Securities, senior notes and common shares
acquired under the purchase contract. However, interest income including
original issue discount and any gain treated as ordinary income that a holder
realizes on the sale, exchange or other disposition of a senior note will be
subject to withholding in certain circumstances unless the conditions described
in the four bullet points above are satisfied.
Dominion will generally withhold tax at a 30% rate on contract adjustment
payments and dividends paid on the common shares acquired under a purchase
contract or such lower rate as may be specified by an applicable income tax
treaty. However, contract adjustment payments or dividends that are effectively
connected with the conduct of a trade or business by the Non-United States
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-United
States Holder, are not subject to the withholding tax, provided the relevant
certification requirements are satisfied, but instead are subject to United
States federal income tax, as described below.
A Non-United States Holder of common shares or a purchase contract who wishes
to claim the benefit of an applicable treaty rate (and avoid back-up
withholding as discussed below) for dividends or contract adjustment payments,
will be required to satisfy certain certification and disclosure requirements
described in the fourth bullet point above.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax on payments under an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
United States Federal Income Tax
If the Non-United States Holder is engaged in a trade or business in the
United States and interest on the senior notes, original issue discount on the
Treasury Securities, dividends on the common shares and, to the extent they
constitute taxable income, contract adjustment payments from the purchase
contracts are effectively connected with the conduct of that trade or business,
the Non-United States Holder will be subject to U.S. federal income tax on that
interest, original issue discount, dividends and purchase contract payments
(although exempt from the 30% withholding tax) on a net income basis in the
same manner as if such holder were a U.S. person as defined under the Code.
Certain certification and disclosure requirements must be complied with in
order for effectively connected income to be exempt from withholding. In
addition, if the Non-United States Holder is a foreign corporation, such holder
may be subject to a branch profits tax equal to 30% (or lower applicable treaty
rate) of its earnings and profits for the taxable year, subject to adjustments,
that are effectively connected with the conduct by such holder of a trade or
business in the United States. For this purpose, interest on the senior notes,
original issue discount on the Treasury Securities, dividends on the common
shares and, to the extent they constitute taxable income, the contract
adjustment payments from the purchase contracts will be included in earnings
and profits.
S-59
Generally, a Non-United States Holder will not be subject to United States
federal income taxes on any amount which constitutes gain or income upon sale,
exchange, retirement or other disposition of an Equity Income Security, senior
note, Treasury Security or common shares, unless (1) the gain is effectively
connected with the conduct of a trade or business in the United States by the
Non-United States Holder, (2) the Non-United States Holder is an individual who
is present in the United States for 183 days or more in the taxable year of
that disposition, and certain other conditions are met, or (3) in the case of
Equity Income Securities or common shares, Dominion is or has been a "United
States real property holding corporation" for United States federal income tax
purposes.
An individual Non-United States Holder described in clause (1) above will be
subject to tax on the net gain derived from the sale under regular graduated
United States federal income tax rates. An individual Non-United States Holder
described in clause (2) above will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by United States source capital
losses (even though the individual is not considered a resident of the United
States). If a Non-United States Holder that is a foreign corporation falls
under clause (1) above, it will be subject to tax on its gain under regular
graduated U.S. federal income tax rates and, in addition, may be subject to the
branch profits tax equal to 30% of its effectively connected earnings and
profits or at such lower rate as may be specified by an applicable income tax
treaty.
Dominion has not determined whether it is a "United States real property
holding corporation" for United States federal income tax purposes. If it is or
becomes a United States real property holding corporation, so long as the
common shares continue to be regularly traded on an established securities
market, Non-United States Holders will not be subject to U.S. federal income
tax on the disposition of a purchase contract or common shares if such holder
holds or has held (at any time during the shorter of the five year period
preceding the date of disposition of such holder's holding period) less than 5%
of the total outstanding purchase contracts or common shares, respectively.
Backup Withholding Tax and Information Reporting
United States Holders
In general, information reporting requirements will apply to payments on the
Corporate Units, Treasury Units, senior notes, Treasury Securities, and common
shares made to a holder and to the proceeds of the sale or other disposition of
such instruments, unless such holder is an exempt recipient such as a
corporation. A backup withholding tax will apply to such payments if a holder
fails to provide a taxpayer identification number or a certification of exempt
status or fails to report in full interest income.
Non-United States Holders
In general, no information reporting or backup withholding will be required
regarding payments on the Corporate Units, Treasury Units, senior notes,
Treasury Securities, and common shares (except possibly with respect to
contract adjustment payments) that Dominion makes to a holder provided that
Dominion does not have actual knowledge that such holder is a United States
person and has received from such holder the statement described above under
"--United States Federal Withholding Tax."
S-60
In addition, no information reporting or backup withholding will be required
regarding the proceeds of the sale of Corporate Units, Treasury Units, senior
notes, Treasury Securities, and common shares made within the United States or
conducted through certain United States financial intermediaries, if the payor
receives the statement described above and does not have actual knowledge that
a holder is a United States person or such holder otherwise establishes an
exemption.
Any amounts withheld under the backup witholding rules will be allowed as a
refund or a credit against a holder's United States federal income tax
liability provided the required information is furnished to the IRS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), plans, individual retirement
accounts and other arrangements that are subject to Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), or provisions under
applicable federal, state, local, foreign or other laws or regulations that are
similar to such provisions of ERISA or the Code ("Similar Laws") and entities
whose underlying assets are considered to include "plan assets" of such plans,
accounts and arrangements (each, a "Plan") may purchase the Corporate Units
subject to the determination by the investing fiduciary of the Plan that the
Plan's investment in the Corporate Units satisfies ERISA's fiduciary
responsibility requirements and other requirements applicable to investments by
Plans. Accordingly, among other factors, the investing fiduciary should
consider whether the investment would satisfy the prudence and diversification
requirements of ERISA and would be consistent with the documents and
instruments governing the Plan.
Under regulations issued by the U.S. Department of Labor ("DOL"), in the case
of an investment by a Plan subject to ERISA in an "equity interest" of an
entity that is neither a "publicly-offered security" nor a security issued by
an investment company registered under the Investment Company Act of 1940, the
Plan's assets include both the equity interest and an undivided interest in
each of the entity's underlying assets, unless it is established that the
entity is an "operating company" or equity participation in the entity by
"benefit plan investors" is not "significant." An "equity interest" is an
interest in an entity other than an instrument that is treated as indebtedness
under applicable local law and which has no substantial equity features. In
order to be considered "publicly-offered securities," the Corporate Units must
be (1) freely transferable, (2) part of a class of securities that is widely
held and (3)(a) part of a class of securities registered under section 12(b) or
12(g) of the Securities Exchange Act of 1934, or (b) sold to the Plan as part
of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act of 1933 (provided the class of
securities is registered under the Securities Exchange Act of 1934 within 120
days after the end of the issuer's fiscal year). In order to be considered an
"operating company," Dominion must constitute an entity that is primarily
engaged, directly or through a majority owned subsidiary or subsidiaries, in
the production or sale of a product or service other than the investment of
capital. Equity participation in an entity by "benefit plan investors" is
"significant"
S-61
on any date if, immediately after the most recent acquisition of any equity
interest in the entity, 25% or more of the value of any class of equity
interests in the entity is held by "benefit plan investors." "Benefit plan
investors" include Plans and similar plans that are not subject to ERISA or the
Code. However, no efforts will be made to monitor "benefit plan investor"
participation.
Dominion anticipates that investing Plans' assets will not include an
undivided interest in each of Dominion's underlying assets (a) because the
Corporate Units will be considered "publicly-offered securities," and/or (b)
because Dominion will, at all relevant times, be considered an "operating
company." However, due to the facts and circumstances nature of the inquiries,
no assurances can be given that the DOL or any particular court would agree
that Dominion qualifies as an "operating company" and/or that all of the
necessary conditions have been satisfied for the Corporate Units to constitute
"publicly-offered securities."
If the underlying assets of Dominion were to be deemed to be "plan assets" of
Plans under ERISA, this would result, among other things, in (1) the
application of the prudence and other fiduciary responsibility standards of
ERISA to activities engaged in by Dominion and (2) the possibility that certain
transactions in which Dominion might seek to engage could constitute
"prohibited transactions" under ERISA and the Code. If a prohibited transaction
occurs for which no exemption is available, any fiduciary that has engaged in
the prohibited transaction could be required (1) to restore to the Plan any
profit realized on the transaction and (2) to reimburse the Plan for any losses
suffered by the Plan as a result of the investment. In addition, each
"disqualified person" (within the meaning of Section 4975 of the Code) involved
could be subject to an excise tax equal to 15% of the amount involved in the
prohibited transaction for each year the transaction continues and, unless the
transaction is corrected within statutorily required periods, to an additional
tax of 100%. Plan fiduciaries who decide to invest in the Corporate Units
could, under certain circumstances, be liable for prohibited transactions or
other violations as a result of their investment in the Corporate Units or as
co-fiduciaries for actions taken by or on behalf of Dominion. With respect to
an individual retirement account ("IRA") that invests in the Corporate Units,
the occurrence of a prohibited transaction involving the individual who
established the IRA, or his or her beneficiaries, would cause the IRA to lose
its tax-exempt status.
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit Plans
from engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code. The
acquisition and/or ownership of the Corporate Units by a Plan with respect to
which Dominion, another entity affiliated with the Corporate Units or their
sale, or any of their respective affiliates is considered a party in interest
or a disqualified person may constitute or result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code, unless those Corporate
Units are acquired and are held in accordance with an applicable statutory,
class or individual prohibited transaction exemption. In this regard, the DOL
has issued prohibited transaction class exemptions, which are called "PTCEs,"
that may apply to the
S-62
acquisition and holding of the Corporate Units. These class exemptions include
PTCE 84-14 respecting transactions determined by independent qualified
professional asset managers, PTCE 90-1 respecting insurance company pooled
separate accounts, PTCE 91-38 respecting bank collective investment trust
funds, PTCE 95-60 respecting life insurance company general accounts and PTCE
96-23 respecting transactions determined by in-house asset managers.
Any fiduciary proposing to acquire the Corporate Units for or on behalf of a
Plan, directly or indirectly, should consult with counsel for the Plan and
should not acquire the Corporate Units unless it is determined that the
acquisition and holding of the Corporate Units by the Plan (1) does not and
will not constitute or result in a non-exempt prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code, or otherwise trigger any
penalties or liabilities under, or violate in any way, ERISA, the Code or any
Similar Laws, and (2) will satisfy the applicable fiduciary requirements
imposed under ERISA or under any applicable Similar Laws. Any such acquisition
and/or holding by a Plan (directly or indirectly) will be deemed a
representation by the Plan and the fiduciary effecting the investment for or on
behalf of the Plan that the acquisition and holding (1) satisfies the
applicable fiduciary requirements of ERISA and all other applicable Similar
Laws, and (2) is either (a) not a prohibited transaction under ERISA or the
Code and is otherwise permissible under applicable Similar Laws or (b) entitled
to exemptive relief from the prohibited transaction provisions of ERISA and the
Code in accordance with one or more of the PTCEs mentioned above or another
available statutory, class or individual prohibited transaction exemption, and
is otherwise permissible under all applicable Similar Laws.
S-63
UNDERWRITING
Under the terms and subject to the conditions contained in a purchase
agreement dated March 13, 2002, we have agreed to sell to Salomon Smith Barney
Inc. (the Underwriter) and the Underwriter has agreed to purchase from us
6,000,000 Corporate Units.
The purchase agreement provides that the Underwriter is obligated to
purchase all the Corporate Units in the offering if any are purchased.
The Underwriter has agreed to purchase the Corporate Units for a purchase
price of $48.50 per Corporate Unit. The proceeds to Dominion from the sale of
the Corporate Units will be $291,000,000.
We estimate that our out of pocket expenses for this offering will be
approximately $400,000.
The distribution of the Corporate Units by the Underwriter may be effected
from time to time to purchasers directly or through agents, or through brokers
in brokerage transactions on the New York Stock Exchange, or to dealers in
negotiated transactions or in a combination of such methods of sale, at a fixed
price or prices, which may be changed, or at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. In connection with the sale of any Corporate Units, the
Underwriter may be deemed to have received compensation from Dominion equal to
the difference between the amount received by the Underwriter upon the sale of
such Corporate Units and the price at which the Underwriter purchased such
Corporate Units from Dominion. In addition, if the Underwriter sells Corporate
Units to or through certain dealers, such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter and/or any purchasers of Corporate Units for whom they may act as
agent. The Underwriter may also receive compensation from the purchasers of
Corporate Units for whom it may act as agent.
The Corporate Units are being offered by the Underwriter, subject to prior
sale, when, as and if issued to and accepted by it, subject to approval of
certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.
We have agreed to indemnify the Underwriter against liabilities under the
Securities Act, or contribute to payments that the Underwriter may be required
to make in that respect.
We have granted an option to the Underwriter to purchase up to an
additional 600,000 Corporate Units from us at $48.50 per unit. The Underwriter
may exercise this option for 30 days from the date of this prospectus
supplement solely to cover any overallotments.
Dominion and our executive officers and directors have agreed, subject to
limited exceptions, without the prior written consent of the Underwriter,
during the period ending 90 days after the date of this prospectus supplement,
not to directly or indirectly:
.. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of any shares of
common stock or any securities convertible into or exercisable or
exchangeable for common stock, or file any registration statement under the
Securities Act with respect to any of the above; or
S-64
.. enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of common stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
These restrictions do not apply to:
.. the sale of the Corporate Units and a concurrent sale of shares of common
stock to the Underwriter;
.. the issuance by Dominion of any shares of common stock upon the exercise of
an option or warrant, or the conversion of a security outstanding on the date
of this prospectus supplement;
.. the creation or recreation of Dominion stock purchase units or the issuance
of shares of common stock upon early settlement of Dominion's stock purchase
units.
.. the issuance by Dominion of shares of common stock, or options to purchase
any shares of common stock granted, or the sale by any of our executive
officers or directors of common stock received as dividends, in connection
with our employee benefit plans, employee share purchase plans, non-employee
director stock plans, dividend reinvestment plans and the Dominion Direct
Investment plan;
.. the sale or surrender to Dominion by any of our executive officers or
directors of any options or shares of common stock underlying options in
order to pay the exercise price or taxes associated with the exercise of
options;
.. the issuance by us of shares of common stock in connection with acquisitions
that close more than 90 days after this offering or any acquisition in which
the party receiving the shares of common stock agrees to be bound by such
restrictions;
.. transactions by any person other than Dominion relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares of common stock;
.. transfers by any person, other than Dominion, by gift, will or intestacy, or
to affiliates or immediate family members, provided that the transferee
agrees to be bound by such restriction; or
.. the filing by Dominion of a shelf registration statement from which Dominion
will not offer any such securities during the 90-day period.
Before this offering, there has been no public market for the Corporate
Units. We are applying to list the Corporate Units on the NYSE. In order to
meet one of the requirements for listing on the NYSE, the Underwriter has
undertaken to sell the Corporate Units to a minimum of 400 beneficial owners.
The Underwriter has advised Dominion that it presently intends to make a market
in the Corporate Units as permitted by applicable laws and regulations. The
underwriter is not obligated to make a market in the Corporate Units, however,
and may discontinue this market making at any time in its sole discretion.
Accordingly, Dominion cannot assure investors that there will be adequate
liquidity or adequate trading markets for the Corporate Units.
In connection with the offering of the Corporate Units, the Underwriter may
engage in certain transactions that stabilize the price of the Corporate Units.
These transactions may consist of bids or purchases for the purpose of pegging,
fixing
S-65
or maintaining the price of the Corporate Units. If the Underwriter creates a
short position in the Corporate Units in connection with this offering, by
selling more Corporate Units than are listed on the cover page of this
prospectus supplement, then the Underwriter may reduce that short position by
purchasing Corporate Units in the open market. In general, the purchase of a
security for the purpose of stabilization or reducing a short position could
cause the price of that security to be higher than it might otherwise be in the
absence of those purchases.
Neither we nor the Underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Corporate Units or our common stock. In addition,
neither we nor the Underwriter makes any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced,
will not be discontinued without notice.
Salomon Smith Barney Inc. has from time to time provided investment or
commercial banking services to us in the past and is likely to do so in the
future. It receives customary fees and commissions for these services.
LEGAL MATTERS
Certain legal matters in connection with the offering of the purchase
contracts, the common shares and the senior notes will be passed upon for
Dominion by McGuireWoods LLP, and for the underwriters by Troutman Sanders Mays
& Valentine LLP, who also performs certain legal services for us and our
affiliates on other matters.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus supplement by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, (which contain an
explanatory paragraph that describes a change in the method of accounting used
to develop the market-related value of pension plan assets, discussed in Note 3
to the consolidated financial statements, and the adoption of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended, discussed in Note 15 to the consolidated
financial statements), and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
S-66
PROSPECTUS
[LOGO] Dominion
DOMINION RESOURCES, INC.
120 Tredegar Street
Richmond, Virginia 23219
(804) 819-2000
$2,000,000,000
Senior Debt Securities
Junior Subordinated Debentures
Trust Preferred Securities, Related Guarantee and Agreement as to Expenses and
Liabilities
Common Stock
Preferred Stock
Stock Purchase Contracts
Stock Purchase Units
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
This prospectus is dated March 2, 2001.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a shelf registration process.
Under this shelf process, we may, from time to time, sell any combination of
the securities described in this prospectus in one or more offerings up to a
total dollar amount of $2,000,000,000. This prospectus provides you with a
general description of the securities we may offer. Each time we sell
securities, we will provide a prospectus supplement that will contain specific
information about the terms of that offering. Material United States federal
income tax considerations applicable to the offered securities will also be
discussed in the applicable prospectus supplement. The prospectus supplement
may also add, update or change information contained in this prospectus. You
should read both this prospectus and any prospectus supplement together with
additional information described under the heading WHERE YOU CAN FIND MORE
INFORMATION.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. You may
also read and copy these documents at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities.
.. Annual Report on Form 10-K and Forms 10-K/A for the year ended December 31,
1999;
.. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000, June
30, 2000 and September 30, 2000;
.. Current Reports on Form 8-K and Forms 8-K/A filed January 3, 2000, February
1, 2000, March 23, 2000, June 21, 2000, June 22, 2000, July 11, 2000,
September 11, 2000, October 12, 2000, November 2, 2000, November 16, 2000,
November 22, 2000, January 12, 2000, and January 24, 2001; and
.. The description of our common stock contained in Form 8-B (Item 4) dated
April 29, 1983.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Corporate Secretary
Dominion
120 Tredegar Street
Richmond, Virginia 23219
(804) 819-2000
2
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.
DOMINION
Dominion is a fully integrated gas and electric energy holding company
headquartered in Richmond, Virginia. As of December 31, 2000, we had
approximately 28.7 billion in assets.
Primary Operating Segments
Dominion's primary operating segments are:
Dominion Energy--Dominion Energy manages Dominion's 19,000 megawatt
portfolio of electric power generation, its 7,600 miles of gas transmission
pipeline and a 959 billion cubic foot natural gas storage network. It also
guides Dominion's generation growth strategy and its commodity trading,
marketing and risk management activities. Dominion currently operates
generation facilities in Virginia, West Virginia, North Carolina and Illinois.
Dominion Delivery--Dominion Delivery manages Dominion's local electricand
gas distribution systems serving 3.8 million customers, its 6,000 miles of
electric transmission lines and its customer service operations. Dominion
currently operates transmission and distribution
systems in Virginia, West Virginia, North Carolina, Pennsylvania and Ohio.
Dominion Delivery also includes Dominion Telecom with its 3,620 route-mile
fiber optic network and related telecommunications and advanced data services
located principally in the northeast quadrant of the United States.
Dominion Exploration & Production--Dominion Exploration & Production
manages Dominion's onshore and offshore oil and gas exploration and production
activities. With approximately 2.8 trillion cubic feet of natural gas
equivalent reserves and 320 billion cubic feet of annual production, Dominion
Exploration & Production is one of the nation's largest independent oil and gas
operators. It operates on the outer continental shelf and deep water areas of
the Gulf of Mexico, western Canada, the Appalachian Basin and other selected
regions in the continental United States.
Principal Legal Subsidiaries
Dominion's principal legal subsidiaries include Virginia Electric and Power
Company (Dominion Virginia Power), a regulated public utility engaged in the
generation, transmission, distribution and sale of electric energy in Virginia
and northeastern North Carolina, and Consolidated Natural Gas Company, a
producer, transporter, distributor and retail marketer of natural gas serving
customers in Pennsylvania, Ohio, West Virginia, New York and various cities in
the Northeast and Mid-Atlantic. Dominion's other major legal subsidiaries
include Dominion Energy, Inc., an independent power and natural gas subsidiary,
and Dominion Capital, Inc., a financial services subsidiary.
Dominion's address and telephone number are 120 Tredegar Street, Richmond,
Virginia 23219, telephone (804) 819-2100.
3
For additional information about Dominion, see WHERE YOU CAN FIND MORE
INFORMATION on page 2.
THE TRUST
Dominion Resources Capital Trust IV is a statutory business trust newly
formed under Delaware law by us, as sponsor for the Trust, and Chase Manhattan
Bank USA, National Association, who will serve as trustee in the State of
Delaware for the purpose of complying with the provisions of the Delaware
Business Trust Act. The trust agreement for the Trust will be amended and
restated substantially in the form filed as an exhibit to the registration
statement, effective when securities of the Trust are initially issued. The
amended trust agreement will be qualified as an indenture under the Trust
Indenture Act of 1939.
The Trust exists for the exclusive purposes of
.. issuing two classes of trust securities, Trust Preferred Securities and
trust common securities, which together represent undivided beneficial
interests in the assets of the Trust;
.. investing the gross proceeds of the trust securities in our Junior
Subordinated Debentures;
.. making distributions; and
.. engaging in only those other activities necessary, advisable or incidental
to the purposes listed above.
The Junior Subordinated Debentures will be the sole assets of the Trust,
and our payments under the Junior Subordinated
Debentures and the Agreement as to Expenses and Liabilities will be the sole
revenue of the Trust.
No separate financial statements of any Trust are included in this
prospectus. We consider that these financial statements would not be material
to holders of the Trust Preferred Securities because the Trust has no
independent operations and the purpose of the Trust is as described above. The
Trust is not required to file annual, quarterly or special reports with the SEC.
The principal place of business of the Trust will be c/o Dominion
Resources, Inc., 120 Tredegar Street, Richmond, VA 23219.
USE OF PROCEEDS
The net proceeds from the sale of the offered securities will be used for
financing our $1.3 billion acquisition of the approximately 2,000 megawatt
Millstone Nuclear facility in Connecticut, and for other general corporate
purposes including financing future acquisitions.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
Nine
Months
ended Twelve Months ended Dec. 31,
Sept. 30, --------------------------------
2000/(1)/ 1995 1996 1997/(3)/ 1998 199/9(2)/
--------- ---- ---- -------- ---- --------
1.64 2.55 2.71 1.97 2.36 2.02
These computations reflect Dominion's consolidated earnings and
consolidated fixed charges including proportionate interests in the earnings
and fixed charges of certain other companies in which we hold an equity
interest. For these ratios, earnings is determined by adding total fixed charges
(excluding interest capitalized), income taxes, minority common stockholders
equity
4
in net income and amortization of interest capitalized to income from
continuing operations after eliminating equity in undistributed earnings and
adding back losses of companies in which at least 20% but less than 50% equity
is owned by Dominion. For this purpose, total fixed charges consists of (1)
interest on all indebtedness and amortization of debt discount and expense, (2)
interest capitalized and (3) an interest factor attributable to rentals.
(1) If Dominion had completed the CNG acquisition as of January 1, 2000, the
pro forma ratio of earnings to fixed charges for the nine months ended
September 30, 2000 would be 1.18x. Net income for the nine months ended
September 30, 2000 includes $411 million in restructuring and other
acquisition-related costs resulting from the CNG acquisition and a
write-down at Dominion Capital, Inc. Dominion is required to divest its
financial services business as a result of the acquisition of CNG.
Excluding this charge, from the calculation above results in a ratio of
earnings to fixed charges for the nine months ended September 30, 2000 of
2.17x.
(2) Net income for the twelve months ended December 31, 1999 includes the
one-time after-tax charge of $255 million resulting from the discontinued
application by Virginia Power of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," to its generation operations. Excluding this charge from the
calculation above results in a ratio of earnings to fixed
charges for the twelve months ended December 31, 1999 of 2.48x.
(3) Net income for the twelve months ended December 31, 1997 includes the
one-time charge of $157 million for the windfall profits tax levied by the
United Kingdom government. Excluding this charge from the calculation above
results in a ratio of earnings to fixed charges for the twelve months ended
December 31, 1997 of 2.22x.
DESCRIPTION OF DEBT SECURITIES
The term Debt Securities includes the Senior Debt Securities and the Junior
Subordinated Debentures. We will issue the Senior Debt Securities in one or
more series under our Senior Indenture dated as of June 1, 2000 between us and
The Chase Manhattan Bank as Trustee, as supplemented from time to time. We will
issue the Junior Subordinated Debentures in one or more series under our Junior
Subordinated Indenture dated as of December 1, 1997 between us and The Chase
Manhattan Bank as Trustee, as supplemented from time to time. The indenture
related to the Junior Subordinated Debentures is called the Subordinated
Indenture in this prospectus, and together, the Senior Indenture and the
Subordinated Indenture are called Indentures. We have summarized selected
provisions of the Indentures below. The Senior Indenture and the Subordinated
Indenture have been filed as exhibits to the registration statement and you
should read the Indentures for provisions that may be important to you. In the
summary below, we have included references to section numbers of the
Indentures so that you can easily locate these provisions. Capitalized terms
used in the summary have the meanings specified in the Indentures.
5
General
The Senior Debt Securities will be our direct, unsecured obligations and
will rank equally with all of our other senior and unsubordinated debt. The
Junior Subordinated Debentures will be our unsecured obligations and are junior
in right of payment to our Senior Indebtedness, as described under the caption
ADDITIONAL TERMS OF THE JUNIOR SUBORDINATED DEBENTURES--SUBORDINATION.
Because we are a holding company that conducts all of our operations
through our subsidiaries, our ability to meet our obligations under the Debt
Securities is dependent on the earnings and cash flows of those subsidiaries
and the ability of those subsidiaries to pay dividends or to advance or repay
funds to us. Holders of Debt Securities will generally have a junior position
to claims of creditors of our subsidiaries, including trade creditors,
debtholders, secured creditors, taxing authorities, guarantee holders and any
preferred stockholders. Dominion Virginia Power has approximately 5.1 million
issued and outstanding shares of preferred stock. In addition to trade debt,
all of our operating subsidiaries have ongoing corporate debt programs used to
finance their business activities. As of December 31, 2000, our subsidiaries
had approximately $8.9 billion of outstanding debt.
Neither of the Indentures limits the amount of Debt Securites that we may
issue
under it. We may issue Debt Securities from time to time under the Indentures
in one or more series by entering into supplemental indentures or by our Board
of Directors or duly authorized officers authorizing the issuance. A form of
supplemental indenture to each of the Indentures is an exhibit to the
registration statement.
The Indentures do not protect the holders of Debt Securities if we engage
in a highly leveraged transaction.
Provisions of a Particular Series
The Debt Securities of a series need not be issued at the same time, bear
interest at the same rate or mature on the same date. Unless otherwise provided
in the terms of a series, a series may be reopened, without notice to or
consent of any holder of outstanding Debt Securities, for issuances of
additional Debt Securities of that series. The prospectus supplement for a
particular series of Debt Securities will specify the terms of that series,
including, if applicable, some or all of the following:
.. the title and type of the Debt Securities;
.. the total principal amount of the Debt Securities;
.. the portion of the principal payable upon acceleration of maturity, if other
than the entire principal;
.. the date or dates on which principal is payable or the method for
determining the date or dates, and any right that we have to change the date
on which principal is payable;
.. the interest rate or rates, if any, or the method for determining the rate
or rates, and the date or dates from which interest will accrue;
.. any interest payment dates and the regular record date for the interest
payable on each interest payment date, if any;
.. any payments due if the maturity of the Debt Securities is accelerated;
6
.. any optional redemption terms, or, with respect to the Senior Debt
Securities, any repayment terms;
.. any provisions that would obligate us to repurchase or otherwise redeem the
Debt Securities, or, with respect to the Senior Debt Securities, any sinking
fund provisions;
.. the currency in which payments will be made if other than U.S. dollars, and
the manner of determining the equivalent of those amounts in U.S. dollars;
.. if payments may be made, at our election or at the holder's election, in a
currency other than that in which the Debt Securities are stated to be
payable, then the currency in which those payments may be made, the terms
and conditions of the election and the manner of determining those amounts;
.. any index or formula used for determining principal, interest, or premium,
if any;
.. the percentage of the principal amount at which the Debt Securities will be
issued, if other than 100% of the principal amount;
.. whether the Debt Securities will be issued in fully registered certificated
form or book-entry form, represented by certificates deposited with, or on
behalf of, a securities depositary and registered in the name of the
depositary's nominee (Book-Entry Debt Securities);
.. denominations, if other than $1,000 each or multiples of $1,000;
.. any changes to events of defaults or covenants; and
.. any other terms of the Debt Securities. (Sections 201 & 301 of the Senior
Indenture & Sections 2.1 & 2.3 of the Subordinated Indenture.)
The prospectus supplement will also indicate any special tax implications
of the Debt Securities and any provisions granting special rights to holders
when a specified event occurs.
Conversion or Redemption
No Debt Security will be subject to conversion, amortization, or
redemption, unless otherwise provided in the applicable prospectus supplement.
Any provisions relating to the conversion or redemption of Debt Securities will
be set forth in the applicable prospectus supplement, including whether
conversion is mandatory or at our option. If no redemption date or redemption
price is indicated with respect to a Debt Security, we may not redeem the Debt
Security prior to its stated maturity. Debt Securities subject to redemption by
us will be subject to the following terms:
.. redeemable on and after the applicable redemption dates;
.. redemption dates and redemption prices fixed at the time of sale and set
forth on the Debt Security; and
.. redeemable in whole or in part (provided that any remaining principal amount
of the Debt Security will be equal to an authorized denomination) at our
option at the applicable redemption price, together with interest, payable
to the date of redemption, on notice given not more
than 60 nor less than 20 days prior to the date of redemption. (Section 1104
of the Senior Indenture & Section 3.2 of the Subordinated Indenture.)
We will not be required to:
.. issue, register the transfer of, or exchange any Debt Securities of a series
during the period beginning 15 days before the date
7
the notice is mailed identifying the Debt Securities of that series that have
been selected for redemption; or
.. register the transfer of, or exchange any Debt Security of that series
selected for redemption except the unredeemed portion of a Debt Security
being partially redeemed. (Section 305 of the Senior Indenture & Section 2.5
of the Subordinated Indenture.)
Payment and Transfer; Paying Agent
The paying agent will pay the principal of any Debt Securities only if
those Debt Securities are surrendered to it. Unless we state otherwise in the
applicable prospectus supplement, the paying agent will pay principal, interest
and premium, if any, on Debt Securities, subject to such surrender, where
applicable, at its office or, at our option:
.. by wire transfer to an account at a banking institution in the United States
that is designated in writing to the Trustee prior to the deadline set forth
in the applicable prospectus supplement by the person entitled to that
payment (which in the case of Book-Entry Debt Securities is the securities
depositary or its nominee); or
.. by check mailed to the address of the person entitled to that interest as
that
address appears in the security register for those Debt Securities. (Sections
307 & 1001 of the Senior Indenture & Section 4.1 of the Subordinated
Indenture.)
Neither we nor the Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in a Book-Entry Debt Security, or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests. We expect that the securities depositary, upon receipt of any
payment of principal, interest or premium, if any, in a Book-Entry Debt
Security, will credit immediately the accounts of the related participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Book-Entry Debt Security as shown on the
records of the securities depositary. We also expect that payments by
participants to owners of beneficial interests in a Book-Entry Debt Security
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name" and will be the responsibility of the
participants.
Unless we state otherwise in the applicable prospectus supplement, the
Trustee will act as paying agent for the Debt Securities, and the principal
corporate trust office of the Trustee will be the office through which the
paying agent acts. We may, however, change or add paying agents or approve a
change in the office through which a paying agent acts. (Section 1002 of the
Senior Indenture & Section 4.4 of the Subordinated Indenture.)
Any money that we have paid to a paying agent for principal or interest on
any Debt Securities which remains unclaimed at the end of two years after that
principal or interest has become due will be repaid to us at our request. After
any repayment, holders should look only to us for those payments. (Section 1003
of the Senior Indenture & Section 12.4 of the Subordinated Indenture.)
8
Fully registered securities may be transferred or exchanged at the
corporate trust office of the Trustee or at any other office or agency we
maintain for those purposes, without the payment of any service charge except
for any tax or governmental charge. (Section 1002 of the Senior Indenture &
Section 2.5 of the Subordinated Indenture.)
Global Securities
We may issue some or all of the Debt Securities as Book-Entry Debt
Securities. Book-Entry Debt Securities will be represented by one or more fully
registered global certificates. Book-Entry Debt Securities of like tenor and
terms up to $400,000,000 aggregate principal amount may be represented by a
single global certificate. Each global certificate will be deposited and
registered with the securities depositary or its nominee or a custodian for the
securities depositary. Unless it is exchanged in whole or in part for Debt
Securities in definitive form, a global certificate may generally be
transferred only as a whole unless it is being transferred to certain nominees
of the depositary. (Section 305 of the Senior Indenture & Section 2.5 of the
Subordinated Indenture.)
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company will act as the securities
depositary. Beneficial interests in global certificates will be shown on, and
transfers of global certificates will be effected only through, records
maintained by the securities depositary and its participants. If there are any
additional or differing terms of the depositary arrangement with respect to the
Book-Entry Debt Securities, we will describe them in the applicable prospectus
supplement.
Holders of beneficial interests in Book-Entry Debt Securities represented
by a global certificate are referred to as beneficial owners. Beneficial owners
will be limited to institutions having accounts with the securities depositary
or its nominee, which are called participants in this discussion, and to
persons that hold beneficial interests through participants. When a global
certificate representing Book-Entry Debt Securities is issued, the securities
depositary will credit on its book-entry, registration and transfer system the
principal amounts of Book-Entry Debt Securities the global certificate
represents to the accounts of its participants. Ownership of beneficial
interests in a global certificate will be shown only on, and the transfer of
those ownership interests will be effected only through, records maintained by:
.. the securities depositary, with respect to participants' interests; and
.. any participant, with respect to interests the participant holds on behalf
of other persons.
As long as the securities depositary or its nominee is the registered
holder of a global certificate representing Book-Entry Debt Securities, that
person will be considered the sole owner and holder of the global certificate
and the Book-Entry Debt
Securities it represents for all purposes. Except in limited circumstances,
beneficial owners:
.. may not have the global certificate or any Book-Entry Debt Securities it
represents registered in their names;
.. may not receive or be entitled to receive physical delivery of certificated
Book-Entry Debt Securities in exchange for the global certificate; and
9
.. will not be considered the owners or holders of the global certificate or
any Book-Entry Debt Securities it represents for any purposes under the Debt
Securities or the Indentures. (Section 2.2 of the Subordinated Indenture.)
We will make all payments of principal, interest and premium, if any, on a
Book-Entry Debt Security to the securities depositary or its nominee as the
holder of the global certificate. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a global certificate.
Payments participants make to beneficial owners holding interests through
those participants will be the responsibility of those participants. The
securities depositary may from time to time adopt various policies and
procedures governing payments, transfers, exchanges and other matters relating
to beneficial interests in a global certificate. None of the following will
have any responsibility or liability for any aspect of the securities
depositary's or any participant's records relating to beneficial interests in a
global certificate representing Book-Entry Debt Securities, for payments made
on account of those beneficial interests or for maintaining, supervising or
reviewing any records relating to those beneficial interests:
.. Dominion;
.. the Trustee;
.. the Trust (only with respect to the Junior Subordinated Debentures if the
Junior Subordinated Debentures are issued to a Trust); or
.. any agent of any of the above.
Covenants
Under the Indentures we will:
.. pay the principal, interest and premium, if any, on the Debt Securities when
due;
.. maintain a place of payment;
.. deliver an officer's certificate to the Trustee at the end of each fiscal
year confirming our compliance with our obligations under each of the
Indentures; and
.. deposit sufficient funds with any paying agent on or before the due date for
any principal, interest or premium, if any. (Sections 1001, 1002, 1003 &
1006 of the Senior Indenture & Sections 4.1, 4.2 4.4 & 4.6 of the
Subordinated Indenture.)
Consolidation, Merger or Sale
The Indentures provide that we may consolidate or merge with or into, or
sell all or substantially all of our properties and assets to, another
corporation or other entity, provided that any successor assumes our
obligations under the Indentures and the Debt Securities issued under the
Indentures. We must also deliver an opinion of counsel to the Trustee affirming
our compliance with all conditions in the applicable Indenture relating to the
transaction. When
the conditions are satisfied, the successor will succeed to and be substituted
for us under the Senior Indenture, and we will be relieved of our obligations
under the Senior Indenture and the Debt Securities issued under them. (Sections
801 & 802 of the Senior Indenture & Sections 11.1, 11.2 & 11.3 of the
Subordinated Indenture.)
10
Events of Default
Event of Default when used in each of the Indentures, will mean any of the
following:
.. failure to pay the principal or any premium on any Debt Security when due;
.. with respect to the Senior Debt Securities, failure to deposit any sinking
fund payment when due that continues for 60 days;
.. failure to pay any interest on any Debt Securities of that series, when due,
that continues for 60 days (or for 30 days in the case of any Junior
Subordinated Debentures); provided that, if applicable, for this purpose,
the date on which interest is due is the date on which we are required to
make payment following any deferral of interest payments by us under the
terms of Junior Subordinated Debentures that permit such deferrals;
.. failure to perform any other covenant in the Indentures (other than a
covenant expressly included solely for the benefit of other series) that
continues for 90 days after the Trustee or the holders of at least 33% of
the outstanding Debt Securities (25% in the case of the Junior Subordinated
Debentures) of that series give us written notice of the default;
.. certain events in bankruptcy, insolvency or reorganization of Dominion; or
.. any other Event of Default included in the Indentures or any supplemental
indenture. (Section 501 of the Senior Indenture & Section 6.1 of the
Subordinated Indenture.)
In the case of a general covenant default described above, the Trustee may
extend the grace period. In addition, if holders of a particular series have
given a notice of default, then holders of at least the same percentage of Debt
Securities of that series, together with the Trustee, may also extend the grace
period. The grace period will be automatically extended if we have initiated
and are diligently pursuing corrective action.
An Event of Default for a particular series of Debt Securities does not
necessarily constitute an Event of Default for any other series of Debt
Securities issued under the Indentures. Additional events of default may be
established for a particular series and, if established, will be described in
the applicable prospectus supplement.
If an Event of Default for any series of Debt Securities occurs and
continues, the Trustee or the holders of at least 33% (25%, in the case of the
Junior Subordinated Debentures) in aggregate principal amount of the Debt
Securities of the series may declare the entire principal of all the Debt
Securities of that series to be due and payable immediately. If this happens,
subject to certain conditions, the holders of a majority of the aggregate
principal amount of the Debt Securities of that series can void the trust
agreement. (Section 502 of the Senior Indenture & Section 6.1 of the
Subordinated Indenture.)
The Trustee may withhold notice to the holders of Debt Securities of any
default (except in the payment of principal or interest) if it considers the
withholding of notice to be in the best interests of the holders. Other than
its duties in case of a default, a Trustee is not obligated to exercise any of
its rights or powers under the Indentures at the request, order or direction of
any holders, unless the holders offer the Trustee reasonable indemnity. If they
provide this reasonable indemnification, the
11
holders of a majority in principal amount of any series of Debt Securities may
direct the time, method and place of conducting any proceeding or any remedy
available to the Trustee, or exercising any power conferred upon the Trustee,
for any series of Debt Securities. (Sections 512, 601 & 602 of the Senior
Indenture & Sections 6.6, 7.1 & 7.2 of the Subordinated Indenture.)
The holder of any Debt Security will have an absolute and unconditional
right to receive payment of the principal, any premium and, within certain
limitations, any interest on that Debt Security on its maturity date or
redemption date and to enforce those payments. (Section 508 of the Senior
Indenture & Section 14.2 of the Subordinated Indenture.)
Satisfaction; Discharge
We may discharge all our obligations (except those described below) to
holders of the Debt Securities issued under the Indentures, which Debt
Securities have not already been delivered to the Trustee for cancellation and
which either have become due and payable or are by their terms due and payable
within one year, or are to be called for redemption within one year, by
depositing with the Trustee an amount certified to be sufficient to pay when
due the principal, interest and premium, if any, on all outstanding Debt
Securities. However, certain of our obligations under the Indentures will
survive, including with respect to the following:
.. remaining rights to register the transfer, conversion, substitution or
exchange of Debt Securities of the applicable series;
.. rights of holders to receive payments of principal of, and any interest on,
the Debt Securities of the applicable series, and other rights, duties and
obligations of the holders of Debt Securities with respect to any amounts
deposited with the Trustee; and
.. the rights, obligations and immunities of the Trustee under the Indentures.
(Section 401 of Senior Indenture & Section 12.1 of Subordinated Indenture.)
Modification of Indentures; Waiver
Under the Indentures our rights and obligations and the rights of the
holders may be modified with the consent of the holders of a majority in
aggregate principal amount of the outstanding Debt Securities of each series
affected by the modification. No modification of the principal or interest
payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. (Section
902 of the Senior Indenture & Section 10.2 of the Subordinated Indenture.) In
addition, we may supplement the Indentures to create new series of Debt
Securities and for certain other purposes, without the consent of any holders
of Debt Securities. (Section 901 of the Senior Indenture & Section 10.1 of the
Subordinated Indenture.)
The holders of a majority of the outstanding Debt Securities of all series
under the applicable Indenture with respect
to which a default has occurred and is continuing may waive a default for all
those series, except a default in the payment of principal or interest, or any
premium, on any Debt Securities or a default with respect to a covenant or
provision which cannot be amended or modified without the consent of the holder
of each outstanding Debt Security of the series affected. (Section 513 of the
Senior Indenture & Section 6.6 of the Subordinated Indenture.)
12
In addition, under certain circumstances, the holders of a majority of the
outstanding Junior Subordinated Debentures of any series may waive in advance,
for that series, our compliance with certain restrictive provisions of the
Subordinated Indenture under which those Junior Subordinated Debentures were
issued. (Section 4.7 of the Subordinated Indenture.)
Concerning the Trustee
The Chase Manhattan Bank is the Subordinated Indenture Trustee and the
Trustee under the Senior Indenture. We and certain of our affiliates maintain
deposit accounts and banking relationships with The Chase Manhattan Bank. The
Chase Manhattan Bank also serves as trustee under other indentures pursuant to
which securities of ours and of certain of our affiliates are outstanding. It
has purchased, and is likely to purchase in the future, our securities and
securities of our affiliates.
The Trustee will perform only those duties that are specifically set forth
in the Indentures unless an event of default under an Indenture occurs and is
continuing. The Trustee is under no obligation to exercise any of its powers
under the Indentures at the request of any holder of Debt Securities unless
that holder offers reasonable indemnity to the Trustee against the costs,
expenses and liabilities which it might incur as a result. (Section 601 of the
Senior Indenture & Section 7.1 of the Subordinated Indenture.)
The Trustee administers its corporate trust business at 450 West 33rd
Street, New York, New York 10001 (Attention: Institutional Trust Services).
ADDITIONAL TERMS OF SENIOR DEBT SECURITIES
Repayment at the Option of the Holder; Repurchases by Dominion
We must repay the Senior Debt Securities at the option of the holders prior
to the Stated Maturity Date only if specified in the applicable prospectus
supplement. Unless otherwise provided in the prospectus supplement, the Senior
Debt Securities subject to repayment at the option of the holder will be
subject to repayment:
.. on the specified Repayment Dates; and
.. at a repayment price equal to 100% of the unpaid principal amount to be
repaid, together with unpaid interest accrued to the Repayment Date.
(Section 1302 of the Senior Indenture.)
For any Senior Debt Security to be repaid, the Trustee must receive, at its
office maintained for that purpose in the Borough of Manhattan, New York City
not more than 60 nor less than 30 calendar days prior to the date of repayment:
.. in the case of a certificated Senior Debt Security, the certificated Senior
Debt Security and the form in the Senior Debt Security entitled Option of
Holder to Elect Purchase duly completed; or
.. in the case of a book-entry Senior Debt Security, instructions to that
effect from the beneficial owner to the securities depositary and forwarded
by the securities depositary. Exercise of the repayment option by the holder
will be irrevocable. (Section 1303 of the Senior Indenture.)
Only the securities depositary may exercise the repayment option in respect
of beneficial interests in the book-entry Senior Debt Securities. Accordingly,
beneficial
13
owners that desire repayment in respect of all or any portion of their
beneficial interests must instruct the participants through which they own
their interests to direct the securities depositary to exercise the repayment
option on their behalf. All instructions given to participants from beneficial
owners relating to the option to elect repayment will be irrevocable. In
addition, at the time the instructions are given, each beneficial owner will
cause the participant through which it owns its interest to transfer its
interest in the book-entry Senior Debt Securites or the global certificate
representing the related book-entry Senior Debt Securities, on the securities
depositary's records, to the Trustee. See DESCRIPTION OF DEBT
SECURITIES--GLOBAL SECURITIES.
Defeasance
We will be discharged from our obligations on the Senior Debt Securities of
any series at any time if we deposit with the Trustee sufficient cash or
government securities to pay the principal, interest, any premium and any other
sums due to the stated maturity date or a redemption date of the Senior Debt
Securities of the series. If this happens, the holders of the Senior Debt
Securities of the series will not be entitled
to the benefits of the Senior Indenture except for registration of transfer and
exchange of Senior Debt Securities and replacement of lost, stolen or mutilated
Senior Debt Securities. (Section 402 of the Senior Indenture.)
Under federal income tax law as of the date of this prospectus, a discharge
may be treated as an exchange of the related Senior Debt Securities. Each
holder might be required to recognize gain or loss equal to the difference
between the holder's cost or other tax basis for the Senior Debt Securities and
the value of the holder's interest in the trust. Holders might be required to
include as income a different amount than would be includable without the
discharge. We urge prospective investors to consult their own tax advisers as
to the consequences of a discharge, including the applicability and effect of
tax laws other than the federal income tax law.
ADDITIONAL TERMS OF THE JUNIOR SUBORDINATED DEBENTURES
Additional Covenants Applicable to Junior Subordinated Debentures
Under the Subordinated Indenture, we will:
.. maintain 100% ownership of any Trust to which the Junior Subordinated
Debentures have been issued while the Junior Subordinated Debentures remain
outstanding; and
.. pay to any Trust to which the Junior Subordinated Debentures have been
issued any taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed by the United States or any
other taxing
authority on that Trust, so that the net amounts received and retained by
that Trust (after paying any taxes, duties, assessments or other governmental
charges) will be not less than the Trust would have received had no such
taxes, duties, assessments or other governmental charges been imposed.
(Sections 4.8 & 4.9 of the Subordinated Indenture.)
14
Option to Extend Interest Payment Period
We can defer interest payments by extending the interest payment period for
the number of consecutive extension periods specified in the applicable
prospectus supplement (each, an Extension Period). Other details regarding the
Extension Period will also be specified in the applicable prospectus
supplement. No Extension Period may extend beyond the maturity of the Junior
Subordinated Debentures. At the end of the Extension Period(s), we will pay all
interest then accrued and unpaid, together with interest compounded quarterly
at the rate for the Junior Subordinated Debentures, to the extent permitted by
applicable law. (Section 2.10 of the Subordinated Indenture.)
During any Extension Period, we will not make distributions related to our
capital stock, including dividends, redemptions, repurchases, liquidation
payments, or guarantee payments. Also we will not make any payments, redeem or
repurchase any debt securities of equal or junior rank to the Junior
Subordinated Debentures or make any guarantee payments on any such debt
securities. We may, however, make the following types of distributions:
.. dividends paid in common stock;
.. dividends in connection with the implementation of a shareholder rights plan;
.. payments to a trust holding securities of the same series under a guarantee;
or
.. repurchases, redemptions or other acquisitions of shares of our capital
stock in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of employees, officers,
directors or consultants.
Subordination
Each series of Junior Subordinated Debentures will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated
Indenture, to all Senior Indebtedness as defined below. If:
.. we make a payment or distribution of any of our assets to creditors upon our
dissolution, winding-up, liquidation or reorganization, whether in
bankruptcy, insolvency or otherwise;
.. a default beyond any grace period has occurred and is continuing with
respect to the payment of principal, interest or any other monetary amounts
due and payable on any Senior Indebtedness; or
.. the maturity of any Senior Indebtedness has been accelerated because of a
default on that Senior Indebtedness,
then the holders of Senior Indebtedness generally will have the right to
receive payment, in the case of the first instance, of all amounts due or to
become due upon that Senior Indebtedness, and, in the case of the second and
third instances, of all amounts due on that Senior Indebtedness, or we will
make provision for those payments, before the holders of any Junior Subordinated
Debentures have the right to receive any payments of principal or interest on
their Junior Subordinated Debentures. (Sections 14.1 and 14.9 of the
Subordinated Indenture.)
Senior Indebtedness means, with respect to any series of Junior
Subordinated Debentures, the principal, premium, interest
15
and any other payment in respect of any of the following:
.. all of our indebtedness for borrowed or purchased money that is evidenced by
notes, debentures, bonds or other written instruments;
.. our obligations for reimbursement under letters of credit, banker's
acceptances, security purchase facilities or similar facilities issued for
our account;
.. any of our other indebtedness or obligations with respect to commodity
contracts, interest rate commodity and currency swap agreements and other
similar agreements or arrangements; and
.. all indebtedness of others of the kinds described in the preceding
categories which we have assumed or guaranteed.
Senior Indebtedness will not include our obligations to trade creditors or
indebtedness to our subsidiaries. (Section 1.1 of the Subordinated Indenture.)
Senior Indebtedness will be entitled to the benefits of the subordination
provisions in the Subordinated Indenture irrespective of the amendment,
modification or waiver of any term of the Senior Indebtedness. We may not amend
the Subordinated Indenture to change the subordination of any outstanding
Junior Subordinated Debentures without the consent of each holder of Senior
Indebtedness that the amendment would
adversely affect. (Sections 10.2 & 14.7 of the Subordinated Indenture.)
The Subordinated Indenture does not limit the amount of Senior Indebtedness
that we may issue.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The following is a summary of the principal terms of the Trust Preferred
Securities. The form of amended trust agreement is filed as an exhibit to the
registration statement of which this prospectus forms a part, or is
incorporated by reference. The terms of the Trust Preferred Securities will
include those stated in the amended trust agreement and those made part of the
amended trust agreement by the Trust Indenture Act.
General
The Trust will exist until terminated as provided in its amended trust
agreement. Except under certain circumstances, we will be entitled to appoint,
remove, or replace trustees, who will conduct the business and affairs of the
Trust. The trustees of the Trust will consist of:
.. two employees, officers or affiliates of the Company as Administrative
Trustees;
.. a financial institution unaffiliated with us that will act as property
trustee and as indenture trustee for purposes of the Trust Indenture Act,
under the terms set forth in a prospectus supplement (the Property Trustee);
and
.. one trustee with its principal place of business or who resides in the State
of Delaware and who will act under the terms set forth in a prospectus
supplement. (Sections 6.1 through 6.5 of the Amended Trust Agreement.)
The amended trust agreement will authorize the Administrative Trustees to
issue, on behalf of the Trust, two classes of trust securities, Trust Preferred
Securities
16
and trust common securities, each of which will have the terms described in
this prospectus and in the prospectus supplement. We will own all of the trust
common securities. The trust common securities will rank equally in right of
payment, and payments will be made on the trust common securities,
proportionately with the Trust Preferred Securities. However, if an event of
default occurs and is continuing under the amended trust agreement, the rights
of the holders of the trust common securities to payment for distributions and
payments upon liquidation, redemption and otherwise, will be subordinated to
the rights of the holders of the Trust Preferred Securities. We will acquire,
directly or indirectly, trust common securities in a total liquidation amount
of approximately 3% of the total capital of the Trust. (Sections 3.6, 5.1, 5.2
and 7.1 of the Amended Trust Agreement.)
The proceeds from the sale of the Trust Preferred Securities will be used
by the Trust to purchase our Junior Subordinated Debentures. These Junior
Subordinated Debentures will be held in trust by the Property Trustee for the
benefit of the holders of the trust securities. We will guarantee the payments
of distributions and payments on redemption or liquidation with respect to the
Trust Preferred Securities, but only to the extent the Trust has funds
available to make those payments and has not made the payments. See DESCRIPTION
OF THE GUARANTEE.
The assets of the Trust available for distribution to the holders of Trust
Preferred Securities will be limited to payments from
us under the Junior Subordinated Debentures held by the Trust. If we fail to
make a payment on the Junior Subordinated Debentures, the Trust will not have
sufficient funds to make related payments, including distributions, on its
Trust Preferred Securities.
The Guarantee, when taken together with our obligations under the Junior
Subordinated Debentures, the Subordinated Indenture and the amended trust
agreement, will provide a full and unconditional guarantee of amounts due on
the Trust Preferred Securities issued by the Trust.
The Trust Preferred Securities will have the terms, including
distributions, redemption, voting, liquidation rights and other preferred,
deferred or other special rights or restrictions that will be described in the
amended trust agreement or made part of the amended trust agreement by the
Trust Indenture Act or the Delaware Business Trust Act. The terms of the Trust
Preferred Securities will mirror the terms of the Junior Subordinated
Debentures held by the Trust. In other words, the distribution rate and the
distribution payment dates and other payment dates for the Trust Preferred
Securities will correspond to the interest rate and interest payment dates and
other payment dates on the Junior Subordinated Debentures. Holders of Trust
Preferred Securities have no preemptive or similar rights. (Section 7.1 of the
Amended Trust Agreement.)
Provisions of a Particular Series
The Trust may issue only one series of Trust Preferred Securities. The
applicable prospectus supplement will set forth the
principal terms of the Trust Preferred Securities that will be offered,
including:
.. the name of the Trust Preferred Securities;
17
.. the liquidation amount and number of Trust Preferred Securities issued;
.. the annual distribution rate(s) or method of determining such rate(s), the
payment date(s) and the record dates used to determine the holders who are
to receive distributions;
.. the date from which distributions will be cumulative;
.. the optional redemption provisions, if any, including the prices, time
periods and other terms and conditions on which the Trust Preferred
Securities will be purchased or redeemed, in whole or in part;
.. the terms and conditions, if any, upon which the Junior Subordinated
Debentures and the related Guarantee may be distributed to holders of those
Trust Preferred Securities;
.. any securities exchange on which the Trust Preferred Securities will be
listed;
.. whether the Trust Preferred Securities are to be issued in book-entry form
and represented by one or more global certificates, and if so, the
depository for those global certificates and the specific terms of the
depositary arrangements; and
.. any other relevant rights, preferences, privileges, limitations or
restrictions of the Trust Preferred Securities. (Article 7 of the Amended
Trust Agreement.)
The interest rate and interest and other payment dates of each series of
Junior
Subordinated Debentures issued to a Trust will correspond to the rate at which
distributions will be paid and the distribution and other payment dates of the
Trust Preferred Securities of the Trust.
Extensions
We have the right under the Subordinated Indenture to defer payments of
interest on the Junior Subordinated Debentures by extending the interest
payment period from time to time on the Junior Subordinated Debentures. The
Administrative Trustees will give the holders of the Trust Preferred Securities
notice of any Extension Period upon their receipt of notice from us. If
distributions are deferred, the deferred distributions and accrued interest
will be paid to holders of record of the Trust Preferred Securities as they
appear on the books and records of the Trust on the record date next following
the termination of such deferral period. See ADDITIONAL TERMS OF THE JUNIOR
SUBORDINATED DEBENTURES--OPTION TO EXTEND INTEREST PAYMENT PERIOD.
Distributions
Distributions on the Trust Preferred Securities will be made on the dates
payable to the extent that the Trust has funds available for the payment of
distributions in the Property Account held by the Property Trustee. The Trust's
funds available for distribution to the holders of the trust securities will be
limited to payments received from us on the Junior Subordinated Debentures. We
have guaranteed the payment of distributions out of monies held by the Trust to
the extent set forth under DESCRIPTION OF THE GUARANTEE.
Distributions on the Trust Preferred Securities will be payable to the
holders named on the securities register of the Trust at the close of business
on the record dates, which, as long as the Trust Preferred Securities remain in
book-entry only form,
18
will be one business day prior to the relevant payment dates. Distributions
will be paid through the Property Trustee who will hold amounts received in
respect of the Junior Subordinated Debentures in the Property Account for the
benefit of the holders of the trust securities. In the event that the Trust
Preferred Securities do not continue to remain in book-entry only form, the
relevant record dates will conform to the rules of any securities exchange on
which the Trust Preferred Securities are listed and, if none, the
Administrative Trustees will have the right to select relevant record dates,
which will be more than 14 days but less than 60 days prior to the relevant
payment dates. In the event that any date on which distributions are to be made
on the Trust Preferred Securities is not a business day, then payment of the
distributions payable on that date will be made on the next succeeding day
which is a business day and without any interest or other payment in respect of
that delay, except that, if that business day is in the next succeeding
calendar year, the payment will be made on the immediately preceding business
day, in each case with the same force and effect as if made on the record date.
(Section 7.2 of the Amended Trust Agreement.)
Mandatory Redemption of Trust Preferred Securities
The Trust Preferred Securities have no stated maturity date, but will be
redeemed upon the maturity of the Junior Subordinated Debentures or to the
extent
the Junior Subordinated Debentures are redeemed prior to maturity. The Junior
Subordinated Debentures will mature on the date specified in the applicable
prospectus supplement and may be redeemed at any time, in whole but not in
part, in certain circumstances upon the occurrence of a Tax Event or an
Investment Company Event as described under SPECIAL EVENT REDEMPTION.
Upon the maturity of the Junior Subordinated Debentures, the proceeds of
their repayment will simultaneously be applied to redeem all the outstanding
trust securities at the Redemption Price. Upon the redemption of the Junior
Subordinated Debentures, either at our option or as a result of a Tax Event or
an Investment Company Event, the proceeds from the redemption will
simultaneously be applied to redeem trust securities having a total liquidation
amount equal to the total principal amount of the Junior Subordinated
Debentures so redeemed at the redemption price; provided, that holders of trust
securities will be given not less than 20 nor more than 60 days' notice of the
redemption. In the event that fewer than all of the outstanding trust
securities are to be redeemed, the trust securities will be redeemed
proportionately. (Section 7.3 of the Amended Trust Agreement.)
Special Event Redemption
Both a Tax Event and an Investment Company Act Event constitute Special
Events for purposes of the redemption provisions described in the preceding
paragraph.
A Tax Event means that the Administrative Trustees have received an opinion
of independent tax counsel
experienced in those matters to the effect that, as a result of any amendment
to, change or announced proposed change in:
.. the laws or regulations of the United States or any of its political
subdivisions or taxing authorities, or
19
.. any official administrative pronouncement, action or judicial decision
interpreting or applying those laws or regulations,
.. which amendment or change becomes effective or proposed change,
pronouncement, action or decision is announced on or after the date the
Trust Preferred Securities are issued and sold, there is more than an
insubstantial risk that:
.. the Trust is or within 90 days would be subject to U.S. federal income tax
with respect to income accrued or received on the Junior Subordinated
Debentures,
.. interest payable to the Trust on the Junior Subordinated Debentures is not
or within 90 days would not be deductible, in whole or in part, by us for
U.S. federal income tax purposes, or
.. the Trust is or within 90 days would be subject to a material amount of
other taxes, duties or other governmental charges.
An Investment Company Event means that the Administrative Trustees have
received an opinion of a nationally recognized independent counsel to the
effect that, as a result of an amendment to or change in the Investment Company
Act or regulations thereunder on or after the date the Trust Preferred
Securities are issued and sold, there is more than an insubstantial risk that
the Trust is or will be considered an investment company and be required to be
registered under the Investment Company Act. (Section 1.1 of the Amended Trust
Agreement.)
Redemption Procedures
The Trust may not redeem fewer than all the outstanding trust securities
unless all accrued and unpaid distributions have been paid on all trust
securities for all distribution periods terminating on or before the date of
redemption. In the event that fewer than all of the outstanding trust
securities are to be redeemed, the trust securities will be redeemed
proportionately.
If the Trust gives a notice of redemption in respect of the trust
securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, and if we have paid to the Property Trustee
a sufficient amount of cash in connection with the related redemption or
maturity of the Junior Subordinated Debentures, the Property Trustee will
irrevocably deposit with the depositary funds sufficient to pay the applicable
redemption price and will give the depositary irrevocable instructions and
authority to pay the redemption price to the holders of the Trust Preferred
Securities, and the paying agent will pay the applicable redemption price to
the holders of the trust common securities by check. If notice of redemption
has been given and funds deposited as required, then, immediately prior to the
close of business on the date of the deposit, distributions will cease to
accrue and all rights of holders of Trust Preferred Securities called for
redemption will cease, except the right of the holders of the Trust Preferred
Securities to receive the redemption price but without interest on the
redemption price. In the event that any date
fixed for redemption of Trust Preferred Securities is not a business day, then
payment of the redemption price payable on
20
that date will be made on the next succeeding day that is a business day,
without any interest or other payment in respect of any such delay, except
that, if that business day falls in the next calendar year, payment will be
made on the immediately preceding business day. In the event that payment of
the redemption price in respect of Trust Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by us under the
Guarantee, distributions on the Trust Preferred Securities will continue to
accrue at the then applicable rate from the original redemption date to the
date of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the redemption price.
Subject to the foregoing and applicable law, including, without limitation,
U.S. federal securities laws, we or our subsidiaries may at any time, and from
time to time, purchase outstanding Trust Preferred Securities by tender, in the
open market or by private agreement. (Section 7.4 of the Amended Trust
Agreement.)
Conversion or Exchange Rights
The terms on which the Trust Preferred Securities are convertible into or
exchangeable for common stock or our other securities will be contained in the
applicable prospectus supplement. Those terms will include provisions as to
whether conversion or exchange is mandatory, at the option of the holder or at
our option, and may include provisions under which the number of shares of
common stock or our other securities to be received by the
holders of Trust Preferred Securities would be subject to adjustment.
Distribution of the Junior Subordinated Debentures
We will have the right at any time to dissolve the Trust and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, to cause Junior Subordinated Debentures to be distributed to
the holders of the Trust Preferred Securities in a total stated principal
amount equal to the total stated liquidation amount of the Trust Preferred
Securities then outstanding. Prior to any such dissolution, we will obtain any
required regulatory approvals. The right to dissolve the trust and distribute
the Junior Subordinated Debentures will be conditioned on our receipt of an
opinion rendered by an independent tax counsel that the distribution would not
result in the recognition of gain or loss for federal income tax purposes by
the holders. (Section 8.1 of the Amended Trust Agreement.)
Liquidation Distribution Upon Dissolution
The amended trust agreement will state that the Trust will be dissolved:
.. upon our bankruptcy;
.. upon the filing of a certificate of dissolution or its equivalent with
respect to us;
.. upon the filing of a certificate of cancellation with respect to the Trust
after obtaining the consent of at least a majority in liquidation amount of
the Trust Preferred Securities, voting together as a single class;
.. 90 days after the revocation of our charter, but only if the charter is not
reinstated during that 90-day period;
.. upon the distribution of the related Junior Subordinated Debentures directly
to the
21
holders of the trust securities;
.. upon the redemption of all of the trust securities; or
.. upon entry of a court order for the dissolution of us or the Trust. (Section
8.1 of the Amended Trust Agreement.)
In the event of a dissolution, after the Trust pays all amounts owed to
creditors, the holders of the Trust Preferred Securities will be entitled to
receive:
.. cash equal to the total liquidation amount of each Trust Preferred Security
specified in an accompanying prospectus supplement, plus accumulated and
unpaid distributions to the date of payment, or
.. Junior Subordinated Debentures in a total principal amount equal to the
total liquidation amount of the Trust Preferred Securities.
If the Trust cannot pay the full amount due on its trust securities because
insufficient assets are available for payment, then the amounts payable by the
Trust on its trust securities will be paid proportionately. However, if an
event of default under the related amended trust agreement occurs, the total
amounts due on the Trust Preferred Securities will be paid before any
distribution on the trust common securities. Under certain circumstances
involving the dissolution of the Trust, subject to obtaining any required
regulatory approval, Junior Subordinated Debentures will be distributed to the
holders of the trust securities in liquidation of the Trust. (Section 8.2 of
the Amended Trust Agreement.)
Trust Enforcement Events
An event of default under the Subordinated Indenture relating to the Junior
Subordinated Debentures will be an event of default under the amended trust
agreement (a Trust Enforcement Event). See DESCRIPTION OF DEBT
SECURITIES--EVENTS OF DEFAULT.
In addition, the voluntary or involuntary dissolution, winding up or
termination of the Trust is also a Trust Enforcement Event, except in
connection with:
.. the distribution of the Junior Subordinated Debentures to holders of the
trust securities of the Trust,
.. the redemption of all of the trust securities of the Trust, and
.. mergers, consolidations or amalgamations permitted by the amended trust
agreement of the Trust.
Under the amended trust agreement, the holder of the trust common
securities will be deemed to have waived any Trust Enforcement Event with
respect to the trust common securities until all Trust Enforcement Events with
respect to the Trust Preferred Securities have been cured, waived or otherwise
eliminated. Until all Trust Enforcement Events with respect to the Trust
Preferred Securities have been so cured, waived, or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the holders of
the Trust Preferred Securities and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the amended trust agreement and the Subordinated
Indenture. In the event that any Trust
Enforcement Event with respect to the Trust Preferred Securities is waived by
the holders of the Trust Preferred Securities as provided in the amended trust
agreement, under the
22
amended trust agreement the holders of trust common securities have agreed that
the waiver also constitutes a waiver of the Trust Enforcement Event with
respect to the trust common securities for all purposes under the amended trust
agreement without any further act, vote or consent of the holders of trust
common securities. (Section 2.6 of the Amended Trust Agreement.)
We and the Administrative Trustees must file annually with the Property
Trustee a certificate evidencing compliance with all the applicable conditions
and covenants under the amended trust agreement. (Section 2.4 of the Amended
Trust Agreement.)
Upon the occurrence of a Trust Enforcement Event the Property Trustee, as
the sole holder of the Junior Subordinated Debentures, will have the right
under the Subordinated Indenture to declare the principal of, interest and
premium, if any, on the Junior Subordinated Debentures to be immediately due
and payable.
If a Property Trustee fails to enforce its rights under the amended trust
agreement or the Subordinated Indenture to the fullest extent permitted by law
and subject to the terms of the amended trust agreement and the Subordinated
Indenture, any holder of Trust Preferred Securities may sue us, or seek other
remedies, to enforce the Property Trustee's rights under the amended trust
agreement or the Subordinated Indenture without first instituting a legal
proceeding against the Property Trustee or any other person. If a Trust
Enforcement Event occurs
and is continuing as a result of our failure to pay principal of or interest or
premium, if any, on the Junior Subordinated Debentures when payable, then a
holder of the Trust Preferred Securities may directly sue us or seek other
remedies, to collect its proportionate share of payments owned. See
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES HELD BY THE TRUST.
Removal and Replacement of Trustees
Only the holders of trust common securities have the right to remove or
replace the trustees of the Trust, except that while an event of default in
respect of the Junior Subordinated Debentures has occurred or is continuing,
the holders of a majority of the Trust Preferred Securities will have this
right. The resignation or removal of any trustee and the appointment of a
successor trustee will be effective only on the acceptance of appointment by
the successor trustee in accordance with the provisions of the amended trust
agreement. (Section 6.6 of the Amended Trust Agreement.)
Mergers, Consolidations or Amalgamations of the Trust
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other corporation or other body (each, a
Merger Event), except as described below. The Trust may, with the consent of a
majority of its Administrative Trustees and without the consent of the holders
of its trust securities, consolidate,
amalgamate, merge with or into, or be replaced by another trust, provided that:
.. the successor entity either
.. assumes all of the obligations of the Trust relating to its trust
securities, or
23
.. substitutes other securities for the trust securities that are substantially
similar to the trust securities, so long as the successor securities rank
the same as the trust securities for distributions and payments upon
liquidation, redemption and otherwise;
.. we acknowledge a trustee of the successor entity who has the same powers and
duties as the Property Trustee of the Trust, as the holder of the Junior
Subordinated Debentures;
.. the Trust Preferred Securities are listed, or any successor securities will
be listed, upon notice of issuance, on the same securities exchange or other
organization that the Trust Preferred Securities are then listed;
.. the Merger Event does not cause the Trust Preferred Securities or successor
securities to be downgraded by any nationally recognized rating agency;
.. the Merger Event does not adversely affect the rights, preferences and
privileges of the holders of the trust securities or successor securities in
any material way, other than with respect to any dilution of the holders'
interest in the new entity;
.. the successor entity has a purpose identical to that of the Trust;
.. prior to the Merger Event, we have received an opinion of counsel from a
nationally recognized law firm stating that
.. the Merger Event does not adversely affect the rights of the holders of the
Trust Preferred Securities or any successor securities in any material way,
other than with respect to any dilution of the holders' interest in the new
entity, and
.. following the Merger Event, neither the Trust nor the successor entity will
be required to register as an investment company under the Investment
Company Act; and
.. we guarantee the obligations of the successor entity under the successor
securities in the same manner as in the Guarantee.
In addition, unless all of the holders of the Trust Preferred Securities
and trust common securities approve otherwise, the Trust will not consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit
any other entity to consolidate, amalgamate, merge with or into, or replace it,
if, in the opinion of a nationally recognized tax counsel experienced in such
matters, the transaction would cause the Trust or the successor entity to be
classified other than as a grantor trust for U.S. federal income tax purposes.
(Section 3.15 of the Amended Trust Agreement.)
Voting Rights; Amendment of Trust Agreement
The holders of Trust Preferred Securities have no voting rights except as
discussed under MERGERS, CONSOLIDATIONS OR AMALGAMATIONS OF THE TRUST and
DESCRIPTION OF THE GUARANTEE--AMENDMENTS, and as otherwise required by law and
the amended trust agreement.
The amended trust agreement may be amended if approved by a majority of the
Administrative Trustees of the Trust. However, if any proposed amendment
24
provides for, or the Administrative Trustees otherwise propose to effect,
.. any action that would adversely affect the powers, preferences or special
rights of the trust securities, whether by way of amendment to the amended
trust agreement or otherwise, or
.. the dissolution, winding-up or termination of the Trust other than under the
terms of its amended trust agreement,
.. then the holders of the Trust Preferred Securities as a single class will be
entitled to vote on the amendment or proposal. In that case, the amendment
or proposal will only be effective if approved by at least a majority in
liquidation amount of the Trust Preferred Securities affected by the
amendment or proposal.
No amendment may be made to an amended trust agreement if that amendment
would:
.. cause the Trust to be characterized as other than a grantor trust for U.S.
federal income tax purposes;
.. reduce or otherwise adversely affect the powers of the Property Trustee; or
.. cause the Trust to be deemed to be an investment company which is required
to be registered under the Investment Company Act. (Section 11.1 of the
Amended Trust Agreement.)
The holders of a majority of the total liquidation amount of the Trust
Preferred Securities have the right to:
.. direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee; or
.. direct the exercise of any power conferred upon the Property Trustee under
the amended trust agreement, including the right to direct the Property
Trustee, as the holder of the Junior Subordinated Debentures, to:
.. exercise the remedies available under the Subordinated Indenture with
respect to the Junior Subordinated Debentures,
.. waive any event of default under the Subordinated Indenture that is
waivable, or
.. cancel an acceleration of the principal of the Junior Subordinated
Debentures.
In addition, before taking any of the foregoing actions, the Property
Trustee must obtain an opinion of counsel stating that, as a result of that
action, the Trust will continue to be classified as a grantor trust for U.S.
federal income tax purposes. (Section 7.5 of the Amended Trust Agreement.)
As described in the form of amended trust agreement, the Property Trustee
may hold a meeting to have holders of Trust Preferred Securities vote on a
change or have them approve a change by written consent.
If a vote by the holders of Trust Preferred Securities is taken or a
consent is obtained, any Trust Preferred Securities owned by us or any of our
affiliates will, for purposes of the vote or consent, be treated as if they
were not outstanding, which will have the following consequences:
.. we and any of our affiliates will not be able to vote on or consent to
matters requiring the vote or consent of holders of Trust Preferred
Securities; and
25
.. any Trust Preferred Securities owned by us or any of our affiliates will not
be counted in determining whether the required percentage of votes or
consents has been obtained. Section 7.5 of the Amended Trust Agreement.)
Information Concerning the Property Trustee
The Chase Manhattan Bank is the Property Trustee. It is also the Guarantee
Trustee, the Subordinated Indenture Trustee and the Senior Indenture Trustee.
Dominion and certain of it affiliates maintain deposit accounts and banking
relationships with The Chase Manhattan Bank. The Chase Manhattan Bank also
serves as trustee under other indentures pursuant to which Dominion securities
and securities of certain of its affiliates are outstanding.
For matters relating to compliance with the Trust Indenture Act, the
Property Trustee will have all of the duties and responsibilities of an
indenture trustee under the Trust Indenture Act. The Property Trustee, other
than during the occurrence and continuance of a Trust Enforcement Event,
undertakes to perform only the duties that are specifically described in the
amended trust agreement and, upon a Trust Enforcement Event, must use the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers given it by
the applicable amended trust agreement at the request of any holder of Trust
Preferred Securities unless it is offered reasonable security or indemnity
against the costs, expenses and liabilities that it might incur. However, the
holders of the Trust Preferred Securities will not be required to offer such an
indemnity where the holders, by exercising their voting rights, direct the
Property Trustee to take any action following a Trust Enforcement Event.
(Section 3.9 of the Amended Trust Agreement.)
Information Concerning the Delaware Trustee
Chase Manhattan Bank USA, National Association, will serve as trustee of
the Trust in the State of Delaware for the purpose of complying with the
provisions of the Delaware Business Trust Act. It is an affiliate of The Chase
Manhattan Bank which serves as Property Trustee and in the other capacities
described above under "Information Concerning the Property Trustee."
Information Concerning the Administrative Trustees
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in a way that:
.. will not cause it to be deemed to be an investment company required to be
registered under the Investment Company Act;
.. will cause it to be classified as a grantor trust for U.S. federal income
tax purposes; and
.. will cause the Junior Subordinated Debentures it holds to be treated as our
indebtedness for U.S. federal income tax purposes.
We and the Administrative Trustee s are authorized to take any action, so
long as it is consistent with applicable law or the certificate of trust or
amended trust
26
agreement, that we and the Administrative Trustees determine to be necessary or
desirable for those purposes. (Section 3.6 of the Amended Trust Agreement.)
DESCRIPTION OF THE GUARANTEE
We will execute the Guarantee from time to time for the benefit of the
holders of the Trust Preferred Securities.
The Chase Manhattan Bank will act as Guarantee Trustee under the Guarantee.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Trust Preferred Securities.
The following description of the Guarantee is only a summary. The form of
Guarantee is an exhibit to the registration statement.
General
We will irrevocably and unconditionally agree under the Guarantee to pay
the Guarantee Payments that are defined below, to the extent specified in the
Guarantee, to the holders of the Trust Preferred Securities, to the extent that
the Guarantee Payments are not paid by or on behalf of the Trust. We are
required to pay the Guarantee Payments to the extent specified in the Guarantee
regardless of any defense, right of set-off or counterclaim that we may have or
may assert against any person. (Section 5.1 of the Guarantee.)
The following payments and distributions on the Trust Preferred
Securities of the Trust are Guarantee Payments:
.. any accrued and unpaid distributions required to be paid on the Trust
Preferred Securities of the Trust, but only to the extent that the Trust has
funds legally and immediately available for those distributions;
.. the redemption price for any Trust Preferred Securities that the Trust calls
for redemption, including all accrued and unpaid distributions to the
redemption date, but only to the extent that the Trust has funds legally and
immediately available for the payment; and
.. upon a dissolution, winding-up or termination of the Trust, other than in
connection with the distribution of Junior Subordinated Debentures to the
holders of Trust Securities of the Trust or the redemption of all the Trust
Preferred Securities of the Trust, the lesser of:
.. the sum of the liquidation amount and all accrued and unpaid distributions
on the Trust Preferred Securities of the Trust to the payment date, to the
extent that the Trust has funds legally and immediately available for the
payment; and
.. the amount of assets of the Trust remaining available for distribution to
holders of the Trust Preferred Securities of the Trust in liquidation of the
Trust. (Section 1.1 of the Guarantee.)
We may satisfy our obligation to make a Guarantee Payment by making that
payment directly to the holders of the related Trust Preferred Securities or by
causing the Trust to make the payment to those holders. (Section 5.1 of the
Guarantee.)
The Guarantee will be a full and unconditional guarantee, subject to
certain subordination provisions, of the Guarantee Payments with respect to the
Trust Preferred Securities from the time of issuance of the Trust Preferred
Securities, except that the Guarantee will only apply to the payment of
27
distributions and other payments on the Trust Preferred Securities when the
Trust has sufficient funds legally and immediately available to make those
distributions or other payments.
If we do not make the required payments on the Junior Subordinated
Debentures that the Property Trustee holds under the Trust, the Trust will not
make the related payments on the Trust Preferred Securities.
Subordination
Our obligations under the Guarantee will be unsecured obligations. Those
obligations will rank:
.. subordinate and junior in right of payment to all of our other liabilities,
other than obligations or liabilities that rank equal in priority or
subordinate by their terms;
.. equal in priority with the Junior Subordinated Debentures that we may issue
and similar guarantees; and
.. senior to our preferred and common stock. (Section 6.2 of the Guarantee.)
We have approximately $825 million in Junior Subordinated Debentures
outstanding that will rank equal in priority with the Guarantee. We have common
stock outstanding that will rank junior to the Guarantee.
The Guarantee will be a guarantee of payment and not of collection. This
means
that the guaranteed party may institute a legal proceeding directly against us,
as guarantor, to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. (Section 5.4
of the Guarantee.)
The terms of the Trust Preferred Securities will provide that each holder
of the Trust Preferred Securities, by accepting those Trust Preferred
Securities, agrees to the subordination provisions and other terms of the
Guarantee.
Amendments
We may amend the Guarantee without the consent of any holder of the Trust
Preferred Securities to which the Guarantee relates if the amendment does not
materially and adversely affect the rights of those holders. We may otherwise
amend the Guarantee with the approval of the holders of at least 50% of the
outstanding Trust Preferred Securities to which the Guarantee relates. (Section
9.2 of the Guarantee.)
Termination
The Guarantee will terminate and be of no further effect when:
.. the redemption price of the Trust Preferred Securities to which the
Guarantee relates is fully paid;
.. we distribute the related Junior Subordinated Debentures to the holders of
those Trust Preferred Securities; or
.. the amounts payable upon liquidation of the related Trust are fully paid.
(Section 7.1 of the Guarantee.)
The Guarantee will remain in effect or will be reinstated if at any time
any holder of the related Trust Preferred Securities must restore payment of
any sums paid to
that holder with respect to those Trust Preferred Securities or under the
Guarantee.
28
Material Covenants
We will covenant that, so long as any Trust Preferred Securities remain
outstanding, if there is an event of default under the Guarantee or the amended
trust agreement:
.. we will not make distributions related to our debt securities that rank
equally with or junior to the Junior Subordinated Debentures, including any
payment of interest, principal or premium, or repayments, repurchases or
redemptions; and
.. we will not make distributions related to our capital stock, including
dividends, redemptions, repurchases, liquidation payments, or guarantee
payments. We may, however, make the following types of distributions:
. dividends paid in common stock;
. dividends in connection with the implementation of a shareholder rights
plan;
. payments to a trust holding securities of the same series under a
guarantee; and
. repurchases, redemptions or other acquisitions of shares of our capital
stock in connection with any benefit plan or other similar arrangement with
or for the benefit of employees, officers, directors or consultants.
(Section 6.1 of the Guarantee.)
Because we are a holding company that conducts all of our operations
through our subsidiaries, our ability to meet our obligations under the
Guarantee is
dependent on the earnings and cash flows of those subsidiaries and the ability
of those subsidiaries to pay dividends or to advance or repay funds to us. The
Trust, as holder of the Guarantee and the Junior Subordinated Debentures will
generally have a junior position to claims of creditors of our subsidiaries,
including trade creditors, debtholders, secured creditors, taxing authorities,
guarantee holders and any preferred stockholders.
Events of Default
An event of default will occur under the Guarantee if we fail to perform
any of our payment obligations under the Guarantee. The holders of a majority
of the Trust Preferred Securities of any series may waive any such event of
default and its consequences on behalf of all of the holders of the Trust
Preferred Securities of that series. (Section 2.6 of the Guarantee.) The
Guarantee Trustee is entitled to enforce the Guarantee for the benefit of the
holders of the Trust Preferred Securities of a series if an event of default
occurs under the related Guarantee. (Section 3.1 of the Guarantee.)
The holders of a majority of the Trust Preferred Securities to which the
Guarantee relates have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee
with respect to the Guarantee or to direct the exercise of any trust or power
that the Guarantee Trustee holds under the Guarantee. Any holder of the related
Trust Preferred Securities may institute a legal proceeding directly against us
to enforce that holder's rights under the Guarantee without first instituting a
legal proceeding against the Guarantee Trustee or any other person or entity.
(Section 5.4 of the Guarantee.)
29
Concerning the Guarantee Trustee
The Chase Manhattan Bank is the Guarantee Trustee. It is also the Property
Trustee, the Subordinated Indenture Trustee and the Senior Indenture Trustee.
We and certain of our affiliates maintain deposit accounts and banking
relationships with The Chase Manhattan Bank. The Chase Manhattan Bank also
serves as trustee under other indentures pursuant to which securities of ours
and certain of our affiliates are outstanding.
The Guarantee Trustee will perform only those duties that are specifically
set forth in each Guarantee unless an event of default under the Guarantee
occurs and is continuing. In case an event of default occurs and is continuing,
the Guarantee Trustee will exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. (Section
3.1 of the Guarantee.) Subject to those provisions, the Guarantee Trustee is
under no obligation to exercise any of its powers under any Guarantee at the
request of any holder of the related Trust Preferred Securities unless that
holder offers reasonable indemnity to the Guarantee Trustee against the costs,
expenses and liabilities which it might incur as a result. (Section 3.2 of the
Guarantee.)
Agreement as to Expenses and Liabilities
We will enter into an Agreement as to Expenses and Liabilities as required
under the Trust Agreement. The Agreement as to Expenses and Liabilities will
provide that we will, with certain exceptions, irrevocably and unconditionally
guarantee the full payment of any indebtedness, expenses or liabilities of the
Trust to each person or entity to whom the Trust becomes indebted or liable.
The exceptions are the obligations of the Trust to pay to the holders of the
trust common securities or other similar interests in the Trust the amounts due
to the holders under the terms of the trust common securities or the similar
interests.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES HELD BY THE TRUST
We will guarantee payments of distributions and redemption and liquidation
payments due on the Trust Preferred Securities, to the extent the Trust has
funds available for the payments, to the extent described under DESCRIPTION OF
THE GUARANTEE. No single document executed by us in connection with the
issuance of the Trust Preferred Securities will provide for our full,
irrevocable and unconditional guarantee of the Trust Preferred Securities. It
is only the combined operation of our obligations under the Guarantee, the
amended trust agreement and the Subordinated Indenture that has the effect of
providing a full, irrevocable and unconditional guarantee of the Trust's
obligations under the Trust Preferred Securities.
As long as we make payments of interest and other payments when due on the
Junior Subordinated Debentures held by the Trust, those payments will be
sufficient to cover the payment of distributions and redemption and liquidation
payments due on the Trust Preferred Securities issued by the Trust, primarily
because:
.. the total principal amount of the Junior Subordinated Debentures will be
equal to the sum of the total liquidation amount of the trust securities;
30
.. the interest rate and interest and other payment dates on the Junior
Subordinated Debentures will match the distribution rate and distribution
and other payment dates for the Trust Preferred Securities;
.. we will pay for any and all costs, expenses and liabilities of the Trust
except its obligations under its Trust Preferred Securities; and
.. the amended trust agreement will provide that the Trust will not engage in
any activity that is not consistent with the limited purposes of the Trust.
If and to the extent that we do not make payments on the Junior
Subordinated Debentures, the Trust will not have funds available to make
payments of distributions or other amounts due on its Trust Preferred
Securities. In those circumstances, you will not be able to rely upon the
Guarantee for payment of these amounts. Instead, you may directly sue us or
seek other remedies to collect your proportionate share of payments owed. If
you sue us to collect payment, then we will assume your rights as a holder of
Trust Preferred Securities under the amended trust agreement to the extent we
make a payment to you in any such legal action.
ACCOUNTING TREATMENT
The Trust will be treated as a subsidiary of ours for financial reporting
purposes. Accordingly, our consolidated financial statements will include the
accounts of the Trust. The Trust Preferred Securities, along with other trust
preferred securities that we guarantee on an equivalent basis, will be
presented as a separate line item in our consolidated balance sheets, and
appropriate disclosures about the Trust
Preferred Securities, the Guarantee and the Junior Subordinated Debentures will
be included in the notes to the consolidated financial statements. We will
record distributions that the Trust pays on the Trust Preferred Securities as
an expense in our consolidated statement of income.
DESCRIPTION OF CAPITAL STOCK
As of December 31, 2000, our authorized capital stock was 520,000,000
shares. Those shares consisted of: (a) 20,000,000 shares of preferred stock,
none of which were outstanding; and (b) 500,000,000 shares of common stock, of
which approximately 245,800,000 shares were outstanding as of December 31,
2000. On February 16, 2001 our Board of Directors established the terms of and
authorized the issuance of at least 665,000 shares of Series A Preferred Stock
in connection with a proposed financing of Dominion Telecom's capital expansion
program. No holder of shares of common stock or preferred stock has any
preemptive rights.
Common Stock
Listing
Our outstanding shares of common stock are listed on the New York Stock
Exchange under the symbol "D". Any additional common stock we issue will also
be listed on the NYSE.
Dividends
Common shareholders may receive dividends when declared by the Board of
Directors. Dividends may be paid in cash, stock or other form. In certain
cases, common shareholders may not receive
dividends until we have satisfied our obligations to any preferred shareholders.
31
Under certain circumstances, the Subordinated Indenture also restricts our
ability to pay cash dividends.
Fully Paid
All outstanding shares of common stock are fully paid and non-assessable.
Any additional common stock we issue will also be fully paid and non-assessable.
Voting Rights
Each share of common stock is entitled to one vote in the election of
directors and other matters. Common shareholders are not entitled to cumulative
voting rights.
Other Rights
We will notify common shareholders of any shareholders' meetings according
to applicable law. If we liquidate, dissolve or wind up our business, either
voluntarily or not, common shareholders will share equally in the assets
remaining after we pay our creditors and preferred shareholders.
Transfer Agents and Registrars
We, along with Continental Stock Transfer & Trust Company, are transfer
agent and registrar. You may contact us at the address listed on page 2 or
Continental located in New York, New York.
Preferred Stock
The following description of the terms of the preferred stock sets forth
certain general terms and provisions of our authorized preferred stock. If we
issue preferred stock, the specific designations and rights will be described
in the
prospectus supplement and a description will be filed with the SEC.
Our Board of Directors can, without approval of shareholders, issue one or
more series of preferred stock. The Board can also determine the number of
shares of each series and the rights, preferences and limitations of each
series including the dividend rights, voting rights, conversion rights,
redemption rights and any liquidation preferences of any wholly unissued series
of preferred stock, the number of shares constituting each series and the terms
and conditions of issue. In some cases, the issuance of preferred stock could
delay a change in control of the Company and make it harder to remove present
management. Under certain circumstances, preferred stock could also restrict
dividend payments to holders of our common stock.
The preferred stock will, when issued, be fully paid and non-assessable.
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will rank on a parity in all respects with any outstanding
preferred stock we may have and will have priority over our common stock as to
dividends and distributions of assets. Therefore, the rights of any preferred
stock that may subsequently be issued may limit the rights of the holders of
our common stock and preferred stock.
The transfer agent, registrar, and dividend disbursement agent for a series
of preferred stock will be named in a prospectus supplement. The registrar for
shares of preferred stock will send notices to shareholders of any meetings at
which holders of the preferred stock have the right to elect directors or to
vote on any other matter.
32
VIRGINIA STOCK CORPORATION ACT AND THE ARTICLES AND THE BYLAWS
General
We are a Virginia corporation subject to the Virginia Stock Corporation Act
(the Virginia Act). Provisions of the Virginia Act, in addition to provisions
of our Articles of Incorporation and Bylaws, address corporate governance
issues, including the rights of shareholders. Some of these provisions could
hinder management changes while others could have an anti-takeover effect. This
anti-takeover effect may, in some circumstances, reduce the control premium
that might otherwise be reflected in the value of our common stock. If you are
buying this stock as part of a short-term investment strategy, this might be
especially important to you.
We have summarized the key provisions below. You should read the actual
provisions of our Articles and Bylaws and the Virginia Act that relate to your
individual investment strategy.
Business Combinations
Our Articles require that any merger, share exchange or sale of
substantially all of the assets of the Company be approved by a plurality of
the shares represented at a meeting where a quorum is present. Abstentions and
broker non-votes have the same effect as a vote against the matter.
Section 13.1-725 of the Virginia Act contains several provisions relating
to transactions with interested shareholders. Interested shareholders are
holders of more than 10% of any class of a corporation's outstanding voting
shares. Transactions between a corporation and an interested
shareholder are referred to as affiliated transactions. The Virginia Act
requires that material affiliated transactions must be approved by at least
two-thirds of the shareholders not including the interested shareholder.
Affiliated transactions requiring this two-thirds approval include mergers,
share exchanges, material dispositions of corporate assets, dissolution or any
reclassification of the corporation with its subsidiaries which increases the
percentage of voting shares owned by an interested shareholder by more than
five percent.
For three years following the time that a shareholder becomes an interested
shareholder, a Virginia corporation cannot engage in an affiliated transaction
with the interested shareholder without approval of two-thirds of the
disinterested voting shares, and majority approval of disinterested directors.
A disinterested director is a director who was a director on the date on which
an interested shareholder became an interested shareholder and was recommended
for election or elected by a majority of the disinterested directors then on
the board. After three years, the approval of the disinterested directors is no
longer required.
The provisions of the Virginia Act relating to affiliated transactions do
not apply if a majority of disinterested directors approve the acquisition of
shares making a person an interested shareholder.
The Virginia Act permits corporations to opt out of the affiliated
transactions provisions. We have not opted out.
The Virginia Act also contains provisions regulating certain control share
acquisitions, which are transactions causing
33
the voting strength of any person acquiring beneficial ownership of shares of a
public corporation in Virginia to meet or exceed certain threshold voting
percentages (20%, 33 1/3%, or 50%). Shares acquired in a control share
acquisition have no voting rights unless the voting rights are granted by a
majority vote of all outstanding shares other than those held by the acquiring
person or any officer or employee-director of the corporation. The acquiring
person may require that a special meeting of the shareholders be held to
consider the grant of voting rights to the shares acquired in the control share
acquisition.
Our Bylaws give us the right to redeem the shares purchased by an acquiring
person in a control share acquisition. We can do this if the acquiring person
fails to deliver a statement to us listing information required by the Virginia
Act or if our shareholders vote not to grant voting rights to the acquiring
person.
The Virginia Act permits corporations to opt out of the control share
acquisition provisions. We have not opted out.
Directors' Duties
The standards of conduct for directors of Virginia corporations are listed
in Section 13.1-690 of the Virginia Act. Directors must discharge their duties
in accordance with their good faith business judgement of the best interest of
the corporation. Directors may rely on the advice or acts of others, including
officers, employees, attorneys, accountants and board committees if they have a
good faith belief in their competence. Directors' actions are not subject to a
reasonableness or prudent person standard. Virginia's federal and state courts
have focused on the process involved with directors' decision-making and are
generally supportive of directors if they have based their decision on an
informed process. These elements of Virginia law could make it more difficult
to take over a Virginia corporation than corporations in other states.
Board of Directors
Members of our Board of Directors serve one-year terms and are elected
annually. Directors may be removed from office for cause by the vote of
two-thirds of the outstanding shares entitled to vote.
Shareholder Proposals and Director Nominations
Our shareholders can submit shareholder proposals and nominate candidates
for the Board of Directors if the shareholders follow advance notice procedures
described in our Bylaws.
To nominate directors, shareholders must submit a written notice to our
corporate secretary at least 60 days before a scheduled meeting. The notice
must include the name and address of the shareholder and of the nominee, a
description of any arrangements between the shareholder and the nominee,
information about the nominee required by the SEC, the written consent of the
nominee to serve as a director and other information.
Shareholder proposals must be submitted to our corporate secretary at least
90 days before the first anniversary of the date of our last annual meeting.
The notice must include a description of the proposal, the reasons for
presenting the proposal at the annual meeting, the text of any resolutions to
be presented, the shareholder's name and address and number of shares held and
any
34
material interest of the shareholder in the proposal.
Director nominations and shareholder proposals that are late or that do not
include all required information may be rejected. This could prevent
shareholders from bringing certain matters before an annual or special meeting,
including making nominations for directors.
Meetings of Shareholders
Under our Bylaws, meetings of the shareholders may be called only by the
chairman of the board, the president or a majority of the Board of Directors.
This provision could have the effect of delaying until the next annual
shareholders' meeting shareholder actions which are favored by the holders of a
majority of our outstanding voting securities, because such person or entity,
even if it acquired a majority of our outstanding voting securities, would be
able to take action as a shareholder, such as electing new directors or
approving a merger, only at a duly called shareholders' meeting.
Amendment of Articles
Generally, our Articles may be amended by a plurality of the shares
represented at a meeting where a quorum is present. Some provisions of the
Articles, however, may only be amended or repealed by a vote of at least
two-thirds of the outstanding shares entitled to vote.
Indemnification
We indemnify our officers and directors to the fullest extent permitted
under Virginia law against all liabilities incurred in connection with their
service to us.
Limitation of Liability
Our Articles provide that our directors and officers will not be personally
liable for monetary damages to us for breaches of their fiduciary duty as
directors or officers, unless they violated their duty of loyalty to us or our
shareholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors or officers. This provision applies only
to claims against directors or officers arising out of their role as directors
or officers and not in any other capacity. Directors and officers remain liable
for violations of the federal securities laws and we retain the right to pursue
legal remedies other than monetary damages, such as an injunction or rescission
for breach of the officer's or director's duty of care.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of common stock at a future date or dates, which we refer to in this
prospectus as stock purchase contracts. The price per share of common stock and
the number of shares of common stock may be fixed at the time the stock
purchase contracts are issued or may be determined by reference to a specific
formula set forth in the stock purchase contracts. The stock purchase contracts
may be issued separately or as part of units consisting of a stock purchase
contract and beneficial interests in debt securities, trust preferred
securities, preferred stock or debt obligations of third parties, including U.S.
35
treasury securities, securing the holders' obligations to purchase the common
stock under the stock purchase contracts, which we refer to in this prospectus
as stock purchase units. The stock purchase contracts may require us to make
periodic payments to the holders of the stock purchase units or vice versa, and
these payments may be unsecured or refunded on some basis. The stock purchase
contracts may require holders to secure their obligations under those contracts
in a specified manner.
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units, including, if applicable,
collateral or depositary arrangements, relating to the stock purchase contracts
or stock purchase units.
We currently have 8,250,000 stock purchase units outstanding. These stock
purchase units trade on the NYSE under the symbol "DCP." They obligate holders
to purchase up to 8,088,300 shares of our common stock from us by November 16,
2004.
PLAN OF DISTRIBUTION
We may sell the offered securities (a) through agents; (b) through
underwriters or dealers; or (c) directly to one or more purchasers.
By Agents
Offered securities may be sold through agents that we designate. The agents
agree to use their reasonable best efforts to solicit purchases for the period
of their appointment.
By Underwriters
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will be subject to
certain conditions. The underwriters will be obligated to purchase all the
securities of the series offered if any of the securities are purchased. Any
initial public offering price and any discounts or concessions allowed or
re-allowed or paid to dealers may be changed from time to time.
Direct Sales
We may also sell offered securities directly. This may include sales of our
common stock to holders of our stock purchase units. In this case, no
underwriters or agents would be involved.
General Information
Underwriters, dealers and agents that participate in the distribution of
the offered securities may be underwriters as defined in the Securities Act of
1933 (the Act), and any discounts or commissions received by them from us and
any profit on the resale of the offered securities by them may be treated as
underwriting discounts and commissions under the Act. Any underwriters or
agents will be identified and their compensation described in a prospectus
supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Act, or to contribute with respect to payments which the underwriters,
dealers or agents may be required to make.
36
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
LEGAL OPINIONS
McGuireWoods LLP, counsel to the Company, will issue an opinion about the
legality of the offered securities for us. As of December 31, 2000, partners of
McGuireWoods LLP own less than one half of one percent of our common stock.
Certain matters relating to the formation of the Trust and the issuance of the
Trust Preferred Securities under Delaware law and the Trust Agreements will be
passed upon by Richards, Layton & Finger, special Delaware counsel to the
Trusts and the Company. Any underwriters will be advised about other issues
relating to any offering by their own legal counsel.
EXPERTS
The financial statements incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1999
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The audited historical consolidated financial statements of CNG
incorporated by reference in Dominion's Form 8-K filed with the SEC on February
1, 2000, incorporated by reference in this prospectus, have been so
incorporated in reliance of the report of PricewaterhouseCoopers LLP,
independent accountants, given the authority of said firm as experts in
auditing and accounting.
37
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6,000,000 Upper DECS/SM/ Equity Income Securities
Consisting of 6,000,000 Corporate Units
Dominion Resources, Inc.
[LOGO] Dominion
[LOGO OF DOMINION RESOURCES INC.]
--------
P R O S P E C T U S S U P P L E M E N T
March 13, 2002
--------
Salomon Smith Barney
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------