A number executives at Dominion Resources Inc. have exercised stock options so they can repay bank loans that can’t be extended because of a Sarbanes-Oxley provision.
Under Section 402 of the act, corporations are barred from making personal loans to officers or directors. The Richmond, Virginia-based utility-holding giant said the options exercise enables the executives to raise the funds needed to prepay personal loans due to third-party commercial lenders in 2005. The exercise was made under a previously announced program approved by the board’s compensation committee.
From now until the end of 2005, Dominion will allow its officers to exercise options and sell shares of stock. In line with the company’s share-ownership guidelines, the officers took out loans in early 2000 to help them buy Dominion shares.
The proceeds from any option exercises or sale of shares must be used to prepay loans and cover any related costs, according to the company. Such proceeds can also be used to buy added Dominion shares.
To comply with Sarbanes-Oxley, Dominion said, the company will not extend its guaranty of personal bank loans to executives who borrowed money under the program. The officers have been personally responsible for repaying the loans all along, the company noted in a release.
The options were granted in 1999 under a shareholder-approved incentive-compensation plan aimed at linking management and shareholder interests, according to the company. Direct stock ownership by officers is also part of the program.
Under Dominion’s ownership guidelines, officers are required to own from three to eight times their annual base salaries in Dominion shares. Officers will still be responsible for complying with share ownership guidelines after using the proceeds from stock and options sales to retire their loans, the company stressed in its release.
In the past week or so, Thomas Capps, the company’s chief executive officer bought stock for about $32.6 million and sold it for $49.3 million, according to the Hampton Roads Daily Press.
The $16.7 million profit will be applied to the loan, the paper added. While that money will be taxed and used to pay commissions removed, it should be enough to cover Capps’ loan, a company spokesman told the paper.