Company Name: WGL Holdings, Inc.
Public Availability Date: November 28, 2005
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
October 28, 2005
VIA HAND DELIVERY
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Shareholder Proposal of Mr. George Taylor; Securities Exchange Act of
1934-Section 14(a), Rule 14a-8
Dear Ladies and Gentlemen:
I write on behalf of WGL Holdings, Inc. (the "Company") to request confirmation
that the Staff of the Division of Corporation Finance of the Securities and
Exchange Commission (the "Staff") will not recommend any enforcement action to
the Securities and Exchange Commission (the "Commission"), if the Company
excludes from its proxy statement and form of proxy for its 2006 Annual Meeting
of Shareholders (collectively, the "2006 Proxy Materials") a shareholder
proposal (the "Proposal") and a statement in support thereof (the "Supporting
Statement") received from Mr. George Taylor (the "Proponent"). The Proposal
requests that the Company's Board of Directors adopt a policy requiring the
Company's Chairman of the Board of Directors to be an independent director who
has not previously served as an executive officer of the Company. The Proposal
and Supporting Statement are attached hereto as Exhibit A.
Rule 14a-8(i)(3), under the Securities Exchange Act of 1934, as amended (the
"Act"), allows the exclusion of a shareholder proposal if the proposal or
supporting statement is contrary to any proxy rules or regulations of the
Commission, including Rule 14a-9 under the Act, which prohibits materially false
or misleading statements in proxy materials. The Company believes that the
Proposal and Supporting Statement violate the Rule 14a-9 prohibition on
materially false and misleading statements.
Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter
and its attachments. Also, in accordance with Rule 14a-8(j), a copy of this
letter and its attachment are being mailed on this date to the Proponent,
informing him of the Company's intention to omit the Proposal from the 2006
Proxy Materials. Pursuant to Rule 14a-8(j), this letter is being filed with the
Commission no later than eighty (80) calendar days before the Company files its
definitive 2006 Proxy Materials with the Commission. The Company hereby agrees
promptly to forward to the Proponent any Staff response to this no-action
request that the Staff transmits by facsimile to the Company only.
ANALYSIS
The Proposal May Be Excluded Under Rule 14a-8(i)(3) Because the Proposal
Contains Materially False and Misleading Information.
Rule 14a-8(i)(3) states that a shareholder proposal may be omitted if the
proposal or its supporting statement is contrary to the proxy rules, including
Rule 14a-9, which prohibits materially false or misleading statements in proxy
soliciting materials. Though the Staff, in Staff Legal Bulletin 14B (September
15, 2004) ("SLB 14B"), clarified the circumstances in which companies may not be
permitted to exclude proposals pursuant to 14a-8(i)(3), it expressly reaffirmed
that exclusion pursuant to Rule 14a-8(i)(3) remains available to companies
where:
1) statements directly or indirectly impugn character, integrity, or personal
reputation, or directly or indirectly make charges concerning improper, illegal,
or immoral conduct or association, without factual foundation;
2) the company demonstrates objectively that a factual statement is materially
false or misleading;
3) the resolution contained in the proposal is so inherently vague or indefinite
that neither the stockholders voting on the proposal, nor the company in
implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requiresthis
objection also may be appropriate where the proposal and the supporting
statement, when read together, have the same result; and
4) substantial portions of the supporting statement are irrelevant to a
consideration of the subject matter of the proposal, such that there is a strong
likelihood that a reasonable shareholder would be uncertain as to the matter on
which she is being asked to vote.
SLB 14B, 4.
The Proposal and Supporting Statement implicate the second of the foregoing
concerns and are therefore, properly excludable.
The Proponent's Proposal and Supporting Statement state, in relevant part:
"Shareholders of WGL Holdings require an independent leader to ensure that
management acts strictly in the best interests of the Company especially when
our Company is facing significant challenges. Our Company recently announced
that it would have to spend more than $100 million dollars to repair gas leaks
due to faulty equipment and poor installation measures after an estimated 1400
leaks were found on the Company's pipeline.1 In addition, Washington area
legislators have noted their concern over the safety of the Company's natural
gas pipeline after a home exploded earlier this year.2 Shareholders need to be
assured that the Board of Directors is representing their best interests during
these potential crises."
The articles referenced in footnotes #1 and #2 of the Supporting Statement are
attached hereto as Exhibit B and Exhibit C, respectively.
The statement, "Our Company recently announced that it would have to spend more
than $100 million dollars to repair gas leaks due to faulty equipment and poor
installation measures after an estimated 1400 leaks were found on the Company's
pipeline", is materially false, misleading and misstates the July 10, 2005,
Baltimore Sun article to which footnote #1 refers. First, the Company never has
associated the cause of the gas leaks referenced in this statement to either
"faulty equipment" or "poor installation measures". Accordingly, it is
materially false to state or imply that the Company made such an announcement.
Instead, the referenced article directly attributes those particular comments to
a spokesman for "Dominion energy" (sic) and not this Company. Contrarily, the
Company has made many public statements, including statements in a Current
Report on Form 8-K filed with the Commission on July 6, 2005, that attribute the
cause of the gas leaks primarily to the composition of the natural gas being
received from the Cove Point terminal. Further, in the same Baltimore Sun
article that the Proponent incorrectly cites, the Company's spokesman is
reported to have said that the gas leaks were caused by a change in the gas
composition.
The Company's request for exclusion of the Proposal and Supporting Statement is
supported by the guidelines set forth in SLB 14B since the Proponent's statement
is materially false due to the fact that the Company never has associated the
subject gas leaks in its pipeline with "faulty equipment and poor installation,"
as the Supporting Statement asserts. Additionally, the Proponent's claim is
materially misleading because individuals reading the 2006 Proxy Materials may
erroneously conclude that the Company has admitted legally actionable fault in
this matter and, therefore, may believe that the Company will be subject to
substantial monetary liability for any damages caused by the gas leaks.
Footnote #2 of the Supporting Statement cites a Natural Gas Week publication,
dated May 2, 2005, in order to support the following statement, "In addition,
Washington area legislators have noted their concern over the safety of the
Company's natural gas pipeline after a home exploded earlier this year." Again,
the Proponent's statement is not an accurate description of the publication
cited. This statement is essentially an extrapolation of the headline on the
Natural Gas Week article, but the article discusses only a bill in the Maryland
legislature that would have required the Maryland Public Service Commission to
"regularly inspect LNG plants and pipelines..." and that was briefly introduced
and then withdrawn. The text of this article, and the underlying facts, do not
support the Proponent's statement that legislators have a "concern over the
safety of the Company's natural gas pipeline after a home exploded earlier this
year." If not excluded, this misstatement of the content of the Natural Gas Week
article, coupled with the prior false statement regarding the Company's fault
regarding gas leaks is material in misleading shareholders and potential
investors in regards to the Company's operational standards of safety,
construction and maintenance.
CORRESPONDENCE WITH SHAREHOLDER
The Company received the Proposal and Supporting Statement from Mr. Taylor on
September 23, 2005. On October 3, 2005, the Company responded by letter to Mr.
Taylor stating therein its objections to the portions of the Proposal and
Supporting Statement described above. The Company's written response to the
Proponent is attached hereto as Exhibit D. Additionally, the Company indicated
that it would submit a request to the Commission to have the Proposal and
Supporting Statement excluded from its 2006 Proxy Materials, if the misleading
and false statements were not removed or revised. The Company received a
certified mail receipt indicating that Mr. Taylor received the Company's letter
on October 6, 2005. In accordance with Rule 14a-8(f), Mr. Taylor had 14 days
from that date in which to respond (i.e., until October 20, 2005). As of the
close of business on Thursday, October 27\th/, the Company had received no
response from Mr. Taylor.
CONCLUSION
Based upon the foregoing analysis, the Company respectfully requests that the
Staff confirm that it will not recommend any enforcement action to the
Commission if the Company excludes the Proposal and Supporting Statement from
its 2006 Proxy Materials. The Company will provide the Staff with any additional
information and answer any questions that you may have regarding this subject.
If the Company can be of any further assistance in this matter, please do not
hesitate to call me at (202) 624-6177.
Sincerely,
/s/
Beverly J. Burke
Vice President and General Counsel
WGL Holdings, Inc.
cc: Mr. George Taylor
7302 Franklin Road
Annandale, VA 22003
-----FOOTNOTES-----
1 "Gas-leak debate prompts call for standards; Utility, terminal sparring over
Pr. George's problem", The Baltimore Sun, July 10, 2005.
2 "House Explosion Spawns Anti-LNG Fervor in Cove Point Home State", Natural Gas
Week, May 2, 2005.
[APPENDIX]
RESOLVED: That stockholders of WGL Holdings, Inc. ("WGL or "the Company") ask
the board of directors to adopt a policy that the board's chairman be an
independent director who has not previously served as an executive officer of
WGL Holdings. The policy should be implemented so as not to violate any
contractual obligation. The policy should also specify (a) how to select a new
independent chairman if a current chairman ceases to be independent during the
time between annual meetings of shareholders, and (b) that compliance with the
policy is excused if no independent director is available and willing to serve
as chairman.
SUPPORTING STATEMENT: It is the responsibility of the Board of Directors to
protect shareholders' long-term interests by providing independent oversight of
management, including the Chief Executive Officer (CEO), in directing the
corporation's business and affairs. Currently at our Company, Mr. James
DeGraffenreidt, Jr. holds both the positions of Chairman of the Board and CEO. I
believe that this current scheme may not adequately protect shareholders.
Shareholders of WGL Holdings require an independent leader to ensure that
management acts strictly in the best interests of the Company especially when
our Company is facing significant challenges. Our Company recently announced
that it would have to spend more than $100 million dollars to repair gas leaks
due to faulty equipment and poor installation measures after an estimated 1400
leaks were found on the Company's pipeline.1 In addition, Washington area
legislators have noted their concern over the safety of the Company's natural
gas pipeline after a home exploded earlier this year.2 Shareholders need to be
assured that the Board of Directors is representing their best interests during
these potential crises.
As a long-term shareholder of our Company, I believe that ensuring that the
Chairman of the Board of our Company is independent, will enhance Board
leadership at WGL Holdings, and protect shareholders from future management
actions that can harm shareholders. Other corporate governance experts agree. As
a Commission of The Conference Board stated in a 2003 report, "The ultimate
responsibility for good corporate governance rests with the board of directors.
Only a strong, diligent and independent board of directors that understands the
key issues, provides wise counsel and asks management the tough questions is
capable of ensuring that the interests of shareowners as well as other
constituencies are being properly served."
I believe that the recent wave of corporate scandals demonstrates that no matter
how many independent directors there are on the Board, that Board is less able
to provide independent oversight of the officers if the Chairman of that Board
is also the CEO of the Company.
I therefore urge shareholders to vote FOR this proposal.
-----FOOTNOTES-----
1 "Gas-leak debate prompts call for standards; Utility, terminal sparring over
Pr. George's problem". The Baltimore Sun. July 10, 2005.
2 "House Explosion Spawns Anti-LNG Fervor in Cove Point Home State". Natural Gas
Week. May 2, 2005.
[INQUIRY LETTER]
October 3, 2005
VIA Federal Express/Certified Mail
Mr. George Taylor
7302 Franklin Road
Annandale, VA 22003
Dear Mr. Taylor:
I am writing to you regarding the shareholder proposal you sent to our Corporate
Secretary, Mr. Douglas Pope. Mr. Pope received your proposal on September 23,
2005.
In support of your proposal you state that, "Our Company recently announced that
it would have to spend more than $100 million dollars to repair gas leaks due to
faulty equipment and poor installation measures after an estimated 1400 leaks
were found on the Company's pipeline." Through a footnote you reference an
article from The Baltimore Sun of July 10, 2005.
This statement is not accurate and misstates The Baltimore Sun article.
Specifically, the alleged cause of the gas leaks stated by you in your letter,
can be traced to comments reportedly made by a spokesman for "Dominion energy"
(sic), and not by Washington Gas. Washington Gas, in fact, has made many public
statements, including statements in a Form 8-K filed with the SEC and also as
reported in that same newspaper article, that attribute the leaks to the
composition of the fuel being received from the Cove Point terminal.
You also cite to a Natural Gas Week publication in support of the following
statement: "In addition, Washington area legislators have noted their concern
over the safety of the Company's natural gas pipeline after a home exploded
earlier this year." Again, we are concerned that your statement is not an
accurate description of the publication you cite. Your statement is essentially
an extrapolation of the headline on the Natural Gas Week article, but the
article itself discusses only a bill in the Maryland legislature that was
introduced, and then withdrawn, that would have required the Maryland Public
Service Commission to "regularly inspect LNG plants and pipelines..." The text
of this article, and the underlying facts, do not appear to support your
statement that legislators have a "concern over the safety of the Company's
natural gas pipeline after a home exploded earlier this year."
We believe that your characterizations noted above, could mislead investors who
will be reading our proxy statement. Therefore, we ask that you delete or
correct all of these statements and resubmit your proposal and supporting
statement to us for consideration. Pursuant to the SEC rules, your response to
us must be postmarked or transmitted electronically, no later than 14 days from
the date you receive this letter.1 If you do not make these corrections, the
Company has the responsibility to seek to have your proposal excluded under the
proxy rules, because as currently written, it is misleading to the investing
public.
Very truly yours,
/s/
Beverly J. Burke
-----FOOTNOTES-----
1 If you choose to reply electronically, please e-mail your reply to me at bburke@washgas.com, with a copy to Douglas Pope at dpope@washgas.com. Or you can
fax it to our attention on (202) 842-2880.
[STAFF REPLY LETTER]
November 28, 2005
Response of the Office of Chief Counsel Division of Corporation Finance
Re: WGL Holdings, Inc.
Incoming letter dated October 28, 2005
The proposal requests that the board of directors adopt a policy that the
board's chairman be an independent director who has not previously served as an
executive officer of the company.
We are unable to concur in your view that WGL Holdings may exclude the proposal
under rule 14a-8(i)(3). Accordingly, we do not believe that WGL Holdings may
omit the proposal from its proxy materials in reliance on rule 14a-8(i)(3).
Sincerely,
/s/
Ted Yu
Special Counsel
|
