<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
KEYSPAN ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 4939 11-3344628
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
C/O THE BROOKLYN UNION GAS COMPANY
ONE METROTECH CENTER
BROOKLYN, NEW YORK 11201-3850
(718) 403-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
VINCENT D. ENRIGHT
THE BROOKLYN UNION GAS COMPANY
ONE METROTECH CENTER
BROOKLYN, NEW YORK 11201-3850
(718) 403-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES OF ALL CORRESPONDENCE TO:
LANCE D. MYERS, ESQ.
CULLEN AND DYKMAN
177 MONTAGUE STREET
BROOKLYN, NEW YORK 11201-3633
(718) 855-9000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective and the
effective time of the proposed KeySpan holding company restructuring, as
described in Annex J to the Joint Proxy Statement/Prospectus, forming part of
this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE FEE(2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KeySpan Common Stock,
par value $.33 1/3 per
share................ 51,864,212 $28.63 $1,484,872,390 $449,961
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 ("Rule 457") promulgated under the Securities Act of 1933, as
amended, based upon the number of shares of common stock of The Brooklyn
Union Gas Company issued and outstanding, and issuable under options
outstanding, as of June 23, 1997.
(2) Pursuant to Rule 429 under the Securities Act of 1933, this Registration
Statement also relates to securities registered under a Registration
Statement (No. 333-18025) previously filed by the Registrant; $458,807 of
the Registration Fee has been paid in connection with the filing by the
Registrant of such Registration Statement.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
LOGO BROOKLYN One MetroTech Center
UNION Brooklyn, New York
11201-3850
June 27, 1997
Dear Shareholder:
I am pleased to invite you to the Special Meeting of Shareholders to be held
on August 7, 1997, at which you will be asked to approve the proposed
combination of Brooklyn Union and Long Island Lighting Company ("LILCO"). You
will also be asked to approve the formation of KeySpan Energy Corporation
("KeySpan") as a new holding company for Brooklyn Union, which will provide
your company with greater financial and organizational flexibility and enable
us to compete more effectively pending the consummation of the proposed
combination with LILCO.
Your Board of Directors unanimously recommends approval of both proposals
and urges you to sign, date and return the enclosed proxy today.
THE LILCO BUSINESS COMBINATION PROPOSAL
The proposed transaction with LILCO offers Brooklyn Union shareholders the
opportunity to participate in the upside potential of the convergence of the
gas and electric companies within the energy industry. Our combination with
LILCO will open up the Long Island market for Brooklyn Union. This market is
particularly attractive because there is an extremely low penetration of gas
as a percent of the total energy usage of that region. We believe that the
combination will result in synergy savings of approximately $1 billion over
ten years. This will lead to more competitive rates and help spur increased
regional business growth and enhanced energy-related products and services.
Your company will benefit from the attractive growth prospects resulting from
access to more than one million customers in an area with a population of 2.7
million people.
On June 26, 1997, definitive agreements were entered into for the purchase
by the Long Island Power Authority ("LIPA") of LILCO's electric transmission
and distribution system, substantially all of its electric regulatory assets
and its share of the Nine Mile Point 2 nuclear power plant for approximately
$2.5 billion in cash and the assumption or refinancing by LIPA of
approximately $3.6 billion in LILCO debt and approximately $339 million in
preferred stock. Consummation of the LIPA transaction is not a condition to
the closing of our transaction with LILCO; however, as described below, the
closing of the LIPA transaction will result in a change in the exchange ratio
in our transaction with LILCO.
As more fully described in the accompanying Joint Proxy
Statement/Prospectus, Brooklyn Union and LILCO would be combined in a
transaction which would be tax-free to the Brooklyn Union shareholders and
would become subsidiaries of a new holding company. Upon consummation of the
proposed transaction, you will receive one share of the common stock of the
new holding company for each share of Brooklyn Union or KeySpan common stock
you own. If the transaction with LIPA described above is consummated, LILCO
shareholders would receive 0.880 of a share of common stock of the new holding
company for each share of LILCO common stock they own; if the LIPA transaction
is not consummated, LILCO shareholders would receive 0.803 of a share of
common stock of the new holding company for each of their shares of LILCO
common stock. Merrill Lynch, Pierce, Fenner & Smith Incorporated, your
company's financial advisor, has delivered its opinion to the Brooklyn Union
Board of Directors to the effect that, under either scenario, the ratio at
which shares of Brooklyn Union common stock will be exchanged for shares of
common stock of the new holding company is fair to the Brooklyn Union common
shareholders from a financial point of view.
Based on the current capitalization of Brooklyn Union and LILCO, the holders
of the common shares
<PAGE>
of Brooklyn Union and LILCO would hold 32% and 68%, respectively, of the
shares of the common stock of the new holding company if the LIPA transaction
was consummated; and 34% and 66%, respectively, if the LIPA transaction was
not consummated.
Your Board of Directors believes that the transaction with LILCO is in the
best interests of Brooklyn Union and its shareholders and has unanimously
adopted it. YOUR BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
LILCO BUSINESS COMBINATION PROPOSAL.
THE KEYSPAN PROPOSAL
A second purpose of the Special Meeting is to vote on the KeySpan proposal,
which is independent of the LILCO business combination proposal and is not
conditioned on it or the LIPA transaction being consummated. Because it is not
possible to predict when the LILCO transaction will be completed, proceeding
now with KeySpan will give Brooklyn Union the additional flexibility to make
investments in unregulated businesses whether or not the LILCO transaction is
consummated. Having KeySpan as our parent company will allow us to make full
use of our experience in serving the total energy needs of customers within
and beyond the boundaries of our traditional utility service area. We will be
able to take advantage of business opportunities in a more timely fashion,
compete more aggressively and invest in a more broadly defined energy
business, without a lengthy regulatory approval process for each initiative
taken to expand our business.
Brooklyn Union will be the most significant subsidiary of KeySpan. Certain
of our existing non-utility businesses and any newly created non-utility
businesses will be operated as separate subsidiaries of KeySpan. I will be the
chairman, president and chief executive officer as well as a director of
KeySpan, and I will continue as chairman, chief executive officer and a
director of Brooklyn Union. As a result of the KeySpan transaction, Brooklyn
Union common stock certificates will automatically become certificates
representing KeySpan common stock, and you will automatically become a
shareholder of KeySpan and cease to be a shareholder of Brooklyn Union. Your
proportionate ownership interest will not change in the KeySpan restructuring.
In terms of our proposed business combination with LILCO, KeySpan will be
substituted for Brooklyn Union and the transaction will proceed with KeySpan,
if both proposals are approved at the Special Meeting.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE KEYSPAN PROPOSAL.
We appreciate your support in these important transactions. We are very
enthusiastic about the KeySpan restructuring and the combination with LILCO,
and are confident that your company will grow and prosper in a competitive
marketplace.
Sincerely,
/s/ Robert B. Catell
Robert B. Catell
Chairman and Chief Executive Officer
----------------
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED THE COMMON
STOCK OF KEYSPAN ENERGY CORPORATION OR BL HOLDING CORP. TO BE ISSUED UNDER
THIS JOINT PROXY STATEMENT/PROSPECTUS, OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated June 27, 1997, and first mailed to
shareholders on or about June 30, 1997.
----------------
<PAGE>
One MetroTech Center
Brooklyn, New York 11201-3850
LOGO BROOKLYN
UNION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 7, 1997
Dear Shareholder:
I am pleased to give you notice of and to cordially invite you to attend the
Special Meeting of Shareholders of The Brooklyn Union Gas Company, which will
be held:
Thursday, August 7, 1997
3:00 p.m.
Opera House
Brooklyn Academy of Music
30 Lafayette Avenue
Brooklyn, New York 11217
At our Special Meeting, common shareholders will consider and take action on:
1. Our proposal to combine with Long Island Lighting Company ("LILCO") by
adopting the Amended and Restated Agreement and Plan of Exchange and Merger
with LILCO, a copy of which is attached as Annex A to the accompanying Joint
Proxy Statement/Prospectus, pursuant to which Brooklyn Union and LILCO will
become subsidiaries of a new holding company (the "Holding Company"), holders
of Brooklyn Union Common Stock will receive one share of Holding Company Common
Stock for each share of Brooklyn Union or KeySpan Common Stock they own and
holders of LILCO Common Stock will receive 0.803 (or 0.880 if the transactions
contemplated by the Agreement and Plan of Merger by and among the Holding
Company, LILCO and the Long Island Power Authority are consummated) of a share
of Holding Company Common Stock for each share of LILCO Common Stock they own;
and
2. Our holding company proposal by adopting the Amended and Restated
Agreement and Plan of Exchange with KeySpan Energy Corporation ("KeySpan"), a
copy of which is attached as Annex K to the accompanying Joint Proxy
Statement/Prospectus, pursuant to which KeySpan will become the parent holding
company of Brooklyn Union and the holders of shares of Brooklyn Union Common
Stock will become holders of shares of Common Stock of KeySpan.
The LILCO combination proposal and the KeySpan holding company proposal are
not conditioned on one another. If approved by our common shareholders, we
expect our KeySpan holding company proposal will be consummated prior to our
proposed combination with LILCO.
The meeting room will be open for admission at 2:00 p.m. I suggest you arrive
early, since seating is limited and is on a first-come basis.
Holders of record of our outstanding common stock and preferred stock on June
26, 1997, the record date, are entitled to receive notice of our Special
Meeting. Only holders of record of shares of our common stock on the record
date are entitled to vote at the meeting.
If your shares are held through a bank or brokerage firm and you plan to
attend the meeting, please request a letter or some other evidence of ownership
from your bank or firm as well as proper authorization if you wish to vote your
shares in person.
If the Amended and Restated Agreement and Plan of Exchange and Merger with
LILCO is adopted by our common shareholders and the LILCO combination occurs, a
holder of record of our common stock on the record date who dissents and does
not vote for the proposal is entitled to receive payment in cash if that holder
follows the procedures provided in Sections 623 and 910 of the New York
Business Corporation Law, attached as Annex I to the accompanying Joint Proxy
Statement/Prospectus. Similarly, if the Amended and Restated Agreement and Plan
of Exchange with KeySpan is adopted by our common shareholders and the KeySpan
restructuring occurs, a holder of record of our common stock on the record date
who dissents and does not vote for the proposal is entitled to receive cash if
that holder follows the procedures referenced above.
June 27, 1997
By Order of the Board of Directors,
/s/ Robert R. Wieczorek
Robert R. Wieczorek
Vice President, Secretary and Treasurer
<PAGE>
Directions to the
Opera House
BROOKLYN ACADEMY OF MUSIC
30 Lafayette Avenue
Brooklyn, New York 11217
[MAP]
BY CAR:
From Manhattan via the Manhattan Bridge: Continue straight off the bridge onto
Flatbush Avenue, proceed to Fulton Street. Turn left onto Fulton Street.
Proceed two blocks; turn right onto Ashland Place, proceed one block.
From Manhattan via the Brooklyn Bridge: Continue straight off the bridge and
make the first left turn possible which is Tillary Street. Continue on Tillary
Street and turn right onto Flatbush Avenue.
From Queens, Long Island and Connecticut: Take the Long Island Expressway to
the Brooklyn Queens Expressway. Exit at Tillary Street, exit 29. Follow exit
onto Tillary Street, two short blocks and turn left onto Flatbush Avenue.
From Staten Island: Cross the Verrazano-Narrows Bridge to the Brooklyn Queens
Expressway. Exit at Tillary Street, exit 29. Follow exit onto Tillary Street,
two short blocks and turn left onto Flatbush Avenue.
From New Jersey: Use the Holland Tunnel and continue east on Canal Street,
which leads directly across the Manhattan Bridge. Continue straight over the
bridge onto Flatbush Avenue.
BY SUBWAY:
The Brooklyn Academy of Music is within three blocks of the following
stations:
. 2, 3, 4, 5, D, Q: Atlantic Avenue
. B, N, M, R: Pacific Street
. G: Fulton Street
. LIRR: Flatbush Avenue
PARKING:
All Brooklyn Academy of Music parking lots are patrolled continuously during
the work day and until 30 minutes after each event.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS & ANSWERS ON THE BROOKLYN UNION/LILCO COMBINATION AND LIPA
TRANSACTION; SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS................. 1
JOINT PROXY STATEMENT/PROSPECTUS.......................................... 17
THE BROOKLYN UNION/LILCO COMBINATION...................................... 20
Background of the Combination............................................ 20
Common Reasons for the Combination....................................... 25
Recommendation of the Brooklyn Union Board of Directors.................. 25
Opinion of Brooklyn Union's Financial Advisor............................ 27
Potential Conflicts of Interests of Certain Persons in the Combination
and the LIPA Transaction................................................ 32
Certain Arrangements Regarding the Directors and Management of the
Holding Company Following the Combination and the LIPA Transaction...... 32
Federal Income Tax Considerations........................................ 33
Accounting Treatment..................................................... 40
Stock Exchange Listing of the Holding Company Stock...................... 40
Federal Securities Law Consequences...................................... 41
Appraisal Rights......................................................... 41
MEETINGS, VOTING AND PROXIES.............................................. 44
The Brooklyn Union Meeting............................................... 44
REGULATORY MATTERS........................................................ 47
State Approvals and Related Matters...................................... 47
Public Utility Holding Company Act of 1935............................... 47
Federal Power Act........................................................ 48
Antitrust Considerations................................................. 48
Atomic Energy Act........................................................ 49
Public Authorities Control Board Approval................................ 49
General.................................................................. 49
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
(PURCHASE)............................................................... 51
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (POOLING).... 57
THE COMPANY FOLLOWING THE COMBINATION AND THE LIPA TRANSACTION............ 63
Management of the Holding Company........................................ 63
Common Stock Dividends................................................... 63
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK.............................. 63
General.................................................................. 63
Holding Company Preferred Stock.......................................... 64
Holding Company Common Stock............................................. 64
Certain Anti-Takeover Provisions......................................... 64
THE AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER........ 67
The Combination.......................................................... 67
Effects of the Combination............................................... 67
Representations and Warranties........................................... 69
Certain Covenants........................................................ 70
Indemnification.......................................................... 71
Employment and Workforce Matters......................................... 71
Stock and Benefit Plans.................................................. 72
No Solicitation of Transactions.......................................... 73
Additional Agreements.................................................... 73
Conditions to Each Party's Obligation to Effect the Combination.......... 74
Termination.............................................................. 75
Termination Fees......................................................... 77
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE STOCK OPTION AGREEMENTS............................................... 79
General.................................................................. 79
Certain Repurchases...................................................... 79
Restrictions on Transfer................................................. 80
THE LIPA TRANSACTION...................................................... 81
Agreement and Plan of Merger............................................. 81
Other Basic Agreements................................................... 84
SELECTED INFORMATION CONCERNING BROOKLYN UNION............................ 85
Business of Brooklyn Union............................................... 85
Comparison of Shareholders' Rights....................................... 85
Comparison of the Holding Company's Certificate of Incorporation and By-
Laws to Brooklyn Union's Certificate of Incorporation and By-Laws....... 86
Anti-Takeover Statutes................................................... 87
Potential Conflicts of Interest of Certain Persons in the Combination and
the LIPA Transaction.................................................... 87
Security Ownership of Certain Beneficial Owners and Management........... 89
Certain Business Relationships Between Brooklyn Union and LILCO.......... 89
SELECTED INFORMATION CONCERNING LILCO..................................... 90
Recommendation of the LILCO Board........................................ 90
Opinion of LILCO's Financial Advisor..................................... 91
Potential Conflicts of Interest of Certain Persons in the Combination and
the LIPA Transaction.................................................... 100
Comparison of the Holding Company's Certificate of Incorporation and By-
Laws to LILCO's Certificate of Incorporation and By-Laws................ 102
The LILCO Meeting........................................................ 103
Business of LILCO........................................................ 106
Security Ownership of Certain Beneficial Owners and Management........... 107
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 108
LEGAL MATTERS............................................................. 109
EXPERTS................................................................... 109
FUTURE SHAREHOLDER PROPOSALS.............................................. 109
WHERE YOU CAN FIND MORE INFORMATION....................................... 110
LIST OF DEFINED TERMS..................................................... 112
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <S>
Annex A -- Amended and Restated Agreement and Plan of Exchange and Merger
Annex B -- Amended and Restated LILCO Stock Option Agreement
Annex C -- Amended and Restated Brooklyn Union Stock Option Agreement
Annex D -- Agreement and Plan of Merger
Annex E -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex F -- Opinions of Dillon, Read & Co. Inc.
Annex G -- Form of Certificate of Incorporation of the Holding Company
Annex H -- Form of By-laws of the Holding Company
Annex I -- Section 623 and Section 910 of the New York Business Corporation
Law
Annex J -- Brooklyn Union Proposal 2: Holding Company and Adoption of the
KeySpan Exchange Agreement
Annex K -- Amended and Restated Agreement and Plan of Exchange between
Brooklyn Union and KeySpan
Annex L -- Restated Certificate of Incorporation and By-laws of KeySpan
</TABLE>
<PAGE>
QUESTIONS & ANSWERS ON THE BROOKLYN UNION/LILCO COMBINATION AND LIPA
TRANSACTION; SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Brooklyn Union/LILCO Combination and the LIPA Transaction fully and for a more
complete description of the legal terms of the Brooklyn Union/LILCO Combination
and the LIPA Transaction, you should read carefully this entire document and
the documents we have referred you to. See "Where You Can Find More
Information" (Page 110). In addition to the Brooklyn Union/LILCO Combination,
Brooklyn Union shareholders will also be asked to approve a proposal to form a
new holding company pending the consummation of the Brooklyn Union/LILCO
Agreement. LILCO Shareholders will also be asked to approve certain other
proposals in connection with LILCO's Annual Meeting. Shareholders therefore
should also read carefully Annex J of this document.
1. WHO ARE THE TWO COMPANIES THAT WILL COMBINE?
THE BROOKLYN UNION GAS COMPANY--also referred to in this document as
"Brooklyn Union"-- has approximately 3,000 employees, distributes natural gas
in the New York City Boroughs of Brooklyn and Staten Island and in two-thirds
of the Borough of Queens, and serves the energy needs of approximately 1.1
million customers. Brooklyn Union's service territory covers approximately 187
square miles, with a population of approximately 4 million people.
Brooklyn Union and its subsidiaries have energy-related investments in gas
and oil exploration and production in the United States and Canada, as well as
in energy services in the United States including cogeneration, gas pipeline
transportation and storage, marketing and other related services. Brooklyn
Union's principal executive office is located at One MetroTech Center,
Brooklyn, NY 11201-3851, and its general telephone number is (718) 403-2000.
LONG ISLAND LIGHTING COMPANY--also referred to in this document as "LILCO"--
has approximately 5,400 employees and provides electric and gas service to more
than 1 million customers in Nassau and Suffolk Counties and on the Rockaway
Peninsula in Queens County. LILCO's service territory covers 1,230 square miles
with a population of approximately 2.7 million people. LILCO's principal
executive office is located at 175 East Old Country Road, Hicksville, NY 11801,
and its general telephone number is (516) 755-6650.
2. WHY HAVE THESE TWO COMPANIES DECIDED TO COMBINE?
The combination of Brooklyn Union and LILCO will provide important benefits
for the two companies, for their customers, employees and shareholders.
Shareholders will benefit from the upside potential associated with the
following factors:
. Combining Brooklyn Union and LILCO is expected to result in operating
efficiencies of approximately $1 billion over 10 years, which will be used
to provide rate reductions to customers.
. Together, the two companies will help spur increased regional business
growth by providing energy and related services at lower prices.
. Our combined company will have an enhanced ability to provide its
broader customer base with competitive energy products and services well
into the future.
. Brooklyn Union and LILCO together intend to market, trade and deliver
energy products and services on a large scale to major market areas.
. Current and prospective customers will benefit from the opportunity to
deal with an energy services company that can offer one-stop shopping for
providing--and managing-- their energy needs.
For these and other reasons, the Boards of Directors of both Brooklyn Union
and LILCO have unanimously approved the combination of the two companies,
believing it to be in the best interests of
1
<PAGE>
their respective companies and shareholders. Accordingly, each Board
recommends that its respective shareholders vote "FOR" the adoption of the
Brooklyn Union/LILCO Agreement.
3. HOW WILL THESE TWO COMPANIES COMBINE?
Brooklyn Union and LILCO will combine pursuant to a binding share exchange
and merger agreement and become wholly-owned subsidiaries of one holding
company, to be named at a later date. For purposes of this document, the new
combined company will be referred to as BL Holding Corp. or more simply as the
"Holding Company." The transaction between our companies will be referred to
as the "Combination."
Under this agreement, shares of each of the individual companies will be
exchanged for or converted into shares of the new Holding Company, and each of
the companies' common shareholders will become shareholders of the new Holding
Company.
4. HOW MANY SHARES WILL BROOKLYN UNION SHAREHOLDERS RECEIVE?
Brooklyn Union shareholders will receive one share of the common stock of
the Holding Company for each share of Brooklyn Union common stock they own.
For purposes of this document, the ratio at which shares of Brooklyn Union
common stock will be exchanged for shares of common stock of the Holding
Company will be referred to as the "Brooklyn Union Ratio."
5. HOW MANY SHARES WILL LILCO SHAREHOLDERS RECEIVE?
The number of shares LILCO shareholders receives will be as follows (please
see Questions 9-12):
a. LILCO shareholders will receive 0.803 of a share of common stock of
the Holding Company for each share of LILCO common stock they own. In this
scenario, Brooklyn Union and LILCO shareholders would own 34 percent and 66
percent, respectively, of the shares of the common stock of the Holding
Company.
b. If the LIPA Transaction is also completed (as described in Questions
10-13), LILCO shareholders will then instead receive 0.880 of a share of
common stock of the Holding Company for each share of LILCO common stock
they own. Shareholders for Brooklyn Union and LILCO would then own 32
percent and 68 percent, respectively, of the shares of the common stock of
the Holding Company.
If the LIPA Transaction is completed but the Combination is not, LILCO alone
would restructure into a holding company. In this case, LILCO shareholders
would own all of the stock of the new Holding Company.
6. WHO WILL MANAGE THE NEW HOLDING COMPANY?
Upon completion of the Combination, Dr. William J. Catacosinos, currently
Chairman and Chief Executive Officer of LILCO, will become Chairman and Chief
Executive Officer of the Holding Company. Mr. Robert B. Catell, currently
Chairman and Chief Executive Officer of Brooklyn Union, will become President
and Chief Operating Officer of the Holding Company.
One year after the closing of the Combination, Mr. Catell will succeed Dr.
Catacosinos as Chief Executive Officer, with Dr. Catacosinos remaining as
Chairman.
7. WHO WILL SERVE ON THE BOARD OF DIRECTORS OF THE HOLDING COMPANY?
The Board of Directors of the Holding Company will consist of 15 members:
six to be designated by the Brooklyn Union Board; six to be designated by the
LILCO Board; and three additional persons jointly selected by a committee
consisting of two current Brooklyn Union directors and two current LILCO
directors.
8. WHAT WILL THE DIVIDEND RATE BE ON THE HOLDING COMPANY'S COMMON STOCK?
It is anticipated that the initial annualized dividend rate paid to Holding
Company common shareholders after completion of the Combination and the
transaction with LIPA will be $1.78 per
2
<PAGE>
common share, subject to approval and declaration by the Holding Company Board
of Directors. If the Combination is completed, but the LIPA Transaction is not,
it is anticipated that the initial annual dividend rate paid to Holding Company
common shareholders will be $1.78 per common share, subject to approval and
declaration by the Holding Company Board of Directors. The payment of dividends
by the Holding Company in the future will depend on business conditions,
results of operations, financial conditions, and other factors.
9. WHAT IS THE LONG ISLAND POWER AUTHORITY?
The Long Island Power Authority (or LIPA) is a corporate municipal
instrumentality and political subdivision of the State of New York. It is also
the only state agency in the country permitted to issue tax-exempt bonds
outside of the federal limits placed upon each state.
LIPA is authorized under the Long Island Power Authority Act to acquire all
or any part of LILCO's securities or assets in order to, among other things,
reduce electric rates paid by LILCO customers. LIPA will create LIPA
Acquisition Corp., a New York corporation and wholly-owned subsidiary of LIPA,
in order to carry out the LIPA Transaction discussed below.
10. WHAT IS THE "LIPA TRANSACTION"?
LILCO has entered into an agreement with LIPA in which LIPA will acquire
LILCO's electric transmission and distribution system, its electric regulatory
assets and its 18 percent interest in the Nine Mile Point 2 nuclear power
plant, a nuclear generating facility located in Oswego, New York.
11. HOW WILL THE LIPA TRANSACTION TAKE PLACE?
After becoming a subsidiary of the Holding Company, LILCO will distribute to
the Holding Company, or one or more of its subsidiaries, all of its natural gas
assets and operations, non-nuclear electric generating assets and operations,
and common plant.
The LIPA Transaction is the acquisition of the remaining LILCO assets listed
in Question 10 for approximately $2.5 billion in cash and the assumption,
redemption or refinancing by LIPA of approximately $339 million in preferred
stock and approximately $3.6 billion in debt attributable to LILCO.
The Holding Company will end up with approximately $1.7 billion in cash and
will have a considerably stronger balance sheet.
The chart below shows the basic proposed structure of the Holding Company
after the Brooklyn Union/LILCO Agreement and LIPA Transaction take effect.
<TABLE>
<CAPTION>
SHAREHOLDERS
(Previously of Brooklyn Union and LILCO)
BL HOLDING CORP.
<S> <C>
BROOKLYN UNION SUBSIDIARIES NEW SUBSIDIARIES
Consisting of: Consisting of:
1) New York City Natural Gas Assets and 1) Non-Nuclear Electric Generating Assets and
Operations; and Operations formerly owned by LILCO;
2) Unregulated Operations 2) Long Island Natural Gas Assets and
Operations formerly owned by LILCO; and
3) LIPA Service Agreements
</TABLE>
3
<PAGE>
12. WHAT WILL THE NEW HOLDING COMPANY LOOK LIKE AFTER THE COMBINATION AND THE
LIPA TRANSACTION?
The new Holding Company will be comprised of Brooklyn Union, consisting as
it does at present of its regulated natural gas assets and operations and
other unregulated subsidiaries, and a new subsidiary (or subsidiaries) formed
to receive LILCO's non-nuclear electric generating assets and operations,
natural gas assets and operations and common plant. In addition, the new
Holding Company will enter into service agreements with LIPA to, among other
things, manage and operate the electric system on Long Island.
If the LIPA Transaction does not occur, Brooklyn Union and LILCO would
become subsidiaries of the Holding Company pursuant to the Combination (see
Questions 1 through 8). In such event, LILCO, or other subsidiaries of the
Holding Company, would own the assets contemplated to be acquired by LIPA
pursuant to the LIPA Transaction and would serve Long Island's electric
customers.
13. WHAT ARE THE BENEFITS OF THE LIPA TRANSACTION?
The LIPA Transaction should benefit both customers and common shareholders
of both LILCO and Brooklyn Union. The LIPA Transaction seeks to take advantage
of LIPA's tax-exempt status and exemption from payment of federal income tax,
to lower rates for electric ratepayers on Long Island. As a result of LIPA's
ability to issue low-cost, tax-exempt municipal bonds and the elimination of
federal income taxes, along with the Brooklyn Union/LILCO combination and the
settlement of various tax certiorari proceedings, it is anticipated that Long
Island electric customers will realize an average electric rate reduction of
17 percent.
From the shareholders' perspective, the LIPA Transaction will provide the
Holding Company with the resources needed to successfully compete in the
emerging energy marketplace and strengthen the Holding Company's financial
position.
For these and other reasons, the Board of Directors of LILCO has unanimously
approved the LIPA Transaction and believes its adoption is in the best
interests of LILCO and its shareholders. Accordingly, the LILCO Board
recommends that its shareholders vote "FOR" the approval of the LIPA
Transaction.
Brooklyn Union has consented to the LIPA Transaction and its Board of
Directors believes that its consummation, together with the Combination, is in
the best interests of Brooklyn Union and its shareholders.
14. WHO MUST APPROVE THE LIPA TRANSACTION?
In addition to the approvals by the LILCO Board of Directors and the consent
of the Brooklyn Union Board, all of which have already been obtained, the LIPA
Transaction must be approved by:
-- LILCO shareholders (common and certain preferred)
-- Public Authorities Control Board
-- Internal Revenue Service
-- Nuclear Regulatory Commission
-- Federal Energy Regulatory Commission
In addition, the LIPA Agreement is subject to ratification by the LIPA Board
of Trustees.
15. WHAT PROPOSALS ARE BROOKLYN UNION SHAREHOLDERS VOTING ON?
Brooklyn Union shareholders are being asked to approve two significant
proposals:
a. The Brooklyn Union/LILCO Agreement (described in Question 3) in which
Brooklyn Union would become a wholly-owned subsidiary of the Holding
Company.
b. A restructuring of Brooklyn Union which would take place before the
Combination. Brooklyn Union would be restructured into a holding company
structure through a share exchange with KeySpan Energy Corporation, as
described in Annex J of the proxy materials delivered to Brooklyn Union
shareholders. If this transaction is approved and consummated, KeySpan
would become the parent company of Brooklyn Union and KeySpan would be
substituted for Brooklyn Union in the Brooklyn Union/LILCO Agreement.
4
<PAGE>
16. WHAT PROPOSALS ARE LILCO SHAREHOLDERS VOTING ON?
LILCO shareholders are being asked to approve two significant proposals:
a. The Brooklyn Union/LILCO Agreement (described in Question 3) in which
LILCO would become a wholly-owned subsidiary of the Holding Company.
b. The acquisition of certain LILCO assets by LIPA through a stock sale
of LILCO (described in Questions 10-13).
In addition, as part of LILCO's Annual Meeting, LILCO shareholders are being
asked to approve certain other proposals identified in the Notice of Annual
Meeting as described in Annex J of the proxy materials delivered to LILCO
shareholders.
17. WHAT SHAREHOLDER VOTE IS REQUIRED TO APPROVE THE BROOKLYN UNION/LILCO
COMBINATION?
The holders of at least two-thirds of the outstanding shares of each of
Brooklyn Union and LILCO common stock must vote in favor of the Brooklyn
Union/LILCO Agreement.
18. WHAT SHAREHOLDER VOTE IS REQUIRED TO APPROVE THE LIPA TRANSACTION?
The LIPA Transaction must be approved by the vote of: 1) the holders of at
least two-thirds of the outstanding shares of LILCO common stock and preferred
stock entitled to vote thereon, voting together as a single class; 2) a
majority of the outstanding shares of LILCO preferred stock entitled to vote
thereon, voting together as a separate class; 3) a majority of the outstanding
shares of LILCO common stock voting separately as a class; and 4) the holders
of a majority of the outstanding shares of each series of LILCO preferred stock
entitled to vote thereon, in each case voting separately as a class.
19. WHAT WILL HAPPEN TO MY REDEEMABLE LILCO PREFERRED STOCK?
Prior to the closing of the LIPA Transaction, LILCO will redeem all
redeemable preferred stock. These shares of redeemed preferred stock will not
be outstanding at the time of the closing and, therefore, will not be entitled
to vote on the LIPA Transaction.
20. WHO IS ENTITLED TO VOTE?
Holders of record of Brooklyn Union and LILCO common stock and eligible LILCO
preferred stock on June 26, 1997, the Record Date, are entitled to vote at the
applicable shareholders meeting. As of June 23, 1997, 50,364,212 shares of
Brooklyn Union common stock were outstanding, 121,184,527 shares of LILCO
common stock were outstanding and 21,674,000 shares of eligible LILCO preferred
stock were outstanding.
21. WHEN ARE ALL OF THESE TRANSACTIONS EXPECTED TO BE COMPLETED?
We are working to complete all aspects of the transactions as quickly as
possible. We currently expect these transactions to be completed in the second
half of 1998. The Combination by its terms cannot be consummated earlier than
April 1, 1998.
22. WHAT DO I NEED TO DO NOW?
Just sign and mail your proxy card in the enclosed return envelope as soon as
possible. That way your shares can be represented at the Brooklyn Union or LILCO
shareholders meeting.
Failure to return a proxy card will have the same effect as a vote against
the Brooklyn Union/LILCO Agreement, the LIPA Transaction (in the case of LILCO
shareholders) and the KeySpan share exchange (in the case of Brooklyn Union
shareholders).
23. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
Yes, you may change your vote at any time before the vote takes place at the
applicable shareholders meeting. You can attend the applicable shareholders
meeting and vote in person to do so.
Or, if you are a Brooklyn Union shareholder, you can complete a new proxy
card or send a written notice stating you would like to revoke your proxy.
These should be sent to: Georgeson & Company Inc., Wall Street Station. P.O.
Box 1102, New York, New York 10269-0667.
Or, if you are a LILCO shareholder, you can send a new proxy card or written
notice to revoke your proxy to The Corporation Trust Company, P.O. Box 631,
Wilmington, Delaware 19899.
5
<PAGE>
24. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. You should continue to hold your certificates for Brooklyn Union or
LILCO stock until the Combination and LIPA Transaction become effective. At
that time, you will receive written instructions for exchanging your old
Brooklyn Union or LILCO stock certificates for new certificates representing
the appropriate number of shares of common stock of the new Holding Company.
LILCO shareholders will also receive cash payment in place of any fraction of
a share of the common stock of the Holding Company.
25. WHERE WILL MY SHARES OF COMMON STOCK OF THE HOLDING COMPANY BE TRADED?
We expect that the common stock of the Holding Company will be listed and
traded on the New York Stock Exchange. After the Combination and the LIPA
Transaction are completed, Brooklyn Union and LILCO common stock owned by the
Holding Company will no longer be traded and will be delisted.
26. WHERE ARE BROOKLYN UNION AND LILCO STOCK CURRENTLY TRADED?
Brooklyn Union common stock is currently listed and principally traded on
the New York Stock Exchange, while LILCO common stock is currently listed and
principally traded on the New York and Pacific Stock Exchanges. On December
27, 1996, the last full trading day on the New York Stock Exchange prior to
the public announcement of the Brooklyn Union/LILCO Agreement, Brooklyn Union
common stock closed at $31.125 per share and LILCO common stock closed at
$19.375 per share. The reported closing prices of Brooklyn Union and LILCO
common stock on June 23, 1997 were $28 5/8 and $23 1/8, respectively.
27. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTIONS
FOR SHAREHOLDERS?
The tax consequences to the shareholders generally depend on which
transactions occur and the order in which they occur. The various alternatives
and their tax consequences are discussed under the heading "The Brooklyn
Union/LILCO Combination Federal Income Tax Considerations."
In general, LILCO common and preferred stock shareholders should recognize
gain (subject to possible deferral--see pages 33-36) or loss on the receipt of
cash and/or Holding Company common or preferred stock, as appropriate, by such
shareholders or the Exchange Agent as contemplated herein. However, if the
LIPA Transaction is terminated prior to the Combination, LILCO shareholders
generally should not recognize gain or loss for federal income tax purposes in
the Combination.
We have structured the Combination and LIPA Transaction so that, with
certain exceptions, Brooklyn Union shareholders will not recognize any gain or
loss for federal income tax purposes.
In addition, gain or loss should be recognized (subject to possible
deferral--see pages 33-36) by a shareholder who has sought appraisal rights or
by a LILCO shareholder who receives cash in lieu of a fractional share
(regardless of whether the LIPA Transaction is terminated before the
Combination). Moreover, tax may be payable on certain amounts deemed received
by Brooklyn Union shareholders when Brooklyn Union pays certain transfer
taxes.
The Combination is conditioned upon the receipt by Brooklyn Union of an
opinion from its tax counsel that such transaction will qualify as a reorgani-
zation which is tax-free to its shareholders. Although the Brooklyn
Union/LILCO Agreement allows Brooklyn Union to waive the condition of receiv-
ing such tax opinion, it does not intend to do so. If this condition is
waived, we will notify Brooklyn Union shareholders of the waiver and its im-
plication and resolicit their approval.
The LIPA Transaction is conditioned upon the receipt by the parties of
certain rulings from the Internal Revenue Service.
For a further discussion of the Federal income tax consequences of the
proposed transactions, see the discussion under the heading "The Brooklyn
Union/LILCO Combination--Federal Income Tax Considerations."
6
<PAGE>
28. WILL THE PREFERRED STOCK OR BONDS OF BROOKLYN UNION BE EXCHANGED?
Brooklyn Union's preferred stock will be redeemed prior to the consummation
of the KeySpan Share Exchange and the Combination. The rights of bondholders of
Brooklyn Union will not change and will continue to be obligations of Brooklyn
Union.
29. WILL THE PREFERRED STOCK OR BONDS OF LILCO BE EXCHANGED?
In connection with the LIPA Transaction, LILCO's Preferred Stock 7.95%,
Series AA will be exchanged for a Series AA Preferred Stock of the Holding
Company having substantially identical terms, as set forth in Annex D. Each
issued and outstanding share of LILCO's preferred stock that is subject to
optional redemption at or before the closing of the LIPA Transaction will be
called for redemption no later than the date of this closing. LILCO preferred
stock that is not subject to this optional redemption (other than Series AA)
will be acquired by LIPA for cash as a result of the LIPA Transaction.
In addition, after LILCO has received all the required consents, the Holding
Company will assume LILCO's Debentures, 7.30% due July 15, 1999, and 8.20% due
March 15, 2023.
The balance of LILCO's debt securities will become obligations of LIPA after
it acquires the common stock of LILCO through the LIPA Transaction.
30. HOW WILL MY PARTICIPATION IN BROOKLYN UNION'S OR LILCO'S DIVIDEND
REINVESTMENT OR STOCK PURCHASE PLANS BE AFFECTED?
All shares of Brooklyn Union common stock and LILCO common stock held under
the companies' respective dividend reinvestment and stock purchase plans will
automatically be exchanged for shares of the common stock of the Holding
Company when the Combination and/or the LIPA Transaction are completed. The
Holding Company will establish similar plans after completion of the
Combination.
31. WHAT IF I WANT TO RECEIVE THE FAIR MARKET VALUE OF MY CURRENT STOCK IN
CASH?
If you follow the required procedure, you will have the right to seek an
appraisal and payment of the fair market value of your Brooklyn Union or LILCO
shares. Your stock would be appraised in a New York State Court proceeding.
As a Brooklyn Union shareholder you must:
a. File a written objection to the Brooklyn Union/LILCO Agreement before
the proxy vote (either prior to or at the shareholders meeting); AND
b. Not vote in favor of the Brooklyn Union/LILCO Agreement.
As a LILCO shareholder you must:
a. File a written objection to the Brooklyn Union/LILCO Agreement and/or
the LIPA Transaction before the proxy vote (either prior to or at the
shareholders meeting); AND
b. Not vote in favor of the Brooklyn Union/LILCO Agreement and/or the
LIPA Transaction.
32. ARE THERE OTHER LEGAL REQUIREMENTS I MUST MEET TO OBTAIN AN APPRAISAL AND
PAYMENT IN CASH FOR MY SHARES?
Yes. These are described in this Joint Proxy Statement/Prospectus on pages
41-43. The provisions of New York law that govern appraisal rights are also
attached as Annex I.
If you are entitled to and wish to seek an appraisal of your shares, you
should read and follow those provisions carefully. You should be aware, too,
that an appraisal may result in a cash payment for your shares that is higher
or lower than the value of the Holding Company shares that would be issued to
you in connection with the Brooklyn Union/LILCO Agreement or, if applicable,
the LIPA Transaction.
33. WHO CAN I CALL IF I HAVE ANY ADDITIONAL QUESTIONS?
Two special toll-free telephone numbers have been established for you.
7
<PAGE>
Brooklyn Union shareholders are welcome to call Georgeson & Company Inc.,
which is assisting Brooklyn Union in solicitation of proxies, at 1-800-223-
2064.
LILCO shareholders are welcome to call D.F. King & Co., Inc., which is
assisting LILCO in solicitation of proxies, at 1-800-207-3155.
SUMMARY OF OTHER SELECTED INFORMATION
REGULATORY APPROVALS (SEE PAGE 47)
The approvals of the Public Service Commission of the State of New York un-
der the New York Public Service Law, the Securities and Exchange Commission
under the Public Utility Holding Company Act of 1935, the Federal Energy Regu-
latory Commission under the Federal Power Act, the Nuclear Regulatory Commis-
sion under the Atomic Energy Act of 1954, as well as the expiration or earlier
termination of the applicable waiting period under the Hart-Scott-Rodino Anti-
trust Improvements Act of 1976 are required in order to complete the Combina-
tion and, with the exception of the approval of the Public Service Commission,
the LIPA Transaction. In addition, the LIPA Transaction also requires approval
of the New York State Public Authorities Control Board. As of the date of this
Joint Proxy Statement/Prospectus, none of the required regulatory approvals
has been obtained.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 27 AND 91)
In deciding to approve the Brooklyn Union/LILCO Agreement, the Boards of Di-
rectors of Brooklyn Union and LILCO considered the opinions of their respec-
tive financial advisors as to the fairness of the share exchange ratio from a
financial point of view. In addition, in deciding to approve the LIPA Transac-
tion, the Board of Directors of LILCO also considered a separate opinion from
its financial advisor as to the fairness of the LIPA Transaction from a finan-
cial point of view. The Board of Directors of Brooklyn Union has received an
opinion from its financial advisor, Merrill Lynch, Pierce, Fenner & Smith In-
corporated, dated as of the date of this Joint Proxy Statement/Prospectus, to
the effect that the Brooklyn Union Ratio was fair, from a financial point of
view, to the holders of Brooklyn Union Common Stock, and LILCO received opin-
ions from its financial advisor, Dillon, Read & Co. Inc., that the share ex-
change ratios and the LIPA Transaction were fair, from a financial point of
view, to LILCO shareholders. The opinions of the financial advisors are at-
tached as annexes to this Joint Proxy Statement/Prospectus. We encourage you
to read the opinions thoroughly.
INTERESTS OF OFFICERS AND DIRECTORS IN THE COMBINATION (SEE PAGES 32, 87 AND
100)
The officers and directors of Brooklyn Union and LILCO may have interests in
the transaction that are different from, or in addition to, yours. For exam-
ple, pursuant to employment agreements and severance plans, the Combination
(and, with respect to LILCO, the LIPA Transaction) will result in a change in
control of both Brooklyn Union and LILCO, entitling officers of the companies
to receive severance benefits under certain circumstances.
As of the record date, directors and officers of Brooklyn Union, LILCO and
their affiliates as a group owned less than 1% of the issued and outstanding
shares of common stock of their respective companies.
CONDITIONS TO THE COMBINATION (SEE PAGE 74) AND LIPA TRANSACTION (SEE PAGE 81)
Completion of the Combination depends on the satisfaction of certain condi-
tions, including but not limited to: (a) approval of Brooklyn Union's and
LILCO's common shareholders; and (b) all required approvals of regulatory and
governmental agencies. In addition, the completion of the LIPA Transaction is
conditioned upon LIPA's ability to obtain the necessary financing and approval
of the LILCO preferred stockholders entitled to vote thereon. Consummation of
the Combination is not conditioned upon the con summation of the LIPA Transac-
tion, and consummation of the LIPA Transaction is not conditioned upon consum-
mation of the Combination.
AMENDMENT OR TERMINATION OF THE BROOKLYN UNION/LILCO AGREEMENT (SEE PAGE 75)
AND LIPA AGREEMENT (SEE PAGE 84)
The Boards of Directors of Brooklyn Union and LILCO may amend any of the
terms of the Brooklyn
8
<PAGE>
Union/LILCO Agreement at any time before or after its adoption by the share-
holders of the common stock of Brooklyn Union and LILCO. No amendment adopted
after shareholder approval, however, may materially and adversely affect the
rights of such shareholders.
At any time prior to closing, whether before or after approval by the share-
holders of Brooklyn Union or LILCO, the Brooklyn Union/LILCO Agreement may be
terminated by mutual consent of the Boards of Directors of Brooklyn Union and
LILCO and under certain other circumstances. Depending upon the reason for
such termination, substantial fees may be due and payable by Brooklyn Union or
LILCO.
Similarly, at any time prior to closing, whether before or after approval by
the shareholders of LILCO, the LIPA Agreement may be terminated by mutual
consent of the Board of Directors of LILCO and the Board of Trustees of LIPA
and under certain other circumstances. Pursuant to the Brooklyn Union/LILCO
Agreement, LILCO may not terminate the LIPA Agreement without the consent of
Brooklyn Union.
COMPARATIVE SHAREHOLDER RIGHTS (SEE PAGE 85)
When the Combination is completed, holders of Brooklyn Union common stock
and LILCO common stock will become holders of the common stock of the Holding
Company, and their rights will be governed by the Holding Company's certifi-
cate of incorporation and by-laws (the forms of which are attached as Annexes
G and H). Certain differences between the rights of holders of the common
stock of the Holding Company and those of holders of Brooklyn Union and LILCO
common stock are summarized on pages 85-87 and pages 102-103, respectively.
REGULATION OF THE HOLDING COMPANY, BROOKLYN UNION AND LILCO (SEE PAGE 47)
Following the Combination and the LIPA Transaction, the Holding Company, as
the parent company of Brooklyn Union and the subsidiaries who received from
LILCO the assets described above, will not be directly subject to regulation
by the Public Service Commission of the State of New York or the Federal En-
ergy Regulatory Commission. However, its utility subsidiaries will be regu-
lated by the various regulatory agencies that currently regulate Brooklyn
Union and LILCO's gas and electric generating operations. When the Combination
occurs, the Holding Company will become a "public utility holding company" as
defined in the Public Utility Holding Company Act of 1935, and will file an
exemption statement with the Securities and Exchange Commission to exempt it
and each of its subsidiaries from most of the provisions of that Act. Current-
ly, neither Brooklyn Union nor LILCO is subject to that Act.
ACCOUNTING TREATMENT (SEE PAGE 40)
The accounting for the Combination will be dependent on whether the LIPA
Transaction will be completed. If the LIPA Transaction is completed, the
Combination will be accounted for using the purchase method of accounting.
If the LIPA Transaction is not completed, the Combination is expected to be
accounted for as a pooling of interests. As a pooling of interests, we will
treat our companies as if they had always been combined for accounting and
financial reporting purposes.
For a further discussion of accounting consideration about the LIPA
Transactions, see "Accounting Treatment."
STATUTORY APPRAISAL RIGHTS (SEE PAGE 41)
Eligible holders of shares of Brooklyn Union and LILCO common stock who do
not vote for the Combination, or (in the case of holders of LILCO Common
Stock) the LIPA Transaction, as appropriate, and who timely dissent and follow
the procedures in Section 623 of the New York Business Corporation Law will
then have certain rights as a result of these transactions to demand payment
in cash for the "fair value" of their respective Brooklyn Union and LILCO com-
mon shares. Failure to take any required action on a timely basis may result
in the loss of those rights. The amount obtainable upon a valid exercise of
those rights is subject to determination by judicial proceeding and, as a re-
sult, cannot be estimated at this time. LILCO preferred shareholders entitled
to vote on the LIPA Transactions are also entitled to statutory appraisal
rights. Brooklyn Union preferred stock will be redeemed prior to consummation
of the Combination; and, therefore, holders of such shares will not be enti-
tled to appraisal rights.
9
<PAGE>
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED/CONSOLIDATED CONDENSED FINANCIAL INFORMATION
BROOKLYN UNION/LILCO COMBINATION AND LIPA TRANSACTION
(PURCHASE AND POOLING METHODS OF ACCOUNTING)
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the Combination and the LIPA Transaction.
We derived this information from unaudited financial statements of Brooklyn
Union and LILCO for the 12 month period ended March 31, 1997, and the audited
financial statements of Brooklyn Union and LILCO from 1992 through 1996. The
information is only a summary and you should read it in conjunction with the
historical financial statements (and related notes) contained in our annual
reports and the other information that we have filed with the SEC. See "Where
You Can Find More Information" on page 110.
BROOKLYN UNION--HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT OR FOR
THE 12 MONTHS
ENDED AT OR FOR THE YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 1,472.8 $ 1,432.0 $ 1,216.3 $ 1,338.6 $ 1,205.5 $ 1,074.9
Earnings for common
stock.................. 128.5(1) 122.6(1) 91.5 87.0 76.2 57.8
Earnings per common
share.................. 2.58(1) 2.48(1) 1.90 1.85 1.73 1.35
Cash dividends declared
per common share....... 1.44 1.42 1.39 1.35 1.32 1.29
Book value per common
share.................. 20.00 18.17 16.94 16.27 15.55 14.56
Total assets............ 2,493.8 2,289.6 2,116.9 2,029.1 1,897.8 1,748.0
Long-term debt.......... 724.6 712.0 720.6 701.4 689.3 682.0
</TABLE>
(1) Includes gains on the sale of subsidiary stock and a Canadian plant of $33.5
million, or $0.68 per share, after taxes, offset by a subsidiary
reorganization charge of $7.8 million, or $0.16 per share, after taxes.
LILCO--HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT OR FOR
THE 12 MONTHS
ENDED AT OR FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 3,137.7 $ 3,150.7 $ 3,075.1 $ 3,067.3 $ 2,881.0 $ 2,621.8
Earnings for common
stock.................. 270.3 264.2 250.7 248.8 240.5 238.0
Earnings per common
share.................. 2.24 2.20 2.10 2.15 2.15 2.14
Cash dividends declared
per common share....... 1.78 1.78 1.78 1.78 1.76 1.72
Book value per common
share.................. 21.07 20.89 20.50 20.21 19.88 19.58
Total assets............ 11,849.7 12,209.7 12,527.6 12,479.3 12,453.8 9,853.1
Long-term debt.......... 4,457.0 4,456.8 4,706.6 5,145.4 4,870.3 4,741.0
</TABLE>
10
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION--
BROOKLYN UNION/LILCO COMBINATION WITH LIPA TRANSACTION.
The following unaudited pro forma consolidated financial information reflects
adjustments to the historical financial statements of LILCO to give effect to
the proposed distribution of the Transferred Assets (as defined below) to a
wholly-owned subsidiary of the Holding Company and subsequent sale of the
remaining LILCO common stock to a subsidiary of LIPA. The pro forma statements
have been further adjusted to give effect to the proposed Combination with
Brooklyn Union. The unaudited pro forma consolidated condensed balance sheet at
March 31, 1997 gives effect to the proposed transaction with LIPA and the
Combination as if they had occurred at March 31, 1997. The unaudited pro forma
consolidated condensed statement of income for the twelve month period ended
March 31, 1997 gives effect to the proposed transaction with LIPA and the
Combination as if they had occurred at April 1, 1996. These statements are
prepared on the basis of accounting for the Combination under the purchase
method of accounting and are based on the assumptions set forth in the notes
thereto.
We have presented below the selected unaudited pro forma consolidated
condensed financial information, reflecting the proposed transaction with LIPA
("LILCO as adjusted") and also reflecting this transaction with the Combination
("Holding Company"). You should not rely on the unaudited pro forma information
as being indicative of the historical results that we would have had or the
future results that we will experience after the proposed transaction with LIPA
or the Combination. See "Unaudited Pro Forma Consolidated Condensed Financial
Information" on page 51.
SELECTED UNAUDITED
PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE TWELVE MONTH
PERIOD ENDED MARCH 31,
1997
-----------------------------
LILCO HOLDING
AS ADJUSTED COMPANY
--------------- -------------
(DOLLARS IN MILLIONS EXCEPT
FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
Total revenues.............................. $ 1,629.0 $ 3,101.8
Net income.................................. 84.9 206.0
Earnings for common stock................... 49.0 170.1
Earnings per common share(1)................ .41 1.09
Cash dividends declared per common
share(1)(2)(3)............................. .33 1.78
Total assets................................ 5,114.4 7,916.2
Long-term debt.............................. 922.2 1,646.8
Preferred stock............................. 438.0 438.0
</TABLE>
- --------
(1) Each share of Brooklyn Union common stock will be exchanged for one share
of common stock of the Holding Company and each share of LILCO common stock
will be exchanged for 0.880 of a share of common stock of the Holding
Company in the Combination. These per share amounts are calculated for each
share of common stock of the Holding Company that would have been
outstanding had the binding share exchanges been consummated as of the date
and for the period referred to above.
(2) To arrive at LILCO as adjusted pro forma cash dividends declared per common
share, LILCO's historical payout ratio for the 12 month period ended March
31, 1997, was applied to the LILCO as adjusted earnings per common share.
(3) Brooklyn Union and LILCO expect to continue their respective current
dividend policies until the completion of the Combination. It is
anticipated that the initial annualized dividend rate paid to Holding
Company common shareholders will be $1.78 per common share.
11
<PAGE>
COMPARATIVE PER COMMON SHARE INFORMATION--BROOKLYN UNION/LILCO COMBINATION WITH
LIPA TRANSACTION.
The following table summarizes the per common share information for Brooklyn
Union and LILCO on a pro forma consolidated, equivalent and historical basis.
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
AT OR FOR THE 12 MONTHS
ENDED MARCH 31,
1997
(UNAUDITED)
-----------------------
<S> <C>
UNAUDITED HOLDING COMPANY PRO FORMA CONSOLIDATED(2)(3)
Earnings per common share.............................. $ 1.09
Cash dividends declared per common share............... 1.78
Book value per common share............................ 24.14
UNAUDITED LILCO AS ADJUSTED(1)(3)
Earnings per common share.............................. $ .41
Cash dividends declared per common share............... .33
Book value per common share............................ 20.86
LILCO PER SHARE EQUIVALENTS(5)
Earnings per common share.............................. $ .96
Cash dividends declared per common share............... 1.57
Book value per common share............................ 21.24
LILCO--HISTORICAL FINANCIAL INFORMATION
Earnings per common share.............................. $ 2.24
Cash dividends declared per common share............... 1.78
Book value per common share............................ 21.07
BROOKLYN UNION--HISTORICAL FINANCIAL INFORMATION(4)(5)
Earnings per common share.............................. $ 2.58
Cash dividends declared per common share............... 1.44
Book value per common share............................ 20.00
</TABLE>
(1) LILCO's balance sheet and results of operations as of and for the twelve
month period ended March 31, 1997 have been adjusted to reflect the
proposed transaction with LIPA.
(2) LILCO's balance sheet and results of operations as of and for the twelve
month period ended March 31, 1997, have been adjusted to reflect the LIPA
Transaction and the Combination.
(3) It is anticipated that the initial annualized dividend rate paid to Holding
Company common shareholders will be $1.78 per common share. To arrive at
LILCO as adjusted pro forma cash dividends declared per common share,
LILCO's historical payout ratio for the 12 month period ended March 31,
1997, was applied to the LILCO as adjusted earnings per common share.
(4) Includes gains on the sale of subsidiary stock and a Canadian plant of
$33.5 million or $0.68 per share, after taxes, offset by a subsidiary
reorganization charge of $7.8 million or $0.16 per share, after taxes.
(5) LILCO Per Share Equivalents are 0.880 of Unaudited Pro Forma Consolidated
per share equivalents, while Brooklyn Union per share equivalents are the
same as historical.
12
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION--BROOKLYN
UNION/LILCO COMBINATION WITH NO LIPA TRANSACTION.
The following unaudited pro forma condensed financial information reflects
adjustments to the historical financial statements of LILCO to give effect to
the proposed merger with Brooklyn Union in accordance with the Combination. The
unaudited pro forma combined condensed balance sheet at March 31, 1997 gives
effect to the Combination as if it had occurred at March 31, 1997. The
unaudited pro forma combined condensed statements of income for each of the
three 12 month periods in the three year period ended March 31, 1997 give
effect to the Combination as if it had occurred at April 1, 1994. These
statements are prepared on the basis of accounting for the Combination using
the pooling of interests method of accounting and are based on the assumptions
set forth in the notes thereto.
We have presented below the selected unaudited pro forma combined condensed
financial information, reflecting the proposed Combination. You should not rely
on the unaudited pro forma information as being indicative of the historical
results that we would have had or the future results that we will experience
after the Combination. See "Unaudited Pro Forma Combined Condensed Financial
Information" on page 57.
SELECTED UNAUDITED
PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE TWELVE
MONTH PERIODS ENDED
MARCH 31,
---------------------------------
1997 1996 1995
----------- ---------------------
(DOLLARS IN MILLIONS, EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Total revenues.............................. $ 4,610.5 $ 4,518.2 $ 4,244.6
Net income.................................. 451.2 409.3 390.6
Earnings for common stock................... 399.1 356.8 337.7
Earnings per common share(1)................ 2.72 2.46 2.38
Cash dividends declared per common
share(1)(2)................................ 1.78 1.78 1.78
Total assets................................ 14,343.5 -- --
Long-term debt.............................. 5,181.6 -- --
Preferred stock............................. 702.1 -- --
</TABLE>
(1) Each share of Brooklyn Union common stock will be exchanged for one share
of common stock of the Holding Company and each share of LILCO common stock
will be exchanged for 0.803 of a share of common stock of the Holding Company
in accordance with the Combination. These per share amounts are calculated
for each share of common stock of the Holding Company that would have been
outstanding had the Combination been consummated at the beginning of each
period presented.
(2) Brooklyn Union and LILCO expect to continue their respective current
dividend policies until the completion of the Combination. It is anticipated
that the initial annualized dividend rate paid to Holding Company common
shareholders will be $1.78 per common share.
13
<PAGE>
COMPARATIVE PER COMMON SHARE INFORMATION--BROOKLYN UNION/LILCO COMBINATION WITH
NO LIPA TRANSACTION
The following table summarizes the per common share information for Brooklyn
Union and LILCO on a pro forma combined, equivalent and historical basis. The
LILCO per share equivalents are calculated by multiplying the unaudited pro
forma combined per share amounts by 0.803 as LILCO shareholders will receive
0.803 shares of the common stock of the Holding Company in exchange for each
share of LILCO Common Stock.
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
AT OR FOR THE 12 MONTH
PERIOD ENDED MARCH 31,
------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
UNAUDITED HOLDING COMPANY PRO FORMA COMBINED
Earnings per common share(1)......................... $ 2.72 $ 2.46 $ 2.38
Cash dividends declared per common share(4).......... 1.78 1.78 1.78
Book value per common share.......................... 23.74 -- --
LILCO PER SHARE EQUIVALENTS(2)
Earnings per common share............................ $ 2.18 $ 1.98 $ 1.91
Cash dividends declared per common share............. 1.43 1.43 1.43
Book value per common share.......................... 19.06 -- --
BROOKLYN UNION--UNAUDITED HISTORICAL FINANCIAL INFOR-
MATION(2)
Earnings per common share(3)......................... $ 2.58 $ 1.93 $ 1.84
Cash dividends declared per common share............. 1.44 1.40 1.37
Book value per common share.......................... 20.00 -- --
LILCO--UNAUDITED HISTORICAL FINANCIAL INFORMATION
Earnings per common share............................ $ 2.24 $ 2.19 $ 2.13
Cash dividends declared per common share............. 1.78 1.78 1.78
Book value per common share.......................... 21.07 -- --
</TABLE>
- --------
(1) Brooklyn Union's unaudited balance sheet as of March 31, 1997 and results
of operations for each of the three 12 month periods during the three year
period ended March 31, 1997 have been combined with LILCO's unaudited
balance sheet as of March 31, 1997 and results of operations for each of
the three 12 month periods during the three year period ended March 31,
1997 to arrive at the unaudited pro forma combined balance sheet as of
March 31, 1997 and the unaudited statements of income for each of the three
12 month periods during the three year period ended March 31, 1997, from
which the comparative per share information has been derived.
(2) LILCO Per Share Equivalents are 0.803 of Unaudited Holding Company Pro
Forma Combined per share equivalents, while Brooklyn Union per share
equivalents are the same as its historical.
(3) Includes gains on the sale of subsidiary stock and a Canadian plant of
$33.5 million or $0.68 per share, after taxes, offset by a subsidiary
reorganization charge of $7.8 million or $0.16 per share, after taxes for
the 12 month period ended March 31, 1997.
(4) Brooklyn Union and LILCO expect to continue their respective current
dividend policies until the completion of the Combination. It is
anticipated that the initial annualized dividend rate paid to Holding
Company common shareholders will be $1.78 per common share.
14
<PAGE>
COMPARATIVE DIVIDENDS AND MARKET PRICES--LILCO
LILCO common stock is listed and principally traded on the New York Stock
Exchange and on the Pacific Stock Exchange. The table below sets forth the
dividends paid and the high and low sales prices of LILCO common stock for the
fiscal periods indicated as reported in The Wall Street Journal as New York
Stock Exchange Composite Transactions.
<TABLE>
<CAPTION>
PRICE RANGE
---------------
DIVIDENDS PAID HIGH LOW
-------------- ------- -------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter.............................. $0.445 $16 3/4 $13 1/4
Second Quarter............................. 0.445 17 1/8 14 3/8
Third Quarter.............................. 0.445 17 3/4 15 3/8
Fourth Quarter............................. 0.445 17 3/4 15 5/8
YEAR ENDED DECEMBER 31, 1996
First Quarter.............................. $0.445 $18 1/8 $15 7/8
Second Quarter............................. 0.445 17 7/8 16 1/8
Third Quarter.............................. 0.445 17 3/4 16 5/8
Fourth Quarter............................. 0.445 22 3/8 17 1/8
YEAR ENDING DECEMBER 31, 1997
First Quarter.............................. $0.445 $24 1/2 $21 3/4
Second Quarter (through June 23, 1997)..... 0.445 23 1/4 22 3/4
</TABLE>
The LILCO Series AA Preferred Stock is listed and traded on the New York
Stock Exchange. The table below sets forth the dividends paid and the high and
low sales prices of the Series AA Preferred Stock for the fiscal periods
indicated as reported in The Wall Street Journal as New York Stock Exchange
Composite Transactions.
<TABLE>
<CAPTION>
PRICE RANGE
----------------
DIVIDENDS PAID HIGH LOW
-------------- ------- -------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter................................. $0.496875 $23 3/4 $22 1/2
Second Quarter................................ 0.496875 24 3/4 23 1/8
Third Quarter................................. 0.496875 25 24
Fourth Quarter................................ 0.496875 26 1/4 23 3/8
YEAR ENDED DECEMBER 31, 1996
First Quarter................................. $0.496875 $24 5/8 $23 3/4
Second Quarter................................ 0.496875 24 5/8 23
Third Quarter................................. 0.496875 24 1/2 23
Fourth Quarter................................ 0.496875 25 3/4 24 1/4
YEAR ENDING DECEMBER 31, 1997
First Quarter................................. $0.496875 $26 3/32 $25 1/4
Second Quarter (through June 23, 1997) ....... 0.496875 26 3/8 25 3/8
</TABLE>
15
<PAGE>
COMPARATIVE DIVIDENDS AND MARKET PRICES --BROOKLYN UNION
Brooklyn Union common stock is listed and principally traded on the New York
Stock Exchange. The table below sets forth the dividends paid and the high and
low sales prices of Brooklyn Union common stock for the fiscal periods
indicated as reported in The Wall Street Journal as New York Stock Exchange
Composite Transactions.
<TABLE>
<CAPTION>
PRICE RANGE
---------------
DIVIDENDS PAID HIGH LOW
-------------- ------- -------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995
First Quarter................................. $0.3375 $25 3/8 $21 1/2
Second Quarter................................ 0.3475 24 3/4 22
Third Quarter................................. 0.3475 26 3/8 23 3/4
Fourth Quarter................................ 0.3475 26 3/8 23 1/4
YEAR ENDED SEPTEMBER 30, 1996
First Quarter................................. $0.3475 $29 5/8 $24 5/8
Second Quarter................................ 0.3550 29 7/8 25 3/4
Third Quarter................................. 0.3550 27 1/2 24 7/8
Fourth Quarter................................ 0.3550 28 1/8 24 7/8
YEAR ENDING SEPTEMBER 30, 1997
First Quarter................................. $0.3550 $32 5/8 $27 7/8
Second Quarter................................ 0.3650 30 1/2 27 1/2
Third Quarter (through June 23, 1997)......... 0.3650 29 26 1/8
</TABLE>
On December 27, 1996, the last full trading day before the public
announcement of the Brooklyn Union/LILCO Agreement, the high and low prices per
share of (i) LILCO common stock were $19 1/2 and $19 1/8, respectively, and
(ii) Brooklyn Union common stock were $31 1/8 and $30 1/2, respectively. On
March 18, 1997, the last full trading day before the public announcement of an
agreement in principle relating to the LIPA Transaction, the high and low sales
prices per share of (i) LILCO common stock were $23 15/16 and $23 3/4,
respectively, and (ii) Brooklyn Union common stock were $29 1/8 and $29,
respectively. On June 25, 1997, the last full trading day before LILCO and LIPA
executed and delivered the LIPA Agreement, the high and low sales prices per
share of the Series AA Preferred Stock were $26 and $25.88, respectively.
Brooklyn Union and LILCO shareholders are encouraged to obtain current market
quotations for Brooklyn Union common stock, LILCO common stock and Series AA
Preferred Stock.
16
<PAGE>
JOINT PROXY STATEMENT
OF
THE BROOKLYN UNION GAS COMPANY
AND
LONG ISLAND LIGHTING COMPANY
----------------
PROSPECTUS
OF
BL HOLDING CORP.
AND
KEYSPAN ENERGY CORPORATION
This Joint Proxy Statement and Prospectus ("Joint Proxy
Statement/Prospectus") is being furnished to the holders of common stock, par
value $5 per share, of LILCO ("LILCO Common Stock") and to the holders of
Series AA preferred stock, par value $25 per share ("Series AA Preferred
Stock"), Series CC preferred stock, par value $100 per share ("Series CC
Preferred Stock"), Series GG preferred stock, par value $25 per share ("Series
GG Preferred Stock"), Series QQ preferred stock, par value $25 per share
("Series QQ Preferred Stock"), and Series UU preferred stock, par value $25
per share ("Series UU Preferred Stock"), of LILCO (such series being
collectively referred to herein as "LILCO Preferred Stock"), in connection
with the solicitation of proxies by the Board of Directors of LILCO for use at
the Annual Meeting of LILCO shareholders to be held on August 7, 1997, at 3:00
p.m. local time, at Tilles Center for the Performing Arts at Long Island
University, C.W. Post Campus, Northern Boulevard, Greenvale, New York 11548
and at any and all adjournments or postponements thereof (the "LILCO
Meeting"), and the holders of common stock, par value $0.33 1/3 per share
("Brooklyn Union Common Stock"), and the holders of Preferred Stock, par value
$100 per share, of The Brooklyn Union Gas Company in connection with the
solicitation of proxies of Brooklyn Union Common Stock by the Board of
Directors of Brooklyn Union for use at the Special Meeting of Brooklyn Union
shareholders to be held on August 7, 1997, at 3:00 p.m. local time, at Opera
House, Brooklyn Academy of Music, 30 Lafayette Avenue, Brooklyn, New York
11217 and at any and all adjournments or postponements thereof (the "Brooklyn
Union Meeting," and together with the LILCO Meeting, the "Shareholder
Meetings").
This Joint Proxy Statement/Prospectus relates, among other things, to the
proposed combination of LILCO and Brooklyn Union (the "Combination"), in which
shares of LILCO Common Stock will become the right to receive shares of common
stock, par value $0.01 per share ("Holding Company Common Stock"), of BL
Holding Corp., a corporation to be formed under the laws of the State of New
York (the "Holding Company"), Brooklyn Union will merge with a wholly owned
subsidiary of the Holding Company (the "Merger") and shares of Brooklyn Union
Common Stock will be converted into shares of Holding Company Common Stock,
all pursuant to an Amended and Restated Agreement and Plan of Exchange and
Merger, dated as of June 26, 1997 (the "Brooklyn Union/LILCO Agreement"),
between LILCO and Brooklyn Union. Consummation of the Combination is subject
to various conditions, including the adoption of the Brooklyn Union/LILCO
Agreement by the holders of two-thirds of the voting power of the outstanding
shares of LILCO Common Stock and the holders of two-thirds of the voting power
of the outstanding shares of Brooklyn Union Common Stock at the Shareholder
Meetings.
In connection with the proposal to adopt the Combination, each outstanding
share of LILCO Common Stock and each outstanding share of Brooklyn Union
Common Stock is entitled to one vote at their respective meetings. Only
holders of LILCO Common Stock and Brooklyn Union Common Stock of record at the
close of business on June 26, 1997 (the "Record Date") will be entitled to
notice of and to vote at the Shareholder Meetings or any adjournments or
postponements thereof. Holders of Brooklyn Union preferred stock as of the
Record Date are entitled to notice of the Brooklyn Union Meeting but are not
entitled to vote thereat. As of June 23,1997, 121,184,527 shares of LILCO
Common Stock and 50,364,212 shares of Brooklyn Union Common Stock were issued
and outstanding.
17
<PAGE>
This Joint Proxy Statement/Prospectus also relates to the proposed merger
(the "LIPA Transaction") of LILCO with LIPA Acquisition Corp., a New York
corporation ("LIPA Sub") and a wholly-owned subsidiary of the Long Island
Power Authority, a corporate municipal instrumentality and political
subdivision of the State of New York ("LIPA"), pursuant to the Agreement and
Plan of Merger, dated as of June 16, 1997 (the "LIPA Agreement"), by and among
LILCO, LIPA Sub and LIPA. Upon consummation of the LIPA Transaction, LIPA Sub
will be merged with and into LILCO, which will be the surviving corporation,
for aggregate cash merger consideration of $2,497,500,000 (the
"Consideration"), the Series AA Preferred Stock will be exchanged for Series
AA preferred stock of the Holding Company having substantially the terms as
set forth in Annex D hereto and each outstanding share of the Series CC
Preferred Stock, Series GG Preferred Stock, Series QQ Preferred Stock and
Series UU Preferred Stock (except for shares whose holders perfect their
rights to obtain judicial appraisal thereof ("Dissenting Shares")) will be
cancelled and converted into the right to receive cash in the applicable
amounts set forth in the LIPA Agreement. In connection with the consummation
of the LIPA Transaction, LILCO will transfer to the Holding Company or one or
more of its wholly-owned subsidiaries (which may be limited liability
companies) all of LILCO's gas assets and operations, non-nuclear generating
assets and operations and common plant (as described more fully below, the
"Transferred Assets"). Consummation of the LIPA Transaction is subject to
various conditions, including approval of the LIPA Agreement by the holders of
two-thirds of the voting power of the outstanding shares of LILCO Common Stock
and LILCO Preferred Stock, voting together as a single class; by a majority of
the voting power of all holders of LILCO Preferred Stock, voting together as a
separate class; by a majority of the voting power of the outstanding LILCO
Common Stock, voting separately as a class; and by the holders of a majority
of the voting power of each series of LILCO Preferred Stock, in each case
voting separately as a class, at the LILCO Meeting. Holders of shares of
Brooklyn Union Common Stock will not vote on the LIPA Agreement.
In connection with the proposal to adopt the LIPA Agreement, each
outstanding share of LILCO Common Stock is entitled to one vote, each
outstanding share of LILCO Preferred Stock having a par value of $100 per
share is entitled to one vote and each outstanding share of LILCO Preferred
Stock having a par value of $25 per share is entitled to one-quarter (1/4) of
a vote. Only holders of LILCO Common Stock and eligible LILCO Preferred Stock
of record as of the close of business on the Record Date will be entitled to
notice of and to vote in respect of the LIPA Agreement at the LILCO Meeting or
any adjournments or postponements thereof. As of June 23, 1997, there were
issued and outstanding 121,184,527 shares of LILCO Common Stock and 21,674,000
shares of LILCO Preferred Stock, of which 14,520,000 were shares of Series AA
Preferred Stock, 570,000 were shares of Series CC Preferred Stock, 880,000
were shares of Series GG Preferred Stock, 3,464,000 were shares of Series QQ
Preferred Stock and 2,240,000 were shares of Series UU Preferred Stock.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of the
Holding Company with respect to the issuance of (x) up to approximately
173,048,739 shares of Holding Company Common Stock to be issued to common
shareholders of LILCO at the applicable ratio (the "Ratio") of Holding Company
Common Stock for each share of LILCO Common Stock and to common shareholders
of Brooklyn Union on a one-to-one basis in connection with the Combination
(the "Brooklyn Union Ratio") and (y) up to 14,520,000 shares of Holding
Company Series AA preferred stock, par value $25 per share ("Holding Company
Series AA Preferred Stock") to be issued to holders of Series AA Preferred
Stock of LILCO on a one-to-one basis in connection with the LIPA Agreement.
The Ratio will be (x) 0.803 shares of Holding Company Common Stock for each
share of LILCO Common Stock if the Combination is consummated but the LIPA
Transaction is not consummated (the "Original Ratio"), (y) 0.880 shares of
Holding Company Common Stock for each share of LILCO Common Stock if the
Combination is consummated and the LIPA Transaction is consummated (the "LIPA
Ratio") or (z) one share of Holding Company Common Stock for each share of
LILCO Common Stock if the Combination is not consummated but the LIPA
Transaction is consummated. Holders of LILCO Common Stock will own 66%, 68% or
100%, respectively, of the outstanding Holding Company Common Stock and
holders of Brooklyn Union Common Stock will own 34%, 32% and 0%, respectively,
of the outstanding Holding Company Common Stock in such events.
This Joint Proxy Statement/Prospectus also relates to an independent
proposal to restructure Brooklyn Union into a holding company structure (the
"KeySpan Share Exchange"), in which shares of Brooklyn Union
18
<PAGE>
Common Stock will be exchanged for shares of common stock, par value $0.33 1/3
per share ("KeySpan Common Stock"), of KeySpan Energy Corporation, a New York
corporation and a wholly owned subsidiary of Brooklyn Union ("KeySpan"),
pursuant to an Amended and Restated Agreement and Plan of Exchange, dated as
of June 9, 1997, by and between Brooklyn Union and KeySpan (the "KeySpan
Agreement"). The KeySpan Share Exchange is described in detail in the Annex J
to this Joint Proxy Statement/Prospectus to be delivered to Brooklyn Union
shareholders. Consummation of the KeySpan Share Exchange is subject to various
conditions, including the adoption of the KeySpan Agreement by the holders of
two-thirds of the voting power of the outstanding shares of Brooklyn Union
Common Stock at the Brooklyn Union Meeting.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
KeySpan with respect to issuance of up to approximately 50,364,212 shares of
KeySpan Common Stock to be issued to holders of Brooklyn Union Common Stock on
a one-to-one basis in connection with the KeySpan Share Exchange.
Unless otherwise specified, references to the rights and obligations of
Brooklyn Union under the Brooklyn Union/LILCO Agreement and the effects of the
Combination on the shares of Brooklyn Union Common Stock, respectively, should
be interpreted to refer to the rights and obligations of KeySpan under the
Brooklyn Union/LILCO Agreement and the effects of the Combination on the
shares of KeySpan Common Stock in the event that the KeySpan holding company
proposal is approved by Brooklyn Union shareholders and the KeySpan Share
Exchange is completed. If the KeySpan Share Exchange is consummated and
Brooklyn Union common shareholders receive KeySpan Common Stock, KeySpan
common shareholders will receive common shares of the new Holding Company upon
consummation of the Combination. The KeySpan Share Exchange is expected to be
consummated before the Combination, and neither the KeySpan Share Exchange nor
the Combination is conditioned on the other occurring.
All information contained in this Joint Proxy Statement/Prospectus with
respect to LILCO has been provided by LILCO. All information contained in this
Joint Proxy Statement/Prospectus with respect to Brooklyn Union or KeySpan has
been provided by Brooklyn Union. Neither LILCO nor Brooklyn Union assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of Brooklyn Union and LILCO on or about
June 30, 1997. A shareholder who has given a proxy may revoke it any time
prior to the applicable meeting. See "Meetings, Voting and Proxies."
19
<PAGE>
THE BROOKLYN UNION/LILCO COMBINATION
BACKGROUND OF THE COMBINATION
Over several years, each of Brooklyn Union and LILCO has evaluated the
significant changes already made and expected to be made in the regulatory
structure and competitive environment of the gas and electric utility
businesses. At both the federal and state levels, there have been important
changes in the regulation of the utility industry businesses and, especially
with respect to the electric utility business, there is the prospect of
further dramatic changes. As described more fully below under "Common Reasons
for the Combination," LILCO and Brooklyn Union believe that the combination of
the companies will provide both companies' shareholders with the opportunity
to benefit from the competitive opportunities provided by the rapidly changing
circumstances in the energy business while also providing the lower rates and
increased competition sought by the companies' regulators and customers.
As the efforts of the Public Service Commission of the State of New York
(the "PSC") to restructure the utility business in New York first began to
take shape in the PSC's Competitive Opportunities Proceeding in 1994, Dr.
William J. Catacosinos, the Chief Executive Officer of LILCO, and Mr. Robert
B. Catell, the Chief Executive Officer of Brooklyn Union, began exploratory
discussions aimed at determining whether a business combination of LILCO and
Brooklyn Union could provide a mutually beneficial platform for responding to
the changes in regulation and the energy marketplace. Those discussions
continued throughout 1994 and 1995.
On October 13, 1994, LIPA and the New York Power Authority made a joint
proposal to acquire the outstanding LILCO Common Stock for a cash purchase
price of $21.50 per share. The last closing sales price for LILCO Common Stock
on October 13, 1994, which was prior to the receipt of such proposal, was $16
1/2 per share. LILCO advised LIPA on October 24, 1994, that it was prepared to
evaluate seriously the $21.50 per share proposal made by LIPA. The proposal
was superseded on June 20, 1995, by a proposal from LIPA to acquire all of the
outstanding LILCO Common Stock for a cash purchase price of $17.50 per share.
On June 30, 1995, LILCO responded by stating that such offer had too many
uncertainties and contingencies to warrant further review or discussions at
that time. Neither of these offers resulted in negotiations between LIPA and
LILCO.
These offers were made by LIPA pursuant to its governing statute, The Long
Island Power Authority Act (the "LIPA Act"), which granted LIPA the statutory
power to acquire LILCO's equity or debt securities or assets through a
negotiated transaction, by tender offer or through the exercise of LIPA's
condemnation powers. The LIPA Act had been enacted in 1986 in response to
growing political opposition to LILCO's construction of the Shoreham Nuclear
Power Plant ("Shoreham") on Long Island. In 1989, LILCO, LIPA and the State of
New York entered into various agreements under which LILCO agreed to transfer
its interest in Shoreham to LIPA. Shoreham was subsequently decommissioned and
LILCO recorded substantial regulatory assets reflecting the present value of
expected electric service rates set to provide for LILCO's financial recovery
through the amortization of such regulatory assets, and a return on such
regulatory assets, over a forty-year period.
Brooklyn Union retained the investment banking firm of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") in January 1995 and the
law firm of Wachtell, Lipton, Rosen & Katz in April 1995 in order to assist
Brooklyn Union in evaluating the financial and legal implications of a
business combination with LILCO, with the potential for involvement of LIPA.
LILCO consulted with its legal and financial advisors, Kramer, Levin, Naftalis
& Frankel ("Kramer Levin") and Dillon, Read & Co. Inc. ("Dillon Read"), each
of which had already been retained in connection with the October 1994 LIPA
and the New York Power Authority proposal. On October 24, 1995, LILCO and
Brooklyn Union executed a confidentiality agreement to facilitate the exchange
of non-public information between the companies.
Throughout 1995, Dr. Catacosinos, Mr. Catell, representatives of Dillon Read
and representatives of Merrill Lynch had several meetings to discuss the basis
for a business combination. Representatives of each company met to discuss the
possible synergies of any such combination. At various times during 1995 and
1996, representatives of LILCO and Brooklyn Union met to discuss issues
associated with combining the two
20
<PAGE>
companies, including revisions to managements' synergies estimates and the
exchange of non-public information in connection with each company's "due
diligence" investigation of the other.
Meanwhile, Governor-elect George Pataki organized a task force on December
23, 1994, to evaluate the feasibility of a LIPA takeover of LILCO as proposed
in October 1994 under then Governor Mario Cuomo. During 1995, the LIPA Act was
amended to provide for a governing board of trustees for LIPA of fifteen
members, nine appointed by the Governor and three each by the majority leader
of the New York State Senate and by the Speaker of the New York State
Assembly. In addition, that amendment made LIPA subject to the New York State
Public Authorities Control Board (the "PACB"), as a result of which each
agreement made by LIPA for the expenditure of more than $1 million requires
unanimous approval by the representatives appointed by the Governor, the
Senate majority leader and the Speaker of the Assembly. Promptly after such
amendment was signed into law on August 2, 1995, the LIPA board of trustees
was reconstituted as provided for in the amendment. As a result of such
amendment and the report of such task force, LIPA's June 1995 proposal to
acquire LILCO for $17.50 per share was not pursued.
In September 1995, Governor Pataki announced his administration's commitment
to formulate a State takeover of LILCO that achieved four objectives: a
double-digit reduction in electric rates on Long Island; protection for Long
Island property owners against increased property taxes; a plan for long-term
competition in the Long Island electric market; and the end of LILCO as Long
Island's electric utility. Governor Pataki stated that he would not rule out
any action required to accomplish these objectives, including a hostile State
takeover or the exercise of LIPA's condemnation powers. On September 29, 1995,
LILCO advised LIPA by letter that LILCO would fully cooperate with LIPA on any
constructive proposal made by LIPA.
In September 1995, LIPA retained Bear, Stearns & Co. Inc. ("Bear Stearns")
as its financial advisors and in October 1995 retained the law firms of
Winthrop Stimson Putnam & Roberts as its corporate counsel and Hawkins
Delafield & Wood as its bond counsel and the accounting firm of Price
Waterhouse LLP. After an organizational meeting in early October between LIPA
and LILCO representatives and their respective outside advisors, LILCO and
Bear Stearns executed on October 11, 1995, a confidentiality agreement
pursuant to which, as subsequently amended, non-public information was
provided by LILCO to specific LIPA officials and LIPA's outside advisors.
During the fall of 1995 and thereafter through 1996 and 1997, substantial non-
public information was so provided by LILCO. In September 1995,
representatives of Brooklyn Union met twice with representatives of LIPA to
outline Brooklyn Union's proposal for the acquisition of LILCO's generating
and regulatory assets by LIPA and the combination of Brooklyn Union with the
electric transmission and distribution system and gas operations of LILCO.
On September 27, 1995, LIPA issued a written "Request for Information" which
solicited indications of interest from qualified parties in connection with a
"state-authority facilitated financial restructuring/acquisition of LILCO."
According to such Request, LIPA was "intent on acquiring all or part of
LILCO's securities and/or assets at the lowest possible price and reserves the
right to acquire LILCO equity securities below current trading prices."
According to published reports, thirty-one parties formally responded to this
Request. On October 19, 1995, Brooklyn Union submitted to LIPA certain
additional information supplemental to its presentation at LIPA's September
meetings in response to the LIPA Request.
On December 5, 1995, the Proposal Evaluation Committee of the LIPA Board of
Trustees issued a Technical Report which recommended a transaction structure
under which LIPA would acquire substantially all of LILCO's assets, sell the
generating assets to multiple buyers, sell the gas assets to another buyer and
retain a private party to manage for LIPA's benefit the transmission and
distribution system so acquired. Although this proposal was never adopted by
the LIPA Board of Trustees, and no price was discussed with respect to the
proposed purchase of assets, LIPA representatives over the next few months
discussed the proposal with LILCO representatives. On February 28, 1996, the
LIPA Board of Trustees authorized the commencement of discussions with LILCO
and LIPA representatives thereafter began further due diligence with respect
to LILCO. During such discussions LILCO representatives identified several
features of the proposal that were unacceptable to LILCO:
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the acquisition of all of LILCO's operating assets; the breakup of the
generating assets; and the constraints that would be placed on LILCO with
respect to the reinvestment of proceeds in order to avoid adverse tax
consequences.
On March 7, 1996, Mr. Catell met with the Governor and expressed his support
for the Governor's efforts to deal with the LILCO situation but indicated what
he perceived to be certain shortcomings in the LIPA proposal.
In the wake of the release of the Technical Report, LILCO and Brooklyn Union
renewed their discussions with respect to a possible business combination. The
two chief executive officers met on February 7, March 1 and March 18, 1996, to
discuss the structure, pricing and other material terms of a business
combination and the potential involvement of LIPA with respect thereto. On
April 8, 1996, the two chief executive officers met again, accompanied by the
companies' respective investment bankers, to discuss valuation. On May 22,
1996, the chief executive officers, accompanied by their investment bankers
and counsel, met to discuss structure, legal issues and synergy savings.
Brooklyn Union sought to persuade LILCO to approach LIPA jointly with a
proposal along the lines previously submitted by Brooklyn Union to LIPA. LILCO
sought to persuade Brooklyn Union to proceed with a Brooklyn Union-LILCO
combination agreement. Brooklyn Union and LILCO were unable to reach an
agreement on price or structure.
Discussions continued during the summer of 1996 and a draft combination
agreement was prepared by LILCO's outside counsel and delivered to Brooklyn
Union on August 15, 1996. Meetings were held between the chief executive
officers, accompanied by their investment bankers, on August 6, 7 and 16,
1996, and again, but without investment bankers, on September 3, 1996, but no
agreement was reached on either price or corporate governance issues.
Negotiations at that point were suspended.
Meanwhile, discussions between LIPA and LILCO during 1996 were influenced by
a variety of developments. Beginning in May 1996, tax counsel for LIPA and tax
counsel for LILCO began evaluating an alternative structure which they
believed should be more tax efficient. That structure contemplated a possible
acquisition by LIPA of LILCO Common Stock immediately following a transfer by
LILCO of its gas and generating assets to a new company to be owned by LILCO
shareholders. LIPA and LILCO representatives had discussions with the IRS
concerning the possibility of obtaining private letter rulings with respect to
this alternative transaction and the tax-exempt status of the related LIPA
financing. Because of the complexity of the transaction, substantive
discussions between the parties were slowed during 1996.
On February 12, 1996, the PSC issued an order to show cause why LILCO should
not be required to implement an immediate reduction in its electric rates for
the three year period from 1997 to 2000. On April 17, 1996, that proceeding
was expanded to provide for a comprehensive evaluation of LILCO's electric
rates. On August 2, 1996, the PSC staff formally recommended a temporary 5.2%
decrease in LILCO's electric rates. The PSC ultimately has not taken action in
connection with the 1996 proceeding, which is still pending. On June 24, 1996,
Moody's Investors Service Inc. announced that it had downgraded its rating of
$1.95 billion outstanding principal amount of LILCO's general and refunding
bonds from Baa3 to Ba1, citing "intense regulatory scrutiny" of LILCO's
electric rates by the PSC and the uncertain course of the negotiations between
LIPA and LILCO.
Another significant development affecting those negotiations was a decision
on November 4, 1996, in Phase II of a tax certiorari proceeding brought by
LILCO against certain taxing jurisdictions in Suffolk County, Long Island,
seeking recovery of property taxes paid by LILCO in respect of Shoreham.
During Phase I, LILCO had been awarded $81 million in refunds and interest.
The Phase II decision, while subject to appeal by the defendants, ruled in
LILCO's favor and could result in an aggregate recovery in excess of $1
billion for LILCO (which amount would be used to reduce electric rates). LILCO
perceived this decision as putting greater pressure on LIPA to agree on a
transaction with LILCO which would include a settlement of the Shoreham
property tax case.
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Finally, various New York State officials and representatives, in
discussions with Dr. Catacosinos and Mr. Catell, encouraged LILCO and Brooklyn
Union to recommence their negotiations after reports were published in
September 1996 disclosing the termination of those negotiations in September
1996. Dr. Catacosinos and Mr. Catell understood from these discussions that
the State would view an agreement between LILCO and Brooklyn Union favorably
since it would result in rate reductions from the synergies to be realized in
a business combination of LILCO and Brooklyn Union.
Accordingly, discussions between the chief executive officers of LILCO and
Brooklyn Union began again on December 4, 1996, and, after meetings (which
included the investment bankers) on December 11, 13 and 20, the chief
executive officers agreed to pursue the negotiations of a definitive agreement
based upon an exchange ratio that would result in LILCO shareholders owning
66%, and Brooklyn Union shareholders owning 34%, of the common equity of the
combined entity in the absence of a mutually acceptable transaction with LIPA
and 68% and 32%, respectively, if a satisfactory transaction with LIPA were
consummated.
The advisors for both parties met and spoke several times over the next
week, discussed the transaction and related documentation, agreed upon the
proposed structure for the transaction and negotiated the terms of an
Agreement and Plan of Exchange (the "Original Agreement"), the LILCO Stock
Option Agreement between LILCO and Brooklyn Union, dated as of December 29,
1996 (the "LILCO Stock Option Agreement") and the Brooklyn Union Stock Option
Agreement between Brooklyn Union and LILCO, dated as of December 29, 1996 (the
"Brooklyn Union Stock Option Agreement", and, together with the LILCO Stock
Option Agreement, the "Stock Option Agreements"), including the conditions to
closing, the termination provisions, the break-up fees, the covenants that
would govern the operations of LILCO and Brooklyn Union pending the closing
and various other matters that would govern the operations of the Holding
Company after the closing. The parties also negotiated a provision that
contemplated a revision in the exchange ratio if a transaction with LIPA
acceptable to each party could be negotiated. On December 24 and December 27,
1996, the chief executive officers met again to negotiate the provisions
relating to management succession and the composition of the Holding Company's
Board of Directors. Final agreement with respect to such issues was reached on
December 28, 1996.
On December 29, 1996, the LILCO Board of Directors met and received advice
from Dillon Read, legal counsel and management. Dillon Read reviewed financial
and other information concerning the two companies and the proposed Original
Ratio. Dillon Read then delivered its oral opinion to the LILCO Board of
Directors that, as of such date and subject to the matters discussed, the
proposed Original Ratio of 0.803 shares of Holding Company Common Stock for
each share of LILCO Common Stock was fair, from a financial point of view, to
the holders of LILCO Common Stock. Counsel outlined in detail the terms and
conditions of the Original Agreement and the Stock Option Agreements and
described the changes in the proposed definitive documentation from the drafts
previously furnished to the LILCO Board of Directors. The LILCO Board of
Directors discussed the advice they had received and the potential benefits to
the shareholders, customers and employees of LILCO that would result from a
combination of LILCO and Brooklyn Union. After such discussion, the LILCO
Board of Directors unanimously approved the Original Agreement and the Stock
Option Agreements.
Also on December 29, 1996, the Brooklyn Union Board of Directors met and
received advice from Merrill Lynch, legal counsel and management. Merrill
Lynch reviewed financial and other information concerning the two companies
and the proposed Brooklyn Union Ratio. Merrill Lynch then delivered its oral
opinion to the Brooklyn Union Board of Directors to the effect that, as of
such date and subject to the matters discussed, the proposed Brooklyn Union
Ratio was fair, from a financial point of view, to the holders of Brooklyn
Union Common Stock. Counsel outlined in detail the terms and conditions of the
Original Agreement and the Stock Option Agreements and described the changes
in the proposed definitive documentation from the drafts previously furnished
to the Brooklyn Union Board of Directors. The Brooklyn Union Board of
Directors discussed the advice they had received and the potential benefits to
the shareholders and customers of Brooklyn Union that would result from a
combination of LILCO and Brooklyn Union. After such discussion, the Brooklyn
Union Board of Directors unanimously approved the Original Agreement and the
Stock Option Agreements.
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After these board meetings, the Original Agreement and the Stock Option
Agreements were signed. Renewed negotiations with LIPA commenced in January
1997. From that date until March 19, 1997, LIPA, LILCO and Brooklyn Union,
through their officers and outside advisors, conducted extensive negotiations.
During this period and through May 1997, LIPA and its advisors conducted
extensive due diligence investigations of LILCO's financial, legal and
business records, including interviews with LILCO personnel. The negotiations
focused on a transaction structure in which certain assets of LILCO, including
its gas, generating and common plant assets, would be transferred to a new
company to be owned by LILCO and Brooklyn Union shareholders immediately prior
to a cash merger of LILCO with an acquisition subsidiary to be formed by LIPA,
as a result of which LILCO would become a wholly-owned subsidiary of LIPA. The
principal issues during the negotiations were the identification of the assets
to be distributed by LILCO, the price to be paid by LIPA, the treatment of
LILCO's preferred stock and debt, the terms and conditions of a management
services agreement, a power supply agreement and other service agreements to
be entered into by LILCO with the new company and the rights LIPA would have
to acquire the generating facilities and to develop certain real estate
parcels for future generating, transmission and distribution facilities. In
addition, the negotiations incorporated LIPA's acquisition of LILCO's current
rights in the Shoreham property tax and related cases and certain provisions
relating to other pending and future property tax cases and the anticipated
LIPA settlement of these cases after closing.
These negotiations culminated in a meeting on March 18, 1997, attended by
Dr. Catacosinos, other LILCO officers and representatives of Dillon Read, the
then current Chairman of LIPA, other LIPA officials and representatives of
Bear Stearns, and Mr. Catell and representatives of Merrill Lynch. At that
meeting, the final pricing terms for the acquisition by LIPA of LILCO were
agreed to and substantially final terms for the management services and
related agreements were agreed to immediately thereafter. These agreements
were documented in a non-binding Agreement in Principle, dated as of March 19,
1997, among LIPA, LILCO and Brooklyn Union.
The parties and their respective outside advisors then prepared and
negotiated the definitive legal documentation contemplated by the Agreement in
Principle. The resulting drafts were submitted, unsigned, on April 30, 1997,
to the staff of the PACB to permit them to begin their evaluation of the
proposed transaction. The parties held further negotiations with respect to
the definitive legal documentation during May and June. During this period
LIPA conducted a series of public hearings at which the contents of the April
30th drafts were discussed. On June 16, 1997, the LIPA Board of Trustees
authorized the execution by LIPA of the then current drafts of the definitive
legal documentation. As a result of subsequent negotiations among the parties,
certain technical changes were made to such drafts. In accordance with the
resolution adopted by the LIPA Board of Trustees at their June 16th meeting,
the changes negotiated after June 16 remain subject to ratification by the
LIPA Board of Trustees.
On June 26, 1997, Merrill Lynch delivered its written opinion to the
Brooklyn Union Board of Directors to the effect that, as of such date and
subject to the matters described therein, the Brooklyn Union Ratio of one
share of Holding Company Common Stock for each share of Brooklyn Union Common
Stock was fair to the holders of Brooklyn Union Common Stock from a financial
point of view if the LIPA Transaction were consummated, under which
circumstances each share of LILCO Common Stock would be exchanged for 0.880
shares of Holding Company Common Stock. Having discussed at a number of
meetings the benefits that would result from the consummation of the LIPA
Transaction and having received advice from Merrill Lynch, legal counsel and
management, and having received drafts and detailed descriptions of the
Brooklyn Union/LILCO Agreement, the Amended Stock Option Agreements (as
defined below) and the LIPA Agreement, the Brooklyn Union Board of Directors
executed a unanimous written consent dated June 26, 1997 approving the
Brooklyn Union/LILCO Agreement and the Amended Stock Option Agreements.
On June 26, 1997, LILCO and Brooklyn Union executed and delivered the
Brooklyn Union/LILCO Agreement, pursuant to which Brooklyn Union consented to
the execution by LILCO of the LIPA Agreement. LILCO and Brooklyn Union on June
26, 1997, also executed an Amended and Restated Brooklyn Union Stock Option
Agreement and an Amended and Restated LILCO Stock Option Agreement
(collectively, the "Amended Stock Option Agreements"). As of June 26, 1997,
LIPA and LILCO executed the LIPA Agreement.
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COMMON REASONS FOR THE COMBINATION
Brooklyn Union and LILCO believe that the combined company, its shareholders
and its customers can benefit significantly from the strategic benefits which
they expect to result from the Combination, which include the following:
. Customers of Brooklyn Union and LILCO should realize lower rates as a
result of the substantial synergy savings anticipated to be realized
through the combination of the companies' operations and, if the LIPA
Transaction is consummated, electric customers should realize
substantially lower rates as a result of LIPA's exemption from payment of
federal income tax and its refinancing of LILCO's debt with tax-exempt
financing.
. The greater financial and operational resources available to the combined
company should create a stronger competitor in the continuing development
of a competitive energy marketplace.
. Shareholders of both companies will have the opportunity to participate
in the upside potential of the convergence of gas and electric companies
within the energy industry. The combined company is expected to create a
platform to market, trade and arrange physical delivery of energy products
and related services on a large scale to major market areas.
. By combining the businesses of Brooklyn Union and LILCO as separate
subsidiaries owned by a holding company, the combined company should
benefit from greater flexibility in conducting and financing non-regulated
operations than is currently available to either Brooklyn Union or LILCO.
The combined company should also have greater flexibility to invest in new
lines of business than is currently available to either Brooklyn Union or
LILCO. With greater flexibility to raise and commit capital to unregulated
operations in the energy business, the combined company will be better
positioned to take advantage of the market opportunities presented in the
increasingly competitive energy industry.
Brooklyn Union and LILCO believe that these strategic benefits will be
further enhanced through consummation of the LIPA Transaction. The estimated
net proceeds of approximately $1.7 billion will provide the Holding Company
with substantial financial resources which Brooklyn Union and LILCO anticipate
will be used in part to make acquisitions that will complement the operations
of the Holding Company. Particularly in light of the significant proposed
restructurings and acquisitions announced by existing utilities, the Holding
Company should be well positioned financially to take advantage of the
increased opportunities which are likely to be presented over the next several
years to expand its business. No determination with respect to such
acquisition opportunities has yet been made by either Brooklyn Union or LILCO.
RECOMMENDATION OF THE BROOKLYN UNION BOARD OF DIRECTORS
The Brooklyn Union Board believes that the terms of the Combination are fair
to, and in the best interests of, Brooklyn Union and its shareholders.
Accordingly, the Brooklyn Union Board, has unanimously adopted the Brooklyn
Union/LILCO Agreement, and unanimously recommends its adoption by the Brooklyn
Union shareholders. The Brooklyn Union Board believes that the Combination
represent a significant strategic opportunity for Brooklyn Union. The Brooklyn
Union Board also believes that the Long Island market presents excellent
opportunities for growth of the gas business and the provision of other energy
related services. This market is particularly attractive because there is an
extremely low penetration of gas as a percentage of the total energy usage in
that region.
The terms of the Brooklyn Union/LILCO Agreement, including the Ratios, were
the result of arm's-length negotiations between Brooklyn Union and LILCO. In
fixing the Ratios in the negotiation process, Brooklyn Union management relied
to a large extent on certain of the financial analyses of Merrill Lynch
summarized below under "Opinion of Brooklyn Union's Financial Advisor."
Although Merrill Lynch neither made any recommendations nor expressed any
opinion to Brooklyn Union management or the Brooklyn Union Board during such
negotiations regarding the Ratios, Merrill Lynch subsequently delivered its
written opinion to the
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Brooklyn Union Board referred to in clause (vii) of the following paragraph.
The Brooklyn Union Board consulted with its financial advisor and legal
advisors and management of Brooklyn Union. After careful review and
consideration, the Brooklyn Union Board determined that the Combination is a
desirable transaction from the standpoint of the Brooklyn Union common
shareholders.
In reaching its decision to approve the Brooklyn Union/LILCO Agreement, and
in addition to the factors described above, the Brooklyn Union Board
considered the following factors: (i) the current and historical market prices
of the Brooklyn Union Common Stock and the LILCO Common Stock (including the
fact that from December 1993 to December 1996, the ratio of the closing price
of LILCO Common Stock to the closing price of Brooklyn Union Common Stock has
ranged between 0.542 to 0.942, and the closing prices of Brooklyn Union Common
Stock and LILCO Common Stock on December 26, 1996 were $30.625 and $19.125,
respectively); (ii) information concerning the financial performance,
condition, business operations and prospects of each of Brooklyn Union and
LILCO; (iii) the effects of the Combination on Brooklyn Union's shareholders,
including the opportunity to share in the anticipated benefits of ownership of
the combined enterprise; (iv) the expected federal income tax treatment of the
Combination as a tax-free reorganization to Brooklyn Union shareholders (as
described under "Federal Income Tax Considerations--Material Federal Income
Tax Consequences"); (v) the immediate reduction in gas and electric rates to
reflect anticipated synergy savings, as contemplated by Brooklyn Union and
LILCO, and the belief that customers will benefit from a broader range of
innovative energy products and services; (vi) the terms of the Brooklyn
Union/LILCO Agreement, which provide for balanced representations and
warranties, conditions to closing and rights to termination; and (vii) the
opinion of Brooklyn Union's financial advisor, Merrill Lynch, to the effect
that, as of the date hereof and based upon the assumptions made, matters
considered and limits of review in connection with such opinion, the Brooklyn
Union Ratio of one share of Holding Company Common Stock for each share of
Brooklyn Union Common Stock was fair to the holders of Brooklyn Union Common
Stock from a financial point of view if the LIPA Transaction were consummated,
under which circumstances each share of LILCO Common Stock would be exchanged
for 0.880 shares of Holding Company Common Stock, and if the LIPA Transaction
were not consummated, under which circumstances each share of LILCO Common
Stock would be exchanged for 0.803 shares of Holding Company Common Stock. In
determining that the Combination is fair to Brooklyn Union's shareholders, the
Brooklyn Union Board considered the above factors as a whole and did not
assign specific or relative weights to them. In the view of the Brooklyn Union
Board, each of the factors listed above reinforced its belief that the
combined entity would have excellent business prospects going forward. Because
Brooklyn Union's shareholders collectively would own approximately 34% (or 32%
if the LIPA Transaction is consummated) of the combined entity based upon the
capitalization of the companies as of December 29, 1996, the date of the
Original Agreement, the prospects of such entity were an important factor to
the Brooklyn Union Board in determining whether to approve the transaction.
THE BROOKLYN UNION BOARD, BY A UNANIMOUS VOTE, HAS ADOPTED THE BROOKLYN
UNION/LILCO AGREEMENT, BELIEVES THAT THE TERMS OF THE COMBINATION ARE FAIR TO
BROOKLYN UNION'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF BROOKLYN UNION VOTE TO ADOPT THE BROOKLYN UNION/LILCO AGREEMENT.
In considering the recommendation of the Brooklyn Union Board with respect
to the Brooklyn Union/LILCO Agreement, shareholders should be aware that
certain members of Brooklyn Union's management and the Brooklyn Union Board
have certain interests in the Combination that are different from, or in
addition to, the interests of shareholders of Brooklyn Union generally and
that could potentially represent conflicts of interest. The Brooklyn Union
Board was aware of these interests and considered them, among other matters,
in adopting the Brooklyn Union/LILCO Agreement. See "The Brooklyn Union/LILCO
Combination--Potential Conflicts of Interests of Certain Persons in the
Combination." For the recommendation of the LILCO Board, see "Selected
Information Concerning LILCO--Recommendation of the LILCO Board."
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OPINION OF BROOKLYN UNION'S FINANCIAL ADVISOR
On December 29, 1996, Merrill Lynch delivered its oral opinion, which was
subsequently confirmed in a written opinion dated as of such date, to the
Brooklyn Union Board to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the Brooklyn Union Ratio of one share of Holding Company Common Stock
for each share of Brooklyn Union Common Stock was fair to the holders of
Brooklyn Union Common Stock from a financial point of view if the LIPA
Transaction were not consummated, under which circumstances each share of
LILCO Common Stock would be exchanged for 0.803 shares of Holding Company
Common Stock. In connection with the approval by the Brooklyn Union Board of
the Brooklyn Union/LILCO Agreement, Merrill Lynch delivered its opinion to the
Brooklyn Union Board on June 26, 1997 to the effect that, as of such date, and
based upon the assumptions made, matters considered and limits of review set
forth in such opinion, the Brooklyn Union Ratio of one share of Holding
Company Common Stock for each share of Brooklyn Union Common Stock was fair to
the holders of Brooklyn Union Common Stock from a financial point of view if
the LIPA Transaction were consummated, under which circumstances each share of
LILCO Common Stock would be exchanged for 0.880 shares of Holding Company
Common Stock. In addition, Merrill Lynch delivered its written opinion to the
Brooklyn Union Board dated as of the date of this Joint Proxy
Statement/Prospectus, to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the Brooklyn Union Ratio of one share of Holding Company Common Stock
for each share of Brooklyn Union Common Stock was fair to the holders of
Brooklyn Union Common Stock from a financial point of view if the LIPA
Transaction were consummated, under which circumstances each share of LILCO
Common Stock would be exchanged for 0.880 shares of Holding Company Common
Stock, and if the LIPA Transaction were not consummated, under which
circumstances each share of LILCO Common Stock would be exchanged for 0.803
shares of Holding Company Common Stock. References herein to the "Merrill
Lynch Opinion" refer to the written opinion of Merrill Lynch dated as of the
date of this Joint Proxy Statement/Prospectus.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN
BY MERRILL LYNCH, IS ATTACHED AS ANNEX E TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. BROOKLYN UNION SHAREHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE BROOKLYN UNION RATIO FROM A FINANCIAL POINT OF VIEW AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY BROOKLYN UNION SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE AT THE BROOKLYN UNION MEETING. THE SUMMARY OF THE
MERRILL LYNCH OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed Brooklyn Union's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended September 30, 1996 and Brooklyn
Union's Forms 10-Q and the related unaudited financial information for the
quarterly periods ending December 31, 1996 and March 31, 1997; (ii) reviewed
LILCO's Annual Reports, Forms 10-K and related financial information for the
three fiscal years ended December 31, 1996 and LILCO's Form 10-Q and the
related unaudited financial information for the quarterly period ending March
31, 1997; (iii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of
Brooklyn Union and LILCO, furnished to Merrill Lynch by Brooklyn Union and
LILCO; (iv) conducted discussions with members of senior management of
Brooklyn Union and LILCO concerning their respective businesses, regulatory
environments, prospects and strategic objectives; (v) reviewed the historical
market prices and trading activity for Brooklyn Union Common Stock and LILCO
Common Stock and compared them with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Brooklyn Union and
LILCO, respectively; (vi) compared the results of operations of Brooklyn Union
and LILCO with that of certain companies which Merrill Lynch deemed to be
reasonably similar to Brooklyn Union and LILCO, respectively; (vii) compared
the proposed financial terms of the transactions contemplated by the Brooklyn
Union/LILCO Agreement with the financial terms of certain other mergers and
acquisitions which Merrill Lynch deemed to be relevant; (viii) considered the
potential pro forma effect of the Combination, including on Brooklyn Union's
capitalization ratios and earnings, dividends and book value per share; (ix)
reviewed the Brooklyn
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Union/LILCO Agreement; (x) reviewed the LIPA Agreement; and (xi) reviewed such
other financial studies and analyses and performed such other investigations
and took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed with the
consent of the Brooklyn Union Board that the LIPA Transaction, if consummated,
would be consummated on the terms contained in the LIPA Agreement. In
preparing the Merrill Lynch Opinion, Merrill Lynch also assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to it or publicly available or discussed with or reviewed by or for
it, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertaking an independent evaluation or
appraisal of any of the assets or liabilities of Brooklyn Union or LILCO. In
addition, Merrill Lynch did not conduct any physical inspection of the
properties or facilities of Brooklyn Union or LILCO. With respect to the
financial forecasts furnished to or discussed with Merrill Lynch by Brooklyn
Union and LILCO, Merrill Lynch assumed that they had been reasonably prepared
and reflected the best currently available estimates and judgments of Brooklyn
Union's or LILCO's management as to the expected future financial performance
of Brooklyn Union or LILCO, as the case may be, and as to the expected future
projected outcomes of various legal, regulatory and other contingencies. In
that regard, LILCO's financial forecasts for the case in which LILCO retains
ownership of its electric transmission and distribution system, substantially
all of its electric regulatory assets and certain other interests and the LIPA
Transaction is not consummated, assumed, among other things (i) that LILCO
will be subject to no reduction in electric rates for the five-year period
ending December 31, 2002, (ii) that LILCO will fully recover in its current
and future electric rates all of its costs referred to in the Notes to
Financial Statements of LILCO for the year ended December 31, 1996, associated
with the transfer of the Shoreham Nuclear Power Station to LIPA and
decommissioning thereof, on terms no less favorable to LILCO than the terms
currently in effect, and (iii) that there will be no adverse changes to LILCO
in general competitive conditions for the transmission and sale of electricity
in the areas serviced by LILCO through the construction of new transmission
lines to Long Island or otherwise. Merrill Lynch assumed that the Combination
will be accounted for as a pooling of interests in the case where the LIPA
Transaction is not consummated and that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. The Merrill Lynch Opinion
was necessarily based upon market, economic and other conditions as they
existed and could be evaluated as of the date of such opinion. Merrill Lynch
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals for the Combination and the LIPA Transaction, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Combination or the LIPA Transaction. The Merrill
Lynch Opinion was addressed to the Brooklyn Union Board and does not
constitute a recommendation to any shareholders as to how such shareholders
should vote on the proposed Combination.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch was not authorized by Brooklyn Union or the Brooklyn Union Board to
solicit, nor has Merrill Lynch solicited, third-party indications of interest
for the acquisition of all or any part of Brooklyn Union. In addition, Merrill
Lynch expressed no opinion as to what the value of the Holding Company Common
Stock actually will be when issued to the holders of shares of the Brooklyn
Union Common Stock upon consummation of the Combination or what the value of
the Brooklyn Union Common Stock or LILCO Common Stock will be between the date
of such opinion and the consummation of the Combination. No other limitations
were imposed by Brooklyn Union on Merrill Lynch with respect to the
investigations made or procedures followed by Merrill Lynch in rendering its
opinion.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch opinion
delivered to the Brooklyn Union Board on December 29, 1996.
TRADING RATIO ANALYSIS. Merrill Lynch reviewed the performance of the daily
closing prices per share of LILCO Common Stock and Brooklyn Union Common Stock
in relation to each other for the three-year period ended on December 19,
1996. Merrill Lynch also reviewed the historical ratios of such daily closing
prices per share of LILCO Common Stock to those of Brooklyn Union Common Stock
(the "Historical Trading Ratios") for the period from December 19, 1993
through December 19, 1996, and the mean of such Historical Trading
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<PAGE>
Ratios for the one-year, two-year and three-year periods ended on December 19,
1996, and compared such Historical Trading Ratios to the Original Ratio of
0.803 and the LIPA Ratio of 0.880. This analysis showed that during the three-
year period ended on December 19, 1996, the maximum Historical Trading Ratio
was 0.942, the minimum Historical Trading Ratio was 0.542, and the mean
Historical Trading Ratios for the one-year, two-year and three-year periods
ended on December 19, 1996 were 0.635, 0.657 and 0.705, respectively.
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. Using publicly available
information, Merrill Lynch compared certain financial and operating
information and ratios (described below) for Brooklyn Union and LILCO,
respectively, with the corresponding financial and operating information and
ratios for separate groups of publicly traded companies that Merrill Lynch
deemed to be reasonably comparable to Brooklyn Union and LILCO, respectively.
The companies included in the Brooklyn Union comparable company analyses were:
AGL Resources, Inc., Laclede Gas Company, National Fuel Gas Company, New
Jersey Resources Corporation, Peoples Energy Corporation and Washington Gas
Light Company, (collectively, the "Brooklyn Union Comparables"). The companies
included in the LILCO analyses were: Boston Edison Company, Consolidated
Edison Company of New York, Inc., New York State Electric & Gas Corporation
and Public Service Enterprise Group Incorporated (collectively, the "LILCO
Comparables").
Merrill Lynch derived an estimated valuation range for Brooklyn Union by
comparing: (i) current trading value to estimated 1997 earnings per share for
the Brooklyn Union Comparables, which estimates were obtained from
Institutional Brokers Estimate System and ranged from 13.0x to 15.0x, compared
to a multiple of 14.4x for Brooklyn Union Common Stock based upon estimates
from Institutional Brokers Estimate System; (ii) current trading value to book
value for the Brooklyn Union Comparables, which ranged from 1.50x to 2.00x,
compared to a multiple of 1.69x for Brooklyn Union Common Stock; and (iii) the
dividend yield ratio for the Brooklyn Union Comparables, which ranged from
4.0% to 6.0%, compared to the dividend yield ratio of 4.6% for Brooklyn Union
Common Stock.
Merrill Lynch derived an estimated valuation range for LILCO by comparing:
(i) current trading value to estimated 1997 earnings per share for the LILCO
Comparables, which estimates were obtained from Institutional Brokers Estimate
System, which ranged from 8.0x to 10.5x, compared to a multiple of 8.8x for
LILCO Common Stock based upon estimates obtained from Institutional Brokers
Estimate System; (ii) current trading value to book value for the LILCO
Comparables, which ranged from 0.80x to 1.20x, compared to a multiple of 0.91x
for LILCO Common Stock; and (iii) the dividend yield ratio for the LILCO
Comparables, which ranged from 7% to 9%, compared to the dividend yield ratio
of 9.3% for LILCO Common Stock.
Based upon the estimated valuation ranges of Brooklyn Union and LILCO in
such analyses, Merrill Lynch calculated an implied exchange ratio of a share
of LILCO Common Stock to a share of Brooklyn Union Common Stock ranging from
0.461 to 1.052, compared to the Original Ratio of 0.803.
No public company utilized as a comparison in the analyses described above
is identical to Brooklyn Union or LILCO. Accordingly, an analysis of publicly
traded comparable companies is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could
affect the public trading value of the comparable companies or company to
which they are being compared.
MERGER TRANSACTION ANALYSIS. Using publicly available information, Merrill
Lynch reviewed twelve transactions announced between June 28, 1994 and October
14, 1996, involving the merger of selected electric utility companies (the
"Electric Merger Transactions"), and four transactions announced between
October 18, 1995 and October 14, 1996, involving the merger of gas
distribution companies (the "Gas Merger Transactions"). The Electric Merger
Transactions and the date each transaction was announced were as follows:
Enova Corporation/Pacific Enterprises Inc. (October 1996), Centerior Energy
Corporation/Ohio Edison Company (September 1996), Atlantic Energy,
Inc./Delmarva Power & Light Company (August 1996), Portland
General Corporation/Enron Corp. (July 1996), UtiliCorp United Inc./Kansas City
Power & Light Company (January 1996), IES Industries Inc./Interstate Power
Company/WPL Holdings, Inc. (November 1995), Potomac
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<PAGE>
Electric Power Company/Baltimore Gas and Electric Company (September 1995),
Southwestern Public Service Company/Public Service Company of Colorado (August
1995), CIPSCO Incorporated/Union Electric Company (August 1995), Northern
States Power Company/Wisconsin Energy Corporation (May 1995), Iowa-Illinois
Gas and Electric Company/Midwest Resources Inc. (July 1994) and Sierra Pacific
Resources/Washington Water Power Company (June 1994). The Gas Merger
Transactions and the date each transaction was announced were as follows:
Pacific Enterprises/Enova Corporation (October 1996), United Cities Gas
Company/Atmos Energy Corporation (July 1996), NorAm Energy Corp./Houston
Industries Incorporated (August 1996) and Washington Energy Company Inc./Puget
Sound Power & Light Company (October 1995).
Merrill Lynch derived an estimated valuation range for Brooklyn Union by
comparing the offer value (defined as the equity value determined using market
prices prior to the announcement date) in each of the Gas Merger Transactions
as a multiple of (i) net income of the acquired company for the latest twelve
months, which ranged from 18.0x to 22.0x, and (ii) book value of the acquired
company, which ranged from 1.75x to 2.25x. Merrill Lynch also derived an
estimated valuation range for LILCO by comparing the offer value in each of
the Electric Merger Transactions as a multiple of (i) latest twelve month
earnings per share of the acquired company, which ranged from 9.0x to 13.0x,
and (ii) book value of the acquired company, which ranged from 1.00x to 1.50x.
Based upon the estimated valuations of Brooklyn Union and LILCO in such
analyses, Merrill Lynch calculated an implied exchange ratio of a share of
LILCO Common Stock to a share of Brooklyn Union Common Stock ranging from
0.451 to 0.988, compared to the Original Ratio of 0.803.
None of the business combinations utilized as a comparison in the analyses
described above is identical to the proposed Combination. Accordingly, an
analysis of comparable business combinations is not mathematical; rather it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch derived estimated valuation
ranges for Brooklyn Union and LILCO by performing discounted cash flow ("DCF")
analyses.
In the case of Brooklyn Union, the DCF was calculated assuming discount
rates ranging from 8.0% to 9.0%, and was comprised of the sum of the present
value of (i) the projected unlevered free cash flows for years 1998 to 2002
estimated by Brooklyn Union, and (ii) the year 2002 terminal value based upon
(a) a range of multiples from 12.0x to 15.0x of projected year 2002 net
income, and (b) a range of multiples from 1.60x to 2.00x of projected year
2002 book value. In the case of LILCO, the DCF was calculated assuming
discount rates ranging from 7.75% to 8.75%, and was comprised of the sum of
the present value of (i) the projected unlevered free cash flows for years
1998 to 2002 estimated by LILCO, and (ii) the year 2002 terminal value based
upon (a) a range of multiples from 8.5x to 10.5x of projected year 2002 net
income, and (b) a range of multiples from 0.80x to 1.20x of projected year
2002 book value.
Based upon the estimated valuation ranges of Brooklyn Union and LILCO set
forth above, Merrill Lynch calculated an implied exchange ratio of a share of
LILCO Common Stock to a share of Brooklyn Union Common Stock ranging from
0.553 to 0.924, compared to the Original Ratio of 0.803.
CONTRIBUTION ANALYSIS. Merrill Lynch calculated the contribution of each of
Brooklyn Union and LILCO to the pro forma combined company with respect to (i)
earnings per common share, (ii) dividends per common share and (iii) book
value per common share, in each case for the fiscal years 1993 through 1995
("Historical Period"), and for the fiscal years 1996 through 2000 (the
"Projected Period"), for Brooklyn Union using reported results for fiscal year
1996 and certain projections provided by the management of Brooklyn Union, and
for LILCO using certain projections for fiscal years 1996 and 1997 obtained
from First Call Corporation and for fiscal years 1998 through 2000 provided by
LILCO management. The analysis of earnings per common share yielded an implied
exchange ratio for a share of LILCO Common Stock to a share of Brooklyn Union
Common
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<PAGE>
Stock ranging from 1.283x to 1.105x during the Historical Period, and 1.108x
to .932x for the Projected Period. The analysis of dividend per common share
yielded an implied exchange ratio for a share of LILCO Common Stock to a share
of Brooklyn Union Common Stock ranging from 1.333x to 1.281x for the
Historical Period, and 1.254x to 1.156x for the Projected Period. The analysis
of book value per common share yielded an implied exchange ratio for a share
of LILCO Common Stock to a share of Brooklyn Union Common Stock ranging from
1.278x to 1.210x for the Historical Period, and 1.177x to 1.110x for the
Projected Period.
Based upon the estimated implied ratios in such analyses, Merrill Lynch
calculated implied exchange ratios of a share of LILCO Common Stock to a share
of Brooklyn Union Common Stock ranging from 1.105 to 1.333 during the
Historical Period, and 0.932 to 1.254 for the Projected Period, compared to
the Original Ratio of 0.803.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in connection with the preparation of the
opinion of Merrill Lynch dated as of June 26, 1997.
CONTRIBUTION ANALYSIS. Merrill Lynch calculated the contribution of each of
Brooklyn Union and LILCO to the pro forma combined company assuming that the
LIPA Transaction is consummated based upon valuations (i) for Brooklyn Union
using estimated 1997 earnings and multiples ranging from 13.0x to 14.0x, (ii)
for LILCO's gas distribution business using estimated 1997 earnings and
multiples ranging from 13.0x to 14.0x, (iii) for LILCO's electric generation
business using LILCO's generating capacity and multiples ranging from $200 to
$250 per kilowatt capacity, (iv) for LILCO's management contract with LIPA
based upon the present value of the fees and other payments projected by
LILCO's management to be received by LILCO during the term of the contract,
and (v) the hypothetical cash proceeds to the combined company (net of
estimated transaction-related expenses and liabilities but including the
present value of certain tax-related benefits) of approximately $1.96 billion.
This analysis showed that Brooklyn Union shareholders would contribute
approximately 30% of the total aggregate value of the combined company and
would own approximately 32% of the combined company on a pro forma basis.
IMPLIED ACQUISITION VALUATION ANALYSIS. Merrill Lynch derived an estimated
range of implied multiples for LILCO's electric generation business by
subtracting from the aggregate equity valuation of the Brooklyn Union Common
Stock to be exchanged in the Combination (using the LIPA Ratio of 0.880 and an
assumed price per share of Brooklyn Union Common Stock of $29.00) (i) the
hypothetical cash proceeds to the combined company (net of estimated
transaction-related expenses and liabilities but including the present value
of certain tax-related benefits) of approximately $1.96 billion, (ii) the
present value of the fees and other payments projected by LILCO's management
to be received by LILCO under LILCO's management contract with LIPA during the
term of such contract, and (iii) multiples for LILCO's gas distribution
business ranging from 14.0x to 16.0x estimated 1997 net income provided by
LILCO. This analysis yielded implied multiples of net income for LILCO's
electric generation business ranging from 2.2x to 5.5x.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch, although it is a summary of the
material financial and comparative analyses performed by Merrill Lynch in
arriving at the Merrill Lynch Opinion. Arriving at a fairness opinion is a
complex process not necessarily susceptible to partial analysis or summary
description. Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the processes underlying its opinion. Merrill
Lynch did not assign relative weights to any of its analyses in preparing its
opinion. The matters considered by Merrill Lynch in its analyses are based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond Brooklyn Union's or LILCO's control and
involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates. Estimated values
do not purport to be appraisals and do not necessarily reflect the
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<PAGE>
prices at which businesses or companies may be sold in the future, and such
estimates are inherently subject to uncertainty.
The Brooklyn Union Board selected Merrill Lynch to act as its financial
advisor because of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Combination and because it is familiar with Brooklyn Union and its
business. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Pursuant to a letter agreement dated January 1, 1995, as amended as of
October 12, 1995 and as of March 14, 1997, Brooklyn Union has agreed to pay
Merrill Lynch (i) a fee of $1,000,000 on March 14, 1997 against which certain
retainer fees were credited, (ii) an additional fee of $1,500,000 upon
approval of the Combination by holders of the Brooklyn Union Common Stock,
(iii) an additional fee of $9,000,000 upon closing of the Combination, and
(iv) upon receipt by Brooklyn Union of any break-up or topping fee or
reimbursement of expenses in the event the Combination is not consummated, an
additional fee in the amount of ten percent (10%) of an amount equal to any
break-up or topping fee received by Brooklyn Union plus any expense
reimbursement received by Brooklyn Union, less out-of-pocket expenses paid by
Brooklyn Union to third parties in connection with the Combination, provided
that any additional fee paid pursuant to clauses (i) or (ii) above shall be
credited against the fees payable pursuant to clauses (iii) or (iv) above. In
addition, Brooklyn Union has agreed to reimburse Merrill Lynch for its
reasonable expenses (including the reasonable fees and disbursements of its
legal counsel) and to indemnify Merrill Lynch and certain related parties from
and against certain liabilities, including liabilities under the federal
securities laws, arising out of its engagement. Brooklyn Union has also agreed
that Merrill Lynch and/or any of its affiliates may underwrite or place any
securities of any entity, including, without limitation, LIPA, issued in
connection with or as a result of the LIPA Transaction.
Merrill Lynch has, in the past, provided financial advisory and financing
services to Brooklyn Union and financing services to LILCO and has received
fees for the rendering of such services. In addition, in the ordinary course
of Merrill Lynch's business, Merrill Lynch may actively trade the securities
of Brooklyn Union or LILCO for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. For the opinion of LILCO's financial advisor, see "Selected
Information Concerning LILCO--Opinion of LILCO's Financial Advisor."
POTENTIAL CONFLICTS OF INTERESTS OF CERTAIN PERSONS IN THE COMBINATION AND THE
LIPA TRANSACTION
In considering the recommendations of the Brooklyn Union Board of Directors
and the LILCO Board of Directors with respect to the Brooklyn Union/LILCO
Agreement and the recommendation of the LILCO Board of Directors with respect
to the LIPA Agreement, Brooklyn Union and LILCO shareholders should be aware
that certain officers and directors of Brooklyn Union and LILCO (or their
affiliates) have interests in the Merger that are different from and in
addition to the interests of Brooklyn Union and LILCO shareholders generally.
See "Selected Information Concerning Brooklyn Union--Potential Conflicts of
Interests of Certain Persons in the Combination and the LIPA Transaction," and
"--Selected Information Concerning LILCO--Potential Conflicts of Interest of
Certain Persons in the Combination and the LIPA Transaction."
The Holding Company is required by the Brooklyn Union/LILCO Agreement to
provide indemnification and liability insurance arrangements for directors and
officers of Brooklyn Union and LILCO. See "The Agreement and Plan of Exchange
and Merger--Indemnification."
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF THE HOLDING
COMPANY FOLLOWING THE COMBINATION AND THE LIPA TRANSACTION
BOARD OF DIRECTORS. The Brooklyn Union/LILCO Agreement provides that upon
consummation of the Combination, the number of directors comprising the full
Board of Directors of the Holding Company will be 15 persons, six of whom will
have been designated by Brooklyn Union, six of whom will have been designated
by
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LILCO and three of whom will have been designated by a committee consisting of
two current directors of Brooklyn Union and two current directors of LILCO. In
the event that the Merger is not consummated, the Board of Directors of the
Holding Company will consist of the Directors of LILCO serving immediately
before the closing of the LIPA Transaction.
OFFICERS. Under the Brooklyn Union/LILCO Agreement, Dr. Catacosinos, who
currently serves as Chairman of the Board of Directors, Chairman of the
Executive Committee and Chief Executive Officer of LILCO, will serve as
Chairman of the Board of Directors, Chairman of the Executive Committee and
Chief Executive Officer of the Holding Company commencing upon consummation of
the Combination. In addition, Mr. Catell, who currently serves as Chairman and
Chief Executive Officer of Brooklyn Union will serve as President and Chief
Operating Officer of the Holding Company commencing upon consummation of the
Combination.
The Brooklyn Union/LILCO Agreement also provides that at the first
anniversary of the consummation of the Combination, Dr. Catacosinos will cease
to be the Chief Executive Officer but will continue to be Chairman of the
Board and Chairman of the Executive Committee of the Holding Company and will
become a consultant to the Holding Company, and Mr. Catell will succeed Dr.
Catacosinos as Chief Executive Officer of the Holding Company. The
arrangements to cause such elections to take place at the first anniversary of
the consummation of the Combination may be altered only by a vote of two-
thirds of the entire Board of Directors of the Holding Company.
In the event that the Merger is not consummated, the provision described in
the preceding paragraph will not take effect and Dr. Catacosinos will continue
to serve as Chairman of the Board of Directors, Chairman of the Executive
Committee and Chief Executive Officer of the Holding Company.
FEDERAL INCOME TAX CONSIDERATIONS
TAX RULINGS REQUESTED FOR LIPA TRANSACTION
The parties intend to seek rulings from the IRS substantially to the
following effect:
(1) that except for any gain on LILCO's transfer of the Transferred Assets,
LILCO will not recognize gain pursuant to Section 337(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), or any other
Code provision (a) upon LIPA's purchase of LILCO Common Stock and the
amendment of LILCO's articles of incorporation (to qualify as a Section
115 entity), or (b) by reason of LILCO's subsequent exclusion of income
under Section 115 of the Code;
(2) that the LIPA Agreement constitutes a "binding agreement" for purposes
of certain proposed regulations under Section 337(d) of the Code, so
that the issuance of the proposed regulations as final regulations
before or after consummation of the LIPA Transaction would not affect
LILCO's nonrecognition of gain as confirmed by the preceding Section
337(d) ruling;
(3) that the income of LILCO following the LIPA Transaction, including any
income received from rate-payers that is attributable to the Regulatory
Assets, will be derived from its activity as a public utility and will
accrue to a political subdivision of New York State within the meaning
of Section 115(l) and therefore will be excluded from gross income
under Section 115(l) while the stock of LILCO is wholly owned by LIPA;
and
(4) that the interest paid on indebtedness issued by LIPA to finance the
LIPA Transaction and to refinance certain LILCO indebtedness will
qualify for exclusion from gross income under Section 103 of the Code.
The receipt of favorable IRS rulings is a condition to the obligations of
the parties to consummate the LIPA Transaction under the LIPA Agreement. No
assurance can be given that the IRS will issue any or all of the required
rulings.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following sets forth the opinion of Wachtell, Lipton, Rosen & Katz as to
the material federal income tax consequences of the Merger to Brooklyn Union
and its shareholders.The following also sets forth the opinion of Hunton &
Williams as to the material federal income tax consequences of the Share
Exchange and the LIPA Transaction to LILCO and its shareholders.
The following discussion is based on the Code, the regulations thereunder,
administrative interpretations and court decisions. Future legislation,
regulations, administrative interpretations or court decisions could change
the tax consequences described below. This discussion does not address all
aspects of federal income taxation that may be important to any specific
shareholder in light of such shareholder's particular circumstances. Nor does
it address aspects that may be important to shareholders subject to special
rules, such as shareholders who are not citizens or residents of the United
States, financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or shareholders who acquired their Brooklyn Union Common
Stock, LILCO Common Stock or LILCO Preferred Stock pursuant to the exercise of
options or otherwise as compensation.
This discussion assumes that LILCO and Brooklyn Union shareholders hold
their respective shares of stock as capital assets within the meaning of
Section 1221 of the Code. Accordingly, gain or loss recognized by shareholders
as described below generally will be capital gain or loss. It will be long-
term gain or loss for stock held more than one year at the effective time of
the transaction resulting in the gain or loss.
If the KeySpan Share Exchange is consummated prior to the Merger, then all
references contained in this discussion of Material Federal Income Tax
Consequences (i) to Brooklyn Union Common Stock and the holders thereof shall
refer to KeySpan Common Stock and the holders thereof and (ii) to Brooklyn
Union shall refer to KeySpan.
TAX CONSEQUENCES--OVERVIEW
The material federal income tax consequences of the LIPA Transaction and the
Combination depend in part on whether each transaction occurs and the order in
which the transactions occur. Specifically, the material federal income tax
consequences depend on whether (i) the LIPA Transaction and the Combination
occur concurrently (or the LIPA Transaction precedes the Combination), (ii)
only the LIPA Transaction occurs, (iii) the Combination occurs when the LIPA
Agreement has not been terminated or consummated, or (iv) the Combination
occurs after the LIPA Agreement is terminated. The material federal income tax
consequences of each of these possible alternatives is discussed below.
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The following table is provided as a guide to the discussion of the material
federal income tax consequences of the proposed transactions and is qualified
in its entirety by that discussion.
<TABLE>
<CAPTION>
EFFECT ON LILCO
COMMON & PREFERRED
TRANSACTION SHAREHOLDERS WHO EFFECT ON BU SHAREHOLDERS EFFECT ON
SITUATION DESCRIPTION DO NOT DISSENT WHO DO NOT DISSENT LILCO
- --------- ------------------- ------------------ ------------------------- ---------------
<S> <C> <C> <C> <C>
I LIPA Transaction Taxable-- Not taxable (other Taxable gain on
occurs with or Possible (S)1033 than tax on possible transfer of
prior to Deferral dividend income equal Transferred
Combination to New York City real Assets
property transfer tax
that may otherwise be
payable by a
shareholder)
II LIPA Transaction Same as I. Not applicable Same as I.
only
III-A Combination after Common: Same as Same as I. Not taxable: No
which LIPA I. Preferred: asset transfer
Transaction Not taxable
terminated
III-B Combination Same as I. Same as I. Same as I.
followed by LIPA
Transaction:
Treated as
independent
III-C Combination Same as I. Same as I. Same as I.
followed by LIPA
Transaction: Not
treated as
independent
IV Combination occurs Not taxable Same as I. Not taxable: No
after LIPA asset transfer
Transaction
terminated
</TABLE>
I. IF THE LIPA TRANSACTION OCCURS CONCURRENTLY WITH, OR PRECEDES, THE
COMBINATION
TAX IMPLICATIONS TO LILCO. LILCO's transfer of the Transferred Assets to the
Holding Company and/or the Holding Company subsidiaries that receive the
Transferred Assets (the "Transferee Subsidiaries") in exchange for Holding
Company Common Stock and Holding Company Preferred Stock in the LIPA
Transaction should be a taxable transaction for LILCO.
TAX IMPLICATIONS TO THE HOLDING COMPANY. The Holding Company will not
recognize gain or loss upon its issuance of Holding Company Common Stock and
Holding Company Preferred Stock to LILCO in exchange for the Transferred
Assets. The Holding Company's aggregate basis in the Transferred Assets should
equal the fair market value of the Transferred Assets at the time of the
exchange. In addition, the Holding Company will not recognize gain or loss
upon its issuance of Holding Company Common Stock to holders of LILCO Common
Stock (through their agent) in exchange for the cash they received (through
their agent) from LIPA in the LIPA Merger. See "The LIPA Transaction--
Agreement and Plan of Merger" for a description of the LIPA Transaction.
TAX IMPLICATIONS TO HOLDERS OF LILCO COMMON STOCK. Although not free from
doubt, and subject to the possible application of Section 1033 of the Code as
discussed below, the LIPA Transaction should be treated as a taxable
disposition of LILCO Common Stock by the holders in exchange for cash received
(through their agent) from LIPA and Holding Company Common Stock received from
LILCO. The holders of LILCO Common Stock should realize gain or loss equal to
the difference between (i) the sum of the cash and the fair market value of
such Holding Company Common Stock received and (ii) the holders' respective
tax basis in their LILCO Common Stock. Subject to the possible application of
Section 1033 of the Code, a shareholder's basis in (i)
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Holding Company Common Stock received from Holding Company will equal the cash
paid therefor and (ii) Holding Company Common Stock received from LILCO will
equal such stock's fair market value at the effective time of the LIPA
Transaction.
Holders of LILCO Common Stock may be able to defer their recognition of such
gain (but not loss) pursuant to Section 1033 of the Code. Section 1033
generally provides that if a taxpayer transfers property under a threat of
condemnation and receives in exchange property that is "similar or related in
service or use" to the transferred property ("replacement property"), then the
taxpayer will not recognize gain on the transfer. Section 1033 further
provides that if the taxpayer receives money or other property, then the
taxpayer may elect to defer recognizing gain by purchasing replacement
property within two years after the close of the tax year in which the
taxpayer first realizes gain from the transfer. LILCO's management believes
that the LIPA Transaction is occurring under threat of condemnation.
The nonrecognition provisions of Section 1033 of the Code may apply to the
shareholders' disposition of LILCO Common Stock. If Section 1033 is
applicable, Holding Company Common Stock might qualify as replacement property
for LILCO Common Stock. In that event, holders of LILCO Common Stock may not
be required to recognize gain with respect to their receipt (or their agent's
receipt) of Holding Company Common Stock from LILCO. In addition, holders of
LILCO Common Stock that elect to do so may not be required to recognize gain
with respect to their agent's receipt of cash from LIPA, because of the
reinvestment of such cash in Holding Company Common Stock.
If Section 1033 applies, then a shareholder will be required to make an
election to avoid recognition of gain with respect to the receipt of cash, and
may be required to make an election with respect to the receipt of Holding
Company Common Stock. If a shareholder avoids recognizing gain in the LIPA
Transaction pursuant to Section 1033, the shareholder's tax basis in the
replacement property (Holding Company Common Stock) generally will equal the
shareholder's cost basis for such replacement property decreased by the amount
of gain not recognized pursuant to Section 1033. Consequently, the
shareholder's aggregate tax basis in its Holding Company Common Stock
generally should be the same as the shareholder's aggregate tax basis in LILCO
Common Stock, less the amount of cash received in lieu of a fractional share.
There is no precedent involving the applicability of Section 1033 to a
transaction similar to the LIPA Transaction. Accordingly, counsel expresses no
opinion regarding the potential application of Section 1033 to holders of
LILCO Common Stock.
THE POSSIBLE APPLICATION OF SECTION 1033 TO THE LIPA TRANSACTION IS
UNCERTAIN. EACH HOLDER OF LILCO COMMON STOCK IS ENCOURAGED TO CONSULT WITH THE
SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE, AMONG OTHER ISSUES, (I) WHETHER
SECTION 1033 APPLIES TO SUCH SHAREHOLDER, (II) WHAT PROPERTY QUALIFIES AS
REPLACEMENT PROPERTY, (III) WHETHER, AND IN WHAT MANNER, THE SHAREHOLDER MUST
MAKE AN ELECTION TO AVOID RECOGNIZING GAIN, AND (IV) THE AMOUNT OF ANY
REQUIRED ADJUSTMENT TO THE SHAREHOLDER'S BASIS IN REPLACEMENT PROPERTY.
Holders of LILCO Common Stock who exercise dissenters' rights with respect
to the LIPA Transaction and receive cash for their LILCO Common Stock will
recognize gain or loss for federal income tax purposes. A dissenting
shareholder might be able to defer recognizing such gain pursuant to the
nonrecognition provisions of Section 1033 of the Code as discussed above if,
among other things, the shareholder acquires replacement property.
TAX IMPLICATIONS TO HOLDERS OF LILCO PREFERRED STOCK. Holders of LILCO
Series AA Preferred Stock who exchange such shares for Holding Company
preferred stock in connection with the LIPA Transaction will recognize gain or
loss for federal income tax purposes. The amount of gain or loss will equal
the difference between the fair market value of Holding Company stock received
and the shareholders' respective tax basis in
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their LILCO Series AA Preferred Stock. Holders of LILCO Preferred Stock that
is called for redemption or that is acquired or otherwise canceled in exchange
for cash by LILCO or LIPA pursuant to the terms of the LIPA Agreement and
holders of LILCO Preferred Stock who dissent and receive cash also will
recognize gain or loss. A holder of LILCO Series AA Preferred Stock or other
LILCO Preferred Stock might be eligible to defer recognition of such gain
pursuant to the provisions of Section 1033 of the Code discussed above under
"--Tax Implications to Holders of LILCO Common Stock" if, among other things,
the shareholder acquires replacement property.
TAX IMPLICATIONS TO HOLDERS OF BROOKLYN UNION COMMON STOCK. Except for
dissenting shareholders and the possible application of Transfer Taxes (as
hereafter discussed), the exchange of Brooklyn Union Common Stock for Holding
Company Common Stock in the Merger will be tax-free. Accordingly, subject to
the prior sentence, no gain or loss will be recognized for federal income tax
purposes by holders of Brooklyn Union Common Stock who exchange such Stock for
Holding Company Common Stock in the Merger. The basis and holding period for
the Holding Company Common Stock received by a Brooklyn Union shareholder in
the Merger will be the same as the basis and holding period in the Brooklyn
Union Common Stock exchanged therefor. Some holders of Brooklyn Union Common
Stock may have differing bases or holding periods for their shares of Brooklyn
Union Common Stock. Such holders should consult their tax advisors prior to
the exchange with regard to identifying the bases and holding periods of the
particular shares of Holding Company Common Stock received in the exchange.
Holders of Brooklyn Union Common Stock who exercise dissenters' rights in
the Merger and receive cash for their Brooklyn Union Common Stock will
recognize either gain or loss for federal income tax purposes. The amount of
such gain or loss will be equal to the difference between the amount of cash
received and their tax basis in their shares of Brooklyn Union Common Stock.
New York City imposes certain taxes on the transfer of an interest in real
property (including leases) located in New York City ("Transfer Taxes").
Transfer Taxes are also imposed in connection with certain changes of
ownership of an entity owning a real property interest in New York City. The
exchange of Brooklyn Union Common Stock for Holding Company Common Stock by
Brooklyn Union shareholders pursuant to the Brooklyn Union/LILCO Agreement
will result in the imposition of Transfer Taxes. Brooklyn Union (and not
KeySpan) will pay any Transfer Taxes incurred as a result of a change in
ownership of Brooklyn Union. For federal income tax purposes, the payment of
Transfer Taxes by Brooklyn Union may be deemed to be a taxable dividend paid
by Brooklyn Union to certain Brooklyn Union shareholders. This would be the
case if Brooklyn Union is considered to have satisfied what is otherwise the
obligation of a shareholder to pay Transfer Taxes as opposed to its own
obligation to pay such taxes. Any income taxes resulting from such deemed
dividend will be the responsibility of those Brooklyn Union shareholders.
Although not free from doubt, a Brooklyn Union shareholder should be entitled
to increase its tax basis in Holding Company Common Stock received in the
Merger by the amount of any such deemed distribution.
II. IF ONLY THE LIPA TRANSACTION OCCURS
If the LIPA Transaction occurs but the Combination does not occur, the
material federal income tax consequences to LILCO, Holding Company and the
holders of LILCO Common Stock and LILCO Preferred Stock should be the same as
the consequences where the LIPA Transaction occurs concurrently with, or
precedes, the Combination. See "--Material Federal Income Tax Consequences--If
the LIPA Transaction Occurs Concurrently With, or Precedes, the Combination."
III. IF THE COMBINATION OCCURS WHEN THE LIPA AGREEMENT HAS NOT BEEN TERMINATED
OR CONSUMMATED
If the Combination occurs when the LIPA Agreement has not been terminated or
consummated, there are three possible alternatives: (A) the Combination occurs
and the LIPA Agreement thereafter is terminated (or expires); (B) the LIPA
Transaction occurs after the Combination, and the LIPA Transaction is treated
as an
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independent transaction; and (C) the LIPA Transaction occurs after the
Combination, and the LIPA Transaction is not treated as an independent
transaction. The material federal income tax consequences of each of these
alternatives is discussed below.
In general, if the Combination occurs when the LIPA Agreement has not been
terminated or consummated, the Share Exchange should be a taxable disposition
(subject to the possible application of Section 1033 of the Code) by the
holders of LILCO Common Stock. If the LIPA Transaction occurs after the
Combination and the LIPA Transaction is treated as an independent transaction,
the LIPA Transaction should be treated generally as a sale of the LILCO Common
Stock by the Holding Company to LIPA. If the LIPA Transaction occurs after the
Combination and the LIPA Transaction is not treated as an independent
transaction, the Share Exchange and the LIPA Transaction together may be
treated generally as a sale of the LILCO Common Stock by the holders of that
stock (subject to the possible application of Section 1033 of the Code). In
any event, the Merger generally should be a nontaxable exchange of the
Brooklyn Union Common Stock for Holding Company Common Stock. The material
federal income tax consequences of these three alternatives are discussed more
fully below.
Whether the LIPA Transaction will be treated as an independent transaction
if the Combination precedes the LIPA Transaction is uncertain. The closer in
time that the Combination and the LIPA Transaction occur, the more likely that
the LIPA Transaction will not be treated as an independent transaction.
Because the time between the two transactions and the nature of any
intervening events are unknown, counsel expresses no opinion whether the LIPA
Transaction will be treated as an independent transaction.
A. IF THE COMBINATION OCCURS AND THE LIPA AGREEMENT THEREAFTER IS
TERMINATED. The exchange of LILCO Common Stock for Holding Company Common
Stock has been structured to be a taxable disposition of LILCO Common Stock by
the holders thereof to Holding Company in exchange for Holding Company Common
Stock. The holders of LILCO Common Stock should recognize gain or loss equal
to the difference between (i) the sum of the fair market value of Holding
Company Common Stock and the cash received by the shareholders in lieu of
fractional share interests in Holding Company Common Stock and (ii) the
holders' respective tax basis in their LILCO Common Stock. A shareholder might
be able to defer recognition of such gain pursuant to the provisions of
Section 1033 of the Code discussed above. See "--Material Federal Income Tax
Consequences--If the LIPA Transaction Occurs Concurrently With, or Precedes,
the Combination--Tax Implications to Holders of LILCO Common Stock."
Holders of LILCO Common Stock who dissent from participating in the Share
Exchange and receive cash for their LILCO Common Stock will recognize gain or
loss for federal income tax purposes. A dissenting shareholder might be able
to defer recognition of such gain pursuant to the provisions of Section 1033
of the Code discussed above if, among other things, the shareholder acquires
replacement property.
If the Combination occurs and the LIPA Agreement thereafter is terminated
(or expires), the federal income tax consequences to the holders of Brooklyn
Union Common Stock should be the same as those described for a Merger that
occurs concurrently with, or after, the LIPA Transaction. See "--Material
Federal Income Tax Consequences--If the LIPA Transaction Occurs Concurrently
With, or Precedes, the Combination--Tax Implications to Holders of Brooklyn
Union Common Stock."
B. IF THE LIPA TRANSACTION OCCURS AFTER THE COMBINATION AND THE LIPA
TRANSACTION IS TREATED AS AN INDEPENDENT TRANSACTION. If the Combination is
treated as independent from the LIPA Transaction in accordance with its form,
the federal income tax consequences of the Combination to the LILCO common
shareholders and the Brooklyn Union shareholders generally should be the same
as those described in the preceding section. See "--Material Federal Income
Tax Consequences--If the Combination Occurs Before the LIPA Agreement is
Terminated--If the Combination Occurs and the LIPA Agreement Thereafter is
Terminated." Under this alternative, however, the holders of LILCO Common
Stock will receive additional shares of Holding Company Common Stock upon
consummation of the LIPA Transaction. In that event and if the Combination and
the LIPA Transaction occur in different tax years for a shareholder, the
contingent payment, installment sale provisions of the Code may apply to the
receipt of such additional shares of Holding Company
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Common Stock. Further, if the LIPA Transaction closes more than six months
after the Combination, then a portion of the additional shares of Holding
Company Common Stock received may be treated as interest income. Each holder
of LILCO Common Stock should consult such shareholder's own tax advisor as to
these issues.
If the LIPA Transaction is treated as independent from the Combination.
LILCO's transfer of the Transferred Assets to the Transferee Subsidiaries in
the LIPA Transaction will cause LILCO to recognize gain.
Holders of LILCO Series AA Preferred Stock who exchange such shares for
Holding Company Preferred Stock in connection with the LIPA Transaction should
recognize gain or loss. The amount of gain or loss will equal the difference
between the fair market value of Holding Company stock received and the
shareholders' respective tax basis in their LILCO Series AA Preferred Stock.
Holders of LILCO Preferred Stock that is called for redemption or that is
acquired or otherwise canceled in exchange for cash by LILCO or LIPA pursuant
to the terms of the LIPA Agreement and holders of LILCO Preferred Stock who
dissent and receive cash also will recognize gain or loss. A holder of LILCO
Series AA Preferred Stock or other LILCO Preferred Stock might be eligible to
defer recognition of gain pursuant to the provisions of Section 1033 of the
Code discussed above. See "--Material Federal Income Tax Consequences--If the
LIPA Transaction Occurs Concurrently With, or Precedes, the Combination--Tax
Implications to Holders of LILCO Common Stock."
C. IF THE LIPA TRANSACTION OCCURS AFTER THE COMBINATION AND THE LIPA
TRANSACTION IS NOT TREATED AS AN INDEPENDENT TRANSACTION. If the LIPA
Transaction occurs after the Combination and the LIPA Transaction is not
treated as independent, the holders of LILCO Common Stock may be treated as
selling such stock directly to LIPA. In this event, the material federal
income tax consequences to holders of LILCO Common Stock and Preferred Stock
should be, and to the holders of Brooklyn Union Common Stock will be, the same
as those described for such holders if the LIPA Transaction occurs
concurrently with, or precedes, the Combination. See "--Material Federal
Income Tax Consequences--If the LIPA Transaction Occurs Concurrently With, or
Precedes, the Combination."
IV. IF THE COMBINATION OCCURS AFTER THE LIPA AGREEMENT IS TERMINATED
If the Combination occurs after the LIPA Agreement is terminated or expires,
Section 351(a) of the Code should apply to the Share Exchange. Under Section
351(a), no gain or loss will be recognized for federal income tax purposes by
holders of LILCO Common Stock who exchange their LILCO Common Stock for
Holding Company Common Stock, except with respect to cash received in lieu of
fractional shares. The aggregate tax basis of Holding Company Common Stock
received by a LILCO shareholder as a result of the Combination will be the
same as the shareholder's aggregate basis in the LILCO Common Stock
surrendered in the exchange (reduced by any such tax basis allocable to the
fractional share for which cash is received). The holding period of Holding
Company Common Stock received by a LILCO shareholder will include the holding
period for the LILCO Common Stock exchanged for such Holding Company Common
Stock. Cash received by a holder of LILCO Common Stock in lieu of a fractional
share interest in Holding Company Common Stock will result in the recognition
of gain or loss equal to the difference between the amount of cash received
and the tax basis allocable to such fractional share interest. If a holder of
LILCO Common Stock has differing bases or holding periods in its shares of
LILCO Common Stock, it should consult its tax advisor prior to the Share
Exchange with regard to identifying the bases or holding periods of the
particular shares of Holding Company Common Stock received in the Share
Exchange.
The federal income tax consequences to holders of LILCO Common Stock who
exercise dissenters' rights with respect to the Combination and receive cash
for their LILCO Common Stock will be the same as described above for LILCO
shareholders who exercise dissenters' rights, except that dissenting
shareholders should not be eligible to defer recognition of gain pursuant to
the provisions of Section 1033 of the Code. See "--Material Federal Income Tax
Consequences--If the LIPA Transaction Occurs Concurrently With, or Precedes,
the Combination--Tax Implications to Holders of LILCO Common Stock."
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The federal income tax consequences to the holders of Brooklyn Union Common
Stock will be the same as described above for a Merger that is preceded by the
LIPA Transaction. See "--Material Federal Income Tax Consequences--If the LIPA
Transaction Occurs Concurrently With, or Precedes, the Combination--Tax
Implications to Holders of Brooklyn Union Common Stock."
THE PRECEDING DOES NOT PURPORT TO ADDRESS ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE LIPA TRANSACTION AND THE COMBINATION. IN ADDITION, THE
FOREGOING DISCUSSION DOES NOT ADDRESS FEDERAL INCOME TAX CONSEQUENCES WHICH
MAY VARY WITH, OR ARE CONTINGENT ON, A SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES.
MOREOVER, EXCEPT FOR THE DISCUSSION OF THE TRANSFER TAXES ABOVE, THIS
DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL
TAX CONSEQUENCES OF THE COMBINATION OR THE LIPA TRANSACTION. THIS DISCUSSION
DOES NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE LIPA
TRANSACTION AND THE COMBINATION. ACCORDINGLY, EACH SHAREHOLDER IS URGED TO
CONSULT WITH SUCH SHAREHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR
FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO SUCH
SHAREHOLDER OF THE LIPA TRANSACTION AND THE COMBINATION.
ACCOUNTING TREATMENT
GENERAL. Unless the LIPA Transaction has been consummated, or will be
consummated contemporaneously with, the Combination, it is a condition to the
consummation of the Combination that Brooklyn Union receives a letter from
Arthur Andersen LLP and LILCO receives a letter from Ernst & Young LLP, each
dated the Effective Time and each of which indicates that they concur with
management's conclusion that no conditions exist that would preclude the
transactions contemplated by the Brooklyn Union/LILCO Agreement, if
consummated, from qualifying as transactions to be accounted for in accordance
with the pooling of interests method of accounting under generally accepted
accounting principles. Under this accounting method, the assets and
liabilities of Brooklyn Union and LILCO will be carried forward to the
consolidated financial statements of the Holding Company at their recorded
amounts. Results of operations of the Holding Company will include the results
of both Brooklyn Union and LILCO for the entire fiscal year in which the
Combination occurs. The reported balance sheet amounts and results of
operations of the separate corporations for prior periods will be combined,
reclassified and conformed as appropriate, to reflect the combined financial
position and results of operations for the Holding Company. See "Unaudited Pro
Forma Combined Condensed Financial Information."
If the Combination and the LIPA Transaction are consummated
contemporaneously, or if the LIPA Transaction is consummated prior to the
Combination, the Combination will be accounted for as a purchase of assets and
an assumption of liabilities in accordance with generally accepted accounting
principles.
ACCOUNTING CONSIDERATION ABSENT LIPA TRANSACTION. If the LIPA Transaction
were terminated, LILCO would seek resolution of its electric rate filing for
the rate years 1997 through 1999. LILCO believes that under such
circumstances, the PSC will issue an electric rate order providing for among
other things, the continuing recovery through rates of the rate moderation
component, one of the Shoreham-related regulatory assets. However, if such
electric rate order is not obtained, or does not provide for the continuing
recovery of some or all of this regulatory asset through rates, LILCO may be
required to write-off the amount not expected to be provided for in rates. At
March 31, 1997, the balance of the rate moderation component was approximately
$409.5 million.
STOCK EXCHANGE LISTING OF THE HOLDING COMPANY STOCK
Application will be made for the listing on the New York Stock Exchange of
the shares of Holding Company Common Stock to be issued pursuant to the terms
of the Brooklyn Union/LILCO Agreement. The listing on the New York Stock
Exchange of such shares, subject to notice of issuance, is a condition
precedent to the consummation of the Combination. So long as Brooklyn Union
and LILCO continue to meet the requirements of the New York Stock Exchange,
Brooklyn Union Common Stock and LILCO Common Stock, as the case may be, will
continue to be listed on the New York Stock Exchange until the Effective Time.
So long as LILCO continues to meet the requirements of the Pacific Stock
Exchange, LILCO Common Stock will continue to be listed on the Pacific Stock
Exchange until the Effective Time.
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With respect to the series of LILCO Preferred Stock currently listed on the
New York Stock Exchange, for so long as LILCO and such preferred stock
continue to meet the requirements of the New York Stock Exchange, such series
of preferred stock will continue to be listed on the New York Stock Exchange
after the Effective Time in the event that the Combination is consummated but
the LIPA Transaction is not consummated.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Holding Company Common Stock received by shareholders of
Brooklyn Union and LILCO in the Combination will be freely transferable,
except that shares of Holding Company Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act of
1933, as amended (the "Securities Act")) of Brooklyn Union or LILCO prior to
the Combination may be resold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act (or Rule 144 under the
Securities Act, in the case of such persons who become affiliates of the
Holding Company) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of Brooklyn Union, LILCO or the Holding
Company generally include individuals or entities that control, are controlled
by, or are under common control with, such party and may include certain
officers and directors of such party as well as principal shareholders of such
party. The Brooklyn Union/LILCO Agreement also requires each of Brooklyn Union
and LILCO to use all reasonable efforts to cause each of its affiliates to
execute and deliver to the Holding Company a written agreement to the effect
that such affiliate will not offer or sell or otherwise dispose of (i) any
shares of Brooklyn Union, LILCO or the Holding Company during the period
beginning 30 days prior to the Effective Time and continuing until such time
as results covering at least 30 days of post-Effective Time operations of the
Holding Company have been published or (ii) any of the shares of Holding
Company Common Stock issued to such affiliate in or pursuant to the
Combination in violation of the Securities Act or the rules and regulations
promulgated by the Securities and Exchange Commission (the "SEC") thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of Holding
Company Common Stock received by any person who may be deemed to be an
affiliate of Brooklyn Union, LILCO or the Holding Company.
APPRAISAL RIGHTS
Section 910 of the New York Business Corporation Law ("NYBCL") sets forth
the rights of shareholders of Brooklyn Union or LILCO who object to the
adoption of the Brooklyn Union/LILCO Agreement or, in the case of shareholders
of LILCO, the LIPA Agreement. Any record holder of Brooklyn Union Common Stock
or LILCO Common Stock as of the record date who does not vote in favor of the
adoption of the Brooklyn Union/LILCO Agreement, or who duly revokes his or her
vote in favor of the adoption of the Brooklyn Union/LILCO Agreement, may, if
the Combination is consummated, obtain payment, in cash, for the fair market
value of such holder's shares by strictly complying with the requirements of
Section 623 of the NYBCL. Similarly, any holder of LILCO Common Stock (unless
the Combination occurs before the consummation of the LIPA Transaction) or
LILCO Preferred Stock who does not vote in favor of the adoption of the LIPA
Agreement, if entitled to vote thereon, or who duly revokes his or her vote in
favor of the adoption of the LIPA Agreement, may, if the LIPA Transaction is
consummated, obtain payment, in cash, for the fair market value of such
holder's shares by strictly complying with the requirements of Section 623 of
the NYBCL.
The following summary of the applicable provisions of Sections 623 and 910
is not intended to be a complete statement of such provisions and is qualified
in its entirety by reference to the full text of Sections 623 and 910, copies
of which are attached to this Joint Proxy Statement/Prospectus as Annex I. A
person having a beneficial interest in shares of Brooklyn Union Common Stock
or LILCO Common Stock or LILCO Preferred Stock that are held of record in the
name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect whatever appraisal rights the beneficial owner may
have.
THIS SUMMARY AND ANNEX I SHOULD BE REVIEWED CAREFULLY BY HOLDERS OF BROOKLYN
UNION COMMON STOCK, LILCO COMMON STOCK AND LILCO PREFERRED STOCK
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WHO WISH TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISH TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE TO STRICTLY COMPLY WITH ANY OF THE PROCEDURAL
REQUIREMENTS OF SECTION 623 OR SECTION 910 MAY RESULT IN A TERMINATION OR
WAIVER OF APPRAISAL RIGHTS UNDER SECTION 623 AND SECTION 910.
The dissenting Brooklyn Union shareholder must file with Brooklyn Union
before the taking of the vote on the adoption of the Brooklyn Union/LILCO
Agreement a written objection including a notice of election to dissent, such
holder's name and residence address, the number and class of shares (Brooklyn
Union Common Stock) as to which such holder dissents (which number may not be
less than all of the shares as to which such holder has a right to dissent)
and a demand for payment of the fair value of such shares if the Binding Share
Exchanges are consummated. Any such written objection should be addressed to:
The Brooklyn Union Gas Company, One MetroTech Center, Brooklyn, New York
11201-3851, Attention: Secretary.
The dissenting LILCO shareholder must file with LILCO, before the taking of
the vote on the adoption of the Brooklyn Union/LILCO Agreement or the LIPA
Agreement, a written objection to either or both agreements including a notice
of election to dissent, such holder's name and residence address, the number
and class of shares (Common or Preferred Stock) as to which such holder
dissents (which number may not be less than all of the shares as to which such
holder has a right to dissent) and a demand for payment of the fair value of
such shares if the Combination or LIPA Transaction as the case may be is
consummated. Any such written objection should be addressed to: Long Island
Lighting Company, 175 East Old Country Road, Hicksville, New York 11801,
Attention: Corporate Secretary.
For purposes of perfecting appraisal rights pursuant to Section 623, the
written objection of a holder of shares of Brooklyn Union or LILCO which is
addressed as provided above shall be deemed filed with Brooklyn Union or
LILCO, as the case may be, upon receipt of such objection by Brooklyn Union or
LILCO, as the case may be. Neither voting against nor failure to vote for the
Brooklyn Union/LILCO Agreement, and, in the case of LILCO shareholders, the
LIPA Agreement, will constitute the written objection required to be filed by
an objecting shareholder. Failure to vote against the Brooklyn Union/LILCO
Agreement, and, in the case of LILCO shareholders, the LIPA Agreement,
however, will not constitute a waiver of rights under Sections 623 and 910,
provided that a written objection has been properly filed. A shareholder
voting to adopt the Brooklyn Union/LILCO Agreement, and, in the case of LILCO
shareholders, the LIPA Agreement, will be deemed to have waived such
shareholder's appraisal rights.
A Brooklyn Union or LILCO shareholder may not dissent as to less than all
the shares of Brooklyn Union or LILCO stock, as the case may be, entitled to
vote and held of record that such holder beneficially owns. A nominee or
fiduciary may not dissent on behalf of any beneficial owner as to less than
all the shares of Brooklyn Union or LILCO stock of such beneficial owner, as
to which such nominee or fiduciary has a right to dissent, held of record by
such nominee or fiduciary. Furthermore, if the shares of Brooklyn Union or
LILCO stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the demand must be made in that capacity, and if the
shares of Brooklyn Union or LILCO stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand must be made by
or for all owners of record. An authorized agent, including one of two or more
joint owners, may execute the demand for appraisal for a holder of record;
however, such agent must identify the record owner or owners and expressly
state in such demand that the agent is acting as agent for the record owner or
owners of such shares of Brooklyn Union or LILCO stock. A record holder, such
as a broker or an agent, who holds shares of Brooklyn Union or LILCO stock as
a nominee for beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of such beneficial owners who desire to
demand appraisal with respect to the shares of Brooklyn Union or LILCO stock
entitled to vote and held for such beneficial owners.
Within ten days after the vote of Brooklyn Union and LILCO shareholders
authorizing the adoption of the Brooklyn Union/LILCO Agreement (and with
respect to LILCO only, the LIPA Agreement), Brooklyn Union and LILCO must give
written notice of such authorization to each dissenting shareholder of
Brooklyn Union and
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LILCO, respectively. At the time of filing the notice of election to dissent
or within one month thereafter, the dissenting shareholder must submit
certificates representing such holder's shares to Brooklyn Union or LILCO, as
the case may be, or their respective transfer agents for notation thereon of
the election to dissent, after which such certificates will be returned to the
shareholder. Any such shareholder who fails to submit his or her shares for
notation will, at the option of Brooklyn Union or LILCO, as the case may be,
exercised by written notice to the shareholder within 45 days from the date of
filing of the notice of election to dissent, lose such holder's appraisal
rights unless a court, for good cause shown, otherwise directs.
Within 15 days after the expiration of the period within which shareholders
may file their notices of election to dissent or within 15 days after the
Effective Time, whichever is later (but not later than 90 days after the
shareholders' vote authorizing the adoption of the Brooklyn Union/LILCO
Agreement or, in the case of LILCO, the LIPA Agreement), Brooklyn Union or
LILCO, as the case may be, must make a written offer (which, if the
Combination or the LIPA Transaction have not been consummated, may be
conditioned upon such consummation) to each shareholder who has filed such
notice of election to dissent to pay for such holder's shares at a specified
price which Brooklyn Union or LILCO, as the case may be, considers to be their
fair value. If Brooklyn Union or LILCO, as the case may be, and the dissenting
shareholder are unable to agree as to such value, Section 623(h) of the NYBCL
provides for judicial determination of fair value. In the event of such a
disagreement, a court proceeding shall be commenced by Brooklyn Union or
LILCO, as the case may be, in the Supreme Court of the State of New York,
County of Kings in the case of Brooklyn Union or County of Nassau in the case
of LILCO, or by the dissenting shareholder if Brooklyn Union or LILCO, as the
case may be, fails to commence the proceeding within the time required by
Section 623 of the NYBCL. Each of Brooklyn Union and LILCO intends to commence
such a proceeding in the event of such a disagreement.
Under the Brooklyn Union/LILCO Agreement, Brooklyn Union and LILCO may
terminate the Brooklyn Union/LILCO Agreement, even after shareholder approval,
if for any reason the Brooklyn Union Board and the LILCO Board determine that
it is inadvisable to proceed with the Combination, including considering the
number of shares for which appraisal rights have been exercised and the cost
to the Holding Company thereof. Unless the LIPA Transaction has been
consummated, or will be consummated contemporaneously with the Combination, it
is a condition of each party's obligation to effect the Combination that it
has received a letter from its respective accountants that the transaction
will qualify as a pooling of interests transaction. The pooling of interests
method of accounting requires that at least 90 percent of the issued and
outstanding shares of Brooklyn Union Common Stock and at least 90 percent of
the issued and outstanding shares of LILCO Common Stock be exchanged in the
Combination for shares of Holding Company Common Stock.
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MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is furnished to (i) the holders of
Brooklyn Union Common Stock in connection with the solicitation of proxies by
the Brooklyn Union Board from the holders of Brooklyn Union Common Stock for
use at the Brooklyn Union Meeting, and (ii) the holders of LILCO Common Stock
and LILCO Preferred Stock in connection with the solicitation of proxies by
the LILCO Board from the holders of LILCO Common Stock for use at the LILCO
Meeting. LILCO and Brooklyn Union anticipate that mailing of proxy materials
to their respective shareholders entitled to notice of and to vote at their
respective meetings will commence on or about June 30, 1997.
THE BROOKLYN UNION MEETING
GENERAL. This Joint Proxy Statement/Prospectus is furnished to holders of
Brooklyn Union Common Stock in connection with the solicitation of proxies by
the Brooklyn Union Board for use at the Brooklyn Union Meeting to consider and
vote upon the adoption of the Brooklyn Union/LILCO Agreement, the KeySpan
Share Exchange (as described in Annex J hereto) and to transact such other
business as may properly come before the Brooklyn Union Meeting. Each copy of
this Joint Proxy Statement/Prospectus mailed to shareholders of Brooklyn Union
is accompanied by a form of proxy for use at the Brooklyn Union Meeting.
This Joint Proxy Statement/Prospectus is also furnished to Brooklyn Union
shareholders as a prospectus in connection with the issuance by the Holding
Company of the shares of Holding Company Common Stock in connection with the
Combination and a prospectus in connection with the issuance by KeySpan of the
shares of KeySpan Common Stock in connection with KeySpan Share Exchange.
DATE, PLACE AND TIME; RECORD DATE. The Brooklyn Union Meeting will be held
at Opera House, Brooklyn Academy of Music, 30 Lafayette Avenue, Brooklyn, New
York 11217, on Thursday, August 7, 1997, at 3:00 p.m. local time. The Brooklyn
Union Board has fixed the close of business on June 26, 1997 as the Record
Date for the determination of the holders of Brooklyn Union Common Stock
entitled to receive notice of and to vote at the Brooklyn Union Meeting.
VOTING RIGHTS. At the close of business on June 23, 1997 50,364,212 shares
of Brooklyn Union Common Stock were outstanding. Each share of Brooklyn Union
Common Stock outstanding on the Record Date is entitled to one vote upon each
matter properly submitted at the Brooklyn Union Meeting. The affirmative vote
of at least two-thirds of the outstanding shares of Brooklyn Union Common
Stock is required to adopt the Brooklyn Union/LILCO Agreement and to adopt the
KeySpan Exchange Agreement at the Brooklyn Union Meeting.
The presence in person or by proxy at the Brooklyn Union Meeting of the
holders of at least a majority of the outstanding shares of Brooklyn Union
Common Stock is necessary to constitute a quorum for the transaction of
business. Abstentions will be counted as present for purposes of determining
whether a quorum is present. Because the adoption of the Brooklyn Union/LILCO
Agreement and the KeySpan Exchange Agreement requires the approval of at least
two-thirds of the outstanding shares of Brooklyn Union Common Stock,
abstentions or the failure to vote will have the same effect as a negative
vote. Under the rules of the New York Stock Exchange, brokers who hold shares
in street name for customers will not have the authority to vote on the
adoption of the Brooklyn Union/LILCO Agreement or the KeySpan Exchange
Agreement unless they receive specific instructions from beneficial owners.
Such a broker non-vote will be counted as present for purposes of a quorum but
will otherwise have the same effect as a vote against adoption of the Brooklyn
Union/LILCO Agreement or the KeySpan Exchange Agreement.
As of May 1, 1997, directors and executive officers of Brooklyn Union and
their affiliates owned beneficially an aggregate of 120,405 shares of Brooklyn
Union Common Stock (including shares which may be acquired upon exercise of
employee stock options), or less than one percent of the shares of Brooklyn
Union
44
<PAGE>
Common Stock outstanding on such date. Directors and executive officers of
Brooklyn Union have indicated their intention to vote their shares of Brooklyn
Union Common Stock in favor of adoption of the Brooklyn Union/LILCO Agreement
and the KeySpan Exchange Agreement.
See "The Brooklyn Union/LILCO Combination--Potential Conflicts of Interest
of Certain Persons in the Combination and the LIPA Transaction."
VOTING AND REVOCATION OF PROXIES. Shares of Brooklyn Union Common Stock
represented by a proxy properly signed and received at or prior to the
Brooklyn Union Meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon.
IF A PROXY IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS, THE SHARES OF BROOKLYN UNION COMMON STOCK REPRESENTED BY THE
PROXY WILL BE VOTED FOR ADOPTION OF THE BROOKLYN UNION/LILCO AGREEMENT AND
FOR ADOPTION OF THE KEYSPAN EXCHANGE AGREEMENT.
Brooklyn Union proxy holders may in their discretion vote shares voted in
favor of adoption of the Brooklyn Union/LILCO Agreement or the KeySpan
Exchange Agreement to adjourn the Brooklyn Union Meeting to solicit additional
proxies in favor of such proposal. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted by the filing of an instrument revoking it or of a duly
executed proxy bearing a later date with the Secretary of Brooklyn Union,
prior to or at the Brooklyn Union Meeting, or by voting in person at the
Brooklyn Union Meeting. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: The Brooklyn Union Gas Company, One MetroTech Center, Brooklyn, New
York 11201-3851, Attention: Secretary. Attendance at the Brooklyn Union
Meeting will not in and of itself constitute revocation of a proxy.
Shares of Brooklyn Union Common Stock held in the names of the trustees
under Brooklyn Union's Employee Savings Plan may be voted by such trustees
upon the instructions of participants in such Plan, or in the absence thereof,
as such trustees deem appropriate.
The Brooklyn Union Board is not currently aware of any business to be acted
upon at the Brooklyn Union Meeting other than as described herein. If,
however, other matters are properly brought before the Brooklyn Union Meeting,
the persons appointed as proxies will have discretion to vote or act thereon
according to their best judgment. Shareholders of Brooklyn Union will not be
entitled to present any matters for consideration at the Brooklyn Union
Meeting.
CONFIDENTIAL VOTING. Brooklyn Union has adopted a policy to the effect that
all proxy (voting instruction) cards, ballots and vote tabulations which
identify the particular vote of a Brooklyn Union shareholder are to be kept
secret from Brooklyn Union, its directors, officers and employees.
Accordingly, proxy cards are returned in envelopes addressed to the tabulator,
Georgeson & Company Inc., Wall Street Station, P.O. Box 1102, New York, New
York 10269-0667, which receives and tabulates the proxies and is independent
of Brooklyn Union. The final tabulation is inspected by an inspector(s) of
election who also is independent of Brooklyn Union, its directors, officers
and employees. The identity and vote of any shareholder will be disclosed
neither to Brooklyn Union, its directors, officers or employees, nor to any
third party except (i) to allow the independent inspector(s) of election to
certify the results of the vote to Brooklyn Union, its directors, officers and
employees; (ii) as necessary to meet applicable legal requirements and to
assert or defend claims for or against Brooklyn Union; or (iii) in the event a
shareholder has made a written comment on such form of proxy.
SOLICITATION OF PROXIES. In addition to solicitation by mail, directors,
officers and employees of Brooklyn Union, who will not be specifically
compensated for such services, may solicit proxies from the shareholders of
Brooklyn Union, personally or by telephone, telecopy or telegram or other
forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
45
<PAGE>
owners and will be reimbursed for their reasonable expenses incurred in
sending proxy materials to beneficial owners.
In addition, Brooklyn Union has retained Georgeson & Company Inc. to assist
in the solicitation of proxies from its shareholders. The fees to be paid to
such firm for such services by Brooklyn Union are not expected to exceed
$25,000, plus reasonable out-of-pocket costs and expenses. Brooklyn Union will
bear its own expenses in connection with the solicitation of proxies for the
Brooklyn Union Meeting, except that each of Brooklyn Union and LILCO will pay
one-half of the costs and expenses incurred in connection with printing this
Joint Proxy Statement/Prospectus and one-half of all filing fees.
For information about the LILCO Meeting, see "Selected Information
Concerning LILCO--The LILCO Meeting."
46
<PAGE>
REGULATORY MATTERS
Set forth below is a summary of the material regulatory requirements
affecting the Combination. Although the companies have not yet filed for the
approval of all of the agencies discussed, it is anticipated that all
regulatory approvals will have been received no later than the end of 1998.
For information concerning certain IRS rulings, see "Federal Income Tax
Considerations--Tax Rulings Requested for LIPA Transaction."
STATE APPROVALS AND RELATED MATTERS
The utility operations of both LILCO and Brooklyn Union are subject to the
comprehensive regulatory jurisdiction of the PSC, which must approve the
Combination contemplated in the Brooklyn Union/LILCO Agreement. On March 14,
1997, LILCO and Brooklyn Union filed a joint petition requesting approval of
the PSC under Section 70 of the New York Public Service Law to allow each of
them to become subsidiaries of the Holding Company through the Combination.
Section 70 of the Public Service Law provides that the PSC's consent to the
Combination may not be given unless there is a showing that the exchanges are
in the public interest. As part of its review, the PSC may consider such
matters as the effect of the Combination on the ability of LILCO and Brooklyn
Union to continue to provide safe and adequate service at just and reasonable
rates, including the impact on customer service, rates and the financial
integrity of Brooklyn Union and LILCO, as well as the impact on the
competitive environment for each of the companies. In the joint petition,
LILCO and Brooklyn Union each proposed to reflect anticipated cost savings
resulting from their business combination in the retail gas and electric rates
of both utilities, and to have the PSC confirm or adopt long term rate plans
for the gas and electric operations of LILCO and the gas operations of
Brooklyn Union. By amendment to the joint petition filed on May 16, 1997, in
light of the pendency of the LIPA Transaction which, if consummated, will
result in LIPA, which will not be regulated by the PSC, being the supplier of
retail electric service to consumers in LILCO's service territory, LILCO has
offered to extend the suspension period within which the PSC must rule on
LILCO's long-term electric rate plan, until December 31, 1997. Assuming the
requisite regulatory approvals are obtained, the utility operations of both
LILCO and Brooklyn Union will remain subject to regulation by the PSC. The
Holding Company will be a "public utility holding company" under the Public
Utility Holding Company Act of 1935 (the "Holding Company Act"), discussed in
greater detail below, but will not be subject to the direct regulation of the
PSC.
The Brooklyn Union and LILCO joint petition to the PSC on March 14, 1997
also sought to amend the PSC Order dated September 25, 1996 issued in
connection with the KeySpan holding company restructuring so as to remove or
relax certain restrictions that may be applicable after the Combination. The
PSC has not acted upon such petition as of the date of this Joint Proxy
Statement/Prospectus, and there can be no assurance that any or all of the
relief requested in the petition will be granted.
The PSC has no jurisdiction over the merger of LILCO with a subsidiary of
LIPA as part of the LIPA Transaction. However, it is anticipated that LILCO
and the Holding Company will seek PSC approval for the transfer of the
Transferred Assets, as well as the debt that LIPA will not be assuming, to one
or more subsidiaries of the Holding Company. After the LIPA transaction, the
PSC will have continuing jurisdiction over the Transferee Subsidiary that will
be conducting the gas distribution business previously conducted by LILCO, and
may have jurisdiction over the Transferee Subsidiary that owns the non-nuclear
generating assets previously owned by LILCO, to the extent that such
subsidiary engages in retail transactions.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
As a result of the Combination, the Holding Company will own all of the
common stock of both LILCO (if the LIPA Transaction is not consummated) and
Brooklyn Union and will therefore be a public utility holding company under
the Holding Company Act, subject to the jurisdiction of the SEC. Additionally,
if the LIPA Transaction is consummated, the Holding Company will own all of
Brooklyn Union Common Stock and a Transferee Subsidiary that will conduct the
gas distribution business now being conducted by LILCO. Accordingly, the
Holding Company must apply for and obtain the approval of the SEC under the
Holding Company Act. However, the Holding Company will file an exemption
statement with the SEC to exempt itself
47
<PAGE>
and each of its subsidiaries from most of the provisions of the Holding
Company Act. The basis for the exemption is that the Holding Company, LILCO
(or the Transferee Subsidiary that will succeed to the gas distribution
business currently conducted by LILCO) and Brooklyn Union are "predominantly
intrastate in character," in that each of them is organized, and LILCO (or the
successor subsidiary) and Brooklyn Union each carry on their respective
businesses substantially, in New York State. The SEC has authority under the
Holding Company Act to challenge the availability of such exemption to the
Holding Company.
FEDERAL POWER ACT
LILCO is subject to the regulatory jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under the Federal Power Act (the "FPA") with
respect to certain wholesale electric sales and transmission services. Section
203 of the FPA provides that no public utility shall sell or otherwise dispose
of its jurisdictional facilities or, directly or indirectly, merge or
consolidate such facilities with those of any other person or acquire any
security of any other public utility without having first obtained
authorization from the FERC. Accordingly, the approval of the FERC is required
to consummate the Combination, and is, similarly, required to approve the
transfer of LILCO's FERC-jurisdictional assets to LIPA in connection with the
LIPA Transaction. Pursuant to Section 203 of the FPA, the FERC has the
authority to approve the Combination and the Brooklyn Union/LILCO Agreement as
being consistent with the public interest. In addition, the rates, terms, and
conditions of service that will be provided to LIPA under the Power Supply
Agreement (as defined herein) will require FERC approval under Section 205 or
206 of the FPA as will any other Holding Company service that is deemed to be
FERC jurisdictional.
ANTITRUST CONSIDERATIONS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules, and regulations promulgated thereunder, the
Combination may not be consummated until the requisite notifications and
report forms have been filed with the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the
"FTC") and the specified HSR Act waiting period requirements have been
satisfied. The HSR Act waiting period is 30 days from the date both parties
have filed their notification and report form unless terminated earlier or
extended by the FTC or the Antitrust Division issuing a request for additional
information or documentary materials. If such request is made, the waiting
period will expire, unless terminated earlier, at 11:59 p.m., New York City
time, on the twentieth calendar day after both parties have substantially
complied with such request. Thereafter, the waiting period may be extended
only by court order or with the parties' consent. The expiration or earlier
termination of the HSR Act waiting period does not preclude the Antitrust
Division or the FTC from challenging the Combination on antitrust grounds
either before or after consummation of the Combination. Private parties and
state attorneys general may also bring legal action under federal or state
antitrust laws under certain circumstances.
If the Combination is not consummated within 12 months after the expiration
or earlier termination of the HSR Act waiting period, LILCO and Brooklyn Union
would be required to submit new filings to the Antitrust Division and the FTC,
and a new HSR Act waiting period would have to expire or be earlier terminated
before the Combination could be consummated. LILCO and Brooklyn Union intend
to file their premerger notification and report forms pursuant to the HSR Act
at such time as they believe there is a high degree of certainty that the
Combination will be consummated within 12 months after the expiration or
earlier termination of the waiting period under the HSR Act. The FTC and the
Antitrust Division frequently scrutinize the legality under the antitrust laws
of transactions such as the proposed transaction. Neither LILCO nor Brooklyn
Union believes that the Combination will violate federal antitrust laws.
Nevertheless, there can be no assurance that a challenge to the proposed
transaction will not be made on antitrust grounds or, if such challenge is
made, what the result would be.
The parties intend to seek confirmation from the staff of the FTC and the
Antitrust Division that consummation of the LIPA Transaction is exempt under
the HSR Act. If such confirmation cannot be obtained, appropriate filings will
be made with such agencies.
48
<PAGE>
ATOMIC ENERGY ACT
Operation of Nine Mile Point 2, a nuclear power plant in which LILCO has an
18% ownership interest, is subject to regulation by the Nuclear Regulatory
Commission ("NRC"). The Atomic Energy Act of 1954 (the "Atomic Energy Act")
provides that such an ownership interest may not be transferred or in any
manner disposed of, directly or indirectly, to any person through transfer of
control unless the NRC finds that such transfer is in accordance with the
Atomic Energy Act and consents to the transfer. Pursuant to the Atomic Energy
Act and the LIPA Agreement, LILCO will seek approval from the NRC as
necessary.
PUBLIC AUTHORITIES CONTROL BOARD APPROVAL
The LIPA Transaction is subject to the approval of the PACB. The PACB,
created pursuant to New York State Public Authorities Law ("PAL"), consists of
five persons appointed by the governor, of which one is upon the
recommendation of the majority leader of the New York State Senate, one upon
the recommendation of the Speaker of the New York State Assembly, one upon the
recommendation of the minority leader of the New York State Senate and one
upon the recommendation of the minority leader of the New York State Assembly.
The members appointed by the governor upon the recommendation of the minority
leader of the Senate and the minority leader of the Assembly are non-voting
members. The unanimous vote of the voting members of the board is required to
authorize action by the PACB. Pursuant to PAL, LIPA may not undertake any
project without the approval of the PACB. "Project" is defined to mean an
action undertaken by LIPA that: (i) causes LIPA to issue bonds, notes or other
obligations, or shares in any subsidiary corporation, or (ii) significantly
modifies the use of an asset valued at more than one million dollars owned by
LIPA or involves the sale, lease or other disposition of such an asset, or
(iii) commits LIPA to a contract or agreement with a total consideration of
greater than one million dollars and does not involve the day to day
operations of LIPA. The PACB shall only approve a project proposed by LIPA
upon its determination that: (1) the project is financially feasible as the
standard is defined in PAL; article one-A; (2) the project does not materially
adversely affect overall real property taxes in the service area; (3) the
project is anticipated to result generally in lower utility rates in the
service area; and (4) the project will not materially adversely affect overall
real property taxes or utility rates in other areas of the state of New York.
GENERAL
LILCO and Brooklyn Union possess municipal franchises and environmental
permits and licenses that may need to be renewed or replaced as a result of
the Combination. The companies do not anticipate any difficulties at the
present time in obtaining such renewals or replacements.
Under the Brooklyn Union/LILCO Agreement, LILCO and Brooklyn Union have
agreed to use reasonable efforts to obtain all necessary material permits,
licenses, franchises and other governmental authorizations needed to
consummate or effect the transactions contemplated by the Brooklyn Union/LILCO
Agreement. In addition, under the LIPA Agreement, each of the parties thereto
has agreed to similarly use reasonable efforts to obtain all such required
authorizations and approvals needed to consummate or effect the transactions
contemplated by the LIPA Agreement. Various parties may seek intervention in
the proceedings associated with the regulatory approval process in an attempt
to oppose the Combination and the LIPA Transaction or to have conditions
imposed upon the receipt of the necessary approvals. Although LILCO and
Brooklyn Union believe that they will receive the requisite regulatory
approvals for the Combination and the LIPA Transaction, the timing of their
receipt cannot be determined. It is a condition to the consummation of the
Combination that final orders approving the Combination be obtained from the
various federal and state commissions described above, including (if the LIPA
Transaction will not be consummated substantially contemporaneously with the
Combination) the PSC's final order approving a long-term rate plan, on terms
and conditions (x) which would not have, or would not be reasonably likely to
have, a material adverse effect on the business, assets, financial condition,
results of operations or prospects of the Holding Company and its prospective
subsidiaries taken as a whole, or (y) which would not be materially
inconsistent with the agreements of the parties contained in the Brooklyn
Union/LILCO Agreement. For purposes of the above-referenced condition with
respect to the PSC's
49
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final order, the prospects of the Holding Company and its subsidiaries will
mean the combination of the results anticipated by certain regulated earnings
forecasts of Brooklyn Union and LILCO which the parties previously provided to
each other. It is a condition to the consummation of the LIPA Transaction that
final orders approving the LIPA Transaction be obtained from the various
federal and state commissions described above on terms and conditions (i)
which would not have, or would not be reasonably likely to have, a material
adverse effect on the business, assets, financial condition or results of
operations of the Holding Company, (ii) which would not be materially
inconsistent with the agreements of the parties contained in the LIPA
Agreement or in the other Basic Agreements (as defined herein) or (iii) which
would not have, or would not be reasonably likely to have, a material adverse
effect on the Retained Assets (as defined herein) or the properties, business,
operations, financial conditions or prospects of the business relating to the
Retained Assets taken as a whole or a material adverse decline in the electric
rate savings projected to be realized after the consummation of the LIPA
Transaction.
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to Brooklyn Union's or LILCO's obligations to
consummate the Combination may be waived by the parties. Any determination to
waive a condition would depend upon the facts and circumstances existing at
the time of such waiver and would be made by the waiving party's Board of
Directors, exercising its fiduciary duties to such party and its shareholders.
LILCO and Brooklyn Union have also agreed under the Brooklyn Union/LILCO
Agreement to notify each other of any changes in their approved rates or
charges (other than pass-through fuel and gas rates or charges), standards of
service or accounting, and not to make any filing to change its rates on file
with the PSC that would have a material adverse effect on the benefits
associated with the Combination. The Holding Company and LILCO have agreed
under the LIPA Agreement to notify LIPA or LIPA Sub of any changes in their
rates or charges (other than pass-through fuel rates or charges, but
including, without limitation, gas rates or charges), standards of service or
accounting. LILCO has also agreed under the LIPA Agreement that it will not,
without the consent of LIPA, file or prosecute any rate case or other
nonroutine proceeding before the PSC or FERC or any appeal therefrom, except
for cases or proceedings (i) relating solely to pass-through fuel or gas rates
or charges, (ii) required to be made by order of the PSC or FERC, (iii)
relating solely to the Transferred Assets, (iv) involving commercial or
contractual disputes which are required to be resolved through such
proceedings or (v) a matter that LILCO reasonably believes threatens the
financial viability of LILCO. LILCO is required to provide reasonable prior
notice (including, upon request of LIPA, copies of draft documentation) of any
proposed filing with the PSC or FERC.
50
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
BROOKLYN UNION/LILCO COMBINATION AND LIPA TRANSACTION
(PURCHASE)
The following unaudited pro forma financial information reflects adjustments
to the historical financial statements of LILCO to give effect to the proposed
transfer of LILCO's gas and generation business to subsidiaries of the Holding
Company, the proposed stock acquisition of LILCO by a wholly owned subsidiary
of LIPA and the proposed Combination with Brooklyn Union in accordance with
the Combination. The unaudited pro forma consolidated condensed balance sheet
at March 31, 1997 gives effect to the proposed LIPA Transaction and the
Combination as if they had occurred at March 31, 1997. The unaudited pro forma
consolidated condensed statement of income for the twelve month period ended
March 31, 1997 gives effect to the proposed LIPA Transaction and the
Combination as if they had occurred at April 1, 1996. These statements are
prepared on the basis of accounting for the Combination under the purchase
method of accounting and are based on the assumptions set forth in the notes
thereto. In April 1997 LILCO changed its year-end from December 31 to March
31.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the LIPA Agreement (Annex D), and the
historical consolidated financial statements and related notes thereto of
Brooklyn Union and LILCO, incorporated by reference herein. The following
information is not necessarily indicative of the financial position or
operating results that would have occurred had the proposed LIPA Transaction
and the Combination been consummated on the date, or at the beginning of the
period, for which the proposed LIPA Transaction and the Combination are being
given effect nor is it necessarily indicative of future operating results or
financial position.
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HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
BROOKLYN UNION/LILCO
LIPA TRANSACTION AS ADJUSTED COMBINATION
--------------------- ------------------------
BROOKLYN HOLDING
LILCO SALE TO PRO FORMA LILCO UNION PRO FORMA COMPANY
(HISTORICAL) LIPA (1) ADJUSTMENTS AS ADJUSTED (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ -------- ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
PROPERTY
Utility Plant
Electric............... $ 3,900.2 $2,821.2 $ -- $1,079.0 $ -- $ -- $ 1,079.0
Gas.................... 1,171.2 -- -- 1,171.2 1,805.9 -- 2,977.1
Common................. 263.3 -- -- 263.3 -- -- 263.3
Construction work in
progress.............. 108.9 52.4 -- 56.5 -- -- 56.5
Nuclear fuel in process
and in reactor........ 15.5 15.5 -- -- -- -- --
Less--Accumulated de-
preciation and
amortization.......... (1,759.1) (854.7) -- (904.4) (440.1) -- (1,344.5)
Gas exploration and pro-
duction, at cost....... -- -- -- -- 563.9 -- 563.9
Less--Accumulated de-
pletion............... -- -- -- -- (188.3) -- (188.3)
--------- -------- -------- -------- -------- --------- ---------
Total Property......... 3,700.0 2,034.4 -- 1,665.6 1,741.4 -- 3,407.0
--------- -------- -------- -------- -------- --------- ---------
COST IN EXCESS OF NET
ASSETS ACQUIRED, NET... -- -- -- -- -- 308.0 (6) 308.0
--------- -------- -------- -------- -------- --------- ---------
REGULATORY ASSETS
Base financial component
(less accumulated
amortization of
$782.5)................ 3,256.3 3,256.3 -- -- -- -- --
Rate moderation compo-
nent................... 409.5 409.5 -- -- -- -- --
Shoreham post-settlement
costs.................. 996.3 996.3 -- -- -- -- --
Regulatory tax asset.... 1,767.2 1,767.2 -- -- -- 74.1 (5) 74.1
Postretirement benefits
other than pensions.... 357.7 -- (300.7)(2) 57.0 -- -- 57.0
Other................... 456.0 334.2 -- 121.8 -- -- 121.8
--------- -------- -------- -------- -------- --------- ---------
Total Regulatory As-
sets.................. 7,243.0 6,763.5 (300.7) 178.8 -- 74.1 252.9
--------- -------- -------- -------- -------- --------- ---------
NONUTILITY PROPERTY AND
OTHER INVESTMENTS...... 18.9 14.1 -- 4.8 156.9 -- 161.7
--------- -------- -------- -------- -------- --------- ---------
CURRENT ASSETS
Cash and cash equiva-
lents.................. 64.5 -- 2,432.3 (3) 2,496.8 52.5 -- 2,549.3
Deferred tax asset...... 93.3 93.3 119.0 (4) 119.0 -- -- 119.0
Accounts receivable and
accrued revenues....... 489.9 327.5 19.4 (2) 181.8 -- -- 181.8
Other Current Assets.... 162.5 1.3 -- 161.2 422.1 -- 583.3
--------- -------- -------- -------- -------- --------- ---------
Total Current Assets... 810.2 422.1 2,570.7 2,958.8 474.6 -- 3,433.4
--------- -------- -------- -------- -------- --------- ---------
DEFERRED CHARGES........ 77.6 52.5 -- 25.1 120.9 (74.1)(5) 71.9
CONTRACTUAL RECEIVABLE
FROM LIPA.............. -- -- 281.3 (2) 281.3 -- -- 281.3
--------- -------- -------- -------- -------- --------- ---------
TOTAL ASSETS........... $11,849.7 $9,286.6 $2,551.3 $5,114.4 $2,493.8 $ 308.0 $ 7,916.2
========= ======== ======== ======== ======== ========= =========
CAPITALIZATION AND LIA-
BILITIES
CAPITALIZATION
Common Shareholders' Eq-
uity................... $ 2,549.1 $2,457.3 $2,432.3 (3) $2,524.1 $1,004.1 $ 253.8 (6)(7) $ 3,782.0
Long-term debt.......... 4,457.0 3,459.8 (75.0)(15) 922.2 724.6 -- 1,646.8
Preferred stock......... 702.1 339.1 75.0 (15) 438.0 6.3 (6.3)(7) 438.0
--------- -------- -------- -------- -------- --------- ---------
Total Capitalization... 7,708.2 6,256.2 2,432.3 3,884.3 1,735.0 247.5 5,866.8
--------- -------- -------- -------- -------- --------- ---------
REGULATORY LIABILITIES.. 562.8 529.7 -- 33.1 -- -- 33.1
--------- -------- -------- -------- -------- --------- ---------
CURRENT LIABILITIES
Accounts payable and ac-
crued expenses......... 230.2 122.7 -- 107.5 165.8 60.8 (6)(7) 334.1
Accrued taxes (including
federal income tax).... 51.1 -- 399.0 (4) 450.1 68.6 -- 518.7
Other current liabili-
ties................... 332.6 65.5 -- 267.1 74.9 (.3)(7) 341.7
--------- -------- -------- -------- -------- --------- ---------
Total Current Liabili-
ties.................. 613.9 188.2 399.0 824.7 309.3 60.5 1,194.5
--------- -------- -------- -------- -------- --------- ---------
DEFERRED CREDITS
Deferred federal income
tax.................... 2,420.5 2,299.0 (280.0)(4) (158.5) 309.7 -- 151.2
Other................... 110.4 20.5 -- 89.9 57.7 -- 147.6
--------- -------- -------- -------- -------- --------- ---------
Total Deferred Cred-
its................... 2,530.9 2,319.5 (280.0) (68.6) 367.4 -- 298.8
--------- -------- -------- -------- -------- --------- ---------
OPERATING RESERVES...... 433.9 (7.0) -- 440.9 -- -- 440.9
COMMITMENTS AND CONTIN-
GENCIES................ -- -- -- -- -- -- --
--------- -------- -------- -------- -------- --------- ---------
MINORITY INTEREST IN
SUBSIDIARY COMPANY..... -- -- -- -- 82.1 -- 82.1
--------- -------- -------- -------- -------- --------- ---------
TOTAL CAPITALIZATION
AND LIABILITIES....... $11,849.7 $9,286.6 $2,551.3 $5,114.4 $2,493.8 $ 308.0 $ 7,916.2
========= ======== ======== ======== ======== ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements.
52
<PAGE>
HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SALE PRO LILCO BROOKLYN HOLDING
LILCO TO FORMA AS UNION PRO FORMA COMPANY
(HISTORICAL) LIPA(1) ADJUSTMENTS ADJUSTED (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ -------- ----------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Electric................ $2,465.0 $1,520.2(10) $ 11.5 (8) $ 956.3 $ -- $ -- $ 956.3
Gas-Utility sales....... 672.7 -- -- 672.7 1,338.7 -- 2,011.4
Gas production and oth-
er..................... -- -- -- -- 134.1 -- 134.1
-------- -------- ------ -------- -------- ------ --------
Total Revenues.......... 3,137.7 1,520.2 11.5 1,629.0 1,472.8 -- 3,101.8
OPERATING EXPENSES
Operations-fuel and pur-
chased power........... 954.8 15.0 -- 939.8 627.2 -- 1,567.0
Operations-other........ 372.8 220.5 -- 152.3 367.2 -- 519.5
Maintenance............. 117.1 69.3 -- 47.8 60.2 -- 108.0
Depreciation, depletion
and amortization....... 155.0 100.7 -- 54.3 92.9 7.7 (6) 154.9
Base financial component
amortization........... 101.0 101.0 -- -- -- -- --
Rate moderation compo-
nent amortization...... (3.0) (3.0) -- -- -- -- --
Regulatory liability
component amortiza-
tion................... (88.6) (88.6) -- -- -- -- --
Other regulatory amorti-
zation................. 112.3 96.1 -- 16.2 -- -- 16.2
Operating taxes......... 469.6 280.7 -- 188.9 148.7 -- 337.6
Federal income taxes.... 210.6 160.8 7.1 (9) 56.9 45.6 -- 102.5
-------- -------- ------ -------- -------- ------ --------
Total Operating Ex-
penses................. 2,401.6 952.5 7.1 1,456.2 1,341.8 7.7 2,805.7
-------- -------- ------ -------- -------- ------ --------
Operating Income........ 736.1 567.7 4.4 172.8 131.0 (7.7) 296.1
OTHER INCOME AND (DEDUC-
TIONS)................. 21.5 31.7 -- (10.2) 45.7 -- 35.5
-------- -------- ------ -------- -------- ------ --------
INCOME BEFORE INTEREST
CHARGES................ 757.6 599.4 4.4 162.6 176.7 (7.7) 331.6
INTEREST CHARGES........ 435.2 349.9 (7.6)(9) 77.7 47.9 -- 125.6
-------- -------- ------ -------- -------- ------ --------
NET INCOME.............. 322.4 249.5 12.0 84.9 128.8(16) (7.7) 206.0
-------- -------- ------ -------- -------- ------ --------
Preferred stock dividend
requirements........... 52.1 39.9 23.7 35.9 0.3 (0.3)(7) 35.9
-------- -------- ------ -------- -------- ------ --------
EARNINGS FOR COMMON
STOCK.................. $ 270.3 $ 209.6 $(11.7)(11) $ 49.0 $ 128.5 $ (7.4) $ 170.1
======== ======== ====== ======== ======== ====== ========
AVERAGE COMMON SHARES
OUTSTANDING............ 120.6 120.6 120.6 120.6 49.8 (14.5) 155.9
======== ======== ====== ======== ======== ====== ========
EARNINGS PER COMMON AND
EQUIVALENT SHARES...... $ 2.24 $ 1.74 $ (.09) $ 0.41 $ 2.58 $ -- $ 1.09
======== ======== ====== ======== ======== ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements.
53
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The historical financial statements of LILCO have been adjusted to give
effect to the proposed transaction with LIPA, pursuant to which LILCO will
distribute certain of its net assets relating to its gas and generation
business ("Transferred Assets") to subsidiaries of the Holding Company.
LIPA will then acquire LILCO in a stock sale. The adjustments are based
upon a disaggregation of LILCO's balance sheet and operations as estimated
by the management of LILCO, and are subject to adjustment pursuant to the
terms of the LIPA agreement.
In connection with this transaction, the principal assets to be acquired by
LIPA through its stock acquisition of LILCO include the electric
transmission and distribution system ("The LIPA Transmission and
Distribution System"), LILCO's 18% interest in Nine Mile Point 2 nuclear
power station, certain of LILCO's regulatory assets associated with its
electric business and an allocation of accounts receivable and other assets.
The principal liabilities to be assumed by LIPA include LILCO's regulatory
liabilities associated with its electric business, a portion of LILCO's
long-term debt and an allocation of accounts payable, accrued expenses,
customer deposits, other deferred credits and claims.
2. In connection with the LIPA Transaction, LIPA is contractually responsible
for reimbursing the Holding Company for postretirement benefits, other
than pension costs, related to employees of LILCO's electric business. A
pro forma adjustment has been reflected to reclassify the associated
regulatory asset for postretirement benefits other than pensions to
current and non-current accounts receivable pursuant to LIPA's obligation
to a subsidiary of the Holding Company.
3. The Cash Purchase Price to be paid by LIPA in connection with its stock
acquisition of LILCO will be $2,497.5 million. The Cash Purchase Price was
determined based upon the estimated net book value of the LILCO Retained
Assets of $2,500.8 million as estimated by LILCO in a projected balance
sheet as of December 31, 1997. Based upon the balance sheet as of March
31, 1997, the net book value of the LILCO Retained Assets amounted to
$2,457.3 million. In addition, the LIPA Transaction obligates the Holding
Company upon the closing of the transaction to remit to LIPA $15 million
associated with the recovery through litigation of certain real estate
taxes previously paid. Transaction costs are currently estimated to be $10
million. Assuming the LIPA Transaction was completed on March 31, 1997,
the net cash to be received by the Holding Company would amount to:
<TABLE>
<S> <C>
Cash Purchase Price............................................. $2,457.3
Cash paid to LIPA............................................... (15.0)
Transaction Costs............................................... (10.0)
--------
Net Cash........................................................ $2,432.3
========
</TABLE>
4. The distribution of the Transferred Assets from LILCO to subsidiaries of
the Holding Company will result in the imposition of federal income taxes
on LILCO. Pursuant to the LIPA Agreement, the subsidiaries created by the
Holding Company to receive the Transferred Assets will receive the benefit
of the increased tax basis of the Transferred Assets and will pay the
LILCO tax. If the LIPA Transaction were to have occurred at March 31,
1997, the tax would have amounted to approximately $400 million. The tax
is derived from the difference between the estimated fair value of the
distributed assets and their existing tax basis. For financial reporting
purposes, the subsidiaries reversed the existing deferred tax liability of
$280 million relating to the Transferred Assets and recorded a $119
million deferred tax asset reflecting the income tax effect by which the
tax basis of the Transferred Assets exceeded their book basis.
5. The unaudited pro forma condensed consolidated balance sheet as of March
31, 1997 reflects the reclassification of $74.1 million of Brooklyn Union
regulatory tax assets from deferred charges to regulatory assets in order
to consistently present the regulatory assets of Brooklyn Union and LILCO.
54
<PAGE>
6. The purchase price for Brooklyn Union at March 31, 1997, which amounted to
approximately $1.245 billion including approximately $54.1 million of
transaction costs, has been determined based upon an average of LILCO's
opening and closing stock prices for the two trading days before and three
trading days after December 29, 1996. The purchase price has been
allocated to assets acquired and liabilities assumed based upon their
estimated fair values. It is anticipated that the fair value of the
utility assets acquired is represented by their book value, which
approximates the value of these assets recognized by the New York State
Public Service Commission in establishing rates which are designed to,
among other things, provide for a return on the book value of these assets
and the recovery of costs included as depreciation and amortization
charges. The estimated fair values of Brooklyn Union's non-utility assets
approximate their carrying values. Both Brooklyn Union and LILCO will seek
PSC approval for recovery of transaction costs.
Based upon current information, the purchase price, including merger-related
transaction costs, exceeds the fair value of the net assets acquired by
$308.0 million, which will be amortized to income over 40 years.
7. In connection with the formation of KeySpan, Brooklyn Union will redeem
its outstanding preferred stock at a premium of 2% per terms of the
original issuance agreement. As a result, accounts payable has been
adjusted to reflect a payable of $6.7 million including premiums of $0.1
million which have been charged to Common Shareholders' Equity.
8. The agreement with LIPA includes a provision for the Holding Company to
earn in the aggregate approximately $11.5 million in annual management
service fees from LIPA for the management of the LIPA Transmission and
Distribution System and the management of all aspects of fuel and power
supply. These agreements also contain certain incentive and penalty
provisions which could materially impact earnings from such agreements.
9. The pro forma charge of $7.1 million represents the income tax effect
associated with the recording of the pro forma adjustments for the $11.5
million management fee (see Note 8), and a reduction in interest expense
of approximately $7.6 million associated with the recapitalization of the
subsidiary which contains the gas and generation businesses.
10. Revenues for both the assets acquired by LIPA and the Transferred Assets
were determined based upon a revenue requirements model which considered
the cost of service for these assets and a return on capitalization based
upon an imputed allowed rate of return.
11. No adjustments have been made to earnings on common stock to reflect
earnings on net available proceeds of approximately $1.7 billion to be
received, after remittances to the Holding Company's gas and generation
subsidiaries for working capital purposes (see Notes 3 and 12). If these
funds were invested at 7% (the 30 year US Treasury Bond yield based on
recent prices), the Holding Company would have realized additional
interest income, net of taxes, of approximately $77.3 million, or
approximately $.49 per share, on a consolidated basis. Each one percent
change in the assumed interest rate, would increase/decrease interest
income, net of taxes, by $11.0 million. LILCO's allowed rate of return on
its common equity for its electric business is currently 11%, after taxes.
12. Subsequent to the sale to LIPA, a portion of the proceeds to be received
by the Holding Company will be remitted to LILCO's gas and generation
subsidiaries in order to meet the subsidiaries working capital needs. Such
proposed transaction has been eliminated in the consolidation process.
13. The allocation between Brooklyn Union and LILCO and their customers of the
estimated cost savings resulting from the Combination, net of the costs
incurred to achieve such savings, will be subject to regulatory review and
approval. None of the estimated cost savings, have been reflected in the
unaudited pro forma consolidated condensed financial statements.
14. The unaudited pro forma combined condensed financial statements reflect
the exchange of each share of LILCO Common Stock outstanding into 0.880
shares of Holding Company Common Stock and the conversion of each share of
Brooklyn Union Common Stock outstanding into one share of Holding Company
Common Stock, as provided in the Brooklyn Union/LILCO Agreement.
55
<PAGE>
15. As more fully described in the section entitled "The LIPA TRANSACTION--
Agreement and Plan of Merger," LILCO will transfer the Transferred Assets
to subsidiaries of the Holding Company in exchange for shares of the
Holding Company common stock and up to $75 million face amount of Holding
Company Preferred Stock. The privately placed Preferred Stock will be non-
voting, non-convertible and have a five-year term. For purposes of these
pro forma financial statements, it is assumed that the Holding Company
will issue $75 million of Preferred Stock, LILCO will sell the preferred
stock for $75 million in proceeds and will retain the proceeds (i.e., a
Retained Asset).
With a $75 million increase in the Retained Assets, the LIPA Agreement
provides that the Retained Debt will increase by a corresponding amount. The
LIPA Agreement also provides that if the Holding Company were to issue an
amount other than $75 million of Preferred Stock, the incremental difference
between the amount actually issued and $75 million, will result in a
corresponding increase or decrease in the amount of accounts payable
retained by LILCO. These pro forma financial statements reflect a reduction
in interest expense for the reduced level of subsidiary debt, and to reflect
an increase in preferred stock dividend requirements. Finally, for purposes
of these pro forma financial statements, it is assumed that the dividend
rate on this privately placed Preferred Stock will be 7.95%, which is equal
to the Company's highest cost preferred stock.
16. The Brooklyn Union earnings for the 12 month period ended March 31, 1997
include non-recurring income aggregating approximately $33.5 million, net
of taxes, or $0.68 per share, relating to gains on the initial public
offering of a subsidiary's stock and the sale of an investment in a
Canadian plant. This income was partially offset by a $7.8 million charge,
net of taxes, or $0.16 per share, relating to reorganization expenses
incurred by the subsidiary.
56
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
BROOKLYN UNION/LILCO COMBINATION
(POOLING)
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of Brooklyn
Union and LILCO including their respective subsidiaries, after giving effect
to the Combination. Brooklyn Union's balance sheet as of March 31, 1997 and
results of operations for each of the 12 month periods in the three year
period ended March 31, 1997 have been combined with LILCO's balance sheet as
of March 31, 1997 and results of operations for each of the 12 month periods
in the three year period ended March 31, 1997 to arrive at the unaudited pro
forma combined condensed balance sheet as of March 31, 1997 and the statements
of income for each of the 12 month periods ended March 31, 1997. The unaudited
pro forma combined condensed balance sheet at March 31, 1997 gives effect to
the Combination as if it had occurred at March 31, 1997. The unaudited pro
forma combined condensed statements of income for each of the 12 month periods
in the three year period ended March 31, 1997 give effect to the Combination
as if it had occurred at April 1, 1994. These statements are prepared on the
basis of accounting for the Combination as a pooling of interests and are
based on the assumptions set forth in the notes thereto. It should be noted
that in April 1997 LILCO changed its year-end from December 31 to March 31.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of Brooklyn Union and LILCO,
incorporated by reference herein. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Combination been consummated on the date, or at the beginning
of the period, for which the Combination is being given effect nor is it
necessarily indicative of future operating results or financial position.
57
<PAGE>
HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
POOLING
(IN MILLIONS)
<TABLE>
<CAPTION>
HOLDING
BROOKLYN COMPANY
LILCO UNION PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
PROPERTY
Utility Plant
Electric............... $ 3,900.2 $ -- $ -- $ 3,900.2
Gas.................... 1,171.2 1,805.9 -- 2,977.1
Common................. 263.3 -- -- 263.3
Construction work in
progress.............. 108.9 -- -- 108.9
Nuclear fuel in proc-
ess and in reactor.... 15.5 -- -- 15.5
Less--Accumulated de-
preciation and amor-
tization.............. (1,759.1) (440.1) -- (2,199.2)
Gas exploration and pro-
duction, at cost....... -- 563.9 -- 563.9
Less--Accumulated deple-
tion................... -- (188.3) -- (188.3)
--------- -------- ------ ---------
Total Property....... 3,700.0 1,741.4 -- 5,441.4
--------- -------- ------ ---------
REGULATORY ASSETS
Base financial component
(less accumulated amor-
tization of $782.5).... 3,256.3 -- -- 3,256.3
Rate moderation compo-
nent................... 409.5 -- -- 409.5
Shoreham post-settlement
costs.................. 996.3 -- -- 996.3
Regulatory tax asset.... 1,767.2 -- 74.1 (1) 1,841.3
Postretirement benefits
other than pensions.... 357.7 -- -- 357.7
Other................... 456.0 -- -- 456.0
--------- -------- ------ ---------
Total Regulatory As-
sets................ 7,243.0 -- 74.1 7,317.1
--------- -------- ------ ---------
NONUTILITY PROPERTY AND
OTHER INVESTMENTS...... 18.9 156.9 -- 175.8
--------- -------- ------ ---------
CURRENT ASSETS
Cash and cash equiva-
lents.................. 64.5 52.5 -- 117.0
Deferred tax asset...... 93.3 -- -- 93.3
Accounts receivable and
accrued revenues....... 489.9 -- -- 489.9
Other Current Assets.... 162.5 422.1 -- 584.6
--------- -------- ------ ---------
Total Current As-
sets................ 810.2 474.6 -- 1,284.8
--------- -------- ------ ---------
DEFERRED CHARGES........ 77.6 120.9 (74.1)(1) 124.4
--------- -------- ------ ---------
TOTAL ASSETS......... $11,849.7 $2,493.8 $ -- $14,343.5
========= ======== ====== =========
CAPITALIZATION AND LIA-
BILITIES
CAPITALIZATION
Common Shareowners' Eq-
uity................... $ 2,549.1 $1,004.1 (54.2)(2)(7) 3,499.0
Long-term debt.......... 4,457.0 724.6 -- 5,181.6
Preferred stock......... 702.1 6.3 (6.3)(7) 702.1
--------- -------- ------ ---------
Total Capitaliza-
tion................ 7,708.2 1,735.0 (60.5) 9,382.7
--------- -------- ------ ---------
REGULATORY LIABILITIES.. 562.8 -- -- 562.8
--------- -------- ------ ---------
CURRENT LIABILITIES
Accounts payable and ac-
crued expenses......... 230.2 165.8 60.8(2)(7) 456.8
Accrued taxes (including
federal income tax).... 51.1 68.6 -- 119.7
Other current liabili-
ties................... 332.6 74.9 (0.3)(7) 407.2
--------- -------- ------ ---------
Total Current Liabil-
ities............... 613.9 309.3 60.5 983.7
--------- -------- ------ ---------
DEFERRED CREDITS
Deferred federal income
tax.................... 2,420.5 309.7 -- 2,730.2
Other................... 110.4 57.7 -- 168.1
--------- -------- ------ ---------
Total Deferred Cred-
its................. 2,530.9 367.4 -- 2,898.3
--------- -------- ------ ---------
OPERATING RESERVES...... 433.9 -- -- 433.9
COMMITMENTS AND CONTIN-
GENCIES................ -- -- -- --
--------- -------- ------ ---------
MINORITY INTEREST IN
SUBSIDIARY COMPANY..... -- 82.1 -- 82.1
--------- -------- ------ ---------
TOTAL CAPITALIZATION
AND LIABILITIES..... $11,849.7 $2,493.8 $ -- $14,343.5
========= ======== ====== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
58
<PAGE>
HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997
POOLING
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HOLDING
BROOKLYN COMPANY
LILCO UNION PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Electric................... $2,465.0 $ -- $ -- $2,465.0
Gas--Utility sales......... 672.7 1,338.7 -- 2,011.4
Gas production and other... -- 134.1 -- 134.1
-------- -------- ------ --------
Total Revenues........... 3,137.7 1,472.8 -- 4,610.5
OPERATING EXPENSES
Operations--fuel and pur-
chased power.............. 954.8 627.2 -- 1,582.0
Operations--other.......... 372.9 367.2 -- 740.1
Maintenance................ 117.0 60.2 -- 177.2
Depreciation, depletion and
amortization.............. 155.0 92.9 -- 247.9
Base financial component
amortization.............. 101.0 -- -- 101.0
Rate moderation component
amortization.............. (3.0) -- -- (3.0)
Regulatory liability compo-
nent amortization......... (88.6) -- -- (88.6)
Other regulatory amortiza-
tion...................... 112.3 -- -- 112.3
Operating taxes............ 469.6 148.7 -- 618.3
Federal income taxes....... 210.6 45.6 -- 256.2
-------- -------- ------ --------
Total Operating Ex-
penses.................. 2,401.6 1,341.8 -- 3,743.4
-------- -------- ------ --------
Operating Income........... 736.1 131.0 -- 867.1
OTHER INCOME............... 21.5 45.7 -- 67.2
-------- -------- ------ --------
INCOME BEFORE INTEREST
CHARGES................... 757.6 176.7 -- 934.3
INTEREST CHARGES........... 435.2 47.9 -- 483.1
-------- -------- ------ --------
NET INCOME................. 322.4 128.8(4) -- 451.2
-------- -------- ------ --------
Preferred stock dividend
requirements.............. 52.1 0.3 (0.3)(7) 52.1
-------- -------- ------ --------
EARNINGS FOR COMMON STOCK.. $ 270.3 $ 128.5 $ 0.3 $ 399.1
======== ======== ====== ========
AVERAGE COMMON SHARES OUT-
STANDING.................. 120.6 49.8 (23.8)(3) 146.6
======== ======== ====== ========
EARNINGS PER COMMON AND
EQUIVALENT SHARES......... $ 2.24 $ 2.58 $ -- $ 2.72
======== ======== ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
59
<PAGE>
HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
POOLING
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BROOKLYN
LILCO UNION PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Electric.................... $2,497.4 $ -- $ -- $2,497.4
Gas--Utility sales.......... 650.8 1,272.2 -- 1,923.0
Gas production and other.... -- 97.8 -- 97.8
-------- -------- ------ --------
Total Revenues.............. 3,148.2 1,370.0 -- 4,518.2
OPERATING EXPENSES
Operations--fuel and pur-
chased power............... 888.6 569.5 -- 1,458.1
Operations--other........... 391.1 349.8 -- 740.9
Maintenance................. 124.4 54.7 -- 179.1
Depreciation, depletion and
amortization............... 147.3 72.7 -- 220.0
Base financial component am-
ortization................. 101.0 -- -- 101.0
Rate moderation component
amortization............... (4.9) -- -- (4.9)
Regulatory liability compo-
nent amortization.......... (88.6) -- -- (88.6)
Other regulatory amortiza-
tion....................... 175.2 -- -- 175.2
Operating taxes............. 455.9 139.4 -- 595.3
Federal income taxes........ 217.0 42.6 -- 259.6
-------- -------- ------ --------
Total Operating Expenses.... 2,407.0 1,228.7 -- 3,635.7
-------- -------- ------ --------
Operating Income............ 741.2 141.3 -- 882.5
OTHER INCOME................ 45.5 5.7 -- 51.2
-------- -------- ------ --------
INCOME BEFORE INTEREST
CHARGES.................... 786.7 147.0 -- 933.7
INTEREST CHARGES............ 471.9 52.5 -- 524.4
-------- -------- ------ --------
NET INCOME.................. 314.8 94.5 -- 409.3
-------- -------- ------ --------
Preferred stock dividend re-
quirements................. 52.5 0.3 (0.3)(7) 52.5
-------- -------- ------ --------
EARNINGS FOR COMMON STOCK... $ 262.3 $ 94.2 $ 0.3 $ 356.8
======== ======== ====== ========
AVERAGE COMMON SHARES OUT-
STANDING................... 119.5 48.8 (23.5)(3) 144.8
======== ======== ====== ========
EARNINGS PER COMMON AND
EQUIVALENT SHARES.......... $ 2.19 $ 1.93 $ -- $ 2.46
======== ======== ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
60
<PAGE>
HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1995
POOLING
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BROOKLYN
LILCO UNION PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Electric.................... $2,440.3 $ -- $ -- $2,440.3
Gas--Utility sales.......... 546.1 1,203.4 -- 1,749.5
Gas production and other.... -- 54.8 -- 54.8
-------- -------- ------ --------
Total Revenues.............. 2,986.4 1,258.2 -- 4,244.6
OPERATING EXPENSES
Operations--fuel and pur-
chased power............... 805.8 493.0 -- 1,298.8
Operations--other........... 388.0 324.3 -- 712.3
Maintenance................. 141.0 52.1 -- 193.1
Depreciation, depletion and
amortization............... 134.6 70.9 -- 205.5
Base financial component am-
ortization................. 101.0 -- -- 101.0
Rate moderation component
amortization............... 160.5 -- -- 160.5
Regulatory liability compo-
nent amortization.......... (88.6) -- -- (88.6)
Other regulatory amortiza-
tion....................... 8.0 -- -- 8.0
Operating taxes............. 408.9 140.7 -- 549.6
Federal income taxes........ 185.3 40.1 -- 225.4
-------- -------- ------ --------
Total Operating Expenses.... 2,244.5 1,121.1 -- 3,365.6
-------- -------- ------ --------
Operating Income............ 741.9 137.1 -- 879.0
OTHER INCOME................ 46.1 3.7 -- 49.8
-------- -------- ------ --------
INCOME BEFORE INTEREST
CHARGES.................... 788.0 140.8 -- 928.8
INTEREST CHARGES............ 485.5 52.7 -- 538.2
-------- -------- ------ --------
NET INCOME.................. 302.5 88.1 -- 390.6
-------- -------- ------ --------
Preferred stock dividend re-
quirements................. 52.9 0.3 (0.3)(7) 52.9
-------- -------- ------ --------
EARNINGS FOR COMMON STOCK... $ 249.6 $ 87.8 $ 0.3 $ 337.7
======== ======== ====== ========
AVERAGE COMMON SHARES OUT-
STANDING................... 117.4 47.6 (23.1)(3) 141.9
======== ======== ====== ========
EARNINGS PER COMMON AND
EQUIVALENT SHARES.......... $ 2.13 $ 1.84 $ -- $ 2.38
======== ======== ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSEDFINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed balance sheet as of March 31,
1997 reflects the reclassification of $74.1 million of Brooklyn Union
regulatory tax assets from deferred charges to regulatory assets. All other
financial statement presentation and accounting policy differences are
immaterial and have not been adjusted in the unaudited pro forma combined
condensed financial statements.
2. Transaction costs (including fees for financial advisors, attorneys,
accountants, consultants, taxes, filings and printing) are currently
estimated to be approximately $54.1 million. Both Brooklyn Union and LILCO
will seek PSC approval for recovery of such transaction costs.
3. The unaudited pro forma combined condensed financial statements reflect the
conversion of each share of LILCO Common Stock outstanding into 0.803
shares of Holding Company Common Stock and the exchange of each share of
Brooklyn Union Common Stock outstanding for one share of Holding Company
Common Stock, as provided in the Brooklyn Union/LILCO Agreement. The
unaudited pro forma combined condensed financial statements are presented
as if the companies were combined during all periods included therein.
4. The Brooklyn Union earnings for the 12 month period ended March 31, 1997
include non-recurring income aggregating approximately $33.5 million, net
of taxes, or $0.68 per share, relating to gains on the initial public
offering of a subsidiary's stock and the sale of an investment in a
Canadian plant. This income was partially offset by a $7.8 million charge,
net of taxes, or $0.16 per share, relating to reorganization expenses
incurred by the subsidiary.
5. Intercompany transactions between Brooklyn Union and LILCO during the
periods presented were not material and, accordingly, no pro forma
adjustments were made to eliminate such transactions.
6. The allocation between Brooklyn Union and LILCO and their customers of the
estimated cost savings resulting from the Combination, net of the costs
incurred to achieve such savings, will be subject to regulatory review and
approval. None of the estimated cost savings or the costs to achieve such
savings, have been reflected in the unaudited pro forma combined condensed
financial statements.
7. In connection with the formation of KeySpan, Brooklyn Union will redeem its
outstanding preferred stock at a premium of 2% per terms of the original
issuance agreement. As a result, accounts payable has been adjusted to
reflect a payable of $6.7 million including premiums of $0.1 million which
have been charged to Common Shareholders' Equity.
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THE COMPANY FOLLOWING THE COMBINATION AND THE LIPA TRANSACTION
MANAGEMENT OF THE HOLDING COMPANY
HOLDING COMPANY BOARD OF DIRECTORS. The number of directors comprising the
full Board of Directors of the Holding Company at the Effective Time will be
15 persons, six of whom will be designated by Brooklyn Union prior to the
Effective Time, six of whom will be designated by LILCO prior to the Effective
Time and three of whom will be designated by a committee consisting of two
current Brooklyn Union directors and two current LILCO directors. In the event
that the Combination is not consummated and the LIPA Transaction is
consummated, the Board of Directors of the Holding Company will consist of the
Directors of LILCO serving immediately before the LIPA Closing.
SENIOR EXECUTIVES. Dr. William J. Catacosinos will be the Chairman of the
Board of Directors, Chairman of the Executive Committee and Chief Executive
Officer of the Holding Company commencing at the Effective Time. At the first
anniversary of the Effective Time, Dr. Catacosinos will cease to be the Chief
Executive Officer, but will continue to be Chairman of the Board and Chairman
of the Executive Committee and will become a consultant to the Holding
Company. In the event that the Combination is not consummated and the LIPA
Transaction is consummated, the above provisions will not take effect and Dr.
Catacosinos will serve in the capacity referred to above.
Mr. Robert B. Catell will be the President and Chief Operating Officer of
the Holding Company commencing upon the consummation of the Combination and
will succeed Dr. Catacosinos as Chief Executive Officer of the Holding Company
commencing on the first anniversary of such date. The arrangements to cause
such elections to take place at such first anniversary may be altered only by
a vote, following the Effective Time, of two-thirds of the entire Board of
Directors of the Holding Company.
COMMON STOCK DIVIDENDS
It is anticipated that the initial annualized dividend rate paid to Holding
Company shareholders after completion of the Combination, whether or not the
LIPA Transaction is consummated, will be $1.78 per share, subject to approval
and declaration by the Holding Company Board of Directors. Brooklyn Union's
annual dividend rate is currently $1.46 per share and LILCO's annual dividend
rate is currently $1.78 per share. Declaration and timing of all dividends
declared on Holding Company Common Stock will be a business decision to be
made by the Holding Company Board from time to time based upon the results of
operations and financial condition of the Holding Company and its
subsidiaries, opportunities available for the reinvestment of cash received in
connection with the LIPA Transaction or otherwise, and such other business
considerations as the Holding Company Board considers relevant in accordance
with applicable laws. For a description of certain restrictions on the Holding
Company's ability to pay dividends on the Holding Company Common Stock, see
"Description of Holding Company Capital Stock."
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK
GENERAL
The authorized capital stock of the Holding Company, as of the Effective
Time, will consist of 450,000,000 shares of Holding Company Common Stock, par
value $.01 per share, and 100,000,000 shares of preferred stock, par value
$.01 per share ("Holding Company Preferred Stock"). The description of Holding
Company capital stock set forth herein does not purport to be complete and is
qualified in its entirety by reference to the Certificate of Incorporation of
the Holding Company (the "Holding Company Certificate") and the By-Laws of the
Holding Company (the "Holding Company By-Laws"), the forms of which are
attached hereto as Annexes G and H, respectively, as well as applicable
statutory or other law.
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HOLDING COMPANY PREFERRED STOCK
Under the Holding Company Certificate, subject to any approval of the SEC
which may be required under the Holding Company Act, the Board of Directors of
the Holding Company will be authorized to divide the Holding Company Preferred
Stock into series, to issue shares of any such series and, within the
limitations set forth in the Holding Company Certificate or prescribed by law,
to fix and determine the voting rights, if any, of the holders of shares of
such series and the designations, preferences and relative, participating,
optional and other special rights of each series and the qualifications,
limitations and restrictions thereof (the "Preferred Stock Designation").
There are no present plans to issue any Holding Company Preferred Stock other
than as described herein.
HOLDING COMPANY COMMON STOCK
The holders of Holding Company Common Stock will be entitled to receive such
dividends as the Board of Directors of the Holding Company may from time to
time declare, subject to any rights of holders of Holding Company Preferred
Stock, if any is issued. The holders of shares of Holding Company Common Stock
will be entitled to one vote for each such share upon all proposals presented
to the shareholders on which the holders of Holding Company Common Stock are
entitled to vote. Except as provided by law and subject to any class or series
voting rights of holders of any Holding Company Series AA Preferred Stock, the
holders of Holding Company Common Stock will have the exclusive right to vote
for the election of Directors and for all other purposes, and holders of
Holding Company Preferred Stock will not be entitled to receive notice of any
meeting of shareholders at which such holders of Holding Company Preferred
Stock are not entitled to vote. The holders of shares of a class or series
shall be entitled to vote and to vote as a class upon the authorization of an
amendment and, in addition to the authorization of the amendment by vote of
the holders of a majority of all outstanding shares entitled to vote thereon,
the amendment shall be authorized by vote of the holders of a majority of all
outstanding shares of the class or series when a proposed amendment would
change their shares under BCL Section 801(b) (11), that is, change any
authorized shares, whether issued or unissued, into a different number of
shares of the same class. The holders of Holding Company Common Stock will not
be entitled to cumulate votes for the election of Directors. In the event of
any liquidation, dissolution or winding up of the Holding Company, the holders
of Holding Company Common Stock, subject to any rights of the holders of any
Holding Company Preferred Stock, will be entitled to receive the remainder, if
any, of the assets of the Holding Company after the discharge of its
liabilities. Holders of Holding Company Common Stock will not be entitled to
preemptive rights to subscribe for or purchase any part of any new or
additional issue of stock or securities convertible into stock. The Holding
Company Common Stock will not contain any redemption provisions or conversion
rights.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Holding Company Certificate and the Holding Company By-Laws will contain
various other provisions intended to (i) promote stability of the Holding
Company's shareholder base and (ii) render more difficult certain unsolicited
or hostile attempts to take over the Holding Company which could disrupt the
Holding Company, divert the attention of the Holding Company's directors,
officers and employees and adversely affect the independence and integrity of
the Holding Company's business. A summary of these provisions of the Holding
Company Certificate and the Holding Company By-Laws is set forth below.
REMOVAL OF DIRECTORS. The Holding Company Certificate provides that except
as otherwise provided for or fixed by or pursuant to a Certificate of
Amendment setting forth the rights of the holders of any class or series of
Holding Company Preferred Stock, newly created directorships resulting from
any increase in the number of directors and any vacancies on the Board of
Directors of the Holding Company resulting from death, resignation,
disqualification, removal or other cause will be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors of the Holding Company, and not by the
shareholders. Subject to the rights of holders of Holding Company Preferred
Stock, any director may be removed from office only for cause by the
affirmative vote of the holders of at least a majority of the voting
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power of all the outstanding capital stock of the Holding Company entitled to
vote generally in the election of directors (the "Voting Power"), voting
together as a single class.
The NYBCL provides that unless the certificate of incorporation or by-laws
of a corporation so provide, a director may be removed only for cause by vote
of the shareholders. None of the Restated Certificate of Incorporation of
Brooklyn Union, as amended (the "Brooklyn Union Certificate,") the By-Laws of
Brooklyn Union (the "Brooklyn Union By-Laws,") the LILCO Amended and Restated
Certificate of Incorporation (the "LILCO Certificate") or the By-Laws of
LILCO, as amended (the "LILCO By-Laws") contains provisions for removal of a
director.
SPECIAL SHAREHOLDERS' MEETINGS AND RIGHT TO ACT BY WRITTEN CONSENT. The
Holding Company Certificate and the Holding Company By-Laws provide that a
special meeting of shareholders may be called only by a resolution adopted by
a majority of the entire Board of Directors of the Holding Company.
Shareholders are not permitted to call, or to require that the Board of
Directors call, a special meeting of shareholders. Moreover, the business
permitted to be conducted at any special meeting of shareholders is limited to
the business brought before the meeting pursuant to the notice of the meeting
given by the Holding Company. The Holding Company By-Laws permit a special
meeting of shareholders to be called at any time for any purpose by order of
the Board of Directors of the Holding Company. In addition, the Holding
Company Certificate provides that any action taken by the shareholders of the
Holding Company must be effected at an annual or special meeting of
shareholders and may not be taken by written consent in lieu of a meeting.
The provisions of the Holding Company Certificate and the Holding Company
By-Laws prohibiting shareholder action by written consent may have the effect
of delaying consideration of a shareholder proposal until the next annual
meeting. These provisions would also prevent the holders of a majority of the
Voting Power from unilaterally using the written consent procedure to take
shareholder action. Moreover, a shareholder could not force shareholder
consideration of a proposal over the opposition of the Board of Directors of
the Holding Company by calling a special meeting of shareholders prior to the
time the Board believes such consideration to be appropriate.
PROCEDURES FOR SHAREHOLDER NOMINATIONS AND PROPOSALS. The Holding Company
By-Laws establish an advance notice procedure for shareholders to nominate
candidates for election as directors or to bring other business before
meetings of shareholders of the Holding Company (the "Shareholder Notice
Procedure").
Only those shareholder nominees who are nominated in accordance with the
Shareholder Notice Procedure will be eligible for election as directors of the
Holding Company. Under the Shareholder Notice Procedure, notice of shareholder
nominations to be made at an annual meeting (or of any other business that may
properly be brought before such meeting) must be received by the Holding
Company not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or, if the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, not earlier than the 90th day prior to such meeting and not
later than the later of (i) the 60th day prior to such meeting or (ii) the
10th day after public announcement of the date of such meeting is first made).
Notwithstanding the foregoing, in the event that the number of directors to be
elected is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of
Directors made by the Holding Company at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
will be timely, but only with respect to nominees for any new positions
created by such increase, if it is received by the Holding Company not later
than the 10th day after such public announcement is first made by the Holding
Company.
The Holding Company By-Laws provide that only such business may be conducted
at a special meeting as is specified in the notice of meeting. Nominations for
election to the Holding Company Board may be made at a special meeting at
which directors are to be elected only by or at the Holding Company Board of
Directors' direction or by a shareholder who has given timely notice of
nomination. Under the Shareholder Notice Procedure, such notice must be
received by the Holding Company not earlier than the 90th day before such
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meeting and not later than the later of (i) the 60th day prior to such meeting
or (ii) the 10th day after public announcement by the Holding Company of the
date of such meeting. Shareholders will not be able to bring other business
before special meetings of shareholders.
The Shareholder Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting at the
direction of the Holding Company Board of Directors or by a shareholder who
has given timely written notice (as set forth above) to the Secretary of the
Holding Company of such shareholder's intention to bring such business before
such meeting.
Under the Shareholder Notice Procedure, a shareholder's notice to the
Holding Company proposing to nominate an individual for election as a director
must contain certain information, including, without limitation, the identity
and address of the nominating shareholder, the class and number of shares of
stock of the Holding Company owned by such shareholder, and all information
regarding the proposed nominee that would be required to be included in a
proxy statement soliciting proxies for the proposed nominee. Under the
Shareholder Notice Procedure, a shareholder's notice relating to the conduct
of business other than the nomination of directors must contain certain
information about such business and about the proposing shareholder, including
without limitation, a brief description of the business the shareholder
proposes to bring before the meeting, the reasons for conducting such business
at such meeting, the name and address of such shareholder, the class and
number of shares of stock of the Holding Company beneficially owned by such
shareholder, and any material interest of such shareholder in the business so
proposed. If the Chairman or other officer presiding at a meeting determines
that an individual was not nominated, or other business was not brought before
the meeting, in accordance with the Shareholder Notice Procedure, such
individual will not be eligible for election as a director, or such business
will not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by shareholders, the Shareholder
Notice Procedure will afford the Holding Company Board of Directors an
opportunity to consider the qualifications of the proposed nominees and, to
the extent deemed necessary or desirable by the Holding Company Board, to
inform shareholders about such qualifications. By requiring advance notice of
other proposed business, the Shareholder Notice Procedure will provide a more
orderly procedure for conducting annual meetings of shareholders and, to the
extent deemed necessary or desirable by the Holding Company Board, will
provide the Holding Company Board with an opportunity to inform shareholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with the Holding Company Board's position regarding action
to be taken with respect to such business, so that shareholders can better
decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the Holding Company By-Laws do not give the Holding Company Board
any power to approve or disapprove shareholder nominations for the election of
directors and only limited power to approve or disapprove shareholder
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of shareholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Holding Company and its shareholders.
AMENDMENT OF THE HOLDING COMPANY CERTIFICATE AND THE HOLDING COMPANY BY-
LAWS. The Holding Company Certificate provides that the affirmative vote of at
least 80 percent of the Voting Power, voting together as a single class, would
be required to (i) amend or repeal the provisions of the Holding Company
Certificate with respect to (A) the election of directors and (B) the right to
call a special shareholders' meeting and (C) the right to act by written
consent; (ii) adopt any provision inconsistent with such provisions; and (iii)
amend or repeal the provisions of the Holding Company Certificate with respect
to amendments to the Holding Company Certificate or the Holding Company By-
Laws.
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THE AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER
The following is a summary of the material terms of the Brooklyn Union/LILCO
Agreement, which is attached as Annex A and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the
Brooklyn Union/LILCO Agreement. In the event that the KeySpan Share Exchange
has been consummated, then KeySpan will be substituted for Brooklyn Union in
the Combination and the Brooklyn Union/LILCO Agreement.
THE COMBINATION
The Brooklyn Union/LILCO Agreement provides that, following its adoption by
the shareholders of both LILCO and Brooklyn Union and the satisfaction or
waiver of the other conditions to the Combination, including obtaining the
requisite regulatory approvals, the outstanding shares of LILCO Common Stock
will be exchanged for newly issued shares of Holding Company Common Stock in
the Share Exchange and the outstanding shares of Brooklyn Union Common Stock
will be converted into the right to receive newly issued shares of Holding
Company Common Stock in the Merger.
EFFECTS OF THE COMBINATION
Except as provided below, upon the consummation of the Share Exchange, and
without any action on the part of any holder of any capital stock of LILCO,
Brooklyn Union or the Holding Company:
i. Each issued and outstanding share of LILCO Common Stock, other than
shares held by dissenting shareholders ("LILCO Dissenting Shares"), will
be exchanged for 0.803 shares of Holding Company Common Stock; provided
that if the LIPA Agreement has not been terminated but the transactions
contemplated thereby will not be consummated contemporaneously with the
Combination, then each issued and outstanding share of LILCO Common
Stock, other than the LILCO Dissenting Shares, will be exchanged for
0.803 shares of Holding Company Common Stock and, if the transactions
contemplated by the LIPA Agreement are consummated within two years of
the Effective Time, then the Holding Company will issue to persons who
were holders of record of LILCO Common Stock at the Effective Time an
additional 0.077 shares of Holding Company Common Stock (the "Contingent
Issuance") in respect of each share of LILCO Common Stock, other than
LILCO Dissenting Shares, that had been held by them of record at the
Effective Time. Upon the Share Exchange, the Holding Company will become
the owner of each share of LILCO Common Stock so exchanged and each such
share of LILCO Common Stock will be deemed to have been exchanged for
that fraction of a share of Holding Company Common Stock specified
above.
ii. Each issued and outstanding share of the preferred stock of LILCO will
be unchanged as a result of the Share Exchange and will remain
outstanding thereafter.
Upon the consummation of the Merger, and without any action on the part of
any holder of any capital stock of LILCO, Brooklyn Union or the Holding
Company, each issued and outstanding share of Brooklyn Union Common Stock,
other than shares held by dissenting shareholders ("Brooklyn Union Dissenting
Shares"), will be converted into the right to receive one share of Holding
Company Common Stock pursuant to the Merger. Upon such Merger, Brooklyn Union
will become a wholly owned subsidiary of the Holding Company and each such
share of Brooklyn Union Common Stock will be deemed to have been exchanged for
one share of Holding Company Common Stock.
If the Combination and the LIPA Transaction are consummated
contemporaneously or if the LIPA Transaction is consummated before the
Combination, then instead of consummating the Share Exchange, the transactions
contemplated by the Brooklyn Union/LILCO Agreement and the LIPA Agreement will
be consummated as follows:
(i) LILCO will transfer the Transferred Assets (as defined in the LIPA
Agreement) to such subsidiaries of the Holding Company as Brooklyn
Union and LILCO will direct in exchange for the Designated
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Number (as defined) of shares of Holding Company Common Stock and up to
$75 million face amount of Holding Company Preferred Stock. The
"Designated Number" will be the number of shares of Holding Company
Common Stock representing the net fair market value of the Transferred
Assets, as will be determined in good faith by Brooklyn Union and LILCO,
less the face amount of such Holding Company Preferred Stock;
(ii) the merger of LIPA Sub with and into LILCO and the transactions
contemplated by the LIPA Agreement will be consummated, and the Cash
Purchase Price (as defined) will be paid to the Exchange Agent as
agent for the holders of LILCO Common Stock to subscribe for and
purchase a number of shares of Holding Company Common Stock, which
number of shares when added to the Designated Number shall represent
the number of shares of LILCO Common Stock issued and outstanding
immediately prior to the LILCO Effective Time, other than LILCO
Dissenting Shares, multiplied by the LIPA Ratio (i.e., 0.880); and
(iii) promptly thereafter, the Merger shall be consummated.
Brooklyn Union Dissenting Shares and LILCO Dissenting Shares will not be
converted into the right to receive Holding Company Common Stock pursuant to
the Brooklyn Union/LILCO Agreement, but will be converted into such
consideration as may be due with respect to such shares pursuant to the
applicable provisions of the NYBCL.
As soon as practicable after the consummation of the Combination, an exchange
agent mutually agreeable to LILCO and Brooklyn Union (the "Exchange Agent")
will mail to each holder of record of a certificate (a "Certificate") which
immediately prior thereto represented outstanding shares of LILCO Common Stock
or which immediately prior thereto represented outstanding shares of Brooklyn
Union Common Stock (the "Exchanged Shares") that were cancelled or exchanged
for shares of Holding Company Common Stock, a letter of transmittal and
instructions for use in effecting the surrender of such Certificate in exchange
for certificates representing shares of Holding Company Common Stock.
Upon surrender of a Certificate to the Exchange Agent, together with a duly
executed letter of transmittal and such other documents, if any, as the
Exchange Agent shall require, the holder of such Certificate will be entitled
to receive a certificate representing that number of whole shares of Holding
Company Common Stock and any cash in lieu of a fractional share of Holding
Company Common Stock which such holder has the right to receive pursuant to the
Brooklyn Union/LILCO Agreement.
No fractional shares of Holding Company Common Stock will be issued in
connection with the Combination or the LIPA Transaction. For each fractional
share that would otherwise be issued, the Exchange Agent will pay an amount
equal to a pro rata portion of the proceeds of the sale by the Exchange Agent
of shares of Holding Company Common Stock representing the aggregate of all
such fractional shares, such sale to be executed by the Exchange Agent as
promptly as possible after the Effective Time.
If a transfer of ownership of Exchanged Shares is not registered in the
transfer records of LILCO or Brooklyn Union, as the case may be, and if the
transferee presents to the Exchange Agent: (i) the Certificate representing
such Exchanged Shares, (ii) all documents required to evidence and effect such
transfer, and (iii) evidence satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid, then a certificate representing
the proper number of shares of Holding Company Common Stock may be issued to
such transferee.
Until surrendered, each Certificate will be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
certificate representing the applicable number of shares of Holding Company
Common Stock and cash in lieu of any fractional share of Holding Company Common
Stock.
No dividends or other distributions declared or made after the Effective Time
with respect to shares of Holding Company Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Certificate,
and no cash payment in lieu of fractional shares will be paid to any such
holder until
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such Certificate is surrendered. After such surrender, subject to applicable
law, there will be paid to such holder, without interest, the unpaid dividends
and distributions, and any cash payment in lieu of a fractional share, to
which such holder is entitled.
If the transactions contemplated by the LIPA Agreement are consummated within
two years of the Effective Time, then the Exchange Agent will mail to each
holder of record of Certificates which immediately prior to the Effective Time
represented outstanding shares of LILCO Common Stock that were exchanged for
Holding Company Common Stock in compliance with the issuance procedures
described above certificates for the number of whole shares of Holding Company
Common Stock which such holder has the right to receive pursuant to the
Contingent Issuance. No dividends or other distributions declared or made after
the Effective Time with respect to shares of Holding Company Common Stock with a
record date after the Effective Time and prior to the consummation of the
transactions contemplated by the LIPA Agreement will be paid in respect of
shares to be issued pursuant to the Contingent Issuance. The procedures
described above with respect to fractional shares will be employed with respect
to shares to be issued pursuant to the Contingent Issuance.
From and after the consummation of the Combination, the common stock
transfer books of LILCO and Brooklyn Union will be closed and no transfer of
any LILCO Common Stock or Brooklyn Union Common Stock will thereafter be made.
If, after the consummation of the Combination, Certificates are presented to
the Holding Company, they will be cancelled and exchanged for certificates
representing the appropriate number of shares of Holding Company Common Stock.
HOLDERS OF LILCO COMMON STOCK AND BROOKLYN UNION COMMON STOCK
SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL.
REPRESENTATIONS AND WARRANTIES
The Brooklyn Union/LILCO Agreement contains customary representations and
warranties by each of Brooklyn Union and LILCO relating to, among other
things: (a) their respective organizations, the organization of their
respective subsidiaries and similar corporate matters; (b) their respective
capital structures; (c) authorization, execution, delivery, performance and
enforceability of the Brooklyn Union/LILCO Agreement and related matters; (d)
required governmental and regulatory approvals; (e) their compliance with
applicable laws and agreements; (f) reports and financial statements filed
with the SEC, FERC and NRC and the accuracy of information contained therein;
(g) the absence of any material adverse effect on their business, assets,
financial condition, results of operations or prospects; (h) the absence of
adverse material suits, claims or proceedings, and other litigation issues;
(i) the accuracy of information supplied by each of LILCO and Brooklyn Union
for use in this Joint Proxy Statement/Prospectus; (j) tax matters; (k)
retirement and other employee benefit plans and matters relating to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (l)
labor matters; (m) compliance with all applicable environmental laws,
possession of all material environmental, health, and safety permits and other
environmental issues; (n) the regulation of Brooklyn Union and LILCO and their
subsidiaries as public utilities; (o) the shareholder vote required for the
adoption of the Brooklyn Union/LILCO Agreement (as set forth in this Joint
Proxy Statement/Prospectus) being the only vote required to adopt the Brooklyn
Union/LILCO Agreement and the transactions contemplated thereby; (p) that,
except as contemplated in the Brooklyn Union/LILCO Agreement or the LIPA
Agreement, neither Brooklyn Union nor LILCO or any of their respective
affiliates have taken or agreed to take any action that would prevent the
Holding Company from accounting for the transactions to be effected pursuant
to the Brooklyn Union/LILCO Agreement as a pooling of interests; (q) the
inapplicability of certain provisions of New York law relating to business
combinations; (r) the delivery of fairness opinions by Merrill Lynch, in the
case of Brooklyn Union, and Dillon Read, in the case of LILCO; (s) the
maintenance of valid and enforceable insurance policies with financially
responsible insurers; (t) the absence of ownership of each other's stock; and
(u) the absence of any material
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impairment to the Holding Company's ability to realize the business synergies
described in the joint press release issued in connection with the
announcement of the Brooklyn Union/LILCO Agreement.
CERTAIN COVENANTS
Pursuant to the Brooklyn Union/LILCO Agreement, each of LILCO and Brooklyn
Union has agreed that, during the period from the date of the Original
Agreement until the consummation of the Combination, except as permitted by
the Brooklyn Union/LILCO Agreement, the Stock Option Agreements, the KeySpan
Exchange Agreement, the LIPA Agreement and the Hedge Arrangements (as defined
below), or as otherwise consented to in writing by the other parties and
subject to certain exceptions specified in the Brooklyn Union/LILCO Agreement,
each will (and each of its subsidiaries will), among other things:
(a) carry on its business in the ordinary course consistent with prior
practice;
(b) not declare or pay any dividends on or make other distributions in
respect of any of its capital stock other than (i) to such party or its
wholly-owned subsidiaries, (ii) dividends required to be paid on any
preferred stock, and (iii) regular quarterly dividends to be paid on LILCO
Common Stock and Brooklyn Union Common Stock not to exceed 103% of the
dividends for the prior fiscal year;
(c) not effect certain other changes in its capitalization other than
redeeming outstanding LILCO preferred stock as required by their terms and
Brooklyn Union preferred stock, in accordance with their terms;
(d) not issue or encumber any capital stock, rights, warrants, options or
convertible or similar securities;
(e) in the case of LILCO or Brooklyn Union, not amend its certificate of
incorporation, by-laws or other organizational documents;
(f) not acquire a substantial interest in any other entity;
(g) not make any capital expenditures in excess of 110% of the amount
budgeted or scheduled by such party for capital expenditures;
(h) not sell, lease, encumber or otherwise dispose of material assets,
other than in the ordinary course of business;
(i) not incur indebtedness (or guarantees thereof), other than in
connection with the refunding of existing indebtedness;
(j) not enter into, adopt or amend or increase the amount or accelerate
the payment or vesting of any benefit or amount payable under, any employee
benefit plan or other agreement, commitment, arrangement, plan or policy,
except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material
increase in benefits;
(k) not enter into or amend any special arrangement with respect to the
termination of employment or other similar contract, agreement or
arrangement with any director, officer or employee other than in the
ordinary course of business consistent with past practice;
(1) not commence construction of or obligate itself to purchase any
additional electric generating, transmission or delivery capacity, except
as budgeted;
(m) not take any action which would prevent the Holding Company from
accounting for the transactions to be effected pursuant to the Brooklyn
Union/LILCO Agreement as a pooling of interests;
(n) not take any action which would adversely affect the status of the
Merger as a tax-free transaction to Brooklyn Union common shareholders and,
unless the LIPA Agreement has been terminated, the Share Exchange as a
taxable transaction to the LILCO common shareholders, or to cause the
formation of the Holding Company to be a transaction to which Section 351
of the Code does not apply;
(o) notify the other parties of any changes in its rates or charges
(other than pass-through fuel and gas rates or charges) or standards of
service or accounting; and not make any filing to change its rates on file
with the PSC that
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would have a material adverse effect on the benefits associated with the
transactions contemplated by the Brooklyn Union/LILCO Agreement; and
(p) not take any action that is likely to jeopardize the qualification of
LILCO's or Brooklyn Union's outstanding revenue bonds as tax-exempt
industrial development bonds.
INDEMNIFICATION
The Brooklyn Union/LILCO Agreement provides that, to the extent, if any, not
provided by an existing right of indemnification or other agreement or policy,
from and after the consummation of the Combination, the Holding Company shall,
to the fullest extent permitted by applicable law, indemnify, defend and hold
harmless each person who was at, or who had been at any time prior to December
29, 1996, or who becomes prior to the Effective Time, an officer, director or
employee of any of the parties thereto or any of their respective subsidiaries
against all losses, expenses (including reasonable attorney's fees and
expenses), claims, damages or liabilities or, subject to the Holding Company
providing its written consent for any settlement which shall not be
unreasonably withheld, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the consummation of the Combination (and
whether asserted or claimed prior to, at or after the consummation of the
Combination) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of such party,
and all such indemnified liabilities to the extent they are based on or arise
out of or pertain to the transactions contemplated by the Brooklyn Union/LILCO
Agreement.
In addition, the Brooklyn Union/LILCO Agreement requires that for a period
of six years after the consummation of the Combination, the Holding Company
(and its successors and assigns) shall maintain in effect policies of directors'
and officers' liability insurance as maintained by Brooklyn Union and LILCO for
the benefit of those persons (and their heirs or representatives) who are
covered by such policies at December 29, 1996, or at any time subsequent thereto
and prior to the Effective Time, on terms no less favorable than the terms of
the then existing insurance coverage.
Also, the Brooklyn Union/LILCO Agreement provides that to the fullest extent
permitted by law, from and after the consummation of the Combination, all
rights to indemnification existing in favor of the employees, agents,
directors and officers of Brooklyn Union, LILCO and their respective
subsidiaries with respect to their activities as such prior to the
consummation of the Combination, as provided in their respective certificates
of incorporation and by-laws in effect on December 29, 1996, or otherwise in
effect on December 29, 1996, will survive the Combination and will continue in
full force and effect for a period of not less than six years from the
consummation of the Combination.
EMPLOYMENT AND WORKFORCE MATTERS
EMPLOYEE AGREEMENTS. The Brooklyn Union/LILCO Agreement provides that the
Holding Company and its subsidiaries must honor all contracts, agreements,
collective bargaining agreements and commitments of the parties made before
December 29, 1996 which apply to any current or former director or employee of
the parties thereto.
HOLDING COMPANY BOARD OF DIRECTORS. The number of directors comprising the
full Board of Directors of the Holding Company upon the consummation of the
Combination will be 15 persons, six of whom will be designated by Brooklyn
Union prior to the consummation of the Combination, six of whom will be
designated by LILCO prior to the consummation of the Combination and three of
whom will be designated by a committee consisting of two current Brooklyn
Union directors and two current LILCO directors.
SENIOR EXECUTIVES. Dr. Catacosinos will be the Chairman of the Board of
Directors, Chairman of the Executive Committee and Chief Executive Officer of
the Holding Company commencing at the Effective Time. At the first anniversary
of the consummation of the Combination, Dr. Catacosinos will cease to be the
Chief Executive Officer, but will continue to be Chairman of the Board and
Chairman of the Executive Committee and will become a consultant to the
Holding Company.
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Mr. Catell will be the President and Chief Operating Officer of the Holding
Company commencing upon the consummation of the Combination and will succeed
Dr. Catacosinos as Chief Executive Officer of the Holding Company commencing
on such first anniversary. The arrangements to cause such elections to take
place at such first anniversary may be altered only by a vote, following the
consummation of the Combination, of two-thirds of the entire Board of
Directors of the Holding Company.
In the event that the Merger is not consummated, the provision described in
the preceding paragraph will not take effect and Dr. Catacosinos will continue
to serve as Chairman of the Board of Directors, Chairman of the Executive
Committee and Chief Executive Officer of the Holding Company.
The Holding Company will enter into employment agreements with each of Dr.
Catacosinos and Mr. Catell effective upon the consummation of the Combination
providing for each of them to assume the specified positions. Dr. Catacosinos
will serve as a consultant to the Holding Company for a five-year period
commencing after he ceases being Chief Executive Officer, and Mr. Catell will
serve as Chief Executive Officer for a four-year period commencing on the
first anniversary of the consummation of the Combination. Each of them is to
receive compensation (including certain incentive compensation related to
achieving the synergies contemplated to be realized from the Combination) on
terms mutually agreed to and in any event in an amount not less than what each
received as of December 29, 1996 as well as reasonable increases, and
otherwise containing terms and conditions comparable to and no less favorable
than those customarily applicable to employment agreements for chief executive
officers of similarly sized companies in the energy and utility businesses.
STOCK AND BENEFIT PLANS
Each of the benefit plans of Brooklyn Union and LILCO in effect as of
December 29, 1996 will be continued for the employees or former employees of
Brooklyn Union and LILCO and any of their subsidiaries who are covered by such
plans immediately prior to the date of the closing of the Combination (the
"Closing Date"), until the Holding Company otherwise determines after the
consummation of the Combination (subject to any reserved right contained in
any such benefit plan) to amend, modify, suspend, revoke or terminate such
plan. To the extent that no duplication of benefit or funding results, each
participant in any such benefit plan will receive credit for purposes of
eligibility to participate, vesting, benefit accrual and eligibility to
receive benefits under any benefit plan of the Holding Company or any of its
subsidiaries or affiliates for service credited for the corresponding purpose
under such benefit plans.
Upon the consummation of the Merger, LILCO and Brooklyn Union will take all
action required to terminate their respective employee stock option, stock
purchase and other similar stock plans and:
(i) each share of Brooklyn Union Common Stock or LILCO Common Stock held
under Brooklyn Union's or LILCO's Dividend Reinvestment and Stock Purchase
Plans or Brooklyn Union's Employee Savings Plan, Discount Stock Purchase
Plan for Employees and Long-Term Performance Incentive Compensation Plan
(collectively, the "Brooklyn Union Plans") or LILCO's Employee Stock
Purchase Plan, Retainer Plan, Incentive Plan and Stock Plan (collectively,
the "LILCO Plans") immediately prior to the consummation of the Merger or
the Share Exchange, as the case may be, will be automatically exchanged for
the applicable number of shares of Holding Company Common Stock, which
shares will be held under and pursuant to Brooklyn Union's or LILCO's
Dividend Reinvestment and Stock Purchase Plans or be issued under such
Brooklyn Union Plan or LILCO Plan, as the case may be; and
(ii) upon the consummation of the Merger, each unexpired and unexercised
option to purchase shares of Brooklyn Union Common Stock under the Long-
Term Performance Incentive Compensation Plan, whether vested or unvested,
will be automatically converted into an option to purchase a number of
shares of Holding Company Common Stock equal to the number of shares of
Brooklyn Union Common Stock which could have been purchased immediately
prior to the consummation of the Merger (assuming full vesting) under such
option, at a price per share of Holding Company Common Stock equal to the
per share option exercise price specified in such option.
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NO SOLICITATION OF TRANSACTIONS
The Brooklyn Union/LILCO Agreement provides that no party thereto will, and
each such party will cause its subsidiaries not to, and each such party will
not permit any of its officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
(collectively, "Representatives") to, and each such party will use its best
efforts to cause such persons not to, directly or indirectly initiate, solicit
or encourage, or take any action to facilitate the making of any offer or
proposal which constitutes or is reasonably likely to lead to, any Business
Combination Proposal (as defined below), or, in the event of an unsolicited
Business Combination Proposal, except to the extent required by their
fiduciary duties under applicable law if so advised in a written opinion of
outside counsel, engage in negotiations or provide any information or data to
any person relating to any Business Combination Proposal.
As used above, "Business Combination Proposal" means any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving any party to the Brooklyn Union/LILCO Agreement or any of its
material subsidiaries, or any proposal or offer (in each case, whether or not
in writing and whether or not delivered to the shareholders of a party
generally) to acquire in any manner, directly or indirectly, a substantial
equity interest in or a substantial portion of the assets of any party to the
Brooklyn Union/LILCO Agreement or any of its material subsidiaries, other than
pursuant to the transactions contemplated by the Brooklyn Union/LILCO
Agreement and by the LIPA Agreement.
The Brooklyn Union/LILCO Agreement provides that until the termination or
consummation of the transactions contemplated by the Brooklyn Union/LILCO
Agreement, no party may engage in any negotiations or material discussions
with LIPA or its representatives or agents without prior notification to or
the presence of the other parties, and will not provide any information or
data to LIPA without providing a copy thereof to the other parties. Nothing
contained in the Brooklyn Union/LILCO Agreement will prohibit a party from
taking and disclosing to its shareholders a position contemplated by Rule 14e-
2(a) under the Securities Exchange Act of 1934, as amended, with respect to a
Business Combination Proposal by means of a tender offer.
ADDITIONAL AGREEMENTS
OTHER TRANSACTIONS. As discussed above, the Brooklyn Union/LILCO Agreement
contemplates the execution and delivery of, and performance of the
transactions contemplated by, the KeySpan Exchange Agreement.
The Brooklyn Union/LILCO Agreement recognizes that, in connection with the
LIPA Agreement, LILCO and Brooklyn Union contemplate the formation of a
partnership for the purpose of purchasing interest rate hedge contracts, to be
funded through capital contributions of up to $30 million by each of them (the
formation of such partnership and the purchase of such contracts being
referred to herein as the "Hedge Arrangements").
The Brooklyn Union/LILCO Agreement provides that LILCO will not modify,
amend or terminate the LIPA Agreement, and will not provide any consent,
waiver or release thereunder without the prior written consent of Brooklyn
Union.
RULE 145 AFFILIATES. Brooklyn Union and LILCO have identified in letters to
one another all persons who are, and to such person's best knowledge who will
be at the Closing Date, affiliates of Brooklyn Union and LILCO, respectively,
as such term is used in Rule 145 under the Securities Act (or otherwise under
applicable SEC accounting releases with respect to pooling of interests
accounting treatment).
Each of Brooklyn Union and LILCO has agreed to use all reasonable efforts to
cause their respective affiliates (including any person who may be deemed to
have become an affiliate after the date of the letter referred to in the
preceding paragraph) to deliver to the Holding Company on or prior to the
Closing Date a written agreement customary for transactions of this nature and
in form and substance reasonably satisfactory to Brooklyn Union and LILCO.
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If any person refuses to provide such a written agreement, then, in lieu of
receipt of such written agreement, the Holding Company is entitled to place
appropriate legends on the Holding Company Common Stock certificates to be
received by such person pursuant to the terms of the Brooklyn Union/LILCO
Agreement, and to issue appropriate stock transfer instructions to the
transfer agent for the Holding Company Common Stock, to the effect that the
shares of Holding Company Common Stock received or to be received by such
person pursuant to the terms of the Brooklyn Union/LILCO Agreement may only be
sold, transferred or otherwise conveyed, and the holder thereof may only
reduce his interest in or risks relating to such shares of Holding Company
Common Stock, pursuant to an effective registration statement under the
Securities Act, in compliance with Rule 145 thereof, as amended from time to
time, or in a transaction which, in the opinion of legal counsel satisfactory
to the Holding Company, is exempt from the registration requirements of the
Securities Act.
The foregoing restrictions on the transferability of Holding Company Common
Stock apply to all purported sales, transfers and other conveyances of the
shares of Holding Company Common Stock received or to be received by such
person pursuant to the Brooklyn Union/LILCO Agreement and to all purported
reductions in the interest in or risks relating to such shares of Holding
Company Common Stock, whether or not such person has exchanged the
certificates previously evidencing such persons' shares of Brooklyn Union
Common Stock or LILCO Common Stock, as the case may be, for certificates
evidencing shares of Holding Company Common Stock into which such shares were
converted.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE COMBINATION
The respective obligations of LILCO and Brooklyn Union to effect the
Combination are subject to the following conditions:
(a) the adoption by the shareholders of Brooklyn Union and LILCO of the
Brooklyn Union/LILCO Agreement and the transactions contemplated thereby;
(b) no temporary restraining order or preliminary or permanent injunction
or other order will be in effect that prevents consummation of the
Combination, and the Combination and other transactions contemplated by the
Brooklyn Union/LILCO Agreement will not be prohibited under any applicable
law;
(c) the Joint Proxy Statement/Prospectus will have become effective and
will not be the subject of a stop order;
(d) the shares of Holding Company Common Stock to be issued in connection
with the Combination will have been approved for listing on the New York
Stock Exchange upon official notice of issuance;
(e) the receipt of all material governmental and regulatory
authorizations, consents, orders or approvals shall have been obtained,
shall have become Final Orders (as defined in the Brooklyn Union/LILCO
Agreement) and shall not impose terms or conditions which could reasonably
be expected to have a material adverse effect;
(f) unless the LIPA Transaction has been consummated, or will be
consummated contemporaneously with the Combination, the receipt by each of
LILCO and Brooklyn Union of letters from their independent public
accountants stating that they concur with management's conclusion that no
conditions exist that would preclude the transactions contemplated by the
Brooklyn Union/LILCO Agreement from qualifying as pooling of interests
transactions under generally accepted accounting principles;
(g) if the LIPA Agreement has not been terminated, the issuance by the
Holding Company of an appropriate amount, not in excess of $100 million, of
preferred stock to such persons (which persons may include, among others,
defined benefit plans, employees, officers and directors of Brooklyn Union
or LILCO, and investment bankers) and upon such terms so as to cause the
formation of the Holding Company to be a transaction to which Section 351
of the Code does not apply;
(h) the receipt of an opinion, dated as of the Closing Date, to the
effect that the Share Exchange will satisfy the requirements of Section 351
of the Code, if the LIPA Transaction has been terminated;
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(i) with respect to each of Brooklyn Union and LILCO, the performance in
all material respects of all obligations of the other party required to be
performed under the Brooklyn Union/LILCO Agreement and the Stock Option
Agreements;
(j) with respect to each of Brooklyn Union and LILCO, the accuracy of the
representations and warranties of the other party set forth in the Brooklyn
Union/LILCO Agreement and the Stock Option Agreements on and as of December
29, 1996 and as of the Closing Date (except as would not reasonably be
likely to result in a material adverse effect);
(k) LILCO and Brooklyn Union receive officers' certificates from each
other stating that certain conditions set forth in the Brooklyn Union/LILCO
Agreement have been satisfied;
(l) with respect to each of Brooklyn Union and LILCO, the absence of any
material adverse effect on the business, assets, financial condition,
results of operations or prospects of the other party and its subsidiaries
taken as a whole;
(m) with respect to Brooklyn Union, the receipt of an opinion, dated as
of the Closing Date, to the effect that the Merger will qualify as a
reorganization pursuant to Section 368 of the Code; and
(n) with respect to each of Brooklyn Union and LILCO, the receipt by the
other party of certain material third-party consents.
In addition, the Brooklyn Union/LILCO Agreement provides that it is a
condition to the obligation of Brooklyn Union to hold the Brooklyn Union
Meeting that the opinion of Merrill Lynch attached hereto as Annex E has not
been withdrawn, and it is a condition to the obligation of LILCO to hold the
LILCO Meeting that the opinion of Dillon Read attached hereto as Annex F has
not been withdrawn.
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to Brooklyn Union's or LILCO's obligations to
consummate the Combination may be waived by the parties. Any determination to
waive a condition would depend upon the facts and circumstances existing at
the time of such waiver and would be made by the waiving party's Board of
Directors, exercising its fiduciary duties to such party and its shareholders.
TERMINATION
The Brooklyn Union/LILCO Agreement may be terminated at any time prior to
the Closing Date, whether before or after approval by the shareholders of
LILCO and Brooklyn Union:
(a) by mutual written consent of the Boards of Directors of Brooklyn
Union and LILCO;
(b) by either party to the Brooklyn Union/LILCO Agreement, by written
notice to the other party, if the Effective Time has not occurred on or
before August 31, 1998 (or April 28, 1999 if all but certain specified
conditions have been or are capable of being fulfilled on August 31, 1998),
but only if the failure of the Effective Time to occur was not caused by
that party's failure to fulfill any of its obligations under the Brooklyn
Union/LILCO Agreement, and provided that LILCO will not have the right to
terminate the Brooklyn Union/LILCO Agreement pursuant to this provision if
the LIPA Agreement has not been terminated;
(c) by either party to the Brooklyn Union/LILCO Agreement, by written
notice to the other party, if any required shareholder approval has not
been obtained at a duly held meeting of shareholders or at any adjournment
thereof;
(d) by either party to the Brooklyn Union/LILCO Agreement, if any state
or federal law, order, rule or regulation is adopted or issued which has
the effect of prohibiting the Combination, or if any court of competent
jurisdiction in the U.S. or any state has issued an order, judgment or
decree permanently restraining, enjoining or otherwise prohibiting the
Combination, and such order, judgment or decree has become final and
nonappealable;
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(e) by either LILCO or Brooklyn Union, upon two-days' prior notice to the
other party, if:
(i) such party receives a tender offer or any written offer or
proposal with respect to a merger of such party, sale of a material
portion of such party's assets or other business combination involving
such party (each, a "Business Combination") by a person other than
LILCO, in the case of Brooklyn Union, or Brooklyn Union or LIPA, in the
case of LILCO, or any of their respective affiliates,
(ii) such party's Board of Directors determines in good faith that
its fiduciary obligations under applicable law require that such tender
offer or other written offer or proposal be accepted,
(iii) the Board of Directors of such party has been advised in a
written opinion of outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of the Brooklyn
Union/LILCO Agreement entered into in the proper exercise of their
applicable fiduciary duties, and notwithstanding all concessions which
may be offered by the other party, such fiduciary duties would also
require the directors to reconsider such commitment as a result of such
tender offer or other written offer or proposal, and
(iv) prior to any such termination, such party shall, and shall cause
its respective financial and legal advisors to, negotiate with the
other party to make such adjustments in the terms and conditions of the
Brooklyn Union/LILCO Agreement as would enable such party to proceed
with the transactions contemplated thereby on such adjusted terms;
(f) by either LILCO or Brooklyn Union, by written notice to the other
party, if:
(i) the other party is in breach of the representations and
warranties it made in the Brooklyn Union/LILCO Agreement and such
breaches, individually or in the aggregate, would or would be
reasonably likely to result in a material adverse effect on the
business, assets, financial condition, results of operations or
prospects of the non-breaching party and its subsidiaries taken as a
whole, and such breaches have not been remedied within 20 days after
receipt by the breaching party of notice in writing from the non-
breaching party, specifying the nature of such breaches and requesting
that they be remedied,
(ii) the other party (and/or its appropriate subsidiaries) has not
performed and complied in all respects with certain agreements and
covenants relating to the absence of changes in capitalization or
issuance of securities or has failed to perform and comply, in all
material respects, with its other agreements and covenants under the
Brooklyn Union/LILCO Agreement or under the LILCO Stock Option
Agreement or the Brooklyn Union Stock Option Agreement, as the case may
be, and such failure to perform or comply has not been remedied within
20 days after receipt by the breaching party of notice in writing from
the non-breaching party, specifying the nature of such failure and
requesting that it be remedied, or
(iii) the Board of Directors of the other party or any committee
thereof (A) withdraws or modifies in any manner adverse to the party
giving notice its approval or recommendation of the Brooklyn
Union/LILCO Agreement or the Combination, (B) fails to reaffirm such
approval or recommendation upon the request of the party giving notice,
(C) approves or recommends any acquisition of itself or a material
portion of its assets or any tender offer for shares of its capital
stock, in each case by a party other than the party giving notice or
any of its affiliates (other than, in the case of the LILCO Board, with
respect to the LIPA Agreement, as such agreement may be amended from
time to time with the consent of Brooklyn Union, and with respect to
the transactions contemplated thereby) or (D) resolves to take any of
the actions specified in clause (A), (B) or (C); or
(g) by either LILCO or Brooklyn Union, by written notice to the other
party, if any of the conditions of either party's obligation to effect the
Combination cannot be satisfied.
If the Brooklyn Union/LILCO Agreement is terminated by either LILCO or
Brooklyn Union as provided above, then neither LILCO, Brooklyn Union nor their
respective officers or directors will be liable or have any obligations
thereunder other than: (i) to hold in strict confidence all documents
furnished to the other in accordance with the Confidentiality Agreement
between LILCO and Brooklyn Union, dated October 24, 1995,
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as it may be amended from time to time; (ii) to pay certain fees and expenses
pursuant to certain specified provisions of the Brooklyn Union/LILCO Agreement
described below under "--Termination Fees" and (iii) to comply with certain
other specified provisions of the Brooklyn Union/LILCO Agreement.
If the Brooklyn Union/LILCO Agreement is terminated pursuant to its terms,
LILCO and the Holding Company may consummate the Share Exchange for the
purpose of consummating the LIPA Transaction on the basis of one share of
Holding Company Common Stock for each share of LILCO Common Stock.
TERMINATION FEES
The Brooklyn Union/LILCO Agreement provides that if such agreement is
terminable by either (but not both) of Brooklyn Union and LILCO for breaches
of any representations or warranties contained therein, or of agreements and
covenants contained therein or in the LILCO Stock Option Agreement or the
Brooklyn Union Stock Option Agreement described below, as the case may be, and
the non-breaching party terminates pursuant to the provisions of the Brooklyn
Union/LILCO Agreement described in clauses (f)(i) and (f)(ii) under "--
Termination" above, then, if such breach is not willful, the non-breaching
party is entitled to reimbursement of its documented out-of-pocket expenses,
not to exceed $10 million.
In the event of a termination pursuant to such provisions as a result of a
willful breach, the non-breaching party will be entitled to its out-of-pocket
expenses (which shall not be limited to $10 million) and any remedies it may
have at law or in equity, provided that, if:
(i) at the time of the breaching party's willful breach, there has been a
third-party tender offer or proposal with respect to a Business Combination
involving the breaching party or one of its affiliates which at the time of
termination has not been rejected by the breaching party and withdrawn by
the third party, and
(ii) within two and one-half years of any termination by the non-
breaching party, the breaching party or an affiliate thereof becomes a
subsidiary of such third party or one of its affiliates or accepts an offer
to consummate or consummates a Business Combination with such third party,
then such breaching party, upon the signing of a definitive agreement relating
to such a Business Combination, or, if no such agreement is signed then at the
closing of such Business Combination, will pay to the non-breaching party an
additional fee equal to $65 million (if the breaching party is LILCO) or $35
million (if the breaching party is Brooklyn Union).
The Brooklyn Union/LILCO Agreement requires payment of an additional
termination fee in certain circumstances, if:
(i) the Brooklyn Union/LILCO Agreement is terminated:
(A) as a result of the determination in good faith by either the
LILCO Board or the Brooklyn Union Board that its fiduciary obligations
require the acceptance by either LILCO or Brooklyn Union, as the case
may be, of a third-party tender offer or proposal with respect to a
Business Combination pursuant to the provisions of the Brooklyn
Union/LILCO Agreement described in clause (e) under "--Termination"
above,
(B) following a withdrawal or modification in a manner adverse to the
other party by the Board of Directors of such party of its
recommendation of the Combination, a failure of the Board of Directors
of such party to reaffirm its approval or recommendation of the Binding
Share Exchanges upon request or on approval or recommendation by the
Board of Directors of such party of any acquisition by a third party of
such party or a material portion of such party's assets, or
(C) as a result of such party's material failure to convene a
shareholder meeting, distribute proxy materials and, subject to its
Board of Directors' fiduciary duties, recommend the Brooklyn
Union/LILCO Agreement and the Combination to its shareholders;
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(ii) at the time of such termination or prior to the meeting of such
party's shareholders, there shall have been a third-party tender offer or
proposal with respect to a Business Combination involving such party or any
of its affiliates which has not been rejected by such party and withdrawn
by the third party; and
(iii) within two and one-half years of any such termination described in
clause (i) above, the party which was the subject of such offer or proposal
(the "Subject Party") becomes a subsidiary or affiliate of such offeror or
accepts an offer to consummate or consummates a Business Combination with
such offeror (or a subsidiary or affiliate of such offeror).
Upon the signing of a definitive agreement between the Subject Party and the
third party or, if no such agreement is signed, then at the closing of the
Subject Party becoming such a subsidiary or such third-party Business
Combination, the Subject Party must pay to the other party $75 million (if the
Subject Party is LILCO) or $45 million (if the Subject Party is Brooklyn
Union), plus, in either case, the out-of-pocket fees and expenses incurred by
the other party arising out of, in connection with or related to the
transactions contemplated by the Brooklyn Union/LILCO Agreement.
The Brooklyn Union/LILCO Agreement provides a limitation on the total
aggregate amount payable as termination fees by either party pursuant to the
Brooklyn Union/LILCO Agreement and the Stock Option Agreements. The total
amount of all termination fees payable will not exceed $90 million for LILCO
(and its affiliates) and $50 million for Brooklyn Union (and its affiliates).
In the event that the Brooklyn Union/LILCO Agreement becomes terminable
under circumstances in which a $75 million or $45 million termination fee
could be payable by one party pursuant to the immediately preceding paragraph,
such event will also constitute a "Trigger Event" under the Stock Option
Agreement pursuant to which such paying party is obligated to issue an option
to the other party so as to entitle the other party to require such paying
party to repurchase such option or the Option Shares (as defined below) issued
upon exercise thereof. See "The Stock Option Agreements."
For purposes of the provisions of the Brooklyn Union/LILCO Agreement
relating to the termination fee, the LIPA Agreement is deemed to be a proposal
for a Business Combination involving LILCO, and LIPA is deemed to be the
offeror with respect thereto, and any fee for the benefit of Brooklyn Union
would be payable under such provisions at the time the Brooklyn Union/LILCO
Agreement is terminated; provided that if the Brooklyn Union/LILCO Agreement
is terminated following a failure by the shareholders of LILCO to adopt the
Brooklyn Union/LILCO Agreement, then the LIPA Agreement will not be deemed a
proposal for a Business Combination involving LILCO and no termination fee
will be payable to Brooklyn Union by virtue of the LIPA Agreement.
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THE STOCK OPTION AGREEMENTS
The following is a brief summary of the material terms of the Amended and
Restated LILCO Stock Option Agreement and the Amended and Restated Brooklyn
Union Stock Option Agreement, copies of which are attached as Annex B and
Annex C, respectively, and which are incorporated herein by reference. Such
summary is qualified in its entirety by reference to such Amended Stock Option
Agreements. The Amended Stock Option Agreements are intended to increase the
likelihood that the Combination will be consummated in accordance with the
terms of the Brooklyn Union/LILCO Agreement. Consequently, certain aspects of
the Amended Stock Option Agreements may have the effect of discouraging
persons who might now or prior to the Effective Time be interested in
acquiring all of or a significant interest in, or otherwise effecting a
Business Combination with, Brooklyn Union or LILCO from considering or
proposing such a transaction, even if such persons were prepared to offer to
pay consideration to shareholders of Brooklyn Union or LILCO, as the case may
be, which had a higher value than the shares of Holding Company Common Stock
to be received per share of Brooklyn Union Common Stock or LILCO Common Stock,
as the case may be, pursuant to the Brooklyn Union/LILCO Agreement.
GENERAL
Pursuant to mutual Amended Stock Option Agreements entered into concurrently
with the Brooklyn Union/LILCO Agreement, LILCO has granted to Brooklyn Union
an option to purchase, under certain circumstances, up to 23,981,964 shares of
LILCO Common Stock at a price of $19.725 per share and Brooklyn Union has
granted to LILCO an option to purchase, under certain circumstances, up to
9,948,682 shares of Brooklyn Union Common Stock at a price of $30.0375 per
share (collectively, the "Options," and the holder of each such Option, the
"Option Holder"). Shares of LILCO Common Stock purchasable by Brooklyn Union
and shares of Brooklyn Union Common Stock purchasable by LILCO pursuant to the
Options are collectively referred to as "Option Shares." The exercise price is
payable, at the Option Holder's option, in cash or, subject to any required
governmental approvals, in shares of common stock of the Option Holder.
The Options may be exercised by the Option Holder, in whole or in part, at
any time or from time to time after the Brooklyn Union/LILCO Agreement becomes
terminable by such Option Holder under circumstances which could entitle such
Option Holder to termination fees as a result of a Trigger Event (as defined
in the Amended Stock Option Agreements and referred to above under "The
Agreement and Plan of Exchange and Merger--Termination Fees"), regardless of
whether the Brooklyn Union/LILCO Agreement is actually terminated or whether
there occurs a closing of any Business Combination.
The Options will terminate upon the earlier of (i) the Effective Time, (ii)
the termination of the Brooklyn Union/LILCO Agreement pursuant to its terms
(other than a termination upon or during the continuance of a Trigger Event),
or (iii) 180 days following any termination of the Brooklyn Union/LILCO
Agreement upon or during the continuance of a Trigger Event (or, if at the
expiration of such 180-day period, the Option cannot be exercised by reason of
any applicable judgment, decree, order, law or regulation, ten business days
after such impediment to exercise has been removed or has become final and is
not subject to appeal, but in no event under this clause (iii) later than
April 28, 1999).
Notwithstanding the foregoing, no Option may be exercised (a) if the Option
Holder is in material breach of any of its material representations or
warranties, or in material breach of any of its covenants or agreements
contained in the applicable Amended Stock Option Agreement or in the Brooklyn
Union/LILCO Agreement, or (b) until all necessary regulatory approvals have
been obtained for the acquisition of shares pursuant to such Option.
CERTAIN REPURCHASES
Under the terms of the Amended Stock Option Agreements, at any time during
which the Option is exercisable (the "Repurchase Period"), the Option Holder
has the right to require the issuer of the Option (the
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"Issuer") to repurchase from the Option Holder all or any portion of the
Option or, at any time prior to August 31, 1998 (provided that such date shall
be extended to April 28, 1999 under the circumstances where the date after
which either party may terminate the Brooklyn Union/LILCO Agreement has been
extended to April 28, 1999), all or any portion of the Option Shares purchased
pursuant to the exercise of the Option.
The amount that the Issuer will pay to the Option Holder to repurchase the
Option is the difference between the Market/Offer Price (as defined below) for
shares of Issuer's Common Stock as of the date the Option Holder gives notice
of its intent to exercise its repurchase rights (the "Notice Date") and the
exercise price for the Option, multiplied by the number of Option Shares
purchasable pursuant to the Option, or the portion thereof to be so
repurchased, but only if the Market/Offer Price is greater than such exercise
price. The amount that the Issuer will pay to the Option Holder to repurchase
the Option Shares is the exercise price paid by the Option Holder for the
Option Shares plus the difference between the Market/Offer Price and the
exercise price paid by the Option Holder for the Option Shares (but only if
the Market/Offer Price is greater than such exercise price), multiplied by the
number of Option Shares to be so repurchased. If such repurchase price was at
a level where a contemplated repurchase would otherwise be subject to a vote
of the shareholders of the Issuer pursuant to Section 513(e) of the NYBCL,
then such repurchase price may be reduced at the Issuer's option to an amount
which would permit such repurchase without the necessity for such a
shareholder vote.
The Amended Stock Option Agreements define "Market/Offer Price" as the
higher of (A) the price per share offered as of the Notice Date pursuant to
any tender or exchange offer or other Business Combination offer which was
made prior to the Notice Date and not terminated or withdrawn as of such date
or (B) the Fair Market Value of the Issuer's Common Stock as of the Notice
Date (which is defined in the Stock Option Agreements as the average of the
daily closing sale price for such shares on the New York Stock Exchange during
the ten New York Stock Exchange trading days prior to the fifth New York Stock
Exchange trading day preceding such date). The price per share for the
repurchase by the Issuer of Option Shares purchased by the Option Holder
pursuant to the Option is the highest price per share offered pursuant to a
tender or exchange offer or other Business Combination offer which was made
during the Repurchase Period prior to the Notice Date.
At any time prior to August 31, 1998 (which date may be extended to April
28, 1999 under the circumstances described above), the Option Holder may also
require the Issuer to sell to the Option Holder any shares of the Option
Holder's Common Stock delivered by the Option Holder to the Issuer in payment
for the exercise price of the Option, at the price attributed to such shares
for such purpose plus interest at the rate of 6.5% per annum (from the date of
the delivery of such shares through the date of such repurchase) less any
dividends paid or declared and payable thereon.
RESTRICTIONS ON TRANSFER
The Amended Stock Option Agreements provide that neither party may sell,
assign, pledge or otherwise dispose of or transfer the shares it acquires
pursuant to the Amended Stock Option Agreements (collectively, the "Restricted
Shares") except as specifically provided for in the Amended Stock Option
Agreements. In addition to the repurchase rights described above under "--
Certain Repurchases," subsequent to the termination of the Brooklyn
Union/LILCO Agreement, the parties have the right to have such shares of the
other party registered under the Securities Act for sale in a public offering.
The Amended Stock Option Agreements also provide that, following the
termination of the Brooklyn Union/LILCO Agreement, either party may sell any
Restricted Shares pursuant to a tender or exchange offer approved or
recommended, or otherwise determined to be fair and in the best interests of
such other party's shareholders, by a majority of the Board of Directors of
such other party.
KeySpan will succeed to the rights and obligations of Brooklyn Union under
the Amended Stock Option Agreements if the KeySpan Agreement is adopted by
Brooklyn Union common shareholders at the Brooklyn Union Meeting and the
KeySpan Share Exchange is consummated. In such event, among other things,
KeySpan Common Stock, and not Brooklyn Union Common Stock, will be subject to
issuance upon any exercise of the Amended Brooklyn Union Stock Option
Agreement.
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THE LIPA TRANSACTION
The following is a summary of the material terms of the LIPA Agreement,
which is attached as Annex D and which is incorporated herein by reference.
This summary is qualified in its entirety by reference to the LIPA Agreement.
AGREEMENT AND PLAN OF MERGER
LILCO and LIPA entered into the LIPA Agreement as of June 26, 1997. The LIPA
Agreement requires: (i) LIPA to form a subsidiary (referred to as "LIPA Sub")
and to cause LIPA Sub to execute a counterpart of the LIPA Agreement; and (ii)
LILCO to form the Holding Company and to cause the Holding Company to execute
a counterpart of the LIPA Agreement prior to the closing thereunder. The LIPA
Agreement provides that LIPA Sub (a subsidiary of LIPA) is to merge with and
into LILCO, with LILCO to be the surviving corporation (the "Surviving
Corporation"). Before the closing of the LIPA Transaction (the "LIPA
Closing"), the Holding Company will form subsidiaries, which are referred to
as the Transferee Subsidiaries. At the direction of the Holding Company, the
Transferee Subsidiaries will enter into certain agreements in connection with
the LIPA Transaction, which are referred to as the Basic Agreements (as
defined below). The Transferee Subsidiaries will also receive certain assets
and properties of LILCO to be transferred as part of the LIPA Transaction (the
"Transferred Assets"). The LIPA Agreement sets out the principles and
procedures to be used to decide which LILCO assets and properties will be part
of the Transferred Assets and which will remain with the Surviving Corporation
(the "Retained Assets").
Immediately prior to the effective time of the LIPA merger described below
(the "LIPA Effective Time"), LILCO will transfer the Transferred Assets to the
Transferee Subsidiaries in exchange for (x) a number of shares of Holding
Company Common Stock to be designated by the Holding Company prior to such
time and representing the Holding Company's estimate of the fair market value
of the Transferred Assets and (y) up to $75 million face amount of a series of
Holding Company Preferred Stock having terms to be designated by the Holding
Company prior to such time (the "Private Placement Preferred Stock").
It is anticipated that LILCO will be obligated to sell the Private Placement
Preferred Stock, immediately prior to the LIPA Effective Time, to one or more
purchasers in a private placement. It is anticipated that the Private
Placement Preferred Stock will:
(i) have a final maturity date more than five years after the LIPA
Effective Time,
(ii) be non-voting (except for failure to pay dividends for a specified
period of time),
(iii) be non-convertible, and
(iv) have other terms and conditions to be determined at the time of
sale.
At the LIPA Effective Time, and without any action on the part of any holder
of any capital stock of the Holding Company, LILCO or LIPA Sub, the shares of
capital stock of LILCO will be treated as follows:
(i) The following shares (the "Cancelled Shares") will be cancelled and
retired, without the payment of any consideration:
(a) Each share of LILCO Common Stock and each share of LILCO
preferred stock that is owned by LILCO as treasury stock; and
(b) Each share of LILCO preferred stock owned by any direct or
indirect wholly owned subsidiary of the Holding Company immediately
prior to the LIPA Effective Time.
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(ii) Each issued and outstanding share of LILCO Common Stock, other than
Cancelled Shares and shares of LILCO Common Stock held by any dissenting
shareholder, will be cancelled and converted into the right to receive:
(a) an amount in cash equal to the Cash Purchase Price (as defined
below) divided by the number of shares of LILCO Common Stock
outstanding, and
(b) a pro rata distribution of the Company Common Stock received by
LILCO in exchange for the Transferred Assets.
(iii) Each holder of such shares will be deemed to have appointed an
Exchange Agent (as defined in the LIPA Agreement) as its agent to receive
the cash and to use the cash to subscribe for shares of Holding Company
Common Stock. The number of shares of Holding Company Common Stock
distributable to holders of LILCO Common Stock in respect of each share of
LILCO Common Stock, aggregating the number distributable from the Holding
Company Common Stock received by LILCO in exchange for the Transferred
Assets with the number distributable from the purchase by the Exchange
Agent of additional shares of Holding Company Common Stock out of the cash
merger consideration, will equal:
(a) 0.880 shares of Holding Company Common Stock if the Combination
is consummated concurrently with the LIPA Effective Time, or
(b) one share of Holding Company Common Stock if the Combination is
not consummated concurrent with the LIPA Effective Time.
(iv) If the Combination has been consummated prior to the LIPA Effective
Time, then:
(a) no shares of Holding Company Common Stock or Private Placement
Preferred Stock will be delivered in exchange for the Transferred
Assets,
(b) the Holding Company and/or one or more of its subsidiaries, as
the holders of all then outstanding LILCO Common Stock, will receive
all of the cash merger consideration, and
(c) an additional 0.077 shares of Holding Company Common Stock will
be distributed to the record holders as of the Effective Time of LILCO
Common Stock in respect of each share of LILCO Common Stock.
(v) Each issued and outstanding share of Series AA preferred stock of
LILCO, other than Cancelled Shares and shares of LILCO Series AA preferred
stock held by any dissenting shareholder ("Dissenting Preferred Shares"),
will be cancelled and converted into the right to receive one fully paid
and non-assessable share of preferred stock of the Holding Company with
identical rights (including dividend rates) and designations to the Series
AA preferred stock.
(vi) Each issued and outstanding share of LILCO Preferred Stock that is
subject to optional redemption by LILCO at or before the LIPA Closing Date,
other than Cancelled Shares, will be called for redemption by LILCO not
later than the LIPA Closing Date. Each such share of LILCO Preferred Stock
will be redeemed for cash by LILCO in accordance with the terms applicable
to such shares. The aggregate amount of accrued but unpaid dividends and
redemption premiums payable by LILCO in respect of such redemptions will be
paid by the Holding Company to LILCO not later than two business days prior
to the date the applicable redemption price is payable.
(vii) Each issued and outstanding share of LILCO Preferred Stock, other
than Cancelled Shares, Dissenting Preferred Shares, shares of Series AA
preferred stock and redeemable preferred stock (collectively, the "Non-
redeemable Preferred Stock"), will be cancelled and converted into the
right to receive cash in the amount of the sum of (x) the Make-Whole Amount
and (y) accrued but unpaid dividends in respect of such share through the
LIPA Closing Date. As used in this Joint Proxy Statement/Prospectus, "Make-
Whole Amount" means, with respect to such share, an amount equal to the
present value of:
(i) the face or liquidation preference amount of such share, and
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(ii) the remaining dividend payments due on such share between the
LIPA Closing Date and the applicable redemption date computed using a
discount rate equal to the applicable Fair Market Rate divided by 0.95.
"Fair Market Rate" is defined as the Generic General Obligation Fair Market
Yield for Baa rated Low/Medium Coupon General Municipal Obligations at the
time of the computation as reported on Bloomberg, with a maturity most
nearly equal to the period between cancellation and final redemption of
such series of Non-redeemable Preferred Stock Low/Medium Coupon General.
The period between cancellation and redemption refers to the period between
the Closing Date and: (A) August 1, 2002, with respect to the Series CC
Preferred Stock, (B) March 1, 1999, with respect to the Series GG Preferred
Stock, (C) May 1, 2001, with respect to the Series QQ Preferred Stock, and
(D) October 16, 2018, with respect to the Series UU Preferred Stock. The
amount by which the aggregate amount payable exceeds 100% of the aggregate
face or liquidation preference amounts for all shares of Non-redeemable
Preferred Stock shall be paid by the Holding Company to the Surviving
Corporation promptly after the LIPA Effective Time.
The "Cash Purchase Price" to be paid by LIPA will be $2,497,500,000. The
Cash Purchase Price was determined based upon the net book value of the
Retained Assets, which was $2,500,800,000 and is set forth in the pro form
consolidated balance sheet of LILCO as of December 31, 1997 prepared by LILCO.
The Cash Purchase Price is based upon the assumption that the total long
term indebtedness of LILCO on the LIPA Closing Date will not exceed
$3,576,000,000 (the "Retained Debt Amount"). The Retained Debt Amount will be
adjusted based upon its net book value, as reflected on LILCO's audited
consolidated balance sheet as of the LIPA Closing Date, as follows. The
Retained Debt Amount will be either:
(i) increased by the amount, if any, by which the net book value of the
Retained Assets exceeds $2,500,800,000; or
(ii) decreased by the amount, if any, by which the net book value of the
Retained Assets is less than $2,500,800,000.
At the LIPA Closing, the Holding Company will, and will cause each of the
Transferee Subsidiaries to, execute and deliver promissory notes (the
"Promissory Notes") on the following terms:
(i) The aggregate principal amount will be equal to the excess, if any,
of the indebtedness of LILCO outstanding on the LIPA Closing Date over the
Retained Debt Amount.
(ii) The rates and maturities will correspond to each portion of debt
underlying the indebtedness of LILCO on the LIPA Closing Date; provided,
however, that the interest and principal payment dates will be adjusted to
require payment by the Holding Company 30 days prior to the corresponding
payment dates on the underlying debt.
LILCO currently has a series of 7.3% Debentures due July 15, 1999, with an
approximate aggregate principal amount currently outstanding of $397 million,
and a series of 8.20% Debentures due March 15, 2023, with an approximate
aggregate principal amount currently outstanding of $270 million. Subject to
obtaining all required consents, the Holding Company will assume these
obligations at the LIPA Closing. Certain other tax exempt authority financing
notes will be identified by the parties to the LIPA Agreement and assumed by
the Holding Company (subject to obtaining all required consents and to tax
counsel's concurrence).
The LIPA Agreement contains customary representations, warranties and
covenants by each of the Holding Company, LILCO, LIPA and LIPA Sub. The
respective obligations of the parties to the LIPA Agreement to effect the LIPA
Transaction are subject to the satisfaction of certain conditions on or prior
to the LIPA Closing Date, including, among others:
(i) receipt of certain statutory approvals;
(ii) entry into each of the other Basic Agreements by the relevant
parties;
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(iii) receipt of favorable private letter rulings with respect to Section
337(d) of the Code; and
(iv) LIPA having obtained financing sufficient to fund the Cash Purchase
Price and certain other transactions.
The respective obligations of the parties to effect the LIPA Transaction are
also subject to the condition that, on or prior to the LIPA Closing Date,
either: (i) the transactions contemplated by the Brooklyn Union/LILCO
Agreement will have been consummated, (ii) the Brooklyn Union/LILCO Agreement
will have been terminated or (iii) all conditions to consummation of the
transactions contemplated by the Brooklyn Union/LILCO Agreement will have been
satisfied or waived and such transactions will be consummated promptly after
the LIPA Closing.
The LIPA Agreement is subject to termination by the parties in certain
circumstances, including, among others, by the Holding Company and LILCO, on
the one hand, or LIPA and LIPA Sub, on the other hand, if the LIPA Closing has
not occurred on or before August 31, 1998 (or April 28, 1999 if all but
certain specified conditions have been or are capable of being fulfilled on
August 31, 1998), but only if the failure of the LIPA Closing to occur was not
caused by the terminating party's failure to fulfill any of its obligations
under the LIPA Agreement.
OTHER BASIC AGREEMENTS
In connection with the LIPA Transaction, the parties agreed to enter into
the LIPA Agreement, the Promissory Notes and certain other agreements (the
"Basic Agreements"), which are hereby incorporated by reference. See "Where
You Can Find More Information". The Basic Agreements include:
1. Management Services Agreement, whereby a subsidiary of the Holding
Company agrees, among other things, to provide all operation,
maintenance and construction services to LIPA for 8 years;
2. Power Supply Agreement, whereby a subsidiary of the Holding Company
agrees, among other things, to supply LIPA with capacity and energy from
LILCO's existing Generating Facilities (as defined in the LIPA
Agreement) in order to allow LIPA to provide electricity to its
customers on Long Island for 15 years;
3. Energy Management Agreement, whereby a subsidiary of the Holding Company
agrees, among other things, to manage the System Power Supply (as
therein defined) on behalf of LIPA and, as agent for LIPA, to purchase
fuel supplies for the Generating Facilities for 15 years;
4. Generation Purchase Right Agreement, pursuant to which LIPA has the
right during the fourth year after the LIPA Closing to purchase the
Generating Facilities for fair market value;
5. Guaranty Agreement, whereby the Holding Company guarantees certain
obligations of its subsidiaries under the other Basic Agreements; and
6. Liabilities Undertakings, whereby the Holding Company and the Transferee
Subsidiaries, on the one hand, and LIPA and the Surviving Corporation,
on the other hand, agree to assume certain liabilities and to indemnify
one another in certain situations in connection with the LIPA
Transaction.
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SELECTED INFORMATION CONCERNING
BROOKLYN UNION
BUSINESS OF BROOKLYN UNION
Brooklyn Union was incorporated in the State of New York in 1895 as a
combination of existing companies, the first of which was granted a franchise
in 1849. Brooklyn Union distributes natural gas at retail in the Boroughs of
Brooklyn and Staten Island and two-thirds of the Borough of Queens in New York
City. Brooklyn Union's principal non-utility subsidiaries participate and own
investments in gas and oil exploration, production and processing, gas
pipeline transportation and storage, cogeneration, marketing and other energy-
related services. Brooklyn Union's mailing address is One MetroTech Center,
Brooklyn, New York 11201-3850 and its general telephone number is (718) 403-
2000.
TERRITORY. Brooklyn Union's service territory is approximately 187 square
miles. The population of the territory served is approximately 4 million
persons. As of September 30, 1996, Brooklyn Union had approximately 1,126,000
active meters, of which approximately 1,089,000 were residential.
EMPLOYEES. As of September 30, 1996, Brooklyn Union had approximately 3,000
full time employees of which approximately 1,745 belong to Local 101 of the
Transport Workers Union and 185 are represented by Local 3 of the
International Brotherhood of Electrical Workers. Effective November 1995 and
August 1995, respectively, Brooklyn Union and these unions agreed upon new
three year labor agreements which provide for wage increases of approximately
9% over the term of the agreements.
REGULATION. Utility retail sales, which include sales of gas, transportation
and balancing services, are made primarily under rate schedules and tariffs
filed with and subject to the jurisdiction of the PSC. Amendments have been
made to rate schedules and tariffs to reflect the conditions and rates under
which delivery and other services are provided to customers who opt to have
their gas supplied by third parties. Rate schedules also have been established
governing the provision of certain services to such marketers.
Brooklyn Union is also subject to regulation by the PSC with respect to
issuances and sales of securities, adequacy and continuance of service, safety
and siting of certain facilities, accounting, and other matters.
Additional information concerning Brooklyn Union and its subsidiaries is
included in the Brooklyn Union documents filed with the Commission which are
incorporated by reference herein. See "Where You Can Find More Information."
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Brooklyn Union shareholders are currently governed by the
NYBCL, the Brooklyn Union Certificate and the Brooklyn Union By-Laws. The
rights of LILCO shareholders are currently governed by the NYBCL, the LILCO
Certificate and the LILCO By-Laws. Upon consummation of the Combination, the
rights of Brooklyn Union shareholders and LILCO shareholders who become
shareholders of the Holding Company will be governed by the NYBCL, the Holding
Company Certificate and the Holding Company By-Laws. The following are
summaries of certain differences between the current rights of Brooklyn Union
and LILCO shareholders and those of Holding Company shareholders after the
Combination.
The following discussions are not intended to be complete and are qualified
by reference to the NYBCL, the Brooklyn Union Certificate, the Brooklyn Union
By-Laws, the LILCO Certificate, the LILCO By-Laws, the Holding Company
Certificate and the Holding Company By-Laws. Copies of the Holding Company
Certificate and the Holding Company By-Laws, in substantially the forms to be
adopted at the Effective Time, are attached to this Joint Proxy Statement-
Prospectus as Annexes G and H. Copies of the Brooklyn Union Certificate, the
Brooklyn Union By-Laws, the LILCO Certificate and the LILCO By-Laws are
incorporated by reference herein and will be sent to holders of shares of
Brooklyn Union Common Stock and LILCO Common Stock, respectively, upon
request. See "Where You Can Find More Information."
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COMPARISON OF THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
TO BROOKLYN UNION'S CERTIFICATE OF INCORPORATION AND BY-LAWS
AUTHORIZED CAPITAL. The total authorized capital stock of the Holding
Company will be 450,000,000 shares of Holding Company Common Stock, par value
$.01 per share, and 100,000,000 shares of Holding Company Preferred Stock, par
value $.01 per share. The total authorized capital stock of Brooklyn Union
consists of 900,000 shares of cumulative preferred stock, par value $100 per
share, 2,000,000 shares of cumulative preferred stock, par value $25 per
share, and 70,000,000 shares of Brooklyn Union Common Stock, par value $.33
1/3 per share.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The Brooklyn Union Certificate and
the Brooklyn Union By-Laws provide that the Brooklyn Union Board will be
divided into three classes, each class to consist as nearly as possible of
one-third of the directors and to be elected every third year to serve a
three-year term. The Holding Company Certificate and the Holding Company By-
Laws do not provide that the Holding Company Board will be divided into
classes.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS. The
Holding Company Certificate and the Holding Company By-Laws provide that,
subject to the rights of holders of Holding Company Preferred Stock, if any,
any director serving on the Holding Company Board may be removed from office
only for cause by the affirmative vote of the holders of at least a majority
of the Voting Power, voting together as a single class. The Brooklyn Union
Certificate and the Brooklyn Union By-Laws have no comparable provision. Under
the NYBCL, unless the certificate of incorporation or by-laws of a corporation
provides otherwise, a director may be removed only for cause by the vote of a
majority of the votes cast at a shareholder meeting by the holders of shares
entitled to vote thereon. Both the Holding Company By-Laws and the Brooklyn
Union By-Laws provide that vacancies on the Board of Directors may be filled
by the remaining Directors, even if less than a quorum.
MEETINGS OF SHAREHOLDERS. The Holding Company Certificate and the Holding
Company By-Laws provide that a special meeting of shareholders may be called
only by the Holding Company Board pursuant to a resolution approved by a
majority of the entire Holding Company Board. The Brooklyn Union By-Laws
provide that a special meeting of shareholders may be called by the Chairman
of the Board of Brooklyn Union or by the Brooklyn Union Board pursuant to a
resolution approved by a majority of the entire Brooklyn Union Board.
AMENDMENT OF CORPORATE CHARTER AND BY-LAWS. The NYBCL provides that an
amendment to a corporation's certificate of incorporation may be authorized by
vote of the board of directors, followed by a vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders and the by-laws of a corporation may be amended by a vote of the
holders of a majority of all outstanding shares entitled to vote in the
election of any directors of the corporation or, if so provided in the
certificate of incorporation or by-laws, by the board of directors by such
vote as may be specified therein. The Holding Company Certificate and the
Holding Company By-Laws provide that the affirmative vote of the holders of at
least 80 percent of the Voting Stock then outstanding, voting together as a
single class, will be required to change or adopt any provision inconsistent
with the provisions therein relating to calling of special meetings of
shareholders, the election of directors, filling of vacancies on the Holding
Company Board, removal of directors and the amendment of certain provisions
the Holding Company By-Laws and the Holding Company Certificate. The Brooklyn
Union Certificate is silent on such matters and the Brooklyn Union By-Laws
provide that by-laws may be amended by the Brooklyn Union Board or by the
holders of the shares at the time entitled to vote in the election of any
directors and that by-laws adopted by the Brooklyn Union Board may be amended
or repealed by the shareholders in such manner.
For information concerning LILCO, see "Selected Information concerning
LILCO--Comparison of Holding Company's Certificate of Incorporation and By-
Laws to LILCO's Certificate of Incorporation and By-Laws."
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OFFICERS. The Holding Company By-Laws provide that, effective as of the
first anniversary of the consummation of the Binding Share Exchanges, Dr.
Catacosinos shall be elected Chairman of the Holding Company Board and
Chairman of the Executive Committee of the Holding Company Board and Mr.
Catell shall be elected Chief Executive Officer of the Holding Company. This
By-Law may be modified only by the affirmative vote of two-thirds of the
entire Holding Company Board. For information concerning LILCO, see "Selected
Information Concerning LILCO--Comparison of the Holding Company's Certificate
of Incorporation and By-Laws to LILCO's Certificate of Incorporation and By-
Laws."
ANTI-TAKEOVER STATUTES
Section 912 of the NYBCL prohibits a "business combination" (as defined in
Section 912 of the NYBCL, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by a corporation
incorporated under the NYBCL or a subsidiary of such corporation with an
interested shareholder (as defined in Section 912 of the NYBCL, generally the
beneficial owner of 20 percent or more of the New York corporation's voting
stock) within five years after the person or entity becomes an interested
shareholder, unless (i) prior to the person or entity becoming an interested
shareholder, the business combination or the transaction pursuant to which
such person or entity became an interested shareholder has been approved by
such New York corporation's board of directors, or (ii) the business
combination is approved by the holders of a majority of the voting power of
the capital stock of such New York corporation, excluding shares held by the
interested shareholder, at a meeting called for such purpose no earlier than
five years after such interested shareholder's "stock acquisition date." In
addition, Section 912 of the NYBCL specifies certain minimum consideration
that must be paid in a business combination with an interested shareholder.
POTENTIAL CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE COMBINATION AND THE
LIPA TRANSACTION
EMPLOYMENT AGREEMENT WITH ROBERT B. CATELL. Pursuant to the Brooklyn
Union/LILCO Agreement, if the Brooklyn Union Share Exchange is consummated,
the Holding Company will enter into an employment agreement with Mr. Robert B.
Catell effective upon the Effective Time providing for him to assume the
positions of President and Chief Operating Officer commencing upon the
Effective Time and for him to serve as Chief Executive Officer of the Holding
Company for a four year period commencing on the first anniversary of the
Effective Time. Under this employment agreement, Mr. Catell is to receive
compensation on terms to be mutually agreed upon, but not less than what he
received from Brooklyn Union as of the date of the Original Agreement. Mr.
Catell would also be eligible to receive incentive compensation related to
achieving the synergies contemplated to be realized from the Combination. In
addition, the Brooklyn Union/LILCO Agreement provides that the employment
agreement with Mr. Catell is otherwise to contain terms and conditions
comparable to and no less favorable than those customarily applicable to
employment agreements for chief executive officers of similarly sized
companies in the energy and utility businesses.
VESTING OF CERTAIN BENEFITS FOR BROOKLYN UNION'S DIRECTORS AND
OFFICERS. Under Brooklyn Union's Long-Term Performance Incentive Compensation
Plan for officers and certain key employees of Brooklyn Union (the
"Performance Plan"), upon a "change of control," as defined in the Performance
Plan, all options to purchase shares of Brooklyn Union Common Stock granted
under the Performance Plan will become immediately exercisable and remain
exercisable for the remainder of their original term. The Performance Plan
also provides for awards of performance shares, which entitle the employee to
receive either a number of shares of Brooklyn Union Common Stock based upon
achievement of performance goals over a performance period or a payment in
cash in lieu of such shares. Under the terms of the Performance Plan, upon a
"change of control," the performance goals for all such performance shares
will be deemed to have been met and the employee will receive either the
awarded performance shares or the equivalent in cash, prorated based on time
elapsed during the performance period. The Combination will constitute a
change of control for the purposes of the Performance Plan.
The Brooklyn Union/LILCO Agreement provides that upon the Effective Time,
each unexpired and unexercised option to purchase shares of Brooklyn Union
Common Stock under the Performance Plan, whether vested or unvested, will be
automatically converted into an option to purchase the same number of shares
of Holding Company Common Stock at the same per share price.
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As of June 23, 1997, options to purchase 540,500 shares of Brooklyn Union
Common Stock and 13,000 performance shares have been granted to Brooklyn Union
executive officers as a group under the Performance Plan (including 155,000
options and 4,000 performance shares to Mr. Catell, the Chairman and Chief
Executive Officer; 92,000 options and 2,300 performance shares to Craig G.
Matthews, President and Chief Operating Officer; 56,000 options and 2,300
performance shares to Helmut W. Peter, Vice Chairman; 42,000 options and 1,100
performance shares to Vincent D. Enright, Senior Vice President and Chief
Financial Officer; and 25,000 options and 550 performance shares to Anthony J.
DiBrita, Senior Vice President). Such options were granted on November 15,
1995 and November 20, 1996 and vest in equal installments over three year
periods from the applicable grant date. All such performance shares vest over
a three year period ending September 30, 1998, and the actual number of
performance shares earned is contingent upon achieving certain performance
targets. Upon consummation of the Combination, all such options will be vested
and exercisable for the same number of shares of Holding Company Common Stock
at an exercise price ranging from $27.00 to $30.50 per share and the
performance targets for all such performance shares will be deemed to have
been met and payment for a prorated portion of such performance shares will be
made as soon as practicable after consummation of the Combination.
BROOKLYN UNION CHANGE OF CONTROL SEVERANCE PLAN. Under the Brooklyn Union
Senior Executive Change of Control Severance Plan (the "Severance Plan"),
participants are entitled to receive certain severance benefits if their
employment is terminated under certain circumstances within three years after
a transaction that meets the definition of "change of control" under the terms
of the Severance Plan. A termination by the employer without "cause" (as
defined in the Severance Plan) or by the participant for "good reason" (as
defined in the Severance Plan, and including a significant diminution of
responsibilities, an assignment to inappropriate duties, a material reduction
in compensation or benefits, or a transfer of more than 50 miles), within the
later of (i) the end of 15 months after the "change of control" or (ii) 90
days after the "good reason" event occurs, will result in the payment of
benefits under the Severance Plan.
A participant who becomes entitled to severance benefits will receive the
following: a lump sum cash payment of salary, previously deferred compensation
and accrued vacation pay through the date of termination to the extent not
already paid, a pro rata bonus for the year of termination, and the
participant's base salary and bonus for the Severance Period (as defined
below); continued employee welfare benefits for the Severance Period; a lump
sum payment equal to the actuarial value of the additional benefits under
Brooklyn Union's qualified and supplemental retirement plans the participant
would have received had he remained employed for the Severance Period; and
outplacement services at a cost of not more than $30,000. In addition, the
participant will receive an additional payment, if necessary, to make such
participant whole for any excise tax on excess parachute payments imposed on
the participant. The "Severance Period" is a period of either two or three
years (as designated by the Organization and Nominating Committee of the
Brooklyn Union Board) or, if less, the period remaining until the participant
reaches mandatory retirement age. For the purposes of eligibility for
retirement, medical, dental and life insurance, the participant will be deemed
to remain employed for the entire Severance Period.
The Brooklyn Union Board has designated as participants in the Severance
Plan Mr. Catell, Craig G. Matthews, Helmut W. Peter, Vincent D. Enright,
Anthony J. DiBrita and 6 other Senior Vice Presidents of Brooklyn Union (each
with three-year Severance Periods) and 12 Vice Presidents of Brooklyn Union
(each with two-year Severance Periods). If the Combination occurred on January
1, 1998, and all participants in the plan were terminated immediately
thereafter, it is estimated that the aggregate after-tax cost of the severance
benefits under the Severance Plan would be approximately $19,833,000.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CURRENT OWNERSHIP OF BROOKLYN UNION COMMON STOCK. The following table sets
forth information as of June 23, 1997, with respect to the number of shares of
Brooklyn Union Common Stock beneficially owned and/or Brooklyn Union Common
Stock equivalents granted under the Performance Plan, the Directors' Deferred
Compensation Plan or the Corporate Incentive Compensation Plan, which do not
confer any voting rights, owned by (i) directors and certain executive
officers of Brooklyn Union and (ii) all directors and executive officers of
Brooklyn Union as a group.
<TABLE>
<CAPTION>
TOTAL OF COMMON
STOCK BENEFICIALLY COMMON STOCK COMMON STOCK
NAME OWNED & EQUIVALENTS BENEFICIALLY OWNED EQUIVALENTS
---- ------------------- ------------------ ------------
<S> <C> <C> <C>
R.B. Catell................ 26,002 18,481 7,521
K.I. Chenault.............. 4,409 1,551 2,858
A.S. Christensen........... 9,745 4,977 4,768
D.H. Elliott............... 9,323 1,750 7,573
A.H. Fishman............... 6,738 2,738 4,000
J.L. Larocca............... 5,007 3,354 1,653
C.G. Matthews.............. 15,817 11,497 4,320
E.D. Miller................ 7,459 5,946 1,513
J.Q. Riordan............... 8,298 1,500 6,798
C. Uribe................... 2,046 0 2,046
H.W. Peter................. 14,817 10,483 4,334
A.J. DiBrita............... 6,000 4,681 1,319
V.D. Enright............... 6,406 4,397 2,009
All Directors and Executive
Officers as a group, in-
cluding those named above,
a total of 24 persons..... 184,235 123,963 60,272
</TABLE>
The following table sets forth certain information with respect to the
shares of Brooklyn Union Common Stock owned by each person known by Brooklyn
Union to be the beneficial owner of more than 5% of the issued and outstanding
Brooklyn Union Common Stock, as of March 31, 1997.
<TABLE>
<CAPTION>
TITLE OF CLASS NAMES AND ADDRESSES OWNED PERCENTAGE OF CLASS
-------------- ---------------------------- ---------- -------------------
<S> <C> <C> <C>
Common Stock....... Long Island Lighting Company 9,948,682* 16.6%
175 East Old Country Road
Hicksville, NY 11801
</TABLE>
- --------
* Represents the number of shares that may be purchased pursuant to the
Amended Brooklyn Union Stock Option Agreement attached as Annex C and
described in this Joint Proxy Statement/Prospectus. See "The Stock Option
Agreements."
CERTAIN BUSINESS RELATIONSHIPS BETWEEN BROOKLYN UNION AND LILCO
In the normal course of business, LILCO purchases natural gas, pays gas
transportation charges and purchases co-generation power from entities in
which Brooklyn Union holds an ownership interest. Brooklyn Union purchases
natural gas and pays gas transportation charges to entities in which LILCO has
an equity interest, and entities in which Brooklyn Union has an equity
interest sell electricity to and purchase gas transportation services from
LILCO. All such transactions are at arms'-length or at rates as required by
law.
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SELECTED INFORMATION CONCERNING LILCO
RECOMMENDATIONS OF THE LILCO BOARD
The LILCO Board believes that the terms of each of the Combination and the
LIPA Transaction are fair to, and in the best interests of, LILCO and its
shareholders. Accordingly, the LILCO Board, by a unanimous vote, has adopted
the Brooklyn Union/LILCO Agreement and the LIPA Agreement, and unanimously
recommends the adoption of each by the LILCO shareholders. The LILCO Board
believes that each of the Combination and the LIPA Transaction represents a
significant strategic opportunity for LILCO.
The terms of the Brooklyn Union/LILCO Agreement, including the Ratios, were
the result of arm's-length negotiations between Brooklyn Union and LILCO. In
fixing the Ratios in the negotiation process, LILCO management relied to a
large extent on the financial analyses of Dillon Read set forth below under
"Opinion of LILCO's Financial Adviser." The LILCO Board consulted with its
financial advisor and legal advisors and management of LILCO. After careful
review and consideration, the LILCO Board determined that the Combination is a
desirable transaction from the standpoint of the LILCO common shareholders.
In reaching its decision to approve the Brooklyn Union/LILCO Agreement, the
LILCO Board considered the following factors: (i) the current and historical
market prices of the Brooklyn Union Common Stock and the LILCO Common Stock
(including the fact that the closing prices of Brooklyn Union Common Stock and
LILCO Common Stock on December 26, 1996 were $30.625 and $19.125,
respectively; (ii) information concerning the financial performance,
condition, business operations and prospects of each of Brooklyn Union and
LILCO; (iii) the effects of the Combination on LILCO's shareholders, including
the significant premium to LILCO's then current market price reflected in the
ratio and the opportunity to share in the anticipated benefits of ownership of
the combined enterprise; (iv) the expected federal income tax treatment of the
Combination as a taxable exchange to shareholders unless the LIPA Agreement is
terminated prior to the consummation of the Combination (as described under
"Federal Income Tax Considerations--Material Federal Income Tax
Consequences"); (v) the immediate reduction in gas and electric rates to
reflect anticipated synergy savings, as contemplated by Brooklyn Union and
LILCO, and the belief that customers will benefit from a broader range of
innovative energy products and services; (vi) the terms of the Brooklyn
Union/LILCO Agreement, which provide for balanced representations and
warranties, conditions to closing and rights to termination; and (vii) the
opinion of LILCO's financial advisor, Dillon Read that, as of the date thereof
and based upon the factors and assumptions described in such opinion, the
Original Ratio was fair from a financial point of view to the holders of
shares of LILCO Common Stock. In determining that the Combination is fair to
LILCO's shareholders, the LILCO Board considered the above factors as a whole
and did not assign specific or relative weights to them. In the view of the
LILCO Board, each of the factors listed above reinforced its belief that the
combined entity would have excellent business prospects going forward. Because
LILCO's shareholders collectively would own approximately 66% (or 68% if the
LIPA Transaction is consummated) of the combined entity based upon the
capitalization of the companies as of December 29, 1996, the date of the
Original Agreement, the prospects of such entity were an important factor to
the LILCO Board in determining whether to approve the transaction.
In reaching its decision to approve the LIPA Agreement, the LILCO Board
considered the following factors: (i) the purchase price payable pursuant to
the LIPA Agreement closely approximates the book value of the assets to be
owned by LILCO at the time of the LIPA Closing; (ii) LILCO shareholders will
continue to own an equity interest in the generating facilities and common
plant currently owned by LILCO, as well as its gas operations (which have
enjoyed significant revenue and earnings growth in recent years); (iii)
consummation of the LIPA Transaction is expected to result in substantial
electric rate decreases which are not obtainable through any other means; (iv)
the sale of LILCO's Shoreham-related regulatory assets, which LILCO believes
would have a favorable impact on the Holding Company's credit rating and the
trading value of its equity securities; (v) the structure of the LIPA
Transaction includes long-term service agreements pursuant to which
subsidiaries of the Holding Company will manage on behalf of LIPA the day-to-
day operation of the transmission and distribution system on Long Island and
thereby promote the continued reliability of that system (including the
ability to use the Holding Company's entire workforce in an integrated fashion
to assist in restoring service after major
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storms); (vi) the preservation of LILCO's current workforce without layoffs;
(vii) the expected federal income tax treatment of the LIPA Transaction (as
described under "Federal Income Tax Considerations--Material Federal Income
Tax Consequences"); (viii) Brooklyn Union's consent to, and support for, the
LIPA Transaction; (ix) the increase in the Ratio of Holding Company Common
Stock issuable in the Combination for each share of LILCO Common Stock from
0.803 to 0.880 (and the resulting increase of Holding Company Common Stock to
be owned by LILCO shareholders from approximately 66% to approximately 68%);
(x) the terms of the LIPA Agreement, which provide for reasonable
representations and warranties and rights to termination; (xi) the support for
the LIPA Transaction expressed publicly by senior New York State officials and
representatives; and (xii) the opinion of Dillon Read that, as of the date
thereof and based upon the factors and assumptions described in such opinion,
the Consideration to be received pursuant to the LIPA Agreement was fair from
a financial point of view to LILCO. The LILCO Board considered the fact that
consummating the LIPA Transaction would have the effect of making the
Combination taxable to LILCO shareholders, but determined that the overall
benefits anticipated to be received from the LIPA Transaction outweighed the
detriment associated with the creation of a tax liability on LILCO
shareholders. In determining that the LIPA Transaction is fair to LILCO's
shareholders, the LILCO Board considered the above factors as a whole and did
not assign specific or relative weights to them. In the view of the LILCO
Board, each of the factors listed above reinforced its belief that such
transaction was fair. Because LILCO's shareholders collectively would own
approximately 68% of the Holding Company (based upon the capitalization of
LILCO and Brooklyn Union as of December 29, 1996) assuming the Combination is
also consummated (or 100% of the Holding Company if only the LIPA Transaction
is consummated), the prospects of the Holding Company in each eventuality were
an important factor to the LILCO Board in determining whether to approve the
transaction.
THE LILCO BOARD, BY UNANIMOUS VOTE, HAS ADOPTED EACH OF THE BROOKLYN
UNION/LILCO AGREEMENT AND THE LIPA AGREEMENT, BELIEVES THAT THE TERMS OF EACH
OF THE COMBINATION AND THE LIPA TRANSACTION ARE FAIR TO LILCO'S SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF LILCO VOTE TO ADOPT EACH
OF THE BROOKLYN UNION/LILCO AGREEMENT AND THE LIPA AGREEMENT.
In considering these recommendations of the LILCO Board, shareholders should
be aware that certain members of LILCO's management and the LILCO Board have
certain interests in the Combination that are different from, or in addition
to, the interests of shareholders of LILCO generally and that could
potentially represent conflicts of interest. The LILCO Board was aware of
these interests and considered them, among other matters, in adopting the
Brooklyn Union/LILCO Agreement. See "--Potential Conflicts of Interests of
Certain Persons in the Binding Share Exchanges."
OPINION OF LILCO'S FINANCIAL ADVISOR
On December 29, 1996, the LILCO Board received the written opinion of Dillon
Read that, as of the date of the opinion, the Original Ratio was fair from a
financial point of view to the holders of LILCO Common Stock. The full text of
Dillon Read's opinion dated December 29, 1996, which describes the assumptions
made, matters considered and limits on the review undertaken, is attached
hereto as Annex F to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. DILLON READ'S OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF LILCO COMMON STOCK AS TO HOW SUCH HOLDER
SHOULD VOTE AT THE LILCO MEETING. HOLDERS OF LILCO COMMON STOCK ARE URGED TO
READ THE OPINION IN ITS ENTIRETY.
In arriving at its opinion, Dillon Read has, among other things: (i)
reviewed certain business and historical financial information relating to
LILCO and Brooklyn Union; (ii) reviewed certain financial forecasts and other
data provided to Dillon Read by LILCO and Brooklyn Union relating to the
business and prospects of LILCO and Brooklyn Union; (iii) conducted
discussions with members of the senior management of LILCO with respect to the
business and prospects of LILCO; (iv) reviewed publicly available financial
and stock market data with respect to certain other companies in lines of
business Dillon Read believed to be generally comparable to those of LILCO and
Brooklyn Union; (v) reviewed the historical market prices and trading volumes
of LILCO Common Stock and Brooklyn Union Common Stock; (vi) compared the
proposed financial terms of the Combination with the financial terms of
certain other transactions which Dillon Read believed to be generally
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comparable to the Combination; (vii) analyzed the respective contributions in
terms of revenue, earnings, cash flow and common equity of LILCO and Brooklyn
Union to the combined company, and the relative ownership of the Holding
Company after the Combination by the current holders of LILCO Common Stock and
Brooklyn Union Common Stock; (viii) considered the pro forma effect of the
Combination on LILCO's capitalization ratios, earnings, cash flow and book
value per share; (ix) reviewed the Original Agreement; and (x) conducted such
other financial studies, analyses and investigations, and considered such
other information, as was deemed necessary or appropriate.
In connection with its review, Dillon Read did not assume any responsibility
for independent verification of any of the foregoing information and relied,
with the consent of LILCO, on such information being complete and accurate in
all material respects. In addition, Dillon Read did not make any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of LILCO or Brooklyn Union or any of their respective subsidiaries,
nor was Dillon Read furnished with any such evaluation or appraisal. With
respect to the financial forecasts referred to above, Dillon Read, with
LILCO's direction, assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of LILCO's and
Brooklyn Union's management as to the future financial performance of each
company. For its December 29, 1996 opinion, Dillon Read's review of Brooklyn
Union's current and anticipated future operations, financial condition and
prospects was based entirely on public information (except for certain limited
internal projections referred to above), and was therefore limited in scope.
Dillon Read did not hold discussions with any members of Brooklyn Union's
senior management in connection with its December 29, 1996 opinion. Dillon
Read assumed, in its December 29, 1996 opinion, the transaction would be
treated as tax-free to both LILCO and holders of LILCO Common Stock and would
be accounted for as a pooling of interests. Further, Dillon Read's opinion was
based on economic, monetary, and market conditions existing on the date
thereof.
The Original Ratio and the LIPA Ratio were determined through arm's-length
negotiations between LILCO and Brooklyn Union. LILCO did not place any
limitations upon Dillon Read regarding the procedures to be followed or
factors to be considered in rendering its opinion. Dillon Read has not been
requested to solicit, nor has it solicited, offers for LILCO from third
parties.
In connection with rendering its opinion, Dillon Read considered a variety
of valuation methods which are summarized below. The following summary
describes the analyses performed by Dillon Read in this regard and is complete
in all material respects.
STOCK TRADING HISTORY. Dillon Read reviewed the performance of the per share
market price of LILCO Common Stock and Brooklyn Union Common Stock over the
period from December 31, 1993 to December 24, 1996. Dillon Read also
calculated the ratio of the per share market price of LILCO Common Stock to
the per share market price of Brooklyn Union Common Stock over the period.
This analysis showed that over the period, LILCO Common Stock traded at a
ratio as high as 0.927 and as low as 0.560 compared to the price of Brooklyn
Union Common Stock. This analysis was utilized to provide historical
perspective for the manner in which the public trading market had valued LILCO
and Brooklyn Union relative to each other.
CONTRIBUTION ANALYSIS. Dillon Read calculated the contribution of each of
LILCO and Brooklyn Union to the Holding Company with respect to operating
revenues, operating cash flow (earnings before interest, taxes, depreciation
and amortization, "EBITDA"), net income, cash flow from operations (defined as
cash provided by operating activities before changes in working capital),
projected year 2000 net income, net property, plant, and equipment, total
assets, total debt, book value of common equity, total capitalization, net
debt (defined as total debt less cash equivalents), and net book
capitalization (defined as book capitalization less cash equivalents) for the
latest twelve month period or as of the latest balance sheet date. In
addition, Dillon Read calculated the relative valuation contribution of each
of LILCO and Brooklyn Union to the Holding Company with respect to the market
value of common equity as of December 24, 1996, the market value of common
equity as of October 3, 1996 (one week prior to the publication of reports
which suggested that a takeover of LILCO by LIPA would need to be initiated by
year-end 1996 to be successful), the comparable company trading analysis
valuation, and the discounted cash flow analysis valuation. These calculations
yielded amounts reflecting LILCO's contribution
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ranging from 59.9 percent to 88.4 percent of the total pro forma combined
amount. Based on the Original Ratio of 0.803, the holders of LILCO Common
Stock will own approximately 66 percent of Holding Company Common Stock. Based
on the LIPA Ratio of 0.880, the holders of LILCO Common Stock will own
approximately 68 percent of Holding Company Common Stock.
COMPARABLE COMPANY TRADING ANALYSIS. Using publicly available information,
Dillon Read compared, based upon market trading values at the time, multiples
of certain financial criteria, such as net income, projected net income,
(median earnings per share estimates for 1996, 1997 and 1998 reported by
Institutional Brokers Estimate System or based on Institutional Brokers
Estimate System estimates and expected 5-year earnings per share growth rates
from Zacks Investment Research, Inc.), revenues, earnings before interest and
taxes ("EBIT"), EBITDA, cash flow from operations and the book value of common
equity of LILCO and Brooklyn Union to certain other companies which, in Dillon
Read's judgment, were generally comparable to LILCO and Brooklyn Union for the
purpose of this analysis. The factors Dillon Read considered in selecting
companies for comparison included size, geographic location, financial
condition and scope of business operations. For LILCO, the companies used in
the comparison consisted of Consolidated Edison Company of New York, Inc., New
York State Electric & Gas Corporation, New England Electric System, Northeast
Utilities, Public Service Enterprise Group Incorporated, and Rochester Gas and
Electric Corporation. For Brooklyn Union, the companies used in the comparison
consisted of AGL Resources, Inc., MCN Energy Group Inc., NICOR Inc., Peoples
Energy Corporation, and Washington Gas Light Company.
Equity market values (defined as the market price per common share
multiplied by the outstanding number of common shares) as a multiple of each
of the indicated statistics for LILCO and Brooklyn Union, respectively, were
as follows: (i) latest 12-month net income--8.8x and 17.1x; (ii) projected or
actual 1996 net income-- 9.0x and 17.1x; (iii) projected 1997 net income--8.8x
and 14.6x; (iv) projected 1998 net income--8.7x and 13.4x; (v) latest 12-month
cash flow from operations--2.6x and 7.6x; and (vi) book value of common equity
on September 30, 1996--0.91x and 1.70x. Net market capitalizations (defined as
equity market value plus the book value of debt and preferred stock less cash
and cash equivalents) as a multiple of each of the indicated statistics for
LILCO and Brooklyn Union, respectively, were as follows: (i) latest 12-month
revenues--2.4x and 1.6x; (ii) latest 12-month EBITDA--6.1x and 9.2x; and (iii)
latest 12-month EBIT--8.0x and 13.5x. This comparison was used to provide a
perspective on the present market valuation of each of LILCO and Brooklyn
Union.
The range and mean for the equity market value as a multiple of each of the
indicated statistics for the groups of comparable companies for LILCO and
Brooklyn Union, respectively, were as follows, (i) latest 12-month net income:
for LILCO comparables--7.9x to 11.4x with a mean of 10.0x; for Brooklyn Union
comparables--11.1x to 17.4x with a mean of 15.4x; (ii) projected or actual
1996 net income: for LILCO comparables--8.3x to 18.3x with a mean of 11.1x;
for Brooklyn Union comparables--11.1x to 17.8x with a mean of 15.6x; (iii)
projected 1997 net income: for LILCO comparables--8.2x to 10.7x with a mean of
9.7x; for Brooklyn Union comparables--13.3x to 16.0x with a mean of 14.5x;
(iv) projected 1998 net income: for LILCO comparables--7.9x to 10.5x with a
mean of 9.5x; for Brooklyn Union comparables--12.5x to 14.7x with a mean of
13.6x; (v) latest 12-month cash flow from operations: for LILCO comparables--
2.0x to 5.9x, with a mean of 4.2x; for Brooklyn Union comparables--6.0x to
7.8x, with a mean of 7.0x; and (vi) book value of common equity on September
30, 1996: for LILCO comparables--0.70x to 1.33x with a mean of 1.04x; for
Brooklyn Union comparables--1.70x to 2.65x with a mean of 2.06x.
The range and mean for net market capitalization as a multiple of each of
the indicated statistics for the groups of comparable companies for LILCO and
Brooklyn Union, respectively, were as follows: (i) latest 12-month revenues:
for LILCO comparables--1.4x to 2.1x with a mean of 1.7x; for Brooklyn Union
comparables-- 1.4x to 1.8x with a mean of 1.6x; (ii) latest 12-month EBITDA:
for LILCO comparables--4.7x to 6.5x with a mean of 5.6x; for Brooklyn Union
comparables--6.7x to 9.6x with a mean of 8.0x; and (iii) latest 12-month EBIT:
for LILCO comparables--6.9x to 10.2x with a mean of 8.4x; for Brooklyn Union
comparables--8.5x to 15.8x with a mean of 11.8x. The comparable company
trading analysis is a valuation method used by Dillon Read to determine
whether LILCO or Brooklyn Union were reasonably valued at existing market
prices in
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relation to similar companies and in relation to each other. Dillon Read
concluded that both LILCO and Brooklyn Union were reasonably valued at
existing market prices in relation to similar companies and in relation to
each other. Dillon Read believes that this analysis supports Dillon Read's
view that the Original Ratio was fair to the holders of LILCO Common Stock
from a financial point of view.
COMPARABLE UTILITY TRANSACTIONS ANALYSIS. Using publicly available
information, Dillon Read compared certain terms of mergers similar to the
transaction between LILCO and Brooklyn Union. Dillon Read compared the
relative ownership and market premium in recent utility mergers-of-equals
transactions and electric/gas utility combinations which in Dillon Read's
judgment were comparable to the Combination for the purpose of this analysis.
The merger-of-equals transactions which were analyzed included one completed
transaction (Midwest Resources Inc. and Iowa-Illinois Gas & Electric Company)
and four pending transactions (Delmarva Power & Light Company and Atlantic
Energy Inc.; Baltimore Gas & Electric Company and Potomac Electric Power
Company; Public Service Company of Colorado and Southwestern Public Service
Company; and Northern States Power Company and Wisconsin Energy Corporation).
The electric/gas utility combinations which were analyzed included five
pending transactions (Puget Sound Power & Light Company and Washington Energy
Company Inc.; Duke Power Company and PanEnergy Corp.; Enova Corporation and
Pacific Enterprises Inc.; Houston Industries Incorporated and NorAm Energy
Corp.; and Enron Corp. and Portland General Corporation).
With respect to relative ownership, in comparable mergers-of-equals
transactions, the larger company in each merger received between 50 percent
and 62 percent of the combined company. In comparable electric/gas
combinations, the electric partner received between 48 percent and 83 percent
of the combined company. In comparison, LILCO shareholders will own
approximately 66 or 68 percent of the Holding Company after the Combination.
With respect to the market premium, in recent mergers-of-equals transactions,
the larger company paid a premium to the closing market price on the day
before the merger announcement of between 0.3 percent and 23.3 percent. In
electric/gas combinations, the larger company paid a premium to the closing
market price on the day before the merger announcement of between 11.4 percent
and 48.8 percent. LILCO, as the larger company, will receive a 29 percent
premium to the closing market price on the day before the announcement of the
Original Agreement. Dillon Read believes that this analysis supports Dillon
Read's view that the Original Ratio was fair to the holders of LILCO Common
Stock from a financial point of view.
DISCOUNTED CASH FLOW ANALYSIS. Dillon Read performed a discounted cash flow
valuation based upon projections furnished by the managements of LILCO and
Brooklyn Union. With respect to projections for LILCO and Brooklyn Union,
Dillon Read assumed that such projections were reasonably prepared upon bases
reflecting the best available estimates and judgments of the managements of
LILCO and Brooklyn Union, respectively. Utilizing these projections, Dillon
Read discounted to a present value, under varying assumed discount rates, (i)
the free unleveraged cash flows through the year 2001 for LILCO and through
the year 2002 for Brooklyn Union and (ii) the projected terminal value at the
end of the year 2001 for LILCO and at the end of the year 2002 for Brooklyn
Union, utilizing various assumed multiples of operating cash flow (EBITDA) and
operating income (EBIT). This analysis indicated that, assuming discount rates
ranging from 8.0 percent to 9.0 percent for LILCO and terminal value multiples
ranging from 5.5x to 6.5x for EBITDA and 7.5x to 9.5x for EBIT (as indicated
by comparable company trading analysis), the net after-tax present value of
the future cash flows ranged from $15.24 to $28.53 per share for LILCO on a
stand-alone basis. This analysis also indicated that, assuming discount rates
ranging from 8.0 percent to 9.0 percent for Brooklyn Union and terminal value
multiples ranging from 7.0x to 9.0x for EBITDA and 11.0x to 13.0x for EBIT (as
indicated by comparable company trading analysis), the net after-tax present
value of future cash flows ranged from $23.85 to $41.54 per share for Brooklyn
Union on a stand-alone basis. The discounted cash flow analysis is a valuation
method used by Dillon Read to determine whether LILCO and Brooklyn Union were
reasonably valued in relation to each other. Dillon Read believes that this
analysis supports Dillon Read's view that the Original Ratio was fair to the
holders of LILCO Common Stock from a financial point of view.
PRO FORMA ANALYSIS. Dillon Read reviewed certain pro forma financial
information for the combined entity resulting from the Combination based on
LILCO's and Brooklyn Union's managements' projections
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covering the period from 1997 to 2000. With respect to projections for LILCO
and Brooklyn Union, Dillon Read assumed that such projections were reasonably
prepared upon bases reflecting the best available estimates and judgments of
the managements of LILCO and Brooklyn Union, respectively. This analysis
indicated that earnings per share resulting from a share exchange at the
Original Ratio of 0.803 would be dilutive to LILCO shareholders over the
period analyzed. Dillon Read also performed an earnings per share sensitivity
analysis. For the purpose of this analysis, Dillon Read assumed that LILCO
electric rates on a stand-alone basis were reduced 10 percent. The 10 percent
reduction is based upon public pronouncements by relevant parties of the
magnitude of rate reduction necessary for LILCO's electric customers. It
should be noted that this analysis was for illustrative purposes only and that
this transaction is not conditioned on such a rate reduction. Using this
assumption, the earnings per share sensitivity analysis indicated that
earnings per share would be accretive to LILCO shareholders over the period
analyzed.
Preliminary estimates of savings related to the combination of LILCO and
Brooklyn Union as identified by the managements of the two companies were
developed to quantify efficiencies resulting from operating synergies, plant
construction deferrals and greater economies of scale in the purchasing of
fuel and other resources used by LILCO and Brooklyn Union. These potential
pre-tax savings (after certain costs) of approximately $1 billion over ten
years were assumed to flow to ratepayers and will benefit the Holding
Company's shareholders only through improved competitive position (due to
lower rates). Dillon Read did not independently attempt to verify the
estimated savings levels, nor did Dillon Read attempt its own estimation of
potential cost savings resulting from the Combination. In its analysis, Dillon
Read assumed that all of the total cost savings would be flowed through to
ratepayers. If the Holding Company were allowed by one or more regulatory
authorities to retain any of the cost savings, the resulting projected
earnings would be correspondingly higher.
LIPA TRANSACTION ANALYSIS
On June 26, 1997, the LILCO Board received Dillon Read's written opinion
that, as of the date of the opinion, the Consideration was fair from a
financial point of view to LILCO. The full text of Dillon Read's opinion dated
June 26, 1997, which describes the assumptions made, matters considered and
limits on the review undertaken, is attached hereto as Annex F to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. Dillon
Read's Opinion does not constitute a recommendation to any holder of LILCO
Common Stock as to how such holder should vote at the LILCO Meeting. HOLDERS
OF LILCO COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
In arriving at its opinion, Dillon Read has, among other things: (i)
reviewed certain business and historical financial information relating to
LILCO, (ii) reviewed certain financial forecasts and other data provided to it
by LILCO, including historical and projected financial information for the T&D
Business, the Nuclear Assets and the Regulatory Assets (each as defined
herein), (iii) conducted discussions with members of the senior management of
LILCO with respect to the business and prospects of LILCO, (iv) reviewed
publicly available financial and stock market data with respect to certain
other companies in lines of business Dillon Read believed to be generally
comparable to the T&D Business, (v) compared publicly available financial and
stock market data for certain utilities with high concentrations of nuclear
generation to certain utilities with little or no nuclear generation, (vi)
reviewed the financial terms of certain transactions involving transmission
and distribution assets, (vii) considered the pro forma effect of the LIPA
Transaction on the Holding Company's financial condition, (viii) reviewed the
LIPA Agreement, (ix) considered the financial terms of the Basic Agreements
(as defined herein), (x) considered the effect of the LIPA Transaction on the
pending Brooklyn Union/LILCO Agreement, and (xi) conducted such other
financial studies, analyses and investigations, and considered such other
information, as Dillon Read deemed necessary or appropriate.
In connection with its review, Dillon Read did not independently verify any
of the foregoing information and, with the consent of the LILCO Board of
Directors, relied on it being complete and accurate in all material respects.
In addition, Dillon Read did not make any independent evaluation or appraisal
of any of the assets or
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liabilities (contingent or otherwise) of LILCO or any of its subsidiaries, nor
was Dillon Read furnished with any such evaluation or appraisal. With respect
to the financial forecasts referred to above, Dillon Read, with LILCO's
direction, assumed that they had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of management as to the
future financial performance of LILCO, LILCO's transmission and distribution
business ("T&D Business"), certain regulatory assets ("Regulatory Assets") and
LILCO's 18% interest in the Nine Mile Point 2 nuclear power plant (the
"Nuclear Assets"). Dillon Read also, at LILCO's direction, relied on LILCO's
advice regarding the tax consequences of the LIPA Transaction. Dillon Read did
not attempt to quantify the regulatory risk inherent in the Regulatory Assets,
which will comprise a majority of the assets LILCO will own immediately prior
to the LIPA Transaction. Further, Dillon Read's opinion was based on economic,
monetary and market conditions existing on the date thereof.
The Consideration was determined through arm's-length negotiations between
LILCO and LIPA. LILCO did not place any limitations upon Dillon Read regarding
the procedures to be followed or factors to be considered in rendering its
opinion. Dillon Read has not been requested to nor has it solicited offers for
LILCO or any of its businesses or assets from third parties.
In connection with rendering its opinion, Dillon Read considered a variety
of valuation methods which are summarized below. The following summary
describes the analyses performed by Dillon Read in this regard and is complete
in all material respects.
T&D BUSINESS
COMPARABLE COMPANY TRADING ANALYSIS. Dillon Read observed that currently no
publicly traded companies consisting solely of electric transmission and
distribution businesses exist. Dillon Read determined that gas distribution
companies and water utilities have similar business and regulatory
characteristics and should therefore provide a reasonably comparable basis for
analysis. Using publicly available information, Dillon Read compared, based
upon market trading values at the time, multiples of certain financial
criteria, such as book value of common equity of LILCO's T&D Business to
certain other companies which, in Dillon Read's judgment, were generally
comparable for the purpose of this analysis. The factors Dillon Read
considered in selecting companies for comparison included size, geographic
location, financial condition and scope of business operations. The water
utility companies used in the comparison consisted of American Water Works
Company, Inc., Aquariun Company, Consumers Water Company, Philadelphia
Suburban Corporation, Southern California Water Company and United Water
Resources, Inc. The gas distribution companies used in the comparison
consisted of AGL Resources Inc., Brooklyn Union, MCN Energy Group Inc., NICOR
Inc., Peoples Energy Corporation, and Washington Gas Light Company.
The range for the equity market value as a multiple of book value for the
gas distribution companies was 1.5 to 2.4 times and for the water utility
companies was 1.4 to 2.0 times. The median was 1.8 times for the gas
distribution companies and 1.6 times for the water utility companies. Dillon
Read applied ratios of 1.7 to 2.0 times and 1.4 to 1.6 times, respectively, to
the imputed book value of the T&D Business, resulting in an implied value for
the T&D Business of $920 million to $1,082 million in the case of the gas
distribution companies and $758 million to $866 million in the case of the
water utility companies.
COMPARABLE TRANSACTIONS ANALYSIS. Using publicly available information,
Dillon Read compared certain terms of transactions involving the sale of
electric transmission and distribution properties to the LIPA Transaction.
Dillon Read also considered that there have been as yet very few sale
transactions of transmission and distribution assets for which public
information is available. The transactions Dillon Read included in its
analysis were: Southwestern Public Service Company's acquisition of property
from TNP Enterprises, Inc.; Union Electric Company's sale of properties to IES
Industries Inc. and CIPSCO Incorporated; and Utilicorp United's acquisition of
property from Centel Corporation.
The transactions had a range of price-to-book multiple of 1.6 to 2.0 times.
Dillon Read applied these multiples to the T&D Assets, resulting in an implied
value of $866 million to $1,082 million.
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REGULATORY ASSETS
DISCOUNTED CASH FLOW ANALYSIS. Dillon Read performed a discounted cash flow
valuation of the Regulatory Assets based upon projections furnished by the
management of LILCO. With respect to projections, Dillon Read assumed that
such projections were reasonably prepared upon bases reflecting the best
available estimates and judgments of the management of LILCO. Utilizing these
projections, Dillon Read discounted to a present value, under assumed discount
rates ranging from 7.65 percent to 11 percent, the free unleveraged cash flows
for the remaining lives of the Regulatory Assets. This analysis indicated that
the net after-tax present value of future cash flows ranged from $742 million
to $1,600 million, after deducting the imputed debt and preferred stock.
NUCLEAR ASSETS
Dillon Read observed that currently no publicly traded utilities with
exclusively nuclear generation assets exist, and to date there have not been
any sale transactions involving only nuclear assets. Therefore, Dillon Read
relied on limited public information to establish a valuation range for the
Nuclear Assets. Dillon Read compared the median market-to-book ratio of
electric utilities with high concentrations of nuclear assets to those with
little or no nuclear assets. Electric utilities were divided into three
categories: those where generating capacity was comprised of 40% or more
nuclear generation ("Concentrated Nuclear Group"), the five utilities with the
largest absolute amount of nuclear generation ("Large Nuclear Group"), and
those with no or insignificant amounts of nuclear generation ("Non-nuclear
Group"). The Concentrated Nuclear Group was comprised of Rochester Gas &
Electric Corporation, Unicom Corporation, Peco Energy Company and Duke Power
Company. The Large Nuclear Group was comprised of Unicom Corporation, Duke
Power Company, Entergy Corporation, Peco Energy Company and The Southern
Company. The Non-nuclear Group consisted of 40 utilities throughout the United
States of varying size and characteristics, selected only on the basis of no
or insignificant nuclear exposure. The median market-to-book ratio for each
group was: .99 times for the Concentrated Nuclear Group, .96 for the Large
Nuclear Group, and 1.65 for the Non-nuclear Group. On average, both groups of
nuclear utilities traded at a discount to non-nuclear utilities of between 24%
and 42%.
Dillon Read calculated an implied value of the Nuclear Assets by multiplying
a market-to-book ratio of .9 to 1.0 times the imputed book value of the
Nuclear Assets. The imputed book value was calculated by multiplying the book
value of the assets by 39%, which represented the common equity component of
LILCO's capitalization. This calculation resulted in an implied market value
of the Nuclear Assets of $241 million to $267 million.
PRO FORMA ANALYSIS
Dillon Read compared LILCO's December 31, 1997 projected stand-alone balance
sheet to a pro forma LILCO balance sheet for the same date adjusted for the
LIPA Transaction. Dillon Read observed that total assets of LILCO would
decline as a result of the LIPA Transaction from approximately $11.6 billion
to approximately $4.3 billion, largely as a result of regulatory assets
declining from approximately $6.6 billion to approximately $141 million.
Dillon Read also observed that LILCO would have no net debt (total debt minus
cash) as a result of the LIPA Transaction. Dillon Read believed, therefore,
that the LIPA Transaction would result in an improvement in LILCO's projected
financial condition.
Using publicly available information, Dillon Read calculated, based upon
market trading values at the time, multiples of certain financial criteria,
such as latest twelve months revenues, operating cash flow, operating income,
cash flow from operations, and 1998 estimated net income for certain companies
in lines of business comparable to those LILCO is expected to be involved in
after the LIPA Transaction. While LILCO will be engaged in the generation of
electricity and the management of an electric transmission and distribution
system, the majority of its earnings are expected to be derived from the gas
distribution business. Dillon Read therefore used as its group of comparable
companies gas distribution companies, specifically AGL Resources Inc.,
Brooklyn Union, MCN Corporation, NICOR Inc., Peoples Energy Corporation and
Washington Gas Light Company. In selecting companies for comparisons, Dillon
Read also considered size, geographic location and financial condition. The
multiples for this group of companies ranged as follows: net market
capitalization to
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revenue--1.2 to 1.9; net market capitalization to operating cash flow--6.8 to
10.7; net market capitalization to operating income--9.9 to 19.0; equity
market value to estimated 1998 net income--12.6 to 14.7; and equity market
value to latest twelve months cash flow from operations--6.5 to 8.4.
Dillon Read, in its judgment, based upon the business mix of LILCO compared
to the comparable companies, applied multiples generally at the low end of the
range for comparable companies to the results for LILCO pro forma for the LIPA
Transaction (and before any income from the reinvestment of the cash proceeds
from the LIPA Transaction) to arrive at implied values for LILCO. The
multiples applied and the resulting implied values were as follows:
<TABLE>
<CAPTION>
IMPLIED
MULTIPLES VALUES
APPLIED (MILLIONS)
----------- ---------------
<S> <C> <C>
Revenues..................................... 1.3 - 1.4 $ 761 - $ 931
Operating Cash Flow.......................... 6.8 - 7.5 $ 681 - $ 899
Operating Income............................. 10.0 - 11.0 $ 859 - $1,089
Net Income................................... 12.5 - 13.2 $ 975 - $1,030
Cash Flow from Operations.................... 6.5 - 7.0 $1,014 - $1,092
</TABLE>
Dillon Read considered the fact that pursuant to the Brooklyn Union/LILCO
Agreement, the number of shares LILCO shareholders would receive in respect of
each of their shares of LILCO Common Stock would be increased from .803 to
.880 as a result of the LIPA Transaction. The LILCO shareholders' ownership of
the Holding Company would therefore be increased from 66% to 68%.
UPDATED OPINION
The LILCO Board has received an updated opinion from Dillon Read that, as of
the date of this Joint Proxy Statement/Prospectus, the Original Ratio and the
LIPA Ratio were fair from a financial point of view to the holders of LILCO
Common Stock. The full text of Dillon Read's opinion dated June 26, 1997,
which describes the assumptions made, matters considered and limits on the
review undertaken, is attached hereto as Annex F to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. DILLON READ'S
OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF LILCO COMMON
STOCK AS TO HOW SUCH HOLDER SHOULD VOTE AT THE LILCO MEETING. HOLDERS OF LILCO
COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY. In addition to
updating the analyses described above of the Original Ratio, Dillon Read, in
its updated opinion, considered the financial consequences the LIPA
Transaction would have, if consummated, on the Combination. Specifically,
Dillon Read considered that the LIPA Transaction would result in: (i) purchase
accounting being applied, rather than pooling accounting, which Dillon Read
assumed would be applicable in the absence of the LIPA Transaction; (ii) the
consideration received by the holders of LILCO Common Stock becoming taxable,
whereas Dillon Read assumed that in the absence of the LIPA Transaction the
Combination would be tax-free; and (iii) an increase in the exchange ratio to
be received by the holders of LILCO Common Stock to .880, from .803 in the
absence of the LIPA Transaction.
In connection with rendering its updated opinion, Dillon Read considered a
variety of valuation methods, including those described above. In addition,
Dillon Read performed the analyses summarized below.
PRO FORMA ANALYSIS
Dillon Read compared LILCO's December 31, 1997 projected stand-alone balance
sheet to a pro forma balance sheet for the combined entity resulting from the
Combination for the same date adjusted for the LIPA Transaction. Dillon Read
observed that total assets of the Holding Company would be approximately $7.0
billion compared to approximately $11.6 billion for LILCO. The major reason
for the decline in assets was the reduction in regulatory assets from
approximately $6.6 billion to approximately $141 million. Dillon Read also
observed that the Holding Company would have net debt (total debt minus cash)
of approximately $349 million compared to approximately $5.3 billion for
LILCO. Dillon Read believed, therefore, that the Holding Company would have an
improved projected financial condition as compared to LILCO stand-alone.
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COMPARABLE COMPANY TRADING ANALYSIS
Using publicly available information, Dillon Read calculated, based upon
market trading values at the time, multiples of certain financial criteria,
such as latest twelve months revenues, operating cash flow, operating income,
cash flow from operations, and 1998 estimated net income for certain companies
in lines of business comparable to those the Holding Company is expected to be
involved in after the Combination and the LIPA Transaction. While subsidiaries
of the Holding Company will be engaged in the generation of electricity and
the management of an electric transmission and distribution system, the
majority of its earnings are expected to be derived from the gas distribution
business. Dillon Read therefore used as its group of comparable companies gas
distribution companies, specifically AGL Resources Inc., Brooklyn Union, MCN
Corporation, NICOR Inc., Peoples Energy Corporation and Washington Gas Light
Company. In selecting companies for comparison, Dillon Read also considered
size, geographic location and financial condition. The multiples for this
group of companies ranged as follows: net market capitalization to revenue--
1.2 to 1.9; net market capitalization to operating cash flow--6.8 to 10.7;
equity market value to estimated 1998 net income--12.6 to 14.7; and equity
market value to latest twelve months cash flow from operations--6.5 to 8.4.
Dillon Read applied multiples within the range for comparable companies to
the 1998 projected results for the Holding Company pro forma for the LIPA
Transaction (and before any income from the reinvestment of the cash proceeds
from the LIPA Transaction) to arrive at implied trading values for the Holding
Company (before assigning any value to cash). The multiples applied and
resulting implied values were as follows:
<TABLE>
<CAPTION>
IMPLIED IMPLIED
VALUES FOR VALUES PER
MULTIPLES THE HOLDING SHARE OF
APPLIED COMPANY LILCO*
--------- ------------- -------------
<S> <C> <C> <C>
Revenues............................. 1.4-1.5 $12.72-$14.61 $11.19-$12.86
Operating Cash Flow.................. 7.0-8.0 $12.71-$16.50 $11.18-$14.52
Operating Income..................... 10.0-12.0 $14.59-$20.26 $12.84-$17.83
Net Income........................... 13.5-15.0 $16.55-$18.39 $14.57-$16.18
Cash Flow from Operations............ 6.5-7.0 $14.83-$15.97 $13.05-$14.05
</TABLE>
- --------
* Based on the .880 exchange ratio and before assigning any value to the cash
proceeds from the LIPA Transaction.
Dillon Read then calculated the after-tax cash proceeds that the Holding
Company would receive pursuant to the LIPA Transaction, divided such amount by
the expected shares outstanding of the Holding Company, and multiplied the
result by the .880 exchange ratio to arrive at a cash amount per LILCO share.
Dillon Read added such per share amount to the implied values per LILCO share
resulting from the Comparable Company Trading Analysis to arrive at a total
value per LILCO share of $23.32 to $26.40. Finally, Dillon Read compared such
implied value to LILCO's stock price on December 27, 1996 (the last trading
date prior to the announcement of the Combination) of $19.375 and noted that
the implied value was higher by between 20 and 36 percent.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to particular circumstances, and, therefore, the
opinion and analysis are not readily susceptible to summary description.
Accordingly, notwithstanding the separate factors and analyses summarized
above, Dillon Read believes that its analyses must be considered as a whole
and that selecting portions of its analyses and other factors it considered,
without considering all factors and analyses, could create a misleading view
of the evaluation process underlying its opinions. Dillon Read did not assign
any particular weight to any analysis or factor it considered but, rather,
made qualitative judgments based on its experience in rendering such opinions
and on economic, monetary and market conditions then present as to the
significance and relevance of each analysis and factor. In its analyses,
Dillon Read assumed relatively stable industry performance, regulatory
environments and general business and economic conditions, all of which are
beyond LILCO's control. Any estimates contained in Dillon Read's analyses do
not necessarily indicate actual value, which may be significantly more or less
favorable than stated therein. Estimates of the
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financial value of companies do not purport to be appraisals or necessarily
reflect the prices at which companies actually may be sold. In rendering its
opinions, Dillon Read expressed no views as to the range of values at which
the LILCO Common Stock may trade following the consummation of the
transactions discussed herein, nor does Dillon Read make any recommendations
to a holder of LILCO Common Stock with respect to how such holder should vote
on the transactions discussed herein or to the advisability of disposing of or
retaining the Holding Company Common Stock following the transactions
discussed herein.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, regularly is engaged in evaluating
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The LILCO Board selected Dillon Read on the
basis of the firm's expertise and reputation.
Pursuant to the engagement letter between LILCO and Dillon Read, LILCO has
paid Dillon Read the following amounts: $2.5 million upon the execution of the
engagement letter, which includes compensation for financial services rendered
to LILCO from time to time since April 1992 related to proposals for a
transaction such as the LIPA Transaction, $2.5 million upon the rendering of
Dillon Read's fairness opinion to the LILCO Board addressing the Combination
and $2.5 million upon the rendering of Dillon Read's fairness opinion to the
LILCO Board addressing the LIPA Transaction. LILCO has also agreed to pay
Dillon Read a fee upon consummation of either or both transactions equal to .4
percent of the aggregate amount of consideration received by LILCO or its
common shareholders, less $6.25 million of the payments mentioned above which
will have previously been paid.
Dillon Read has, in the past, performed various investment banking services
for LILCO for which Dillon Read has been compensated. In the ordinary course
of business, Dillon Read trades the debt and equity securities of LILCO and
Brooklyn Union for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
POTENTIAL CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE COMBINATION AND THE
LIPA TRANSACTION
EMPLOYMENT AGREEMENT WITH WILLIAM J. CATACOSINOS. Pursuant to the Brooklyn
Union/LILCO Agreement, the Holding Company will enter into an employment
agreement with Dr. William J. Catacosinos effective as of the effective time
of the Combination (the "Effective Time"), providing for him to assume the
positions of Chairman of the Board, Chairman of the Executive Committee and
Chief Executive Officer of the Holding Company commencing upon the Effective
Time and for him to serve as a consultant to the Holding Company for a five
year period commencing on the first anniversary of the Effective Time, which
is when he ceases to be Chief Executive Officer pursuant to the terms of the
Brooklyn Union/LILCO Agreement. Under this employment agreement,
Dr. Catacosinos is to receive compensation on terms to be mutually agreed
upon, but not less than what he received from LILCO as of the date of the
Original Agreement. Dr. Catacosinos would also be eligible to receive
incentive compensation related to achieving the synergies contemplated to be
realized from the Combination. In addition, the Brooklyn Union/LILCO Agreement
provides that the employment agreement with Dr. Catacosinos is otherwise to
contain terms and conditions comparable to and no less favorable than those
customarily applicable to employment agreements for chief executive officers
of similarly sized companies in the energy and utility businesses.
VESTING OF CERTAIN BENEFITS FOR LILCO'S DIRECTORS AND OFFICERS. Under
LILCO's Annual Stock Incentive Compensation Plan (the "Stock Plan"), in the
event a Stock Plan participant's employment with LILCO is terminated for,
among other reasons, a "change in control," as defined in the Stock Plan, such
participant shall be entitled to receive payment, as soon as practicable after
the close of the plan year during which such termination of employment occurs,
of a pro rata portion of such participant's LILCO Common Stock award, if any,
for the current plan year. The Combination and the LIPA Transaction will each
constitute a change in control for purposes of the Stock Plan.
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Under LILCO's Officers' Long-Term Incentive Plan (the "Incentive Plan"),
awards are paid in two installments each of which is contemplated to be made
in shares of LILCO Common Stock. The awards for each performance period
(initially 1996-1997 and thereafter each consecutive three-year period) are
divided into two equal portions: (i) a fifty percent vested portion; and (ii)
a fifty percent contingent portion. The contingent portion is subject to a
mandatory deferral of one year from the date of the payment of the award. In
the event an Incentive Plan participant's employment with LILCO is terminated
for, among other reasons, a "change in control," as defined in the Incentive
Plan, such participant shall be entitled to receive payment, as soon as
practicable after the close of the performance period during which such
termination of employment occurs, of (i) the entire balance of such
participant's contingent account at the close of the plan year during which
termination of employment occurs and (ii) a pro-rata portion of such
participant's award, if any, for the current performance period, as determined
by Compensation and Management Appraisal Committee of the LILCO Board of
Directors. The Combination and the LIPA Transaction will each constitute a
change in control for purposes of the Incentive Plan.
Under the terms of LILCO's Directors' Stock Unit Retainer Plan (the
"Retainer Plan"), each non-employee director of LILCO is required to apply at
least 50% of his or her annual retainer to the purchase of LILCO Common Stock
units. Allocation of LILCO Common Stock units under the Retainer Plan are made
automatically on the date during each fiscal quarter on which the quarterly
installment of the annual retainer is paid.
Under the Retainer Plan, the value of the units which will be credited to
each non-employee Director's account on a quarterly basis will be determined
by dividing the aggregate amount of cash credited to such account by the
closing price per share of LILCO Common Stock, as reported on a New York Stock
Exchange listing of composite transactions, on the first trading day of the
calendar month in which the participant's retainer is paid. The amounts
accumulated pursuant to the Retainer Plan will be held until such time as (i)
a participant ceases to serve as a Director or Consulting Director; (ii) a
participant's death; or (iii) a change in control, as defined in the Retainer
Plan. The Combination and the LIPA Transaction will each constitute a change
in control for purposes of the Retainer Plan.
LILCO also has a Retirement Plan for Directors (the "Retirement Plan"),
providing benefits to Directors who are not or who have not been Officers of
LILCO. Directors who have served in that capacity for more than five years
qualify as participants under the Retirement Plan. The Retirement Plan
provides for a monthly benefit equal to one-twelfth of the highest annual
retainer paid to each participant. A full benefit is available for
participants who serve for ten years with a reduction of one-sixtieth for each
month of service less than ten years. Under the Retirement Plan, payment of
benefits is to begin when the Director ceases to serve as a Director or
Consulting Director or reaches age 65, whichever is later. The Retirement Plan
also provides that in the event of a "change in control" (as defined in the
Retirement Plan), the value of vested benefits could be payable immediately.
The Combination and the LIPA Transaction will each constitute a change in
control for purposes of the Retirement Plan.
The Brooklyn Union/LILCO Agreement provides that at the Effective Time, each
share of LILCO Common Stock held under the Retainer Plan, the Incentive Plan
and the Stock Plan will be automatically exchanged for the same number of
shares of Holding Company Common Stock for which one share of LILCO Common
Stock was exchanged.
LILCO CHANGE IN CONTROL SEVERANCE PLAN. LILCO has entered into individual
employment agreements with each of its officers to provide them with
employment security and to minimize distractions resulting from personal
uncertainties and risks of a change in control of LILCO. Currently, the
principal benefits under these agreements, payable if the officer's employment
is terminated for any reason (including voluntary resignation) within three
years of a change in control (as defined in these agreements), including by
virtue of an acquisition of LILCO's assets or stock, prior to December 31,
1999, are: (i) severance pay equal to three years' salary; (ii) accelerated
vesting and payment of the value of supplemental retirement benefits at the
time of a change in control, which are enhanced by three years of service; and
(iii) continuation of life, medical and dental insurance for a period of three
years. LILCO has created a trust to support payment of its obligations, but
remains primarily
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liable for the compensation and retirement benefits payable to the officers.
The trust will make such payments only to the extent that LILCO does not. The
Combination as contemplated in the Brooklyn Union/LILCO Agreement and the LIPA
Transaction will each result in a change in control (as defined in these
agreements) and entitle each officer to the benefits payable under the terms
of the employment agreements if such officer's employment is terminated for
any reason.
LILCO has also entered into individual employment agreements with certain of
its officers (not including Dr. Catacosinos and Mr. Flynn), effective July 1,
1997, pursuant to which such officers are employed for a one year term and are
entitled to receive a retention bonus equal to 20% of the greater of job value
or salary, if they are still employed by LILCO or its affiliates at the end of
such term or are terminated without cause (as determined by the Chief
Executive Officer) prior to the expiration of such term. These agreements have
been entered into to induce such officers to continue their employment despite
the significant proposed changes to LILCO described elsewhere in this Joint
Proxy Statement/Prospectus.
Under the terms of an employment contract dated as of January 30, 1984, as
amended, Dr. Catacosinos has agreed to serve as CEO of LILCO until January 31,
2002. Dr. Catacosinos' contract provides for, among other things: (i) a five-
year consulting period following the termination of his employment (other
than, except after a change in control, for cause); (ii) supplemental
disability benefits; and (iii) vested retirement benefits, which will be based
upon a formula that considers his age at retirement, his highest annual
salary, the highest bonus he has received and the length of his service to
LILCO including service as a Director, employee or consultant. The Combination
and the LIPA Transaction will each result in a change in control under the
terms of Dr. Catacosinos' employment contract.
COMPARISON OF THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
TO LILCO'S CERTIFICATE OF INCORPORATION AND BY-LAWS
AUTHORIZED CAPITAL. The total authorized capital stock of the Holding
Company will be 450,000,000 shares of Holding Company Common Stock, par value
$.01 per share, and 100,000,000 shares of Holding Company Preferred Stock, par
value $.01 per share. The total authorized capital stock of LILCO currently
consists of 150,000,000 shares of common stock, par value $5 per share,
7,000,000 shares of preferred stock, par value $100 per share, 30,000,000
shares of preferred stock, par value $25 per share and 7,500,000 shares of
preference stock, par value $1 per share. At the LILCO Meeting, the LILCO
shareholders will be asked to amend the LILCO Certificate of Incorporation to
increase the total amount of authorized LILCO Common Stock to 160,000,000
shares to accommodate the number of shares of LILCO Common Stock to be
reserved for issuance to Brooklyn Union in connection with the LILCO Stock
Option Agreement.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS. The
Holding Company Certificate and the Holding Company By-Laws provide that,
subject to the rights of holders of Holding Company Preferred Stock, if any,
any director serving on the Holding Company Board may be removed from office
only for cause by the affirmative vote of the holders of at least a majority
of the Voting Power, voting together as a single class. The LILCO Certificate
and the LILCO By-Laws have no comparable provision, but the LILCO By-Laws do
require Directors to retire at the Annual Meeting of Shareholders in the year
following the year in which he or she reaches his or her seventy-second
birthday unless authorized by the Board to continue to serve. However, no
Director may serve beyond the year following the year in which he or she
reaches their seventy-fifth birthday. Under the NYBCL, unless the certificate
of incorporation or by-laws of a corporation provides otherwise, a director
may be removed only for cause by the vote of a majority of the votes cast at a
shareholder meeting by the holders of shares entitled to vote thereon.
Both the LILCO By-Laws and the Holding Company Certificate provide that
vacancies on the Board of Directors may be filled by the remaining directors.
The LILCO Certificate provides that in certain circumstances, the holders of
preferred stock or preference stock may have limited rights to elect two
additional Directors and, if there is a vacancy among these two Directors, the
remaining Director has the authority to select a replacement.
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MEETINGS OF SHAREHOLDERS. The Holding Company Certificate and the Holding
Company By-Laws provide that a special meeting of shareholders may be called
only by the Holding Company Board pursuant to a resolution approved by a
majority of the entire Holding Company Board. The LILCO By-Laws also provide
that a special meeting of shareholders may be called by a majority of the
Directors of LILCO. In addition, the LILCO By-Laws provide that such a meeting
may be called by the President of LILCO, and that it is the President's duty
to call such a meeting whenever requested to do so in writing by shareholders
owning one-fourth of the outstanding shares of stock of LILCO entitled to vote
at such meetings.
AMENDMENT OF CORPORATE CHARTER AND BY-LAWS. The NYBCL provides that an
amendment to a corporation's certificate of incorporation may be authorized by
vote of the board of directors, followed by a vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders and the by-laws of a corporation may be amended by a vote of the
holders of a majority of all outstanding shares entitled to vote in the
election of any directors of the corporation or, if so provided in the
certificate of incorporation or by-laws, by the board of directors by such
vote as may be therein specified.
The Holding Company Certificate and the Holding Company By-Laws provide that
the affirmative vote of the holders of at least 80 percent of the Voting Stock
then outstanding, voting together as a single class, will be required to
change or adopt any provision inconsistent with the provisions therein
relating to calling of special meetings of shareholders, the election of
directors, filling of vacancies on the Holding Company Board, removal of
directors and the amendment of the Holding Company By-Laws and the Holding
Company Certificate.
The LILCO Certificate provides that the LILCO Board of Directors has the
power, except as otherwise provided by law, to make, alter, amend or repeal
the LILCO By-Laws. The LILCO By-Laws provide that the By-Laws may be altered,
amended or rescinded: (i) by the shareholders at any regular or special
meeting by vote of a majority of the shares of stock issued and outstanding,
provided notice of such intention be included in the notice of meeting, unless
otherwise provided by law; or (ii) except with regard to the sections
concerning quorum at shareholders' meetings, voting by shareholders, duties
and qualifications of Directors and the number and method of election of
Directors, by vote of a majority of the Directors of LILCO at any regular or
special meeting, provided at least three days' notice of such intention be
given to each member of the Board.
OFFICERS. The Holding Company By-Laws provide that, effective as of the
first anniversary of the consummation of the Combination, Dr. Catacosinos
shall be elected Chairman of the Holding Company Board and Chairman of the
Executive Committee of the Holding Company Board and Mr. Catell shall be
elected Chief Executive Officer of the Holding Company. This By-Law may be
modified only by the affirmative vote of two-thirds of the entire Holding
Company Board.
THE LILCO MEETING
GENERAL. The purpose of the LILCO Meeting is to consider and vote upon: (i)
a proposal to adopt the Brooklyn Union/LILCO Agreement; (ii) a proposal to
adopt the LIPA Agreement; (iii) a proposal to elect twelve directors; (iv) a
proposal to ratify the appointment of Ernst & Young LLP as independent
auditors for LILCO for the period from January 1, 1997 to March 31, 1998; (v)
a proposal to approve the LILCO Annual Stock Incentive Compensation Plan; (vi)
a proposal to approve the LILCO Employee Stock Purchase Plan; (vii) a proposal
to approve an amendment to the LILCO Certificate of Incorporation to increase
the total number of authorized shares of LILCO Common Stock; and (viii) such
other matters, if any, as may properly be presented for consideration. The
LILCO Board does not know, as of the date of mailing of this Joint Proxy
Statement/Prospectus, of any other business to be brought before the LILCO
Meeting. The enclosed proxy card authorizes the voting of shares represented
by the proxy on all other matters that may properly come before the LILCO
Meeting, and any adjournment or postponement thereof, and it is the intention
of the proxy holders to take such action in connection therewith as shall be
in accordance with their best judgment.
The LILCO Board, by a unanimous vote, has adopted the Brooklyn Union/LILCO
Agreement and the LIPA Agreement, and recommends that LILCO shareholders vote
FOR approval of the Brooklyn Union Agreement
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and the related reorganization of LILCO, FOR adoption of the LIPA Agreement,
FOR the election of the nominated directors, FOR ratification of the
appointment of Ernst & Young LLP as LILCO's independent auditors for the
period from January 1, 1997 to March 31, 1998, FOR approval of the Annual
Stock Incentive Compensation Plan, FOR approval of the Employee Stock Purchase
Plan; and FOR approval of the amendment to LILCO's Certificate of
Incorporation as set forth above.
DATE, PLACE AND TIME; RECORD DATE. The LILCO Meeting is scheduled to be held
on Thursday, August 7, 1997 at 3:00 p.m. at Tilles Center for the Performing
Arts at Long Island University C.W. Post Campus, Northern Boulevard,
Greenvale, New York 11548. Holders of record of shares of LILCO Common Stock
at the close of business on June 26, 1997, the Record Date, will be entitled
to notice of and to vote at the LILCO Meeting.
VOTING RIGHTS. At the close of business on June 23, 1997, 121,184,527 shares
of LILCO Common Stock were issued and outstanding. Each outstanding share of
LILCO Common Stock as of the Record Date is entitled to one vote upon each
matter presented at the LILCO Meeting except with respect to the election of
LILCO Directors as discussed below. The affirmative vote of the holders of at
least two-thirds of the outstanding shares of LILCO Common Stock is required
to adopt the LIPA Agreement and to adopt the Brooklyn Union/LILCO Agreement at
the LILCO Meeting. In addition, the LIPA Agreement must be approved by the
vote of: 1) the holders of at least two-thirds of the outstanding shares of
LILCO common stock and preferred stock entitled to vote thereon, voting
together as a single class; 2) a majority of the outstanding shares of LILCO
preferred stock entitled to vote thereon, voting together as a separate class;
3) a majority of the outstanding shares of LILCO common stock voting
separately as a class; and 4) the holders of a majority of the outstanding
shares of each series of LILCO preferred stock entitled to vote thereon, in
each case voting separately as a class.
In connection with the proposal to adopt the LIPA Agreement, each
outstanding share of LILCO Common Stock is entitled to one vote, each
outstanding share of LILCO Preferred Stock eligible to vote having a par value
of $100 per share is entitled to one vote and each outstanding share of LILCO
Preferred Stock eligible to vote having a par value of $25 per share is
entitled to one-quarter (1/4) of a vote.
A majority of the voting power of the shares issued and outstanding and
entitled to vote, present in person or by proxy, is necessary to constitute a
quorum for the transaction of business at the LILCO Meeting except with
respect to the election of LILCO Directors. Abstentions and broker non-votes
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which brokers or nominees do not
have discretionary power to vote) will be considered present for the purpose
of establishing a quorum. In accordance with New York Stock Exchange rules,
brokers and nominees are precluded from exercising their voting discretion
with respect to the adoption of the Brooklyn Union/LILCO Agreement and LIPA
Agreement and thus, absent specific instructions from the beneficial owner of
such shares, are not empowered to vote such shares with respect to the
adoption of the Brooklyn Union/LILCO Agreement or LIPA Agreement. Therefore,
since the affirmative vote in person or by proxy, of the holders of two-thirds
of the outstanding shares of LILCO Common Stock on the Record Date is required
to adopt the LIPA Agreement and to adopt the Brooklyn Union/LILCO Agreement,
abstentions and broker non-votes will have the effect of a vote against the
LIPA Transaction and the related reorganization of LILCO or the Brooklyn
Union/LILCO Agreement, as the case may be.
Shareholders are entitled to vote cumulatively for the election of LILCO
Directors. Each shareholder is entitled to a number of votes for such election
equal to the number of votes entitled to be cast with respect to the shares
held by such shareholder multiplied by the number of directors to be elected,
and may cast all votes for one nominee or distribute the votes among the
nominees. The election of each Director shall be decided by plurality vote. As
a result, any shares not voted for a Director (whether by withholding
authority, broker non-vote or otherwise) will have no impact on the election
of Directors except to the extent that the failure to vote for an individual
results in another individual receiving a larger number of votes.
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The affirmative vote of a majority of the votes cast by the holders of the
shares of LILCO Common Stock represented at the LILCO Meeting and entitled to
vote thereon, voting as a single class (provided that the total vote cast
represents over 50% of the voting power of all the shares of LILCO Common
Stock entitled to vote thereon) is required to approve (i) the ratification of
the appointment of Ernst & Young LLP as LILCO's independent auditors for the
period from January 1, 1997 to March 31, 1998, (ii) the Annual Stock Incentive
Compensation Plan, and (iii) the Employee Stock Purchase Plan. The affirmative
vote of a majority of the outstanding shares of LILCO Common Stock is required
to approve the amendment of the LILCO Certificate of Incorporation as set
forth in Annex J hereto. Abstentions and broker non-votes are not counted in
determining the votes cast in connection with the selection of auditors. With
respect to the remaining matters to be acted upon, abstentions from voting on
such matters are treated as votes against, while broker non-votes are treated
as shares not entitled to vote.
If a LILCO shareholder is a participant in the LILCO Investor Common Stock
Plan, the LILCO proxy card will represent the shares held on behalf of the
participant under the Investor Common Stock Plan and such shares will be voted
in accordance with the instructions on the LILCO proxy card. If a participant
in the Investor Common Stock Plan does not return a LILCO proxy card, the
participant's shares will not be voted.
As of June 23, 1997, directors and executive officers of LILCO and their
affiliates owned beneficially an aggregate of 56,683 shares of LILCO Common
Stock, or less than one percent of the shares of LILCO Common Stock
outstanding on such date. Directors and executive officers of LILCO have
indicated their intention to vote their shares of LILCO Common Stock in favor
of adoption of the Brooklyn Union/LILCO Agreement and of the LIPA Agreement.
See "Selected Information Concerning LILCO--Potential Conflicts of Interest
of Certain Persons in the Combination and the LIPA Transaction."
VOTING AND REVOCATION OF PROXIES. Holders of the LILCO Common Stock may vote
either in person or by properly executed proxy. Each holder of LILCO Common
Stock will be furnished a proxy card upon which the names of three of LILCO's
Directors, George Bugliarello, John H. Talmage and Basil A. Paterson,
constituting the proxy committee (the "Proxy Committee"), appear. By
completing and returning the form of proxy, the LILCO shareholder authorizes
the persons named therein to vote all the LILCO shareholder's shares on his or
her behalf. Issued and outstanding shares of LILCO Common Stock, the holders
of which are entitled to vote at the LILCO Meeting, which are represented by
properly executed proxies, will, unless such proxies have been revoked, be
voted in accordance with the instructions indicated in such proxies.
IF A PROXY IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS, SHARES OF LILCO COMMON STOCK REPRESENTED BY THE PROXY WILL BE
VOTED FOR ADOPTION OF THE LIPA AGREEMENT, FOR ADOPTION OF THE BROOKLYN
UNION/LILCO AGREEMENT, FOR THE ELECTION OF THE NOMINATED DIRECTORS, FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS LILCO'S INDEPENDENT
AUDITORS FOR THE PERIOD FROM JANUARY 1, 1997 TO MARCH 31, 1998, FOR THE
APPROVAL OF THE ANNUAL STOCK INCENTIVE COMPENSATION PLAN, FOR THE APPROVAL
OF THE EMPLOYEE STOCK PURCHASE PLAN, AND FOR THE APPROVAL OF AN AMENDMENT
TO THE LILCO CERTIFICATE OF INCORPORATION.
With respect to the election of the nominated directors, the Proxy Committee
reserves the right to cumulate votes represented by proxies which they receive
and to distribute such votes among one or more of the nominees at their
discretion. If a LILCO shareholder wishes to give a proxy to someone other
than the Proxy Committee, such shareholder may cross out the names of the
members of the Proxy Committee on the proxy card and insert the names of up to
three other persons and make, if necessary, other appropriate changes
providing unambiguous instructions to the person or persons named.
A LILCO shareholder may revoke a proxy at any time prior to its exercise at
the LILCO Meeting by delivering to the Corporation Trust Company, P.O. Box
631, Wilmington, Delaware 19899 a notice of revocation
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or a duly executed proxy bearing a later date or by attending the LILCO
Meeting and voting in person. Attendance at the LILCO Meeting will not in
itself constitute revocation of a proxy.
The LILCO Meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies). In their discretion, the Proxy Committee is authorized to
vote upon such business as may properly come before the LILCO Meeting,
including without limitation, any motion to adjourn the LILCO Meeting to
another time or place (including for the purpose of soliciting additional
proxies).
SOLICITATION OF PROXIES. LILCO will bear its own expenses in connection with
the solicitation of proxies for the LILCO Meeting, except that each of LILCO
and Brooklyn Union will pay one-half of the costs and expenses incurred in
connection with printing this Joint Proxy Statement/Prospectus and one-half of
all filing fees. In addition to soliciting proxies by mail, officers and
employees of LILCO, without receiving additional compensation therefor, may
solicit proxies by telephone, by telecopy, by telegram or in person. LILCO has
retained D.F. King & Co., Inc. to aid in the solicitation of proxies from the
LILCO shareholders. The total fee for the services of such firm is not
expected to exceed $30,000, plus reimbursement for reasonable out-of-pocket
expenses.
BUSINESS OF LILCO
LILCO was incorporated in 1910 under the Transportation Corporations Law of
the State of New York and supplies electric and gas service in Nassau and
Suffolk Counties and to the Rockaway Peninsula in Queens County, all on Long
Island, New York. The mailing address of LILCO is 175 East Old Country Road,
Hicksville, New York 11801 and its general telephone number is (516) 755-6650.
TERRITORY. LILCO's service territory covers an area of approximately 1,230
square miles. The population of the service area, according to LILCO's 1996
estimate, is 2.7 million persons, including approximately 98,000 persons who
reside in Queens County within the City of New York. The 1996 population
estimate reflects a 0.7% increase since the 1990 census.
Approximately 80% of all workers residing in Nassau and Suffolk Counties are
employed within the two counties. In 1996, total non-agricultural employment
in Nassau and Suffolk Counties increased by approximately 12,500 positions, an
employment increase of 1.1%.
LILCO serves approximately one million electric customers of which 921,000
are residential. LILCO receives approximately 49% of its electric revenues
from residential customers, 48% from commercial/industrial customers and 3%
from sales to other utilities and public authorities. LILCO also serves
approximately 460,000 gas customers, 412,000 of which are residential,
accounting for 61% of the gas revenues, with the balance of the gas revenues
made up by the commercial/industrial customers and off-system sales.
EMPLOYEES. As of March 31, 1997, LILCO had 5,443 full-time employees, of
which 2,241 belong to Local 1049 and 1,292 belong to Local 1381 of the
International Brotherhood of Electrical Workers. Effective February 14, 1996,
LILCO and these unions agreed upon contracts which will expire on February 13,
2001. The contracts provide, among other things, for wage increases totaling
15.5% over the term of the agreements.
REGULATION AND ACCOUNTING CONTROLS. LILCO is subject to regulation by the
PSC with respect to rates, issuances and sales of securities, adequacy and
continuance of service, safety and siting of certain facilities, accounting,
conservation of energy, management effectiveness and other matters. To ensure
that its accounting controls and procedures are consistently maintained, LILCO
actively monitors these controls and procedures. The Audit Committee of
LILCO's Board of Directors, as part of its responsibilities, periodically
reviews this monitoring program.
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LILCO is also subject, in certain of its activities, to the jurisdiction of
the United States Department of Energy and the FERC. In addition to its
accounting jurisdiction, FERC has jurisdiction over the rates LILCO may charge
for the sale of electric energy for resale in interstate commerce, including
the rates LILCO charges for electricity sold to municipal electric systems
within LILCO's territory, and for the transmission, through LILCO's system, of
electric energy to other utilities, and for the pricing, terms and conditions of
transmission and distribution services when LILCO provides these services
separately from its traditional full-requirements retail electric service. FERC
also has some jurisdiction over a portion of LILCO's gas supplies and
substantial jurisdiction over transportation to LILCO of its gas supplies.
Operation of Nine Mile Point Nuclear Power Station Unit 2, a nuclear
facility in which LILCO has an 18% interest, is subject to regulation by the
NRC.
Additional information concerning LILCO and its subsidiaries is included in
the LILCO documents filed with Commission which are incorporated by reference
herein. See "Where You Can Find More Information."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CURRENT OWNERSHIP OF LILCO COMMON STOCK. The following table shows the
number of shares* of LILCO Common Stock beneficially owned, as of June 23,
1997, by each Director, certain Officers and by all Directors and Officers as
a group. The percentage of shares held by any one person, or all Directors and
Officers as a group, does not exceed 1% of all outstanding shares of LILCO
Common Stock. The address of each of the Directors and Officers is: c/o Long
Island Lighting Holding Company, 175 East Old Country Road, Hicksville, New
York 11801.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES*
---- ---------
<S> <C>
A. James Barnes.................................................. 1,473
George Bugliarello............................................... 1,473
Renso L. Caporali................................................ 2,144
William J. Catacosinos........................................... 14,707
Peter O. Crisp................................................... 973
James T. Flynn................................................... 5,509
Vicki L. Fuller.................................................. 1,273
Leonard P. Novello............................................... 1,189
Anthony Nozzolillo............................................... 1,301
Katherine D. Ortega.............................................. 1,801
Basil A. Paterson................................................ 2,025
Richard L. Schmalensee........................................... 1,073
George J. Sideris................................................ 4,851
John H. Talmage.................................................. 1,505
Edward J. Youngling.............................................. 2,446
All Directors and Officers as a group, including those named
above, a total of 33 persons.................................... 56,683
</TABLE>
--------
* The number of shares includes whole shares held under LILCO's
Investor Common Stock Plan and for Mr. Talmage includes 287 shares
held or beneficially owned by a spouse, parent or child for which
beneficial ownership is disclaimed. In addition, the number of shares
shown for each Director, other than Dr. Catacosinos and Mr. Flynn,
includes 973 LILCO Common Stock units, which do not confer any voting
rights, credited pursuant to the Director Stock Unit Retainer Plan.
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The following table sets forth certain information with respect to the
shares of LILCO Preferred Stock and LILCO Common Stock owned by each person
known by LILCO to be the beneficial owner of more than 5% of such LILCO
Preferred Stock and LILCO Common Stock, as of March 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE
TITLE OF CLASS NAMES AND ADDRESSES OWNED OF CLASS
-------------- ------------------------------ ---------- ----------
<S> <C> <C> <C>
Common Stock.............. The Brooklyn Union Gas Company 23,981,964* 16.6%
One MetroTech Center
Brooklyn, NY 11201-3850
Common Stock.............. Capital Group Companies Inc. 12,141,500 10.1%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- --------
* Represents the number of shares that may be purchased pursuant to the LILCO
Stock Option Agreement attached as Annex B and described in this Joint Proxy
Statement/Prospectus. See "The Stock Option Agreements."
LILCO has not been advised, nor is it aware, of any additional shares to
which anyone has the right to acquire beneficial ownership.
LILCO is required to identify any Director, Officer, or person who owns more
than ten percent of a class of equity securities who failed to timely file
with the SEC a required report relating to ownership and changes in ownership
of LILCO's equity securities. Based on information provided to LILCO by such
persons, all LILCO Officers and Directors made all required filings during the
fiscal year ended December 31, 1996. Except as described above, LILCO does not
know of any person beneficially owning more than 10% of a class of equity
securities.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Brooklyn Union and LILCO have made forward-looking statements in this
document and in the documents incorporated by reference in this document that
are subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
companies and the Holding Company set forth under "The Brooklyn Union/LILCO
Combination--Common Reasons for the Combination," "--Opinion of Brooklyn
Union's Financial Advisor" and "Selected Information Concerning LILCO--
Opinions of LILCO's Financial Advisor" and those preceded by, followed by or
that include the words "believes," "expects," "anticipates" or similar
expressions. For those statements, Brooklyn Union and LILCO claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Shareholders of Brooklyn
Union and shareholders of LILCO should understand that the following important
factors, in addition to those discussed elsewhere in this document and in the
documents which are incorporated by reference herein, could affect the future
results of the Holding Company, Brooklyn Union and LILCO, and could cause
those results to differ materially from those expressed in such forward-
looking statements: materially adverse changes in economic conditions in the
markets served by Brooklyn Union or LILCO and in the markets that will be
served by them; a significant delay in the expected closing of the Combination
and/or LIPA Transaction, or the failure of either transaction to close; future
regulatory actions and conditions in Brooklyn Union's and LILCO's operating
areas; and the timing and extent of changes in commodity prices for crude oil,
natural gas, electricity and interest rates.
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LEGAL MATTERS
Certain legal matters relating to LILCO in connection with the Combination
and the LIPA Transaction, including, among other things, certain legal matters
with respect to the validity of the securities to be issued, will be passed
upon for LILCO by Kramer, Levin, Naftalis & Frankel, New York, New York and by
Hunton & Williams, Washington, D.C.
Certain legal matters relating to Brooklyn Union in connection with the
Combination will be passed upon for Brooklyn Union by Wachtell, Lipton, Rosen
& Katz, New York, New York.
EXPERTS
The financial statements of LILCO appearing in its Annual Report (Form 10-
K/A) for the year ended December 31, 1996 and the consolidated financial
statements of Brooklyn Union appearing in its Annual Report (Form 10-K) for
the year ended September 30, 1996, both incorporated by reference in this
Joint Proxy Statement/Prospectus of LILCO and Brooklyn Union, which are
referred to and made part of this Registration Statement, have been audited by
Ernst & Young LLP and Arthur Andersen LLP, respectively, as set forth in their
reports thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting
and auditing.
FUTURE SHAREHOLDER PROPOSALS
Assuming the timing of the consummation of the transactions contemplated in
the Brooklyn Union/LILCO Agreement require LILCO to hold an annual meeting in
1998, proposals of shareholders intended to be presented at such meeting must
be received by LILCO at its offices at 175 East Old Country Road, Hicksville,
New York 11801, Attention: Corporate Secretary, not later than November 24,
1997. Proposals must comply with the SEC's proxy regulations relating to
shareholder proposals in order to be considered for inclusion in LILCO's proxy
materials.
Assuming the timing of the consummation of the transactions contemplated in
the Brooklyn Union/LILCO Agreement or the KeySpan Exchange Agreement require
Brooklyn Union or KeySpan to hold an annual meeting in 1998, proposals of
shareholders intended to be presented at such meeting must be received by
Brooklyn Union at its offices at One MetroTech Center, Brooklyn, New York
11201-3850, Attention: Secretary, not later than September 1, 1997. Proposals
must comply with the SEC's proxy regulations relating to shareholder proposals
in order to be considered for inclusion in Brooklyn Union's or KeySpan's proxy
materials.
Matters intended to be presented by holders of Brooklyn Union or KeySpan
Common Stock at the 1998 annual meeting must be stated in writing and
delivered to the appropriate Secretary by such shareholders during the period
between 90 and 60 days prior to the date of the meeting, which is expected to
be held on February 5, 1998.
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WHERE YOU CAN FIND MORE INFORMATION
LILCO and Brooklyn Union file annual, quarterly and special reports, proxy
statements and other information with the SEC. Following the Combination, the
Holding Company will also make these filings with the SEC. You may read and
copy any reports, statements or other information that the companies file at
the SEC's public reference rooms at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings should also be available to the public
from commercial document retrieval services and at the Internet web site
maintained by the SEC at http://www.sec.gov.
In addition, material and information concerning Brooklyn Union and LILCO
can be inspected at the New York Stock Exchange, Inc., 20 Broad Street, 7th
Floor, New York, New York 10005, on which exchange the Brooklyn Union Common
Stock, the LILCO Common Stock, the LILCO Preferred Stock, certain of the LILCO
General and Refunding Bonds and the LILCO Debentures are listed, and material
and information concerning LILCO can also be inspected at the Pacific Stock
Exchange, Inc., 301 Pine Street, San Francisco, California 94104, on which
exchange the LILCO Common Stock is listed.
The Holding Company has filed a registration statement on Form S-4 to
register with the SEC the shares of Holding Company Common Stock and Holding
Company Preferred Stock to be issued in connection with the Brooklyn
Union/LILCO Agreement and the LIPA Agreement. KeySpan has also filed
registration statements on Form S-4 to register with the SEC the shares of
KeySpan Common Stock to be issued in connection with the KeySpan holding
company restructuring and share exchanges. This Joint Proxy
Statement/Prospectus is part of each such registration statement, as well as
being a proxy statement for the annual meeting of LILCO and the special
meeting of Brooklyn Union. In accordance with SEC rules, each such
registration statement may contain additional information that you will not
find in the Joint Proxy Statement/Prospectus. The registration statements are
available for inspection and copying as set forth above.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this Joint Proxy Statement/Prospectus, except for any information superseded
by information contained directly in this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference the documents
set forth below that were previously filed with the SEC by LILCO (File No. 1-
3571) or Brooklyn Union (File No. 1-722). These documents contain important
information about our companies and their financial condition.
1. LILCO's Annual Report on Form 10-K/A for the year ended December 31,
1996.
2. LILCO's Transition Report on Form 10-Q for the 3 month period ended March
31, 1997.
3. LILCO's Current Reports on Form 8-K dated February 25, 1997, March 19,
1997, as amended, and April 11, 1997.
4. Brooklyn Union's Annual Report on Form 10-K/A for the year ended
September 30, 1996.
5. Brooklyn Union's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996 and March 31, 1997.
6. Brooklyn Union's Current Reports on Form 8-K dated December 30, 1996,
February 24, 1997 and March 19, 1997.
7. The information contained in Brooklyn Union's Proxy Statement dated
December 30, 1996 for its Annual Meeting of Shareholders held on February
6, 1997.
110
<PAGE>
We may be required by the SEC to file other documents pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
between the time this Joint Proxy Statement/Prospectus is sent and the date
the LILCO Meeting and the Brooklyn Union Meeting are held. These documents
will be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part of it from the date they are filed with
the SEC.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the SEC
or the SEC's Internet web site as described above. Documents incorporated by
reference are available from us without charge, excluding all exhibits unless
we have specifically incorporated by reference an exhibit in this Joint Proxy
Statement/Prospectus. Shareholders may obtain documents incorporated by
reference in this Joint Proxy Statement/Prospectus by requesting them in
writing or by telephone from the appropriate company at the following
addresses:
Kathleen A. Marion Robert R. Wieczorek
Vice President and Corporate Secretary Vice President, Secretary and
Long Island Lighting Company Treasurer
175 East Old Country Road The Brooklyn Union Gas Company
Hicksville, New York 11801 One MetroTech Center
(516) 545-4914 Brooklyn, New York 11201-3850
(718) 403-3388
If you would like to request documents from us, please do so promptly in
order to receive them before the Shareholder Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE BROOKLYN
UNION AGREEMENT, THE LIPA AGREEMENT OR THE KEYSPAN HOLDING COMPANY PROPOSAL.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED JUNE 27, 1997. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS
NOR THE ISSUANCE OF BL HOLDING CORP. COMMON STOCK IN THE COMBINATION OR
KEYSPAN COMMON STOCK IN THE KEYSPAN SHARE EXCHANGE SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
111
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED PAGE
TERM NUMBER
------- ---------
<S> <C>
Amended Stock Option
Agreements................... 24
Antitrust Division............ 48
Atomic Energy Act............. 49
Basic Agreements.............. 84
Bear Stearns.................. 21
Brooklyn Union................ 1
Brooklyn Union By-Laws........ 65
Brooklyn Union Certificate.... 65
Brooklyn Union Common Stock... 17
Brooklyn Union Comparables.... 29
Brooklyn Union Dissenting
Shares....................... 67
Brooklyn Union/LILCO
Agreement.................... 17
Brooklyn Union Meeting........ 17
Brooklyn Union Plans.......... 72
Brooklyn Union Ratio.......... 2, 18
Brooklyn Union Stock Option
Agreement.................... 23
Business Combination.......... 76
Business Combination
Proposal..................... 73
Cancelled Shares.............. 81
Cash Purchase Price........... 83
Certificate................... 68
Closing Date.................. 72
Code.......................... 33
Combination................... 2, 17
Concentrated Nuclear Group.... 97
Consideration................. 18
Contingent Issuance........... 67
DCF........................... 30
Dillon Read................... 20
Designated Number............. 68
Dissenting Preferred Shares... 82
Dissenting Shares............. 18
EBIT.......................... 93
EBITDA........................ 92
Effective Time................ 100
Electric Merger Transactions.. 29
ERISA......................... 69
Exchange Agent................ 68
Exchanged Shares.............. 68
Fair Market Rate.............. 83
FERC.......................... 48
FPA........................... 48
FTC........................... 48
Gas Merger Transactions....... 29
Hedge Arrangements............ 73
Historical Period............. 30
Historical Trading Ratios..... 28
Holding Company............... 2, 11, 17
</TABLE>
<TABLE>
<CAPTION>
DEFINED PAGE
TERM NUMBER
------- ------
<S> <C>
Holding Company Act.............. 47
Holding Company By-Laws.......... 63
Holding Company Certificate...... 63
Holding Company Common Stock..... 17
Holding Company Preferred Stock.. 63
Holding Company Series AA
Preferred Stock................. 18
HSR Act.......................... 48
Incentive Plan................... 101
Issuer........................... 80
Joint Proxy
Statement/Prospectus............ 17
KeySpan.......................... 19
KeySpan Agreement................ 19
KeySpan Common Stock............. 19
KeySpan Share Exchange........... 18
Kramer Levin..................... 20
Large Nuclear Group.............. 97
LILCO............................ 1
LILCO as adjusted................ 11
LILCO By-Laws.................... 65
LILCO Certificate................ 65
LILCO Common Stock............... 17
LILCO Comparables................ 29
LILCO Dissenting Shares.......... 67
LILCO Meeting.................... 17
LILCO Plans...................... 72
LILCO Preferred Stock............ 17
LILCO Stock Option Agreement..... 23
LIPA............................. 18
LIPA Act......................... 20
LIPA Agreement................... 18
LIPA Closing..................... 81
LIPA Effective Time.............. 81
LIPA Ratio....................... 18
LIPA Sub......................... 18, 81
LIPA Transaction................. 18
LIPA Transmission and
Distribution System............. 54
Make-Whole Amount................ 82
Market/Offer Price............... 80
Merger........................... 17
Merrill Lynch.................... 20
Merrill Lynch Opinion............ 27
Non-nuclear Group................ 97
Non-redeemable Preferred Stock... 82
Notice Date...................... 80
NRC.............................. 49
Nuclear Assets................... 96
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
DEFINED PAGE
TERM NUMBER
------- ------
<S> <C>
NYBCL........................ 41
Option Holder................ 79
Option Shares................ 79
Options...................... 79
Original Agreement........... 23
Original Ratio............... 18
PACB......................... 21
PAL.......................... 49
Performance Plan............. 87
Preferred Stock Designation.. 64
Private Placement Preferred
Stock....................... 81
Project...................... 49
Projected Period............. 30
Promissory Notes............. 83
Proxy Committee.............. 105
PSC.......................... 20
Ratio........................ 18
Record Date.................. 17
Regulatory Assets............ 96
Representatives.............. 73
Repurchase Period............ 79
Restricted Shares............ 80
Retained Assets.............. 81
Retained Debt Amount......... 83
</TABLE>
<TABLE>
<CAPTION>
DEFINED PAGE
TERM NUMBER
------- ----------
<S> <C>
Retainer Plan................. 101
Retirement Plan............... 101
Securities Act................ 41
SEC........................... 41
Series AA Preferred Stock..... 17
Series CC Preferred Stock..... 17
Series GG Preferred Stock..... 17
Series QQ Preferred Stock..... 17
Series UU Preferred Stock..... 17
Severance Plan................ 88
Severance Period.............. 88
Shareholder Meetings.......... 17
Shareholder Notice Procedure.. 65
Shoreham...................... 20
Stock Option Agreements....... 23
Stock Plan.................... 100
Subject Party................. 78
Surviving Corporation......... 81
T&D Business.................. 96
Transferred Assets............ 18, 54, 81
Transferee Subsidiaries....... 35
Transfer Taxes................ 37
Trigger Event................. 78
Voting Power.................. 65
</TABLE>
113
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER
BETWEEN
THE BROOKLYN UNION GAS COMPANY AND
LONG ISLAND LIGHTING COMPANY
DATED AS OF JUNE 26, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
The Transactions
<S> <C>
Section 1.1 THE BINDING SHARE EXCHANGE AND MERGER....................... A-2
Section 1.2 EFFECTIVE TIME.............................................. A-2
ARTICLE II
Treatment of Shares
Section 2.1 EFFECT ON CAPITAL STOCK..................................... A-2
Section 2.2 DISSENTING SHARES........................................... A-3
Section 2.3 ISSUANCE OF NEW CERTIFICATES................................ A-4
ARTICLE III
The Closing
Section 3.1 CLOSING..................................................... A-6
ARTICLE IV
Representations and Warranties of Brooklyn Union
Section 4.1 ORGANIZATION AND QUALIFICATION.............................. A-6
Section 4.2 SUBSIDIARIES................................................ A-6
Section 4.3 CAPITALIZATION.............................................. A-7
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.................................................. A-7
Section 4.5 REPORTS AND FINANCIAL STATEMENTS............................ A-8
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ A-9
Section 4.7 LITIGATION.................................................. A-9
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT.................. A-9
Section 4.9 TAX MATTERS................................................. A-9
Section 4.10 EMPLOYEE MATTERS; ERISA..................................... A-11
Section 4.11 ENVIRONMENTAL PROTECTION.................................... A-12
Section 4.12 REGULATION AS A UTILITY..................................... A-14
Section 4.13 VOTE REQUIRED............................................... A-14
Section 4.14 ACCOUNTING MATTERS.......................................... A-14
Section 4.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW.................. A-14
Section 4.16 OPINION OF FINANCIAL ADVISOR................................ A-14
Section 4.17 INSURANCE................................................... A-14
Section 4.18 OWNERSHIP OF LILCO COMMON STOCK............................. A-15
Section 4.19 BUSINESS SYNERGIES.......................................... A-15
ARTICLE V
Representations and Warranties of LILCO
Section 5.1 ORGANIZATION AND QUALIFICATION.............................. A-15
Section 5.2 SUBSIDIARIES................................................ A-15
Section 5.3 CAPITALIZATION.............................................. A-15
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.................................................. A-16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.5 REPORTS AND FINANCIAL STATEMENTS.......................... A-17
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS...................... A-17
Section 5.7 LITIGATION................................................ A-17
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT................ A-17
Section 5.9 TAX MATTERS............................................... A-18
Section 5.10 EMPLOYEE MATTERS; ERISA................................... A-19
Section 5.11 ENVIRONMENTAL PROTECTION.................................. A-20
Section 5.12 REGULATION AS A UTILITY................................... A-21
Section 5.13 VOTE REQUIRED............................................. A-21
Section 5.14 ACCOUNTING MATTERS........................................ A-21
Section 5.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW................ A-21
Section 5.16 OPINION OF FINANCIAL ADVISOR.............................. A-21
Section 5.17 INSURANCE................................................. A-21
Section 5.18 OWNERSHIP OF BROOKLYN UNION COMMON STOCK.................. A-22
Section 5.19 BUSINESS SYNERGIES........................................ A-22
ARTICLE VI
Conduct of Business Pending the Effective Time
Section 6.1 COVENANTS OF THE PARTIES.................................. A-22
ARTICLE VII
Additional Agreements
Section 7.1 ACCESS TO INFORMATION..................................... A-26
Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.......... A-27
Section 7.3 REGULATORY MATTERS........................................ A-27
Section 7.4 SHAREHOLDER APPROVAL...................................... A-28
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.................. A-28
Section 7.6 DISCLOSURE SCHEDULES...................................... A-29
Section 7.7 PUBLIC ANNOUNCEMENTS...................................... A-29
Section 7.8 RULE 145 AFFILIATES....................................... A-30
Section 7.9 EMPLOYEE AGREEMENTS....................................... A-30
Section 7.10 EMPLOYEE BENEFIT PLANS.................................... A-30
Section 7.11 STOCK PLANS............................................... A-31
Section 7.12 NO SOLICITATIONS.......................................... A-32
Section 7.13 COMPANY BOARD OF DIRECTORS................................ A-32
Section 7.14 SENIOR EXECUTIVES......................................... A-32
Section 7.15 EXPENSES.................................................. A-33
Section 7.16 FURTHER ASSURANCES........................................ A-33
Section 7.17 POST-EXCHANGE OPERATIONS.................................. A-33
Section 7.18 OTHER TRANSACTIONS........................................ A-33
Section 7.19 EMPLOYMENT AGREEMENT...................................... A-34
Section 7.20 HOLDING COMPANY........................................... A-34
ARTICLE VIII
Conditions
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
TRANSACTIONS.............................................. A-34
Section 8.2 CONDITIONS TO OBLIGATION OF LILCO TO EFFECT THE
TRANSACTIONS.............................................. A-35
Section 8.3 CONDITIONS TO OBLIGATION OF BROOKLYN UNION TO EFFECT THE
TRANSACTIONS.............................................. A-36
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 TERMINATION.................................................. A-37
Section 9.2 EFFECT OF TERMINATION........................................ A-38
Section 9.3 TERMINATION FEE; EXPENSES.................................... A-39
Section 9.4 AMENDMENT.................................................... A-40
Section 9.5 WAIVER....................................................... A-40
ARTICLE X
General Provisions
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES...... A-40
Section 10.2 BROKERS..................................................... A-40
Section 10.3 NOTICES..................................................... A-41
Section 10.4 MISCELLANEOUS............................................... A-41
Section 10.5 INTERPRETATION.............................................. A-41
Section 10.6 COUNTERPARTS; EFFECT........................................ A-41
Section 10.7 PARTIES IN INTEREST; ASSIGNMENT............................. A-42
Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES.................... A-42
Section 10.9 ENFORCEMENT................................................. A-42
</TABLE>
Exhibit A Form of Amended and Restated LILCO Stock Option Agreement
Exhibit B Form of Amended and Restated Brooklyn Union Stock Option Agreement
Exhibit C Form of Agreement and Plan of Exchange and Merger by and among BL
Holding Corp., LILCO, LIPA and LIPA Acquisition Corp.
iii
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER, dated as of
June 26, 1997 (this "AGREEMENT"), between THE BROOKLYN UNION GAS COMPANY, a
New York corporation ("Brooklyn Union") and LONG ISLAND LIGHTING COMPANY, a
New York corporation ("LILCO").
WHEREAS, Brooklyn Union and LILCO have determined to engage in a business
combination as peer firms in a merger and a binding share exchange and to form
a holding company to manage their combined businesses (the "COMPANY");
WHEREAS, Brooklyn Union, LILCO and NYECO CORP., a New York company
("NYECO"), entered into an Agreement and Plan of Exchange, dated as of
December 29, 1996 (the "ORIGINAL AGREEMENT");
WHEREAS, Brooklyn Union, LILCO and BUGLILCO HOLDING CORP., a New York
corporation ("BUGLILCO"), amended and restated the Original Agreement pursuant
to an Amended and Restated Agreement and Plan of Exchange, dated as of
February 6, 1997 (the "FIRST AMENDED AND RESTATED AGREEMENT");
WHEREAS, with the consent of each of Brooklyn Union and LILCO, NYECO
assigned all of its rights and obligations under the Original Agreement to
BUGLILCO (the "ASSIGNMENT");
WHEREAS, in furtherance of a business combination by and between Brooklyn
Union and LILCO, the respective Boards of Directors of Brooklyn Union and
LILCO have adopted this Agreement and the transactions contemplated hereby on
the terms and conditions set forth in this Agreement;
WHEREAS, the Board of Directors of LILCO has approved and LILCO has executed
an amended and restated agreement with Brooklyn Union in the form of EXHIBIT A
(the "LILCO STOCK OPTION AGREEMENT") contemplating a stock option (the "LILCO
STOCK OPTION") and the Board of Directors of Brooklyn Union has approved and
Brooklyn Union has executed an amended and restated agreement with LILCO in
the form of EXHIBIT B (the "BROOKLYN UNION STOCK OPTION AGREEMENT")
contemplating a stock option (the "BROOKLYN UNION STOCK OPTION");
WHEREAS, Brooklyn Union, LILCO and LONG ISLAND POWER AUTHORITY ("LIPA")
entered into an Agreement in Principle, dated as of March 19, 1997, pursuant
to which LILCO and LIPA contemplate entering into an Agreement and Plan of
Exchange and Merger substantially in the form attached as Exhibit C hereto
(the "LIPA AGREEMENT");
WHEREAS, for federal income tax purposes, it is intended that (i) the
parties hereto will recognize no gain or loss, (ii) unless the LIPA Agreement
has been terminated, the stockholders of LILCO who participate in the
Transactions will recognize (except to the extent Section 1033 of the Code (as
hereinafter defined) is available and availed of by a stockholder) gain or
loss both in respect of stock received and in respect of any cash they receive
in lieu of fractional shares, and (iii) the shareholders of Brooklyn Union who
participate in the Transactions will not recognize gain or loss, in each case,
for federal income tax purposes as a result of the consummation of the
Transactions (as hereinafter defined);
WHEREAS, the Board of Directors of Brooklyn Union has approved and Brooklyn
Union has executed an amended and restated agreement and plan of exchange,
dated as of June 26, 1997 (the "KEYSPAN EXCHANGE AGREEMENT"), with KeySpan
Energy Corporation, a New York corporation and a wholly owned subsidiary of
Brooklyn Union ("KEYSPAN"), pursuant to which, subject to the adoption by the
shareholders of Brooklyn Union of the KeySpan Exchange Agreement and certain
other conditions, including the redemption by Brooklyn Union of all of its
issued and outstanding preferred stock, KeySpan will acquire all the
outstanding shares of Common Stock of Brooklyn Union in a binding share
exchange under Section 913 of the New York Business Corporation Law (the
"NYBCL"), in which each share of Common Stock of Brooklyn Union will be
exchanged for one share of Common Stock of KeySpan, with the result that
Brooklyn Union will become a wholly owned subsidiary of KeySpan (such
transaction, the "KEYSPAN RESTRUCTURING"); and
A-1
<PAGE>
WHEREAS, the parties desire to amend and restate the First Amended and
Restated Agreement as of the date hereof to reflect the Assignment, the LIPA
Agreement and the KeySpan Restructuring and certain other technical changes;
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
The Transactions
Section 1.1 THE BINDING SHARE EXCHANGE AND MERGER. This Agreement shall be
submitted to the holders of the Common Stock, par value $5 per share, of LILCO
(the "LILCO COMMON STOCK") and the holders of the Common Stock, par value
$0.33 1/3 per share, of Brooklyn Union (the "BROOKLYN UNION COMMON STOCK") for
adoption in accordance with Section 913 of the NYBCL. The affirmative vote of
the holders of at least two-thirds of the issued and outstanding LILCO Common
Stock and of the holders of at least two-thirds of the issued and outstanding
Brooklyn Union Common Stock shall be necessary to adopt this Agreement. Upon
the terms and subject to the conditions of this Agreement, at the LILCO
Effective Time (as defined in SECTION 1.2), the outstanding shares of LILCO
Common Stock shall be exchanged for newly issued shares of the Common Stock,
par value $0.01 per share, of the Company (the "COMPANY COMMON STOCK" and,
with respect to any period after the Effective Time, the "COMPANY COMMON
STOCK") as provided in SECTION 2.1 (the "SHARE EXCHANGE"), in accordance with
Section 913 of the NYBCL and at the Brooklyn Union Effective Time (as defined
in SECTION 1.2), a wholly owned subsidiary of the Company ("MERGERSUB) will be
merged with and into Brooklyn Union (the "MERGER") in accordance with Section
902 of the NYBCL, pursuant to which each outstanding share of Brooklyn Union
Common Stock shall automatically be converted into one share of Company Common
Stock as provided in SECTION 2.1 (the "MERGER" and, together with the Share
Exchange, the "TRANSACTIONS"). As a result of the Merger, MergerSub will cease
to exist and Brooklyn Union will survive the Merger as the surviving
corporation (the "SURVIVING CORPORATION").
Section 1.2 EFFECTIVE TIME. On the Closing Date (as defined in SECTION 3.1),
a certificate of exchange complying with the requirements of the NYBCL shall
be executed by LILCO and the Company and a certificate of merger complying
with the requirements of the NYBCL shall be executed by Brooklyn Union and
MergerSub, and each shall be filed by the parties with the Secretary of State
of the State of New York. The LILCO Binding Share Exchange shall become
effective at the time specified in the certificate of exchange with respect to
the LILCO Binding Share Exchange (the "LILCO EFFECTIVE TIME") and the Merger
shall become effective at the time specified in the certificate of merger
filed with respect to the Merger (the "BROOKLYN UNION EFFECTIVE TIME") which
specified times shall be contemporaneous (the "EFFECTIVE TIME"); PROVIDED,
that the Brooklyn Union Effective Time shall be later than the LILCO Effective
Time and all references to the Effective Time herein shall mean the Brooklyn
Union Effective Time.
ARTICLE II
Treatment of Shares
Section 2.1 EFFECT ON CAPITAL STOCK.
(a) At the Brooklyn Union Effective Time, by virtue of the Merger and
without any action on the part of any holder of any capital stock of LILCO,
Brooklyn Union, the Company or MergerSub:
(i) TREATMENT OF BROOKLYN UNION COMMON STOCK. Each share of Brooklyn
Union Common Stock issued and outstanding immediately prior to the Brooklyn
Union Effective Time, other than
A-2
<PAGE>
Dissenting Shares (as defined in SECTION 2.2), shall be converted into the
right to receive one fully paid and, subject to Section 630 of the NYBCL,
nonassessable share of Company Common Stock. At the Brooklyn Union
Effective Time, all such shares of Brooklyn Union Common Stock shall no
longer be outstanding, and shall automatically be cancelled and retired and
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Company Common Stock to be issued in
consideration therefor upon the surrender of such certificate in accordance
with SECTION 2.3, with interest.
(ii) TREATMENT OF MERGERSUB COMMON STOCK. Each share of common stock of
MergerSub, par value $.01 per share, issued and outstanding immediately
prior to the Brooklyn Union Effective Time shall be converted into one
share of common stock, $0.33 1/3 per share, of the Surviving Corporation.
(b) Subject to SECTION 7.18(b), at the LILCO Effective Time, by virtue of
the Share Exchange and without any action on the part of any holder of any
capital stock of LILCO, Brooklyn Union or the Company:
(i) TREATMENT OF LILCO COMMON STOCK. Each issued and outstanding share of
LILCO Common Stock, other than Dissenting Shares, shall be exchanged for
0.803 (the "ORIGINAL RATIO") fully paid and, subject to Section 630 of the
NYBCL, nonassessable shares of Company Common Stock; PROVIDED that if the
LIPA Agreement has not been terminated but the transactions contemplated
thereby will not be consummated contemporaneously with the consummation of
the transactions contemplated hereby, then each issued and outstanding
share of LILCO Common Stock, other than Dissenting Shares, shall be
exchanged for 0.803 fully paid and, subject to Section 630 of the NYBCL,
nonassessable shares of Company Common Stock, and the Company shall cause
there to be reserved out of its authorized but unissued shares of Company
Common Stock such number of shares as is equal to 0.077 multiplied by the
number of shares of LILCO Common Stock outstanding, other than Dissenting
Shares, at the LILCO Effective Time; and if the transactions contemplated
by the LIPA Agreement are consummated within two years of the LILCO
Effective Time, then there shall be issued to persons who were holders of
record of LILCO Common Stock at the LILCO Effective Time, 0.077 shares of
Company Common Stock in respect of each share of LILCO Common Stock, other
than Dissenting Shares, that had been held by them of record at the LILCO
Effective Time. The potential issuance of shares of Company Common Stock
pursuant to the last proviso of the preceding sentence is referred to
herein as the "Contingent Issuance". The terms of exchange described in the
proviso in the sentence preceding the preceding sentence are referred to
herein as the "LIPA RATIO" (0.880), and the Original Ratio and the LIPA
Ratio are referred to herein together as the "RATIOS". Upon such exchange,
the Company shall become the owner of each share of LILCO Common Stock to
be so exchanged and all such shares of LILCO Common Stock shall be deemed
to have been exchanged for the applicable number of shares of the Company
Common Stock, and each holder of a certificate formerly representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive shares of the Company Common Stock to be issued in
consideration therefor upon the surrender of such certificate in accordance
with SECTION 2.3.
(ii) NO CHANGE IN LILCO PREFERRED STOCK. Each issued and outstanding
share of the preferred stock of LILCO shall be unchanged as a result of the
Share Exchange and shall remain outstanding thereafter.
Section 2.2 DISSENTING SHARES. Shares of LILCO Common Stock or Brooklyn
Union Common Stock held by any holder entitled to relief as a dissenting
shareholder under Section 910 of the NYBCL (the "DISSENTING SHARES") shall not
become the right to receive Company Common Stock, but shall be cancelled and
converted into such consideration as may be due with respect to such shares
pursuant to the applicable provisions of the NYBCL, unless and until the right
of such holder to receive fair cash value for such Dissenting Shares
terminates in accordance with Section 623 of the NYBCL. If such right is
terminated otherwise than by the purchase of such shares by LILCO or Brooklyn
Union, then such shares shall cease to be Dissenting Shares and shall
represent the right to receive Company Common Stock, as provided in SECTION
2.1.
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Section 2.3 ISSUANCE OF NEW CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the Effective
Time, the Company shall deposit with such bank or trust company mutually
agreeable to LILCO and Brooklyn Union (the "EXCHANGE AGENT"), certificates
representing shares of Company Common Stock required to effect the issuances
referred to in SECTION 2.1 (or, SECTIONS 2.1(a) and 7.18(b) if the
Transactions are to be consummated pursuant to SECTION 7.18(b)).
(b) ISSUANCE PROCEDURES. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates (the "CERTIFICATES") which immediately prior to the LILCO
Effective Time represented outstanding shares of LILCO Common Stock or which
immediately prior to the Brooklyn Union Effective Time represented outstanding
shares of Brooklyn Union Common Stock (the "EXCHANGED COMMON SHARES") that in
the case of LILCO Common Stock were exchanged for shares of Company Common
Stock (the "COMPANY SHARES") pursuant to SECTION 2.1(b) and in the case of
Brooklyn Union Common Stock were converted into the right to receive Company
Shares pursuant to SECTION 2.1(a), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent) (the "LETTER OF TRANSMITTAL") and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing Company Shares. Notwithstanding the foregoing, if the
Transactions are to be consummated pursuant to SECTION 7.18(b), then as soon
as practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of (x) a Certificate which immediately prior to the LILCO
Effective Time represented Exchanged Common Shares that were exchanged for
Company Shares pursuant to SECTION 7.18(b), or (y) a Certificate which
immediately prior to the Brooklyn Union Effective Time represented Exchanged
Common Shares that were converted in the Merger into the right to receive
Company Shares pursuant to SECTION 2.1(a), (i) a Letter of Transmittal and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Company Shares. Upon surrender of a
Certificate to the Exchange Agent for exchange (or to such other agent or
agents as may be appointed by agreement of Brooklyn Union and LILCO), together
with a duly executed letter of transmittal and such other documents as the
Exchange Agent shall require, the holder of such Certificate shall be entitled
to receive a certificate representing that number of whole Company Shares
which such holder has the right to receive pursuant to the provisions of this
ARTICLE II (or SECTIONS 2.1(a) and 7.18(b) if the Transactions are to be
consummated pursuant to SECTION 7.18(b)). In the event of a transfer of
ownership of Exchanged Common Shares which is not registered in the transfer
records of LILCO or Brooklyn Union, as the case may be, a certificate
representing the proper number of Company Shares may be issued to a transferee
if the Certificate representing such Exchanged Common Shares is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence satisfactory to the Exchange Agent that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this SECTION 2.3, each Certificate shall be deemed at any time
after the LILCO Effective Time or the Brooklyn Union Effective Time, as the
case may be, to represent only the right to receive upon such surrender the
certificate representing Company Shares and cash in lieu of any fractional
shares of Company Common Stock as contemplated by this SECTION 2.3.
(c) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Company Shares with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the Company Shares
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to SECTION 2.3(d) until the holder of record
of such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Company Shares issued in consideration
therefor, without interest, (i) at the time of such surrender, the amount of
any cash payable in lieu of a fractional share of Company Common Stock to
which such holder is entitled pursuant to SECTION 2.3(d) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Company Shares and (ii) at the
appropriate payment date, the amount of
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dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole Company Shares.
(d) NO FRACTIONAL SECURITIES. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of Company
Common Stock shall be issued upon the surrender for exchange of Certificates
and such fractional shares shall not entitle the owner thereof to vote or to
any other rights of a holder of Company Common Stock. As promptly as possible
following the Effective Time, the Exchange Agent shall determine the excess of
(i) the number of full shares of Company Common Stock delivered to the
Exchange Agent by the Company pursuant to SECTION 2.3(a) less the number of
full shares of Company Common Stock to be distributed to the holders of
Brooklyn Union Common Stock pursuant to SECTION 2.1(a) over (ii) the number of
full shares of Company Common Stock to be distributed to the holders of LILCO
Common Stock pursuant to SECTION 2.1(c) or SECTION 7.18(b) (such excess being
herein referred to as the "EXCESS SHARES"). As soon after the Effective Date
as practicable, the Exchange Agent, as agent for the holders of LILCO Common
Stock, shall sell the Excess Shares at the then prevailing prices on the New
York Stock Exchange (the "NYSE") through one or more member firms of the NYSE
in round lots to the extent practicable. LILCO shall pay, or cause to be paid,
all commissions, transfer taxes and other out-of-pocket transactions costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. Until the proceeds of such
sale or sales have been distributed to the holders of LILCO Common Stock, the
Exchange Agent shall hold such proceeds in trust for the holders of LILCO
Common Stock. The Exchange Agent shall determine the portion of the proceeds
from the sale of the Excess Shares (the "EXCESS SHARES PROCEEDS") to which
each holder of LILCO Common Stock is entitled, if any, by multiplying the
amount of the Excess Shares Proceeds by a fraction, the numerator of which is
the amount of the fractional share interests to which such holder of LILCO
Common Stock is entitled, and the denominator of which is the aggregate amount
of fractional share interest to which all of the holders of LILCO Common Stock
are entitled. As soon as practicable after the sale of the Excess Shares and
the determination of the amount of cash, if any, to be paid to each holder of
LILCO Common Stock in lieu of any fractional share interests, the Exchange
Agent shall distribute such amounts to the holders of LILCO Common Stock
entitled thereto and who have theretofore delivered Certificates for LILCO
Common Stock pursuant to this ARTICLE II. Cash is being paid in lieu of
fractional shares pursuant to this SECTION 2.1(d) for the convenience of the
parties and is not a separately bargained for consideration.
(e) CLOSING OF TRANSFER BOOKS. From and after the LILCO Effective Time and
the Brooklyn Union Effective Time, the common stock transfer books of LILCO
and Brooklyn Union, respectively, shall be closed and no transfer of any LILCO
Common Stock or Brooklyn Union Common Stock shall thereafter be made. If,
after the LILCO Effective Time or the Brooklyn Union Effective Time, as the
case may be, Certificates are presented to the Company, they shall be
cancelled and exchanged for certificates representing the appropriate number
of Company Shares, as the case may be, as provided in this SECTION 2.3.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing Company
Shares deposited with the Exchange Agent pursuant to SECTION 2.3(a) and not
exchanged within one year after the Effective Time pursuant to this SECTION
2.3 shall be returned by the Exchange Agent to the Company, which shall
thereafter act as Exchange Agent. All funds held by the Exchange Agent for
payment to the holders of unsurrendered Certificates and unclaimed at the end
of one year from the Effective Time shall be returned to the Company, after
which time any holder of unsurrendered Certificates shall look as a general
creditor only to the Company for payment of such funds to which such holder
may be due, subject to applicable law. The Company shall not be liable to any
person for such shares or funds delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) PROCEDURES APPLICABLE TO SHARES ISSUED PURSUANT TO THE CONTINGENT
ISSUANCE. If the transactions contemplated by the LIPA Agreement are
consummated within two years of the LILCO Effective Time, then the Exchange
Agent shall mail to each holder of record of Certificates which immediately
prior to the LILCO Effective Time represented outstanding shares of LILCO
Common Stock that were exchanged for Company Shares in compliance with the
issuance procedures described in SECTION 2.3(b) certificates for the number of
whole Company Shares which such holder has the right to receive pursuant to
the
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Contingent Issuance. No dividends or other distributions declared or made
after the LILCO Effective Time with respect to Company Shares with a record
date after the LILCO Effective Time and prior to the consummation of the
transactions contemplated by the LIPA Agreement shall be paid in respect of
shares to be issued pursuant to the Contingent Issuance. The procedures
described in SECTION 2.3(d) with respect to fractional shares shall be
employed with respect to shares to be issued pursuant to the Contingent
Issuance.
ARTICLE III
The Closing
Section 3.1 CLOSING. The closing of the Transactions (the "CLOSING") shall
take place at the offices of Kramer, Levin, Naftalis & Frankel, 919 Third
Avenue, New York, New York at 10:00 A.M., local time, on the second business
day immediately following the date on which the last of the conditions set
forth in ARTICLE VIII hereof is satisfied or waived, or at such other time and
date and place as Brooklyn Union and LILCO shall mutually agree, but in no
event earlier than April 1, 1998 (the "CLOSING DATE").
ARTICLE IV
Representations and Warranties of Brooklyn Union
Brooklyn Union represents and warrants to LILCO as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
4.1 of the Brooklyn Union Disclosure Schedule (as defined in SECTION 7.6(ii)),
each of Brooklyn Union and each of the Brooklyn Union Subsidiaries (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, has all
requisite corporate power and authority, and has been duly authorized by all
necessary approvals and orders to own, lease and operate its assets and
properties to the extent owned, leased and operated and to carry on its
business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets and properties makes such
qualification necessary. As used in this Agreement, (a) the term "SUBSIDIARY"
of a person shall mean any corporation or other entity (including
partnerships, limited liability companies and other business associations) of
which at least a majority of the outstanding capital stock or other voting
securities having voting power under ordinary circumstances to elect directors
or similar members of the governing body of such corporation or entity shall
at the time be held, directly or indirectly, by such person and (b) the term
"BROOKLYN UNION SUBSIDIARY" shall mean a Subsidiary of Brooklyn Union.
Section 4.2 SUBSIDIARIES. Section 4.2 of the Brooklyn Union Disclosure
Schedule sets forth a description, as of December 29, 1996, of all
Subsidiaries and Joint Ventures (as defined herein) of Brooklyn Union,
including (a) the name of each such entity and Brooklyn Union's interest
therein and (b) a brief description of the principal line or lines of business
conducted by each such entity. Except as set forth in Section 4.2 of the
Brooklyn Union Disclosure Schedule, none of the Brooklyn Union Subsidiaries is
a "public utility company", a "holding company", a "subsidiary company" or an
"affiliate" of any public utility company within the meaning of Section
2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding Company
Act of 1935, as amended (the "1935 ACT"), respectively. Except as set forth in
Section 4.2 of the Brooklyn Union Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each Brooklyn Union Subsidiary are
validly issued, fully paid, nonassessable and free of preemptive rights, and
are owned, directly or indirectly, by Brooklyn Union free and clear of any
liens, claims, encumbrances, security interests, equities, charges and options
of any nature whatsoever and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such Brooklyn Union Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional
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shares of its capital stock or obligating it to grant, extend or enter into
any such agreement or commitment. As used in this Agreement, (a) the term
"JOINT VENTURE" of a person shall mean any corporation or other entity
(including partnerships and other business associations) that is not a
Subsidiary of such person, in which such person or one or more of its
Subsidiaries owns an equity interest and (b) the term "BROOKLYN UNION JOINT
VENTURE" shall mean those of the joint ventures of Brooklyn Union or any
Brooklyn Union Subsidiary identified as a Brooklyn Union Joint Venture in
Section 4.2 of the Brooklyn Union Disclosure Schedule.
Section 4.3 CAPITALIZATION. The authorized capital stock of Brooklyn Union
is as set forth in Brooklyn Union's Annual Report on Form 10K for the year
ended September 30, 1996. As of the close of business on December 18, 1996,
there were issued and outstanding 49,993,378 shares of Brooklyn Union Common
Stock. All of the issued and outstanding shares of the capital stock of
Brooklyn Union are, and any shares of Brooklyn Union Common Stock issued
pursuant to the Brooklyn Union Stock Option Agreement will be, validly issued,
fully paid, nonassessable and free of preemptive rights. Except as set forth
in Section 4.3 of the Brooklyn Union Disclosure Schedule, as of December 29,
1996, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating Brooklyn Union or any of the Brooklyn Union Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of the capital stock of Brooklyn Union, or obligating Brooklyn Union to grant,
extend or enter into any such agreement or commitment, other than under the
Brooklyn Union Stock Option Agreement. There are no outstanding stock
appreciation rights of Brooklyn Union which were not granted in tandem with a
related stock option and no outstanding limited stock appreciation rights or
other rights to redeem for cash options or warrants of Brooklyn Union.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Brooklyn Union has all requisite power and authority to enter
into this Agreement and the Brooklyn Union Stock Option Agreement, and,
subject to the Brooklyn Union Shareholders' Approval (as defined in SECTION
4.13) and the Brooklyn Union Required Statutory Approvals (as defined in
SECTION 4.4(c)), to consummate the transactions contemplated hereby or
thereby. The execution and delivery of this Agreement and the Brooklyn Union
Stock Option Agreement and the consummation by Brooklyn Union of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Brooklyn Union, subject to obtaining
the applicable Brooklyn Union Shareholders' Approval. Each of this Agreement
and the Brooklyn Union Stock Option Agreement has been duly and validly
executed and delivered by Brooklyn Union and, assuming the due authorization,
execution and delivery hereof and thereof by the other signatories hereto and
thereto, constitutes the valid and binding obligation of Brooklyn Union
enforceable against it in accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the Brooklyn
Union Disclosure Schedule, the execution and delivery of this Agreement and
the Brooklyn Union Stock Option Agreement by Brooklyn Union do not, and the
consummation of the transactions contemplated hereby or thereby will not, in
any material respect, violate, conflict with, or result in a material breach
of any provision of, or constitute a material default (with or without notice
or lapse of time or both) under, or result in the termination or modification
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any material lien,
security interest, charge or encumbrance upon any of the properties or assets
of Brooklyn Union or any of the Brooklyn Union Subsidiaries or Brooklyn Union
Joint Ventures (any such violation, conflict, breach, default, right of
termination, modification, cancellation or acceleration, loss or creation, a
"VIOLATION" with respect to Brooklyn Union, such term when used in ARTICLE V
having a correlative meaning with respect to LILCO) pursuant to any provisions
of (i) the certificate of incorporation, by-laws or similar governing
documents of Brooklyn Union or any of the Brooklyn Union Subsidiaries or the
Brooklyn Union Joint Ventures, (ii) subject to obtaining the Brooklyn Union
Required Statutory Approvals and the receipt of the Brooklyn Union
Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority (as defined in SECTION 4.4(c)) applicable to Brooklyn
Union or any of the
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Brooklyn Union Subsidiaries or the Brooklyn Union Joint Ventures or any of
their respective properties or assets or (iii) subject to obtaining the third-
party consents set forth in Section 4.4(b) of the Brooklyn Union Disclosure
Schedule (the "BROOKLYN UNION REQUIRED CONSENTS"), any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Brooklyn Union or any of the Brooklyn Union Subsidiaries or the Brooklyn
Union Joint Ventures is a party or by which it or any of its properties or
assets may be bound or affected.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange
or other self-regulatory body) or authority (each, a "GOVERNMENTAL AUTHORITY")
is necessary for the execution and delivery of this Agreement or the Brooklyn
Union Stock Option Agreement by Brooklyn Union or the consummation by Brooklyn
Union of the transactions contemplated hereby or thereby, except as described
in Section 4.4(c) of the Brooklyn Union Disclosure Schedule (the "BROOKLYN
UNION REQUIRED STATUTORY APPROVALS", it being understood that references in
this Agreement to "obtaining" such Brooklyn Union Required Statutory Approvals
shall mean making such declarations, filings or registrations; giving such
notices; obtaining such authorizations, consents or approvals; and having such
waiting periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 4.4(d), Section 4.10 or
Section 4.11 of the Brooklyn Union Disclosure Schedule, or as disclosed in the
Brooklyn Union SEC Reports (as defined in SECTION 4.5) filed prior to December
29, 1996, neither Brooklyn Union nor any of the Brooklyn Union Subsidiaries
nor, to the knowledge of Brooklyn Union, any Brooklyn Union Joint Venture is
in material violation of, is under investigation with respect to any material
violation of, or has been given notice or been charged with any material
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable environmental law, ordinance or
regulation) of any Governmental Authority. Except as set forth in Section
4.4(d) of the Brooklyn Union Disclosure Schedule or in Section 4.11 of the
Brooklyn Union Disclosure Schedule, Brooklyn Union and the Brooklyn Union
Subsidiaries and Brooklyn Union Joint Ventures have all permits, licenses,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted in all material
respects. Except as set forth in Section 4.4(d) of the Brooklyn Union
Disclosure Schedule, Brooklyn Union and each of the Brooklyn Union
Subsidiaries is not in material breach or violation of or in material default
in the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in
a material default under, (i) its certificate of incorporation or by-laws or
(ii) any material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which
it is a party or by which it is bound or to which any of its property is
subject.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Brooklyn Union and the Brooklyn Union Subsidiaries since January 1,
1994 under the Securities Act of 1933, as amended (the "SECURITIES ACT"), the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the 1935
Act, the Federal Power Act (the "POWER ACT"), the Atomic Energy Act and
applicable state laws and regulations have been filed with the Securities and
Exchange Commission (the "SEC"), the Federal Energy Regulatory Commission (the
"FERC"), the Nuclear Regulatory Commission ("NRC") or the appropriate state
public utilities commission, as the case may be, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, and complied, as of their
respective dates, in all material respects with all applicable requirements of
the appropriate statute and the rules and regulations thereunder. Brooklyn
Union has made available to LILCO a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by
Brooklyn Union with the SEC since January 1, 1994 (as such documents have
since the time of their filing been amended, the "BROOKLYN UNION SEC
REPORTS"). As of their respective dates, the Brooklyn Union SEC Reports did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Brooklyn
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Union included in the Brooklyn Union SEC Reports (collectively, the "BROOKLYN
UNION FINANCIAL STATEMENTS") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP") (except
as may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the financial position of Brooklyn Union as of the dates thereof and the
results of its operations and cash flows for the periods then ended, subject,
in the case of the unaudited interim financial statements, to normal,
recurring audit adjustments. True, accurate and complete copies of the
Restated Certificate of Incorporation and By-laws of Brooklyn Union, as in
effect on December 29, 1996, are included (or incorporated by reference) in
the Brooklyn Union SEC Reports.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Brooklyn Union SEC Reports filed prior to December 29, 1996 or as set forth in
Section 4.6 of the Brooklyn Union Disclosure Schedule, since September 30,
1996, Brooklyn Union and each of the Brooklyn Union Subsidiaries have
conducted their business only in the ordinary course of business consistent
with past practice and there has not been, and no fact or condition exists
which would have or, insofar as reasonably can be foreseen, could have, a
material adverse effect on the business, assets, financial condition, results
of operations or prospects of Brooklyn Union and its subsidiaries taken as a
whole (a "BROOKLYN UNION MATERIAL ADVERSE EFFECT").
Section 4.7 LITIGATION. Except as disclosed in the Brooklyn Union SEC
Reports filed prior to December 29, 1996 or as set forth in Section 4.7,
Section 4.9 or Section 4.11 of the Brooklyn Union Disclosure Schedule, (i)
there are no material claims, suits, actions or proceedings, pending or, to
the knowledge of Brooklyn Union, threatened, nor are there, to the knowledge
of Brooklyn Union, any material investigations or reviews pending or
threatened against, relating to or affecting Brooklyn Union or any of the
Brooklyn Union Subsidiaries, (ii) there have not been any significant
developments since September 30, 1996 with respect to such disclosed claims,
suits, actions, proceedings, investigations or reviews and (iii) there are no
material judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or authority or
any arbitrator applicable to Brooklyn Union or any of the Brooklyn Union
Subsidiaries.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Brooklyn Union for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by the Company in connection with the
issuance of shares of Company Common Stock in the Transactions (the
"REGISTRATION STATEMENT") will, at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the joint proxy statement, in
definitive form, relating to the meetings of Brooklyn Union and LILCO
shareholders to be held in connection with the Transactions (the "PROXY
STATEMENT") will not, at the dates mailed to shareholders and at the times of
the meetings of shareholders to be held in connection with the Transactions,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement and the Proxy Statement will comply
as to form in all material respects with the provisions of the Securities Act
and the Exchange Act and the rules and regulations thereunder.
Section 4.9 TAX MATTERS. "TAXES", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or
other assessments, including all net income, gross income, sales and use, ad
valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom duties,
severance or withholding taxes or charges imposed by any governmental entity,
and includes any interest and penalties (civil or criminal) on or additions to
any such taxes. "TAX RETURN", as used in this Agreement, means a report,
return or other information required to be supplied to a governmental entity
with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes Brooklyn Union or
any of its subsidiaries, or LILCO or any of its subsidiaries, as the case may
be.
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Except as set forth in Section 4.9 of the Brooklyn Union Disclosure
Schedule:
(a) FILING OF TIMELY TAX RETURNS. Brooklyn Union and each of the Brooklyn
Union Subsidiaries have filed (or there has been filed on its behalf) all
material Tax Returns required to be filed by each of them under applicable
law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. Brooklyn Union and each of the Brooklyn Union
Subsidiaries have, within the time and in the manner prescribed by law,
paid all Taxes that are currently due and payable except for those
contested in good faith and for which adequate reserves have been taken.
(c) TAX RESERVES. Brooklyn Union and the Brooklyn Union Subsidiaries have
established on their books and records reserves adequate to pay all Taxes
and reserves for deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of Brooklyn Union
or any of the Brooklyn Union Subsidiaries except liens for Taxes not yet
due.
(e) WITHHOLDING TAXES. Brooklyn Union and each of the Brooklyn Union
Subsidiaries have complied in all material respects with the provisions of
the Internal Revenue Code of 1986, as amended (the "CODE") relating to the
withholding of Taxes, as well as similar provisions under any other laws,
and have, within the time and in the manner prescribed by law, withheld
from employee wages and paid over to the proper governmental authorities
all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither Brooklyn Union nor
any of the Brooklyn Union Subsidiaries has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been
filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither Brooklyn Union nor any of
the Brooklyn Union Subsidiaries has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
Brooklyn Union and each of the Brooklyn Union Subsidiaries or those Tax
Returns have been examined by the appropriate taxing authorities for all
periods through December 29, 1996, and no deficiency for any Taxes has been
proposed, asserted or assessed against Brooklyn Union or any of the
Brooklyn Union Subsidiaries that has not been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Brooklyn Union or any of the Brooklyn
Union Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has been
granted by Brooklyn Union or any of the Brooklyn Union Subsidiaries
concerning any Tax matter.
(k) TAX RULINGS. Neither Brooklyn Union nor any of the Brooklyn Union
Subsidiaries has received a Tax Ruling (as defined below) or entered into a
Closing Agreement (as defined below) with any taxing authority that would
have a continuing adverse effect after the Closing Date. "TAX RULING", as
used in this Agreement, shall mean a written ruling of a taxing authority
relating to Taxes. "CLOSING AGREEMENT", as used in this Agreement, shall
mean a written and legally binding agreement with a taxing authority
relating to Taxes.
(l) AVAILABILITY OF TAX RETURNS. Brooklyn Union has made available to
LILCO complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by Brooklyn Union or any of the Brooklyn Union
Subsidiaries, (ii) all audit reports received from any taxing authority
relating to any Tax Return filed by Brooklyn Union or any of the Brooklyn
Union Subsidiaries and (iii) any Closing Agreements entered into by
Brooklyn Union or any of the Brooklyn Union Subsidiaries with any taxing
authority.
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(m) TAX SHARING AGREEMENTS. Neither Brooklyn Union nor any Brooklyn Union
Subsidiary is a party to any agreement relating to allocating or sharing of
income Taxes.
(n) CODE SECTION 280G. Neither Brooklyn Union nor any of the Brooklyn
Union Subsidiaries is a party to any agreement, contract, or arrangement
that could result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(o) LIABILITY FOR OTHERS. None of Brooklyn Union or any of the Brooklyn
Union Subsidiaries has any liability for Taxes of any person other than
Brooklyn Union and the Brooklyn Union Subsidiaries (i) under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local or
foreign law) as a transferee or successor, (ii) by contract, or (iii)
otherwise.
Section 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 4.10 of
the Brooklyn Union Disclosure Schedule:
(a) BENEFIT PLANS. Section 4.10(a) of the Brooklyn Union Disclosure
Schedule contains a true and complete list of each employee benefit plan
covering employees, former employees or directors of Brooklyn Union and
each of the Brooklyn Union Subsidiaries or their beneficiaries, or
providing benefits to such persons in respect of services provided to any
such entity, including, but not limited to, any employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and any severance or change in
control agreement (collectively, the "BROOKLYN UNION BENEFIT PLANS"). For
the purposes of this SECTION 4.10 only, the term "Brooklyn Union" shall be
deemed to include the predecessors of such company.
(b) CONTRIBUTIONS. All material contributions and other payments required
to be made by Brooklyn Union or any of the Brooklyn Union Subsidiaries to
any Brooklyn Union Benefit Plan (or to any person pursuant to the terms
thereof) have been made or the amount of such payment or contribution
obligation has been reflected in the Brooklyn Union Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the Brooklyn Union Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
has been determined by the IRS to be so qualified, and, to the best
knowledge of Brooklyn Union, no circumstances exist that are reasonably
expected by Brooklyn Union to result in the revocation of any such
determination. Brooklyn Union is in compliance in all material respects
with, and each of the Brooklyn Union Benefit Plans is and has been operated
in all material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA and
the Code. Each Brooklyn Union Benefit Plan intended to provide for the
deferral of income, the reduction of salary or other compensation, or to
afford other income tax benefits, complies with the requirements of the
applicable provisions of the Code or other laws, rules and regulations
required to provide such income tax benefits.
(d) LIABILITIES. With respect to the Brooklyn Union Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the best
knowledge of Brooklyn Union, there does not now exist any condition or set
of circumstances, that could subject Brooklyn Union or any of the Brooklyn
Union Subsidiaries to any material liability arising under the Code, ERISA
or any other applicable law (including, without limitation, any liability
to any such plan or the Pension Benefit Guaranty Corporation (the "PBGC")),
or under any indemnity agreement to which Brooklyn Union is a party,
excluding liability for benefit claims and funding obligations payable in
the ordinary course.
(e) WELFARE PLANS. None of the Brooklyn Union Benefit Plans that are
"welfare plans", within the meaning of Section 3(1) of ERISA, provides for
any retiree benefits, other than continuation coverage required to be
provided under Section 4980B of the Code or Part 6 of Title I of ERISA.
(f) DOCUMENTS MADE AVAILABLE. Brooklyn Union has made available to LILCO
a true and correct copy of each collective bargaining agreement to which
Brooklyn Union or any of the Brooklyn Union Subsidiaries is a party or
under which Brooklyn Union or any of the Brooklyn Union Subsidiaries
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has obligations and, with respect to each Brooklyn Union Benefit Plan,
where applicable, (i) such plan and summary plan description, (ii) the most
recent annual report filed with the IRS, (iii) each related trust
agreement, insurance contract, service provider or investment management
agreement (including all amendments to each such document), (iv) the most
recent determination of the IRS with respect to the qualified status of
such Brooklyn Union Benefit Plan, and (v) the most recent actuarial report
or valuation.
(g) PAYMENTS RESULTING FROM THE TRANSACTIONS. (i) The consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from Brooklyn Union or any of the Brooklyn Union Subsidiaries
to any officer, employee, former employee or director thereof or to the
trustee under any "rabbi trust" or similar arrangement, or (B) benefit
under any Brooklyn Union Benefit Plan being established or becoming
accelerated, vested or payable and (ii) neither Brooklyn Union nor any of
the Brooklyn Union Subsidiaries is a party to (A) any management,
employment, deferred compensation, severance (including any payment, right
or benefit resulting from a change in control), bonus or other contract for
personal services with any officer, director or employee, (B) any
consulting contract with any person who prior to entering into such
contract was a director or officer of Brooklyn Union, or (C) any plan,
agreement, arrangement or understanding similar to any of the foregoing.
(h) LABOR AGREEMENTS. As of December 29, 1996, except as set forth in
Section 4.10(h) of the Brooklyn Union Disclosure Schedule or in the
Brooklyn Union SEC Reports filed prior to December 29, 1996, neither
Brooklyn Union nor any of the Brooklyn Union Subsidiaries is a party to any
collective bargaining agreement or other labor agreement with any union or
labor organization. To the best knowledge of Brooklyn Union, as of December
29, 1996, except as set forth in Section 4.10(h) of the Brooklyn Union
Disclosure Schedule, there is no current union representation question
involving employees of Brooklyn Union or any of the Brooklyn Union
Subsidiaries, nor does Brooklyn Union know of any activity or proceeding of
any labor organization (or representative thereof) or employee group to
organize any such employees. Except as disclosed in the Brooklyn Union SEC
Reports filed prior to December 29, 1996 or in Section 4.10(h) of the
Brooklyn Union Disclosure Schedule, (i) there is no unfair labor practice,
employment discrimination or other material complaint against Brooklyn
Union or any of the Brooklyn Union Subsidiaries pending, or to the best
knowledge of Brooklyn Union, threatened, (ii) there is no strike or lockout
or material dispute, slowdown or work stoppage pending, or to the best
knowledge of Brooklyn Union, threatened, against or involving Brooklyn
Union, and (iii) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the best knowledge of Brooklyn
Union, threatened, in respect of which any director, officer, employee or
agent of Brooklyn Union or any of the Brooklyn Union Subsidiaries is or may
be entitled to claim indemnification from Brooklyn Union or such Brooklyn
Union Subsidiary pursuant to their respective certificates of incorporation
or by-laws or as provided in the indemnification agreements listed in
Section 4.10(h) of the Brooklyn Union Disclosure Schedule.
Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 4.11
of the Brooklyn Union Disclosure Schedule or in the Brooklyn Union SEC Reports
filed prior to December 29, 1996:
(a) COMPLIANCE. Brooklyn Union and each of the Brooklyn Union
Subsidiaries is in material compliance with all applicable Environmental
Laws (as defined in SECTION 4.11(g)(ii)); and neither Brooklyn Union nor
any of the Brooklyn Union Subsidiaries has received any communication
(written or oral), from any person or Governmental Authority that alleges
that Brooklyn Union or any of the Brooklyn Union Subsidiaries is not in
such compliance with applicable Environmental Laws.
(b) ENVIRONMENTAL PERMITS. Brooklyn Union and each of the Brooklyn Union
Subsidiaries has obtained or has applied for all material environmental,
health and safety permits and governmental authorizations (collectively,
the "ENVIRONMENTAL PERMITS") necessary for the construction of their
facilities or the conduct of their operations, and all such Environmental
Permits are in good standing or, where applicable, a renewal application
has been timely filed and is pending agency approval, and Brooklyn
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Union and the Brooklyn Union Subsidiaries are in material compliance with
all terms and conditions of the Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. To the best knowledge of Brooklyn Union, there
is no material Environmental Claim (as defined in SECTION 4.11(g)(i))
pending (i) against Brooklyn Union or any of the Brooklyn Union
Subsidiaries or Brooklyn Union Joint Ventures, (ii) against any person or
entity whose liability for any Environmental Claim Brooklyn Union or any of
the Brooklyn Union Subsidiaries has or may have retained or assumed either
contractually or by operation of law, or (iii) against any real or personal
property or operations which Brooklyn Union or any of the Brooklyn Union
Subsidiaries owns, leases or manages, in whole or in part.
(d) RELEASES. Brooklyn Union has no knowledge of any material Releases
(as defined in SECTION 4.11(g)(iv)) of any Hazardous Material (as defined
in SECTION 4.11(g)(iii)) that would be reasonably likely to form the basis
of any material Environmental Claim against Brooklyn Union or any of the
Brooklyn Union Subsidiaries, or against any person or entity whose
liability for any material Environmental Claim Brooklyn Union or any of the
Brooklyn Union Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
(e) PREDECESSORS. Brooklyn Union has no knowledge, with respect to any
predecessor of Brooklyn Union or any of the Brooklyn Union Subsidiaries, of
any material Environmental Claim pending or threatened, or of any Release
of Hazardous Materials that would be reasonably likely to form the basis of
any material Environmental Claim.
(f) DISCLOSURE. To Brooklyn Union's best knowledge, Brooklyn Union has
disclosed to LILCO all material facts which Brooklyn Union reasonably
believes form the basis of a material Environmental Claim arising from (i)
the cost of Brooklyn Union pollution control equipment currently required
or known to be required in the future; (ii) current Brooklyn Union
remediation costs or Brooklyn Union remediation costs known to be required
in the future; or (iii) any other environmental matter affecting Brooklyn
Union.
(g) As used in this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any person or entity
(including any Governmental Authority) alleging potential liability
(including, without limitation, potential responsibility for or
liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, or Release
or threatened Release into the environment, of any Hazardous Materials
at any location, whether or not owned, operated, leased or managed by
Brooklyn Union or any of the Brooklyn Union Subsidiaries or Brooklyn
Union Joint Ventures (for purposes of this SECTION 4.11), or by LILCO
or any of the LILCO Subsidiaries or LILCO Joint Ventures (for purposes
of SECTION 5.11); or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law; or (C) any
and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
(ii) "ENVIRONMENTAL LAWS" means all federal, state, local laws, rules
and regulations relating to pollution, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or protection of human health as it
relates to the environment including, without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials.
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing
polychlorinated
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biphenyls ("PCBs"); and (b) any chemicals, materials or substances
which are now defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", or words of similar import, under any Environmental
Law; and (c) any other chemical, material, substance or waste, exposure
to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which Brooklyn Union or any of
the Brooklyn Union Subsidiaries or Brooklyn Union Joint Ventures
operates (for purposes of this SECTION 4.11) or in which LILCO or any
of the LILCO Subsidiaries or LILCO Joint Ventures operates (for
purposes of SECTION 5.11).
(iv) "RELEASE" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or
property.
Section 4.12 REGULATION AS A UTILITY. Except as set forth in Section 4.12 of
the Brooklyn Union Disclosure Schedule, neither Brooklyn Union nor any
"subsidiary company" or "affiliate" (as such terms are defined in the 1935
Act) of Brooklyn Union is subject to regulation as a public utility or public
service company (or similar designation) by any state in the United States
other than New York or any foreign country.
Section 4.13 VOTE REQUIRED. The adoption of this Agreement by two-thirds of
the votes entitled to be cast by all holders of Brooklyn Union Common Stock
(the "BROOKLYN UNION SHAREHOLDERS' APPROVAL") is the only vote of the holders
of any class or series of the capital stock of Brooklyn Union or any of its
subsidiaries required to adopt this Agreement and the other transactions
contemplated hereby.
Section 4.14 ACCOUNTING MATTERS. Neither Brooklyn Union nor, to Brooklyn
Union's best knowledge, any of its affiliates has taken or agreed to take any
action that would prevent the Company from accounting for the transactions to
be effected pursuant to this Agreement as a pooling of interests in accordance
with GAAP. As used in this Agreement (except as specifically otherwise
defined), the term "AFFILIATE", except where otherwise defined herein, shall
mean, as to any person, any other person which directly or indirectly
controls, or is under common control with, or is controlled by, such person.
As used in this definition, "CONTROL" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
Section 4.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW. Assuming the
representation and warranty of LILCO made in SECTION 5.18 is correct, none of
the business combination provisions of Section 912 of the NYBCL or any similar
provisions of the NYBCL (or, to the best knowledge of Brooklyn Union, any
other similar state statute) or the Restated Certificate of Incorporation or
by-laws of Brooklyn Union, are applicable to the transactions contemplated by
this Agreement, including the granting or exercise of the Brooklyn Union Stock
Option (except as set forth in Section 4.15 of the Brooklyn Union Disclosure
Schedule).
Section 4.16 OPINION OF FINANCIAL ADVISOR. Brooklyn Union has received the
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL
LYNCH"), dated December 29, 1996, to the effect that, as of the date thereof,
the Original Ratio is fair from a financial point of view to the holders of
Brooklyn Union Common Stock, and Brooklyn Union has received the opinion of
Merrill Lynch dated June 27, 1997, to the effect that, as of the date thereof,
the LIPA Ratio (as defined below) is fair from a financial point of view to
the holders of Brooklyn Union Common Stock.
Section 4.17 INSURANCE. Except as set forth in Section 4.17 of the Brooklyn
Union Disclosure Schedule, Brooklyn Union and each of the Brooklyn Union
Subsidiaries is, and has been continuously since January 1, 1991, insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary in all material respects for companies conducting the
business as conducted by Brooklyn Union and the Brooklyn Union Subsidiaries
during such time period. Except as set forth in Section 4.17 of the Brooklyn
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Union Disclosure Schedule, neither Brooklyn Union nor any of the Brooklyn
Union Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of Brooklyn Union or any of the
Brooklyn Union Subsidiaries. The insurance policies of Brooklyn Union and each
of the Brooklyn Union Subsidiaries are valid and enforceable policies in all
material respects.
Section 4.18 OWNERSHIP OF LILCO COMMON STOCK. Except pursuant to the terms
of the LILCO Stock Option Agreement, Brooklyn Union does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange
Act) any shares of LILCO Common Stock.
Section 4.19 BUSINESS SYNERGIES. Brooklyn Union is not aware of any fact or
circumstance, including the terms of any agreement to which it or any of its
Subsidiaries is subject, that would impair in any material respect the ability
of the Company to realize the synergies described in the joint press release
to be issued in connection with the announcement of this transaction.
ARTICLE V
Representations and Warranties of LILCO
LILCO represents and warrants to Brooklyn Union as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
5.1 of the LILCO Disclosure Schedule (as defined in SECTION 7.6(i)), each of
LILCO and each of the LILCO Subsidiaries (as defined below) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate
power and authority, and has been duly authorized by all necessary approvals
and orders to own, lease and operate its assets and properties to the extent
owned, leased and operated and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing
of its assets and properties makes such qualification necessary. As used in
this Agreement, the term "LILCO SUBSIDIARY" shall mean a Subsidiary of LILCO.
Section 5.2 SUBSIDIARIES. Section 5.2 of the LILCO Disclosure Schedule sets
forth a description as of December 29, 1996 of all Subsidiaries and Joint
Ventures of LILCO ("LILCO JOINT VENTURES"), including (a) the name of each
such entity and LILCO's interest therein, and (b) a brief description of the
principal line or lines of business conducted by each such entity. Except as
set forth in Section 5.2 of the LILCO Disclosure Schedule, none of the LILCO
Subsidiaries is a "public utility company", a "holding company", a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively.
Except as set forth in Section 5.2 of the LILCO Disclosure Schedule, all of
the issued and outstanding shares of capital stock of each LILCO Subsidiary
are validly issued, fully paid, nonassessable and free of preemptive rights,
and are owned directly or indirectly by LILCO free and clear of any liens,
claims, encumbrances, security interests, equities, charges and options of any
nature whatsoever and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such LILCO Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock
or obligating it to grant, extend or enter into any such agreement or
commitment.
Section 5.3 CAPITALIZATION. The authorized capital stock of LILCO is as set
forth in LILCO's Annual Report on Form 10K for the year ended December 31,
1995. As of the close of business on December 27, 1996, there were issued and
outstanding 120,780,792 shares of LILCO Common Stock. All of the issued and
outstanding shares of the capital stock of LILCO are, and any LILCO Common
Stock issued pursuant to the LILCO Stock Option Agreement will be, validly
issued, fully paid, nonassessable (subject to Section 630 of the NYBCL), and
free of preemptive rights. Except as set forth in Section 5.3 of the LILCO
Disclosure Schedule, as of December 29, 1996, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or
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other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating LILCO or any of the LILCO
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of LILCO, or obligating LILCO to
grant, extend or enter into any such agreement or commitment, other than under
the LILCO Stock Option Agreement. There are no outstanding stock appreciation
rights of LILCO which were not granted in tandem with a related stock option
and no outstanding limited stock appreciation rights or other rights to redeem
for cash options or warrants of LILCO.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. LILCO has all requisite power and authority to enter into
this Agreement and the LILCO Stock Option Agreement, and, subject to the LILCO
Shareholders' Approval (as defined in SECTION 5.13) and the LILCO Required
Statutory Approvals (as defined in SECTION 5.4(c)), to consummate the
transactions contemplated hereby or thereby. The execution and delivery of
this Agreement and the LILCO Stock Option Agreement and the consummation by
LILCO of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of LILCO, subject to
obtaining the applicable LILCO Shareholders' Approval. This Agreement has been
duly and validly executed and delivered by LILCO, the LILCO Stock Option
Agreement has been duly and validly executed and delivered by LILCO and,
assuming the due authorization, execution and delivery hereof and thereof by
the other signatories hereto and thereto, each of this Agreement and the LILCO
Stock Option Agreement constitutes the valid and binding obligation of LILCO,
enforceable against it in accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the LILCO
Disclosure Schedule, the execution and delivery of this Agreement and the
LILCO Stock Option Agreement by LILCO do not, and the consummation of the
transactions contemplated hereby or thereby will not, result in a material
Violation pursuant to any provisions of (i) the certificate of incorporation,
by-laws or similar governing documents of LILCO or any of the LILCO
Subsidiaries or the LILCO Joint Ventures, (ii) subject to obtaining the LILCO
Required Statutory Approvals and the receipt of the LILCO Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority
applicable to LILCO or any of the LILCO Subsidiaries or the LILCO Joint
Ventures or any of their respective properties or assets or (iii) subject to
obtaining the third-party consents set forth in Section 5.4(b) of the LILCO
Disclosure Schedule (the "LILCO REQUIRED CONSENTS") any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which LILCO or any of the LILCO Subsidiaries or the LILCO Joint Ventures is a
party or by which it or any of its properties or assets may be bound or
affected.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement or the LILCO
Stock Option Agreement by LILCO or the consummation by LILCO of the
transactions contemplated hereby or thereby, except as described in Section
5.4(c) of the LILCO Disclosure Schedule (the "LILCO REQUIRED STATUTORY
APPROVALS", it being understood that references in this Agreement to
"obtaining" such LILCO Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire
as are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 5.4(d), Section 5.10 or
Section 5.11 of the LILCO Disclosure Schedule, or as disclosed in the LILCO
SEC Reports (as defined in SECTION 5.5) filed prior to December 29, 1996,
neither LILCO nor any of the LILCO Subsidiaries nor, to the knowledge of
LILCO, any LILCO Joint Venture, is in material violation of, is under
investigation with respect to any material violation of, or has been given
notice or been charged with any material violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any Governmental
Authority. Except as set forth in Section 5.4(d) of the LILCO Disclosure
Schedule or in Section 5.11 of the LILCO Disclosure Schedule, LILCO and the
LILCO Subsidiaries and LILCO Joint Ventures
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have all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted in all material respects. Except as set forth in Section 5.4(d) of
the LILCO Disclosure Schedule, LILCO and each of the LILCO Subsidiaries is not
in material breach or violation of or in material default in the performance
or observance of any term or provision of, and no event has occurred which,
with lapse of time or action by a third party, could result in a material
default under, (i) its certificate of incorporation or by-laws or (ii) any
material contract, commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to which it is a
party or by which it is bound or to which any of its property is subject.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by LILCO and the LILCO Subsidiaries since January 1, 1994 under the
Securities Act, the Exchange Act, the 1935 Act, the Power Act, the Atomic
Energy Act and applicable state laws and regulations have been filed with the
SEC, the FERC, the NRC or the appropriate state public utilities commission,
as the case may be, including all forms, statements, reports, agreements (oral
or written) and all documents, exhibits, amendments and supplements
appertaining thereto, and complied, as of their respective dates, in all
material respects with all applicable requirements of the appropriate statute
and the rules and regulations thereunder. LILCO has made available to Brooklyn
Union a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by LILCO with the SEC since
January 1, 1994 (as such documents have since the time of their filing been
amended, the "LILCO SEC REPORTS"). As of their respective dates, the LILCO SEC
Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of LILCO included in the LILCO SEC Reports
(collectively, the "LILCO FINANCIAL STATEMENTS") have been prepared in
accordance with GAAP (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present the financial position of LILCO as of the
dates thereof and the results of its operations and cash flows for the periods
then ended, subject, in the case of the unaudited interim financial
statements, to normal, recurring audit adjustments. True, accurate and
complete copies of the Restated Certificate of Incorporation and By-laws of
LILCO, as in effect on December 29, 1996, are included (or incorporated by
reference) in the LILCO SEC Reports.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
LILCO SEC Reports filed prior to December 29, 1996 or as set forth in Section
5.6 of the LILCO Disclosure Schedule, since December 31, 1995, LILCO and each
of the LILCO Subsidiaries have conducted their business only in the ordinary
course of business consistent with past practice and there has not been, and
no fact or condition exists which would have or, insofar as reasonably can be
foreseen, could have, a material adverse effect on the business, assets,
financial condition, results of operations or prospects of LILCO and its
subsidiaries taken as a whole (a "LILCO MATERIAL ADVERSE EFFECT").
Section 5.7 LITIGATION. Except as disclosed in the LILCO SEC Reports filed
prior to December 29, 1996 or as set forth in Section 5.7, Section 5.9 or
Section 5.11 of the LILCO Disclosure Schedule, (i) there are no material
claims, suits, actions or proceedings, pending or, to the knowledge of LILCO,
threatened, nor are there, to the knowledge of LILCO, any material
investigations or reviews pending or threatened against, relating to or
affecting LILCO or any of the LILCO Subsidiaries, (ii) there have not been any
significant developments since December 31, 1995 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews and
(iii) there are no material judgments, decrees, injunctions, rules or orders
of any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to LILCO or any of the LILCO
Subsidiaries.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of LILCO for inclusion
or incorporation by reference in (i) the Registration Statement will, at the
time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the
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Proxy Statement will not, at the dates mailed to shareholders and at the times
of the meetings of shareholders to be held in connection with the
Transactions, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement and the Proxy Statement will
comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Section 5.9 TAX MATTERS. Except as set forth in Section 5.9 of the LILCO
Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. LILCO and each of the LILCO
Subsidiaries have filed (or there has been filed on its behalf) all
material Tax Returns required to be filed by each of them under applicable
law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. LILCO and each of the LILCO Subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes that
are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) TAX RESERVES. LILCO and the LILCO Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of LILCO or any of
the LILCO Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. LILCO and each of the LILCO Subsidiaries have
complied in all material respects with the provisions of the Code relating
to the withholding of Taxes, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither LILCO nor any of
the LILCO Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither LILCO nor any of the LILCO
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
LILCO and each of the LILCO Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through
December 29, 1996, and no deficiency for any Taxes has been proposed,
asserted or assessed against LILCO or any of the LILCO Subsidiaries that
has not been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of LILCO or any of the LILCO
Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has been
granted by LILCO or any of the LILCO Subsidiaries concerning any Tax
matter.
(k) TAX RULINGS. Neither LILCO nor any of the LILCO Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Closing
Date.
(l) AVAILABILITY OF TAX RETURNS. LILCO has made available to Brooklyn
Union complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by LILCO or any of the LILCO Subsidiaries, (ii)
all audit reports received from any taxing authority relating to any Tax
Return filed
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by LILCO or any of the LILCO Subsidiaries and (iii) any Closing Agreements
entered into by LILCO or any of the LILCO Subsidiaries with any taxing
authority.
(m) TAX SHARING AGREEMENTS. Neither LILCO nor any LILCO Subsidiary is a
party to any agreement relating to allocating or sharing of income Taxes.
(n) CODE SECTION 280G. Neither LILCO nor any of the LILCO Subsidiaries is
a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(o) LIABILITY FOR OTHERS. None of LILCO or any of the LILCO Subsidiaries
has any liability for Taxes of any person other than LILCO and the LILCO
Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law) as a transferee or
successor, (ii) by contract, or (iii) otherwise.
Section 5.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 5.10 of
the LILCO Disclosure Schedule:
(a) BENEFIT PLANS. Section 5.10(a) of the LILCO Disclosure Schedule
contains a true and complete list of each employee benefit plan covering
employees, former employees or directors of LILCO and each of the LILCO
Subsidiaries or their beneficiaries, or providing benefits to such persons
in respect of services provided to any such entity, including, but not
limited to, any employee benefit plans within the meaning of Section 3(3)
of ERISA and any severance or change in control agreement (collectively,
the "LILCO BENEFIT PLANS"). For the purposes of this SECTION 5.10 only, the
term "LILCO" shall be deemed to include the predecessors of such company.
(b) CONTRIBUTIONS. All material contributions and other payments required
to be made by LILCO or any of the LILCO Subsidiaries to any LILCO Benefit
Plan (or to any person pursuant to the terms thereof) have been made or the
amount of such payment or contribution obligation has been reflected in the
LILCO Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the LILCO Benefit Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the best knowledge of
LILCO, no circumstances exist that are reasonably expected by LILCO to
result in the revocation of any such determination. LILCO is in compliance
in all material respects with, and each of the LILCO Benefit Plans is and
has been operated in all material respects in compliance with, all
applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code. Each LILCO Benefit Plan intended to
provide for the deferral of income, the reduction of salary or other
compensation, or to afford other income tax benefits, complies with the
requirements of the applicable provisions of the Code or other laws, rules
and regulations required to provide such income tax benefits.
(d) LIABILITIES. With respect to the LILCO Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the best knowledge of
LILCO, there does not now exist any condition or set of circumstances, that
could subject LILCO or any of the LILCO Subsidiaries to any material
liability arising under the Code, ERISA or any other applicable law
(including, without limitation, any liability to any such plan or the
PBGC), or under any indemnity agreement to which LILCO is a party,
excluding liability for benefit claims and funding obligations payable in
the ordinary course.
(e) WELFARE PLANS. None of the LILCO Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any
retiree benefits, other than continuation coverage required to be provided
under Section 4980B of the Code or Part 6 of Title I of ERISA.
(f) DOCUMENTS MADE AVAILABLE. LILCO has made available to Brooklyn Union
a true and correct copy of each collective bargaining agreement to which
LILCO or any of the LILCO Subsidiaries is a party or under which LILCO or
any of the LILCO Subsidiaries has obligations and, with respect to each
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LILCO Benefit Plan, where applicable, (i) such plan and summary plan
description, (ii) the most recent annual report filed with the IRS, (iii)
each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent determination of the IRS with respect to
the qualified status of such LILCO Benefit Plan, and (v) the most recent
actuarial report or valuation.
(g) PAYMENTS RESULTING FROM THE TRANSACTIONS. (i) The consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from LILCO or any of the LILCO Subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement, or (B) benefit under any LILCO
Benefit Plan being established or becoming accelerated, vested or payable
and (ii) neither LILCO nor any of the LILCO Subsidiaries is a party to (A)
any management, employment, deferred compensation, severance (including any
payment, right or benefit resulting from a change in control), bonus or
other contract for personal services with any officer, director or
employee, (B) any consulting contract with any person who prior to entering
into such contract was a director or officer of LILCO, or (C) any plan,
agreement, arrangement or understanding similar to any of the foregoing.
(h) LABOR AGREEMENTS. As of December 29, 1996, except as set forth in
Section 5.10(h) of the LILCO Disclosure Schedule or in the LILCO SEC
Reports filed prior to December 29, 1996, neither LILCO nor any of the
LILCO Subsidiaries is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization. To the best
knowledge of LILCO, as of December 29, 1996, except as set forth in Section
5.10(h) of the LILCO Disclosure Schedule, there is no current union
representation question involving employees of LILCO or any of the LILCO
Subsidiaries, nor does LILCO know of any activity or proceeding of any
labor organization (or representative thereof) or employee group to
organize any such employees. Except as disclosed in the LILCO SEC Reports
filed prior to December 29, 1996 or in Section 5.10(h) of the LILCO
Disclosure Schedule, (i) there is no unfair labor practice, employment
discrimination or other material complaint against LILCO or any of the
LILCO Subsidiaries pending, or to the best knowledge of LILCO, threatened,
(ii) there is no strike, or lockout or material dispute, slowdown or work
stoppage pending, or to the best knowledge of LILCO, threatened, against or
involving LILCO, and (iii) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the best knowledge of LILCO,
threatened, in respect of which any director, officer, employee or agent of
LILCO or any of the LILCO Subsidiaries is or may be entitled to claim
indemnification from LILCO or such LILCO Subsidiary pursuant to their
respective certificates of incorporation or by-laws or as provided in the
indemnification agreements listed in Section 5.10(h) of the LILCO
Disclosure Schedule.
Section 5.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 5.11
of the LILCO Disclosure Schedule or in the LILCO SEC Reports filed prior to
December 29, 1996:
(a) COMPLIANCE. LILCO and each of the LILCO Subsidiaries is in material
compliance with all applicable Environmental Laws; and neither LILCO nor
any of the LILCO Subsidiaries has received any communication (written or
oral), from any person or Governmental Authority that alleges that LILCO or
any of the LILCO Subsidiaries is not in such compliance with applicable
Environmental Laws.
(b) ENVIRONMENTAL PERMITS. LILCO and each of the LILCO Subsidiaries has
obtained or has applied for all the Environmental Permits necessary for the
construction of their facilities or the conduct of their operations, and
all such Environmental Permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and LILCO and the LILCO Subsidiaries are in material compliance with all
terms and conditions of the Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. To the best knowledge of LILCO, there is no
material Environmental Claim pending (i) against LILCO or any of the LILCO
Subsidiaries or LILCO Joint Ventures, (ii) against any person or entity
whose liability for any Environmental Claim LILCO or any of the LILCO
Subsidiaries has or may have retained or assumed either contractually or by
operation of law, or
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(iii) against any real or personal property or operations which LILCO or
any of the LILCO Subsidiaries owns, leases or manages, in whole or in part.
(d) RELEASES. LILCO has no knowledge of any material Releases of any
Hazardous Material that would be reasonably likely to form the basis of any
material Environmental Claim against LILCO or any of the LILCO
Subsidiaries, or against any person or entity whose liability for any
material Environmental Claim LILCO or any of the LILCO Subsidiaries has or
may have retained or assumed either contractually or by operation of law.
(e) PREDECESSORS. LILCO has no knowledge, with respect to any predecessor
of LILCO or any of the LILCO Subsidiaries, of any material Environmental
Claim pending or threatened, or of any Release of Hazardous Materials that
would be reasonably likely to form the basis of any material Environmental
Claim.
(f) DISCLOSURE. To LILCO's best knowledge, LILCO has disclosed to
Brooklyn Union all material facts which LILCO reasonably believes form the
basis of a material Environmental Claim arising from (i) the cost of LILCO
pollution control equipment currently required or known to be required in
the future; (ii) current LILCO remediation costs or LILCO remediation costs
known to be required in the future; or (iii) any other environmental matter
affecting LILCO.
Section 5.12 REGULATION AS A UTILITY. Except as set forth in Section 5.12 of
the LILCO Disclosure Schedule, neither LILCO nor any "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of LILCO is subject to
regulation as a public utility or public service company (or similar
designation) by any state in the United States other than New York or any
foreign country.
Section 5.13 VOTE REQUIRED. The adoption of this Agreement by two-thirds of
the votes entitled to be cast by all holders of LILCO Common Stock
(collectively, the "LILCO SHAREHOLDERS' APPROVAL") is the only vote of the
holders of any class or series of the capital stock of LILCO or any of its
subsidiaries required to adopt this Agreement and the other transactions
contemplated hereby.
Section 5.14 ACCOUNTING MATTERS. Neither LILCO nor, to LILCO's best
knowledge, any of its affiliates has taken or agreed to take any action that
would prevent the Company from accounting for the transactions to be effected
pursuant to this Agreement as a pooling of interests in accordance with GAAP
if the transactions contemplated by the LIPA Agreement are not consummated.
Section 5.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW. Assuming that the
representation and warranty of Brooklyn Union made in SECTION 4.18 is correct,
none of the business combination provisions of Sections 912 of the NYBCL or
any similar provisions of the NYBCL (or, to the best knowledge of LILCO, any
other similar state statute) or the Restated Certificate of Incorporation or
by-laws of LILCO, are applicable to the transactions contemplated by this
Agreement, including the granting or exercise of the LILCO Stock Option
(except as set forth in Section 5.15 of the LILCO Disclosure Schedule).
Section 5.16 OPINION OF FINANCIAL ADVISOR. LILCO has received the opinion of
Dillon, Read & Co. Inc. ("DILLON READ"), dated December 29, 1996 to the effect
that, as of the date thereof, the Original Ratio is fair from a financial
point of view to the holders of LILCO Common Stock, and LILCO has received the
opinion of Dillon Read dated June 27, 1997, to the effect that, as of the date
thereof, the LIPA Ratio is fair from a financial point of view to the holders
of LILCO Common Stock.
Section 5.17 INSURANCE. Except as set forth in Section 5.17 of the LILCO
Disclosure Schedule, LILCO and each of the LILCO Subsidiaries is, and has been
continuously since January 1, 1991, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business as conducted by
LILCO and the LILCO Subsidiaries during such time period. Except as set forth
in Section 5.17 of the LILCO Disclosure Schedule, neither LILCO nor any of the
LILCO Subsidiaries has received any notice of cancellation or termination with
respect to any material
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insurance policy of LILCO or any of the LILCO Subsidiaries. The insurance
policies of LILCO and each of the LILCO Subsidiaries are valid and enforceable
policies in all material respects.
Section 5.18 OWNERSHIP OF BROOKLYN UNION COMMON STOCK. Except pursuant to
the terms of the Brooklyn Union Stock Option Agreement, LILCO does not
beneficially own (as such term is defined for purposes of Section 13(d) of the
Exchange Act) any shares of Brooklyn Union Common Stock or Brooklyn Union
Preferred Stock.
Section 5.19. BUSINESS SYNERGIES. LILCO is not aware of any fact or
circumstance, including the terms of any agreement to which it or any of its
Subsidiaries is subject, that would impair in any material respect the ability
of the Company to realize the synergies described in the joint press release
to be issued in connection with the announcement of this transaction.
ARTICLE VI
Conduct of Business Pending the Effective Time
Section 6.1 COVENANTS OF THE PARTIES. After the date hereof and prior to the
Effective Time or earlier termination of this Agreement, Brooklyn Union and
LILCO each agree as follows, each as to itself and to each of the Brooklyn
Union Subsidiaries and the LILCO Subsidiaries, as the case may be, except as
expressly contemplated or permitted in this Agreement, the Brooklyn Union
Stock Option Agreement, the LILCO Stock Option Agreement, the KeySpan Exchange
Agreement, the LIPA Agreement and the Hedge Arrangements (as defined in
SECTION 7.18(c)), or to the extent the other parties hereto shall otherwise
consent in writing:
(a) ORDINARY COURSE OF BUSINESS. Each party hereto shall, and shall cause
its Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all commercially reasonable efforts to preserve intact
their present business organizations and goodwill, preserve the goodwill
and relationships with customers, suppliers and others having business
dealings with them and, subject to prudent management of workforce needs
and ongoing programs currently in force, keep available the services of
their present officers and employees. Except as set forth in Section 6.1(a)
of the Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, no party shall, nor shall any party permit any of its
Subsidiaries to, enter into a new line of business, or make any change in
the line of business it engages in as of the date hereof involving any
material investment of assets or resources or any material exposure to
liability or loss, in the case of Brooklyn Union, to Brooklyn Union and its
Subsidiaries taken as a whole, and in the case of LILCO, to LILCO and its
Subsidiaries taken as a whole.
(b) DIVIDENDS. Except as set forth in Section 6.1(b) of the Brooklyn
Union Disclosure Schedule or the LILCO Disclosure Schedule, respectively,
and except as provided in the last sentence of this SECTION 6.1(b) no party
shall, nor shall any party permit any of its Subsidiaries to, (i) declare
or pay any dividends on or make other distributions in respect of any of
their capital stock other than to such party or its wholly-owned
subsidiaries and other than dividends required to be paid on any Preferred
Stock in accordance with the respective terms thereof, regular quarterly
dividends on LILCO Common Stock with usual record and payment dates not,
during any fiscal year, in excess of 103% of the dividends for the prior
fiscal year and regular quarterly dividends on Brooklyn Union Common Stock
with usual record and payment dates not, during any fiscal year, in excess
of 103% of the dividends for the prior fiscal year; (ii) split, combine or
reclassify any of their capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of their capital stock; or (iii) redeem,
repurchase or otherwise acquire any shares of their capital stock, other
than redemptions, purchases or acquisitions required by the respective
terms of any outstanding series of preferred stock of Brooklyn Union or
LILCO, as the case may be. The last record date of each of LILCO and
Brooklyn Union on or prior to the Effective Time which relates to a regular
quarterly dividend on LILCO Common Stock or Brooklyn Union Common Stock, as
the case may be, shall be the same date and shall be prior to the Effective
Time.
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Notwithstanding the foregoing, prior to the LILCO Effective Time, Brooklyn
Union may cause the redemption of all issued and outstanding shares of
preferred stock of Brooklyn Union in accordance with the terms thereof.
(c) ISSUANCE OF SECURITIES. Except as set forth in Section 6.1(c) of the
Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, and except as provided in SECTION 7.20 no party shall, nor
shall any party permit any of its Subsidiaries to, issue, agree to issue,
deliver, sell, award, pledge, dispose of or otherwise encumber or authorize
or propose the issuance, delivery, sale, award, pledge, disposal or other
encumbrance of, any shares of their capital stock of any class or any
securities convertible into or exchangeable for, or any rights, warrants or
options to acquire, any such shares or convertible or exchangeable
securities. The parties shall promptly furnish to each other such
information as may be reasonably requested including financial information
and take such action as may be reasonably necessary and otherwise fully
cooperate with each other in the preparation of any registration statement
under the Securities Act and other documents necessary in connection with
issuance of securities as contemplated by this SECTION 6.1(c), subject to
obtaining customary indemnities.
(d) CHARTER DOCUMENTS. No party shall amend or propose to amend its
respective certificate of incorporation, by-laws or regulations, or similar
organizational documents, except as contemplated herein.
(e) NO ACQUISITIONS. Except as set forth in Section 6.1(e) of the
Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, no party shall, nor shall any party permit any of its
Subsidiaries to, acquire, or publicly propose to acquire, or agree to
acquire, by merger or consolidation with, or by purchase or otherwise, a
substantial equity interest in or a substantial portion of the assets of,
any business or any corporation, partnership, association or other business
organization or division thereof, nor shall any party acquire or agree to
acquire a material amount of assets other than in the ordinary course of
business consistent with past practice.
(f) CAPITAL EXPENDITURES. Except as set forth in Section 6.1(f) of the
Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, or as required by law, no party shall, nor shall any party
permit any of its Subsidiaries to, make capital expenditures in excess of
110% of the amount budgeted by such party for capital expenditures as set
forth in such Section 6.1(f) of the Brooklyn Union Disclosure Schedule or
the LILCO Disclosure Schedule.
(g) NO DISPOSITIONS. Except as set forth in Section 6.1(g) of the
Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, other than dispositions by a party and its Subsidiaries of
less than $10 million, singularly or in the aggregate, no party shall, nor
shall any party permit any of its Subsidiaries to, sell, lease, license,
encumber or otherwise dispose of, any of its assets, other than
encumbrances or dispositions in the ordinary course of its business
consistent with past practice.
(h) INDEBTEDNESS. Except as contemplated by this Agreement, no party
shall, nor shall any party permit any of its Subsidiaries to, incur or
guarantee any indebtedness (including any debt borrowed or guaranteed or
otherwise assumed including, without limitation, the issuance of debt
securities or warrants or rights to acquire debt) or enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of
any of the foregoing other than incurrences to refinance existing
indebtedness and other than as set forth in Section 6.1(h) of the Brooklyn
Union Disclosure Schedule or the LILCO Disclosure Schedule, respectively.
(i) COMPENSATION, BENEFITS. Except as set forth in Section 6.1(i) of the
Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule, as may
be required by applicable law or as contemplated by this Agreement, no
party shall, nor shall any party permit any of its Subsidiaries to, (i)
enter into, adopt or amend or increase the amount or accelerate the payment
or vesting of any benefit or amount payable under, any employee benefit
plan or other contract, agreement, commitment, arrangement, plan or policy
maintained by, contributed to or entered into by such party or any of its
Subsidiaries, or increase, or enter into any contract, agreement,
commitment or arrangement to increase in any manner, the
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compensation or fringe benefits, or otherwise to extend, expand or enhance
the engagement, employment or any related rights, of any director, officer
or other employee of such party or any of its Subsidiaries, except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to such party or any of its Subsidiaries
or (ii) enter into or amend any employment, severance or special pay
arrangement with respect to the termination of employment or other similar
contract, agreement or arrangement with any director or officer or other
employee other than in the ordinary course of business consistent with past
practice.
(j) 1935 ACT. Except as set forth in Section 6.1(j) of the Brooklyn Union
Disclosure Schedule or LILCO Disclosure Schedule, respectively, no party
shall, nor shall any party permit any of its Subsidiaries to, except as
required or contemplated by this Agreement, engage in any activities which
would cause a change in its status, or that of its subsidiaries, under the
1935 Act, or that would impair the ability of LILCO or Brooklyn Union, as
the case may be, to claim an exemption as of right under Rule 2 of the 1935
Act.
(k) TRANSMISSION, GENERATION. Except as required pursuant to tariffs on
file with the FERC as of the date hereof, in the ordinary course of
business consistent with past practice, or as set forth in Section 6.1(k)
of the Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, no party shall, nor shall any party permit any of its
Subsidiaries to, (i) commence construction of any additional electric
generating, transmission or delivery capacity, or (ii) obligate itself to
purchase or otherwise acquire, or to sell or otherwise dispose of, or to
share, any additional electric generating, transmission or delivery
capacity except as set forth in the budgets of Brooklyn Union and LILCO on
the date hereof as set forth in Section 6.1(f) of the Brooklyn Union
Disclosure Schedule and the LILCO Disclosure Schedule.
(l) ACCOUNTING. Except as set forth in Section 6.1(l) of the Brooklyn
Union Disclosure Schedule or LILCO Disclosure Schedule, respectively, no
party shall, nor shall any party permit any of its Subsidiaries to, make
any changes in their accounting methods, except as required by law, rule,
regulation or GAAP.
(m) POOLING. No party shall, nor shall any party permit any of its
Subsidiaries to, take any action which would, or would be reasonably likely
to, prevent the Company from accounting for the transactions to be effected
pursuant to this Agreement as a pooling of interests in accordance with
GAAP and applicable SEC regulations, and each party hereto shall use all
reasonable efforts to achieve such result (including taking such actions as
may be necessary to cure any facts or circumstances that could prevent such
transactions from qualifying for pooling-of-interests accounting
treatment).
(n) TAX STATUS. No party shall, nor shall any party permit any of its
Subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Merger as a tax-free
transaction to the holders of Brooklyn Union Common Stock and, unless the
LIPA Agreement has been terminated, the Share Exchange as a taxable
transaction to the holders of LILCO Common Stock and the formation of the
Company to be a transaction to which Section 351 of the Code does not
apply, and each party hereto shall use all reasonable efforts to achieve
such result and shall take such position in any relevant public disclosure
document (including, without limitation, the Joint Proxy/Registration
Statement (as hereinafter defined). LILCO's most recent tax year, for
federal income tax purposes, commenced on April 1, 1997. At no time during
the period April 1, 1997 through March 31, 1998, inclusive, will LILCO be
either the common parent or a member of an "affiliated group" within the
meaning of Section 1504 of the Code. LILCO will not with respect to any tax
year beginning on or after April 1, 1998 file or join in the filing of a
consolidated federal income tax return with respect to any affiliated
group, within the meaning of Section 1504 of the Code. LILCO will advise
the trustee of the defined benefit plan of LILCO of the consequences of
owning, or prior to the LIPA Effective Time if the transactions
contemplated hereby are to be consummated pursuant to SECTION 7.18(b)
acquiring, any shares of LILCO Common Stock.
(o) AFFILIATE TRANSACTIONS. Except as set forth in Section 6.1(o) of the
Brooklyn Union Disclosure Schedule or the LILCO Disclosure Schedule,
respectively, no party shall, nor shall any party permit any of its
Subsidiaries to, enter into any material agreement or arrangement with any
of their
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respective affiliates (other than wholly-owned subsidiaries) on terms
materially less favorable to such party than could be reasonably expected
to have been obtained with an unaffiliated third party on an arm's-length
basis.
(p) COOPERATION, NOTIFICATION. Each party shall, and shall cause its
Subsidiaries to, (i) confer on a regular and frequent basis with one or
more representatives of the other party to discuss, subject to applicable
law, material operational matters and the general status of its ongoing
operations; (ii) promptly notify the other party of any significant changes
in its business, properties, assets, condition (financial or other),
results of operations or prospects; (iii) advise the other party of any
change or event which has had or, insofar as reasonably can be foreseen, is
reasonably likely to result in, in the case of Brooklyn Union, a Brooklyn
Union Material Adverse Effect or, in the case of LILCO, a LILCO Material
Adverse Effect; and (iv) promptly provide the other party with copies of
all filings made by such party or any of its Subsidiaries with any state or
federal court, administrative agency, commission or other Governmental
Authority in connection with this Agreement and the transactions
contemplated hereby.
(q) RATE MATTERS. Each of Brooklyn Union and LILCO shall, and shall cause
its Subsidiaries to, notify the other of any changes in its or its
Subsidiaries' rates or charges (other than pass-through fuel and gas rates
or charges), standards of service or accounting from those in effect on the
date hereof, and no party will make any filing to change its rates on file
with the New York State Public Service Commission (the "PSC") that would
have a material adverse effect on the benefits associated with the business
combination provided for herein.
(r) THIRD-PARTY CONSENTS. Brooklyn Union shall, and shall cause its
Subsidiaries to, use all commercially reasonable efforts to obtain all
Brooklyn Union Required Consents. Brooklyn Union shall promptly notify
LILCO of any failure or prospective failure to obtain any such consents
and, if requested by LILCO, shall provide copies of all Brooklyn Union
Required Consents obtained by Brooklyn Union to LILCO. LILCO shall, and
shall cause its Subsidiaries to, use all commercially reasonable efforts to
obtain all LILCO Required Consents. LILCO shall promptly notify Brooklyn
Union of any failure or prospective failure to obtain any such consents
and, if requested by Brooklyn Union, shall provide copies of all LILCO
Required Consents obtained by LILCO to Brooklyn Union.
(s) NO BREACH, ETC. No party shall, nor shall any party permit any of its
Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement,
the Brooklyn Union Stock Option Agreement or the LILCO Stock Option
Agreement, as the case may be, or in any of its representations and
warranties set forth in this Agreement, the Brooklyn Union Stock Option
Agreement, or the LILCO Stock Option Agreement, as the case may be, being
untrue on and as of the Closing Date.
(t) TAX-EXEMPT STATUS. No party shall, nor shall any party permit any
Subsidiary to, take any action that would likely jeopardize the
qualification of Brooklyn Union's or LILCO's outstanding revenue bonds
which qualify on the date hereof under Section 142(a) of the Code as
"exempt facility bonds" or as tax-exempt industrial development bonds under
Section 103(b)(4) of the Internal Revenue Code of 1954, as amended, prior
to the Tax Reform Act of 1986.
(u) COMPANY ACTIONS. LILCO and Brooklyn Union shall cause the Company to
take only those actions, from the date hereof until the Effective Time,
that are required or contemplated by this Agreement to be so taken by the
Company, including, without limitation, the declaration, filing or
registration with, or notice to or authorization, consent or approval of,
any Governmental Authority, as set forth in Section 4.4(b) of the Brooklyn
Union Disclosure Schedule, Section 4.4(c) of the Brooklyn Union Disclosure
Schedule, Section 5.4(b) of the LILCO Disclosure Schedule and Section
5.4(c) of the LILCO Disclosure Schedule.
(v) TAX MATTERS. Except as set forth in Section 6.1(w) of the Brooklyn
Union Disclosure Schedule or the LILCO Disclosure Schedule, respectively,
no party shall make or rescind any material express or deemed election
relating to taxes, settle or compromise any material claim, action, suit,
litigation,
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proceeding, arbitration, investigation, audit or controversy relating to
taxes, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its
federal income tax return for the taxable year ending September 30, 1995 in
the case of Brooklyn Union and December 31, 1995 in the case of LILCO,
except as may be required by applicable law.
(w) DISCHARGE OF LIABILITIES. No party shall pay, discharge or satisfy
any material claims, liabilities or obligations (whether absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent
with past practice (which includes the payment of final and unappealable
judgments) or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of such party included in such
party's reports filed with the SEC, or incurred in the ordinary course of
business consistent with past practice, and other than the payment by
Brooklyn Union or LILCO of certain transfer taxes which may result from the
Transactions under New York law.
(x) CONTRACTS. No party shall, except in the ordinary course of business
consistent with past practice, modify, amend, terminate, renew or fail to
use reasonable business efforts to renew any material contract or agreement
to which such party or any Subsidiary of such party is a party or waive,
release or assign any material rights or claims.
(y) INSURANCE. Each party shall, and shall cause its Subsidiaries to,
maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for companies
engaged in the electric and gas utility industry and employing methods of
generating electric power and fuel sources similar to those methods
employed and fuels used by such party or its Subsidiaries.
(z) PERMITS. Each party shall, and shall cause its Subsidiaries to, use
reasonable efforts to maintain in effect all existing governmental permits
pursuant to which such party or its Subsidiaries operate.
ARTICLE VII
Additional Agreements
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice, each party shall,
and shall cause its Subsidiaries to, afford to the officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives of the other (collectively, "REPRESENTATIVES")
reasonable access, during normal business hours throughout the period prior to
the Effective Time, to all of its properties, books, contracts, commitments
and records (including, but not limited to, Tax Returns) and, during such
period, each party shall, and shall cause its Subsidiaries to, furnish
promptly to the other (i) access to each report, schedule and other document
filed or received by it or any of its Subsidiaries pursuant to the
requirements of federal or state securities laws or filed with or sent to the
SEC, the FERC, the NRC, the Department of Justice, the Federal Trade
Commission, the PSC or any other federal or state regulatory agency or
commission, and (ii) access to all information concerning themselves, their
subsidiaries, directors, officers and shareholders and such other matters as
may be reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or for
any other reason related to the transactions contemplated by this Agreement.
Each party shall, and shall cause its subsidiaries and Representatives to,
hold in strict confidence all documents and information concerning the other
furnished to it in connection with the transactions contemplated by this
Agreement (including, without limitation, each Disclosure Schedule) in
accordance with the Confidentiality Agreement, dated October 24, 1995, between
Brooklyn Union and LILCO, as it may be amended from time to time (the
"CONFIDENTIALITY AGREEMENT").
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Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "JOINT PROXY/REGISTRATION
STATEMENT"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. Each party hereto shall also take
such action as may be reasonably required to cause the shares of Company
Common Stock issuable in connection with the Transactions to be registered or
to obtain an exemption from registration under applicable state "blue sky" or
securities laws; PROVIDED, HOWEVER, that no party shall be required to
register or qualify as a foreign corporation or to take other action which
would subject it to service of process in any jurisdiction where it will not
be, following the Transactions, so subject. Each of the parties hereto shall
furnish all information concerning itself which is required or customary for
inclusion in the Joint Proxy/Registration Statement. The parties shall use
reasonable efforts to cause the shares of Company Common Stock issuable in the
Transactions to be approved for listing on the NYSE upon official notice of
issuance. The information provided by any party hereto for use in the Joint
Proxy/Registration Statement shall be true and correct in all material
respects without omission of any material fact which is required to make such
information not false or misleading. No representation, covenant or agreement
is made by any party hereto with respect to information supplied by any other
party for inclusion in the Joint Proxy/Registration Statement.
(b) LETTER OF BROOKLYN UNION'S ACCOUNTANTS. Brooklyn Union shall use best
efforts to cause to be delivered to LILCO a letter of Arthur Andersen LLP,
dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to LILCO, in form and substance
reasonably satisfactory to LILCO and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in
connection with registration statements on Form S-4.
(c) LETTER OF LILCO'S ACCOUNTANTS. LILCO shall use best efforts to cause to
be delivered to Brooklyn Union a letter of Ernst & Young LLP, dated a date
within two business days before the date of the Joint Proxy/Registration
Statement, and addressed to Brooklyn Union, in form and substance reasonably
satisfactory to Brooklyn Union and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection
with registration statements on Form S-4.
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the Joint
Proxy/Registration Statement to the shareholders of Brooklyn Union and LILCO
that (i) Brooklyn Union shall have received an opinion from Merrill Lynch,
dated the date of the Joint Proxy/Registration Statement, to the effect that,
as of the date thereof, the Original Ratio and the LIPA Ratio are fair from a
financial point of view to the holders of Brooklyn Union Common Stock and (ii)
LILCO shall have received an opinion from Dillon Read, dated the date of the
Joint Proxy/Registration Statement, to the effect that, as of the date
thereof, the Original Ratio and the LIPA Ratio are fair from a financial point
of view to the holders of LILCO Common Stock.
Section 7.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed by their respective "ultimate parent" companies under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the rules and regulations promulgated thereunder with respect to
the transactions contemplated hereby. Such parties will use all commercially
reasonable efforts to make such filings promptly and to respond promptly to
any requests for additional information made by either of such agencies.
(b) OTHER REGULATORY APPROVALS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation and
to effect all necessary applications, notices, petitions, filings and other
documents, and shall use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement, including, without limitation, the Brooklyn Union Required
Statutory Approvals and the LILCO Required Statutory Approvals. LILCO and
Brooklyn Union shall cooperate
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in good faith and consult with each other on all components of, significant
steps towards the completion of, and significant amendments to, the
applications to obtain the Brooklyn Union Required Statutory Approvals and the
LILCO Required Statutory Approvals, and with respect to material filings,
communications, agreements, arrangements or consents, written or oral, formal
or informal, relating to applications for such Approvals.
Section 7.4 SHAREHOLDER APPROVAL.
(a) APPROVAL OF LILCO SHAREHOLDERS. Subject to the provisions of SECTION
7.4(c) and SECTION 7.4(d), LILCO shall, as soon as reasonably practicable
after the date hereof (i) take all steps necessary to duly call, give notice
of, convene and hold a special meeting of its shareholders (the "LILCO SPECIAL
MEETING") for the purpose of securing the LILCO Shareholders' Approval, (ii)
distribute to its shareholders the Joint Proxy/Registration Statement in
accordance with applicable federal and state law and with its Restated
Certificate of Incorporation and by-laws, (iii) subject to the fiduciary
duties of its Board of Directors, recommend to its shareholders the adoption
of this Agreement and the transactions contemplated hereby and (iv) cooperate
and consult with Brooklyn Union with respect to each of the foregoing matters.
(b) APPROVAL OF BROOKLYN UNION SHAREHOLDERS. Subject to the provisions of
SECTION 7.4(c) and SECTION 7.4(d), Brooklyn Union shall, as soon as reasonably
practicable after the date hereof (i) take all steps necessary to duly call,
give notice of, convene and hold a special meeting of its shareholders (the
"BROOKLYN UNION SPECIAL MEETING") for the purpose of securing the Brooklyn
Union Shareholders' Approval, (ii) distribute to its shareholders the Joint
Proxy/Registration Statement in accordance with applicable federal and state
law and with its Restated Certificate of Incorporation and by-laws, (iii)
subject to the fiduciary duties of its Board of Directors, recommend to its
shareholders the adoption of this Agreement and the transactions contemplated
hereby and (iv) cooperate and consult with LILCO with respect to each of the
foregoing matters.
(c) MEETING DATE. The LILCO Special Meeting for the purpose of securing the
LILCO Shareholders' Approval and the Brooklyn Union Special Meeting for the
purpose of securing the Brooklyn Union Shareholders' Approval shall be held on
such dates as Brooklyn Union and LILCO shall mutually determine, acting in
good faith.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of Brooklyn Union to hold the Brooklyn Union Special Meeting that
the opinion of Merrill Lynch, referred to in SECTION 7.2(d), shall not have
been withdrawn, and it shall be a condition to the obligation of LILCO to hold
the LILCO Special Meeting that the opinion of Dillon Read, referred to in
SECTION 7.2(d), shall not have been withdrawn.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
LILCO Effective Time, the Company shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to December 29, 1996, or who becomes prior to the
Effective Time, an officer, director or employee of any of the parties hereto
or any Subsidiary thereof (each an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES") against (i) all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the Effective
Time (and whether asserted or claimed prior to, at or after the Effective
Time) that are, in whole or in part, based on or arising out of the fact that
such person is or was a director, officer or employee of such party (the
"INDEMNIFIED LIABILITIES"), and (ii) all Indemnified Liabilities to the extent
they are based on or arise out of or pertain to the transactions contemplated
by this Agreement. In the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) the Company
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company, promptly after statements therefor are received and otherwise advance
to such Indemnified Party upon request reimbursement of documented expenses
reasonably incurred, in either case to the extent not prohibited by the
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NYBCL and upon receipt of any undertaking required by of the NYBCL, (ii) the
Company will cooperate in the defense of any such matter and (iii) any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under New York law and
the Restated Certificate of Incorporation or By-laws of the Company shall be
made by independent counsel mutually acceptable to the Company and the
Indemnified Party; PROVIDED, HOWEVER, that the Company shall not be liable for
any settlement effected without its written consent (which consent shall not
be unreasonably withheld). The Indemnified Parties as a group may retain only
one law firm with respect to each related matter except to the extent there
is, in the opinion of counsel to an Indemnified Party, under applicable
standards of professional conduct, a conflict on any significant issue between
positions of such Indemnified Party and any other Indemnified Party or
Indemnified Parties.
(b) INSURANCE. For a period of six years after the Effective Time, the
Company shall either (i) cause to be maintained in effect, for the benefit of
those persons who were covered by the policies of directors' and officers'
liability insurance maintained by LILCO or Brooklyn Union at December 29, 1996
and at any time subsequent thereto and prior to the Effective Time, the more
favorable of such policies with respect to the obligations of the Company set
forth in this Section 7.5 or (ii) obtain new policies offering such coverage
at least as favorable as the terms of the more favorable of such current
insurance coverage.
(c) SUCCESSORS. In the event the Company or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provisions shall be made so that
the successors and assigns of the Company shall assume the obligations set
forth in this SECTION 7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of
December 29, 1996 in favor of the employees, agents, directors and officers of
Brooklyn Union, LILCO and their respective Subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in their
respective certificates of incorporation and by-laws in effect on the date
thereof, or otherwise in effect on December 29, 1996, shall survive the
Transactions and shall continue in full force and effect for a period of not
less than six years from the Effective Time.
(e) BENEFIT. The provisions of this SECTION 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 DISCLOSURE SCHEDULES. On December 29, 1996, (i) LILCO has
delivered to Brooklyn Union a schedule (the "LILCO DISCLOSURE SCHEDULE"),
accompanied by a certificate signed by the chief financial officer of LILCO
stating the LILCO Disclosure Schedule is being delivered pursuant to this
SECTION 7.6(i) and (ii) Brooklyn Union has delivered to LILCO a schedule (the
"BROOKLYN UNION DISCLOSURE SCHEDULE"), accompanied by a certificate signed by
the chief financial officer of Brooklyn Union stating the Brooklyn Union
Disclosure Schedule is being delivered pursuant to this SECTION 7.6(ii). The
Brooklyn Union Disclosure Schedule and the LILCO Disclosure Schedule are
collectively referred to herein as the "DISCLOSURE SCHEDULES". The Disclosure
Schedules constitute an integral part of this Agreement and modify the
respective representations, warranties, covenants or agreements of the parties
hereto contained herein to the extent that such representations, warranties,
covenants or agreements expressly refer to the Disclosure Schedules. Anything
to the contrary contained herein or in the Disclosure Schedules
notwithstanding, any and all statements, representations, warranties or
disclosures set forth in the Disclosure Schedules shall be deemed to have been
made on and as of December 29, 1996.
Section 7.7 PUBLIC ANNOUNCEMENTS. Brooklyn Union and LILCO will cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement or any of
the transactions contemplated hereby and shall not issue any public
announcement or statement with respect hereto or thereto that is inconsistent
with any public announcement or statement previously made with the consent of
the parties hereto without the consent of the other party (which consent shall
not be unreasonably withheld), except as may be required by law, in which case
the party required to issue
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the announcement or statement shall allow the other party time to comment on
such announcement or statement prior to its issuance.
Section 7.8 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, Brooklyn Union shall identify in a letter to LILCO, and LILCO shall
identify in a letter to Brooklyn Union, all persons who are, and to such
person's best knowledge who will be at the Closing Date, affiliates of
Brooklyn Union and LILCO, respectively, as such term is used in Rule 145 under
the Securities Act (or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment). Each of Brooklyn Union
and LILCO shall use all reasonable efforts to cause their respective
affiliates (including any person who may be deemed to have become an affiliate
after the date of the letter referred to in the prior sentence) to deliver to
the Company on or prior to the Closing Date a written agreement customary for
transactions of this nature that are to be accounted for as a pooling of
interests and in form and substance reasonably satisfactory to Brooklyn Union
and LILCO. If any person refuses to provide such a written agreement, the
Company shall, in lieu of receipt of such written agreement, be entitled to
place appropriate legends on the certificates evidencing the Company Common
Stock to be received by such person pursuant to the terms of this Agreement,
and to issue appropriate stock transfer instructions to the transfer agent for
the Company Common Stock, to the effect that the shares of Company Common
Stock received or to be received by such person pursuant to the terms of this
Agreement may only be sold, transferred or otherwise conveyed, and the holder
thereof may only reduce his interest in or risks relating to such shares of
Company Common Stock, pursuant to an effective registration statement under
the Securities Act, in compliance with Rule 145, as amended from time to time,
or in a transaction which, in the opinion of legal counsel satisfactory to the
Company, is exempt from the registration requirements of the Securities Act.
The foregoing restrictions on the transferability of Company Common Stock
shall apply to all purported sales, transfers and other conveyances of the
shares of Company Common Stock received or to be received by such person
pursuant to this Agreement and to all purported reductions in the interest in
or risks relating to such shares of Company Common Stock, whether or not such
person has exchanged the certificates previously evidencing such persons'
shares of Brooklyn Union Common Stock or LILCO Common Stock, as the case may
be, for certificates evidencing shares of Company Common Stock into which such
shares were converted. The Proxy Statement and the Registration Statement
shall disclose the preceding in a reasonably prominent manner.
Section 7.9 EMPLOYEE AGREEMENTS. Subject to SECTION 7.10, SECTION 7.14
andSECTION 7.15, the Company and its Subsidiaries shall honor, without
modification, all contracts, agreements, collective bargaining agreements and
commitments of the parties prior to December 29, 1996 which apply to any
current or former employee or current or former director of the parties
hereto; PROVIDED, HOWEVER, that this undertaking is not intended to prevent
the Company from enforcing such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms, including, without
limitation, any reserved right to amend, modify, suspend, revoke or terminate
any such contract, agreement, collective bargaining agreement or commitment.
Section 7.10 EMPLOYEE BENEFIT PLANS. Subject to SECTION 6.1(i), each of the
Brooklyn Union Benefit Plans and LILCO Benefit Plans in effect at December 29,
1996 shall be maintained in effect with respect to the employees or former
employees of Brooklyn Union and any of its Subsidiaries, on the one hand, and
of LILCO and any of its Subsidiaries, on the other hand, respectively, who are
covered by any such benefit plan immediately prior to the Closing Date (the
"AFFILIATED EMPLOYEES") until the Company otherwise determines after the
Effective Time; PROVIDED, HOWEVER, that nothing herein contained shall limit
any reserved right contained in any such Brooklyn Union Benefit Plan or LILCO
Benefit Plan to amend, modify, suspend, revoke or terminate any such plan.
Without limitation of the foregoing, each participant of any such Brooklyn
Union Benefit Plan or LILCO Benefit Plan shall receive credit for purposes of
eligibility to participate, vesting, benefit accrual and eligibility to
receive benefits under any benefit plan of the Company or any of its
subsidiaries or affiliates for service credited for the corresponding purpose
under such benefit plan; PROVIDED, HOWEVER, that such crediting of service
shall not operate to duplicate any benefit to any such participant or the
funding for any such benefit. Any person hired by the Company or any of its
subsidiaries after the Closing Date who was not employed by any party hereto
or its subsidiaries immediately prior to the Closing Date shall
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be eligible to participate in such benefit plans maintained, or contributed
to, by the subsidiary, division or operation by which such person is employed,
PROVIDED that such person meets the eligibility requirements of the applicable
plan.
Section 7.11 STOCK PLANS.
(a) LILCO and Brooklyn Union shall take all action required to terminate
their respective employee stock option, stock purchase and other similar stock
plans concurrent with the Effective Time.
(b) At the Brooklyn Union Effective Time, (i) each share of Brooklyn Union
Common Stock (including fractional and uncertificated shares) held under
Brooklyn Union's Dividend Reinvestment and Stock Purchase Plan (the "DIVIDEND
REINVESTMENT PLAN") or Brooklyn Union's Employee Savings Plan, Discount Stock
Purchase Plan for Employees and Long-Term Performance Incentive Compensation
Plan (each a "BROOKLYN UNION PLAN" and collectively the "BROOKLYN UNION
PLANS") immediately prior to the Brooklyn Union Effective Time shall be
automatically exchanged for a like number of shares (including fractional and
uncertificated shares) of Company Common Stock, which shares shall be held
under and pursuant to the Dividend Reinvestment Plan or be issued under such
Brooklyn Union Plan, as the case may be, and (ii) each unexpired and
unexercised option to purchase shares of Brooklyn Union Common Stock
("BROOKLYN UNION OPTION") under the Long-Term Performance Incentive
Compensation Plan (the "INCENTIVE PLAN"), whether vested or unvested, will be
automatically converted into an option (a "SUBSTITUTE OPTION") to purchase a
number of shares of Company Common Stock equal to the number of shares of
Brooklyn Union Common Stock that could have been purchased immediately prior
to the Brooklyn Union Effective Time (assuming full vesting) under such
Brooklyn Union Option, at a price per share of Company Common Stock equal to
the per share option exercise price specified in such Brooklyn Union Option.
In accordance with Section 424(a) of the Code, each Substitute Option shall
provide the option holders with rights and benefits that are no less and no
more favorable to him than were provided under the Brooklyn Union Option.
(c) As of the Brooklyn Union Effective Time, the Company shall succeed to
the Dividend Reinvestment Plan as in effect immediately prior to the Brooklyn
Union Effective Time, and the Dividend Reinvestment Plan shall be
appropriately modified to provide for the issuance or delivery of Company
Common Stock on and after the Brooklyn Union Effective Time pursuant thereto.
(d) As of the Brooklyn Union Effective Time, the Brooklyn Union Plans shall
be appropriately amended to provide for the issuance or delivery of Company
Common Stock, and the Company shall agree to issue or deliver Company Common
Stock in connection therewith.
(e) At the LILCO Effective Time, each share of LILCO Common Stock (including
fractional and uncertificated shares) held under LILCO's Dividend Reinvestment
Plan (the "LILCO DIVIDEND REINVESTMENT PLAN") or LILCO's Employee Stock
Purchase Plan, Directors' Stock Unit Retainer Plan, Officer's Long Term
Incentive Plan and Annual Stock Incentive Compensation Plan (each a "LILCO
PLAN" and collectively the "LILCO PLANS") immediately prior to the LILCO
Effective Time shall be automatically exchanged for such number of shares
(including fractional and uncertificated shares) of Company Common Stock as
each share of LILCO Common Stock is exchanged for pursuant to SECTION 2.1(c),
which shares shall be held under and pursuant to the LILCO Dividend
Reinvestment Plan or be issued under such LILCO Plan, as the case may be.
(f) As of the LILCO Effective Time, the Company shall succeed to the LILCO
Dividend Reinvestment Plan as in effect immediately prior to the LILCO
Effective Time, and the LILCO Dividend Reinvestment Plan shall be
appropriately modified to provide for the issuance or delivery of Company
Common Stock on and after the LILCO Effective Time pursuant thereto.
(g) As of the LILCO Effective Time, the LILCO Plans shall be appropriately
amended to provide for the issuance or delivery of Company Common Stock, and
the Company shall agree to issue or deliver Company Common Stock in connection
therewith.
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(h) If the LIPA Agreement has not been terminated, then in connection with
the consummation of the transactions contemplated by SECTION 2.1 (or SECTIONS
2.1(a) and 7.18(b) if the Transactions are to be consummated pursuant to
SECTION 7.18(b)), Brooklyn Union and LILCO shall cause the Company to issue an
appropriate amount of preferred stock of the Company to such persons (which
persons may include, among others, employee benefit plans, employees, officers
and directors of Brooklyn Union or LILCO) and upon such terms so as to cause
the formation of the Company to be a transaction to which Section 351 of the
Code does not apply.
Section 7.12 NO SOLICITATIONS. Each party hereto shall not, and each such
party shall cause its Subsidiaries not to, permit any of its Representatives
to, and shall use its best efforts to cause such persons not to, directly or
indirectly initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal which constitutes or is reasonably likely
to lead to, any Business Combination Proposal (as defined below), or, in the
event of an unsolicited Business Combination Proposal, except to the extent
required by their fiduciary duties under applicable law if so advised in a
written opinion of outside counsel, engage in negotiations or provide any
information or data to any person relating to any Business Combination
Proposal. Each party hereto shall notify the other party orally and in writing
of any such inquiries, offers or proposals (including, without limitation, the
terms and conditions of any such proposal and the identity of the person
making it), within 24 hours of the receipt thereof, shall keep the other party
informed of the status and details of any such inquiry, offer or proposal, and
shall give the other party five days' advance notice of any agreement to be
entered into with or any information to be supplied to any person making such
inquiry, offer or proposal. Each party hereto shall immediately cease and
cause to be terminated all existing discussions and negotiations, if any, with
any parties conducted heretofore with respect to any Business Combination
Proposal. As used in this SECTION 7.12, "BUSINESS COMBINATION PROPOSAL" shall
mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving any party to this Agreement or any of its
material subsidiaries, or any proposal or offer (in each case, whether or not
in writing and whether or not delivered to the stockholders of a party
generally) to acquire in any manner, directly or indirectly, a substantial
equity interest in or a substantial portion of the assets of any party to this
Agreement or any of its material subsidiaries, other than pursuant to the
transactions contemplated by this Agreement and by the LIPA Agreement. From
the date hereof until the termination or consummation of the transactions
contemplated by this Agreement, neither party shall engage in any negotiations
or material discussions with the Long Island Power Authority ("LIPA") or its
representatives or agents without prior notification to or the presence of the
other party hereto, and will not provide any information or data to LIPA
without providing a copy thereof to the other party hereto. Nothing contained
herein shall prohibit a party from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) under the Exchange Act with respect to
a Business Combination Proposal by means of a tender offer.
Section 7.13 COMPANY BOARD OF DIRECTORS. The number of directors comprising
the full Board of Directors of the Company at the Effective Time shall be 15
persons, six of whom shall be designated by Brooklyn Union prior to the
Effective Time, six of whom shall be designated by LILCO prior to the
Effective Time and three of whom shall be designated by a committee consisting
of two current Brooklyn Union directors and two current LILCO directors.
Section 7.14 SENIOR EXECUTIVES. Dr. William J. Catacosinos shall be the
Chairman of the Board of Directors, Chairman of the Executive Committee and
Chief Executive Officer of the Company commencing at the Effective Time. At
the first anniversary of the Effective Time, Dr. Catacosinos shall cease to be
the Chief Executive Officer, shall continue to be Chairman of the Board and
Chairman of the Executive Committee and shall become a consultant of the
Company. Mr. Robert B. Catell shall be the President and Chief Operating
Officer of the Company commencing at the Effective Time and shall succeed Dr.
Catacosinos as Chief Executive Officer of the Company commencing on such first
anniversary. The arrangements to cause such elections to take place at the
first anniversary of the Effective Time contemplated by the preceding sentence
may be altered only by a vote, following the Effective Time, of two-thirds of
the entire Board of Directors of the Company. Each of the parties hereto shall
take such action as shall reasonably be deemed by any of them to be advisable
in order to give effect to the provisions of this Section 7.14.
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Section 7.15 EXPENSES. Subject to SECTION 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy/Registration
Statement, as well as the filing fee relating thereto and any expenses
incurred under the HSR Act, shall be shared equally by Brooklyn Union and
LILCO.
Section 7.16 FURTHER ASSURANCES. Each party will, and will cause its
Subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Transactions in accordance with the terms hereof.
Section 7.17 POST-EXCHANGE OPERATIONS. Subject to the transactions
contemplated by the LIPA Agreement, following the Effective Time, Brooklyn
Union, on the one hand, and LILCO, on the other hand, shall continue their
separate corporate existences, operating under the names of "THE BROOKLYN
UNION GAS COMPANY" and "LONG ISLAND LIGHTING COMPANY", respectively, until
such time as is otherwise determined by the Board of Directors of the Company.
The name of the Company shall be "BL", or such other name as may be agreed by
Brooklyn Union and LILCO prior to the Closing (which shall not be the name of,
or a name substantially similar to, Brooklyn Union or LILCO). The certificate
of incorporation and by-laws of the Company shall be amended prior to the
Effective Time in a manner reasonably acceptable to Brooklyn Union and LILCO.
Section 7.18 OTHER TRANSACTIONS
(a) The parties hereto hereby consent to the execution and delivery of, and
performance of the transactions contemplated by, the LIPA Agreement and the
KeySpan Exchange Agreement, and waive all breaches of representations,
warranties, covenants and conditions contained herein arising therefrom.
(b) In the event that all of the conditions to each of this Agreement and
the LIPA Agreement have been satisfied or waived and each of Brooklyn Union,
LILCO and LIPA has indicated to the other parties that it is ready, willing
and able to consummate the transactions contemplated by this Agreement and the
LIPA Agreement, then the Share Exchange shall not be consummated and the other
transactions contemplated hereby and thereby shall be consummated in the
following manner and order:
(i) the transfer by LILCO of the Transferred Assets (as defined in the
LIPA Agreement) to such subsidiaries of the Company as Brooklyn Union and
LILCO shall direct in exchange for the Designated Number (as hereinafter
defined) of shares of Company Common Stock and up to $75 million face
amount of preferred stock of the Company ("Company Preferred Stock") as
contemplated by the LIPA Agreement. The "Designated Number" shall be the
number of shares of Company Common Stock representing the net fair market
value of the Transferred Assets, as shall be determined in good faith by
Brooklyn Union and LILCO, less such face amount of Company Preferred Stock;
(ii) the merger of LIPA Acquisition Corp. with and into LILCO and the
related transactions contemplated by the LIPA Agreement (including all
schedules and exhibits thereto) to occur on or prior to the effective time
of such merger (the "LIPA EFFECTIVE TIME") shall be or shall have been
consummated, and, at the LIPA Effective Time, the Cash Purchase Price (as
defined in the LIPA Agreement) shall be paid to the Exchange Agent (as
defined under the LIPA Agreement) as agent for the holders of LILCO Common
Stock to subscribe for and purchase a number of shares of Company Common
Stock, which number of shares when added to the Designated Number shall
represent the number of shares of LILCO Common Stock issued and outstanding
immediately prior to the LILCO Effective Time, other than Dissenting
Shares, multiplied by the LIPA Ratio; and
(iii) promptly thereafter, the Merger shall be consummated.
(c) In connection with the LIPA Agreement, LILCO and Brooklyn Union
contemplate the formation of a limited partnership for the purpose of
purchasing interest rate hedge contracts, to be funded through capital
contributions of up to $30 million by each of them (the formation of such
limited partnership and the purchase
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of such contracts being referred to herein as the "HEDGE ARRANGEMENTS"). The
parties hereby consent to the Hedge Arrangements and waive all breaches of
representations, warranties, covenants and conditions arising therefrom.
(d) Notwithstanding any provision herein to the contrary, LILCO shall not
modify, amend or terminate the LIPA Agreement (once and as it has been entered
into by the parties thereto), and shall not provide any consent, waiver or
release thereunder without the prior written consent of Brooklyn Union.
Section 7.19 EMPLOYMENT AGREEMENT.
(a) The Company shall enter into an employment agreement with Mr. Catell
effective as of the Effective Time providing for him to assume the positions
described in Section 7.14 at the times specified therein, for him to continue
to serve as Chief Executive Officer for a four year period commencing on the
first anniversary of the Effective Time, for him to receive compensation
(including incentive compensation relating to realizing the synergies
contemplated to be realized from the Transactions) on terms mutually agreed to
and in any event in an amount not less than what he receives as of December
29, 1996 as well as reasonable increases, and otherwise containing terms and
conditions comparable to and no less favorable than those customarily
applicable to employment agreements for chief executive officers of similarly
sized companies in the energy and utility businesses.
(b) The Company shall enter into an employment agreement with Dr.
Catacosinos effective as of the Effective Time providing for him to assume the
positions described in Section 7.14 at the times specified therein, for him to
serve as a consultant to the Company for a five year period commencing after
he ceases being Chief Executive Officer, for him to receive compensation
(including incentive compensation of the kind described in Section 7.19(a)) on
terms mutually agreed to and in any event in an amount not less than what he
receives as of December 29, 1996 as well as reasonable increases, and
otherwise containing terms and conditions comparable to and no less favorable
than those customarily applicable to employment agreements for chief executive
officers of similarly sized companies in the energy and utility businesses.
Section 7.20 HOLDING COMPANY. Prior to the LILCO Effective Time, or if the
transactions contemplated hereby are to be consummated pursuant to Section
7.18(b), the LIPA Effective Time, LILCO and Brooklyn Union shall cause the
Company to be formed as a New York corporation for the purpose of consummating
the transactions contemplated hereby, which corporation shall be 66% owned by
LILCO and 34% owned by Brooklyn Union immediately prior to the LILCO Effective
Time.
ARTICLE VIII
Conditions
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
TRANSACTIONS. The respective obligations of the parties to effect the
Transactions shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, except, to the extent permitted by
applicable law, that such conditions may be waived in writing pursuant to
SECTION 9.5 by the joint action of the parties hereto:
(a) SHAREHOLDER APPROVALS. The LILCO Shareholders' Approval and the
Brooklyn Union Shareholders' Approval shall have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court
preventing consummation of the Transactions shall have been issued and be
continuing in effect, and the Transactions and the other transactions
contemplated hereby shall not have been prohibited under any applicable
federal or state law or regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no
stop order suspending such effectiveness shall have been issued and remain
in effect.
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(d) LISTING OF SHARES. The shares of Company Common Stock issuable in the
Transactions pursuant to ARTICLE II (including shares issuable under
options) shall have been approved for listing on the NYSE upon official
notice of issuance.
(e) STATUTORY APPROVALS. The Brooklyn Union Required Statutory Approvals
and the LILCO Required Statutory Approvals shall have been obtained at or
prior to the Brooklyn Union Effective Time and the LILCO Effective Time,
such approvals shall have become Final Orders (as defined below) and such
Final Orders shall not impose terms or conditions which, in the aggregate,
would have, or insofar as reasonably can be foreseen, could have, a
material adverse effect on the business, assets, financial condition or
results of operations of the Company and its prospective subsidiaries taken
as a whole or which would be materially inconsistent with the agreements of
the parties contained herein. If the transactions contemplated by the LIPA
Agreement will not be consummated contemporaneously with the consummation
of the transactions contemplated hereby, the Final Order relating to the
approval of the transactions contemplated hereby to be received from the
PSC shall include the PSC's approval, within the statutory authority of the
PSC, of rates permitted to be charged by the Company and its subsidiaries
to their customers which will be incorporated in a long term rate agreement
the effect of which could not reasonably be expected to have a material
adverse effect on the business, assets, financial condition, results of
operations or prospects of the Company and its subsidiaries taken as a
whole. For purposes of this provision, the prospects of the Company and its
subsidiaries shall mean the combination of the results anticipated by the
regulated earnings forecasts of Brooklyn Union provided to LILCO under
cover of a memorandum dated December 29, 1996, and the results anticipated
by the regulated earnings forecasts of LILCO provided to Brooklyn Union
under cover of a memorandum dated December 29, 1996. A "FINAL ORDER" means
action by the relevant regulatory authority which has not been reversed,
stayed, enjoined, set aside, annulled or suspended, with respect to which
any waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired, and as to which all conditions to
the consummation of such transactions prescribed by law, regulation or
order have been satisfied.
(f) POOLING. Unless the LIPA Transaction has been consummated, or will be
consummated contemporaneously with the Transactions, each of Brooklyn Union
and LILCO shall have received a letter of its independent public
accountants, dated the Closing Date, in form and substance reasonably
satisfactory, in each case, to Brooklyn Union and LILCO, stating that the
transactions effected pursuant to this Agreement will qualify as a pooling
of interests transaction under GAAP.
(g) PREFERRED STOCK. Unless the LIPA Agreement has been terminated, the
Company shall have issued shares of preferred stock of the Company as set
forth in SECTIONS 7.11(h).
(h) TAX OPINION. LILCO shall have received an opinion of Hunton &
Williams satisfactory in form and substance to LILCO, dated as of the
Closing Date, to the effect that the Share Exchange will not be taxable to
non-dissenting holders of LILCO Common Stock and (except with respect to
the receipt of cash in lieu of fractional shares) will satisfy the
requirements of Section 351 of the Code; PROVIDED, HOWEVER, that this
condition will not be required to be satisfied unless the LIPA Agreement
has been terminated.
Section 8.2 CONDITIONS TO OBLIGATION OF LILCO TO EFFECT THE TRANSACTIONS.
The obligation of LILCO to effect the Transactions shall be further subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by LILCO in writing pursuant to SECTION
9.5:
(a) PERFORMANCE OF OBLIGATIONS OF BROOKLYN UNION. Brooklyn Union (and/or
its appropriate Subsidiaries) shall have performed its agreements and
covenants contained in SECTIONS 6.1(b) and 6.1(c) and shall have performed
in all material respects its other agreements and covenants contained in or
contemplated by this Agreement and the Brooklyn Union Stock Option
Agreement required to be performed by it at or prior to the Brooklyn Union
Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Brooklyn Union set forth in this Agreement and the Brooklyn Union Stock
Option Agreement shall be true and correct
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(i) on and as of December 29, 1996 and (ii) on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of the Closing Date (except for representations and
warranties that expressly speak only as of a specific date or time other
than December 29, 1996 or the Closing Date which need only be true and
correct as of such date or time) except in each of cases (i) and (ii) for
such failures of representations or warranties to be true and correct
(without regard to any materiality qualifications contained therein) which,
individually or in the aggregate, would not be reasonably likely to result
in a Brooklyn Union Material Adverse Effect.
(c) CLOSING CERTIFICATES. LILCO shall have received a certificate signed
on behalf of Brooklyn Union by the chief financial officer of Brooklyn
Union, dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the conditions set forth in SECTION 8.2(a) and SECTION
8.2(b) have been satisfied.
(d) BROOKLYN UNION MATERIAL ADVERSE EFFECT. No Brooklyn Union Material
Adverse Effect shall have occurred and there shall exist no fact or
circumstance which is reasonably likely to have a Brooklyn Union Material
Adverse Effect.
(e) BROOKLYN UNION REQUIRED CONSENTS. The Brooklyn Union Required
Consents shall have been obtained, except for those consents the failure of
which to obtain would have a Brooklyn Union Material Adverse Effect.
Section 8.3 CONDITIONS TO OBLIGATION OF BROOKLYN UNION TO EFFECT THE
TRANSACTIONS. The obligation of Brooklyn Union to effect the Transactions
shall be further subject to the satisfaction, on or prior to the Closing Date,
of the following conditions, except as may be waived by Brooklyn Union in
writing pursuant to SECTION 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF LILCO. LILCO (and/or its appropriate
Subsidiaries) shall have performed its agreements and covenants contained
in SECTIONS 6.1(b) and 6.1(c) and shall have performed in all material
respects its other agreements and covenants contained in or contemplated by
this Agreement and the LILCO Stock Option Agreement required to be
performed at or prior to the LILCO Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
LILCO set forth in this Agreement and the LILCO Stock Option Agreement
shall be true and correct (i) on and as of December 29, 1996 and (ii) on
and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of
a specific date or time other than December 29, 1996 or the Closing Date
which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifications
contained therein) which, individually or in the aggregate, would not be
reasonably likely to result in a LILCO Material Adverse Effect.
(c) CLOSING CERTIFICATES. Brooklyn Union shall have received a
certificate signed on behalf of LILCO by the chief financial officer of
LILCO, dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the conditions set forth in SECTION 8.3(a) and SECTION
8.3(b) have been satisfied.
(d) LILCO MATERIAL ADVERSE EFFECT. No LILCO Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which is
reasonably likely to have a LILCO Material Adverse Effect.
(e) TAX OPINION. Brooklyn Union shall have received an opinion of
Wachtell, Lipton, Rosen & Katz satisfactory in form and substance to
Brooklyn Union, dated as of the Closing Date, which opinion may be based on
appropriate representations of Brooklyn Union, KeySpan and the Company, to
the effect that the Merger will qualify as a reorganization pursuant to
Section 368 of the Code.
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(f) LILCO REQUIRED CONSENTS. The LILCO Required Consents shall have been
obtained, except for those the failure of which to obtain would have a
LILCO Material Adverse Effect.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the shareholders of
the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Brooklyn
Union and LILCO;
(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before August 31, 1998 (the
"INITIAL TERMINATION DATE"); PROVIDED, HOWEVER, that the right to terminate
the Agreement under this SECTION 9.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before this date; and PROVIDED, FURTHER, that if on the Initial Termination
Date the conditions to the Closing set forth in SECTIONS 8.1(e), 8.2(e)
and/or 8.3(f) shall not have been fulfilled but all other conditions to the
Closing shall be fulfilled or shall be capable of being fulfilled, then the
Initial Termination Date shall be extended to April 28, 1999; and PROVIDED,
FURTHER, that LILCO shall not have the right to terminate this Agreement
pursuant to this Section 9.1 (b) if the LIPA Agreement has not been
terminated;
(c) by any party hereto, by written notice to the other parties, if the
LILCO Shareholders' Approval shall not have been obtained at a duly held
LILCO Special Meeting, including any adjournments thereof, or the Brooklyn
Union Shareholders' Approval shall not have been obtained at a duly held
Brooklyn Union Special Meeting, including any adjournments thereof;
(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel acceptable to the parties hereto, of
prohibiting the Transactions, or by any party hereto if any court of
competent jurisdiction in the United States or any State shall have issued
an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the Transactions, and such order, judgment or decree
shall have become final and nonappealable;
(e) by LILCO, upon two days' prior notice to Brooklyn Union, if, as a
result of a tender offer or any written offer or proposal with respect to a
merger, sale of a material portion of its assets or other business
combination (each, a "BUSINESS COMBINATION") by a party other than Brooklyn
Union or any of its affiliates or LIPA or any of its affiliates, the Board
of Directors of LILCO determines in good faith that their fiduciary
obligations under applicable law require that such tender offer or other
written offer or proposal be accepted; PROVIDED, HOWEVER, that (i) the
Board of Directors of LILCO shall have been advised in a written opinion of
outside counsel that notwithstanding a binding commitment to consummate an
agreement of the nature of this Agreement entered into in the proper
exercise of their applicable fiduciary duties, and notwithstanding all
concessions which may be offered by Brooklyn Union in negotiations entered
into pursuant to CLAUSE (ii) below, such fiduciary duties would also
require the directors to reconsider such commitment as a result of such
tender offer or other written offer or proposal; and (ii) prior to any such
termination, LILCO shall, and shall cause its respective financial and
legal advisors to, negotiate with Brooklyn Union to make such adjustments
in the terms and conditions of this Agreement as would enable LILCO to
proceed with the transactions contemplated herein on such adjusted terms;
(f) by Brooklyn Union, upon two days' prior notice to LILCO, if, as a
result of a tender offer by a party other than LILCO or any of its
affiliates or any written offer or proposal with respect to a Business
Combination by a party other than LILCO or any of its affiliates, the Board
of Directors of Brooklyn Union determines in good faith that their
fiduciary obligations under applicable law require that such tender offer
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or other written offer or proposal be accepted; PROVIDED, HOWEVER, that (i)
the Board of Directors of Brooklyn Union shall have been advised in a
written opinion of outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of their applicable fiduciary duties,
and notwithstanding all concessions which may be offered by LILCO in
negotiations entered into pursuant to clause (ii) below, such fiduciary
duties would also require the directors to reconsider such commitment as a
result of such tender offer or other written offer or proposal; and (ii)
prior to any such termination, Brooklyn Union shall, and shall cause its
respective financial and legal advisors to, negotiate with LILCO to make
such adjustments in the terms and conditions of this Agreement as would
enable Brooklyn Union to proceed with the transactions contemplated herein
on such adjusted terms;
(g) by Brooklyn Union, by written notice to LILCO, if (i) there exist
breaches of the representations and warranties of LILCO and BL made herein
as of December 29, 1996 which breaches, individually or in the aggregate,
would or would be reasonably likely to result in a LILCO Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by LILCO of notice in writing from Brooklyn Union, specifying the
nature of such breaches and requesting that they be remedied, (ii) LILCO
(and/or its appropriate subsidiaries) shall not have performed and complied
with its agreements and covenants contained in SECTIONS 6.1(b) and 6.1(c)
or shall have failed to perform and comply with, in all material respects,
its other agreements and covenants hereunder or under the LILCO Stock
Option Agreement and such failure to perform or comply shall not have been
remedied within 20 days after receipt by LILCO of notice in writing from
Brooklyn Union, specifying the nature of such failure and requesting that
it be remedied; or (iii) the Board of Directors of LILCO or any committee
thereof (A) shall withdraw or modify in any manner adverse to Brooklyn
Union its approval or recommendation of this Agreement or the Transactions,
(B) shall fail to reaffirm such approval or recommendation upon Brooklyn
Union's request, (C) shall approve or recommend any acquisition of LILCO or
a material portion of its assets or any tender offer for shares of capital
stock of LILCO, in each case, by a party other than Brooklyn Union or any
of its affiliates and other than the LIPA Agreement, as the same may be
amended from time to time with the consent of Brooklyn Union, and the
transactions contemplated thereby or (D) shall resolve to take any of the
actions specified in CLAUSE (A), (B) or (C);
(h) by LILCO, by written notice to Brooklyn Union, if (i) there exist
material breaches of the representations and warranties of Brooklyn Union
made herein as of December 29, 1996 which breaches, individually or in the
aggregate, would or would be reasonably likely to result in a Brooklyn
Union Material Adverse Effect, and such breaches shall not have been
remedied within 20 days after receipt by Brooklyn Union of notice in
writing from LILCO, specifying the nature of such breaches and requesting
that they be remedied, (ii) Brooklyn Union (and/or its appropriate
subsidiaries) shall not have performed and complied with its agreements and
covenants contained in SECTIONS 6.1(b) and 6.1(c) or shall have failed to
perform and comply with, in all material respects, its other agreements and
covenants hereunder or under the Brooklyn Union Stock Option Agreement, and
such failure to perform or comply shall not have been remedied within 20
days after receipt by Brooklyn Union of notice in writing from LILCO,
specifying the nature of such failure and requesting that it be remedied;
or (iii) the Board of Directors of Brooklyn Union or any committee thereof
(A) shall withdraw or modify in any manner adverse to LILCO its approval or
recommendation of this Agreement or the Transactions, (B) shall fail to
reaffirm such approval or recommendation upon LILCO's request, (C) shall
approve or recommend any acquisition of Brooklyn Union or a material
portion of its assets or any tender offer for the shares of capital stock
of Brooklyn Union, in each case by a party other than LILCO or any of its
affiliates or (D) shall resolve to take any of the actions specified in
CLAUSE (A), (B) or (C); or
(i) by either party, by written notice to the other party, if any of the
conditions of either party's obligation to effect the Transactions cannot
be satisfied.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Brooklyn Union or LILCO pursuant to SECTION 9.1 there
shall be no liability on the part of either Brooklyn
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Union or LILCO or their respective officers or directors hereunder, except
that SECTION 9.3, the agreement contained in the last sentence of SECTION 7.1,
SECTION 10.2 and SECTION 10.8 shall survive the termination.
Section 9.3 TERMINATION FEE; EXPENSES.
(a) TERMINATION FEE UPON BREACH OR WITHDRAWAL OF APPROVAL. If this Agreement
is terminated at such time that this Agreement is terminable pursuant to one
(but not both) of (x) SECTION 9.1(g)(i) or (ii) or (y) SECTION 9.1(h)(i) or
(ii), then: (i) the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay to the
non-breaching party in cash an amount equal to all documented out-of-pocket
expenses and fees incurred by the nonbreaching party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors) arising out of, in
connection with or related to the transactions contemplated by this Agreement
not in excess of $10 million; PROVIDED, HOWEVER, that, if this Agreement is
terminated by a party as a result of a willful breach by the other party, the
non-breaching party may pursue any remedies available to it at law or in
equity and shall, in addition to its out-of-pocket expenses (which shall be
paid as specified above and shall not be limited to $10 million), be entitled
to retain such additional amounts as such non-breaching party may be entitled
to receive at law or in equity; and (ii) if (x) at the time of the breaching
party's willful breach of this Agreement, there shall have been a third party
tender offer for shares of, or a third party offer or proposal with respect to
a Business Combination involving, such party or any of its affiliates which at
the time of such termination shall not have been rejected by such party and
its board of directors and withdrawn by the third party, and (y) within two
and one-half years of any termination by the non-breaching party, the
breaching party or an affiliate thereof becomes a subsidiary of such offeror
or a subsidiary of an affiliate of such offeror or accepts a written offer to
consummate or consummates a Business Combination with such offeror or an
affiliate thereof, then such breaching party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed then at the closing
(and as a condition to the closing) of such breaching party becoming such a
subsidiary or of such Business Combination, will pay to the non-breaching
party in cash an additional fee equal to $65 million (if the breaching party
is LILCO) or $35 million (if the breaching party is Brooklyn Union).
(b) ADDITIONAL TERMINATION FEE. If (i) this Agreement (x) is terminated by
any party pursuant to SECTION 9.1(e) or SECTION 9.1(f) or SECTION 9.1(g)(iii)
or SECTION 9.1(h)(iii), (y) is terminated following a failure of the
shareholders of any one of the parties to grant the necessary approvals
described in SECTION 4.13 and SECTION 5.13 or (z) is terminated as a result of
such party's material breach of SECTION 7.4, and (ii) at the time of such
termination or prior to the meeting of such party's shareholders there shall
have been a third-party tender offer for shares of, or a third-party offer or
proposal with respect to a Business Combination involving, such party or any
of its affiliates which at the time of such termination or of the meeting of
such party's shareholders shall not have been (A) rejected by such party and
its board of directors and (B) withdrawn by the third party, and, within two
and one-half years of any such termination, the party which was the subject of
such offer or proposal (the "TARGET PARTY") becomes a subsidiary of such
offeror or a subsidiary of an affiliate of such offeror or accepts a written
offer to consummate or consummates a Business Combination with such offeror or
an affiliate thereof, then such Target Party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed, then at the closing
(and as a condition to the closing) of such Target Party becoming such a
subsidiary or of such Business Combination, will pay to the other party, if
LILCO is the Target Party, $75 million, and if Brooklyn Union is the Target
Party, $45 million, in each case in cash plus, in either case, the out-of-
pocket fees and expenses incurred by the other party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors) arising out of, in
connection with or related to the transactions contemplated by this Agreement.
(c) LIPA AGREEMENT. For purposes of SECTIONS 9.3(a) and (b), the LIPA
Agreement shall be deemed a proposal for a Business Combination involving
LILCO and LIPA shall be deemed the offeror with respect thereto, and any fee
for the benefit of Brooklyn Union would be payable under such sections at the
time this Agreement is terminated; PROVIDED, that if this Agreement is
terminated following a failure of the
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shareholders of LILCO to grant the LILCO Shareholders' Approval described in
Section 5.13, the LIPA Agreement shall not be deemed a proposal for a Business
Combination involving LILCO and no fee shall be payable to Brooklyn Union by
virtue of the LIPA Agreement under Sections 9.3(b)(i)(y) and 9.3(b)(ii).
(d) EXPENSES. The parties agree that the agreements contained in this
SECTION 9.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fee due hereunder, the defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N.A. from the
date such fee was required to be paid.
(e) LIMITATION OF TERMINATION FEES. Notwithstanding anything herein to the
contrary, the aggregate amount payable to Brooklyn Union and its affiliates
pursuant to SECTION 9.3(a), SECTION 9.3(b) and the terms of the LILCO Stock
Option Agreement shall not exceed $90 million and the aggregate amount payable
to LILCO and its affiliates pursuant to SECTION 9.3(a), SECTION 9.3(b) and the
terms of the Brooklyn Union Stock Option Agreement shall not exceed $50
million (including reimbursement for fees and expenses payable pursuant to
this SECTION 9.3). For purposes of this SECTION 9.3(c), the amount payable
pursuant to the terms of the LILCO Stock Option Agreement or the Brooklyn
Union Stock Option Agreement, as the case may be, shall be the amount paid
pursuant to Section 7(a)(i) and 7(a)(ii) thereof.
Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof
by the shareholders of Brooklyn Union and LILCO and prior to the Effective
Time, but after such approvals, no such amendment shall (i) alter or change
the amount or kind of shares to be issued under ARTICLE II or (ii) alter or
change any of the terms and conditions of this Agreement if any of the
alterations or changes, alone or in the aggregate, would materially adversely
affect the rights of holders of Brooklyn Union Common Stock or LILCO Common
Stock. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
General Provisions
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. (a) All
representations, warranties and agreements in this Agreement shall not survive
the Effective Time, except as otherwise provided in this Agreement and except
for the agreements contained in this SECTION 10.1 and in ARTICLE II, SECTION
7.5, SECTION 7.9, SECTION 7.10, SECTION 7.11, SECTION 7.14, SECTION 7.15 and
SECTION 10.7.
(b) No party may assert a claim for breach of any representation, warranty
or covenant contained in this Agreement (whether by direct claim or
counterclaim) except for the purpose of asserting a right to terminate this
Agreement pursuant to SECTION 9.1(g)(i) or SECTION 9.1(h)(i) (or pursuant to
any other subsection of SECTION 9.1, if the terminating party would have been
entitled to terminate this Agreement pursuant to SECTION 9.1(g)(i) or SECTION
9.1(h)(i)) or pursuant to SECTION 9.3.
Section 10.2 BROKERS. Brooklyn Union represents and warrants that, except
for Merrill Lynch whose fees have been disclosed to LILCO prior to the date
hereof, no broker, finder or investment banker is entitled to
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any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Brooklyn Union. LILCO represents and warrants that, except for
Dillon Read whose fees have been disclosed to Brooklyn Union prior to the date
hereof, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
LILCO.
Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service, (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Brooklyn Union, to:
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, New York 11201-3850
Attention: Chief Executive Officer
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard D. Katcher and Seth A. Kaplan
(b) If to LILCO, to:
Long Island Lighting Company
175 East Old County Road
Hicksville, New York 11801
Attention: Chief Executive Officer
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance
Section 10.4 MISCELLANEOUS. This Agreement including the documents and
instruments referred to herein (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof other than the Confidentiality Agreement; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be fully performed in such State, without giving effect to
its conflicts of law rules or principles.
Section 10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
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Section 10.7 PARTIES IN INTEREST; ASSIGNMENT. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto and shall
not be assigned by operation of law or otherwise; provided, however, that upon
the consummation of the KeySpan Restructuring, Brooklyn Union shall assign to
KeySpan, and KeySpan shall be substituted for and shall assume, all of
Brooklyn Union's rights and obligations hereunder effective upon the effective
time of the KeySpan Restructuring, and the parties hereto shall execute any
amendment to this Agreement necessary to provide the benefits of this
Agreement to KeySpan. Except for rights of Indemnified Parties as set forth in
SECTION 7.5, nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Notwithstanding the foregoing and any
other provision of this Agreement, and in addition to any other required
action of the Board of Directors of the Company (a) a majority of the
directors of LILCO (or their successors) serving on the Board of Directors of
the Company who are designated by LILCO pursuant to SECTION 7.13 shall be
entitled during the three year period commencing at the Effective Time (the
"THREE YEAR PERIOD") to enforce the provisions of SECTION 7.9, SECTION 7.10,
SECTION 7.11 and SECTION 7.14 on behalf of the LILCO officers, directors and
employees, as the case may be, and (b) a majority of directors of Brooklyn
Union (or their successors) serving on the Board of Directors of the Company
who are designated by Brooklyn Union pursuant to SECTION 7.13 shall be
entitled during the Three Year Period to enforce the provisions of SECTIONS
7.9, SECTION 7.10, SECTION 7.11, and SECTION 7.14 on behalf of the Brooklyn
Union officers, directors and employees, as the case may be. Such directors'
rights and remedies under the preceding sentence are cumulative and are in
addition to any other rights and remedies they may have at law or in equity,
but in no event shall this SECTION 10.7 be deemed to impose any additional
duties on any such directors. The Company shall pay, at the time they are
incurred, all costs, fees and expenses of such directors incurred in
connection with the assertion of any rights on behalf of the persons set forth
above pursuant to this SECTION 10.7.
Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (i) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement and (ii) without
limitation to SECTION 9.3, any right it may have to receive damages from any
other party based on any theory of liability for any special, indirect,
consequential (including lost profits) or punitive damages.
Section 10.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York or in New York state court,
this being in addition to any other remedy to which they are entitled at law
or in equity.
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IN WITNESS WHEREOF, Brooklyn Union and LILCO have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
THE BROOKLYN UNION GAS COMPANY
/s/ Robert B. Catell
By: _________________________________
Robert B. Catell
Chief Executive Officer
LONG ISLAND LIGHTING COMPANY
/s/ William J. Catacosinos
By: _________________________________
Dr. William J. Catacosinos
Chief Executive Officer
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ANNEX B
AMENDED AND RESTATED
LILCO STOCK OPTION AGREEMENT
AMENDED AND RESTATED STOCK OPTION AGREEMENT, dated as of June 26, 1997, by
and between THE BROOKLYN UNION GAS COMPANY, a New York corporation ("Brooklyn
Union"), and LONG ISLAND LIGHTING COMPANY, a New York corporation (the
"COMPANY").
WHEREAS, concurrently with the execution and delivery of this Agreement, (i)
Brooklyn Union and the Company are entering into an Amended and Restated
Agreement and Plan of Exchange and Merger, dated as of the date hereof (as the
same may be amended from time to time, the "EXCHANGE AGREEMENT"), which
provides, among other things, upon the terms and subject to the conditions
thereof, for the exchange of outstanding shares of capital stock of each of
Brooklyn Union and the Company for newly issued shares of capital stock of a
New York corporation to be formed (the "BINDING SHARE EXCHANGES"), and (ii)
the Company and Brooklyn Union are entering into a certain amended and
restated stock option agreement dated as of the date hereof whereby Brooklyn
Union grants to the Company an option with respect to certain shares of
Brooklyn Union's common stock on the terms and subject to the conditions set
forth therein (the "BROOKLYN UNION STOCK OPTION AGREEMENT");
WHEREAS, as a condition to Brooklyn Union's willingness to enter into the
original Agreement and Plan of Exchange by and among Brooklyn Union, LILCO and
NYECO Corp., dated as of December 29, 1996, Brooklyn Union has requested that
the Company agree, and the Company has so agreed, to grant to Brooklyn Union
an option with respect to certain shares of the Company's common stock, on the
terms and subject to the conditions set forth herein;
WHEREAS, the parties desire to amend and restate the original LILCO Stock
Option Agreement as of the date hereof to reflect the Exchange Agreement.
NOW, THEREFORE, to induce Brooklyn Union to enter into the Exchange
Agreement, and in consideration of the mutual covenants and agreements set
forth herein and in the Exchange Agreement, the parties hereto agree as
follows:
1. GRANT OF OPTION. The Company hereby grants Brooklyn Union an
irrevocable option (the "COMPANY OPTION") to purchase up to 23,981,964
shares, subject to adjustment as provided in Section 10 (such shares being
referred to herein as the "COMPANY SHARES") of common stock, par value
$5.00 per share, of the Company (the "COMPANY COMMON STOCK") (being 19.9%
of the number of shares of Company Common Stock outstanding on the date
hereof) in the manner set forth below at a price (the "EXERCISE PRICE") per
Company Share of $19.725 (which is equal to the Fair Market Value (as
defined below) of a Company Share on the date hereof) payable, at Brooklyn
Union's option, (a) in cash or (b) subject to the Company's having obtained
the approvals of any Governmental Authority required for the Company to
acquire the Brooklyn Union Shares (as defined below) from Brooklyn Union,
which approvals the Company shall use best efforts to obtain, in shares of
common stock, par value $.33 1/3 per share, of Brooklyn Union ("BROOKLYN
UNION SHARES") in either case in accordance with Section 4 hereof.
Notwithstanding the foregoing, in no event shall the number of Company
Shares for which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of Company Common Stock. As used
herein, the "FAIR MARKET VALUE" of any share shall be the average of the
daily closing sales price for such share on the New York Stock Exchange
(the "NYSE") during the 10 NYSE trading days prior to the fifth NYSE
trading day preceding the date such Fair Market Value is to be determined.
Capitalized terms used herein but not defined herein shall have the
meanings set forth in the Exchange Agreement.
2. EXERCISE OF OPTION. The Company Option may be exercised by Brooklyn
Union, in whole or in part, at any time or from time to time after the
Exchange Agreement becomes terminable by Brooklyn Union under circumstances
which could entitle Brooklyn Union to termination fees under either Section
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9.3(a) of the Exchange Agreement (provided that the events specified in
Section 9.3(a)(ii)(x) of the Exchange Agreement shall have occurred,
although the events specified in Section 9.3(a)(ii)(y) thereof need not
have occurred) or Section 9.3(b) of the Exchange Agreement (regardless of
whether the Exchange Agreement is actually terminated or whether there
occurs a closing of any Business Combination involving a Target Party or a
closing by which a Target Party becomes a subsidiary), any such event by
which the Exchange Agreement becomes so terminable by Brooklyn Union being
referred to herein as a "TRIGGER EVENT." The Company shall notify Brooklyn
Union promptly in writing of the occurrence of any Trigger Event, it being
understood that the giving of such notice by the Company shall not be a
condition to the right of Brooklyn Union to exercise the Company Option. In
the event Brooklyn Union wishes to exercise the Company Option, Brooklyn
Union shall deliver to the Company a written notice (an "EXERCISE NOTICE")
specifying the total number of Company Shares it wishes to purchase. Each
closing of a purchase of Company Shares (a "CLOSING") shall occur at a
place, on a date and at a time designated by Brooklyn Union in an Exercise
Notice delivered at least two business days prior to the date of the
Closing. The Company Option shall terminate upon the earlier of: (i) the
Effective Time; (ii) the termination of the Exchange Agreement pursuant to
Section 9.1 thereof (other than upon or during the continuance of a Trigger
Event); or (iii) 180 days following any termination of the Exchange
Agreement upon or during the continuance of a Trigger Event (or if, at the
expiration of such 180 day period the Company Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, 10
business days after such impediment to exercise shall have been removed or
shall have become final and not subject to appeal, but in no event under
this clause (iii) later than April 28, 1999). Notwithstanding the
foregoing, the Company Option may not be exercised if Brooklyn Union is in
material breach of any of its material representations or warranties, or in
material breach of any of its covenants or agreements, contained in this
Agreement or in the Exchange Agreement. Upon the giving by Brooklyn Union
to the Company of the Exercise Notice and the tender of the applicable
aggregate Exercise Price, Brooklyn Union shall be deemed to be the holder
of record of the Company Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Shares shall not then
be actually delivered to Brooklyn Union.
3. CONDITIONS TO CLOSING. The obligation of the Company to issue the
Company Shares to Brooklyn Union hereunder is subject to the conditions,
which (other than the conditions described in clauses (i), (iii) and (iv)
below) may be waived by the Company in its sole discretion, that (i) all
waiting periods, if any, under the HSR Act, applicable to the issuance of
the Company Shares hereunder shall have expired or have been terminated;
(ii) the Company Shares, and any Brooklyn Union Shares which are issued in
payment of the Exercise Price, shall have been approved for listing on the
NYSE upon official notice of issuance; (iii) all consents, approvals,
orders or authorizations of, or registrations, declarations or filings
with, any federal, state or local administrative agency or commission or
other federal, state or local Governmental Authority, if any, required in
connection with the issuance of the Company Shares hereunder shall have
been obtained or made, as the case may be, including, without limitation,
if applicable, the approval of the SEC under Section 10 of the 1935 Act of
the acquisition of the Company Shares by Brooklyn Union and, if applicable,
the acquisition by the Company of the Brooklyn Union Shares constituting
the Exercise Price hereunder; and (iv) no preliminary or permanent
injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect.
4. CLOSING. At any Closing, (a) the Company will deliver to Brooklyn
Union or its designee a single certificate in definitive form representing
the number of the Company Shares designated by Brooklyn Union in its
Exercise Notice, such certificate to be registered in the name of Brooklyn
Union and to bear the legend set forth in Section 11, and (b) Brooklyn
Union will deliver to the Company the aggregate price for the Company
Shares so designated and being purchased by (i) wire transfer of
immediately available funds or certified check or bank check or (ii)
subject to the condition in Section 1(b), a certificate or certificates
representing the number of Brooklyn Union Shares being issued by Brooklyn
Union in consideration thereof, as the case may be. For the purposes of
this Agreement, the number of Brooklyn Union Shares to be delivered to the
Company shall be equal to the quotient obtained by dividing (i) the product
of (x) the number of Company Shares with respect to which the Company
Option is being exercised
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and (y) the Exercise Price by (ii) the Fair Market Value of the Brooklyn
Union Shares on the date immediately preceding the date the Exercise Notice
is delivered to the Company. The Company shall pay all expenses, and any
and all United States federal, state and local taxes and other charges that
may be payable in connection with the preparation, issue and delivery of
stock certificates under this Section 4 in the name of Brooklyn Union or
its designee.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to Brooklyn Union that (a) except as set forth in Section 5.1
of the LILCO Disclosure Schedule, the Company is a corporation duly
organized, validly existing and in active status under the laws of the
State of New York and has the corporate power and authority to enter into
this Agreement and, subject to obtaining the applicable approval of
shareholders of the Company for the repurchase of Company Shares pursuant
to Section 7(a) below under circumstances where Section 513(e) of the NYBCL
would be applicable (the "BUYBACK APPROVALS") and subject to any regulatory
approvals referred to herein and to the provisions of Section 513(a) of the
NYBCL, if applicable, to carry out its obligations hereunder, (b) the
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions
contemplated hereby (other than any required Buyback Approvals), (c) such
corporate action (including the approval of the Board of Directors of the
Company) is intended to render inapplicable to this Agreement and the
Exchange Agreement and the transactions contemplated hereby and thereby,
the provisions of the NYBCL referred to in Section 5.15 of the Exchange
Agreement, (d) this Agreement has been duly executed and delivered by the
Company, constitutes a valid and binding obligation of the Company and,
assuming this Agreement constitutes a valid and binding obligation of
Brooklyn Union, is enforceable against the Company in accordance with its
terms, (e) the Company has taken all necessary corporate action to
authorize and reserve for issuance and to permit it to issue, upon exercise
of the Company Option, and at all times from the date hereof through the
expiration of the Company Option will have reserved, 23,981,964 authorized
and unissued Company Shares, such amount being subject to adjustment as
provided in Section 10, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable, (f) upon delivery of the Company Shares to Brooklyn
Union upon the exercise of the Company Option, Brooklyn Union will acquire
the Company Shares free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever, (g) except as
described in Section 5.4(b) of the Exchange Agreement, the execution and
delivery of this Agreement by the Company does not, and the consummation by
the Company of the transactions contemplated hereby will not, violate,
conflict with, or result in a breach of any provision of, or constitute a
default (with or without notice or lapse of time, or both) under, or result
in the termination of, or accelerate the performance required by, or result
in a right of termination, cancellation, or acceleration of any obligation
or the loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on assets (any such conflict,
violation, default, right of termination, cancellation or acceleration,
loss or creation, a "VIOLATION") of the Company or any of its subsidiaries,
pursuant to, (A) any provision of the certificate of incorporation or by-
laws of the Company, (B) any provisions of any loan or credit agreement,
note, mortgage, indenture, lease, Company benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, which Violation, in
the case of each of clauses (B) and (C), could reasonably be expected to
have a material adverse effect on the Company and its subsidiaries taken as
a whole, (h) except as described in Section 5.4(c) of the Exchange
Agreement or Section 1(b) or Section 3 hereof, the execution and delivery
of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Authority, (i) none of the Company, any of its affiliates or
anyone acting on its or their behalf has issued, sold or offered any
security of the Company to any person under circumstances that would cause
the issuance and sale of the Company Shares, as contemplated by this
Agreement, to be subject to the registration requirements of the Securities
Act as in effect on the date hereof and, assuming the representations of
Brooklyn Union contained in Section 6(h) are true and correct, the
issuance, sale and
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delivery of the Company Shares hereunder would be exempt from the
registration and prospectus delivery requirements of the Securities Act, as
in effect on the date hereof (and the Company shall not take any action
which would cause the issuance, sale and delivery of the Company Shares
hereunder not to be exempt from such requirements), and (j) any Brooklyn
Union Shares acquired pursuant to this Agreement will be acquired for the
Company's own account, for investment purposes only and will not be
acquired by the Company with a view to the public distribution thereof in
violation of any applicable provision of the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF Brooklyn Union. Brooklyn Union
represents and warrants to the Company that (a) Brooklyn Union is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder, (b)
the execution and delivery of this Agreement by Brooklyn Union and the
consummation by Brooklyn Union of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Brooklyn Union and no other corporate proceedings on the part of Brooklyn
Union are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and
delivered by Brooklyn Union and constitutes a valid and binding obligation
of Brooklyn Union, and, assuming this Agreement constitutes a valid and
binding obligation of the Company, is enforceable against Brooklyn Union in
accordance with its terms, (d) prior to any delivery of Brooklyn Union
Shares in consideration of the purchase of Company Shares pursuant hereto,
Brooklyn Union will have taken all necessary corporate action to authorize
for issuance and to permit it to issue such Brooklyn Union Shares, all of
which, upon their issuance and delivery in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable, and
to render inapplicable to the receipt by the Company of the Brooklyn Union
Shares the provisions of the NYBCL referred to in Section 4.15 of the
Exchange Agreement, (e) upon any delivery of such Brooklyn Union Shares to
the Company in consideration of the purchase of Company Shares pursuant
hereto, the Company will acquire the Brooklyn Union Shares free and clear
of all claims, liens, charges, encumbrances and security interests of any
nature whatsoever, (f) except as described in Section 4.4(b) of the
Exchange Agreement, the execution and delivery of this Agreement by
Brooklyn Union does not, and the consummation by Brooklyn Union of the
transactions contemplated hereby will not, violate, conflict with, or
result in the breach of any provision of, or constitute a default (with or
without notice or lapse of time, or both) under, or result in any Violation
by Brooklyn Union or any of its subsidiaries, pursuant to (A) any provision
of the certificate of incorporation or by-laws of Brooklyn Union, (B) any
provisions of any loan or credit agreement, note, mortgage, indenture,
lease, Brooklyn Union benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Brooklyn Union or its properties or assets, which Violation, in the case of
each of its clauses (B) and/or (C), would have a material adverse effect on
Brooklyn Union and its subsidiaries taken as a whole, (g) except as
described in Section 4.4(c) of the Exchange Agreement or Section 1(b) or
Section 3 hereof, the execution and delivery of this Agreement by Brooklyn
Union does not, and the consummation by Brooklyn Union of the transactions
contemplated hereby will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority
and (h) any Company Shares acquired upon exercise of the Company Option
will be acquired for Brooklyn Union's own account, for investment purposes
only and will not be, and the Company Option is not being, acquired by
Brooklyn Union with a view to the public distribution thereof in violation
of any applicable provision of the Securities Act.
7. CERTAIN REPURCHASES.
(a) BROOKLYN UNION PUT. At the request of Brooklyn Union by written
notice at any time during which the Company Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), the Company (or any
successor entity thereof) shall repurchase from Brooklyn Union all or
any portion of the Company Option, at the price set forth in
subparagraph (i) below, or, at the request of Brooklyn Union by written
notice at any time prior to August 31, 1998 (provided that such date
shall be extended to April 28, 1999 under the circumstances where the
date after which either party may terminate the Exchange Agreement
pursuant to Section 9.1(b) of the Exchange Agreement
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has been extended to April 28, 1999), the Company (or any successor
entity thereof) shall repurchase from Brooklyn Union all or any portion
of the Company Shares purchased by Brooklyn Union pursuant to the
Company Option, at the price set forth in subparagraph (ii) below:
(i) the difference between the "MARKET/OFFER PRICE" for shares of
Company Common Stock as of the date Brooklyn Union gives notice of
its intent to exercise its rights under this Section 7 (defined as
the higher of (A) the price per share offered as of such date
pursuant to any tender or exchange offer or other offer with respect
to a Business Combination which was made prior to such date and not
terminated or withdrawn as of such date (the "OFFER PRICE") and (B)
the Fair Market Value of Company Common Stock as of such date (the
"MARKET PRICE")) and the Exercise Price, multiplied by the number of
Company Shares purchasable pursuant to the Company Option (or
portion thereof with respect to which Brooklyn Union is exercising
its rights under this Section 7), but only if the Market/Offer Price
is greater than the Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by
Brooklyn Union per Company Share acquired pursuant to the Company
Option and (B) the difference between the Market/Offer Price and the
Exercise Price, but only if the Market/Offer Price is greater than
the Exercise Price, and (y) the number of Company Shares to be
repurchased pursuant to this Section 7. For purposes of this clause
(ii), the Offer Price shall be the highest price per share offered
pursuant to a tender or exchange offer or other Business Combination
offer during the Repurchase Period prior to the delivery by Brooklyn
Union of a notice of repurchase.
(b) REDELIVERY OF BROOKLYN UNION SHARES. If Brooklyn Union elected to
purchase Company Shares pursuant to the exercise of the Company Option
by the issuance and delivery of Brooklyn Union Shares, then the Company
shall, if so requested by Brooklyn Union, in fulfillment of its
obligation pursuant to clause (a) of Section 7(a)(ii)(x) (that is, with
respect to the Exercise Price only and without limitation to its
obligation to pay additional consideration under clause (b) of Section
7(a)(ii)(x)), redeliver the certificate for such Brooklyn Union Shares
to Brooklyn Union, free and clear of all liens, claims, damages,
charges and encumbrances of any kind or nature whatsoever; provided,
however, that if less than all of the Company Shares purchased by
Brooklyn Union pursuant to the Company Option are to be repurchased
pursuant to this Section 7, then Brooklyn Union shall issue to the
Company a new certificate representing those Brooklyn Union Shares
which are not due to be redelivered to Brooklyn Union pursuant to this
Section 7 as they constituted payment of the Exercise Price for the
Company Shares not being repurchased.
(c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR SHARES. In the event
Brooklyn Union exercises its rights under this Section 7, the Company
shall, within 10 business days thereafter, pay the required amount to
Brooklyn Union in immediately available funds and Brooklyn Union shall
surrender to the Company the Company Option or the certificates
evidencing the Company Shares purchased by Brooklyn Union pursuant
thereto, and Brooklyn Union shall warrant that it owns the Company
Option or such shares and that the Company Option or such shares are
then free and clear of all liens, claims, damages, charges and
encumbrances of any kind or nature whatsoever.
(d) BROOKLYN UNION CALL. If Brooklyn Union has elected to purchase
Company Shares pursuant to the exercise of the Company Option by the
issuance and delivery of Brooklyn Union Shares, notwithstanding that
Brooklyn Union may no longer hold any such Company Shares or that
Brooklyn Union elects not to exercise its other rights under this
Section 7, Brooklyn Union may require, at any time or from time to time
prior to August 31, 1998 (provided that such date shall be extended to
April 28, 1999 under the circumstances where the date after which
either party may terminate the Exchange Agreement pursuant to Section
9.1(b) of the Exchange Agreement has been extended to April 28, 1999),
the Company to sell to Brooklyn Union any such Brooklyn Union Shares at
the Fair Market Value that had been attributed to such Brooklyn Union
Shares pursuant to Section 4 plus interest at the rate of 6.5% per
annum on such amount from the Closing Date relating to the
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exchange of such Brooklyn Union Shares pursuant to Section 4 to the
closing date under this Section 7(d) less any dividends on such
Brooklyn Union Shares paid during such period or declared and payable
to stockholders of record on a date during such period.
(e) REPURCHASE PRICE REDUCED AT BROOKLYN UNION'S OPTION. In the event
the repurchase price specified in Section 7(a) would subject the
purchase of the Company Option or the Company Shares purchased by
Brooklyn Union pursuant to the Company Option to a vote of the
shareholders of the Company pursuant to Section 513(e) of the NYBCL,
then Brooklyn Union may, at its election, reduce the repurchase price
to an amount which would permit such repurchase without the necessity
for such a shareholder vote.
8. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer any shares of
capital stock of the other party acquired by such party pursuant to
this Agreement ("Restricted Shares") and beneficially owned by such
party, other than (i) pursuant to Section 7, or (ii) in accordance with
Section 8(b) or Section 9.
(b) PERMITTED SALES. Following the termination of the Exchange
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders
of the other party, by a majority of the members of the Board of
Directors of such other party which majority shall include a majority
of directors who were directors prior to the announcement of such
tender or exchange offer.
9. REGISTRATION RIGHTS. Following the termination of the Exchange
Agreement, each party hereto (a "DESIGNATED HOLDER") may by written notice
(the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request
the Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates form purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING"). The Registration Notice shall include a certificate executed by
the Designated Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "MANAGER"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good
faith believes that, based on the then prevailing market conditions, it
will be able to sell the Registrable Securities at a per share price equal
to at least 80% of the then Fair Market Value of such shares. The
Registrant (and/or any person designated by the Registrant) shall thereupon
have the option exercisable by written notice delivered to the Designated
Holder within 10 business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the Registrable
Securities proposed to be so sold for cash at a price (the "OPTION PRICE")
equal to the product of (i) the number of Registrable Securities to be so
purchased by the Registrant and (ii) the then Fair Market Value of such
shares. Any such purchase of Registrable Securities by the Registrant (or
its designee) hereunder shall take place at a closing to be held at the
principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within 20 business days after delivery of such
notice. Any payment for the shares to be purchased shall be made by
delivery at the time of such closing of the Option Price in immediately
available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 9 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) neither party shall be entitled to more
than an aggregate of two effective registration statements hereunder and
(ii) the Registrant will not be required to file any such registration
statement during any period of time
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(not to exceed 40 days after such request in the case of clause (A) below
or 90 days in the case of clauses (B) and (C) below) when (A) the
Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and,
in the opinion of counsel to the Registrant, such information would have to
be disclosed if a registration statement were filed at that time; (B) the
Registrant is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such
registration statement; or (C) the Registrant determines, in its reasonable
judgment, that such registration would interfere with any financing,
acquisition or other material transaction involving the Registrant or any
of its affiliates. The Registrant shall use its reasonable best efforts to
cause any Registrable Securities registered pursuant to this Section 9 to
be qualified for sale under the securities or Blue-Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
provided, however, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
The registration rights set forth in this Section 9 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to
such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
A registration effected under this Section 9 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors as
are customary in connection with underwritten public offerings as such
underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the
underwriters in the customary manner, (ii) to enter into an underwriting
agreement in form and substance customary for transactions of such type
with the Manager and the other underwriters participating in such offering
and (iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including, if the Manager deems it
necessary, participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this
Section 9 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects of success of such
offering.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on the Company contained in this Agreement or in the Exchange
Agreement, in the event of any change in Company Common Stock by reason of
stock dividends, splitups, mergers (other than the Binding Share
Exchanges), recapitalizations, combinations, exchange of shares or the
like, the type and number of shares or securities subject to the Company
Option, and the purchase price per share provided in Section 1, shall be
adjusted appropriately to restore to Brooklyn Union its rights hereunder,
including the right to purchase from the Company (or its successors) shares
of Company Common Stock representing 19.9% of the Outstanding Company
Common Stock for the aggregate Exercise Price calculated as of the date of
this Agreement as provided in Section 1.
11. RESTRICTIVE LEGENDS. Each certificate representing shares of Company
Common Stock issued to Brooklyn Union hereunder, and Brooklyn Union Shares,
if any, delivered to the Company at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE AMENDED AND
RESTATED STOCK
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OPTION AGREEMENT, DATED AS OF JUNE 26, 1997, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificates(s) without such reference if Brooklyn
Union or the Company, as the case may be, shall have delivered to the other
party a copy of a letter from the staff of the Securities and Exchange
Commission, or an opinion of counsel, in form and substance satisfactory to
the other party, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions to
this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been
sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference;
and (iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
Certificates representing shares sold in a registered public offering
pursuant to Section 9 shall not be required to bear the legend set forth in
Section 11.
12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the
rights or the obligations of either party hereto are assignable, except by
operation of law, or with the written consent of the other party. Nothing
contained in this Agreement, express or implied, is intended to confer upon
any person other than the parties hereto and their respective permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of Section 9 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall
not be entitled to the registration rights of such party.
13. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate
and irreparable harm or injury would be caused for which money damages
would not be an adequate remedy. Accordingly, each party agrees that, in
addition to other remedies, the other party shall be entitled to an
injunction restraining any violation or threatened violation of the
provisions of this Agreement. In the event that any action should be
brought in equity to enforce the provisions of the Agreement, neither party
will allege, and each party hereby waives the defense, that there is
adequate remedy at law.
14. ENTIRE AGREEMENT. This Agreement, the Brooklyn Union Stock Option
Agreement, the Confidentiality Agreement and the Exchange Agreement
(including the exhibits and schedules thereto) constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the
subject matter hereof and thereof.
15. FURTHER ASSURANCES. Each party will execute and deliver all such
further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
16. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
In the event any court or other competent authority holds any provisions of
this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof. If for any reason any such
court or regulatory agency determines that Brooklyn Union is not permitted
to acquire, or the Company is not permitted to repurchase pursuant to
Section 7, the full number of shares of Company Common Stock provided in
Section 1 hereof (as the same may be adjusted), it is the express intention
of
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the Company to allow Brooklyn Union to acquire or to require the Company to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof. Each party agrees that, should any court
or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any
action inconsistent herewith,or not take any action required herein, the
other party shall not be entitled to specific performance of such provision
or part hereof or to any other remedy, including but not limited to money
damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
17. NOTICES. All notices and other communication hereunder shall be in
writing and shall be deemed given if (i) delivered personally, or (ii) sent
by reputable overnight courier service, or (iii) telecopied (which is
confirmed), or (iv) five days after being mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
A. If to Brooklyn Union, to:
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, New York 11201-3850
Attention: Chief Executive Officer
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan
B. If to the Company, to:
Long Island Lighting Company
175 East Old County Road
Hicksville, New York 11801
Attention: Chief Executive Officer
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance
18. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such
State and without regard to its choice of law principles. Each of the
parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of New York or any New York state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring
any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court
sitting in the State of New York or a New York state court.
19. INTERPRETATION. When a reference is made in this Agreement to a
Section such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation". The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
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20. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which, taken
together, shall constitute one and the same instrument.
21. EXPENSES. Except as otherwise expressly provided herein or in the
Exchange Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or,
in the case of a waiver, by an instrument signed on behalf of the party
waiving compliance.
23. EXTENSION OF TIME PERIODS. The time periods for exercise of certain
rights under Sections 2, 6 and 7 shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such
rights, and for the expiration of all statutory waiting periods; and (ii)
to the extent necessary to avoid any liability under Section 16(b) of the
Exchange Act by reason of such exercise.
24. REPLACEMENT OF COMPANY OPTION. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Agreement, if mutilated, the Company will execute
and deliver a new Agreement of like tenor and date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
The Brooklyn Union Gas Company
/s/ Robert B. Catell
By: _________________________________
Name: Robert B. Catell
Title: Chief Executive Officer
Long Island Lighting Company
/s/ William J. Catacosinos
By: _________________________________
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
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ANNEX C
AMENDED AND RESTATED
BROOKLYN UNION STOCK OPTION AGREEMENT
AMENDED AND RESTATED STOCK OPTION AGREEMENT, dated as of June 26, 1997, by
and between LONG ISLAND LIGHTING COMPANY, a New York corporation ("LILCO"),
and THE BROOKLYN UNION GAS COMPANY, a New York corporation (the "COMPANY").
WHEREAS, concurrently with the execution and delivery of this Agreement, (i)
LILCO and the Company are entering into an Amended and Restated Agreement and
Plan of Exchange and Merger, dated as of the date hereof (as the same may be
amended from time to time, the "EXCHANGE AGREEMENT"), which provides, among
other things, upon the terms and subject to the conditions thereof, for the
exchange of outstanding shares of capital stock of each of LILCO and the
Company for newly issued shares of capital stock of a New York corporation to
be formed (the "BINDING SHARE EXCHANGES"), and (ii) the Company and LILCO are
entering into a certain amended and restated stock option agreement dated as
of the date hereof whereby LILCO grants to the Company an option with respect
to certain shares of LILCO's common stock on the terms and subject to the
conditions set forth therein (the "LILCO STOCK OPTION AGREEMENT");
WHEREAS, as a condition to LILCO's willingness to enter into the original
Agreement and Plan of Exchange by and among Brooklyn Union, LILCO and NYECO
Corp., dated as of December 29, 1996, LILCO has requested that the Company
agree, and the Company has so agreed, to grant to LILCO an option with respect
to certain shares of the Company's common stock, on the terms and subject to
the conditions set forth herein; and
WHEREAS, the parties desire to amend and restate the original Brooklyn Union
Stock Option Agreement as of the date hereof to reflect the Exchange
Agreement.
NOW, THEREFORE, to induce LILCO to enter into the Exchange Agreement, and in
consideration of the mutual covenants and agreements set forth herein and in
the Exchange Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants LILCO an irrevocable option
(the "COMPANY OPTION") to purchase up to 9,948,682 shares, subject to
adjustment as provided in Section 10 (such shares being referred to herein
as the "COMPANY SHARES") of common stock, par value $.33 1/3 per share, of
the Company (the "COMPANY COMMON STOCK") (being 19.9% of the number of
shares of Company Common Stock outstanding on the date hereof) in the
manner set forth below at a price (the "EXERCISE PRICE") per Company Share
of $30.0375 (which is equal to the Fair Market Value (as defined below) of
a Company Share on the date hereof) payable, at LILCO's option, (a) in cash
or (b) subject to the Company's having obtained the approvals of any
Governmental Authority required for the Company to acquire the LILCO Shares
(as defined below) from LILCO, which approvals the Company shall use best
efforts to obtain, in shares of common stock, par value $5.00 per share, of
LILCO ("LILCO SHARES") in either case in accordance with Section 4 hereof.
Notwithstanding the foregoing, in no event shall the number of Company
Shares for which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of Company Common Stock. As used
herein, the "FAIR MARKET VALUE" of any share shall be the average of the
daily closing sales price for such share on the New York Stock Exchange
(the "NYSE") during the 10 NYSE trading days prior to the fifth NYSE
trading day preceding the date such Fair Market Value is to be determined.
Capitalized terms used herein but not defined herein shall have the
meanings set forth in the Exchange Agreement.
2. EXERCISE OF OPTION. The Company Option may be exercised by LILCO, in
whole or in part, at any time or from time to time after the Exchange
Agreement becomes terminable by LILCO under circumstances which could
entitle LILCO to termination fees under either Section 9.3(a) of the
Exchange Agreement (provided that the events specified in Section
9.3(a)(ii)(x) of the Exchange Agreement shall have occurred, although the
events specified in Section 9.3(a)(ii)(y) thereof need not have occurred)
or Section 9.3(b) of the Exchange Agreement (regardless of whether the
Exchange Agreement is actually terminated or whether there occurs a closing
of any Business Combination involving a Target Party or a closing by which
a Target Party becomes a subsidiary), any such event by which the Exchange
Agreement becomes so
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terminable by LILCO being referred to herein as a "TRIGGER EVENT." The
Company shall notify LILCO promptly in writing of the occurrence of any
Trigger Event, it being understood that the giving of such notice by the
Company shall not be a condition to the right of LILCO to exercise the
Company Option. In the event LILCO wishes to exercise the Company Option,
LILCO shall deliver to the Company a written notice (an "EXERCISE NOTICE")
specifying the total number of Company Shares it wishes to purchase. Each
closing of a purchase of Company Shares (a "CLOSING") shall occur at a
place, on a date and at a time designated by LILCO in an Exercise Notice
delivered at least two business days prior to the date of the Closing. The
Company Option shall terminate upon the earlier of: (i) the Effective Time;
(ii) the termination of the Exchange Agreement pursuant to Section 9.1
thereof (other than upon or during the continuance of a Trigger Event); or
(iii) 180 days following any termination of the Exchange Agreement upon or
during the continuance of a Trigger Event (or if, at the expiration of such
180 day period the Company Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, 10 business days
after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal, but in no event under this clause
(iii) later than April 28, 1999). Notwithstanding the foregoing, the
Company Option may not be exercised if LILCO is in material breach of any
of its material representations or warranties, or in material breach of any
of its covenants or agreements, contained in this Agreement or in the
Exchange Agreement. Upon the giving by LILCO to the Company of the Exercise
Notice and the tender of the applicable aggregate Exercise Price, LILCO
shall be deemed to be the holder of record of the Company Shares issuable
upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such Company
Shares shall not then be actually delivered to LILCO.
3. CONDITIONS TO CLOSING. The obligation of the Company to issue the
Company Shares to LILCO hereunder is subject to the conditions, which
(other than the conditions described in clauses (i), (iii) and (iv) below)
may be waived by the Company in its sole discretion, that (i) all waiting
periods, if any, under the HSR Act, applicable to the issuance of the
Company Shares hereunder shall have expired or have been terminated; (ii)
the Company Shares, and any LILCO Shares which are issued in payment of the
Exercise Price, shall have been approved for listing on the NYSE upon
official notice of issuance; (iii) all consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any
federal, state or local administrative agency or commission or other
federal, state or local Governmental Authority, if any, required in
connection with the issuance of the Company Shares hereunder shall have
been obtained or made, as the case may be, including, without limitation,
if applicable, the approval of the SEC under Section 10 of the 1935 Act of
the acquisition of the Company Shares by LILCO and, if applicable, the
acquisition by the Company of the LILCO Shares constituting the Exercise
Price hereunder; and (iv) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. CLOSING. At any Closing, (a) the Company will deliver to LILCO or its
designee a single certificate in definitive form representing the number of
the Company Shares designated by LILCO in its Exercise Notice, such
certificate to be registered in the name of LILCO and to bear the legend
set forth in Section 11, and (b) LILCO will deliver to the Company the
aggregate price for the Company Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check or bank
check or (ii) subject to the condition in Section 1(b), a certificate or
certificates representing the number of LILCO Shares being issued by LILCO
in consideration thereof, as the case may be. For the purposes of this
Agreement, the number of LILCO Shares to be delivered to the Company shall
be equal to the quotient obtained by dividing (i) the product of (x) the
number of Company Shares with respect to which the Company Option is being
exercised and (y) the Exercise Price by (ii) the Fair Market Value of the
LILCO Shares on the date immediately preceding the date the Exercise Notice
is delivered to the Company. The Company shall pay all expenses, and any
and all United States federal, state and local taxes and other charges that
may be payable in connection with the preparation, issue and delivery of
stock certificates under this Section 4 in the name of LILCO or its
designee.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to LILCO that (a) except as set forth in Section 4.1 of the
Brooklyn Union Disclosure
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Schedule, the Company is a corporation duly organized, validly existing and
in active status under the laws of the State of New York and has the
corporate power and authority to enter into this Agreement and, subject to
obtaining the applicable approval of shareholders of the Company for the
repurchase of Company Shares pursuant to Section 7(a) below under
circumstances where Section 513(e) of the NYBCL would be applicable (the
"BUYBACK APPROVALS") and subject to any regulatory approvals referred to
herein and to the provisions of Section 513(a) of the NYBCL, if applicable,
to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or any of the transactions contemplated hereby (other than any
required Buyback Approvals), (c) such corporate action (including the
approval of the Board of Directors of the Company) is intended to render
inapplicable to this Agreement and the Exchange Agreement and the
transactions contemplated hereby and thereby, the provisions of the NYBCL
referred to in Section 4.15 of the Exchange Agreement, (d) this Agreement
has been duly executed and delivered by the Company, constitutes a valid
and binding obligation of the Company and, assuming this Agreement
constitutes a valid and binding obligation of LILCO, is enforceable against
the Company in accordance with its terms, (e) the Company has taken all
necessary corporate action to authorize and reserve for issuance and to
permit it to issue, upon exercise of the Company Option, and at all times
from the date hereof through the expiration of the Company Option will have
reserved, 9,948,682 authorized and unissued Company Shares, such amount
being subject to adjustment as provided in Section 10, all of which, upon
their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, (f) upon delivery of
the Company Shares to LILCO upon the exercise of the Company Option, LILCO
will acquire the Company Shares free and clear of all claims, liens,
charges, encumbrances and security interests of any nature whatsoever, (g)
except as described in Section 4.4(b) of the Exchange Agreement, the
execution and delivery of this Agreement by the Company does not, and the
consummation by the Company of the transactions contemplated hereby will
not, violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or lapse of time, or both)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest or other encumbrance on
assets (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "VIOLATION") of the
Company or any of its subsidiaries, pursuant to, (A) any provision of the
certificate of incorporation or by-laws of the Company, (B) any provisions
of any loan or credit agreement, note, mortgage, indenture, lease, Company
benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license or (C) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or its
properties or assets, which Violation, in the case of each of clauses (B)
and (C), could reasonably be expected to have a material adverse effect on
the Company and its subsidiaries taken as a whole, (h) except as described
in Section 4.4(c) of the Exchange Agreement or Section 1(b) or Section 3
hereof, the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, (i) none of the Company, any
of its affiliates or anyone acting on its or their behalf has issued, sold
or offered any security of the Company to any person under circumstances
that would cause the issuance and sale of the Company Shares, as
contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof and,
assuming the representations of LILCO contained in Section 6(h) are true
and correct, the issuance, sale and delivery of the Company Shares
hereunder would be exempt from the registration and prospectus delivery
requirements of the Securities Act, as in effect on the date hereof (and
the Company shall not take any action which would cause the issuance, sale
and delivery of the Company Shares hereunder not to be exempt from such
requirements), and (j) any LILCO Shares acquired pursuant to this Agreement
will be acquired for the Company's own account, for investment purposes
only and will not be acquired by the Company with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
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6. REPRESENTATIONS AND WARRANTIES OF LILCO. LILCO represents and warrants
to the Company that (a) LILCO is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and
has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, (b) the execution and delivery of this
Agreement by LILCO and the consummation by LILCO of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of LILCO and no other corporate proceedings on the part
of LILCO are necessary to authorize this Agreement or any of the
transactions contemplated hereby, (c) this Agreement has been duly executed
and delivered by LILCO and constitutes a valid and binding obligation of
LILCO, and, assuming this Agreement constitutes a valid and binding
obligation of the Company, is enforceable against LILCO in accordance with
its terms, (d) prior to any delivery of LILCO Shares in consideration of
the purchase of Company Shares pursuant hereto, LILCO will have taken all
necessary corporate action to authorize for issuance and to permit it to
issue such LILCO Shares, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable, and to render inapplicable to the receipt by the
Company of the LILCO Shares the provisions of the NYBCL referred to in
Section 5.15 of the Exchange Agreement, (e) upon any delivery of such LILCO
Shares to the Company in consideration of the purchase of Company Shares
pursuant hereto, the Company will acquire the LILCO Shares free and clear
of all claims, liens, charges, encumbrances and security interests of any
nature whatsoever, (f) except as described in Section 5.4(b) of the
Exchange Agreement, the execution and delivery of this Agreement by LILCO
does not, and the consummation by LILCO of the transactions contemplated
hereby will not, violate, conflict with, or result in the breach of any
provision of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in any Violation by LILCO or any of its
subsidiaries, pursuant to (A) any provision of the certificate of
incorporation or by-laws of LILCO, (B) any provisions of any loan or credit
agreement, note, mortgage, indenture, lease, LILCO benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license
or (C) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to LILCO or its properties or assets, which
Violation, in the case of each of its clauses (B) and/or (C), would have a
material adverse effect on LILCO and its subsidiaries taken as a whole, (g)
except as described in Section 5.4(c) of the Exchange Agreement or Section
1(b) or Section 3 hereof, the execution and delivery of this Agreement by
LILCO does not, and the consummation by LILCO of the transactions
contemplated hereby will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority
and (h) any Company Shares acquired upon exercise of the Company Option
will be acquired for LILCO's own account, for investment purposes only and
will not be, and the Company Option is not being, acquired by LILCO with a
view to the public distribution thereof in violation of any applicable
provision of the Securities Act.
7. CERTAIN REPURCHASES.
(a) LILCO PUT. At the request of LILCO by written notice at any time
during which the Company Option is exercisable pursuant to Section 2
(the "REPURCHASE PERIOD"), the Company (or any successor entity
thereof) shall repurchase from LILCO all or any portion of the Company
Option, at the price set forth in subparagraph (i) below, or, at the
request of LILCO by written notice at any time prior to August 31, 1998
(provided that such date shall be extended to April 28, 1999 under the
circumstances where the date after which either party may terminate the
Exchange Agreement pursuant to Section 9.1(b) of the Exchange Agreement
has been extended to April 28, 1999), the Company (or any successor
entity thereof) shall repurchase from LILCO all or any portion of the
Company Shares purchased by LILCO pursuant to the Company Option, at
the price set forth in subparagraph (ii) below:
(i) the difference between the "MARKET/OFFER PRICE" for shares of
Company Common Stock as of the date LILCO gives notice of its intent
to exercise its rights under this Section 7 (defined as the higher
of (A) the price per share offered as of such date pursuant to any
tender or exchange offer or other offer with respect to a Business
Combination which was made prior to such date and not terminated or
withdrawn as of such date (the "OFFER PRICE") and (B) the Fair
Market Value of Company Common Stock as of such date (the "MARKET
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PRICE")) and the Exercise Price, multiplied by the number of Company
Shares purchasable pursuant to the Company Option (or portion
thereof with respect to which LILCO is exercising its rights under
this Section 7), but only if the Market/Offer Price is greater than
the Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by
LILCO per Company Share acquired pursuant to the Company Option and
(B) the difference between the Market/Offer Price and the Exercise
Price, but only if the Market/Offer Price is greater than the
Exercise Price, and (y) the number of Company Shares to be
repurchased pursuant to this Section 7. For purposes of this clause
(ii), the Offer Price shall be the highest price per share offered
pursuant to a tender or exchange offer or other Business Combination
offer during the Repurchase Period prior to the delivery by LILCO of
a notice of repurchase.
(b) REDELIVERY OF LILCO SHARES. If LILCO elected to purchase Company
Shares pursuant to the exercise of the Company Option by the issuance
and delivery of LILCO Shares, then the Company shall, if so requested
by LILCO, in fulfillment of its obligation pursuant to clause (a) of
Section 7(a)(ii)(x) (that is, with respect to the Exercise Price only
and without limitation to its obligation to pay additional
consideration under clause (b) of Section 7(a)(ii)(x)), redeliver the
certificate for such LILCO Shares to LILCO, free and clear of all
liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever; provided, however, that if less than all of the Company
Shares purchased by LILCO pursuant to the Company Option are to be
repurchased pursuant to this Section 7, then LILCO shall issue to the
Company a new certificate representing those LILCO Shares which are not
due to be redelivered to LILCO pursuant to this Section 7 as they
constituted payment of the Exercise Price for the Company Shares not
being repurchased.
(c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR SHARES. In the event
LILCO exercises its rights under this Section 7, the Company shall,
within 10 business days thereafter, pay the required amount to LILCO in
immediately available funds and LILCO shall surrender to the Company
the Company Option or the certificates evidencing the Company Shares
purchased by LILCO pursuant thereto, and LILCO shall warrant that it
owns the Company Option or such shares and that the Company Option or
such shares are then free and clear of all liens, claims, damages,
charges and encumbrances of any kind or nature whatsoever.
(d) LILCO CALL. If LILCO has elected to purchase Company Shares
pursuant to the exercise of the Company Option by the issuance and
delivery of LILCO Shares, notwithstanding that LILCO may no longer hold
any such Company Shares or that LILCO elects not to exercise its other
rights under this Section 7, LILCO may require, at any time or from
time to time prior to August 31, 1998 (provided that such date shall be
extended to April 28, 1999 under the circumstances where the date after
which either party may terminate the Exchange Agreement pursuant to
Section 9.1(b) of the Exchange Agreement has been extended to April 28,
1999), the Company to sell to LILCO any such LILCO Shares at the Fair
Market Value that had been attributed to such LILCO Shares pursuant to
Section 4 plus interest at the rate of 6.5% per annum on such amount
from the Closing Date relating to the exchange of such LILCO Shares
pursuant to Section 4 to the closing date under this Section 7(d) less
any dividends on such LILCO Shares paid during such period or declared
and payable to stockholders of record on a date during such period.
(e) REPURCHASE PRICE REDUCED AT LILCO'S OPTION. In the event the
repurchase price specified in Section 7(a) would subject the purchase
of the Company Option or the Company Shares purchased by LILCO pursuant
to the Company Option to a vote of the shareholders of the Company
pursuant to Section 513(e) of the NYBCL, then LILCO may, at its
election, reduce the repurchase price to an amount which would permit
such repurchase without the necessity for such a shareholder vote.
8. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer
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any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("Restricted Shares") and beneficially owned
by such party, other than (i) pursuant to Section 7, or (ii) in
accordance with Section 8(b) or Section 9.
(b) PERMITTED SALES. Following the termination of the Exchange
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders
of the other party, by a majority of the members of the Board of
Directors of such other party which majority shall include a majority
of directors who were directors prior to the announcement of such
tender or exchange offer.
9. REGISTRATION RIGHTS. Following the termination of the Exchange
Agreement, each party hereto (a "DESIGNATED HOLDER") may by written notice
(the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request
the Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates form purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING"). The Registration Notice shall include a certificate executed by
the Designated Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "MANAGER"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good
faith believes that, based on the then prevailing market conditions, it
will be able to sell the Registrable Securities at a per share price equal
to at least 80% of the then Fair Market Value of such shares. The
Registrant (and/or any person designated by the Registrant) shall thereupon
have the option exercisable by written notice delivered to the Designated
Holder within 10 business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the Registrable
Securities proposed to be so sold for cash at a price (the "OPTION PRICE")
equal to the product of (i) the number of Registrable Securities to be so
purchased by the Registrant and (ii) the then Fair Market Value of such
shares. Any such purchase of Registrable Securities by the Registrant (or
its designee) hereunder shall take place at a closing to be held at the
principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within 20 business days after delivery of such
notice. Any payment for the shares to be purchased shall be made by
delivery at the time of such closing of the Option Price in immediately
available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 9 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) neither party shall be entitled to more
than an aggregate of two effective registration statements hereunder and
(ii) the Registrant will not be required to file any such registration
statement during any period of time (not to exceed 40 days after such
request in the case of clause (A) below or 90 days in the case of clauses
(B) and (C) below) when (A) the Registrant is in possession of material
non-public information which it reasonably believes would be detrimental to
be disclosed at such time and, in the opinion of counsel to the Registrant,
such information would have to be disclosed if a registration statement
were filed at that time; (B) the Registrant is required under the
Securities Act to include audited financial statements for any period in
such registration statement and such financial statements are not yet
available for inclusion in such registration statement; or (C) the
Registrant determines, in its reasonable judgment, that such registration
would interfere with any financing, acquisition or other material
transaction involving the Registrant or any of its affiliates. The
Registrant shall use its reasonable best efforts to cause any Registrable
Securities registered pursuant to this Section 9 to be qualified for sale
under the securities or Blue-Sky laws of such jurisdictions as the
Designated Holder may reasonably request and shall continue such
registration or
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qualification in effect in such jurisdiction; provided, however, that the
Registrant shall not be required to qualify to do business in, or consent
to general service of process in, any jurisdiction by reason of this
provision.
The registration rights set forth in this Section 9 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to
such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
A registration effected under this Section 9 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors as
are customary in connection with underwritten public offerings as such
underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the
underwriters in the customary manner, (ii) to enter into an underwriting
agreement in form and substance customary for transactions of such type
with the Manager and the other underwriters participating in such offering
and (iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including, if the Manager deems it
necessary, participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this
Section 9 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects of success of such
offering.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on the Company contained in this Agreement or in the Exchange
Agreement, in the event of any change in Company Common Stock by reason of
stock dividends, splitups, mergers (other than the Binding Share
Exchanges), recapitalizations, combinations, exchange of shares or the
like, the type and number of shares or securities subject to the Company
Option, and the purchase price per share provided in Section 1, shall be
adjusted appropriately to restore to LILCO its rights hereunder, including
the right to purchase from the Company (or its successors) shares of
Company Common Stock representing 19.9% of the Outstanding Company Common
Stock for the aggregate Exercise Price calculated as of the date of this
Agreement as provided in Section 1.
11. RESTRICTIVE LEGENDS. Each certificate representing shares of Company
Common Stock issued to LILCO hereunder, and LILCO Shares, if any, delivered
to the Company at a Closing, shall include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE AMENDED AND
RESTATED STOCK OPTION AGREEMENT, DATED AS OF JUNE 16, 1997, A COPY OF
WHICH MAY BE OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificates(s) without such reference if LILCO or
the Company, as the case may be, shall have delivered to the other party a
copy of a letter from the staff of the Securities and Exchange Commission,
or an opinion of counsel, in form and substance satisfactory to the other
party, to the effect that such legend is not required for purposes of the
Securities Act; (ii) the reference to the provisions to this Agreement in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances
that do not require the retention of such reference;
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and (iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
Certificates representing shares sold in a registered public offering
pursuant to Section 9 shall not be required to bear the legend set forth in
Section 11.
12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the
rights or the obligations of either party hereto are assignable, except by
operation of law, or with the written consent of the other party. Nothing
contained in this Agreement, express or implied, is intended to confer upon
any person other than the parties hereto and their respective permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of Section 9 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall
not be entitled to the registration rights of such party.
13. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate
and irreparable harm or injury would be caused for which money damages
would not be an adequate remedy. Accordingly, each party agrees that, in
addition to other remedies, the other party shall be entitled to an
injunction restraining any violation or threatened violation of the
provisions of this Agreement. In the event that any action should be
brought in equity to enforce the provisions of the Agreement, neither party
will allege, and each party hereby waives the defense, that there is
adequate remedy at law.
14. ENTIRE AGREEMENT. This Agreement, the LILCO Stock Option Agreement,
the Confidentiality Agreement and the Exchange Agreement (including the
exhibits and schedules thereto) constitute the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede
all other prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter hereof and
thereof.
15. FURTHER ASSURANCES. Each party will execute and deliver all such
further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
16. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
In the event any court or other competent authority holds any provisions of
this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof. If for any reason any such
court or regulatory agency determines that LILCO is not permitted to
acquire, or the Company is not permitted to repurchase pursuant to Section
7, the full number of shares of Company Common Stock provided in Section 1
hereof (as the same may be adjusted), it is the express intention of the
Company to allow LILCO to acquire or to require the Company to repurchase
such lesser number of shares as may be permissible, without any amendment
or modification hereof. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith,or not take any action required herein, the other
party shall not be entitled to specific performance of such provision or
part hereof or to any other remedy, including but not limited to money
damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
17. NOTICES. All notices and other communication hereunder shall be in
writing and shall be deemed given if (i) delivered personally, or (ii) sent
by reputable overnight courier service, or
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(iii) telecopied (which is confirmed), or (iv) five days after being mailed
by registered or certified mail (return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall
be specified by like notice):
A.If to LILCO, to:
Long Island Lighting Company
175 East Old County Road
Hicksville, New York 11801
Attention: Chief Executive Officer
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance
B.If to the Company, to:
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, New York 11201-3850
Attention: Chief Executive Officer
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan
18. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such
State and without regard to its choice of law principles. Each of the
parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of New York or any New York state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring
any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court
sitting in the State of New York or a New York state court.
19. INTERPRETATION. When a reference is made in this Agreement to a
Section such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation". The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which, taken
together, shall constitute one and the same instrument.
21. EXPENSES. Except as otherwise expressly provided herein or in the
Exchange Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or,
in the case of a waiver, by an instrument signed on behalf of the party
waiving compliance.
C-9
<PAGE>
23. EXTENSION OF TIME PERIODS. The time periods for exercise of certain
rights under Sections 2, 6 and 7 shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such
rights, and for the expiration of all statutory waiting periods; and (ii)
to the extent necessary to avoid any liability under Section 16(b) of the
Exchange Act by reason of such exercise.
24. REPLACEMENT OF COMPANY OPTION. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Agreement, if mutilated, the Company will execute
and deliver a new Agreement of like tenor and date.
C-10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
LONG ISLAND LIGHTING COMPANY
/s/ William J. Catacosinos
By: _________________________________
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
THE BROOKLYN UNION GAS COMPANY
/s/ Robert B. Catell
By: _________________________________
Name: Robert B. Catell
Title: Chief Executive Officer
C-11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX D
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BL HOLDING CORP.,
LONG ISLAND LIGHTING COMPANY,
LONG ISLAND POWER AUTHORITY
AND
LIPA ACQUISITION CORP.
DATED AS OF JUNE 26, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER; RELATED TRANSACTIONS
<TABLE>
<C> <S> <C>
Section 1.1 The Merger.................................................
Section 1.2 Effect of the Merger.......................................
Section 1.3 Effective Time of the Merger...............................
Section 1.4 Related Transactions.......................................
Section 1.5 Description of Assets......................................
Section 1.6 Liabilities................................................
Section 1.7 Transition Work............................................
Section 1.8 Resignations...............................................
Section 1.9 Formation of LIPA Sub......................................
Section 1.10 Charter Amendment..........................................
Section 1.11 Certain Other Preferred Stock..............................
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock......................
Section 2.2 Dissenting Shares..........................................
Section 2.3 Issuance of Parent Shares..................................
ARTICLE III
CLOSING
Section 3.1 Closing....................................................
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1 Organization and Qualification.............................
Section 4.2 Subsidiaries...............................................
Section 4.3 Capitalization.............................................
Section 4.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................
Section 4.5 Reports and Financial Statements...........................
Section 4.6 Absence of Certain Changes or Events.......................
Section 4.7 Litigation.................................................
Section 4.8 Registration Statement and Proxy Statement.................
Section 4.9 Environmental Protection...................................
Section 4.10 Regulation as a Utility....................................
Section 4.11 Vote Require...............................................
Section 4.12 Insurance..................................................
Section 4.13 Disclosure.................................................
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AUTHORITY AND LIPA SUB
Section 5.1 Organization...............................................
Section 5.2 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................
Section 5.3 Disclosure.................................................
Section 5.4 Ownership of LIPA Sub; No Prior Activities.................
Section 5.5 Ownership of Company Common Stock..........................
ARTICLE VI
COVENANTS
Section 6.1 Covenants of Parent and Company............................
Section 6.2 Covenants of Authority and LIPA Sub........................
</TABLE>
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<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
<TABLE>
<C> <S> <C>
Section 7.1 Access to Information.......................................
Section 7.2 Proxy Statement and Registration Statement..................
Section 7.3 Shareholder Approval........................................
Section 7.4 Disclosure Schedule.........................................
Section 7.5 Regulatory Matters..........................................
Section 7.6 Public Announcements........................................
Section 7.7 Confidentiality.............................................
Section 7.8 Certain Litigation..........................................
Section 7.9 Expenses....................................................
Section 7.10 Further Assurances..........................................
Section 7.11 Purchase Price Allocation...................................
Section 7.12 Receipt of Consents and Approvals...........................
Section 7.13 Certain Other Matters.......................................
Section 7.14 Opinions of Counsel.........................................
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligations......................
Section 8.2 Conditions to Obligations of Authority and LIPA Sub.........
Section 8.3 Conditions to Obligations of Parent and Company.............
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination.................................................
Section 9.2 Effect of Termination.......................................
Section 9.3 Survival....................................................
Section 9.4 Amendment...................................................
Section 9.5 Extension; Waiver...........................................
ARTICLE X
STANDSTILL
Section 10.1 Standstill..................................................
ARTICLE XI
MISCELLANEOUS
Section 11.1 Certain Definitions.........................................
Section 11.2 Notices.....................................................
Section 11.3 Descriptive Headings........................................
Section 11.4 Counterparts................................................
Section 11.5 Entire Agreement; Assignment................................
Section 11.6 Governing Law...............................................
Section 11.7 Specific Performance........................................
Section 11.8 Parties in Interest.........................................
Section 11.9 Severability................................................
Section 11.10 Alternative Dispute Resolution..............................
</TABLE>
-ii-
<PAGE>
<TABLE>
<C> <S>
Schedule A Transferred Assets
Schedule B Principles and Procedures for Finalizing the Transferred Asset
Schedule
Schedule C Transition Work
Schedule D Tax Matters
Schedule E Employment Matters
Schedule F Future Rights
Schedule G Retained Assets
Exhibit A Form of Management Services Agreement
Exhibit B Form of Power Supply Agreement
Exhibit C Form of Energy Management Agreement
Exhibit D Form of Generation Purchase Right Agreement
Exhibit E Guaranty Agreement
Exhibit F Form of Parent Liabilities Undertaking
Exhibit G Form of Authority Liabilities Undertaking
Exhibit H Form of Certificate of Designation
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 26, 1997,
by and among BL HOLDING CORP., a corporation to be formed as a New York
corporation as contemplated herein ("Parent"), LONG ISLAND LIGHTING COMPANY, a
New York corporation ("Company"), LONG ISLAND POWER AUTHORITY, a corporate
municipal instrumentality and political subdivision of the State of New York
("Authority"), and LIPA ACQUISITION CORP., a New York corporation ("LIPA
Sub").
W I T N E S S E T H
WHEREAS, Authority is authorized under the Long Island Power Authority Act,
Public Authorities Law Section 1020 et seq. (the "Act") to acquire all or any
part of Company's securities or assets; and
WHEREAS, the Act confers upon Authority the power to condemn the securities
and/or assets of Company, including the common stock of Company to be acquired
in the proposed transaction, and Authority has previously publicly announced
its intention to consider exercising its condemnation power to acquire the
common stock or assets of Company if a negotiated transaction cannot be
achieved; and
WHEREAS, The Brooklyn Union Gas Company, a New York corporation ("BU"),
Company and Parent have entered into an Amended and Restated Agreement and
Plan of Exchange and Merger, dated as of June 26, 1997 (the "Exchange
Agreement"), which provides for the business combination of BU and Company as
peer firms and the formation of Parent as a holding company to manage their
combined businesses; and
WHEREAS, Authority, Company and BU have undertaken negotiations as to
various methods of accomplishing the objectives set forth in the Act and in
connection with such negotiations, the parties have reached definitive
agreement as to the transactions described herein; and
WHEREAS, the Boards of Directors of Company and LIPA Sub and the Board of
Trustees of Authority have each determined that it is advisable for Authority
to cause LIPA Sub to merge with and into Company upon the terms and subject to
the conditions set forth herein; and
WHEREAS, in furtherance of such combination, the Boards of Directors of
Company and LIPA Sub and the Board of Trustees of Authority have each approved
the merger (the "Merger") of LIPA Sub with and into Company, in accordance
with the applicable provisions of the New York Business Corporation Law (the
"NYBCL"), and upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements, and conditions contained
herein, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER; RELATED TRANSACTIONS
Section 1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), LIPA Sub shall
be merged with and into Company (the "Merger") in accordance with the laws of
the State of New York. Company shall be the surviving corporation in the
Merger and shall continue its corporate existence under the laws of the State
of New York. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
Section 1.2 Effect of the Merger. At the Effective Time, (i) the certificate
of incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and in such
certificate of incorporation and (ii) the by-laws of Company, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Corporation until thereafter amended as provided by law, in the certificate of
incorporation of the Surviving Corporation and in such by-laws. Subject to the
foregoing, the additional effects of the Merger shall be as provided in the
applicable provisions of the NYBCL.
D-1
<PAGE>
Section 1.3 Effective Time of the Merger. As promptly as practicable after
the satisfaction or waiver of the conditions set forth in Article VIII and the
consummation of the transactions contemplated by Section 1.4(d), the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the NYBCL (the "Certificate of Merger"), together
with any required related certificates, with the Secretary of State of the
State of New York, in such form as required by, and executed in accordance
with the relevant provisions of, the NYBCL (the time of such filing being the
"Effective Time").
Section 1.4 Related Transactions. In addition to the Merger, the following
transactions will be consummated at or prior to the Closing (as defined
below):
(a) Formation of Subsidiaries. Parent and Company shall take all necessary
action to form prior to the Closing such subsidiaries (which may be limited
liability companies) of Parent (the "Transferee Subsidiaries") which, at the
direction of Parent, will, as applicable, (i) enter into at the Closing a
management services agreement in the form of Exhibit A attached hereto (the
"Management Services Agreement"), a power supply agreement in the form of
Exhibit B attached hereto (the "Power Supply Agreement"), an energy management
agreement in the form of Exhibit C attached hereto (the "Energy Management
Agreement"), a generation purchase right agreement in the form of Exhibit D
attached hereto (the "Generation Purchase Right Agreement") and a guaranty
agreement in the form of Exhibit E attached hereto (the "Guaranty Agreement")
and/or (ii) receive the assets and properties of Company set forth on Schedule
A attached hereto (the "Transferred Assets"). Parent, upon written notice to
the parties hereto, may direct any portion of the Transferred Assets to be
distributed to a particular Transferee Subsidiary; provided, however, that the
Transferee Subsidiary which is designated by Parent to receive the assets
contemplated by the Generation Purchase Right Agreement to be subject to
Company's rights thereunder shall be the Transferee Subsidiary that enters
into the Generation Purchase Right Agreement.
(b) Company shall, reasonably prior to the anticipated Closing Date, form a
new New York corporation to act as Parent hereunder and to own, directly or
indirectly, all of the stock or other equity interests of the Transferee
Subsidiaries, shall provide Authority and LIPA Sub with written notice of such
formation and shall cause such new corporation to execute and deliver a
counterpart hereof, whereupon such new corporation shall become Parent for all
purposes hereof and each other Basic Agreement (as hereinafter defined).
(c) Company will use reasonable efforts to transfer to a wholly-owned
subsidiary of Company its ownership interest in the Nine Mile Point Two
Nuclear Power Plant and its interest in all related nuclear fuel and nuclear
decommissioning trust funds ("Nine Mile"), but Company's failure to obtain any
required consent thereto of any governmental agency or other owner of any
interest therein shall not constitute a breach of this Agreement.
(d)(i) Immediately prior to the Effective Time, Company shall transfer the
Transferred Assets to the Transferee Subsidiaries in exchange for, and Parent
shall deliver to Company, (i) the Designated Number (as hereinafter defined)
of shares of the common stock, par value $0.01 per share, of Parent ("Parent
Common Stock") and (ii) up to $75,000,000 face amount of Parent preferred
stock in an aggregate face amount and having the rights and terms to be
specified in a notice delivered by Parent to each party hereto not later than
the date on which the notices of redemption are issued pursuant to Section
1.11 (the "New Parent Preferred Stock"). The "Designated Number" shall be the
number of shares of Parent Common Stock specified in a notice delivered by
Parent to each party hereto not later than the date on which such notices of
redemption are issued pursuant to Section 1.11 and representing Parent's good
faith estimate of the net fair market value of the Transferred Assets less the
face amount of New Parent Preferred Stock delivered by Parent pursuant to this
Section 1.4(d). Concurrently with such delivery and immediately prior to the
Effective Time, Company shall sell for cash in a private placement all shares
of New Parent Preferred Stock to one or more persons or entities which are not
otherwise shareholders of Company or BU at the Effective Time.
(ii) Notwithstanding clause (i) of this Section 1.4(d), if the BUGLILCO
Transactions (as defined in Section 2.1(b)) have been consummated prior to
the Effective Time, the transfer of the Transferred Assets as contemplated
by such clause (i) shall be made without the delivery by Parent of any
Parent Common Stock or New Parent Preferred Stock.
D-2
<PAGE>
Section 1.5 Description of Assets. To the extent that Schedule A hereto
(the "Transferred Asset Schedule") does not provide for a full legal
description of the Transferred Assets referred to therein, the parties hereto
shall revise the Transferred Asset Schedule prior to the Closing in accordance
with the principles and procedures set forth on Schedule B attached hereto.
Section 1.6 Liabilities.
(a) At the Closing, Parent and each Transferee Subsidiary will execute and
deliver to Authority and Surviving Corporation a liabilities undertaking and
indemnification agreement in substantially the form of Exhibit F attached
hereto (the "Parent Liabilities Undertaking").
(b) At the Closing, the Authority and the Surviving Corporation will execute
and deliver to Parent and each Transferee Subsidiary a liabilities undertaking
and indemnification agreement in substantially the form of Exhibit G attached
hereto (the "Authority Liabilities Undertaking").
Section 1.7 Transition Work. The parties agree to take the respective
actions set forth on Schedule C attached hereto to prepare for an orderly
transition under the Basic Agreements at the Effective Time.
Section 1.8 Resignations. Parent shall cause each officer and director of
Company to resign from each position any such person then holds with Company,
effective at the Effective Time.
Section 1.9 Formation of LIPA Sub. Reasonably prior to the anticipated
Closing Date, authority shall cause LIPA Sub to be duly incorporated as a New
York corporation and shall cause LIPA Sub to execute a counterpart of this
Agreement. Each representation and warranty set forth in Article V with
respect to LIPA Sub shall be deemed to have been made on the date of such
execution.
Section 1.10 Charter Amendment. Authority shall cause the Amended and
Restated Certificate of Incorporation of Company to be amended as contemplated
in the request for a ruling from the Internal Revenue Service with respect to
Section 115 of the Internal Revenue Code of 1986, as amended (the "Code"), not
later than the tenth business day after the Effective Time.
Section 1.11 Certain Other Preferred Stock. Promptly after all conditions to
the Closing set forth in Article VIII have been satisfied or waived in
accordance therewith (other than Section 8.1(b), provided Company has received
assurances satisfactory to Company that such condition can be satisfied),
Company shall issue notices of redemption for all outstanding shares of
Company Preferred Stock (as defined in Section 4.3) (other than the Series AA
Preferred Stock and the other series thereof specifically referred to in
Section 2.1(c)(iii)) and shall pay all amounts due in respect of such
redemption as promptly as practicable in accordance with the applicable terms
of Company's Amended and Restated Certificate of Incorporation.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
capital stock of Parent, Company or LIPA Sub:
(a) Cancellation of Certain Stock. (i) Each share of Company Common Stock
and each share of Company Preferred Stock that is owned by Company as treasury
stock, and each share of Company Preferred Stock owned by any direct or
indirect wholly owned Subsidiary (as defined in Section 4.1) of Parent
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
be cancelled and retired without payment of any consideration therefor and
cease to exist.
(ii) Each share of the common stock of LIPA Sub, by virtue of the Merger
and without any action on the part of the holder thereof, shall be
cancelled and converted into the right to receive one fully paid and,
subject to Section 630 of the NYBCL, non-assessable share of common stock
of the Surviving Corporation.
D-3
<PAGE>
(b) Treatment of Company Common Stock. (i) Each issued and outstanding share
of Company Common Stock, other than shares cancelled pursuant to Section
2.1(a) and Company Dissenting Shares (as defined in Section 2.2), shall be
cancelled and converted into the right to receive (x) an amount of cash equal
to the Cash Purchase Price (as defined in Section 2.1(d)(i)) divided by the
number of shares of Company Common Stock outstanding on the Closing Date (the
"Common Stock Conversion Amount") and (y) a number of shares of Parent Common
Stock (the "Transferred Assets Stock Portion") equal to the number of shares
of Parent Common Stock received by Company pursuant to clause (i) of Section
1.4(d) divided by the number of shares of Company Common Stock outstanding on
the Closing Date. Each holder of any such share of Company Common Stock shall
be deemed hereby to have appointed the Exchange Agent (as defined in Section
2.3(a)) as its agent to subscribe for shares of Parent Common Stock by
applying the aggregate Common Stock Conversion Amount for such purchase. The
number of shares of Parent Common Stock to be purchased for the Common Stock
Conversion Amount shall be (x) 0.880 shares of Parent Common Stock less the
Transferred Assets Stock Portion if the transactions contemplated by the
Exchange Agreement (the "BUGLILCO Transactions") will be consummated
contemporaneously with the transactions contemplated hereby or (y) one share
of Parent Common Stock less the Transferred Assets Stock Portion if the
BUGLILCO Transactions will not be consummated contemporaneously with the
transactions contemplated hereby. Upon such cancellation, all such shares of
Company Common Stock shall cease to exist, and each holder of a certificate
formerly representing any such shares shall cease to have any rights with
respect thereto, except the right to receive Parent Common Stock purchased
pursuant to the second sentence of this Section 2.1(b) and distributed
pursuant to clause (y) of the first sentence of this Section 2.1(b).
(ii) Notwithstanding clause (i) of this Section 2.1(b), if the BUGLILCO
Transactions have been consummated prior to the Effective Time, each issued
and outstanding share of Company Common Stock, shall be cancelled and
converted into the right to receive only an amount of cash equal to the
Common Stock Conversion Amount and the transactions contemplated by the
second and third sentences of such clause (i) shall not occur.
(c) Treatment of Company Preferred Stock. (i) Each issued and outstanding
share of Series AA Preferred Stock other than shares cancelled pursuant to
Section 2.1(a) and Company Dissenting Shares shall be cancelled and converted
into the right to receive one fully paid and, subject to Section 630 of the
NYBCL, non-assessable share of preferred stock, par value $25 per share, of
Parent ("Parent Preferred Stock") with identical rights (including dividend
rates) and designations to the Series AA Preferred Stock as set forth in the
Certificate of Designation attached hereto as Exhibit H. Upon such conversion,
each holder of a certificate formerly representing any shares of Series AA
Preferred Stock shall cease to have any rights with respect thereto, except
the right to receive the shares of Parent Preferred Stock in consideration
therefor upon the surrender of such certificate in accordance with Section
2.3.
(ii) Each issued and outstanding share of Company Preferred Stock that is
subject to optional redemption by Company at or before the Closing Date
(other than shares cancelled pursuant to Section 2.1(a) (collectively,
"Redeemable Preferred Stock") shall be called for redemption by Company as
provided in Section 1.11 and all such shares shall be redeemed for cash by
Company in accordance with the terms applicable to such shares. The
aggregate amount of accrued but unpaid dividends and redemption premiums
payable by Company in respect of such redemptions (the "Aggregate
Redemption Premium") shall be paid by Parent to Company not later than two
business days prior to the date the applicable redemption price is payable.
(iii) Each issued and outstanding share of Company Preferred Stock (other
than shares cancelled pursuant to Section 2.1(a), Company Dissenting
Shares, shares of Series AA Preferred Stock and Redeemable Preferred Stock)
(collectively, "Nonredeemable Preferred Stock") shall be cancelled and
converted into the right to receive cash in the amount of the sum of (x)
the Make-Whole Amount (as hereinafter defined) and (y) accrued but unpaid
dividends in respect of such share through the Closing Date. As used
herein, "Make-Whole Amount" with respect to each share of Nonredeemable
Preferred Stock means an amount equal to the present value of (A) the face
or liquidation preference amount, whichever is applicable, of such share
and (B) the remaining dividend payments due on such share between the
Closing
D-4
<PAGE>
Date and the earliest date on which Company may redeem such share, computed
using a discount rate equal to the applicable Fair Market Rate divided by
0.95. "Fair Market Rate" is defined as the Generic General Obligation Fair
Market Yield for Baa rated Low/Medium Coupon General Municipal Obligations
at the time of the computation as reported on Bloomberg, with a maturity
most nearly equal to the period between cancellation and final redemption
of such series of Non-redeemable Preferred Stock. The period between
cancellation and redemption refers to the period between the Closing Date
and: (A) August 1, 2002, with respect to the Series CC Preferred Stock, (B)
March 1, 1999, with respect to the Series GG Preferred Stock, (C) May 1,
2001, with respect to the Series QQ Preferred Stock, and (D) October 16,
2018, with respect to the Series UU Preferred Stock. The amount by which
the aggregate amount payable pursuant to this Section 2.1(c)(iii) exceeds
100% of the aggregate face or liquidation preference amounts, whichever is
applicable, for all shares of Nonredeemable Preferred Stock shall be paid
by Parent to the Surviving Corporation at the Effective Time.
(d) Cash Purchase Price; Adjustment. (i) The "Cash Purchase Price" to be
paid by Authority shall be $2,497,500,000.
(ii) The Cash Purchase Price has been determined based upon the net book
value of the Retained Assets (as defined in Section 4.4(b)) of
$2,500,800,000 as set forth in the pro forma consolidated balance sheet of
Company as of December 31, 1997 prepared by Company (the "Pro Forma Balance
Sheet"). The Cash Purchase Price is based upon the assumption that the
total long-term indebtedness of Company on the Closing Date shall not
exceed $3,576,000,000 (the "Retained Debt Amount"). The Retained Debt
Amount shall be adjusted in accordance with the adjustment referred to in
Section 2.1(d)(vi) (the "Adjustment").
(iii) No later than 60 days after the Closing Date, Parent shall prepare
and deliver to Authority, with a copy to Authority's independent
accountants, Price Waterhouse LLP ("Price Waterhouse"), the audited
consolidated balance sheet of Company as of the Closing Date (the "Closing
Date Balance Sheet") and a statement, as of the Closing Date (the
"Statement"), setting forth the amount of the Adjustment and the
calculations thereof in reasonable detail and showing the differences
between each account contained in the Pro Forma Balance Sheet and the
corresponding account in the Closing Date Balance Sheet. The Closing Date
Balance Sheet and the Statement shall be prepared in accordance with
generally accepted accounting principles used by Company in the preparation
of its financial statements for the year ended December 31, 1996 ("GAAP"),
using allocation procedures consistent with the procedures used by Company
to prepare the Pro Forma Balance Sheet and its audited historical financial
statements. During the period required to prepare the Closing Date Balance
Sheet, Surviving Corporation will make available the books and records of
Surviving Corporation to Parent, its authorized representatives and
Parent's independent auditors, Ernst & Young ("E&Y").
(iv) During the 60-day period following receipt by Authority of the
Closing Date Balance Sheet and the Statement, Parent shall make available
and shall direct E&Y to make available to Authority and Price Waterhouse
copies of the working papers, books and records used in the preparation of
the Closing Date Balance Sheet and the Statement, as reasonably requested
by Authority. The Closing Date Balance Sheet and the Statement shall become
final and binding upon the parties at the close of business on the sixtieth
day following receipt thereof by Authority, except to the extent that
Authority gives written notice of its disagreement with the Closing Date
Balance Sheet or the Statement ("Notice of Disagreement") to Parent prior
to such date, or if such day is not a business day, the next following
business day. Any Notice of Disagreement shall specify in reasonable detail
the nature of any disagreement so asserted.
(v) During the 30-day period following the delivery of a Notice of
Disagreement, Parent and Authority shall seek in good faith to resolve in
writing any differences which they may have with respect to the matters
specified in the Notice of Disagreement. During such period, Parent and E&Y
shall have access to the working papers of Price Waterhouse prepared in
connection with their analysis of any matter specified in the Notice of
Disagreement, as reasonably requested by Parent, and Authority and Price
Waterhouse shall have access to the working papers of E&Y prepared in
connection with the Closing Date Balance Sheet and the Statement, as
reasonably requested by Authority. At the end of such 30-day period, Parent
and Authority
D-5
<PAGE>
shall submit to an independent accounting firm (the "Accounting Firm") for
review and resolution of any and all matters which remain in dispute and
which were included in the Notice of Disagreement. The Accounting Firm
shall be KPMG Peat Marwick or, if such firm is unable or unwilling to act,
such other nationally recognized independent public accounting firm as
shall be agreed upon by Parent and Authority in writing. If Parent and
Authority do not agree on the selection of a nationally recognized
independent accounting firm, Price Waterhouse and E&Y shall select a third
accounting firm to act as the Accounting Firm hereunder. The Adjustment as
determined by Parent, as modified (if at all) by resolution of Parent and
Authority or by the Accounting Firm, is referred to herein as the "Final
Adjustment." The determination of the Accounting Firm as to such matters
shall be final and binding on the parties hereto, and Parent and Authority
agree that judgment may be entered upon the determination of the Accounting
Firm in any court having jurisdiction over the party against which such
determination is to be enforced. The fees and expenses of the Accounting
Firm incurred pursuant to this Section 2.1(d)(v) shall be borne by Parent
and Authority in inverse proportion as they may prevail on matters resolved
by the Accounting Firm, which proportionate allocations shall also be
determined by the Accounting Firm at the time the determination of the
Accounting Firm is rendered on the merits of the matters submitted. The
fees and disbursements of E&Y incurred in connection with their
certification of the Closing Date Balance Sheet and the Statement and
review of any Notice of Disagreement shall be borne by Parent and the fees
and disbursements of Price Waterhouse incurred in connection with their
review of the Closing Date Balance Sheet, and the Statement shall be borne
by Surviving Corporation or Authority.
(vi) The Retained Debt Amount shall be (A) increased by the amount, if
any, by which the net book value of the Retained Assets exceeds
$2,500,800,000 or (B) decreased by the amount, if any, by which the net
book value of the Retained Assets is less than $2,500,800,000.
(vii) The Transferred Assets shall include all cash held by Company at
the Closing except for the net proceeds of the sale of New Parent Preferred
Stock. The accounts payable retained by Company immediately following the
Closing shall be $101.7 million plus or minus the New Parent Preferred
Stock Adjustment as hereinafter defined. To the extent that the amount of
such net proceeds from the sale of the New Parent Preferred Stock is more
(the "Excess") or less than $75 million (the "Shortfall") the accounts
payable retained by the Company immediately following the Closing shall be
increased or decreased by the amount of the Excess or Shortfall,
respectively, (the "New Parent Preferred Stock Agreement").
(e) Retained Debt. At the Closing, Parent shall execute and deliver and
shall cause each Transferee Subsidiary to execute and deliver, to Company such
promissory notes as shall have an aggregate principal amount equal to the
excess, if any, of (i) the indebtedness of Company outstanding on the Closing
Date (the "Closing Date Debt Amount") over (ii) the Retained Debt Amount and
as shall have such rates and maturities (including, without limitation,
accelerated maturities resulting from default and voluntary and mandatory
prepayments) as shall correspond, to each portion of debt underlying the
indebtedness of Company on the Closing Date (the "Promissory Notes");
provided, however, that such interest and principal payment dates shall be
adjusted to require payment by Parent, 30 days prior to the corresponding
payment dates on the underlying debt, of an amount which, including amounts
assured to be earned by Authority while such funds are held by it, will be
sufficient to make the corresponding payments. The aggregate excess principal
amount shall be allocated to each Promissory Note on a pro rata basis such
that the ratio of (x) the principal amount of each Promissory Note to (y) the
aggregate excess principal amount shall correspond to the ratio of (A) the
principal amount of the corresponding underlying portion of debt to (B) the
Closing Date Debt Amount. The Closing Date Debt Amount shall, for the purpose
of calculating the aggregate principal amount of such Promissory Notes, be the
amount set forth in a certificate signed by the Chief Financial Officer of
Company and delivered to Parent and Authority on the Closing Date. Such amount
shall be reviewed by E&Y in accordance with Section 2.1(d)(iii) and the actual
amount thereof shall be set forth in the Statement. The actual amount shall be
subject to review by Price Waterhouse, in accordance with the procedures set
forth in Section 2.1(d)(iv), with any disagreements being resolved in
accordance with the procedures set forth in Section 2.1(d)(v). Upon the final
determination of such amount, the Promissory Notes shall be adjusted on a pro
rata basis to reflect the principal amount so determined.
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(f) Credit Rating. (i) If, at any time when any Promissory Notes are
outstanding, a Material Decline in Parent's Credit Standing (as defined below)
occurs, then within 10 days after such occurrence, Parent shall provide credit
enhancement of the Promissory Notes hereunder at its sole cost and expense in
the form of a letter of credit securing the Promissory Notes hereunder in a
face amount equal to the aggregate outstanding balances of the Promissory
Notes, issued by a financial institution whose long-term senior debt is or
would be rated "A", or better by at least two nationally recognized rating
services.
(ii) For purposes of this Section, a "Material Decline in Parent's Credit
Standing" shall be deemed to have occurred if (1) Parent has long-term
senior debt outstanding which is rated by a nationally recognized rating
service and Parent's long-term senior debt outstanding is not rated at
least "A" by two or more such rating services, or (2) in the sole
reasonable opinion of the Authority, in the event that Parent does not have
long-term senior debt outstanding or such debt is not rated by at least two
nationally recognized rating services, or the credit standing of Parent
declines to a level which is insufficient to support at least an "A" credit
rating by two or more nationally recognized rating services, whether or not
any such debt is outstanding. Parent shall immediately notify the Authority
of any Material Decline in Parent's Credit Standing.
(iii) Upon the occurrence of a Material Decline in Parent's Credit
Standing, Parent shall have the right to economically defease the
Promissory Notes by delivering to Authority U.S. treasury securities of
such maturities and in such principal amounts as shall be sufficient, as
reasonably determined by Authority, to produce cash at the times and in the
amounts required to pay all amounts due in respect of the indebtedness
underlying the Promissory Notes.
(g) Treatment of Debt at Closing. (i) The parties shall cooperate with each
other to effect refinancings, repayments, amendments of Company's outstanding
indebtedness and other related transactions with the intention of minimizing
the aggregate principal amount of the Promissory Notes and maximizing the
amount of Company's tax-exempt indebtedness at the Effective Time.
(ii) No party shall be required by this Section 2.1(g) to effect any
transaction that it reasonably determines to be financially adverse to it
by comparison to the transactions contemplated by Section 2.1(e).
(h) Assumption of Certain Debt. Subject to obtaining all required consents,
Parent will assume at Closing (i) the 7.3% Debentures due July 15, 1999, with
an approximate aggregate principal amount currently outstanding of $397
million and (ii) the 8.20% Debentures due March 15, 2023, with an approximate
aggregate principal amount currently outstanding of $270 million. Certain
other tax exempt authority financing notes will be identified by the parties
and assumed by Parent (subject to obtaining all required consents and to the
parties' tax counsel's concurrence).
(i) Accounts Receivable and Accrued Unbilled Revenues. Parent will be
entitled to/responsible for any over/undercollection in excess of $500,000 of
the retained customer accounts receivable and accrued unbilled revenues on the
Closing Date Balance Sheet. Prior to the Closing Date, the parties will
develop a mutually agreed upon methodology that will measure such collections.
Section 2.2 Dissenting Shares. Shares of Common Stock, Series AA Preferred
Stock or Nonredeemable Preferred Stock held by any holder entitled to relief
as a dissenting shareholder under Section 910 of the NYBCL (the "Company
Dissenting Shares") shall not become the right to receive the Common Stock
Conversion Amount in cash (in the case of any such share of Company Common
Stock), Parent Preferred Stock (in the case of any such share of Series AA
Preferred Stock) or any cash amount payable pursuant to Section 2.1(c)(iii)
(in the case of any such share of Nonredeemable Preferred Stock), but shall be
cancelled and converted into such consideration as may be due with respect to
such shares pursuant to the applicable provisions of the NYBCL, unless and
until the right of such holder to receive fair cash value for such Company
Dissenting Shares terminates in accordance with Section 623 of the NYBCL. If
such right is terminated otherwise than by the purchase of such shares by
Company or LIPA Sub, then such shares shall cease to be Company Dissenting
Shares and shall represent the right to receive the Common Stock Conversion
Amount in cash (in the case of any such share of Company Common Stock), Parent
Preferred Stock (in the case of any such share of Series AA Preferred Stock)
or any cash amount payable pursuant to Section 2.1(c)(iii) (in the case of any
such share of Nonredeemable Preferred Stock).
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Section 2.3 Issuance of Parent Shares.
(a) Deposit with Exchange Agent. As soon as practicable after the Effective
Time, Parent shall deposit with such bank or trust company as shall have been
mutually agreeable to Company and Authority prior to the Effective Time (the
"Exchange Agent"), certificates representing Parent Shares required to effect
the issuances referred to in Section 2.1(b) and Section 2.1(c)(i). If Company
and Authority shall not have agreed on the Exchange Agent prior to the Effective
Time, the bank or trust company then serving as registrar and transfer agent for
the Series AA Preferred Stock shall be selected to act as Exchange Agent for the
Series AA Preferred Stock. The shares of Parent Common Stock subscribed for by
the Exchange Agent as agent for the holders of Company Common Stock pursuant to
Section 2.1(b) and the shares of Parent Common Stock constituting the
Transferred Assets Stock Portion, together with the shares of Parent Preferred
Stock for which the shares of Series AA Preferred Stock are to be exchanged
pursuant to Section 2.1(c)(i), are referred to herein collectively as the
"Parent Shares."
(b) Procedures for Issuance of Parent Shares. As soon as practicable after
the Effective Time, the Exchange Agent shall mail to each holder of record of
a certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding shares of Series AA Preferred Stock
or Company Common Stock, as applicable (the "Cancelled Shares") that were
cancelled and became instead, directly or indirectly, the right to receive the
applicable Parent Shares, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing Parent Shares. Upon
surrender of a Certificate to the Exchange Agent for cancellation (or to such
other agent or agents as may be appointed by agreement of Company and
Authority), together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall require, the holder of such Certificate
shall be entitled to receive a certificate representing that number of Parent
Shares which such holder has the right to receive pursuant to the provisions
of this Article II. In the event of a transfer of ownership of Cancelled
Shares which is not registered in the transfer records of Company a
certificate representing the proper number of Parent Shares may be issued to a
transferee if the Certificate representing such Cancelled Shares is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence satisfactory to the Exchange Agent that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.3, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing Parent Shares as contemplated by this
Section 2.3.
(c) Distributions with respect to Unsurrendered Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
the Parent Shares with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the Parent Shares
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of unclaimed property,
escheat and other applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing Parent Shares issued in consideration therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such Parent Shares and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Parent Shares.
(d) Closing of Transfer Books. From and after the Effective Time, the stock
transfer book of the Company shall be closed and no transfer of any capital
stock of the Company shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Company, they shall be cancelled and
exchanged for certificates representing the appropriate number of Parent
Shares, as provided in this Section 2.3.
(e) Termination of Exchange Agent. Any certificates representing Parent
Shares deposited with the Exchange Agent pursuant to Section 2.3(a) and not
exchanged within one year after the Effective Time pursuant to this Section
2.3 shall be returned by the Exchange Agent to Parent, which shall thereafter
act as Exchange Agent. Parent shall not be liable to any person for such
shares delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
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ARTICLE III
CLOSING
Section 3.1 Closing. Upon the terms and subject to the conditions of this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") will take place on the second business day following the
redemption of all series of Company Preferred Stock contemplated to be
redeemed pursuant to Section 1.11 at 10:00 a.m., at such place on Long Island
or other time as shall be agreed upon by the parties. The date on which the
Closing occurs is referred to herein as the "Closing Date."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY
Each of Parent and Company hereby represents and warrants to Authority and
LIPA Sub as follows:
Section 4.1 Organization and Qualification. Except as contemplated by
Section 1.4, as set forth in Section 4.1 of the Parent Disclosure Schedule (as
defined in Section 7.4), each of Parent, Company and each of the Company
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite corporate power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary. As used in this Agreement,
(a) the term "Subsidiary" of a person shall mean any corporation or other
entity (including partnerships, limited liability companies and other business
associations) of which at least a majority of the outstanding capital stock or
other voting securities having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such corporation
or entity shall at the time be held, directly or indirectly, by such person
and (b) the term "Company Subsidiary" shall mean a Subsidiary of Company.
Section 4.2 Subsidiaries. Section 4.2 of the Parent Disclosure Schedule sets
forth a description as of the date hereof of all Company Subsidiaries and
Joint Ventures of Company ("Company Joint Ventures"), including (a) the name
of each such entity and Company's interest therein, and (b) a brief
description of the principal line or lines of business conducted by each such
entity. Except as set forth in Section 4.2 of the Parent Disclosure Schedule,
none of Company Subsidiaries is a "public utility company", a "holding
company", a "subsidiary company" or an "affiliate" of any public utility
company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of
the Public Utility Holding Company Act of 1935 (the "1935 Act"), respectively.
Except as set forth in Section 4.2 of the Parent Disclosure Schedule, all of
the issued and outstanding shares of capital stock of Company and of each
Company Subsidiary are validly issued, fully paid, nonassessable and free of
preemptive rights, and, as of the Closing Date, will be owned directly or
indirectly by Parent free and clear of any liens, claims, encumbrances,
security interests, equities, charges and options of any nature whatsoever and
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating any such Company Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
As used in this Agreement, (a) the term "Joint Venture" of a person shall mean
any corporation or other entity (including partnerships and other business
associations) that is not a Subsidiary of such person, in which such person or
one or more of its Subsidiaries owns an equity interest and (b) the term
"Company Joint Venture" shall mean those of the joint ventures of Company or
any Company Subsidiary identified as a Company Joint Venture in Section 4.2 of
the Parent Disclosure Schedule.
Section 4.3 Capitalization. The authorized capital stock of Company is as
set forth in the Transition Report on Form 10-Q for the transition period from
January 1, 1997 to March 31, 1997. The number of issued and outstanding shares
of common stock, par value $5 per share, of Company ("Company Common Stock")
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and preferred stock of Company (the "Company Preferred Stock"), and each
series thereof, as of December 31, 1996, are as set forth in Company's Annual
Report on Form 10k for the year ended December 31, 1996, and Company has
neither issued, sold, redeemed or repurchased any shares of Company Preferred
Stock since December 31, 1996. All of the issued and outstanding shares of the
capital stock of Company are validly issued, fully paid, nonassessable
(subject to Section 630 of the NYBCL) and free of preemptive rights. Except as
set forth in Section 4.3 of the Parent Disclosure Schedule, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating Parent, Company or any of the Company Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of the capital stock of Company, or obligating Parent to grant, extend or
enter into any such agreement or commitment. There are no outstanding stock
appreciation rights of Company which were not granted in tandem with a related
stock option and no outstanding limited stock appreciation rights or other
rights to redeem for cash options or warrants of Company.
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. Each of Parent and Company has all requisite power and
authority to enter into each of this Agreement, the Management Services
Agreement, the Power Supply Agreement, the Energy Management Agreement, the
Generation Purchase Right Agreement, the Guaranty Agreement, the Parent
Liabilities Undertaking, the Authority Liabilities Undertaking and the
Promissory Notes (collectively, the "Basic Agreements") to which it is a
party, and, subject to the Parent Required Statutory Approvals (as defined in
Section 4.4(c)), to consummate the transactions contemplated hereby and
thereby. Each of the applicable Transferee Subsidiaries will, at the Effective
Time, have all requisite power and authority to enter into each of the Basic
Agreements to which it is a party, and, subject to the Parent Required
Statutory Approvals, to consummate the transactions contemplated thereby. The
execution and delivery of each of the Basic Agreements to which Parent or
Company is a party and the consummation by Parent and Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Company, other than the
Company Shareholder Approval (as defined in Section 4.11). The execution and
delivery of each of the Basic Agreements to which the applicable Transferee
Subsidiaries are a party and the consummation of the transactions contemplated
thereby will, at the Effective Time, be duly authorized by all necessary
corporate action on the part of such Transferee Subsidiaries. This Agreement
has been duly and validly executed and delivered by Parent and Company and,
assuming the due authorization, execution and delivery hereof by the other
signatories hereto (other than LIPA Sub), constitutes the valid and binding
obligation of Parent and Company, enforceable against each of them in
accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 4.4(b) of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by Parent
and Company and each of the other Basic Agreements to which Parent or Company
is a party does not, and the consummation of the transactions contemplated
hereby and thereby will not, in any material respect, violate, conflict with,
or result in a material breach of any provision of, or constitute a material
default (with or without notice or lapse of time or both) under, or result in
the termination or modification of, or accelerate the performance required by,
or result in a right of termination, cancellation, or acceleration of any
obligation or the loss of a material benefit under, or result in the creation
of any material lien, security interest, charge or encumbrance upon any of the
properties or assets contemplated hereby to be owned at the Effective Time (x)
by Company or (y) by any Company Subsidiary or Company Joint Ventures not
constituting a portion of the Transferred Assets (collectively, and as
described in Schedule G, the "Retained Assets") (any such violation, conflict,
breach, default, right of termination, modification, cancellation or
acceleration, loss or creation, a "Violation" with respect to Parent, Company
or any Company Subsidiaries, such term when used in Article V having a
correlative meaning with respect to Authority and LIPA Sub) pursuant to any
provisions of (i) the certificate of incorporation, by-laws or similar
governing documents of Parent, Company or any of the Company Subsidiaries or
the Company Joint Ventures, (ii) subject to obtaining the Parent Required
Statutory Approvals and the receipt of the Company Shareholder Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority (as defined
in Section 4.4(c)) applicable to Parent or Company or any of the Company
Subsidiaries or
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the Company Joint Ventures or any Retained Asset or (iii) subject to obtaining
the third-party consents set forth in Section 4.4(b) of the Parent Disclosure
Schedule (the "Parent Required Consents"), any material note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which Parent
or Company or any of the Company Subsidiaries or the Company Joint Ventures is
a party or by which any Retained Asset may be bound or affected.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange
or other self-regulatory body) or authority (each a "Governmental Authority")
is necessary for the execution and delivery of this Agreement by Parent and
Company and each of the other Basic Agreements to which Parent, Company or a
Transferee Subsidiary is a party or the consummation by Parent, Company and
the Transferee Subsidiaries of the transactions contemplated hereby and
thereby, except as described in Section 4.4(c) of the Parent Disclosure
Schedule (the "Parent Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such Parent Required Statutory
Approvals shall mean making such declarations, filings or registrations;
giving such notices; obtaining such authorizations, consents or approvals; and
having such waiting periods expire as are necessary to avoid a violation of
law).
(d) Compliance. Except as set forth in Section 4.4(d) or Section 4.9 of the
Parent Disclosure Schedule, Schedule D (Tax Matters) or Schedule E (Employment
Matters) hereto, or as disclosed in the Parent SEC Reports (as defined in
Section 4.5) filed prior to the date hereof (i) neither Parent, Company nor
any of the Company Subsidiaries nor, to the knowledge of Parent or Company,
any Company Joint Venture is, with respect to any Retained Asset, in material
violation of, is, with respect to any Retained Asset, under investigation with
respect to any material violation of, or, with respect to any Retained Asset,
has been given notice or been charged with any material violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable Environmental Law, ordinance or regulation) of any
Governmental Authority, and (ii) (other than as covered under clause (i) of
this Section 4.4(d)) neither Company nor any of the Company Subsidiaries nor,
to the knowledge of Parent or Company, any Company Joint Venture, is in
material violation of, is under investigation with respect to any material
violation of, or has been given notice or been charged with any material
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Law, ordinance or
regulation) of any Governmental Authority. Except as set forth in Section
4.4(d) of the Parent Disclosure Schedule or in Section 4.9 of the Parent
Disclosure Schedule, Company and the Company Subsidiaries and Company Joint
Ventures have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses
as presently conducted in all material respects. Except as set forth in
Section 4.4(d) of the Parent Disclosure Schedule, Company and each of the
Company Subsidiaries is not in material breach or violation of or in material
default in the performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a third party, could
result in a material default under, (i) its certificate of incorporation or
by-laws or (ii) any material contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which any
Retained Asset is subject.
Section 4.5 Reports and Financial Statements. The filings required to be
made by Parent, Company and the Company Subsidiaries since January 1, 1994
under the Securities Act of 1933 (the "Securities Act"), the Securities
Exchange Act of 1934 (the "Exchange Act"), the 1935 Act, the Federal Power
Act, the Atomic Energy Act and applicable state laws and regulations have been
filed with the Securities and Exchange Commission (the "SEC"), the Federal
Energy Regulatory Commission ("FERC"), the Nuclear Regulatory Commission or
the appropriate state public utilities commission, as the case may be,
including all forms, statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statute and the rules and
regulations thereunder. Parent or Company has made available to Authority or
LIPA Sub a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Parent or Company with the
SEC since January 1, 1994 (as such documents have since the time of their
filing been amended, the "Parent SEC Reports"). As of their respective dates,
the
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Parent SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of Company included in the Parent SEC
Reports have been prepared in accordance with GAAP (except as may be indicated
therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the SEC) and fairly present the
financial position of Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended, subject, in the case of
the unaudited interim financial statements, to normal, recurring audit
adjustments. True, accurate and complete copies of the respective certificates
of incorporation and by-laws of Parent and Company, as in effect on the date
hereof, are included (or incorporated by reference) in the Parent SEC Reports.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date hereof or as set forth in Section
4.6 of the Parent Disclosure Schedule, since December 31, 1995, Parent,
Company and each of the Company Subsidiaries have conducted their business
only in the ordinary course of business consistent with past practice and
there has not been, and no fact or condition exists which would have or,
insofar as reasonably can be foreseen, could have, a material adverse effect
on the Retained Assets or the properties, business, operations, financial
condition or prospects of the business relating to the Retained Assets taken
as a whole or a material adverse decline in the electric rate savings
projections presented to the Authority at its June 16, 1997 meeting to be
realized after the Closing (a "Material Adverse Effect").
Section 4.7 Litigation. Except as disclosed in the Parent SEC Reports filed
prior to the date hereof or as set forth in Section 4.7 or Section 4.9 of the
Parent Disclosure Schedule, (i) there are no material claims, suits, actions
or proceedings, pending or, to the knowledge of Parent and Company,
threatened, nor are there, to the knowledge of Parent and Company, any
material investigations or reviews pending or threatened against, relating to
or affecting Company or any of the Company Subsidiaries, (ii) there have not
been any significant developments since December 31, 1996 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews and
(iii) there are no material judgments, decrees, injunctions, rules or orders
of any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to Company or any of the Company
Subsidiaries.
Section 4.8 Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Company for
inclusion or incorporation by reference in the proxy statement, in definitive
form, relating to the meeting of the Company shareholders to be held in
connection with the Merger (the "Proxy Statement") will, at the date mailed to
shareholders and at the time of the meeting of shareholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the provisions of the Securities Act and
the Exchange Act and the rules and regulations thereunder.
Section 4.9 Environmental Protection. Except as set forth in Section 4.9 of
the Parent Disclosure Schedule or in the Parent SEC Reports filed prior to the
date hereof:
(a) Compliance. The operation and activities of the Company and each of the
Company Subsidiaries are, and have been, in material compliance with all
Environmental Laws (as defined in Section 4.9(g)(ii)) applicable to the
Retained Assets; and neither Parent, Company nor any of the Company
Subsidiaries has received any communication (written or oral), from any person
or Governmental Authority that alleges that Company or any of the Company
Subsidiaries is not in such compliance with applicable Environmental Laws.
(b) Environmental Permits. Company and each of the Company Subsidiaries has
obtained or has applied for all material environmental health and safety
permits and all other governmental licenses, permits, and authorizations
(collectively, the "Environmental Permits") necessary for the construction of
facilities constituting part of the Retained Assets or the ownership or
operation of such facilities or Retained Asset, and all such Environmental
Permits are in good standing or, where applicable, a renewal application has
been timely
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filed and is pending agency approval, and Company and the Company Subsidiaries
are in material compliance with all terms and conditions of the Environmental
Permits.
(c) Environmental Claims. There is no material Environmental Claim (as
defined in Section 4.9(g)(i)) pending (i) against Company or any of the
Company Subsidiaries or Company Joint Ventures, (ii) to the best knowledge of
Parent and Company, against any person or entity whose liability for any
Environmental Claim Company or any of the Company Subsidiaries has or may have
retained or assumed either contractually or by operation of law, or (iii)
against any real or personal property or operations which Company or any of
the Company Subsidiaries owns or formerly owned or, to the best knowledge of
Parent and Company, any real or personal property or operations which Company
or any of the Company Subsidiaries leases or manages or formerly leased or
managed, in each case, in whole or in part.
(d) Releases. Parent and Company have no knowledge of any material Releases
(as defined in Section 4.9(g)(iv)) of any Hazardous Material (as defined in
Section 4.9(g)(iii)), that would be reasonably likely to form the basis of any
material Environmental Claim against Company or any of the Company
Subsidiaries, or against any person or entity whose liability for any material
Environmental Claim Parent or any of the Company Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(e) Predecessors. Parent and Company have no knowledge, with respect to any
predecessor of Company or any of the Company Subsidiaries, of any material
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any material
Environmental Claim.
(f) Disclosure. Parent and Company have disclosed to Authority or LIPA Sub
all material facts which Parent reasonably believes form the basis of a
material Environmental Claim arising from (i) the cost of Company pollution
control equipment currently required or known to be required in the future
with respect to the Retained Assets; (ii) current Company remediation costs or
Company remediation and site monitoring costs known to be required in the
future with respect to the Retained Assets; or (iii) any other environmental
matter affecting Company with respect to the Retained Assets.
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or entity (including any Governmental
Authority) alleging potential liability (including, without limitation,
potential responsibility for or liability for enforcement, investigatory
costs, cleanup costs, governmental response costs, removal costs, remedial
costs, natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (A) the presence, or
Release or threatened Release into the environment, of any Hazardous
Materials at any location, whether or not owned, operated, leased or
managed by Company or any of the Company Subsidiaries or Company Joint
Ventures and constituting a portion of the Retained Assets (for purposes of
this Section 4.9); or (B) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law with respect to the Retained
Assets; or (C) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from the presence or Release of any Hazardous Materials
with respect to the Retained Assets.
(ii) "Environmental Laws" means all federal, state, local laws,
ordinances, rules and regulations relating to health and safety, pollution,
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human
health as it relates to the environment including, without limitation, laws
and regulations relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers
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or other equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBs"); and (B) any chemicals, materials or substances which
are now defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants", or
words of similar import, under any Environmental Law; and (C) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which Company or any of the Company Subsidiaries or Company
Joint Ventures operates using any Retained Assets (for purposes of this
Section 4.9).
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, surface or subsurface soil, surface water, saltwater shoreline
or floor bottom, groundwater or property from or affecting any Retained
Assets.
Section 4.10 Regulation as a Utility. Except as set forth in Section 4.10 of
the Parent Disclosure Schedule, neither Company nor any "subsidiary company"
or "affiliate" (as such terms are defined in the 1935 Act) of Company is
subject to regulation as a public utility or public service company (or
similar designation) by any state in the United States other than New York or
any foreign country.
Section 4.11 Vote Required. The following are the only votes ("Company
Shareholder Approval") of the holders of any class or series of the capital
stock of Company or any of its subsidiaries required to adopt this Agreement,
the other Basic Agreements and the other transactions contemplated hereby and
thereby:
(a) the adoption of this Agreement by two-thirds of the votes entitled to
be cast by all holders of Company Common Stock and Company Preferred Stock
(other than the Redeemable Preferred Stock redeemed in accordance with
Section 2.1(c)(ii)), voting together as a single class (with each share
entitled to one vote, except that Company Preferred Stock with $25 par
value is entitled to only 1/4 vote per share);
(b) the adoption of this Agreement by a majority of the votes entitled to
be cast by all holders of Company Preferred Stock (other than such
Redeemable Preferred Stock), voting together as a single class (with each
share entitled to one vote, except that Company Preferred Stock with $25
par value is entitled to only 1/4 vote per share);
(c) the adoption of this Agreement by a majority of the votes entitled to
be cast by all holders of Company Common Stock, voting separately as a
class; and
(d) the adoption of this Agreement by a majority of the votes entitled to
be cast by holders of Series AA Preferred Stock and each series of
Nonredeemable Preferred Stock, in each case voting as a separate class.
Section 4.12 Insurance. Except as set forth in Section 4.12 of the Parent
Disclosure Schedule, Company and each of the Company Subsidiaries is, and has
been continuously since January 1, 1991, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business as conducted by
Company and the Company Subsidiaries during such time period. Except as set
forth in Section 4.12 of the Parent Disclosure Schedule, neither Parent,
Company nor any of the Company Subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy of
Company or any of the Company Subsidiaries. The insurance policies of Company
and each of the Company Subsidiaries are valid and enforceable policies in all
material respects.
Section 4.13 Disclosure. No representations or warranties by Parent or
Company in this Agreement and no statement contained in any document furnished
by Parent or Company to Authority or LIPA Sub pursuant to the provisions of,
or in connection with the transactions contemplated by this Agreement, will
contain any untrue statement of material fact or omit any material fact
necessary, in light of the circumstances under which it was made, in order to
make such statement not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AUTHORITY AND LIPA SUB
Authority represents and warrants to Parent and Company as follows:
Section 5.1 Organization. Authority is a corporate municipal instrumentality
and political subdivision of the State of New York and was created by
legislation of the State of New York (Chapter 517 of the 1986 Laws of New
York). LIPA Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each of Authority and LIPA Sub has all requisite corporate power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary.
Section 5.2 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. Each of Authority and LIPA Sub has all requisite power and
authority to enter into this Agreement and each of the other Basic Agreements
to which it is a party and, subject to the Authority Required Statutory
Approvals (as defined in Section 5.2(c)) to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
by each of Authority and LIPA Sub and each of the other Basic Agreements to
which it is a party and the consummation by each of Authority and LIPA Sub of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Trustees of Authority and the Board of Directors of LIPA Sub; no
other corporate proceedings on the part of each of Authority and LIPA Sub are
necessary to authorize this Agreement, each of the other Basic Agreements to
which it is a party or to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly and validly executed and delivered by
Authority and LIPA Sub and, assuming the due authorization, execution and
delivery hereof by the other signatories hereto, this Agreement constitutes
the valid and binding obligation of Authority and LIPA Sub, enforceable
against each of Authority and LIPA Sub in accordance with its terms.
(b) Non-Contravention. The execution and delivery of this Agreement and each
of the other Basic Agreements by Authority or LIPA Sub does not, and the
consummation of the transactions contemplated hereby and thereby will not,
result in a material Violation pursuant to any provisions of (i) the
certificate of incorporation, by-laws or similar governing documents of LIPA
Sub, (ii) subject to obtaining the Authority Required Statutory Approvals, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority applicable
to Authority or LIPA Sub or (iii) any provisions of any material note, bond,
mortgage, indenture, deed of trust license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Authority or LIPA Sub is a party or by which it or any of its properties
or assets may be bound.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement and each of the
other Basic Agreements by each of Authority and LIPA Sub or the consummation
by each of Authority and LIPA Sub of the transactions contemplated hereby and
thereby, except as set forth in writing by Authority (the "Authority Required
Statutory Approvals").
Section 5.3 Disclosure. No representations or warranties by Authority or
LIPA Sub in this Agreement and no statement contained in any document
furnished by Authority or LIPA Sub to Parent or Company pursuant to the
provisions of, or in connection with the transactions contemplated by, this
Agreement, will contain any untrue statement of material fact or omit any
material fact necessary, in light of the circumstances under which it was
made, in order to make such statement not misleading.
Section 5.4 Ownership of LIPA Sub; No Prior Activities. LIPA Sub is a
direct, wholly owned subsidiary of Authority and was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement. As of
the date hereof and the Effective Time, except for obligations or liabilities
incurred in
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connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, LIPA Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
Section 5.5 Ownership of Company Common Stock. Neither Authority nor LIPA
Sub "beneficially owns" (as such term is defined for purposes of Section 13(d)
of the Exchange Act) any shares of Company Common Stock or Company Preferred
Stock.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of Parent and Company. After the date hereof and prior
to the Closing Date or earlier termination of this Agreement, Parent and
Company agree as follows, as to themselves and to each of the Company
Subsidiaries, as the case may be, except as expressly contemplated or
permitted in this Agreement, the other Basic Agreements or to the extent the
other parties hereto shall otherwise consent in writing:
(a) Ordinary Course of Business. With respect to the Retained Assets only,
Company and the Company Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and use all commercially reasonable efforts to
preserve intact their present business organizations and goodwill and preserve
the goodwill and relationships with customers, suppliers and others having
business dealings with them. Company and the Company Subsidiaries may, with
the prior approval of Authority or LIPA Sub, engage in transactions out of the
ordinary course of business relating to the Retained Assets, such approval not
to be unreasonably withheld or delayed; provided, however, that the following
will not be subject to Authority's or LIPA Sub's prior approval: any
transaction involving the Transferred Assets; provided, however, that such
approval will be required for (A) any transaction that would impair the
applicable Transferee Subsidiary's ability to perform its obligations under
any Basic Agreement or that would violate any term of the Generation Purchase
Right Agreement or (B) any transaction whereby Company enters into a capacity
or transmission purchase agreement relating to the purchase of more than 75
megawatts of capacity or having a term which extends beyond March 19, 1999.
Except as set forth in Section 6.1(a) of the Parent Disclosure Schedule or
as contemplated in this Section 6.1(a), neither Company nor any of the Company
Subsidiaries shall make any change in the line of business involving the
Retained Assets in which it engages as of the date hereof which involves any
material investment of assets or resources or any material exposure to
liability or loss to the Retained Assets taken as a whole.
(b) Charter Documents. Company shall not amend nor propose to amend its
certificate of incorporation, by-laws or regulations, or similar
organizational documents, except as contemplated herein or as set forth in
Section 6.1(b) of the Parent Disclosure Schedule.
(c) No Acquisitions. Except as set forth in Section 6.1(c) of the Parent
Disclosure Schedule or as contemplated in Section 6.1(a), neither Company nor
any of the Company Subsidiaries shall acquire, or publicly propose to acquire,
or agree to acquire, by merger or consolidation with, or by purchase or
otherwise, in a transaction relating to the Retained Assets, a substantial
equity interest in or a substantial portion of the assets of, any business or
any corporation, partnership, association or other business organization or
division thereof, nor shall any party acquire or agree to acquire, in a
transaction relating to the Retained Assets, a material amount of assets other
than in the ordinary course of business consistent with past practice.
(d) Capital Expenditures. Except as set forth in Section 6.1(d) of the
Parent Disclosure Schedule, or as required by law, neither Company nor any of
the Company Subsidiaries shall make capital expenditures or commitments
relating to the Retained Assets in an aggregate amount significantly less or
significantly more than the amounts projected therefor in Company's 1996
electric rate filing.
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(e) No Dispositions. Except as set forth in Section 6.1(e) of the Parent
Disclosure Schedule or as contemplated by Section 6.1(a), singularly or in the
aggregate, neither Company nor any of the Company Subsidiaries shall sell,
lease, license, encumber or otherwise dispose of, any of the Retained Assets,
other than encumbrances or dispositions in the ordinary course of its business
consistent with past practice and other than dispositions of Retained Assets
by Company and the Company Subsidiaries of less than $10 million in the
aggregate; provided, however, that notwithstanding the foregoing, neither
Company nor any of the Company Subsidiaries shall sell, lease, license,
encumber or otherwise dispose of, any attachment or similar rights.
(f) Indebtedness. Except as contemplated by any Basic Agreement, neither
Company nor any of the Company Subsidiaries shall incur or guarantee any
indebtedness (including any debt borrowed or guaranteed or otherwise assumed
including, without limitation, the issuance of debt securities or warrants or
rights to acquire debt) or enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing other than
incurrences to refinance existing indebtedness, incurrences of debt that will
be assumed by Parent and/or one or more Transferee Subsidiaries at the Closing
and other than as set forth in Section 6.1(f) of the Parent Disclosure
Schedule.
(g) Transmission, Generation. Except as required pursuant to tariffs on file
with the FERC as of the date hereof, in the ordinary course of business
consistent with past practice, or as set forth in Section 6.1(g) of the Parent
Disclosure Schedule, neither Company nor any of the Company Subsidiaries shall
(i) commence construction of any additional electric generating, transmission
or delivery capacity, or (ii) obligate itself to purchase or otherwise
acquire, or to sell or otherwise dispose of, or to share, any additional
electric generating, transmission or delivery capacity except as provided in
clause (B) of the second proviso to Section 6.1(a) or as set forth in the
budget of Company on the date hereof as set forth in Section 6.1(d) of the
Parent Disclosure Schedule.
(h) Accounting. Except as set forth in Section 6.1(h) of the Parent
Disclosure Schedule, Parent and Company shall not, nor shall Parent and
Company permit any of the Company Subsidiaries to, make any changes in their
accounting methods or principles, except as required by law, rule, regulation
or GAAP.
(i) Affiliate Transactions. Except as set forth in Section 6.1(i) of the
Parent Disclosure Schedule, neither Company nor any of the Company
Subsidiaries shall enter into any material agreement or arrangement with any
of their respective affiliates (other than those wholly-owned subsidiaries
which will constitute Retained Assets) on terms materially less favorable to
such party than could be reasonably expected to have been obtained with an
unaffiliated third party on an arm's-length basis.
(j) Cooperation, Notification. Parent and Company shall, and shall cause the
Company Subsidiaries to, (i) confer on a regular and frequent basis with one
or more representatives of Authority or LIPA Sub to discuss, subject to
applicable law, material operational matters and the general status of its
ongoing operations; (ii) promptly notify Authority or LIPA Sub of any
significant changes in its business, properties, assets, condition (financial
or other), results of operations or prospects; (iii) advise Authority or LIPA
Sub of any change or event which has had or, insofar as reasonably can be
foreseen, is reasonably likely to result in a Material Adverse Effect; and
(iv) promptly provide Authority or LIPA Sub with copies of all filings made by
Parent or Company or any of the Company Subsidiaries with any state or federal
court, administrative agency, commission or other Governmental Authority in
connection with any Basic Agreement and the transactions contemplated hereby
and thereby or the Retained Assets.
(k) Rate Matters. Parent and Company shall, and shall cause the Company
Subsidiaries to, notify Authority or LIPA Sub of any changes in its or
Company's rates or charges (other than pass-through fuel rates or charges, but
including, without limitation, gas rates or charges), standards of service or
accounting from those in effect on the date hereof. Without the consent of
Authority (which consent will not be unreasonably withheld), Company shall not
file or prosecute any rate case or other nonroutine proceeding before the
Public Service Commission of the State of New York (the "PSC") or FERC or any
appeal therefrom, except for cases or
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proceedings (i) relating solely to pass-through fuel or gas rates or charges,
(ii) required to be made by order of the PSC or FERC, (iii) relating solely to
the Transferred Assets or (iv) involving commercial or contractual disputes
which are required to be resolved through such proceedings; provided, however,
that if Company reasonably believes that a matter threatens the financial
viability of Company, it may defend or prosecute such matter before the PSC or
FERC. Either in seeking consent from Authority or if Company has the right to
defend or prosecute a matter as contemplated herein, Company shall provide 30
days prior notice to Authority (including, upon request of Authority, copies
of draft documentation) of any proposed filing with the PSC or FERC unless
Company reasonably determines that circumstances require action within such 30
day period, in which event Company shall provide Authority with as prompt
notice as is practicable. The parties will consult with each other with
respect to all matters described in the preceding two sentences.
(l) Third-Party Consents. Parent and Company shall, and shall cause the
Company Subsidiaries to, use all commercially reasonable efforts to obtain all
Parent Required Consents. Parent shall promptly notify Authority or LIPA Sub
of any failure or prospective failure to obtain any such consents and, if
requested by Authority or LIPA Sub, shall provide copies of all Parent
Required Consents obtained by Parent or Company to Authority or LIPA Sub.
(m) No Breach, Etc. Parent and Company shall not, nor permit any of the
Company Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of any Basic Agreement,
as the case may be, or in any of its representations and warranties set forth
in any Basic Agreement, as the case may be, being untrue on and as of the
Closing Date or any condition to their obligation to close not being
satisfied.
(n) Tax-Exempt Status. Parent and Company shall not, nor shall Parent and
Company permit, any Company Subsidiary to, take any action that would likely
jeopardize the qualification of Company's outstanding revenue bonds which
qualify on the date hereof under Section 142(a) of the Code as "exempt
facility bonds" or as tax-exempt industrial development bonds under Section
103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to the Tax
Reform Act of 1986.
(o) Tax Matters. Except with respect to the matters set forth in the LILCO
Tax Matters Disclosure Schedule attached to Schedule D, Parent and Company
shall not make or rescind any material express or deemed election relating to
taxes, settle (other than within established reserves) or compromise any
material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes, or change any of its
methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of their respective federal income tax
returns for the taxable year ending December 31, 1995, except as may be
required by applicable law.
(p) Contracts. Subject to Section 6.1(a) and except as set forth in Section
6.1(p) of Parent Disclosure Schedule, Parent and Company shall not, other than
in the ordinary course of business consistent with past practice, modify,
amend, terminate, renew or fail to use reasonable business efforts to renew
any material franchise, contract or agreement to which Company or any Company
Subsidiary is a party or waive, release or assign any material rights or
claims, provided, however, that Parent and Company shall not enter into new
power supply agreements, or amend existing power supply or transmission
agreements, without prior approval of Authority (which approval will not be
unreasonably withheld).
(q) Insurance. Parent and Company shall, and shall cause the Company
Subsidiaries to, maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary
for companies engaged in the electric and gas utility industry and employing
methods of generating electric power and fuel sources similar to those methods
employed and fuels used by Parent, Company or the Company Subsidiaries.
(r) Permits. Parent and Company shall, and shall cause the Company
Subsidiaries to, use reasonable efforts to maintain in effect all existing
governmental permits pursuant to which Company or the Company Subsidiaries own
and operate any Retained Asset.
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(s) Compliance with Law: Permits. The operations and activities of Company,
and the ownership, possession, maintenance and operation of the Retained
Assets, have complied and are in compliance, in all respects, with all
applicable federal, state and local laws, statutes, acts, regulations, codes,
ordinances, rules, judgments, orders, decrees, judgments, injunctions, or
notices or demand letters issued or promulgated or approved thereunder
("Applicable Law"). Except as set forth in Section 6.1(s) of Parent Disclosure
Schedule, Company has all material federal, state, and local governmental
licenses, permits, approvals, franchises and other authorizations ("Permits")
as are necessary in order for it to conduct the business conducted with the
Retained Assets. No material violations have been recorded in respect of any
Permits and no proceeding is pending or, to the knowledge of Parent or
Company, threatened with respect to the limitation or revocation of any
Permit.
Section 6.2 Covenants of Authority and LIPA Sub.
(a) Filings. Authority and LIPA Sub shall promptly provide Parent and
Company with copies of all filings made by Authority or LIPA Sub with any
state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement or any Basic
Agreement and the transactions contemplated hereby and thereby.
(b) Third-Party Consents. Authority and LIPA Sub shall use all commercially
reasonable efforts to obtain all Authority Required Consents. Authority shall
promptly notify Parent and Company of any failure or prospective failure to
obtain any such consents and, if requested by Parent or Company, shall provide
copies of all Authority Required Consents obtained by Authority and LIPA Sub
to Parent and Company.
(c) No Breach, Etc. Authority and LIPA Sub shall not willfully take any
action that would or is reasonably likely to result in (x) a material breach
of any provision of this Agreement or any other Basic Agreement, as the case
may be, (y) any of their representations and warranties set forth in this
Agreement or in any other Basic Agreement being untrue on and as of the
Closing Date or (z) any condition to their obligations to close not being
satisfied.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. Upon reasonable notice, each party shall
afford to the officers, employees, accountants, counsel, investment bankers,
financial advisors, engineers and other representatives of the other
(collectively, "Representatives") reasonable access, during normal business
hours throughout the period prior to the Effective Time, to all of its
properties, books, contracts, commitments and records and, during such period,
each party shall furnish promptly to the other (i) access to each report,
schedule and other document filed or received by it pursuant to the
requirements of federal or state securities laws or filed with or sent to the
SEC, the FERC, the NRC, the Department of Justice, the Federal Trade
Commission, the PSC or any other federal or state regulatory agency or
commission, and (ii) access to all information concerning themselves, their
subsidiaries, directors and officers and such other matters as may be
reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or for
any other reason related to the transactions contemplated by this Agreement.
In addition, Company and Parent shall promptly furnish to Authority upon
request all such information as may be necessary or desirable in order that
Authority may obtain the financing referred to in Section 8.1(f).
Section 7.2 Proxy Statement and Registration Statement. Company will prepare
and file with the SEC as soon as reasonably practicable after the date hereof
the registration statement relating to the Parent Shares (the "Registration
Statement") and the Proxy Statement. The parties hereto shall each use
reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after such
filing. Each of the parties hereto shall furnish all information concerning
itself which is required or customary for inclusion in the Proxy/Registration
Statement.
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Section 7.3 Shareholder Approval. Company shall, as soon as reasonably
practicable after the date hereof, (i) take all steps necessary to duly call,
give notice of, convene and hold a special meeting of its shareholders for the
purpose of securing the approval of its shareholders, (ii) distribute to its
shareholders the Proxy Statement in accordance with applicable federal and
state law and with its Restated Certificate of Incorporation and by-laws,
(iii) subject to the fiduciary duties of its Board of Directors, recommend to
its shareowners the adoption of this Agreement and the transactions
contemplated hereby and (iv) cooperate and consult with Authority with respect
to each of the foregoing matters. In the event that during the special meeting
of shareholders referred to above the Company Shareholder Approval is
initially not obtained, Company shall adjourn the meeting for a reasonable
period and Company and Parent shall take such actions as may be necessary or
desirable in order to obtain the Company Shareholder Approval when such
meeting is reconvened.
Section 7.4 Disclosure Schedule. (a) On the date hereof, Parent has
delivered to Authority a schedule (the "Parent Disclosure Schedule"),
accompanied by a certificate signed by the Chief Financial Officer of Company
stating that the Parent Disclosure Schedule is being delivered pursuant to
this Section 7.4(a). The Parent Disclosure Schedule constitutes an integral
part of this Agreement and modifies the representations, warranties, covenants
or agreements of Parent hereto contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer to the
Parent Disclosure Schedule.
(b) Not later than 30 days before the date scheduled for the Closing, Parent
shall deliver to Authority a revised Parent Disclosure Schedule (the "Updated
Parent Disclosure Schedule"), accompanied by a certificate signed by the Chief
Financial Officer of Company stating that the Updated Parent Disclosure
Schedule is being delivered pursuant to this Section 7.4(b). The Updated
Parent Disclosure Schedule shall contain the information Parent believes would
be required to comply with the condition set forth in Section 8.2(b) (but for
purposes solely of this Section 7.4(b), as if such Section 8.2(b) did not
contain any reference to Material Adverse Effect). No liability shall arise
under any Basic Agreement by reason of the delivery of the Updated Parent
Disclosure Schedule or, after the Effective Time, by reason of any matter
disclosed therein.
Section 7.5 Regulatory Matters. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation and
to effect all necessary applications, notices, petitions, filings and other
documents, and shall use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement, including, without limitation, the Parent Required
Statutory Approvals and the Authority Required Statutory Approvals. Parent,
Company, Authority and LIPA Sub shall cooperate in good faith and consult with
each other on all components of, significant steps towards the completion of,
and significant amendments to, the applications to obtain the Parent Required
Statutory Approvals and the Authority Required Statutory Approvals, and with
respect to material filings, communications, agreements, arrangements or
consents, written or oral, formal or informal, relating to applications for
such Approvals.
Section 7.6 Public Announcements. Parent, Company, Authority and LIPA Sub
will cooperate with each other in the development and distribution of all news
releases and other joint public information disclosures with respect to this
Agreement and any other Basic Agreement or any of the transactions
contemplated hereby.
Section 7.7 Confidentiality. (a) Company Request. The parties acknowledge
that certain information that may be furnished pursuant to the provisions of
this Agreement may be confidential and proprietary to Company. The Company and
Parent each acknowledges that Authority may be required to disclose
information upon request under applicable law. The Company shall have the
right to request Authority in writing not to publicly disclose any information
which Company believes to be confidential or proprietary and not subject to
public disclosure under applicable law, and such request will be accompanied
by an explanation of its reasons for such belief. Any information which is the
subject of such a request shall be clearly marked on all pages, shall be
bound, and shall be physically separate from all non-confidential and non-
proprietary information. At Company's request, Authority and its
Representatives given access to such information shall execute and comply with
the terms of a confidentiality agreement in a mutually acceptable form,
subject to applicable law.
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(b) Authority Non-Disclosure. If Authority receives a request from the
public for the disclosure of any information designated as confidential or
proprietary by Company pursuant to subsection (a) of this Section 7.7,
Authority (1) shall use reasonable efforts, consistent with applicable law, to
provide notice to Company of the request prior to any disclosure, and (2)
shall use reasonable efforts, consistent with applicable law, to keep in
confidence and not disclose such information unless it is entitled to do so
pursuant to the provisions of subsection (c) of this Section 7.7. Company
shall indemnify, hold harmless and defend Authority against all losses
incurred from the withholding from public disclosure of information designated
as confidential or proprietary by Company or otherwise requested by Company to
be withheld.
(c) Previously Furnished Information. Company hereby permits Authority and
its Representatives to obtain all information previously furnished by Company
to Bear, Stearns & Co. Inc. and certain other persons pursuant to the letter
dated October 11, 1995, (as amended to date) subject to the terms and
conditions of this Section 7.7. Authority agrees that all such information
(other than information described in clauses (1), (2) or (3) of Section
7.7(e)) shall be deemed to be delivered to Authority pursuant to the
procedures set forth in Section 7.7(a) for the purpose of identifying
confidential or proprietary information.
(d) Restriction on Use. Authority and LIPA Sub may not use any confidential
or proprietary information disclosed to either of them by Company (other than
information described in clauses (1), (2) or (3) of Section 7.7(e)) in taking
any action described in clauses (a), (b), (c) or (d) of Article X at any time
after the date hereof.
(e) Permitted Disclosures. Notwithstanding any confidential or proprietary
designation thereof by Company, Authority may disclose the following: (1)
information which is known to Authority without any restriction as to
disclosure or use at the time it is furnished, (2) information which is or
becomes generally available to the public without breach of any agreement, (3)
information which is received from a third party without limitation or
restriction on such third party or Authority at the time of disclosure, or (4)
following notice to Company pursuant to subsection (b) of this Section,
information which, in the opinion of counsel for Authority, is required to be
disclosed under any applicable law, an order of a court of competent
jurisdiction, or a lawful subpoena.
Section 7.8 Certain Litigation.
(a) Class Settlement. After the date hereof, Company and Authority shall
jointly file an appropriate motion before the court having jurisdiction over
the Class Settlement (as hereinafter defined) to obtain a modification of the
final order approving such Class Settlement which would permit the payment in
full at the Closing of all amounts remaining unpaid with respect to such Class
Settlement, discounted to such present value as Authority and Company may
agree and such court may approve. As used herein, "Class Settlement" shall
mean the class settlement which became effective on June 28, 1989 and resolved
a civil lawsuit against Company brought under the federal Racketeer Influenced
and Corrupt Organizations Act.
(b) Tax Cases. With respect to all tax cases relating to property taxes or
payments in lieu of property taxes assessable against any of the assets and
properties of Company as of the date hereof, and other similar tax claims
arising prior to the Closing Date (which shall constitute Retained Assets),
Company will enter into appropriate standstill agreements and maintain the
current status of such cases; provided, however, if any taxing authority
increases, directly or indirectly, or purports to increase, directly or
indirectly, the assessed value of any Transferred Asset (other than in respect
of property additions or general increases in assessments), then Company may
pursue any judicial remedy it deems advisable in connection therewith.
Notwithstanding the foregoing, if any taxing authority, at any time prior to
the Closing, asserts a claim for property taxes or payments in lieu of
property taxes which Company reasonably believes is not authorized by statute
or asserts a right to value a taxable property in a method other than in
accordance with applicable New York State rules and regulations, then Company
may take such actions as it reasonably determines to be necessary or advisable
to protect its interests, but shall not otherwise pursue its claims pending
the Closing or the termination of this Agreement.
(c) Phase I Rebates. Upon the Closing, Parent will immediately pay Authority
$15 million in respect of the Phase I judgment relating to the Shoreham
property tax case for distribution to ratepayers.
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Section 7.9 Expenses. All costs and expenses incurred in connection with
this Agreement and any other Basic Agreement and the transactions contemplated
hereby (including, without limitation, any termination fees and expense
reimbursements payable by Company pursuant to the Exchange Agreement or to its
officers or directors in respect of severance, change of control or similar
agreements) shall be paid by the party incurring such expenses. Any such cost
or expense of Company not paid or otherwise discharged at or prior to the
Closing shall be paid or reimbursed by Parent and the Transferee Subsidiaries
pursuant to the Parent Liabilities Undertaking and shall not be included in
the Closing Date Balance Sheet.
Section 7.10 Further Assurances. Each party will, and will cause its
Subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the transactions contemplated hereby in accordance with the terms
hereof.
Section 7.11 Purchase Price Allocation. At or prior to the Closing, the
parties shall jointly prepare and agree to an allocation for federal income
tax purposes pursuant to Section 1060 of the Code of the purchase price
payable by Parent in respect of the transfer of the Transferred Assets.
Section 7.12 Receipt of Consents and Approvals. Each party agrees to respond
promptly to any request for any consent or approval from any other party
contemplated by this Agreement and any third party consent or statutory
approval required hereunder. Each party shall designate representatives who
shall be authorized to address any request for any such consents or approvals.
Any act of any such representative with respect to such approvals and consents
shall be binding upon the party that designates such representative.
Section 7.13 Certain Other Matters. The provisions set forth in Schedules D
(Tax Matters), E (Employment Matters) and F (Future Rights) attached hereto
are hereby incorporated by reference as if set forth herein in their entirety.
Section 7.14 Opinions of Counsel. In addition, Parent and Company shall
deliver to Authority such opinions of counsel for Parent and Company as to the
agreements to be entered into in connection with the transactions contemplated
by the Basic Agreements, in customary form for financing transactions, as to
the matters of law covered by the representations of Parent and Company and
the Transferee Subsidiaries in the Basic Agreements, similar matters of law
with respect to such other agreements and as to such other matters of law as
Authority may reasonably request, together with appropriate certified
authorizing resolutions and incumbency certificates.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction on or prior to the Closing Date
of the following conditions:
(a) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the transactions contemplated by this Agreement and the other
Basic Agreements shall have been issued and be continuing in effect, and this
Agreement and the other Basic Agreements and the transactions contemplated
hereby and thereby shall not have been prohibited under any applicable federal
or state law or regulation.
(b) Statutory Approvals. The Parent Required Statutory Approvals and the
Authority Required Statutory Approvals shall have been obtained at or prior to
the Closing Date, such approvals shall have become Final
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Orders (as defined below) and such Final Orders shall not impose terms or
conditions which, in the aggregate, would have, or insofar as reasonably can
be foreseen, could have, a material adverse effect on the business, assets,
financial condition or results of operations Parent, which would be materially
inconsistent with the agreements of the parties contained herein or in the
Basic Agreements or would have (or, insofar as reasonably can be foreseen
could have) a Material Adverse Effect. A "Final Order" means action by the
relevant regulatory authority which has not been reversed, stayed, enjoined,
set aside, annulled or suspended, with respect to which any waiting period
prescribed by law before the transactions contemplated hereby may be
consummated has expired, and as to which all conditions to the consummation of
such transactions prescribed by law, regulation or order have been satisfied.
(c) Basic Agreements. The relevant parties shall have entered into each
other Basic Agreement.
(d) Tax Rulings. Favorable private letter rulings reasonably satisfactory to
each of the parties hereto shall have been received from the IRS with respect
to the application of Section 337(d) of the Code.
(e) Consummation of Exchange Transaction. Either (i) the transactions
contemplated by the Exchange Agreement shall have been consummated, (ii) the
Exchange Agreement shall have been terminated or (iii) all conditions to such
consummation shall have been satisfied or waived in accordance with the terms
of the Exchange Agreement and such transactions will be consummated promptly
after the Closing.
(f) Financing. Authority shall have obtained financing in an amount
sufficient to acquire the Common Stock and the Non-Redeemable Preferred Stock
and redeem the Redeemable Preferred Stock and the bonds issued in connection
therewith shall have received ratings pursuant to rating applications which
contemplate the issuance of up to $7.3 billion for such purpose and for the
purpose of refinancing Company debt.
Section 8.2 Conditions to Obligations of Authority and LIPA Sub. The
obligations of Authority and LIPA Sub to effect the transactions contemplated
by this Agreement and the other Basic Agreements shall be further subject to
the satisfaction on or prior to the Closing Date, of the following conditions,
except as may be waived by Authority or LIPA Sub in writing pursuant to
Section 9.5:
(a) Performance of Obligations of Parent and Company. Each of Parent and
Company shall have performed in all material respects its agreements and
covenants contained in or contemplated by this Agreement and the other Basic
Agreements required to be performed by it at or prior to the Closing Date.
(b) Representations and Warranties. The representations and warranties of
Parent and Company set forth in this Agreement and the other Basic Agreements
shall be true and correct (i) on and as of the date hereof and (ii) on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time other than the date hereof or the Closing Date which need only be true
and correct as of such date or time) except in each of cases (i) and (ii) for
such failures of representations or warranties to be true and correct (without
regard to any materiality qualifications contained therein) which,
individually or in the aggregate, would not be reasonably likely to result in
a Material Adverse Effect.
(c) Closing Certificates. Authority shall have received a certificate signed
on behalf of Parent and Company by the Chief Financial Officer of Parent,
dated the Closing Date, to the effect that, to the best of such Officer's
knowledge, the conditions set forth in Section 8.2(a) and Section 8.2(b) have
been satisfied.
(d) Material Adverse Effect. No Material Adverse Effect shall have occurred
and there shall exist no fact or circumstance which is reasonably likely to
have a Material Adverse Effect.
(e) Parent Required Consents. The Parent Required Consents shall have been
obtained, except for those consents the failure of which to obtain would not
have a Material Adverse Effect.
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(f) Formation of Parent Subsidiaries. The Transferee Subsidiaries will have
been duly formed and organized.
(g) Tax Rulings. Favorable private letter rulings reasonably satisfactory to
Authority shall have been received from the IRS with respect to the
application of Sections 103 and 115 of the Code.
(h) Rate Savings Determination. Authority shall have made the final rate
savings determination required under its governing statute.
Section 8.3 Conditions to Obligations of Parent and Company. The obligations
of Parent and Company to effect the transactions contemplated by this
Agreement and the other Basic Agreements shall be further subject to the
satisfaction on or prior to the Closing Date of the following conditions,
except as may be waived by Parent and Company in writing pursuant to Section
9.5:
(a) Performance of Obligations of Authority and LIPA Sub. Authority and LIPA
Sub shall have performed in all material respects its agreements and covenants
contained in or contemplated by this Agreement and the other Basic Agreements
required to be performed at or prior to the Closing Date.
(b) Representations and Warranties. The representations and warranties of
each of Authority and LIPA Sub set forth in this Agreement and the other Basic
Agreements shall be true and correct (i) on and as of the date hereof and (ii)
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of a
specific date or time other than the date hereof or the Closing Date which
need only be true and correct as of such date or time) except in each of cases
(i) and (ii) for such failures of representations or warranties to be true and
correct (without regard to any materiality qualifications contained therein)
which, individually or in the aggregate, would not be reasonably likely to
result in a Material Adverse Effect.
(c) Closing Certificates. Parent shall have received a certificate signed on
behalf of Authority by the Executive Director of Authority, dated the Closing
Date, to the effect that, to the best of such Executive Director's knowledge,
the conditions set forth in Section 8.3(a) and Section 8.3(b) have been
satisfied.
(d) Material Adverse Effect. No Material Adverse Effect shall have occurred
and there shall exist no fact or circumstance which is reasonably likely to
have a Material Adverse Effect.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated prior to the
Closing Date:
(a) by mutual written consent of the Board of Directors of Company and the
Board of Trustees of Authority;
(b) by either Parent and Company, on the one hand, or Authority and LIPA
Sub, on the other hand, if the Closing shall not have occurred on or before
August 31, 1998 (the "Initial Termination Date"); provided, however, that the
right to terminate the Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before this date; and provided, further, that if on the
Initial Termination Date the conditions to the Closing set forth in Sections
8.1(b), 8.1(d) or 8.2(e) shall not have been fulfilled but all other
conditions to the Closing shall be fulfilled or shall be capable of being
fulfilled, then the Initial Termination Date shall be extended to April 28,
1999.
(c) by Parent or Company, upon two days' prior notice to Authority, if, as a
result of a tender offer or any written offer or proposal with respect to a
merger, sale of a material portion of its assets or other business combination
made by a party other than Authority or any of its affiliates prior to Company
having obtained Company Shareholder Approval, the Board of Directors of
Company determines in good faith that their fiduciary
D-24
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obligations under applicable law require that such tender offer or other
written offer or proposal be accepted; provided, however, that (i) the Board
of Directors of Company shall have been advised in a written opinion of
outside counsel that notwithstanding a binding commitment to consummate an
agreement of the nature of this Agreement entered into in the proper exercise
of their applicable fiduciary duties, and notwithstanding all concessions
which may be offered by Authority in negotiations entered into pursuant to
clause (ii) below, such fiduciary duties would also require the directors to
reconsider such commitment as a result of such tender offer or other written
offer or proposal; and (ii) prior to any such termination, Company shall, and
shall cause its respective financial and legal advisors to, negotiate with
Authority to make such adjustments in the terms and conditions of this
Agreement as would enable Company to proceed with the transactions
contemplated herein on such adjusted terms;
(d) by Authority, by written notice to Parent and Company, if (i) there
exist breaches of the representations and warranties of Parent and Company
made herein as of the date hereof which breaches, individually or in the
aggregate, would or would be reasonably likely to result in a Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by Parent and Company of notice in writing from Authority, specifying
the nature of such breaches and requesting that they be remedied, (ii) Parent
or Company shall have failed to perform and comply with, in all material
respects, its agreements and covenants hereunder or under any other Basic
Agreement and such failure to perform or comply shall not have been remedied
within 20 days after receipt by Parent and Company of notice in writing from
Authority, specifying the nature of such failure and requesting that it be
remedied; or (iii) the Board of Directors of Parent or any committee thereof
(A) shall withdraw or modify in any manner adverse to Authority or LIPA Sub
its approval or recommendation of this Agreement or the other Basic
Agreements, (B) shall fail to reaffirm such approval or recommendation upon
Authority's or LIPA Sub's request, or (C) shall resolve to take any of the
actions specified in clause (A) or (B);
(e) by Parent or Company, by written notice to Authority and LIPA Sub, if
(i) there exist material breaches of the representations and warranties of
Authority and LIPA Sub made herein as of the date hereof which breaches,
individually or in the aggregate, would or would be reasonably likely to
result in a Material Adverse Effect, and such breaches shall not have been
remedied within 20 days after receipt by Authority of notice in writing from
Parent, specifying the nature of such breaches and requesting that they be
remedied, (ii) Authority shall have failed to perform and comply with, in all
material respects, its agreements and covenants hereunder or under any other
Basic Agreements, and such failure to perform or comply shall not have been
remedied within 20 days after receipt by Authority or LIPA Sub of notice in
writing from Parent, specifying the nature of such failure and requesting that
it be remedied, or (iii) the Board of Trustees of Authority or any committee
thereof (A) shall withdraw or modify in any manner adverse to Parent or
Company its approval or recommendation of this Agreement or any of the other
Basic Agreements, (B) shall fail to reaffirm such approval or recommendation
upon Parent's or Company's request, or (C) shall resolve to take any of the
actions specified in clause (A) or (B); or
(f) by either Parent and Company, on the one hand, or Authority and LIPA
Sub, on the other hand, by written notice to the other party, if any of the
conditions of either party's obligation to effect the transactions cannot be
satisfied.
Section 9.2 Effect of Termination. In the event of the termination of this
Agreement, the provisions in this Section 9.2, in Sections 7.7, 7.9 and
Article X (and Section 11.7 to the extent it is applicable to such Sections
and Article) shall survive the termination and no party shall be relieved of
any liability for any breach of this Agreement.
Section 9.3 Survival. All of the covenants in the Schedules attached hereto
shall survive the Effective Time. All representations and warranties in this
Agreement shall not survive the Effective Time, except as otherwise provided
in this Agreement.
Section 9.4 Amendment. This Agreement may be amended at any time by the
parties hereto, but only by an instrument in writing signed by each of the
parties hereto; provided, however, that Authority and LIPA Sub shall not
unreasonably withhold their consent to any amendment proposed by Company with
respect to Sections 2.1(b) and (c).
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Section 9.5 Extension; Waiver. At any time prior to the Closing, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or, to the
extent permitted by applicable law, conditions contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed by such party.
ARTICLE X
STANDSTILL
Section 10.1 Standstill. In the event Authority terminates this Agreement,
Authority and its affiliates will not (and will not assist or encourage others
to), directly or indirectly, without the prior consent of Parent and Company,
prior to the date that is six months after the date of termination, if any, of
this Agreement by Authority pursuant to Section 9.1:
(a) acquire or agree, offer, seek or propose to acquire, or cause to be
acquired, ownership (including, but not limited to, beneficial ownership as
defined in Rule 13d-3 under the Exchange Act of any of Company's (or any
successor's) assets or businesses or any securities issued by Company (or any
successor) or any rights or options to acquire such ownership, including from
a third party;
(b) condemn or agree, offer, seek or propose to condemn, or cause to be
condemned, any of Company's (or any successor's) assets or businesses or any
securities issued by Company (or any successor);
(c) make, or in any way participate, in any solicitation of proxies or
consents with respect to any securities of Parent or Company which are, or may
be, entitled to vote in the election of Parent's or Company's directors, as
the case may be ("Voting Securities"), become a "participant" in any "election
contest" (as such terms are defined or used in Rule 14a-11 under the Exchange
Act) with respect to Parent or Company; or seek to advise, encourage or
influence any person or entity with respect to the voting of any of Parent's
or Company's Voting Securities; or demand a copy of Parent's or Company's
stock ledger, list of Parent's or Company's shareholders or other books and
records; or call or attempt to call any meeting of the shareholders of Parent
or Company; or
(d) enter into any discussions, negotiations, arrangements or understandings
with any third party or agency with respect to any of the matters described in
clause (a), (b) or (c) of this Section 10.1.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Certain Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) "affiliate" or "associate" of any specified person means any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing;
(b) "business day" means any day (other than a Saturday or a Sunday) on
which banking institutions in New York City, New York are not authorized or
obligated by law or executive order to close; and
(c) "person" means any individual, corporation, firms, companies, trusts,
business trusts, legal entities general partnership, limited partnership,
joint venture, association, joint-stock company, trust, limited liability
company, unincorporated organization or government or any agency or political
subdivision thereof.
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Section 11.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon receipt if delivered personally
or mailed by registered or certified mail (return receipt requested) or
overnight delivery service to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Authority or LIPA Sub, to:
Long Island Power Authority
333 Earle Ovington Boulevard
Suite 403
Uniondale, New York 11553
Telephone: (516) 222-7700
Attention: Executive Director
with a copy to:
Richard Kessel
Chairman of the Board
Long Island Power Authority
333 Earle Ovington Blvd., Suite 403
Uniondale, New York 11553
Patrick Foye
Deputy Chairman of the Board
Long Island Power Authority
333 Earle Ovington Blvd., Suite 403
Uniondale, New York 11553
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telephone: (212) 858-1000
Attention: Stephen R. Rusmisel
(b) if to Parent or Company, to:
Long Island Lighting Company
175 East Old County Road
Hicksville, New York 11801
Telephone: (516) 545-4800
Attention: Chief Executive Officer
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telephone: (212) 715-9100
Attention: Thomas E. Constance
Section 11.3 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
Section 11.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
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Section 11.5 Entire Agreement; Assignment. This Agreement, including the
annexes and exhibits hereto and the documents, schedules (including, without
limitation, the Disclosure Schedule), certificates and instruments referred to
herein constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of
law or otherwise.
Section 11.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without regard to any
applicable principles of conflicts of law. Except as otherwise provided in
Section 11.10, any action arising out of or relating to this Agreement shall
be brought in New York State Court or Federal District Court.
Section 11.7 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or equity.
Section 11.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 11.9 Severability. This Agreement shall be deemed severable; the
invalidity or unenforceability of any term or provision of this Agreement
shall not affect the validity or enforceability of this Agreement or of any
other term hereof, which shall remain in full force and effect.
Section 11.10 Alternative Dispute Resolution.
(a) Any dispute arising out of or relating to any covenant contained in any
Schedule to this Agreement shall be resolved in accordance with the procedures
specified in this Section 11.10, which shall constitute the sole and exclusive
procedures for the resolution of such disputes, except to the extent any such
Schedule expressly provides another dispute resolution process.
(b) The parties agree to use their best efforts to settle promptly any
disputes or claims arising out of or relating to this Agreement through
negotiation conducted in good faith between executives having authority to
reach such a settlement. If either party hereto shall so request, the parties
shall mutually agree on the selection of a mediator who shall mediate the
negotiations, which shall be non-binding.
All negotiations and mediation discussions pursuant to this paragraph are
confidential and shall be treated as compromise and settlement negotiations
for purposes of Federal Rule of Evidence 408 and applicable state rules of
evidence.
(c) Any dispute arising out of relating to any Schedule to this Agreement or
the breach, termination, or validity thereof, which dispute has not been
resolved by a negotiation or mediation as provided in paragraph (b) hereof
within 60 days from the date that either negotiations or mediation shall have
been first requested, shall be settled by binding arbitration before three
independent and impartial arbitrators in accordance with the then current
rules of the American Arbitration Association, except to the extent such rules
are inconsistent with any provision of this Agreement, in which case the
provisions of this Agreement shall be followed, and except that the
arbitrations under this Agreement shall not be administered by the American
Arbitration Association. The Arbitrators shall be (i) independent of the
parties and disinterested in the outcome of the dispute, (ii) attorneys,
accountants, investment bankers, commercial bankers or engineers familiar with
contracts governing the operation of electric utility assets, and (iii)
qualified in the subject area of the issue in dispute. For purposes of the
preceding sentence, residents of Long Island shall not be considered
interested merely by virtue of their residence. The Arbitrators shall be
chosen by the parties, with each party choosing one arbitrator and those
arbitrators choosing the third arbitrator. Judgment on the award rendered by
the Arbitrators may be entered in any court in the State of New York having
jurisdiction thereof. If either party refuses to participate in good faith
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in the negotiations or mediation proceedings described in paragraph (b)
hereof, the other may initiate arbitration at any time after such refusal
without waiting for the expiration of the 60 day period. Except as provided in
Paragraph (d) hereof relating to provisional remedies, the Arbitrators shall
decide all aspects of any dispute brought to them including attorney
disqualification and the timeliness of the making of any claim.
(d) Either party may, without prejudice to any negotiation, mediation, or
arbitration procedures, proceed in any court of competent jurisdiction to seek
provisional judicial relief if, in such party's sole discretion, such action
is necessary to avoid imminent irreparable harm or to preserve the status quo
pending the conclusion of the dispute procedures specified in this Section
11.10.
(e) The Arbitrators shall have no authority to award punitive damages or any
other damages aside from the prevailing party's actual and consequential
damages, plus interest thereon at the Base Interest Rate (as defined in the
Management Services Agreement) accrued from the date such damages were
incurred. The Arbitrators shall not have the authority to make any ruling,
finding, or award that does not conform to the terms and conditions of this
Agreement.
(f) The Arbitrators may award reasonable attorneys' fees and costs of the
arbitration.
(g) Any claim under any Schedule to this Agreement shall be time-barred,
regardless of any statute of limitations periods provided by state or federal
law, unless negotiation or mediation with respect thereto is commenced with
respect to such claim within twelve months after the basis for such claim has
been discovered.
(h) The Arbitrators shall have the discretion to order a pre-hearing
exchange of information by the parties, including, without limitation, the
production of requested documents, the exchange of summaries of testimony of
proposed witnesses, and the examination by deposition of parties. Each of the
parties agrees to produce all such requested documents and to deliver to the
other a certificate, executed by a senior executive of such party, stating
that all such documents have been so produced.
(i) The site of any arbitration proceeding brought pursuant to this
Agreement shall be Mineola or Hauppauge, New York.
(j) The Arbitrators' award shall be in writing and shall set forth the
factual and legal bases for the award.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
LONG ISLAND LIGHTING COMPANY
By:
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
LONG ISLAND POWER AUTHORITY
By:
Name: Richard M. Kessel
Title: Chairman
By:
Name: Patrick Foye
Title: Deputy Chairman
LIPA ACQUISITION CORP.
By:
Name:
Title:
As contemplated by Section 1.4 hereof, the undersigned has executed and
delivered this Agreement as Parent:
BL HOLDING CORP.
By:
Name:
Title:
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ANNEX E
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1327
[LOGO] MERRILL LYNCH 212 449 1000
June 27, 1997
Board of Directors
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, New York 11201-3850
Ladies and Gentlemen:
The Brooklyn Union Gas Company (the "Company" or "Brooklyn Union") and Long
Island Lighting Company ("Lilco") have entered into an Amended and Restated
Agreement and Plan of Exchange and Merger dated as of June 26, 1997 (the
"Agreement") pursuant to which, among other things, (i) a wholly-owned
subsidiary of a holding company to be formed pursuant to the Agreement
("Newco") will be merged with and into the Company (the "Brooklyn Union
Merger"), as a result of which each issued and outstanding share of the
Company's common stock, par value $0.33 1/3 per share (the "Company Shares"),
other than Dissenting Shares (as defined in the Agreement), will be converted
into the right to receive one newly issued share (the "Exchange Ratio") of the
common stock of Newco, par value $.01 per share (the "Newco Shares"), and (ii)
each issued and outstanding share of Lilco's common stock, par value $5.00 per
share ("Lilco Shares"), other than Dissenting Shares, will be exchanged (the
"Lilco Binding Share Exchange", and together with the Brooklyn Union Merger,
the "Combination Transactions") for 0.803 newly issued Newco Shares, subject
to adjustment to 0.880 newly issued Newco shares if the LIPA Transaction
referred to below is consummated. The terms and conditions of the Combination
Transactions are more fully set forth in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
holders of the Company Shares from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended September 30, 1996 and the
Company's Forms 10-Q and the related unaudited financial information for
the quarterly periods ending December 31, 1996 and March 31, 1997;
(2) Reviewed Lilco's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1996 and
Lilco's Form 10-Q and the related unaudited financial information for
the quarterly period ending March 31, 1997;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company and Lilco, furnished to us by the Company and Lilco;
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[LOGO] MERRILL LYNCH
(4) Conducted discussions with members of senior management of the Company
and Lilco concerning their respective businesses, regulatory
environments, prospects and strategic objectives;
(5) Reviewed the historical market prices and trading activity for the
Company Shares and Lilco Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to
the Company and Lilco, respectively;
(6) Compared the results of operations of the Company and Lilco with that
of certain companies which we deemed to be reasonably similar to the
Company and Lilco, respectively;
(7) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Considered the potential pro forma impact of the Combination
Transactions, including on the Company's capitalization ratios and
earnings, dividends and book value per share;
(9) Reviewed the Agreement;
(10) Reviewed the Agreement and Plan of Merger, dated as of June 26, 1997,
by and among BL Holding Corp., Lilco, Long Island Power Authority
("LIPA") and LIPA Acquisition Corp. (the "LIPA Agreement") providing
for the acquisition by LIPA of certain specified assets and properties
of Lilco (the "LIPA Transaction"); and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have assumed, with your consent, that the LIPA
Transaction, if consummated, will be consummated on the terms contained in the
LIPA Agreement.
In preparing our opinion, we have also assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us
or publicly available or discussed with or reviewed by or for us and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or Lilco. In addition, we have not conducted any
physical inspection of the properties or facilities of the Company or Lilco.
With respect to the financial forecasts furnished to or discussed with us by
the Company and Lilco, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
Company's or Lilco's management as to the expected future financial
performance of the Company or Lilco, as the case may be, and as to the
expected future projected outcomes of various legal, regulatory and other
contingencies. In that regard, Lilco's financial forecasts for the case in
which Lilco retains ownership of its electric transmission and distribution
system, substantially all of its electric regulatory assets and certain other
interests and the LIPA Transaction is not consummated, assume, among other
things, (i) that Lilco will be subject to no reduction in electric rates for
the five-year period ending December 31, 2002, (ii) that Lilco will fully
recover in its current and future electric rates all of its costs referred to
in the Notes to Financial Statements of Lilco for the year ended December 31,
1996, associated with the transfer of the Shoreham Nuclear Power Station to
LIPA and decommissioning thereof, on terms no less favorable to Lilco than the
terms currently in effect, and (iii) that there will be no adverse changes to
Lilco in general competitive conditions for the transmission and sale of
electricity in the areas serviced by Lilco through the construction of new
transmission lines to Long Island or otherwise. We have assumed that the
Combination Transactions will be accounted for as a pooling of interests in
the case where the LIPA Transaction is not consummated and that the Brooklyn
Union Merger will qualify as a tax-free reorganization for U.S. federal income
tax purposes.
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[LOGO] MERRILL LYNCH
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated as of the date hereof. We have assumed that
in the course of obtaining the necessary regulatory or other consents or
approvals for the Combination Transactions and the LIPA Transaction, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Combination Transactions or the LIPA Transaction.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or
any part of the Company. We express no opinion as to what the value of the
Newco Shares actually will be when issued to the holders of the Company Shares
upon consummation of the Combination Transactions or what the value of the
Company Shares or Lilco Shares will be between the date hereof and the
consummation of the Combination Transactions.
This opinion is addressed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholders as to how such
shareholders should vote on the proposed Combination Transactions.
We have acted as financial advisor to the Company in connection with the
Combination Transactions and will receive a fee for our services, a
significant portion of which is contingent upon consummation of the
Combination Transactions. We have, in the past, provided financial advisory
and financing services to the Company and financing services to Lilco and have
received fees for the rendering of such services. In the ordinary course of
our business, we may actively trade the securities of the Company or Lilco for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
On the basis of, and subject to the foregoing and other matters which we
deem relevant, we are of the opinion that, as of the date hereof, the Exchange
Ratio of one Newco Share for each Company Share is fair to the holders of the
Company Shares from a financial point of view if the LIPA Transaction is
consummated, under which circumstances each Lilco Share will be exchanged for
0.880 Newco Shares, and if the LIPA Transaction is not consummated, under
which circumstances each Lilco Share will be exchanged for 0.803 Newco Shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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DILLON, READ & CO. INC.
ANNEX F
December 29, 1996
The Board of Directors
Long Island Lighting Company
175 East Old Country Road
Hicksville, NY 11801
Gentlemen and Ladies:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Stockholders") of common stock, par value $5.00 per
share ("Company Common Stock"), of Long Island Lighting Company (the
"Company") of the Conversion Ratio set forth in the Binding Share Exchange
Agreement, dated as of December 29, 1996 (the "Agreement"), by and among
Brooklyn Union Gas Company ("Brooklyn Union"), Long Island Lighting Company,
and NYECO, a newly created corporation ("NYECO"), pursuant to which Brooklyn
Union and Long Island Lighting Company shall combine and become wholly owned
subsidiaries of NYECO (the "Transaction").
In the event the Transaction is consummated, each issued and outstanding
share of Company Common Stock, other than shares of Company Common Stock to be
canceled pursuant the Agreement, shall be converted into the right to receive
.803 (the "Conversion Ratio") shares of NYECO common stock, $.01 par value,
and each share of Brooklyn Union common stock, other than shares of Brooklyn
Union common stock to be canceled pursuant to the Agreement, shall be
converted into the right to receive one share of NYECO common stock.
In arriving at our opinion, we have, among other things: (i) reviewed
certain business and historical financial information relating to the Company
and Brooklyn Union, (ii) reviewed certain financial forecasts and other data
provided to us by the Company and Brooklyn Union relating to the business and
prospects of the Company and Brooklyn Union, (iii) conducted discussions with
members of the senior management of the Company with respect to the business
and prospects of the Company, (iv) reviewed publicly available financial and
stock market data with respect to certain other companies in lines of business
we believe to be generally comparable to those of the Company and Brooklyn
Union, (v) reviewed the historical market prices and trading volumes of the
Company Common Stock and the common stock of Brooklyn Union, (vi) compared the
proposed financial terms of the Transaction with the financial terms of
certain other mergers which we believe to be generally comparable to the
Transaction, (vii) analyzed the respective contributions in terms of revenue,
earnings, cash flow and common equity of the Company and Brooklyn Union to the
combined company, and the relative ownership of NYECO after the Transaction by
the current holders of the Company Common Stock and Brooklyn Union common
stock, (viii) considered the pro forma effect of the Transaction on the
Company's capitalization ratios, earnings, cash flow and book value per share,
(ix) reviewed the Agreement, and (x) conducted such other financial studies,
analyses and investigations, and considered such other information, as we
deemed necessary or appropriate.
In connection with our review, we have not independently verified any of the
foregoing information and have, with your consent, relied on its being
complete and accurate in all material respects. In addition, we have not made
any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Company or Brooklyn Union or any of their
respective subsidiaries, nor have we been furnished with any such evaluation
or appraisal. With respect to the financial forecasts referred to above, we
have, at your direction, assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and
<PAGE>
judgments of the Company's and Brooklyn Union's management as to the future
financial performance of each company. Our review of Brooklyn Union's current
and anticipated future operations, financial condition and prospects was, with
your consent, based entirely on public information (except for certain limited
internal projections referred to above), and was therefore limited in scope.
We have not held discussions with any members of Brooklyn Union's senior
management. With your consent, we have assumed that the Transaction will be
treated as tax-free to both the Company and the Stockholders and will be
accounted for as a pooling of interests. Further, our opinion is based on
economic, monetary and market conditions existing on the date hereof.
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of
Directors of the Company in connection with the Transaction, for which we will
receive a fee. In the ordinary course of business, we have traded the debt and
equity securities of the Company and Brooklyn Union for our own account and
for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
In rendering this opinion, we express no view as to the range of values at
which NYECO common stock may trade following consummation of the Transaction,
and we are not making any recommendation to the Stockholders with respect to
the advisability of disposing of or retaining such NYECO common stock
following the Transaction.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Conversion Ratio is fair, from a financial point of
view, to the Stockholders.
Very truly yours,
DILLON, READ & CO. INC.
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DILLON, READ & CO. INC.
June 26, 1997
The Board of Directors
Long Island Lighting Company
175 East Old Country Road
Hicksville, NY 11801
Gentlemen and Ladies:
You have requested our opinion as to the fairness, from a financial point of
view, to the Long Island Lighting Company (the "Company") of the Consideration
to be received pursuant to the Agreement and Plan of Merger, dated as of June
26, 1997 (the "LIPA Agreement"), by and among BL Holding Corp. ("Parent"), the
Company, the Long Island Power Authority ("LIPA"), and LIPA Acquisition Corp.
("LIPA Sub. ") pursuant to which LIPA Sub. will merge with and into the
Company (the "LIPA Transaction"). Prior to the LIPA Transaction, the Company
will complete a reorganization pursuant to which its natural gas and electric
generation businesses, and certain other assets, will be distributed to a
newly created subsidiary or subsidiaries of Parent. Pursuant to the LIPA
Transaction, LIPA will pay to Parent $2,497,500,000 in cash (the
"Consideration") for the stock of the Company, which will own the Company's
electric transmission and distribution business ("T&D Business") and certain
other assets of the Company, including regulatory assets of approximately $6.6
billion (the "Regulatory Assets") and the Company's 18% interest in the Nine
Mile Point Two nuclear plant ("Nuclear Assets"). The Company will also have
approximately $3.9 billion of debt and preferred stock outstanding and book
value of approximately $2.5 billion at the time of its merger with LIPA Sub.
Pursuant to the LIPA Transaction, LIPA and Parent (or subsidiaries thereof)
will enter into ancillary agreements pursuant to which Parent (or subsidiaries
thereof) will provide electricity to LIPA and continue to manage essentially
all aspects of the T&D Business ("Basic Agreements").
In arriving at our opinion, we have, among other things: (i) reviewed
certain business and historical financial information relating to the Company,
(ii) reviewed certain financial forecasts and other data provided to us by the
Company, including historical and projected financial information for the T&D
Business, the Nuclear Assets and the Regulatory Assets, (iii) conducted
discussions with members of the senior management of the Company with respect
to the business and prospects of the Company, (iv) reviewed publicly available
financial and stock market data with respect to certain other companies in
lines of business we believe to be generally comparable to the T&D Business,
(v) compared publicly available financial and stock market data for certain
utilities with relatively high concentrations of nuclear generation to certain
utilities with little or no nuclear generation, (vi) reviewed the financial
terms of certain transactions involving transmission and distribution assets,
(vii) considered the pro forma effect of the LIPA Transaction on the Parent's
financial condition, (viii) reviewed the LIPA Agreement, (ix) considered the
financial terms of the Basic Agreements, (x) considered the effect of the LIPA
Transaction on the Company's pending share exchange agreement with The
Brooklyn Union Gas Company, and (xi) conducted such other financial studies,
analyses and investigations, and considered such other information, as we
deemed necessary or appropriate.
In connection with our review, we have not independently verified any of the
foregoing information and have, with your consent, relied on its being
complete and accurate in all material respects. In addition, we have not made
any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Company or any of its subsidiaries, nor have
we been furnished with any such evaluation or appraisal. With respect to the
financial forecasts referred to above, we have, at your direction, assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of management as to the future financial
performance of the Company, the T&D Business, the Nuclear Assets, and the
Regulatory Assets. We have also, at your direction, relied on your advice
regarding the tax consequences of the LIPA
<PAGE>
Transaction. We have not attempted to quantify the regulatory risk inherent in
the Regulatory Assets, which will comprise a majority of the assets the
Company will own at the time of the LIPA Transaction. Further, our opinion is
based on economic, monetary and market conditions existing on the date hereof.
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of
Directors of the Company in connection with the LIPA Transaction, for which we
will receive a fee. In the ordinary course of business, we have traded the
debt and equity securities of the Company for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
In rendering this opinion, we express no view as to the range of values at
which the Parent common stock may trade following consummation of the LIPA
Transaction, and we are not making any recommendation to the stockholders of
the Company with respect to the advisability of disposing of or retaining such
Parent common stock following the LIPA Transaction.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Consideration is fair, from a financial point of view,
to the Company.
Very truly yours,
DILLON, READ & CO. INC.
<PAGE>
DILLON, READ & CO. INC.
June 26, 1997
The Board of Directors
Long Island Lighting Company
175 East Old Country Road
Hicksville, NY 11801
Gentlemen and Ladies:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Stockholders") of common stock, par value $5.00 per
share ("Company Common Stock"), of Long Island Lighting Company (the
"Company") of the Conversion Ratios set forth in the Amended and Restated
Agreement and Plan of Exchange and Merger, dated as of June 26, 1997 (the
"Agreement"), by and among Brooklyn Union Gas Company ("Brooklyn Union") and
Long Island Lighting Company, pursuant to which Brooklyn Union and Long Island
Lighting Company shall combine and become wholly owned subsidiaries of BL
Holding Corp., a newly created holding company (the "Transaction").
In the event the Transaction is consummated, each issued and outstanding
share of Company Common Stock, other than shares of Company Common Stock to be
canceled pursuant the Agreement, shall be converted into the right to receive
.803 (the "Original Ratio") shares, or if the LIPA Transaction is consummated,
.88 (the "LIPA Ratio") shares, of BL Holding Corp. common stock, $.01 par
value, and each share of Brooklyn Union common stock, other than shares of
Brooklyn Union common stock to be canceled pursuant to the Agreement, shall be
converted into the right to receive one share of BL Holding Corp. common
stock.
In arriving at our opinion, we have, among other things: (i) reviewed
certain business and historical financial information relating to the Company
and Brooklyn Union, (ii) reviewed certain financial forecasts and other data
provided to us by the Company and Brooklyn Union relating to the business and
prospects of the Company and Brooklyn Union, (iii) conducted discussions with
members of the senior managements of the Company and Brooklyn Union with
respect to the business and prospects of the Company and Brooklyn Union, (iv)
reviewed publicly available financial and stock market data with respect to
certain other companies in lines of business we believe to be generally
comparable to those of the Company and Brooklyn Union, (v) reviewed the
historical market prices and trading volumes of the Company Common Stock and
the common stock of Brooklyn Union, (vi) compared the proposed financial terms
of the Transaction with the financial terms of certain other mergers which we
believe to be generally comparable to the Transaction, (vii) analyzed the
respective contributions in terms of revenue, earnings, cash flow and common
equity of the Company and Brooklyn Union to the combined company, and the
relative ownership of BL Holding Corp. after the Transaction by the current
holders of the Company Common Stock and Brooklyn Union common stock, (viii)
considered the pro forma effect of the Transaction on the Company's
capitalization ratios, earnings, cash flow and book value per share, (ix)
reviewed the Agreement, and (x) conducted such other financial studies,
analyses and investigations, and considered such other information, as we
deemed necessary or appropriate.
In connection with our review, we have not independently verified any of the
foregoing information and have, with your consent, relied on its being
complete and accurate in all material respects. In addition, we have not made
any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Company or Brooklyn Union or any of their
respective subsidiaries, nor have we been furnished with any such evaluation
or appraisal. With respect to the financial forecasts referred to above, we
have, at your direction, assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and Brooklyn Union's management as to the future financial
performance of each company. With your consent, we have relied on your advice
regarding the tax consequences of the Transaction. Further, our opinion is
based on economic, monetary and market conditions existing on the date hereof.
<PAGE>
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of
Directors of the Company in connection with the Transaction, for which we will
receive a fee. In the ordinary course of business, we have traded the debt and
equity securities of the Company and Brooklyn Union for our own account and
for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
In rendering this opinion, we express no view as to the range of values at
which BL Holding Corp. common stock may trade following consummation of the
Transaction, and we are not making any recommendation to the Stockholders with
respect to the advisability of disposing of or retaining such BL Holding Corp.
common stock following the Transaction.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Original Ratio and the LIPA Ratio are fair, from a
financial point of view, to the Stockholders.
Very truly yours,
DILLON, READ & CO. INC.
<PAGE>
ANNEX G
FORM OF
CERTIFICATE OF INCORPORATION
OF
THE HOLDING COMPANY
UNDER SECTION 402 OF THE
BUSINESS CORPORATION LAW OF THE STATE OF NEW YORK
ARTICLE I
NAME
The name of the corporation (the "Corporation") is " ".
ARTICLE II
PURPOSE
The purposes for which the Corporation is formed are to engage in any lawful
act or activity for which corporations may be organized under the NYBCL, but
the Corporation is not formed to engage in any act or activity requiring the
consent or approval of any state official, department, board, agency or other
body without such consent or approval first being obtained.
ARTICLE III
OFFICE
The office of the Corporation is to be located in the County of ,
State of New York.
ARTICLE IV
CAPITAL STOCK
SECTION 1. The aggregate number of shares which the Corporation shall have
authority to issue shall be 450,000,000 shares of Common Stock, par value $.01
per share, and 100,000,000 shares of Preferred Stock, par value $.01 per
share.
SECTION 2. The amount of capital stock of the Corporation shall be
$7,000,000.
SECTION 3. Shares of Preferred Stock may be issued from time to time in one
or more series as may be determined from time to time by the Board of
Directors. Except in respect of the particulars to be fixed by the Board of
Directors as provided below, all shares of Preferred Stock shall be of equal
rank. All shares in any one series of Preferred Stock shall be alike in every
particular except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative. The
voting rights, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each series and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series. The Board of Directors shall have the
authority to fix by resolution duly adopted prior to the issuance of any
shares of a particular series of Preferred Stock designated by the Board of
Directors, the voting rights, if any, of the holders of shares of such series
and the designations, preferences and relative, participating, optional and
other special rights of each series and the qualifications, limitations and
restrictions thereof (the "Preferred Stock Designation").
G-1
<PAGE>
Without limiting the generality of the foregoing authority of the Board of
Directors, the Board of Directors from time to time may:
(a) establish and designate a series of Preferred Stock, which may be
distinguished by number, letter or title from other Preferred Stock of the
Corporation or any series thereof;
(b) fix and thereafter increase or decrease (but not below the number of
shares thereof then outstanding) the number of shares that shall constitute
such series;
(c) provide for dividends on shares of such series and if provision is
made for dividends, determine the dividend rate and the dates on which
dividends, if declared, shall be payable, whether the dividends shall be
cumulative and, if cumulative, for what date or dates dividends shall
accrue, and the other conditions, if any, including rights of priority, if
any, upon which the dividends shall be paid;
(d) provide as to whether the shares of such series shall be redeemable,
and if redeemable, the terms, limitations and restrictions with respect to
such redemption, including without limitation, the manner of selecting
shares for redemption if less than all shares are to be redeemed, the time
or times and the price or prices at which the shares of such series shall
be subject to redemption, in whole or in part, and the amount, if any, in
addition to any accrued dividends thereon which the holders of shares of
any series shall be entitled to receive upon the redemption thereof, which
amount may vary at different redemption dates and may be different with
respect to shares redeemed through the operation of any purchase,
retirement or sinking fund and with respect to shares otherwise redeemed;
(e) fix the amount, in addition to any accrued dividends thereon, which
the holders of shares of such series shall be entitled to receive upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, which amount may vary at different dates and may vary
depending on whether such liquidation, dissolution or winding up is
voluntary or involuntary, and to determine any other rights, if any, to
which holders of the shares of such series shall be entitled in the event
of any liquidation, dissolution or winding up of the Corporation;
(f) establish whether the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and if so, the terms,
limitations and restrictions with respect thereto, including without
limitation, whether such purchase, retirement or sinking fund shall be
cumulative or noncumulative, the extent to and the manner in which such
funds shall be applied to the purchase, retirement or redemption of the
shares of such series for retirement or to other corporate purposes and the
terms and provisions relative to the operation thereof;
(g) determine the extent of the voting rights, if any, of the shares of
such series and determine whether the shares of such series having voting
rights shall have multiple votes per share;
(h) provide whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of capital
stock of the Corporation, including Common Stock, Preferred Stock or of any
series thereof, and if convertible or exchangeable, establish the
conversion or exchange price or rate, the adjustments thereof, and the
other terms and conditions, if any, on which such shares shall be
convertible or exchangeable; and
(i) provide for any other preferences, any relative participating,
optional or other special rights, any qualifications, limitations or
restrictions thereof, or any other term or provision of shares of such
series as the Board of Directors may deem appropriate or desirable.
Shares of Preferred Stock may be issued by the Corporation for such
consideration as is determined by the Board of Directors.
SECTION 4. The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. The holders of shares of Common Stock
shall be entitled to one vote for each such share upon all proposals presented
to the shareholders on which the holders of Common Stock are entitled to vote.
Except as otherwise provided by law or by the resolution or resolutions
adopted by the Board of Directors designating the rights, powers and
preferences of any series of Preferred Stock, the Common Stock shall have the
exclusive right
G-2
<PAGE>
to vote for the election of Directors and for all other purposes, and holders
of Preferred Stock shall not be entitled to receive notice of any meeting of
shareholders at which they are not entitled to vote. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock, without a
vote of the holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to any Preferred Stock
Designation.
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
ARTICLE V
SHAREHOLDER ACTION
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
holders. Except as otherwise required by law and subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of shareholders of
the Corporation for any purpose or purposes may be called only by the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof
approved by a majority of the total number of Directors which the Corporation
would have if there were no vacancies (the "Whole Board") and any power of
shareholders to call a special meeting is specifically denied. No business
other than that stated in the notice shall be transacted at any special
meeting.
ARTICLE VI
ELECTION OF DIRECTORS
Unless and except to the extent that the By-Laws of the Corporation shall so
require, the election of Directors of the Corporation need not be by written
ballot.
ARTICLE VII
BOARD OF DIRECTORS
SECTION 1. NUMBER, ELECTION AND TERMS. Except as otherwise fixed by or
pursuant to the provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional Directors under
specified circumstances, the number of the Directors of the Corporation shall
be fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the Whole Board. No decrease in the number of Directors, however,
shall shorten the term of any incumbent Director. Directors shall be elected
by the shareholders of the Corporation at their annual meeting, except as
herein otherwise provided for newly created directorships and vacancies, to
serve for one year or until their successors are elected or chosen and
qualified.
SECTION 2. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES; SHAREHOLDER
PROPOSAL OF BUSINESS. Advance notice of shareholder nominations for the
election of Directors and of the proposal of business by shareholders shall be
given in the manner provided in the By-Laws of the Corporation, as amended and
in effect from time to time.
SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise
provided for or fixed by or pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and
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any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative
vote of a majority of the remaining Directors then in office, even though less
than a quorum of the Board of Directors, and not by the shareholders. Any
Director elected in accordance with the preceding sentence shall hold office
for the remainder of such unexpired term or until such Director's successor
shall have been duly elected or chosen and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the term
of any incumbent Director.
SECTION 4. REMOVAL. Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect Directors under specified circumstances, any Director may be removed
from office only for cause by the affirmative vote of the holders of at least
a majority of the voting power of all shares of the Corporation entitled to
vote generally in the election of Directors (the "Voting Stock") then
outstanding, voting together as a single class.
SECTION 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VII.
ARTICLE VIII
BY-LAWS
The By-Laws may be altered or repealed and new By-Laws may be adopted (1) at
any annual or special meeting of shareholders, by the affirmative vote of the
holders of a majority of the voting power of the stock issued and outstanding
and entitled to vote thereat, provided, however, that any proposed alteration
or repeal of, or the adoption of any By-Law inconsistent with, Section 2.2,
2.7 or 2.10 of Article II of the By-Laws or with Section 3.9 or 3.11 of
Article III of the By-Laws, by the shareholders shall require the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock
then outstanding, voting together as a single class; and provided, further,
however, that in the case of any such shareholder action at a special meeting
of shareholders, notice of the proposed alteration, repeal or adoption of the
new By-Law or By-Laws must be contained in the notice of such special meeting,
or (2) by the affirmative vote of a majority of the Whole Board; provided that
any proposed alteration or repeal of, or the adoption of any By-Law
inconsistent with, Section 4.9 or 4.11 of the Article IV of the By-Laws by the
Board of Directors shall require the vote of two-thirds of the Whole Board.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
New York at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and, except as set forth in Articles XIV and XV,
all rights, preferences and privileges of whatsoever nature conferred upon
shareholders, Directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the right reserved in this Article. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80% of the Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal Article V, VII, VIII or
this sentence.
ARTICLE X
AGENT FOR SERVICE OF PROCESS
The Secretary of State of the State of New York is designated as agent of
the Corporation upon whom process against the Corporation may be served. The
post office address to which the Secretary of State shall mail a copy of any
process against the Corporation served upon him is: c/o C T Corporation
System, 1633 Broadway, New York, New York 10019.
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ARTICLE XI
REGISTERED AGENT
The name and address of the registered agent which is to be the agent of the
Corporation upon whom process against it may be served, are C T Corporation
System, 1633 Broadway, New York, New York 10019.
ARTICLE XII
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE XIII
NO PREEMPTIVE RIGHTS
The holders of equity shares and the holders of voting shares (as each term
is defined in Section 622 of the NYBCL) of the Corporation shall not have any
preemptive rights.
ARTICLE XIV
LIMITED LIABILITY; INDEMNIFICATION
SECTION 1. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, or appeal
thereof, whether civil, criminal, administrative or investigative (hereinafter
a "proceeding"), by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a Director or officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a Director, officer, employee or
agent or in any other capacity while serving as a Director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the NYBCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including, but not limited to, all
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a Director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 of this Article XIV,
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this Section 1
shall be a contract right and shall include the right to be paid by the
Corporation the expenses (including, without limitation, attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the NYBCL requires, the payment of such expenses
incurred by a Director or officer in his or her capacity as a Director or
officer (and not in any other capacity in which service was or is rendered by
such person while a Director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such Director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such Director or officer
is not entitled to be indemnified under this Article XIV or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification
to employees and agents of the Corporation with the same scope and effect as
the foregoing indemnification of Directors and officers, or on such other
terms and conditions as the Board of Directors may deem necessary or
desirable.
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SECTION 2. If a claim under Section 1 of this Article XIV is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including, without limitation, attorneys' fees) of prosecuting
such claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding
in advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the NYBCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of
the Corporation (including its Board of Directors, or any part thereof,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the NYBCL, nor an actual determination by the
Corporation (including its Board of Directors, or any part thereof,
independent legal counsel, or its shareholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
SECTION 3. The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in
this Article XIV shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Certificate
of Incorporation, By-Law, agreement, vote of shareholders or disinterested
Directors or otherwise.
SECTION 4. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, to the fullest extent allowed by law,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the NYBCL.
ARTICLE XV
DIRECTOR LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its shareholders for damages for any breach of duty in such
capacity except that the liability of a Director shall not be so limited if
(1) a judgment or other final adjudication adverse to him establishes that his
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or that his
acts violated Section 719 of the NYBCL, or (2) his acts or omissions occurred
prior to the adoption of this provision. No amendment to or repeal of this
Article XV shall apply to or have any effect on the liability or alleged
liability of any Director of the Corporation for or with respect to any acts
or omissions of such Director occurring prior to such amendment or repeal. If
the NYBCL is amended hereafter to expand or limit the liability of a director,
then the liability of a Director of the Corporation shall be expanded to the
extent required or limited to the extent permitted by the NYBCL, as so
amended.
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ANNEX H
FORM OF
BY-LAWS
OF
THE HOLDING COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. NEW YORK OFFICE. The office of the Corporation in the State of
New York shall be located in the County of .
SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of New York, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation may
be kept outside the State of New York at such place or places as may from time
to time be designated by the Board of Directors.
ARTICLE II
SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the shareholders of the
Corporation shall be held on such date and at such time as may be fixed by
resolution of the Board of Directors.
SECTION 2.2. SPECIAL MEETING. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of shareholders of the Corporation for any purpose or purposes may be
called only by the Board of Directors pursuant to a resolution stating the
purpose or purposes thereof approved by a majority of the total number of
Directors which the Corporation would have if there were no vacancies (the
"Whole Board").
SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate the
place of meeting for any annual meeting or for any special meeting of the
shareholders. If no designation is so made, the place of meeting shall be the
principal office of the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Corporation not less than 10
calendar days nor more than 50 calendar days before the date of the meeting,
either personally or by mail, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed to
the shareholder at such person's address as it appears on the stock transfer
books of the Corporation. Such further notice shall be given as may be
required by law. Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Meetings may be held without notice if all
shareholders entitled to vote are present, or if notice is waived by those not
present in accordance with Section 6.4 of these By-Laws. Any previously
scheduled meeting of the shareholders may be postponed, and any special
meeting of the shareholders may be canceled, by resolution of the Board of
Directors upon public notice given prior to the date previously scheduled for
such meeting of shareholders.
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SECTION 2.5. QUORUM AND ADJOURNMENT; VOTING. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of all outstanding shares of the Corporation entitled to vote
generally in the election of Directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders,
except that when specified business is to be voted on by a class or series of
stock voting as a class, the holders of a majority of the shares of such class
or series shall constitute a quorum of such class or series for the
transaction of such business. The Chairman of the meeting may adjourn the
meeting from time to time, whether or not there is such a quorum. No notice of
the time and place of adjourned meetings need be given except as required by
law. The shareholders present at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
SECTION 2.6. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing (or in such manner prescribed by the New
York Business Corporation Law (the "NYBCL")) by the shareholder, or by such
person's duly authorized attorney in fact.
SECTION 2.7. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (a) pursuant to the Corporation's notice of meeting pursuant
to Section 2.4 of these By-Laws, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the Corporation who was a shareholder
of record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such other business must otherwise be
a proper matter for shareholder action. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th calendar day nor
earlier than the close of business on the 90th calendar day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 calendar days
before or more than 60 calendar days after such anniversary date, notice by
the shareholder to be timely must be so delivered not earlier than the close
of business on the 90th calendar day prior to such annual meeting and not
later than the close of business on the later of the 60th calendar day prior
to such annual meeting or the 10th calendar day following the calendar day on
which public announcement of the date of such meeting is first made by the
Corporation. For purposes of determining whether a shareholder's notice shall
have been delivered in a timely manner for the annual meeting of shareholders
in 199 , the first anniversary of the previous year's meeting shall be deemed
to be , 199 . In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of
a shareholder's notice as described above. Such shareholder's notice shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or reelection as a Director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); (b) as to any other business that
the shareholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such shareholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
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(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-Law to the contrary, in the event that the number of Directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
Director or specifying the size of the increased Board of Directors at least
70 calendar days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this By-Law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th calendar day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Shareholders. Nominations of persons for election to
the Board of Directors may be made at a special meeting of shareholders at
which Directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b) provided
that the Board of Directors has determined that Directors shall be elected at
such meeting, by any shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided for in this By-Law, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law. In the event the Corporation calls a special meeting
of shareholders for the purpose of electing one or more Directors to the Board
of Directors, any shareholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting pursuant to clause (b) of the preceding sentence, if the
shareholder's notice complying with the requirements of clauses (a) and (c) of
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th calendar day prior to such special meeting and not later
than the close of business on the later of the 60th calendar day prior to such
special meeting or the 10th calendar day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a shareholder's notice as
described above.
(C) General. (1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as Directors
and only such business shall be conducted at a meeting of shareholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect Directors under an applicable
Preferred Stock Designation (as defined in the Certificate of Incorporation).
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of
Directors at all meetings of the shareholders at which Directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect Directors under an applicable Preferred
Stock Designation, a plurality of the votes cast thereat shall elect
Directors. Except as otherwise provided by law, the Certificate of
Incorporation, Preferred Stock Designation, or these By-Laws, in all matters
other than the election of Directors, the affirmative vote of a majority of
the voting power of the shares present in person or represented by proxy at
the meeting and entitled to vote on the matter shall be the act of the
shareholders.
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SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The
Board of Directors by resolution shall appoint, or shall authorize an officer
of the Corporation to appoint, one or more inspectors, which inspector or
inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of shareholders and make a written
report thereof. One or more persons may be designated as alternate
inspector(s) to replace any inspector who fails to act. If no inspector or
alternate has been appointed to act or is able to act at a meeting of
shareholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging such person's
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of such person's
ability. The inspector(s) shall have the duties prescribed by law. The
Chairman of the meeting shall fix and announce at the meeting the date and
time of the opening and the closing of the polls for each matter upon which
the shareholders will vote at a meeting.
SECTION 2.10. NO SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action required
or permitted to be taken by the shareholders of the Corporation must be
effected at a duly called annual or special meeting of such holders and may
not be effected by any consent in writing by such holders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon them, the
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
shareholders. A Director of this Corporation need not be a shareholder
therein.
SECTION 3.2. NUMBER AND TENURE. Except as otherwise fixed by or pursuant to
the provisions of Article IV of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
Directors under specified circumstances, the number of the Directors of the
Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the Whole Board. No decrease in the number
of Directors, however, shall shorten the term of any incumbent Director.
Directors shall be elected by the shareholders of the Corporation at their
annual meeting, except as herein otherwise provided for vacancies and newly
created directorships, in the manner provided in Article II hereof, to serve
for one year or until their successors are elected or chosen and qualified.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may, by resolution, provide the time and place for the holding of additional
regular meetings without other notice than such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board, the President or
a majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the
place and time of the meetings.
SECTION 3.5. NOTICE. Notice of any special meeting of Directors shall be
given to each Director at such person's business or residence in writing by
hand delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least 5 calendar
days before such meeting. If by telegram, overnight mail or courier service,
such notice shall be deemed adequately delivered when the telegram is
delivered to the telegraph company or the notice is delivered to the overnight
mail or courier service company at least 24 hours before such meeting. If by
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facsimile transmission, such notice shall be deemed adequately delivered when
the notice is transmitted at least 12 hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least 12 hours
prior to the time set for the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of
Directors need be specified in the notice of such meeting, except for
amendments to these By-Laws. A meeting may be held at any time without notice
if all the Directors are present or if those not present waive notice of the
meeting either before or after such meeting.
SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 3.7. CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. QUORUM. Subject to Section 3.9, a whole number of Directors
equal to at least a majority of the Whole Board shall constitute a quorum for
the transaction of business, but if at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of the Directors present
may adjourn the meeting from time to time without further notice. The act of
the majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. The Directors present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Directors to leave less than a
quorum.
SECTION 3.9. VACANCIES. Except as otherwise provided for or fixed by or
pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the
Board of Directors. Any Director elected in accordance with the preceding
sentence shall hold office for the remainder of such unexpired term or until
such Director's successor shall have been duly elected or chosen and
qualified. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 3.10. COMMITTEES. (a) The Board of Directors may, by resolution
adopted by a majority of the Whole Board, designate committees to exercise,
subject to applicable provisions of law, any or all the powers of the Board in
the management of the business and affairs of the Corporation when the Board
is not in session, including without limitation the power to declare dividends
and to authorize the issuance of the Corporation's capital stock. Each such
committee shall consist of two or more Directors of the Corporation. The Board
may designate one or more Directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Any such committee may to the extent permitted by law exercise such powers and
shall have such responsibilities as shall be specified in the designating
resolution. In the absence or disqualification of any member of such committee
or committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board when required.
(b) A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board shall otherwise provide. Notice of
such meetings shall be given to each member of the committee in
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the manner provided for in Section 3.5 of these By-Laws. The Board shall have
power at any time to fill vacancies in, to change the membership of, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part of
persons who are not Directors of the Corporation; provided, however, that no
such committee shall have or may exercise any authority of the Board.
SECTION 3.11. REMOVAL. Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect Directors under specified circumstances, any Director may be removed
from office only for cause by the affirmative vote of the holders of at least
a majority of the voting power of all Voting Stock then outstanding, voting
together as a single class.
SECTION 3.12. RECORDS. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board
and of the shareholders, appropriate stock books and registers and such books
of records and accounts as may be necessary for the proper conduct of the
business of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation shall
be a Chairman of the Board of Directors, a Chief Executive Officer, a
President, a Secretary, a Treasurer, and such other officers (including,
without limitation, Senior Vice Presidents and Executive Vice Presidents and
Vice Presidents) as the Board of Directors from time to time may deem proper.
The Chairman of the Board shall be chosen from among the Directors. All
officers elected by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this Article IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof. The Board or any committee thereof may
from time to time elect such other officers (including one or more Vice
Presidents, Controllers, Assistant Secretaries and Assistant Treasurers), as
may be necessary or desirable for the conduct of the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or such committee, as the case may be.
SECTION 4.2. ELECTION AND TERM OF OFFICE. Except as provided in Section
4.11, the elected officers of the Corporation shall be elected annually by the
Board of Directors at the regular meeting of the Board of Directors held after
the annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
convenient. Each officer shall hold office until such person's successor shall
have been duly elected and shall have qualified or until such person's death
or until he shall resign or be removed pursuant to Section 4.9.
SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the shareholders and of the Board of Directors. The
Chairman of the Board shall perform all such other duties as are properly
required of him by the Board of Directors. The Chairman of the Board may also
serve as President, if so elected by the Board. The Directors also may elect a
Vice-Chairman to act in the place of the Chairman upon his or her absence or
inability to act.
SECTION 4.4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall be responsible for the general management of the affairs of
the Corporation and shall make reports to the Board of Directors and the
shareholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect.
SECTION 4.5. PRESIDENT. The President shall act in a general executive
capacity and shall assist the Chief Executive Officer in the administration
and operation of the Corporation's business and general supervision of
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its policies and affairs. The President, if he or she is also a Director,
shall, in the absence of or because of the inability to act of the Chairman of
the Board, perform all duties of the Chairman of the Board and preside at all
meetings of shareholders and of the Board of Directors.
SECTION 4.6. VICE PRESIDENTS. Each Senior Vice President and Executive Vice
President and any Vice President shall have such powers and shall perform such
duties as shall be assigned to him by the Board of Directors.
SECTION 4.7. TREASURER. The Treasurer shall exercise general supervision
over the receipt, custody and disbursement of corporate funds. The Treasurer
shall cause the funds of the Corporation to be deposited in such banks as may
be authorized by the Board of Directors, or in such banks as may be designated
as depositories in the manner provided by resolution of the Board of
Directors. The Treasurer shall have such further powers and duties and shall
be subject to such directions as may be granted or imposed from time to time
by the Board of Directors.
SECTION 4.8. SECRETARY. (a) The Secretary shall keep or cause to be kept in
one or more books provided for that purpose, the minutes of all meetings of
the Board, the committees of the Board and the shareholders; the Secretary
shall see that all notices are duly given in accordance with the provisions of
these By-Laws and as required by law; shall be custodian of the records and
the seal of the Corporation and affix and attest the seal to all stock
certificates of the Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; and shall see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and in general, shall perform all the
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to the Secretary by the Board.
(b) Assistant Secretaries shall have such of the authority and perform such
of the duties of the Secretary as may be provided in these By-Laws or assigned
to them by the Board of Directors or by the Secretary. During the Secretary's
absence or inability, the Secretary's authority and duties shall be possessed
by such Assistant Secretary or Assistant Secretaries as the Board of Directors
may designate.
SECTION 4.9. REMOVAL. Any officer elected, or agent appointed, by the Board
of Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby, except that the officers elected as contemplated by Section
4.11 may be removed from the offices specified therein during the terms
specified therein only by the vote of two-thirds of the Whole Board. No
elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of
such person's successor, such person's death, such person's resignation or
such person's removal, whichever event shall first occur, except as otherwise
provided in an employment contract or under an employee deferred compensation
plan.
SECTION 4.10. VACANCIES. A newly created elected office and a vacancy in any
elected office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors.
SECTION 4.11. CERTAIN OFFICERS. Notwithstanding any provision herein to the
contrary, effective as of [the first anniversary of the Effective Time], Dr.
William J. Catacosinos shall be elected Chairman of the Board of Directors and
Chairman of the Executive Committee of the Board of Directors and Mr. Robert
B. Catell shall be elected Chief Executive Officer of the Corporation, in each
case, for a term ending at the regular meeting of the Board of Directors held
after the [next] annual meeting of shareholders. This Section 4.11 may be
modified only by the affirmative vote of two-thirds of the Whole Board.
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ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest of each
shareholder of the Corporation shall be evidenced by certificates for shares
of stock in such form as the appropriate officers of the Corporation may from
time to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by such person's attorney, upon surrender for cancellation of certificates for
at least the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No certificate for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount, upon such terms and secured by such
surety, as the Board of Directors or any financial officer may in its or such
person's discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. [The fiscal year of the Corporation shall begin on
the first day of January and end on the thirty-first day of December of each
year.]
SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and the
Certificate of Incorporation.
SECTION 6.3. SEAL. The corporate seal shall have inscribed thereon the words
"Corporate Seal," the year of incorporation and around the margin thereof the
words "New York."
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be given
to any shareholder or Director of the Corporation under the provisions of the
NYBCL or these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special
meeting of the shareholders or the Board of Directors or committee thereof
need be specified in any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall
be the duty of the Board of Directors to cause such audit to be done annually.
SECTION 6.6. RESIGNATIONS. Any Director or any officer, whether elected or
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of the Board, the Chief Executive Officer, the President or
the Secretary, and such resignation shall be deemed to be effective as of the
close of business on the date said notice is received by the Chairman of the
Board, the Chief Executive Officer, the President or the Secretary, or at such
later time as is specified therein. No formal action shall be required of the
Board of Directors or the shareholders to make any such resignation effective.
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ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. CONTRACTS. Except as otherwise required by law, the Certificate
of Incorporation, a Preferred Stock Designation, or these By-Laws, any
contracts or other instruments may be executed and delivered in the name and
on the behalf of the Corporation by such officer or officers of the
Corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. The Chairman of the Board, the Chief Executive Officer, the
President or any Senior Vice President, Executive Vice President or Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors, the Chief Executive Officer,
the President or any Senior Vice President, Executive Vice President or Vice
President of the Corporation may delegate contractual powers to others under
such person's jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 7.2. PROXIES. Unless otherwise provided by resolution adopted by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer,
the President or any Senior Vice President, Executive Vice President or Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the votes which the Corporation may be entitled to cast as the holder of
stock or other securities in any other corporation, any of whose stock or
other securities may be held by the Corporation, at meetings of the holders of
the stock or other securities of such other corporation, or to consent in
writing, in the name of the Corporation as such holder, to any action by such
other corporation, and may instruct the person or persons so appointed as to
the manner of casting such votes or giving such consent, and may execute or
cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS. Except as otherwise specified herein, the By-Laws
may be altered or repealed and new By-Laws may be adopted (1) at any annual or
special meeting of shareholders by the affirmative vote of the holders of a
majority of the voting power of the stock issued and outstanding and entitled
to vote thereat, provided, however, that any proposed alteration or repeal of,
or the adoption of any By-Law inconsistent with, Section 2.2, 2.7 or 2.10 of
Article II or Section 3.9 or 3.11 of Article III of the By-Laws by the
shareholders shall require the affirmative vote of the holders of at least 80%
of the voting power of all Voting Stock then outstanding, voting together as a
single class, and provided, further, however, that, in the case of any such
shareholder action at a special meeting of shareholders, notice of the
proposed alteration, repeal or adoption of the new By-Law or By-Laws must be
contained in the notice of such special meeting, or (2) by the affirmative
vote of a majority of the Whole Board.
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ANNEX I
SECTION 623 AND SECTION 910 OF THE NEW YORK BUSINESS CORPORATION LAW
(S) 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not
to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenter's rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
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transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares
at a specified price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth the aggregate
number of shares with respect to which notices of election to dissent have
been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the
certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation,
whose shares are to be valued, was located.
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(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of
interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to
the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer
or required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying
with its obligations as provided in this section was arbitrary, vexatious
or otherwise not in good faith. In making any determination as provided in
clause (A), the court may consider the dollar amount or the percentage, or
both, by which the fair value of the shares as determined exceeds the
corporate offer.
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(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is
not liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except
that this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
(S) 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR
SHARE EXCHANGE
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to
receive payment for shares), have the right to receive payment of the fair
value of his shares and the other rights and benefits provided by such
section, in the following cases:
(1) Any shareholder entitled to vote who does not assent to the taking of
an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a
party; except that the right to receive payment of the fair value of his
shares shall not be available:
(i) To a shareholder of the parent corporation in a merger authorized
by section 905 (Merger of parent and subsidiary corporations), or
paragraph (c) of section 907 (Merger or consolidation of domestic and
foreign corporations); and
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(ii) To a shareholder of the surviving corporation in a merger
authorized by this article, other than a merger specified in
subparagraph (i), unless such merger effects one or more of the changes
specified in subparagraph (b)(6) of section 806 (Provisions as to
certain proceedings) in the rights of the shares held by such
shareholder.
(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires shareholder
approval under section 909 (Sale, lease, exchange or other disposition of
assets) other than a transaction wholly for cash where the shareholders'
approval thereof is conditioned upon the dissolution of the corporation and
the distribution of substantially all of its net assets to the shareholders
in accordance with their respective interests within one year after the
date of such transaction.
(C) Any share exchange authorized by section 913 in which the corporation
is participating as a subject corporation; except that the right to receive
payment of the fair value of his shares shall not be available to a
shareholder whose shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger authorized
by section 905 or paragraph (c) of section 907, or in a share exchange
authorized by paragraph (g) of section 913, who files with the corporation
a written notice of election to dissent as provided in paragraph (c) of
section 623.
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ANNEX J
QUESTIONS AND ANSWERS AND SUMMARY ABOUT BROOKLYN UNION'S
HOLDING COMPANY PROPOSAL AND THE KEYSPAN SHARE EXCHANGE
This Annex J describes the Brooklyn Union holding company proposal and
discusses the effects of the KeySpan share exchange. For a description of the
proposed LILCO Combination, the LIPA Transaction and their effects, see the
Joint Proxy Statement/Prospectus.
The following Questions and Answers and Summary highlight selected
information on Proposal 2 at our Special Meeting regarding Brooklyn Union's
holding company proposal and the KeySpan share exchange, and may not contain
all of the information that is important to you. For a more complete
discussion of Brooklyn Union's holding company proposal and the KeySpan share
exchange, you should read carefully this entire document and the attached
annexes and the documents referred to you. For example, the Amended and
Restated Agreement and Plan of Exchange attached to this Joint Proxy
Statement/Prospectus as Annex K provides for the KeySpan share exchange, and
KeySpan's restated certificate of incorporation and by-laws (Annex L) set out,
among other things, provisions governing certain rights of KeySpan's
shareholders. The information in Annex J should also be reviewed in
conjunction with the information provided elsewhere in this Joint Proxy
Statement/Prospectus as it relates to the LILCO Combination and LIPA
Transaction since those transactions and the agreements governing them will
affect the rights of Brooklyn Union's and KeySpan's shareholders. See also
"Where You Can Find More Information" on page 110 of this Joint Proxy
Statement/Prospectus.
1. WHAT IS BROOKLYN UNION'S HOLDING COMPANY PROPOSAL? WHY IS IT BEING
PROPOSED?
Brooklyn Union is proposing to establish a holding company structure
through a share exchange, with the new holding company being called
KeySpan Energy Corporation. After the share exchange, Brooklyn Union will
continue to operate its present utility business as a subsidiary of
KeySpan, and it is intended that certain, if not all, of Brooklyn Union's
non-utility subsidiaries will eventually become separate direct
subsidiaries of KeySpan. New non-utility subsidiaries also will be set up
as separate direct subsidiaries of KeySpan.
We are very enthusiastic about our holding company proposal. We believe it
will give us the financial and regulatory flexibility to compete more
effectively in the increasingly competitive energy industry by relaxing
constraints imposed by the New York Public Service Commission ("PSC") on
incremental investments in unregulated operations, annual investments,
amounts invested in any single line of business, and financial ratios of
subsidiaries. Relaxing constraints and eliminating time-lags associated
with regulatory decisions should allow more rapid moves in an industry
where competitors do not have the same constraints as regulated entities.
We also believe that a holding company structure should provide greater
opportunities for growth and enhanced values, greater flexibility in
developing new businesses, and greater flexibility regarding the timing,
method and amount of financings and acquisitions, through the discernible
separation between our utility and non-utility businesses and relaxed
constraints on unregulated activities.
It is impossible for us to predict with certainty when the business
combination with LILCO will be consummated. By proceeding with the KeySpan
restructuring at this time, Brooklyn Union will have additional
flexibility to make investments in unregulated businesses whether or not
the LILCO transaction is consummated. Brooklyn Union's ability to make
further investments in unregulated businesses is restricted by a PSC order
and is subject to certain restrictions under its agreement with LILCO.
Your Board of Directors has unanimously approved our holding company
proposal and the share exchange and believes their adoption is in the best
interests of Brooklyn Union and its shareholders. YOUR BOARD RECOMMENDS
THAT YOU VOTE "FOR" THAT PROPOSAL AND ADOPTION OF THE AMENDED AND RESTATED
AGREEMENT AND PLAN OF EXCHANGE AT THE BROOKLYN UNION MEETING.
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2. WHAT TYPE OF BUSINESSES WILL KEYSPAN ENGAGE IN?
In addition to becoming the parent holding company of Brooklyn Union and
all non-utility subsidiaries we create in the future, it is our intention
that KeySpan eventually will own directly certain, if not all, of our
principal investments in existing non-utility businesses. These currently
include gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-
related services. KeySpan will also be able to invest directly in certain
other businesses and ventures that should strengthen our ability to
provide total energy services in an increasingly competitive marketplace.
The principal executive offices of Brooklyn Union are located at One
MetroTech Center, Brooklyn, New York 11201-3850, and its telephone number
is (718) 403-2000. KeySpan's principal executive offices are at the same
address; its telephone number is (718) 403-1000.
3. HOW DOES THE RESTRUCTURING AFFECT THE PROPOSED BUSINESS COMBINATION WITH
LILCO?
The KeySpan restructuring and the LILCO Combination are not conditioned on
one another. If Brooklyn Union's shareholders approve the holding company
proposal, we will proceed with the restructuring regardless of whether the
LILCO Combination is approved or consummated. If Brooklyn Union's
shareholders approve both proposals, we intend to proceed with the
restructuring first and have KeySpan assume Brooklyn Union's rights and
obligations under the Brooklyn Union/LILCO Agreement with LILCO. In that
case, KeySpan effectively will be replacing Brooklyn Union as the entity
that will engage in a share exchange with BL Holding Corp. ("BL"), the
holding company for both Brooklyn Union and LILCO. Once Brooklyn Union and
the non-utility subsidiaries become indirect subsidiaries of BL, we expect
to eventually dissolve KeySpan as a legal entity so that there would only
be one holding company for Brooklyn Union, the non-utility subsidiaries
and LILCO.
In effect, consummating the LILCO Combination as we described in the Joint
Proxy Statement/Prospectus will also enable Brooklyn Union to put itself
in a holding company structure. Shareholder approval of the KeySpan
holding company proposal, however, will allow us to take advantage of the
holding company structure prior to the closing of the LILCO Combination.
This Annex J generally discusses the reasons for and effects of the
KeySpan restructuring separate from the LILCO Combination. For a
discussion of the LILCO Combination, the related LIPA Transaction and a
description of the combined entity after the LILCO Combination, please see
the Joint Proxy Statement/Prospectus.
4. WHAT IS THE KEYSPAN SHARE EXCHANGE?
The KeySpan share exchange is the means by which our holding company
structure will be established. If Brooklyn Union's shareholders approve
our holding company proposal and adopt the related Amended and Restated
Agreement and Plan of Exchange at our Special Meeting, Brooklyn Union
common shareholders will automatically become holders of common stock of
KeySpan on the basis of one share of Brooklyn Union for one share of
KeySpan. Following the share exchange, KeySpan will own all of Brooklyn
Union's outstanding common stock, and it is intended that new non-utility
subsidiaries also will be established as separate direct subsidiaries of
KeySpan and certain, if not all, of Brooklyn Union's non-utility
subsidiaries eventually will become separate subsidiaries of KeySpan.
5. WILL I HAVE TO EXCHANGE MY BROOKLYN UNION STOCK CERTIFICATES FOR NEW
KEYSPAN CERTIFICATES?
No. Your present certificates for Brooklyn Union common stock will
automatically represent an equal number of shares of KeySpan common stock
when the exchange occurs and will no longer represent Brooklyn Union
common stock.
6. WHEN WILL THE KEYSPAN SHARE EXCHANGE OCCUR?
We expect the exchange to occur in the third quarter of calendar 1997,
assuming
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shareholder approval at the Brooklyn Union Meeting. If approved, we will
proceed with the KeySpan restructuring regardless of whether the Brooklyn
Union/LILCO Agreement with LILCO is also approved.
7. WHERE WILL MY KEYSPAN COMMON STOCK BE TRADED? WHAT WILL BE THE TICKER SYM-
BOL?
KeySpan common stock will be listed on the New York Stock Exchange, and
will trade under the ticker symbol "KSE".
Brooklyn Union's common stock is presently listed and principally traded
on the New York Stock Exchange. The reported closing price of our common
stock on June 23, 1997 was $28 5/8. After the share exchange, Brooklyn
Union's common stock will no longer trade and will be delisted.
8. WILL MY DIVIDENDS BE AFFECTED?
While future dividends on KeySpan common stock will depend on the
earnings, financial condition and capital requirements of KeySpan and
Brooklyn Union and the dividends Brooklyn Union pays to KeySpan, we expect
to continue Brooklyn Union's policy of paying an appropriate percentage of
earnings to shareholders. In the future, dividends from KeySpan's other
subsidiaries may also be a source of funds for KeySpan's dividend
payments. KeySpan presently expects to pay quarterly common stock
dividends at least equal to, and on approximately the same schedule as,
the dividend most recently declared on Brooklyn Union's common stock.
The September 25, 1996 New York Public Service Commission order approving
our holding company proposal imposes certain limitations on dividends that
Brooklyn Union may pay to KeySpan after the share exchange. Generally,
Brooklyn Union may not pay KeySpan more than 100% of income available for
dividends. Under certain circumstances, further limits may be placed upon
the amount of dividends Brooklyn Union may pay to KeySpan.
(SEE PAGES J-15-J-17)
The dividend policy for the Holding Company after the LILCO Combination is
described on pages 2 and 63 of the Joint Proxy Statement/Prospectus.
9. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES TO COMMON SHAREHOLDERS?
If a shareholder exchanges solely Brooklyn Union common stock solely for
KeySpan common stock, that shareholder will not recognize any gain or loss
under Federal income tax laws.
(SEE PAGES J-17-J-18)
10. WILL BROOKLYN UNION PREFERRED STOCK OR BONDS BE EXCHANGED?
Brooklyn Union will redeem the outstanding preferred stock prior to the
consummation of the KeySpan share exchange if Proposal 2 is approved by
Brooklyn Union common shareholders at the Brooklyn Union Meeting. Brooklyn
Union's bonds will not change and will continue to be obligations of
Brooklyn Union.
(SEE PAGE J-19)
11. WHO WILL MANAGE KEYSPAN?
A new Board of Directors of KeySpan will be elected before the KeySpan
share exchange by Brooklyn Union as sole shareholder of KeySpan. It will
consist of a number of existing Brooklyn Union directors and vacancies
will be filled in the future. Certain existing officers of Brooklyn Union
will also serve as officers of KeySpan. Robert B. Catell will be chairman,
president and chief executive officer and a director of KeySpan, and will
continue as chairman and chief executive officer and a director of
Brooklyn Union.
The September 25, 1996 New York Public Service Commission order approving
our holding company proposal contains certain restrictions on Board and
managerial interlocks between Brooklyn Union and KeySpan and other
subsidiaries of KeySpan.
(SEE PAGE J-30)
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12. HOW WILL MY PARTICIPATION IN THE DIVIDEND REINVESTMENT PLAN BE AFFECTED?
All shares of Brooklyn Union common stock held under our Dividend
Reinvestment and Stock Purchase Plan will be automatically exchanged for
shares of KeySpan common stock. We will continue the Dividend Reinvestment
and Stock Purchase Plan with KeySpan common stock after the share
exchange. For a description of the effects of the LILCO Combination on
these plans, see page J-14 and page 72 of the Joint Proxy
Statement/Prospectus.
13. WHAT DO I NEED TO DO NOW?
Just mail your signed proxy card in the enclosed postage-paid return
envelope as soon as possible, so that your shares may be represented at
the Brooklyn Union Meeting. The meeting will take place at 3:00 p. m. on
August 7, 1997 at Opera House, Brooklyn Academy of Music, 30 Lafayette
Avenue, Brooklyn, New York.
14. WHAT SHAREHOLDER VOTE IS REQUIRED FOR APPROVAL OF OUR HOLDING COMPANY
PROPOSAL AND THE KEYSPAN SHARE EXCHANGE?
Holders of record of Brooklyn Union common stock on June 26, 1997 are
entitled to vote at the Brooklyn Union Meeting. Two-thirds of the
outstanding shares of Brooklyn Union common stock must be voted "FOR"
Proposal 2 at our Special Meeting in order to approve our holding company
proposal and the KeySpan share exchange.
15. WHO CAN I CALL IF I HAVE ANY QUESTIONS?
We have set up a special number for you. You are welcome to call Georgeson
& Company Inc., which is assisting in our proxy solicitation, toll free,
at 1-800-223-2064.
FOR BROOKLYN UNION EMPLOYEES AND RETIREES:
16. HOW WILL STOCK-BASED EMPLOYEE BENEFIT PLANS BE AFFECTED?
Brooklyn Union's Employee Savings Plan, Discount Stock Purchase Plan for
Employees, and Long-Term Performance Incentive Compensation Plan will be
amended to provide for ownership of common shares of KeySpan instead of
Brooklyn Union common stock, and KeySpan will take over responsibility for
these plans. All existing shares of Brooklyn Union common stock held in
these plans, or subject to plan options or performance awards, will
automatically become an equal number of common shares or stock options or
performance awards of KeySpan, and KeySpan will be the issuer of future
stock options and awards. Upon consummation of the LILCO Combination
described elsewhere in this Joint Proxy Statement/Prospectus, the Holding
Company will assume these plans and the shares, options and awards granted
under them. See page J-18 and page 72 of the Joint Proxy
Statement/Prospectus.
17. WHAT WILL HAPPEN TO BROOKLYN UNION'S RETIREMENT AND OTHER EMPLOYEE BENEFIT
PLANS?
KeySpan will take over responsibility for all Brooklyn Union retirement
and employee benefit plans, such as our defined benefit and defined
contribution pension plans, health plans and disability plans. Benefits
provided for in these plans will not be changed as a result of our
restructuring into a holding company. For a description of the effects of
the LILCO Combination on these plans, see page 72 of the Joint Proxy
Statement/Prospectus.
SUMMARY OF OTHER SELECTED INFORMATION:
CERTAIN CONSIDERATIONS (SEE PAGES J-10-J-11)
Certain factors for your consideration in determining whether to vote "FOR" our
holding company proposal and to adopt the related Amended and Restated
Agreement and Plan of Exchange are discussed under "Proposal 2: Holding Company
and Adoption of the KeySpan Exchange Agreement--Certain Considerations."
REGULATORY APPROVALS (SEE PAGE J-13)
The New York Public Service Commission approved our holding company
restructuring by an order dated September 25, 1996. This order also
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approved a new rate plan that became effective on October 1, 1996 and certain
customer protection provisions. The new rate plan will continue to apply, even
if the holding company proposal and the Amended and Restated Agreement and
Plan of Exchange are not adopted at the Brooklyn Union Meeting.
CONDITIONS TO THE KEYSPAN SHARE EXCHANGE (SEE PAGES J-13-J-14)
Completion of the share exchange depends on the satisfaction of certain
conditions, including: (a) common shareholder approval at the Brooklyn Union
Meeting; (b) KeySpan's common shares being listed on the New York Stock
Exchange; (c) redemption of Brooklyn Union's outstanding preferred stock; and
(d) KeySpan's restated certificate of incorporation (see Annex L to this Joint
Proxy Statement/ Prospectus) and a certificate of exchange being filed with
the New York Department of State.
CERTAIN OTHER CONSEQUENCES OF SHAREHOLDER ADOPTION OF THE EXCHANGE AGREEMENT
(SEE PAGES J-14 AND J-18-J-24)
The Amended and Restated Agreement and Plan of Exchange provides that after
the share exchange, shares of KeySpan common stock and KeySpan stock options
and performance awards (instead of Brooklyn Union common stock, stock options
and performance awards) will be issued, granted or awarded by KeySpan under
Brooklyn Union's former employee stock plans, all of which have been
previously approved by Brooklyn Union shareholders. The responsibility for
these stock plans will be taken over by KeySpan. In addition, shares of
KeySpan common stock (instead of Brooklyn Union common stock) will be issued
after the share exchange under the Dividend Reinvestment and Stock Purchase
Plan. For a description of the effects of the LILCO Combination on these
plans, see page 72 of the Joint Proxy Statement/Prospectus.
Since the Amended and Restated Agreement and Plan of Exchange is conditioned
on KeySpan's restated certificate of incorporation being filed prior to the
share exchange with the New York Department of State, a vote by Brooklyn Union
common shareholders for adoption of Proposal 2 and that Agreement will
constitute approval of KeySpan's restated certificate of incorporation and by-
laws, which will govern certain rights of KeySpan's shareholders after the
share exchange. See Annex L.
AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT (SEE PAGE J-15)
The Brooklyn Union and KeySpan Boards of Directors may amend any of the terms
of the Amended and Restated Agreement and Plan of Exchange at any time before
or after its adoption by Brooklyn Union common shareholders. No amendment,
however, may materially and adversely affect the rights of Brooklyn Union's
shareholders.
The Agreement may be terminated and the share exchange abandoned at any time
before or after shareholders adopt the Agreement, if Brooklyn Union's Board of
Directors determines that the completion of the KeySpan share exchange would
not be in the best interests of Brooklyn Union or our shareholders.
COMPARATIVE SHAREHOLDERS' RIGHTS (SEE PAGES J-22-J-24)
When the KeySpan share exchange is completed, holders of Brooklyn Union common
stock will automatically become holders of KeySpan common stock, and their
rights will be governed by KeySpan's restated certificate of incorporation and
by-laws instead of those of Brooklyn Union. See Annex L.
KeySpan's restated certificate of incorporation will give KeySpan broad
corporate powers to engage in any lawful act or activity for which a
corporation may be formed under New York law. In contrast, Brooklyn Union's
corporate purposes are those related to gas, electricity or other forms of
energy and related activities. Certain other differences between the rights of
holders of KeySpan common stock and those of holders of Brooklyn Union common
stock are summarized on pages J-23-J-24.
All outstanding shares of Brooklyn Union preferred stock will be redeemed
prior to the KeySpan share exchange if Proposal 2 is approved by Brooklyn
Union common shareholders.
For a description of the rights of holders of BL stock after the LILCO
Combination, see page 63 of the Joint Proxy Statement/Prospectus.
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REGULATION OF KEYSPAN AND BROOKLYN UNION (SEE PAGES J-25-J-27)
Following the KeySpan share exchange, KeySpan, as the parent company of
Brooklyn Union, will have to comply with the provisions of the New York Public
Service Commission's order of September 25, 1996. Brooklyn Union will continue
to be regulated by the PSC as before. The PSC order contains restrictions on
KeySpan's investments in non-utility subsidiaries and other businesses,
transactions between Brooklyn Union and KeySpan and other KeySpan subsidiaries,
loans, guarantees or pledges by Brooklyn Union for the benefit of KeySpan or
KeySpan's subsidiaries, and on Board and managerial interlocks. The regulation
of KeySpan and Brooklyn Union could ultimately change as a result of the
regulatory implications associated with the business combination with LILCO.
See page 47 of the Joint Proxy Statement/Prospectus.
Brooklyn Union currently is not subject to the federal Public Utility Holding
Company Act of 1935. When the KeySpan share exchange occurs, KeySpan will
become a "public utility holding company" and will file an exemption statement
with the Securities and Exchange Commission to exempt it and each of its
subsidiaries from that Act (except for those provisions requiring approval of
certain acquisitions and investments).
For a description of the regulation of BL after the LILCO Combination, see page
54 of this Joint Proxy Statement/Prospectus.
NEW RATE PLAN OF BROOKLYN UNION (SEE PAGE J-27)
The September 25, 1996 New York Public Service Commission order includes a new
rate plan that took effect on October 1, 1996 and will remain in effect until
September 30, 2002. The rate plan essentially freezes the non-gas component of
Brooklyn Union's overall rates for six years, but provides for the elimination
of any ceiling on earnings as well as the retention of cost savings and revenue
growth for the shareholders. The rate plan will continue to govern Brooklyn
Union's utility rates and charges even if common shareholders do not approve
the holding company proposal and adopt the Amended and Restated Agreement and
Plan of Exchange at the Brooklyn Union Meeting. In that event, unless the LILCO
Combination is consummated, Brooklyn Union will not be able to realize the
benefits we expect from a holding company structure, which we believe is
necessary in the future deregulated competitive environment of the energy
industry.
STATUTORY APPRAISAL RIGHTS (SEE PAGES J-27-J-29 AND ANNEX I TO THIS JOINT PROXY
STATEMENT/ PROSPECTUS)
Holders of shares of Brooklyn Union common stock who do not vote for the
holding company proposal and adoption of the Amended and Restated Agreement and
Plan of Exchange, and who timely dissent and follow the procedures in Sections
623 and 910 of the New York Business Corporation Law, will then have certain
rights as a result of the share exchange to demand payment in cash for the
"fair value" of their Brooklyn Union common shares. Failure to take any
required procedures on a timely basis may result in the loss of those rights.
The amount obtainable upon a valid exercise of those rights is subject to
determination by judicial proceedings, and cannot be predicted.
Since the Brooklyn Union preferred stock is not being exchanged in the share
exchange but will be redeemed pursuant to its terms prior to the KeySpan share
exchange if Proposal 2 is approved by Brooklyn Union common shareholders,
holders of Brooklyn Union preferred stock are not entitled to statutory
appraisal rights.
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BROOKLYN UNION PROPOSAL 2:
HOLDING COMPANY AND ADOPTION OF THE KEYSPAN EXCHANGE AGREEMENT
This Annex J describes the Brooklyn Union holding company proposal and
discusses the effects of the KeySpan share exchange. For a description of the
proposed LILCO Combination, the LIPA Transaction and their effects, see the
Joint Proxy Statement/Prospectus.
The management and the Board of Directors of Brooklyn Union unanimously
believe that it is in the best interests of Brooklyn Union and its
shareholders to restructure Brooklyn Union so that it will become a separate
subsidiary of a new parent holding company, with the present holders of
Brooklyn Union common stock becoming the holders of the common stock of the
new parent.
To carry out such restructuring, Brooklyn Union has caused to be
incorporated a New York corporation, KeySpan Energy Corporation (referred to
in this Joint Proxy Statement/Prospectus as "KeySpan"), which now has a
nominal amount of stock outstanding and no present business or properties of
its own. All of the currently outstanding shares of KeySpan's common stock,
par value $.33 1/3 per share ("KeySpan common stock"), are owned by Brooklyn
Union.
The Board of Directors of each of Brooklyn Union and KeySpan has adopted the
Amended and Restated Agreement and Plan of Exchange under which, subject to
adoption by Brooklyn Union's shareholders and the satisfaction of other
conditions, Brooklyn Union will become a subsidiary of KeySpan through the
exchange of the outstanding shares of Brooklyn Union common stock on a share-
for-share basis for shares of KeySpan common stock (referred to in this Joint
Proxy Statement/Prospectus as the "KeySpan share exchange" or the "KeySpan
exchange"). It is intended that after the consummation of the KeySpan share
exchange, all new non-utility subsidiaries will be established as direct
subsidiaries of KeySpan, certain, if not all, of Brooklyn Union's existing
subsidiaries involved in non-utility operations (collectively, the "non-
utility subsidiaries") eventually will be transferred to KeySpan and become
subsidiaries of KeySpan and such subsidiaries will, to the extent practicable,
conduct the non-utility business of the consolidated entity. See "--The Share
Exchange--Transfer of Brooklyn Union's Non-Utility Subsidiaries to KeySpan."
The KeySpan Exchange Agreement is attached to this Joint Proxy
Statement/Prospectus as Annex K and is incorporated herein by reference.
Brooklyn Union is subject to regulation by the New York Public Service
Commission (the "PSC") under the New York Public Service Law (the "Public
Service Law"). On September 25, 1996, the PSC issued an order (the "PSC
Order") approving the holding company restructuring and the terms with which
Brooklyn Union and KeySpan have agreed to comply in their on-going
relationships and activities, including a new rate plan and certain customer
protection provisions.
REASONS FOR THE HOLDING COMPANY STRUCTURE AND KEYSPAN SHARE EXCHANGE
General
The proposed holding company structure is intended to provide Brooklyn Union
and its subsidiaries with the financial and regulatory flexibility to compete
more effectively in an increasingly competitive energy industry by relaxing
constraints imposed by the PSC on incremental investments in unregulated
operations, annual investments, amounts invested in any single line of
business, and financial ratios of subsidiaries. Relaxing constraints and
eliminating time-lags associated with regulatory decisions should allow more
rapid moves in an industry where competitors do not have the same constraints
as regulated entities. The Board of Directors of Brooklyn Union believes that
a holding company structure will provide greater opportunity for growth and
enhanced values, and greater flexibility in developing and operating new
businesses and greater flexibility regarding the timing, method and amount of
financings and acquisitions, through the separation between the utility and
non-utility businesses and relaxed constraints on unregulated activities. The
Brooklyn Union Board believes that a separation between utility and non-
utility businesses will serve to protect the financial integrity of the
utility business from risks involved in non-utility businesses and ventures,
and provide greater flexibility
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regarding the timing, method and amount of financings and acquisitions. Under
the Brooklyn Union/LILCO Agreement, Brooklyn Union and KeySpan will require
LILCO's consent to undertake certain actions. See pages 67 to 78 of the Joint
Proxy Statement/Prospectus.
Competing in the New Regulatory Environment
The Board of Directors of Brooklyn Union believes that the proposed holding
company structure is essential for Brooklyn Union to continue to operate as
successfully in the future as it has in the past. A decade ago, the price of
gas was controlled by regulation and statutes from the original producer and
supplier through the ultimate end-user. Currently, there is no longer
regulation over the sale price of natural gas as a commodity, and the
regulation of interstate transmission at the federal level has been relaxed.
Similar regulatory initiatives are taking place at the state level, including
in New York, to extend competition into the retail sector.
The regulatory developments at the federal level have resulted in ample
supplies of the natural gas commodity, aggressive competition among gas
utilities, as well as unregulated gas marketing brokers and suppliers at the
gas source, and declining prices, in real dollar terms, for natural gas for
all consumers over the last decade.
Interstate pipeline capacity rights are also becoming a commodity which can
now be bought or sold for short or long periods of time. Thus, entities like
Brooklyn Union have the opportunity to market temporarily unused pipeline
capacity for the benefit of their customers and shareholders.
In addition, there have been several other significant regulatory
initiatives affecting utility companies and their customers. Local
transportation of gas purchased by end-users from third party sellers has been
available in New York since 1984, but until recently the principal
beneficiaries of this availability had been large non-core commercial and
industrial customers. Through further regulatory modifications, direct access
to gas sold by third parties has become available for the first time to
Brooklyn Union's core customers, including residential customers. Similar
initiatives are taking place at the federal and state levels in the electric
industry, as increasing wholesale and retail competition in the electric
generation sector is likely to emerge over the next few years.
These developments intensify the already fiercely competitive environment in
which traditional providers of alternative energy sources, primarily fuel oil
dealers, aggressively compete in most of Brooklyn Union's markets. The
distinctions between energy sources is increasingly blurred, as oil, gas and
electricity come to be viewed as somewhat interchangeable commodities,
subjecting Brooklyn Union to greater competition.
Moreover, a new rate plan (including the six-year rate freeze) took effect
on October 1, 1996, and will continue to govern the utility rates of Brooklyn
Union even if common shareholders of Brooklyn Union do not approve the holding
company proposal and adopt the KeySpan Exchange Agreement. In that event,
Brooklyn Union will not be able to realize the benefits it expects from a
holding company structure unless the LILCO Combination is consummated. See "--
The KeySpan Share Exchange--New Rate Plan of Brooklyn Union" below.
Flexibility of Utility and Non-Utility Businesses
Brooklyn Union has been operating under the regulatory constraints of the
PSC which limit (i) the total amount of the incremental investment in its
unregulated operations, (ii) the amount that can be invested annually, (iii)
the cumulative amount that can be invested in any single line of business, and
(iv) the debt-equity ratios of its subsidiaries. These are significant
constraints on Brooklyn Union's ability to move rapidly in an increasingly
competitive environment. Moreover, the limitation of investment to existing
lines of business is also constraining because the industry is changing so
rapidly that new lines of business are arising that were not even envisioned
at the time that these PSC regulatory limits were adopted.
As discussed below under "--The KeySpan Share Exchange--Transfer of Brooklyn
Union's Non-Utility Subsidiaries to KeySpan", after the holding company
restructuring, all new non-utility subsidiaries will be established as direct
subsidiaries of KeySpan and certain, if not all, of current non-utility
subsidiaries of Brooklyn
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Union eventually will be transferred to and become, or become owned through,
separate subsidiaries of KeySpan. Brooklyn Union believes the financial and
regulatory flexibility provided by this holding company structure will enable
it to operate more effectively in the changing environment and more easily
address the new levels of competition. Brooklyn Union may request a ruling
from the Internal Revenue Service that it may cause its non-utility
subsidiaries to be distributed to KeySpan following the share exchange (and
thus to become, or become owned through, separate subsidiaries of KeySpan)
without the recognition of gain by Brooklyn Union. Brooklyn Union believes
that it will be able to derive significant benefits from the consummation of
the share exchange whether or not the ruling is obtained.
As many in the energy industry believe, the new competitive environment may
lead to additional consolidation, vertical expansion, and other strategic
alliances, as energy companies may be required to offer a full range of energy
services to compete effectively in order to retain and attract customers. For
example, consolidations between Brooklyn Union and other operating utilities
(e.g., through merger and/or acquisition)
could result in economies of scale and synergies by enabling the consolidated
company to take advantage of common needs and complementary strengths.
Vertical integration could also enable utilities to offer customers more
complete energy packages.
Strategic alliances with unregulated third party participants and/or
diversification into unrelated fields may also help protect against the market
and financial risks to which Brooklyn Union is now, and increasingly will be,
exposed. Thus, KeySpan may wish to increase its investment in unregulated
energy-related businesses, whether through additional "ground floor"
investment, the acquisition of existing energy and energy services providers,
or the formation of strategic alliances with industry partners.
KeySpan will continue to seek to invest in the current lines of business,
such as exploration and production, pipeline transportation and gas storage,
and will engage in energy marketing and other energy-related activities.
Although KeySpan has not identified other specific business opportunities, it
believes that such activities would likely include areas with which Brooklyn
Union is already familiar, such as information systems, environmental
services, gas appliance services, engineering services, financial services,
meter reading, and billing and collection services. Under a holding company
structure, KeySpan should be able to take advantage of opportunities in a
timely fashion and compete more effectively against other energy companies.
Except for the restrictions set forth in the PSC Order and discussed in "--The
KeySpan Share Exchange--The PSC Order," KeySpan believes it should not
otherwise be required to obtain PSC approval for investments in non-utility
businesses, would not be subject to the limitations imposed under certain
provisions of New York law applicable to Brooklyn Union, and thus should be
able to compete more effectively against other entities not subject to similar
constraints.
Financing Flexibility
Under Section 69 of the Public Service Law, Brooklyn Union cannot issue debt
or equity securities for other than utility purposes. Thus, the practical
limit of its investment in non-utility businesses is the amount of Brooklyn
Union's retained earnings. This limit has not posed a practical problem in the
past because Brooklyn Union's non-utility businesses were clearly defined and
limited in scope and magnitude. Now, however, such a limit is inappropriate in
the new environment, especially in light of the fact that Brooklyn Union's
principal present, and likely future, competitors are not subject to similar
constraints.
The Board of Directors of Brooklyn Union believes that the best way both to
reduce the regulatory constraints described above, and to ensure that utility
customers continue to be insulated from potential risks resulting from
investments in non-utility businesses and ventures, is to adopt a holding
company structure, while providing sufficient protection to customers to
assure that Brooklyn Union will continue to provide safe, adequate and
reliable service at just and reasonable rates.
After the KeySpan share exchange, financing of unregulated activities of
KeySpan and its direct non-utility subsidiaries will not require PSC approval.
In addition, the capital structure of each direct non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, KeySpan
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would not need PSC approval to issue debt or equity securities to finance the
acquisition of the stock or assets of other companies. The ability to raise
capital for acquisitions without prior PSC approval should allow competition
on a level basis with other potential acquirors, some of which are already
holding companies. Under a holding company structure, the issuance of debt or
equity securities by KeySpan to finance the acquisition of the stock or assets
of another company should not adversely affect Brooklyn Union's capital
devoted to and available for regulated utility operations.
CERTAIN CONSIDERATIONS
Future Performance of KeySpan Common Stock Cannot Be Assured
The purpose of the KeySpan share exchange is to establish a holding company
structure that will enhance the ability to take advantage of business
opportunities outside of Brooklyn Union's present markets. The Board of
Directors believes the KeySpan share exchange and holding company structure to
be in the best interests of Brooklyn Union and its shareholders. Nevertheless,
the success of KeySpan in realizing its goals and the future performance of
KeySpan common stock cannot be assured.
Dividends on KeySpan Common Stock Will Initially Depend on Common Stock
Dividends Paid by Brooklyn Union
KeySpan does not now, nor will it immediately after the KeySpan share
exchange, conduct directly any business operations from which it will derive
any revenues. KeySpan plans to obtain funds for its own operations from
dividends paid to KeySpan by its subsidiaries, and from sales of securities or
debt incurred by KeySpan. Dividends on KeySpan common stock will initially
depend upon the earnings, financial condition and capital requirements of
Brooklyn Union, and the dividends that Brooklyn Union pays to KeySpan. In the
future, dividends from KeySpan's subsidiaries other than Brooklyn Union may
also be a source of funds for dividend payments by KeySpan. Although it has no
present intention to do so, Brooklyn Union may issue preferred stock in the
future to meet its capital requirements. Such preferred stock would have
dividend rights which are preferential to the payment of dividends by Brooklyn
Union to KeySpan.
The PSC Order also imposes certain limitations on the dividends that
Brooklyn Union may pay to KeySpan after the KeySpan share exchange. Generally,
Brooklyn Union may not pay KeySpan more than 100% of income available for
dividends. Also, if there is a significant reduction in service quality by
Brooklyn Union (according to specific guidelines) or if certain specified
credit rating agencies downgrade Brooklyn Union's debt ratings to specified
levels, further limits may be placed upon the amount of dividends Brooklyn
Union may pay to KeySpan. See "--The KeySpan Share Exchange--Dividend Policy."
KeySpan presently expects to pay quarterly dividends on KeySpan common stock
at least equal to the rate, and on approximately the same schedule, as the
dividend most recently declared by Brooklyn Union on its common stock. While
future dividends will depend on the earnings, financial condition and capital
requirements of Brooklyn Union and its other subsidiaries, KeySpan presently
expects to continue a policy of paying an appropriate percentage of earnings
to shareholders.
It is anticipated that the interim annualized dividend rate paid to the
Holding Company common shareholders after completion of the LILCO Combination
and the LIPA Transaction will be $1.78 per common share, subject to approval
and declaration by the Holding Company Board of Directors. This dividend rate
is intended to be in place from the closing of these transactions until such
time as the Holding Company's Board has established its formal dividend
policy. The payment of dividends by the Holding Company in the future,
however, will depend on business conditions, results of operations, financial
conditions, and other factors. See page of the Joint Proxy
Statement/Prospectus.
Non-Utility Businesses
Brooklyn Union's principal non-utility subsidiaries participate and own
investments in gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-related
services. Brooklyn Union will eventually transfer certain, if not all, of
these subsidiaries and investments to KeySpan following the KeySpan share
exchange, subject to receipt of certain tax rulings. Similarly, new non-
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<PAGE>
utility subsidiaries will be established as direct subsidiaries of KeySpan.
See "--The KeySpan Share Exchange--Transfer of Brooklyn Union's Non-Utility
Subsidiaries to KeySpan."
It is the current intention of KeySpan for the non-utility subsidiaries to
engage primarily in energy-related businesses which will not be regulated by
state or federal agencies which regulate public utilities. Such businesses may
encounter competitive and other factors not previously experienced by Brooklyn
Union, and may have different, and perhaps greater, investment risks than
those involved in the regulated natural gas utility business of Brooklyn
Union. There can be no assurance that such businesses will be successful or,
if unsuccessful, that they will not have a direct or indirect adverse effect
on KeySpan. As is the case now, any losses incurred by such businesses will
not be recoverable in utility rates of Brooklyn Union. For further information
regarding Brooklyn Union's non-utility subsidiaries, see Notes 3, 7, 8 and 10
to the 1996 Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Brooklyn Union's
Annual Report on Form 10-K/A for the fiscal year ended September 30, 1996.
Comparable earnings from Brooklyn Union's unregulated businesses (excluding
1996 after-tax gains from an initial public offering of a subsidiary and the
sale of a plant ($33.5 million) and an after-tax reorganization charge
($7.8 million)) were $14.8 million, or 30 cents per share in fiscal 1996,
$12.8 million, or 27 cents per share in 1995, and $10.4 million, or 22 cents
per share in 1994.
Brooklyn Union's total investment in these businesses, computed in
accordance with PSC specifications as a percentage of consolidated
capitalization, was 13.4%, 14.2% and 12.8% as of September 30, 1996, 1995 and
1994, respectively.
KeySpan will obtain funds to invest in non-utility subsidiaries and other
businesses from dividends it receives from Brooklyn Union, borrowings and
other financings, and dividends KeySpan may in the future receive from any
non-utility subsidiaries. There can be no assurance that non-utility
subsidiaries will have earnings or pay any dividends to KeySpan in the
foreseeable future.
Implementation of the New Rate Plan
The new rate plan (including the six-year rate freeze) took effect as of
October 1, 1996 and will continue to govern utility rates and charges of
Brooklyn Union even if common shareholders of Brooklyn Union do not approve
the holding company proposal and adopt the KeySpan Exchange Agreement. In that
event, Brooklyn Union will not be able to realize the benefits it expects from
a holding company structure prior to the consummation of the business
combination with LILCO. See also "--The KeySpan Share Exchange--New Rate Plan
of Brooklyn Union" below.
Certain Restrictions in the PSC Order
As summarized above, the PSC Order imposes certain limitations on the
dividends that Brooklyn Union may pay to KeySpan after the KeySpan share
exchange. See also "--The KeySpan Share Exchange--Dividend Policy." The PSC
Order also contains restrictions on KeySpan's investments in non-utility
subsidiaries and other businesses, transactions between Brooklyn Union and
KeySpan or any other subsidiary of KeySpan, loans, guarantees or pledges by
Brooklyn Union for the benefit of KeySpan or any other subsidiary of KeySpan,
and Board and managerial interlocks between Brooklyn Union and KeySpan or any
other subsidiary of KeySpan. See "--The KeySpan Share Exchange--The PSC Order"
and "--Management--Restrictions on Board and Management Interlocks between
KeySpan and Brooklyn Union." There can be no assurance as to the effect, if
any, that such restrictions will have on the business or operations of
Keyspan, Brooklyn Union or the non-utility subsidiaries. In connection with
the proposed LILCO Combination, Brooklyn Union and LILCO have filed a petition
with the PSC requesting, among other things, the removal or relaxation of
certain of the restrictions described herein. The PSC has not acted upon such
petition as of the date of this Joint Proxy Statement/Prospectus, and there
can be no assurance that any or all of the relief requested in the petition
will be granted.
Other Restrictions
Under the Brooklyn Union/LILCO Agreement, Brooklyn Union and KeySpan will
require LILCO's consent to undertake certain actions. See pages 67 to 78 of
this Joint Proxy Statement/Prospectus.
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RELATIONSHIP BETWEEN THE KEYSPAN SHARE EXCHANGE AND THE LILCO COMBINATION
The KeySpan share exchange and the LILCO Combination are not conditioned on
one another. If Brooklyn Union's shareholders approve the holding company
proposal, we will effect the KeySpan share exchange regardless of whether the
LILCO Combination is approved or consummated. If Brooklyn Union's shareholders
approve both the holding company proposal and the LILCO Combination proposal,
Brooklyn Union intends to proceed with the KeySpan share exchange first. In
that case, KeySpan will assume Brooklyn Union's rights and obligations under
the Brooklyn Union/LILCO Agreement with LILCO and effectively will be
replacing Brooklyn Union as the entity that will engage in a binding share
exchange with the Holding Company. If and when the LILCO Combination closes
and Brooklyn Union and the non-utility subsidiaries become indirect
subsidiaries of the Holding Company, we anticipate that KeySpan will be
dissolved so that there would only be one holding company for Brooklyn Union,
the non-utility subsidiaries and LILCO.
The LILCO Combination described in the Joint Proxy Statement/Prospectus will
also result in a holding company structure. Shareholder approval of the
KeySpan holding company proposal, however, will allow Brooklyn Union to take
advantage of the holding company structure prior to, and regardless of, the
closing of the LILCO Combination. Brooklyn Union's ability to make investments
in unregulated businesses is subject to certain restrictions under its
agreement with LILCO. Brooklyn Union may transfer the non-utility subsidiaries
directly to the Holding Company if the LILCO Combination is consummated prior
to the time that a transfer to KeySpan of such subsidiaries occurs.
This Annex J describes the Brooklyn Union holding company proposal and
discusses the effects of the KeySpan share exchange. For a description of the
proposed LILCO Combination, the LIPA Transaction and their effects, see the
Joint Proxy Statement/Prospectus.
A. THE KEYSPAN SHARE EXCHANGE
THE KEYSPAN EXCHANGE AGREEMENT
The KeySpan Exchange Agreement has been unanimously adopted by the Boards of
Directors of Brooklyn Union and KeySpan and is subject to adoption by the
holders of at least two-thirds of the outstanding shares of Brooklyn Union
common stock. See "--Vote Required" below. In the KeySpan share exchange, (i)
each share of Brooklyn Union common stock outstanding immediately prior to the
effective time of the KeySpan share exchange will be exchanged for one new
share of KeySpan common stock, (ii) KeySpan will become the owner of all
outstanding Brooklyn Union common stock, and (iii) the shares of KeySpan
common stock held by Brooklyn Union immediately prior to the KeySpan share
exchange will be cancelled.
As a result, upon completion of the KeySpan share exchange, KeySpan will
become a holding company, Brooklyn Union will become a subsidiary of KeySpan,
and all shares of KeySpan common stock outstanding immediately after the
KeySpan share exchange will be owned by the former holders of Brooklyn Union
common stock outstanding immediately prior to the KeySpan share exchange. It
is intended that following the KeySpan share exchange, certain, if not all of
Brooklyn Union's existing non-utility subsidiaries eventually will be
transferred to KeySpan and become subsidiaries of KeySpan. See "--Transfer of
Brooklyn Union's Non-Utility Subsidiaries to KeySpan." The KeySpan Exchange
Agreement is attached to this Joint Proxy Statement/Prospectus as Annex K and
is incorporated herein by reference.
The KeySpan share exchange is conditioned on Brooklyn Union redeeming its
preferred stock if the common shareholders vote for the holding company
proposal. Under the terms of the preferred stock, the notice of redemption
must be mailed at least 30 days prior to the redemption date. Brooklyn Union
intends to consummate the KeySpan share exchange after the redemption date. A
notice of redemption will be sent to holders of Brooklyn Union preferred stock
promptly after the Brooklyn Union Meeting, assuming that shareholders vote to
approve the holding company proposal. The notice of redemption will include
instructions for holders of preferred stock to follow in surrendering their
certificates evidencing such stock to receive the
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<PAGE>
redemption price in payment therefor. Debt of Brooklyn Union will remain
unchanged and will continue as outstanding obligations of Brooklyn Union after
the KeySpan share exchange.
VOTE REQUIRED
Under New York law, the affirmative vote of the holders of record on the
record date of two-thirds of the outstanding shares of Brooklyn Union common
stock is required to approve the holding company proposal and adopt the
KeySpan Exchange Agreement. Because the requirement for this proposal is the
affirmative vote of two-thirds of the outstanding common shares, broker non-
votes and abstentions will have the effect of a "no" vote. Holders of Brooklyn
Union preferred stock are entitled to receive notice of the Special Meeting,
but are not entitled to vote on the holding company proposal and the KeySpan
Exchange Agreement at the Brooklyn Union Meeting.
REGULATORY APPROVALS
New York Public Service Law
Under Section 70 of the Public Service Law, any transfer of utility stock
such as will occur in the KeySpan share exchange must be approved in advance
by the PSC. On September 25, 1996, the PSC issued its order approving the
holding company restructuring. The PSC Order also contains terms with which
Brooklyn Union and KeySpan have agreed to comply in their on-going
relationship and activities, including the new rate plan and certain customer
protection provisions. The term of the PSC Order extends to September 30,
2002, unless terminated by an earlier PSC order.
Public Utility Holding Company Act of 1935 (the "Holding Company Act")
Brooklyn Union currently is not subject to the Holding Company Act because
it is not a "public utility holding company". As a result of the KeySpan share
exchange, KeySpan will become a public utility holding company under the
Holding Company Act. Pursuant to the KeySpan Exchange Agreement,
simultaneously with the effectiveness of the KeySpan share exchange, KeySpan
will file with the SEC an exemption statement to exempt itself and its
subsidiaries from all provisions of the Holding Company Act (except with
respect to certain acquisitions and investments) pursuant to the "intrastate"
exemption provided by Section 3(a)(1) of that Act. The basis for exemption is
that KeySpan and Brooklyn Union are each organized and carry on their business
substantially in the State of New York, and neither KeySpan nor Brooklyn Union
will derive any material part of its income from a public utility company
organized outside of the State of New York. To maintain its exemption, KeySpan
must file a statement each year prior to March 1 with the SEC. The SEC has
authority under the Holding Company Act to challenge the availability of
KeySpan's exemption. See "--Regulation of KeySpan and Brooklyn Union."
CONDITIONS TO EFFECTIVENESS OF THE KEYSPAN SHARE EXCHANGE
The KeySpan share exchange is subject to the satisfaction of the following
conditions (in addition to adoption of the KeySpan Exchange Agreement by the
holders of Brooklyn Union common stock): (i) all necessary orders,
authorizations, approvals or waivers from the PSC and all other jurisdictive
regulatory bodies, boards or agencies have been received, remain in full force
and effect, and do not include, in the sole judgment of the Board of Directors
of Brooklyn Union, unacceptable conditions; (ii) all outstanding Brooklyn
Union preferred stock have been redeemed pursuant to its terms; (iii) shares
of KeySpan common stock to be issued in connection with the KeySpan exchange
have been listed, subject to official notice of issuance, by the New York
Stock Exchange; and (iv) KeySpan's restated certificate of incorporation
(Annex L to this Joint Proxy Statement/Prospectus) has been filed with the New
York Department of State (the "Department").
Following satisfaction of these conditions, the KeySpan share exchange will
become effective immediately following the close of business on the date of
filing with the Department of a certificate of exchange pursuant to
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Section 913(d) of the New York Business Corporation Law. Brooklyn Union cannot
predict when all conditions will be satisfied, but expects that the KeySpan
share exchange will become effective in the third quarter of calendar 1997.
EXCHANGE OF STOCK CERTIFICATES
If the KeySpan share exchange is effected, it will not be necessary for
holders of Brooklyn Union common stock to physically exchange their existing
stock certificates for certificates of KeySpan common stock. The certificates
which represent shares of Brooklyn Union common stock outstanding immediately
prior to the effective time of the KeySpan share exchange will automatically
represent an equal number of shares of KeySpan common stock immediately after
the effective time and will no longer represent Brooklyn Union common stock.
New certificates bearing the name of KeySpan will be issued after the KeySpan
share exchange, if and as certificates representing shares of Brooklyn Union
common stock outstanding immediately prior to the KeySpan share exchange are
presented for exchange or transfer.
The KeySpan share exchange is conditioned on Brooklyn Union redeeming its
preferred stock if the common shareholders vote for the holding company
proposal. Under the terms of the preferred stock, the notice of redemption
must be mailed at least 30 days prior to the redemption date. Brooklyn Union
intends to consummate the KeySpan share exchange after the redemption date. A
notice of redemption will be sent to holders of Brooklyn Union preferred stock
promptly after the Brooklyn Union Meeting, assuming that shareholders vote to
approve the holding company proposal. The notice of redemption will include
instructions for holders of preferred stock to follow in surrendering their
certificates evidencing such stock to receive the redemption price in payment
therefor. Debt of Brooklyn Union will remain unchanged and will continue as
outstanding obligations of Brooklyn Union after the KeySpan share exchange.
TRANSFER OF BROOKLYN UNION'S NON-UTILITY SUBSIDIARIES TO KEYSPAN
Brooklyn Union's principal non-utility subsidiaries currently participate
and own investments in gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-related
services. After the KeySpan share exchange, it is intended that Brooklyn Union
will transfer to KeySpan, or to the Holding Company in the event that the
LILCO Combination is consummated prior to such transfer, certain, if not most,
of these non-utility subsidiaries and investments.
Brooklyn Union may request a ruling from the Internal Revenue Service that
it may cause its non-utility subsidiaries to be distributed to KeySpan
following the share exchange (and thus to become, or become owned through,
separate subsidiaries of KeySpan) without the recognition of gain by Brooklyn
Union. Brooklyn Union believes that it will be able to derive significant
benefits from the consummation of the share exchange whether or not the ruling
is obtained.
Other than for the foregoing subsidiaries and investments, and except for
dividends or other distributions with respect to Brooklyn Union common stock
held by KeySpan, it is expected that Brooklyn Union will not transfer at less
than a fair consideration any of its other assets to KeySpan or any KeySpan
subsidiaries. Brooklyn Union will develop accounting and other procedures to
the extent determined to be necessary or appropriate to ensure separation of
utility and non-utility businesses. See "--The PSC Order" below.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Shares of Brooklyn Union common stock held in its Dividend Reinvestment and
Stock Purchase Plan (including uncertificated whole and fractional shares)
will automatically become a like number of shares of KeySpan common stock at
the effective time of the KeySpan share exchange. At the effective time,
KeySpan will succeed to the Plan as in effect immediately prior to the
effective time, and shares of KeySpan common stock will be issued under the
Plan on and after the effective time. KeySpan will file a post-effective
amendment to Brooklyn Union's registration statement on Form S-3 for the Plan
shortly after the effective time of the KeySpan exchange.
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AMENDMENT OR TERMINATION OF THE KEYSPAN EXCHANGE AGREEMENT
The Boards of Directors of Brooklyn Union and KeySpan may amend any of the
terms of the KeySpan Exchange Agreement at any time before or after its
adoption by the holders of Brooklyn Union common stock and prior to the
effective time, but no such amendment may, in the sole judgment of the Board
of Directors of Brooklyn Union, materially and adversely affect the rights of
Brooklyn Union's shareholders.
The KeySpan Exchange Agreement may be terminated and the KeySpan share
exchange abandoned at any time before or after the shareholders of Brooklyn
Union adopt the KeySpan Exchange Agreement, and prior to the effective time,
if the Board of Directors of Brooklyn Union determines, in its sole judgment,
that consummation of the KeySpan exchange would, for any reason, be
inadvisable or not be in the best interests of Brooklyn Union or its
shareholders.
LISTING OF KEYSPAN COMMON STOCK
KeySpan is applying to have its common stock listed on the New York Stock
Exchange. It is expected that such listing will become effective at the
effective time of the KeySpan share exchange. The stock exchange ticker symbol
of KeySpan common stock will be "KSE", and quotations will be carried in
newspapers as they have been for Brooklyn Union common stock. Following the
KeySpan share exchange, Brooklyn Union common stock will no longer trade and
will be delisted and no longer registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
BROOKLYN UNION COMMON STOCK MARKET PRICES AND DIVIDENDS
Brooklyn Union common stock is listed and principally traded on the New York
Stock Exchange. See "Questions & Answers on the Brooklyn Union/LILCO
Combination and LIPA Transaction; Summary of Joint Proxy
Statement/Prospectus--Comparative Dividends and Market Prices--Brooklyn Union"
in the Joint Proxy Statement/Prospectus for the dividends paid and the high
and low sales prices of Brooklyn Union common stock for the fiscal periods
indicated as reported in The Wall Street Journal as New York Stock Exchange
Composite Transactions.
DIVIDEND POLICY
KeySpan does not now, nor will it immediately after the KeySpan share
exchange, conduct directly any business operations from which it will derive
any revenues. KeySpan plans to obtain funds for its own operations from
dividends paid to KeySpan on the stock of its subsidiaries, and from sales of
securities or debt incurred by KeySpan. Dividends on KeySpan common stock will
initially depend upon the earnings, financial condition and capital
requirements of Brooklyn Union, and the dividends paid by Brooklyn Union to
KeySpan. KeySpan presently expects to continue Brooklyn Union's policy of
paying an appropriate percentage of earnings to shareholders. In the future,
dividends from KeySpan's subsidiaries other than Brooklyn Union may also be a
source of funds for dividend payments by KeySpan. Payment of dividends on
Brooklyn Union common stock will continue to be subject to the prior rights of
holders of Brooklyn Union preferred stock.
KeySpan presently expects to pay quarterly dividends on KeySpan common stock
at least equal to the rate, and on approximately the same schedule as, the
dividend most recently declared by Brooklyn Union on its common stock. The
quarterly dividend most recently declared by Brooklyn Union's Board of
Directors on Brooklyn Union common stock was $.365 per share payable August 1,
1997 to holders of record on July 8, 1997. The amount of dividends paid by
Brooklyn Union to KeySpan following the KeySpan share exchange is expected to
be greater than the amount of dividends KeySpan pays on its common stock,
since KeySpan will need funds for its holding company activities.
The PSC Order contains conditions imposing limitations on dividend payments
by Brooklyn Union to KeySpan. These limitations are designed to ensure
maintenance of Brooklyn Union's financial strength, its ability to raise
capital sufficient to finance required investment in its utility plant, and to
protect Brooklyn Union's ability to provide safe, adequate and reliable
utility service. The limitations are as follows: (1) Brooklyn Union's level
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of dividend payments cannot exceed 100% of its income available for dividends,
calculated on a two-year rolling average basis; (2) in the event that Brooklyn
Union fails to achieve certain service levels prescribed in the PSC Order,
Brooklyn Union will be required to show cause why it should not be prohibited
from increasing the level of dividend payments; (3) in the event that KeySpan
has rated debt, and the debt is rated or downgraded to BBB, KeySpan will be
required to show cause to the PSC why dividends from Brooklyn Union to KeySpan
should not be limited to 75% of income available for dividends; and (4) under
certain conditions, dividends paid by Brooklyn Union to KeySpan may be limited
to 75% of income available for dividends (calculated on a two-year rolling
average basis), 50% of income available for dividends (calculated on a two-
year rolling average basis) or suspended, in the event of a downgrade of
Brooklyn Union's senior debt securities by at least two of the following
credit rating agencies: Standard & Poor's Rating Group, Moody's Investors
Service and Fitch Investors Service L.P. In connection with the proposed LILCO
Combination, Brooklyn Union and LILCO have filed a petition with the PSC
requesting, among other things, the removal or relaxation of certain of the
restrictions described herein. The PSC has not acted upon such petition as of
the date of this Joint Proxy Statement/Prospectus, and there can be no
assurance that any or all of the relief requested in the petition will be
granted.
Under the Brooklyn Union/LILCO Agreement, KeySpan will be restricted in,
among other things, its ability to pay extraordinary dividends. See pages 79
to 80 of the Joint Proxy Statement/Prospectus.
The following table summarizes the downgrade events with respect to Brooklyn
Union's senior debt which will cause a limitation, the nature of the
limitation, and the events that will lead to removal of the limitation, on
dividends that Brooklyn Union can pay to KeySpan:
<TABLE>
<CAPTION>
BROOKLYN UNION DOWNGRADE
EVENT LIMITATION LIMITATION REMOVED
- ------------------------ ---------- ------------------
<S> <C> <C>
Downgrade to BBB+ and Dividends limited to 75% When prior rating
downgrade is in any of income available for restored
part due to the dividends
performance or concerns
about the financial
condition of KeySpan or
any subsidiary of
KeySpan other than
Brooklyn Union
Downgrade to BBB and Dividends limited to 75% When prior rating
downgrade is solely due of income available for restored
to the performance or dividends
concerns about the
financial condition of
Brooklyn Union
Downgrade to BBB and Dividends limited to 50% When prior rating
downgrade is in any of income available for restored
part due to the dividends
performance or concerns
about the financial
condition of KeySpan or
any subsidiary of
KeySpan other than
Brooklyn Union
Downgrade to BBB and Dividends suspended When rating restored to
rating not restored to at least BBB+
at least BBB+ within 2
years
Downgrade to BBB- Dividends suspended When rating restored to
at least BBB
</TABLE>
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The conditions of the PSC Order imposing these limitations will continue
throughout the term of the agreement that was approved by the PSC Order, which
ends on September 30, 2002. However, the PSC Order provides for review of the
agreement to determine whether modifications are appropriate.
Brooklyn Union's Standard & Poor's and Moody's unsecured senior debt ratings
are A and A1, respectively. Following the announcement of the LILCO
Combination, Standard & Poor's placed Brooklyn Union on credit watch with
negative implications.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Brooklyn Union and KeySpan have received an opinion from Sullivan &
Cromwell, their special counsel, that the KeySpan share exchange and the
redemption of the Brooklyn Union preferred stock will have the tax
consequences described below. The opinion is based on certain representations
made by Brooklyn Union and KeySpan and certain assumptions, including an
assumption that all of the outstanding Brooklyn Union preferred stock will be
redeemed prior to the consummation of the KeySpan share exchange. The tax
consequences of the KeySpan share exchange may be significantly different from
those described below if all of the Brooklyn Union preferred stock is not
redeemed prior to the exchange. The discussion below does not cover the tax
consequences of the KeySpan share exchange or the redemption of Brooklyn Union
preferred stock under state, local or foreign income or other tax laws.
SHAREHOLDERS OF BROOKLYN UNION ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH RESPECT TO THE EFFECTS OF SUCH LAWS AND WITH RESPECT TO THE TAX
CONSEQUENCES OF THE KEYSPAN SHARE EXCHANGE IF ALL OF THE BROOKLYN UNION
PREFERRED STOCK IS NOT REDEEMED PRIOR TO THE EXCHANGE.
The discussion below does not address all material tax consequences with
respect to the KeySpan share exchange or the redemption of Brooklyn Union
preferred stock and does not take into account the specific circumstances of
any particular investors (such as tax-exempt entities, certain insurance
companies, broker-dealers, investors that hold Brooklyn Union stock as other
than a capital asset or as part of a straddle or a hedging or conversion
transaction, or investors whose functional currency is not the U.S. dollar),
some of which may be subject to special rules. The summary only addresses a
holder of Brooklyn Union stock that is (i) a citizen or resident of the U.S.,
(ii) a corporation organized under the laws of the U.S., or any state, or
(iii) otherwise subject to U.S. federal income taxation on a net income basis
in respect of its Brooklyn Union stock.
KeySpan Share Exchange
The material federal income tax consequences of the KeySpan share exchange
are as follows:
(1) no gain or loss will be recognized by a holder of Brooklyn Union
common stock upon the exchange solely of such holder's Brooklyn Union
common stock solely for KeySpan common stock;
(2) the basis of shares of KeySpan common stock received or deemed
received by a former holder of shares of Brooklyn Union common stock in an
exchange described in (1) above in the aggregate will equal the basis of
such former holder's shares of Brooklyn Union common stock so actually or
deemed exchanged, and the holding period for such shares of KeySpan common
stock will include the holding period of the shares of Brooklyn Union
common stock so actually or deemed exchanged to the extent that such shares
of Brooklyn Union common stock were held as a capital asset at the
effective time of the KeySpan share exchange;
(3) no gain or loss will be recognized by KeySpan or Brooklyn Union on
account of the KeySpan share exchange or the issuance of shares of KeySpan
common stock to the former holders of shares of Brooklyn Union common stock
pursuant to the KeySpan Exchange Agreement; and
(4) the consummation of the KeySpan share exchange will not result in the
termination of the existence of the affiliated group of corporations of
which Brooklyn Union has been the common parent, and Brooklyn Union will be
included in such affiliated group of corporations of which KeySpan will
become the new common parent.
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Shareholders of Brooklyn Union will be required to attach to their income
tax returns a complete statement of all the facts relating to the KeySpan
share exchange. The facts to be disclosed include the shareholder's basis in
the shares of Brooklyn Union common stock transferred to KeySpan and the
nature and amount of shares of KeySpan common stock received in the KeySpan
share exchange. Shareholders of Brooklyn Union will also be required to keep
permanent records of any information relating to the KeySpan share exchange
that is required to be filed with their income tax returns.
Redemption of Preferred Stock
Except to the extent described in the paragraph below, a holder of Brooklyn
Union preferred stock will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between the cash received upon
redemption and its tax basis in such Brooklyn Union preferred stock. Such gain
or loss will be capital gain or loss and will be long-term capital gain or
loss if such shareholder has held its Brooklyn Union preferred stock for more
than one year at the time such stock is redeemed.
A holder of Brooklyn Union preferred stock who also owns shares of Brooklyn
Union common stock may not be able to recognize loss on the redemption of its
preferred stock if the KeySpan share exchange and the redemption of Brooklyn
Union preferred stock were regarded as integrated steps in a related
transaction. PERSONS WHO ARE HOLDERS OF BOTH SHARES OF BROOKLYN UNION COMMON
STOCK AND SHARES OF BROOKLYN UNION PREFERRED STOCK SHOULD, THEREFORE, CONSULT
WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM
OF THE REDEMPTION OF THEIR BROOKLYN UNION PREFERRED STOCK.
BROOKLYN UNION EMPLOYEE PLANS
The KeySpan Exchange Agreement provides that Brooklyn Union's Employee
Savings Plan, Discount Stock Purchase Plan for Employees, and Long-Term
Performance Incentive Compensation Plan (together, the "Brooklyn Union Stock
Plans"), along with other employee benefit plans maintained by Brooklyn Union
(collectively with the Brooklyn Union Stock Plans, the "Brooklyn Union
Employee Plans"), such as the defined benefit and defined contribution pension
plans, health plans and disability plans, will be amended to provide for
KeySpan taking over responsibility for such Plans upon consummation of the
KeySpan share exchange. The Brooklyn Union Stock Plans were previously
approved by Brooklyn Union shareholders. After the consummation of the KeySpan
share exchange, KeySpan will assume such plans but may further amend, suspend,
revoke or terminate such plans. See "--Stock and Benefit Plans" in the Joint
Proxy Statement/Prospectus.
Stock Based Plans
If the KeySpan share exchange is consummated, shares of Brooklyn Union
common stock then held under the Brooklyn Union Stock Plans will automatically
become a like number of shares of KeySpan common stock. Also, the Brooklyn
Union Stock Plans as then amended will provide for shares of KeySpan common
stock, instead of Brooklyn Union common stock, being issued and delivered in
the future under such Plans.
Upon consummation of the KeySpan share exchange, all outstanding stock
options under Brooklyn Union's Long-Term Performance Incentive Compensation
Plan will be converted into options to acquire, on the same terms and
conditions as were applicable under such stock options immediately prior to
the share exchange, such number of shares of KeySpan common stock as the
holders of such options would have been entitled to receive pursuant to the
KeySpan share exchange had such holders exercised such stock options in full
immediately prior to the KeySpan share exchange, at a price per share of
KeySpan common stock equal to the per share option price of Brooklyn Union
common stock. KeySpan will issue future options on its common stock under such
Plan. In addition, Performance Shares granted and to be granted under such
Plan will be treated in a comparable
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manner. KeySpan will file post-effective amendments to Brooklyn Union's
registration statements on Form S-8 for the amended Brooklyn Union Stock Plans
shortly after the effective time of the KeySpan share exchange.
Non-Stock Based Plans
Upon consummation of the KeySpan share exchange, KeySpan will take over
responsibility for all of Brooklyn Union's retirement and other employee
benefit plans, such as the defined benefit and defined contribution pension
plans, health plans and disability plans. Benefits provided for in these non-
stock based plans will not be changed as a result of the holding company
restructuring and KeySpan share exchange.
REDEMPTION OF BROOKLYN UNION PREFERRED STOCK
The KeySpan share exchange is conditioned on the redemption of all Brooklyn
Union preferred stock after the vote by Brooklyn Union common shareholders and
before the consummation of the share exchange. Holders of Brooklyn Union
preferred stock will not become holders of KeySpan preferred or common stock
as a result of the KeySpan share exchange. Under the terms of the preferred
stock, the notice of redemption must be mailed at least 30 days prior to the
redemption date. Brooklyn Union intends to consummate the KeySpan share
exchange after the redemption date. A notice of redemption will be sent to
holders of Brooklyn Union preferred stock promptly after the Brooklyn Union
Meeting, assuming that shareholders vote to approve the holding company
proposal. The notice of redemption will include instructions for holders of
preferred stock to follow in surrendering their certificates evidencing such
stock to receive the redemption price in payment therefor.
KEYSPAN CAPITAL STOCK
Since the KeySpan Exchange Agreement is conditioned on KeySpan's restated
certificate of incorporation being filed prior to the KeySpan share exchange
with the New York Department of State, a vote by Brooklyn Union common
shareholders for adoption of the KeySpan Exchange Agreement will constitute
approval of KeySpan's restated certificate of incorporation and by-laws. The
KeySpan restated certificate of incorporation and by-laws will govern certain
rights of KeySpan's shareholders after the KeySpan share exchange as discussed
under this caption and under "--Comparative Shareholders' Rights" below.
The following statements with respect to KeySpan common stock are based on
certain provisions of KeySpan's restated certificate of incorporation and by-
laws, as to be in effect as of the effective time of the KeySpan share
exchange. A copy of KeySpan's restated certificate of incorporation and by-
laws substantially in the form to be in effect at the effective time of the
KeySpan share exchange, are attached as Annex L hereto and are incorporated
herein by reference.
KeySpan is authorized to issue 210,000,000 shares of common stock and
10,000,000 shares of preferred stock. KeySpan preferred stock may be issued
from time to time in series as KeySpan's Board of Directors may determine, and
the respective dividend rates, redemption terms (if any), amounts payable on
liquidation, voting rights (if any), number of votes per share, conversion
rights (if any), and other terms will be fixed by KeySpan's Board of Directors
with respect to any such series prior to issuance.
When issued in the KeySpan share exchange, shares of KeySpan common stock
will be fully paid and nonassessable. Holders of KeySpan common stock and
preferred stock are not entitled to preemptive rights.
Dividends
Subject to prior rights of KeySpan preferred stock (if any should become
outstanding), KeySpan common stock is entitled to such dividends as may be
declared by KeySpan's Board of Directors, and KeySpan may purchase or
otherwise acquire outstanding shares of common stock, out of funds legally
available therefor.
As summarized above, the PSC Order and the Brooklyn Union/LILCO Agreement
impose certain limitations on the dividends that Brooklyn Union may pay to
KeySpan after the share exchange. See
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"-- Dividend Policy." At least initially after the KeySpan exchange, dividends
on KeySpan common stock will depend on dividends paid by Brooklyn Union on its
common stock owned by KeySpan.
Liquidation Rights
Upon liquidation of KeySpan, any net assets remaining after payment to the
holders (if any) of KeySpan preferred stock of the full amounts to which they
are entitled to receive are distributable pro rata to the holders of KeySpan
common stock.
Voting Rights
Holders of KeySpan common stock are entitled to one vote per share. There
are no cumulative voting rights. KeySpan's Board of Directors is divided into
three classes, with directors elected generally to serve for terms of three
years.
Transfer Agent and Registrar
The transfer agent and registrar for KeySpan common stock will be First
Chicago Trust Company of New York, Jersey City, New Jersey.
Indemnification and Limitation of Liability
As do the Brooklyn Union by-laws, the KeySpan by-laws will provide that
KeySpan shall indemnify to the full extent permitted by law any person made,
or threatened to be made, a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director,
officer or employee of KeySpan, or serves or served at the request of KeySpan
with any other enterprise as a director, officer or employee; expenses
incurred by any such person in defending any such action, suit or proceeding
will be paid or reimbursed by KeySpan promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by KeySpan. No
amendment of this by-law provision will impair the rights of any person
arising at any time with respect to events occurring prior to such amendment.
As does Brooklyn Union's certificate of incorporation, KeySpan's restated
certificate of incorporation will provide that no director shall have personal
liability to KeySpan or its shareholders for damages for any breach of duty in
such capacity, except for the liability for acts or omissions in bad faith or
involving intentional misconduct or a knowing violation of law, or if he or
she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled or if such act violated Section 719 of the
New York Business Corporation Law. Any amendment or repeal of such liability
limitation provision may not apply to or have any effect on the liability or
alleged liability of any director for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
Possible Effect of Certain KeySpan Provisions and the New York Law
It is not the intention of the Board of Directors to discourage legitimate
offers to enhance shareholder value. However, certain provisions of the
KeySpan's restated certificate of incorporation and by-laws may have the
effect of discouraging unilateral tender offers or other attempts to take over
and acquire the business of KeySpan. These provisions, many of which are
presently contained in Brooklyn Union's certificate of incorporation or by-
laws or otherwise apply to Brooklyn Union, might discourage a potentially
interested purchaser from attempting a unilateral takeover bid for KeySpan on
terms which some shareholders might favor. If they discourage potential
takeover bids, these provisions might limit the opportunity for KeySpan's
shareholders to sell their shares at a premium over then prevailing market
prices.
Non-Cumulative Voting. Neither Brooklyn Union nor KeySpan provides for
cumulative voting in the election of directors. The procedure known as
cumulative voting permits shareholders to multiply the number of
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votes to which they may be entitled by the total number of directors to be
elected in the same election by the holders of the class or classes of shares
of which their shares are a part and to cast their whole number of votes for
one candidate or to distribute them among any two or more candidates.
Under cumulative voting, it is possible for representation on the Board of
Directors to be obtained by an individual or group of individuals who own less
than a majority of the voting stock. Such a shareholder or group may have
interests and goals which are not consistent with, and indeed might be in
conflict with, those of a majority of the shareholders. The Board of Directors
believes that each director should represent all shareholders, rather than the
interests of any special constituency, and that the presence on KeySpan's
Board of one or more
directors representing such a constituency could disrupt and impair the
efficient management of KeySpan. The lack of cumulative voting could
discourage the accumulation of blocks of KeySpan common stock and therefore
could tend to make temporary increases in the market price of KeySpan common
stock, which could result therefrom, less likely to occur. Therefore, in these
limited instances, shareholders may not be able to sell their shares of
KeySpan common stock at a market price temporarily influenced by this type of
activity.
Advance Notice of Business to be Brought Before Shareholder Meetings. As
under Brooklyn Union's by-laws, under KeySpan's by-laws shareholders must
provide KeySpan prior written notice of any business to be brought before an
annual or special meeting (including the nomination of directors) in order for
it to be considered. With respect to any annual meeting, such by-laws require
the written notice to be received by the Secretary of KeySpan no earlier than
90 days nor later than 60 days prior to the first anniversary of the preceding
year's annual meeting, except that if the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, such by-
laws require the written notice to be received by the Secretary of KeySpan no
earlier than 90 days nor later than the later of 60 days prior to the date of,
or 10 days after the public announcement of, such annual meeting. With respect
to any special meeting, such by-laws require the written notice to be received
by the Secretary of KeySpan no earlier than 90 nor later than the later of 60
days prior to, or 10 days after the announcement of, such special meeting.
These by-law provisions provide a more orderly procedure for conducting
shareholder meetings and provide the Board of Directors with a meaningful
opportunity prior to shareholder meetings to inform shareholders, to the
extent deemed necessary or desirable by the Board of Directors, of any
business proposed to be conducted at such meetings, together with any
recommendation of the Board of Directors. Also, by requiring advance notice of
nominations by shareholders, these by-law provisions afford the Board of
Directors a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the
Board of Directors, to inform shareholders about such qualifications.
On the other hand, these by-law provisions may provide sufficient time for
KeySpan to institute litigation or take other steps to respond to such
business, or to prevent such business from being acted upon, if such response
or prevention is thought to be necessary or desirable. With respect to the
electing of directors, these by-law provisions may tend to inhibit
shareholders who do not have any intention of controlling KeySpan or its Board
of Directors from participating in the nomination process; such provisions may
also provide sufficient time for KeySpan to institute litigation or take other
steps to prevent the nominee from being elected or serving if such prevention
is thought to be necessary or desirable.
"Blank-Check" Preferred Stock. KeySpan's restated certificate of
incorporation will authorize the issuance of 10,000,000 shares of KeySpan
preferred stock. In addition, after giving effect to the KeySpan share
exchange, approximately 159,000,000 shares of KeySpan common stock will be
authorized but unissued and not reserved for issuance. An effect of the
existence of unissued KeySpan common stock and preferred stock may be to
enable the KeySpan Board of Directors to render more difficult or discourage a
transaction to obtain control of KeySpan. Such shares might be issued by the
Board of Directors without shareholder approval in transactions that might
prevent or render more difficult or costly the completion of a takeover
transaction, as by diluting voting or other rights of the proposed acquiror.
In this regard, KeySpan's restated certificate of incorporation (as does
Brooklyn Union's) will grant the Board of Directors broad power to establish
the rights and preferences of the authorized and unissued preferred stock, one
or more classes or series of which could be issued entitling holders to vote
separately as a class on any proposed merger or consolidation, to convert such
stock into shares
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of KeySpan common stock or possibly other securities, to demand redemption at
a specified price under prescribed circumstances related to a change of
control, or to exercise other rights designed to impede a takeover.
Section 912 of the New York Business Corporation Law. Section 912 of the New
York Business Corporation Law would prohibit a "business combination" (as
defined in Section 912, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by KeySpan or a
subsidiary with an "interested shareholder" (as defined in Section 912,
generally the beneficial owner of 20 percent or more of KeySpan's voting
stock) within five years after the person or entity becomes an interested
shareholder, unless
(i) prior to the person or entity becoming an interested shareholder, the
business combination or the transaction pursuant to which such person or
entity became an interested shareholder shall have been approved by KeySpan's
Board of Directors, or (ii) the business combination is approved by the
holders of a majority of the outstanding voting stock of KeySpan, excluding
shares held by the interested shareholder, at a meeting called for such
purpose not earlier than five years after such interested shareholder's stock
acquisition date.
Section 70 of the New York Public Service Law. Under Section 70 of the
Public Service Law, unless authorized by the PSC, no gas corporation or
electric corporation may directly or indirectly acquire the stock or bonds of
any other corporation incorporated for, or engaged in, the same or a similar
business, or proposing to operate or operating under a franchise from New York
State or any other state or any other municipality. In general, no stock
corporation other than a gas corporation or electric corporation or street
railroad corporation may purchase or acquire, take or hold, more than ten
percent (10%) of the voting capital stock of any gas corporation or electric
corporation organized or existing under or by virtue of the laws of New York
unless with the consent of, and subject to the terms and conditions set by,
the PSC. No consent may be given by the PSC to any such acquisition unless it
has been shown that such acquisition is in the public interest. Any contract,
assignment, transfer or agreement for transfer of any stock in violation of
Section 70 will be void and of no effect, and no such transfer or assignment
may be made upon the books of any such gas corporation or electric
corporation, or will be recognized as effective for any purpose. A "gas
corporation" is defined to generally include any corporation, company,
partnership and person owning, operating or managing any gas plant.
Other Provisions. Some other provisions of KeySpan's restated certificate of
incorporation and by-laws may also tend to discourage potential offers to take
over and acquire the business of KeySpan. KeySpan's Board of Directors will be
divided into three classes, with directors in each class generally being
elected to serve a three-year term. Also, special shareholder meetings may be
called only by the chairman of the Board of Directors or by the Board pursuant
to a resolution adopted by a majority of the entire Board. KeySpan's restated
certificate of incorporation also provides that directors may not be removed
without cause by the shareholders, except in the case of a director elected by
the holders of any class or series of stock (other than KeySpan common stock),
voting as a class or series, when so entitled by the applicable provisions of
KeySpan's restated certificate of incorporation. Finally, certain provisions
(relating to, for example, limitation on director liabilities, the ability to
call special meetings of shareholders, presiding at meetings of shareholders,
classified Board of Directors, election and removal of directors, advance
notice requirements for shareholder proposals and nomination of directors at
shareholder meetings, and indemnification) may only be amended by the
affirmative vote of not less than two-thirds of the shares entitled to vote at
a shareholder meeting. Brooklyn Union's certificate of incorporation and by-
laws presently contain a number of these provisions.
COMPARATIVE SHAREHOLDERS' RIGHTS
Brooklyn Union and KeySpan are both New York corporations. When the KeySpan
share exchange becomes effective, holders of Brooklyn Union common stock will
become holders of KeySpan common stock, and their rights will be governed by
KeySpan's restated certificate of incorporation and by-laws instead of those
of Brooklyn Union.
Certain differences between the rights of holders of KeySpan common stock
and those of holders of Brooklyn Union common stock are summarized below. Such
summary is qualified in its entirety by reference to
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the information included in the exhibits hereto, in exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part, and in materials incorporated herein by reference.
Purpose Clause
The corporate purposes for which Brooklyn Union may engage in business are
those related to gas, electricity or other forms of energy and related
activities. KeySpan is authorized to engage in any and all lawful acts and
activities.
Authorized Shares
Authorized KeySpan and Brooklyn Union common stock is 210,000,000 and
70,000,000 shares, respectively. As of June 23, 1997, there were 50,364,212
shares of Brooklyn Union common stock outstanding and 1,500,000 shares of
Brooklyn Union common stock reserved for issuance upon exercise of outstanding
stock options. In addition, under the Brooklyn Union Stock Option Agreement,
Brooklyn Union has granted to LILCO an option to purchase, under certain
circumstances, up to 9,948,682 shares of Brooklyn Union common stock. Up to
approximately 51,864,212 shares of KeySpan common stock may be issued in the
KeySpan share exchange. The additional authorized but unissued shares of
KeySpan common stock will be available for issuance under the Dividend
Reinvestment and Stock Purchase Plan and the Brooklyn Union Stock Plans, as
well as possibly for stock splits, stock dividends, equity financings, and for
other general corporate purposes (including, possibly, acquisitions), none of
which is under current consideration.
In addition to the currently outstanding shares of Brooklyn Union preferred
stock, as of the Record Date, there were 831,000 and 2,000,000 authorized but
unissued shares of Brooklyn Union $100 preferred stock and Brooklyn Union $25
preferred stock, respectively. There will be 10,000,000 authorized shares of
KeySpan preferred stock, all of which are unissued.
Preferred Stock
The respective Boards of Directors of KeySpan and Brooklyn Union are
authorized to issue preferred stock in series.
The voting rights and certain preferences of the Brooklyn Union preferred
stock are determined in Brooklyn Union's certificate of incorporation.
Brooklyn Union preferred stock is generally not entitled to vote but only has
limited voting rights as required by law and as set out in the Brooklyn
Union's certificate of incorporation, which rights generally arise only in the
event of certain arrearages in payment of dividends and certain corporate
transactions affecting Brooklyn Union preferred stock. Brooklyn Union
preferred stock is subject to redemption and sinking fund provisions.
KeySpan's restated certificate of incorporation will not establish voting
rights, preferences or other rights with respect to KeySpan preferred stock.
KeySpan's Board of Directors is given full authority to establish and
designate each particular series of preferred stock and to fix the rights,
preferences and limitations of each particular series, and the relative
rights, preferences and limitations between series, as follows: (i) the serial
designation; (ii) the number of shares in such series; (iii) the dividend rate
or rates and the date or dates upon which such dividends shall be payable;
(iv) whether dividends on such series will be cumulative, and, if so, from
which date or dates; (v) liquidation preferences; (vi) provisions, if any,
relating to optional redemption by KeySpan and sinking or other similar funds;
(vii) provisions, if any, relating to the conversion or exchange of shares of
such series into shares of any class of stock (except that conversion or
exchange may not be made into shares having superior dividend or liquidation
preferences); (viii) the voting rights, if any, in addition to those required
by law and the number of votes per share; and (ix) any other relative rights,
preferences or limitations of such series not inconsistent with applicable
law.
Management believes that the ability to issue KeySpan preferred stock will
provide important flexibility to KeySpan.
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Par Value
The par value of KeySpan preferred stock differs from those of Brooklyn
Union preferred stock. A designated par value is not required under the New
York Business Corporation Law and in modern corporate practice par value does
not serve any useful purpose. It is anticipated that the difference in par
values will not affect the market value of KeySpan preferred stock.
The par value per share of KeySpan common stock, $.33 1/3, is identical to
the par value per share of Brooklyn Union common stock.
Classified Board
As is the case with Brooklyn Union, KeySpan's restated certificate of
incorporation and by-laws will provide (i) for the Board to determine the
number of directors; and (ii) for the division of the Board into three classes
with directors in each class generally being elected for a three-year term.
See "-- Management" below.
Other Provisions
KeySpan's restated certificate of incorporation will provide that directors
may not be removed without cause by the shareholders, except in the case of a
director elected by the holders of any class or series of stock (other than
KeySpan common stock), voting as a class or series, when so entitled by the
applicable provisions of KeySpan's restated certificate of incorporation.
Also, certain provisions (relating to, for example, preferred stock,
limitation on director liabilities, the ability to call special meetings of
shareholders, classified Board of Directors, election and removal of
directors, advance notice requirements for shareholder proposals and
nomination of directors at shareholder meetings) may only be amended by the
affirmative vote of not less than two-thirds of the shares then entitled to
vote at shareholder meetings. Other provisions of KeySpan's restated
certificate of incorporation or by-laws may be amended, repealed or adopted by
a vote of the shareholders of KeySpan at the time entitled to vote at any
shareholder meeting or, in the case of the KeySpan by-laws, by the Board of
Directors of KeySpan.
See also "--KeySpan Capital Stock".
For information regarding the Holding Company common stock and preferred
stock and a comparison of certain shareholder rights after consummation of the
LILCO Combination, see "Description of Holding Company Capital Stock" and
"Comparison of Shareholders' Rights" in the Joint Proxy Statement/Prospectus.
BUSINESS
Brooklyn Union distributes natural gas at retail, primarily in a territory
of approximately 187 square miles, which includes the Boroughs of Brooklyn and
Staten Island and two-thirds of the Borough of Queens in New York City. The
population of the territory served is approximately 4,000,000. As of September
30, 1996, Brooklyn Union had approximately 1,126,000 active meters, of which
approximately 1,089,000 were residential. Brooklyn Union is subject to the
regulatory jurisdiction of the PSC. After the KeySpan share exchange, Brooklyn
Union will continue to carry on its current utility business as a subsidiary
of KeySpan.
Brooklyn Union's principal non-utility subsidiaries currently participate
and own investments in gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-related
services. It is anticipated that certain, if not all, of these subsidiaries
eventually will become separate subsidiaries of KeySpan after the KeySpan
share exchange.
On September 20, 1996, Brooklyn Union sold in an initial public offering
approximately 34% of its interest in The Houston Exploration Company ("THEC").
THEC is a natural gas and oil exploration and production company with proven
reserves of approximately 320 billion cubic feet of natural gas.
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Immediately after the KeySpan share exchange occurs, KeySpan will have no
material assets other than its direct ownership of all of Brooklyn Union's
outstanding common stock and its indirect ownership of all of the common stock
of Brooklyn Union's existing non-utility subsidiaries. See "--Transfer of
Brooklyn Union's Non-Utility Subsidiaries to KeySpan." It is expected that, in
the future, KeySpan will expand into some other businesses and ventures.
For further information regarding Brooklyn Union's non-utility subsidiaries,
see Notes 3, 7, 8 and 10 to the 1996 Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Brooklyn Union's Proxy Statement dated December 30, 1996 for
its annual meeting of shareholders held on February 6, 1997. Financial and
additional information regarding Brooklyn Union is also included in the Joint
Proxy Statement/Prospectus.
For information regarding LILCO's business and condition, see "Selected
Information Concerning Brooklyn Union and LILCO" and the Unaudited Pro Forma
Combined Consolidated and Condensed Financial Statements included in the Joint
Proxy Statement/Prospectus, and the financial and additional information
regarding LILCO incorporated by reference therein as listed under "Where You
Can Find More Information" in the Joint Proxy Statement/Prospectus.
REGULATION OF KEYSPAN AND BROOKLYN UNION
Regulation of KeySpan
KeySpan must comply with the PSC Order. As discussed and referred to below
under "--The PSC Order", there are restrictions on KeySpan's investments,
transactions between Brooklyn Union and KeySpan and other KeySpan
subsidiaries, restrictions on loans, guarantees or pledges for the benefit of
KeySpan and other KeySpan subsidiaries, and restrictions on Board and
managerial interlocks between Brooklyn Union and KeySpan and other KeySpan
subsidiaries. In connection with the proposed LILCO Combination, Brooklyn
Union and LILCO have filed a petition with the PSC requesting, among other
things, the removal or relaxation of certain of the restrictions described
herein. The PSC has not acted upon such petition as of the date of this Joint
Proxy Statement/Prospectus, and there can be no assurance that any or all of
the relief requested in the petition will be granted.
As a result of the KeySpan share exchange, KeySpan will become a "public
utility holding company" under the Holding Company Act. Simultaneously with
the effectiveness of the share exchange, KeySpan will file with the SEC an
exemption statement to exempt itself and its subsidiaries from all provisions
of the Holding Company Act (except with respect to certain acquisitions and
investments) pursuant to the "intrastate" exemption in Section 3(a)(1) of that
Act. To maintain this exemption, KeySpan must file a statement each year prior
to March 1 with the SEC. The SEC has authority under the Holding Company Act
to challenge the availability of KeySpan's exemption.
KeySpan believes that it will be exempt from all provisions of the Holding
Company Act except Section 9(a)(2). Section 9(a)(2) requires SEC approval of
the direct or indirect acquisition by KeySpan of five percent (5%) or more of
the voting securities of any other public utility company. There are also
presently limits on the extent to which KeySpan and its non-utility
subsidiaries can enter into businesses which are not "functionally related" to
the public utility business without raising potential issues about KeySpan's
exempt status. SEC policies regarding the scope of permissible non-utility
activities of a public utility holding company are subject to change, but
under current law KeySpan would be required to remain engaged primarily and
predominantly in the public utility business which could limit other
activities in which KeySpan might wish to engage.
Regulation of Brooklyn Union
Brooklyn Union will continue to be subject to regulation by the PSC after
the KeySpan share exchange. Brooklyn Union's utility retail sales, which
include sales of gas, transportation and balancing services, will
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continue to be made primarily under rate schedules and tariffs filed with and
subject to the jurisdiction of the PSC. See "--New Rate Plan of Brooklyn
Union" below. In addition, Brooklyn Union will continue to be subject to
regulation by the PSC, as it has been in the past, regarding issuances of
securities, capital ratio maintenance, and the maintenance of its books and
records.
THE PSC ORDER
Non-Utility Capital Limits
Unless otherwise approved by the PSC during the term of the PSC Order,
KeySpan may only invest in the following categories of non-utility businesses
(the "Complying Investments"): (i) energy-related businesses; (ii) businesses
providing water, environmental and technical services;
(iii) telecommunications businesses; (iv) businesses that operate primarily
within Brooklyn Union's service area and contribute to the economy of that
area through such means as significant increased employment and improvement of
housing stock; and (v) financial services businesses. In addition, KeySpan's
investment in non-utility businesses will be limited to a percentage of
KeySpan's Total Capital: starting at 35% for fiscal year 1997, and increasing
at a rate of five percentage points per year until reaching 50% for fiscal
year 2000 and thereafter. Brooklyn Union's investments in the lines of
business described in (iv) and (v) above will be limited to an aggregate five
percent (5%) of
KeySpan's Total Capital over the entire term of the PSC Order. "Total Capital"
refers to the sum of an entity's common shareholders' equity, preferred stock,
long term debt (including notes payable), but does not include any cash or
cash equivalents appearing on the entity's consolidated balance sheets. The
increases in investment authority detailed above will not occur if there has
been a material violation of the PSC Order, as determined by the PSC.
If (i) KeySpan or its subsidiaries invest in or acquire a utility company or
Complying Investment, (ii) a portion of the activities of such acquired entity
are non-Complying Investments, and (iii) all such non-Complying Investments in
the aggregate amount to more than one percent (1%) of the assets of KeySpan,
then KeySpan or the subsidiaries owning such non-Complying Investments must
divest itself or themselves of such investments within a two-year period.
Prohibitions of Affiliate Loans, Guarantees and Pledges
Under the PSC Order, Brooklyn Union is prohibited from making loans to, or
providing guarantees or other credit support for the obligations of, KeySpan
or any other subsidiary of KeySpan. Likewise, Brooklyn Union may not pledge
its assets for the obligations of any other entity, including KeySpan or any
other subsidiary of KeySpan. Finally, KeySpan may not pledge the dividends,
revenues or receivables received or expected from Brooklyn Union or any other
subsidiary to support its obligations.
Prohibitions of Affiliate Transactions and Other Restrictions
The PSC Order generally prohibits any transaction between Brooklyn Union and
KeySpan or any other subsidiary of KeySpan, except for the provision of
certain corporate administrative services, certain "grandfathered"
transactions as listed therein, transactions permitted as a matter of generic
policy by the PSC, and tariffed transactions. In addition, KeySpan and its
subsidiaries are required by the PSC Order to operate as separate entities,
and the PSC Order prescribes capital ratio maintenance requirements for
Brooklyn Union. Finally, the PSC Order sets out guidelines for the allocation
of costs among KeySpan, Brooklyn Union and the other subsidiaries of KeySpan.
Restrictions on Board and Management Interlocks
In order to address concerns regarding the possible diversion of the
attention of Brooklyn Union's management away from the utility business, as
well as to avoid potential conflicts of interest with the management of
KeySpan, the PSC Order contains restrictions regarding the composition of the
Boards and
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managements of Brooklyn Union and KeySpan and other subsidiaries of KeySpan.
See "--Management--Restrictions on Board and Management Interlocks between
KeySpan and Brooklyn Union."
In connection with the proposed LILCO Combination, Brooklyn Union and LILCO
have filed a petition with the PSC requesting, among other things, the removal
or relaxation of certain of the restrictions described herein. The PSC has not
acted upon such petition as of the date of this Joint Proxy
Statement/Prospectus, and there can be no assurance that any or all of the
relief requested in the petition will be granted.
NEW RATE PLAN OF BROOKLYN UNION
The PSC Order includes a new rate plan that took effect on October 1, 1996
and will remain in effect until September 30, 2002. In fiscal 1997, the non-
gas component in customer bills will be reduced by at least $3 million, with
subsequent bills subject to specific price caps through September 30, 2002.
Hence, the non-gas cost component of customer rates, in the aggregate, will
remain constant for the subsequent five years; however, rates to certain
customer classes may increase in order to reflect more appropriately their
respective cost responsibilities. Brooklyn Union also will be able to charge
for various ancillary services.
The new rate plan essentially freezes Brooklyn Union's distribution rates
for six years, but at the same time, contains a number of provisions designed
to maximize Brooklyn Union's overall earnings and protect Brooklyn Union's
financial condition. There is no specific authorized rate of return on common
equity and Brooklyn Union generally is not subject to any earnings cap. In
addition, Brooklyn Union generally is not required to share with customers any
level of earnings or cost savings related to utility operations. However,
incentive provisions remain for the retention of 20% of net revenues from off-
system transactions, as well as incentives related to total expenditures
related to investigation and remediation of the sites of former manufactured
gas plant facilities. The plan also contains provisions for rate adjustments
tied to the level of inflation, exogenous costs or Brooklyn Union's financial
condition.
The rate plan also provides Brooklyn Union with substantial pricing
flexibility to enhance its ability to compete against alternative fuel sources
(primarily fuel oil) in price elastic firm markets, and to "unbundle" the
cost of certain services from base rates to ensure that only the customers
that use those services have to pay for them. It also includes mechanisms to
allow Brooklyn Union to set prices for certain customer segments designed to
price gas competitively with alternative sources of energy.
The rate plan will continue to govern Brooklyn Union's utility rates and
charges even if common shareholders do not approve the holding company
proposal and adopt the KeySpan Exchange Agreement at Brooklyn Union's Special
Meeting. In that event, Brooklyn Union will not be able to realize the
benefits it expects from a holding company structure, which it believes is
necessary in the future deregulated competitive environment of the energy
industry.
STATUTORY APPRAISAL RIGHTS
Section 910 of the NYBCL sets forth the rights of shareholders of Brooklyn
Union who object to the adoption of the KeySpan share exchange agreement. Any
record holder of Brooklyn Union Common Stock as of the record date who does
not vote in favor of the adoption of the KeySpan Exchange Agreement, or who
duly revokes his or her vote in favor of the adoption of the KeySpan Exchange
Agreement, may, if the KeySpan share exchange is consummated, obtain payment,
in cash, for the fair market value of such holder's shares by strictly
complying with the requirements of Section 623 of the NYBCL. Inasmuch as
Brooklyn Union preferred stock is not being exchanged and will be redeemed
pursuant to their terms immediately prior to the consummation of the KeySpan
share exchange, the holders of that stock do not have statutory appraisal
rights. The following summary of the applicable provisions of Sections 623 and
910 is not intended to be a complete statement of such provisions and is
qualified in its entirety by reference to the full text of Sections 623 and
910, copies of which are attached to this Joint Proxy Statement/Prospectus as
Annex I. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF BROOKLYN UNION
COMMON STOCK THAT ARE HELD OF RECORD IN THE NAME OF ANOTHER PERSON,
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SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO
FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT
WHATEVER APPRAISAL RIGHTS THE BENEFICIAL OWNER MAY HAVE.
THIS SUMMARY AND ANNEX I SHOULD BE REVIEWED CAREFULLY BY ANY COMMON
SHAREHOLDER OF BROOKLYN UNION WHO WISHES TO EXERCISE STATUTORY APPRAISAL
RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO
STRICTLY COMPLY WITH ANY OF THE PROCEDURAL REQUIREMENTS OF SECTION 623 OR
SECTION 910 MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER
SECTION 623 AND SECTION 910.
The dissenting Brooklyn Union shareholder must file with Brooklyn Union
before the taking of the vote on the adoption of the KeySpan Exchange
Agreement a written objection including a notice of election to dissent, such
holder's name and residence address, the number and class of shares (Brooklyn
Union common stock) as to which such holder dissents (which number may not be
less than all of the shares as to which such holder has the right to dissent)
and a demand for payment of the fair value of such shares if the KeySpan share
exchange is consummated. Any such written objection should be addressed to:
The Brooklyn Union Gas Company, One MetroTech Center, Brooklyn, New York
11201-3851, Attention: Secretary.
For purposes of perfecting appraisal rights pursuant to Section 623, the
written objection of a holder of shares of Brooklyn Union common stock which
is addressed as provided above shall be deemed filed with Brooklyn Union upon
receipt of such objection by Brooklyn Union. Neither voting against nor
failure to vote for the KeySpan Exchange Agreement will constitute the written
objection required to be filed by an objecting shareholder. Failure to vote
against the KeySpan Exchange Agreement, however, will not constitute a waiver
of rights under Sections 623 and 910, provided that a written objection has
been properly filed. A shareholder voting to adopt the KeySpan Exchange
Agreement will be deemed to have waived such shareholder's appraisal rights.
A shareholder may not dissent as to less than all the shares of Brooklyn
Union common stock held of record that such holder beneficially owns. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all the shares of Brooklyn Union common stock of such beneficial
owner, as to which such nominee or fiduciary has a right to dissent, held of
record by such nominee or fiduciary. Furthermore, if the shares of Brooklyn
Union common stock are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be made in that capacity, and
if the shares of Brooklyn Union common stock are owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand must be
made by or for all owners of record. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a holder of
record; however, such agent must identify the record owner or owners and
expressly state in such demand that the agent is acting as agent for the
record owner or owners of such shares of Brooklyn Union common stock.
A record holder, such as a broker or an agent, who holds shares of Brooklyn
Union common stock as a nominee for beneficial owners, some of whom desire to
demand appraisal, must exercise appraisal rights on behalf of such beneficial
owners who desire to demand appraisal with respect to the shares of Brooklyn
Union common stock held for such beneficial owners.
Within ten days after the vote of Brooklyn Union shareholders authorizing
the adoption of the KeySpan Exchange Agreement, Brooklyn Union or KeySpan, as
the case may be, must give written notice of such authorization to each
dissenting Brooklyn Union shareholder. At the time of filing a notice of
election to dissent or within one month thereafter, a dissenting Brooklyn
Union shareholder must submit certificates representing such holder's shares
of Brooklyn Union common stock to Brooklyn Union or its transfer agent for
notation thereon of the election to dissent, after which such certificates
will be returned to such shareholder. Any such shareholder who fails to submit
such certificates for notation will, at the election of Brooklyn Union or
KeySpan (exercised by written notice to such holder within 45 days from the
date of filing of the notice of election to dissent), lose such holder's
appraisal rights unless a court, for good cause shown, otherwise directs.
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Within 15 days after the expiration of the period within which shareholders
of Brooklyn Union may file their notices of election to dissent, or within 15
days after the effective time of the KeySpan share exchange, whichever is
later (but in no case later than 90 days after the shareholders' vote adopting
the KeySpan Exchange Agreement), Brooklyn Union or KeySpan, as the case may
be, must make a written offer (which, if the KeySpan share exchange has not
been consummated, may be conditioned upon such consummation) to each
shareholder who has filed a notice of election to dissent to pay for such
holder's shares of Brooklyn Union common stock at a specified price which
Brooklyn Union or KeySpan, as the case may be, considers to be their fair
value. If Brooklyn Union or KeySpan, as the case may be, and the dissenting
shareholder are unable to agree as to such value, Section 623(h) of the NYBCL
provides for judicial determination of fair value. In the event of such a
disagreement, a court proceeding shall be commenced by Brooklyn Union or
KeySpan, as the case may be, in the Supreme Court of the State of New York,
County of Kings, or by the dissenting shareholder if Brooklyn Union or
KeySpan, as the case may be, fails to commence the proceeding within the time
required by Section 623 of the NYBCL. Brooklyn Union and KeySpan intend to
commence such a proceeding in the event of such a disagreement.
B. MANAGEMENT
DIRECTORS AND OFFICERS OF KEYSPAN
KeySpan's restated certificate of incorporation and by-laws, as of the
effective time of the KeySpan share exchange, will divide KeySpan's Board of
Directors into three classes of three directors each, with directors in each
class generally being elected for a three-year term. KeySpan's by-laws will
permit the Board of Directors to fix from time to time the number of directors
in a range of 9 to 12, and the Board has fixed its initial size at 9,
effective as of the effective time of the KeySpan share exchange.
Prior to the effective time of the KeySpan share exchange, Brooklyn Union,
as the sole shareholder of KeySpan, will elect as KeySpan directors Robert B.
Catell and Alan H. Fishman for one-year terms expiring at KeySpan's annual
meeting in 1998, Kenneth I. Chenault and Edward D. Miller for two-year terms
expiring in 1999, and James Q. Riordan for a three-year term expiring in 2000.
Brooklyn Union, as such sole shareholder, will also elect such others, if any,
who may be selected to fill one or more of the Board's four vacancies prior to
completion of the KeySpan share exchange. All of Messrs. Catell, Chenault,
Fishman, Miller and Riordan are currently Brooklyn Union directors. As of the
effective time of the KeySpan share exchange, Messrs. Chenault and Fishman
will resign from Brooklyn Union's Board of Directors; Messrs. Catell, Miller
and Riordan will serve on the Boards of Directors of both KeySpan and Brooklyn
Union. Robert B. Catell is and will be the only director of KeySpan until
KeySpan's restated certificate of incorporation is filed shortly before the
effective time of the KeySpan share exchange and Brooklyn Union, as KeySpan's
sole shareholder, elects the directors named above and such others, if any,
selected prior to the completion of the KeySpan share exchange to fill KeySpan
Board vacancies. After completion of the KeySpan share exchange, KeySpan Board
vacancies may be filled by action of KeySpan's Board of Directors.
As of the effective time of the KeySpan share exchange, the Board of
Directors of KeySpan will appoint the following individuals as the officers of
KeySpan:
<TABLE>
<C> <S>
Chairman, President and Chief Executive
Robert B. Catell Officer
Craig G. Matthews Executive Vice President--Utility Division
Vincent D. Enright Senior Vice President, Chief Financial
Officer and Chief Accounting Officer
Maurice K. Shaw Senior Vice President--Corporate Affairs
David L. Phillips Senior Vice President--Strategic Planning and
Corporate Development
William K. Feraudo Senior Vice President--Energy Marketing Group
Roger J. Walz Vice President and General Auditor
Vice President--Business Alliances and
Theodore Spar Investments
Robert R. Wieczorek Vice President, Secretary and Treasurer
Jan C. Childress Vice President--Investor Relations
</TABLE>
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Mr. Catell is and will continue as Chairman and Chief Executive Officer of
Brooklyn Union; Mr. Matthews is and will continue as President and Chief
Operating Officer of Brooklyn Union; Mr. Enright is and will continue as
Senior Vice President and Chief Financial Officer of Brooklyn Union; Mr. Walz
is and will continue as Vice President and General Auditor of Brooklyn Union;
and Mr. Wieczorek is and will continue as Vice President, Secretary and
Treasurer of Brooklyn Union. As of the effective time of the KeySpan share
exchange, Messrs. Phillips, Shaw, Feraudo, Spar and Childress will no longer
be officers of Brooklyn Union.
For further information concerning persons to become directors or officers
of KeySpan, see the information contained in Brooklyn Union's Proxy Statement
dated December 30, 1996 for its annual meeting held on February 6, 1997, which
through Brooklyn Union's Annual Report on Form 10-K/A for the fiscal year
ended September 30, 1996, is incorporated herein by reference. For certain
information concerning management of the Holding Company following the LILCO
Combination, see "The Company Following the Combination and the LIPA
Transaction" in the Joint Proxy Statement/Prospectus.
RESTRICTIONS ON BOARD AND MANAGEMENT INTERLOCKS BETWEEN KEYSPAN AND BROOKLYN
UNION
In order to address concerns regarding the possible diversion of the
attention of Brooklyn Union's management away from the utility business, as
well as to avoid potential conflicts of interest with the Board and management
of KeySpan, the PSC Order sets forth the following restrictions regarding the
composition of the managements of Brooklyn Union and KeySpan. In connection
with the proposed LILCO Combination, Brooklyn Union and LILCO have filed a
petition with the PSC requesting, among other things, the removal or
relaxation of certain of the restrictions described herein. The PSC has not
acted upon such petition as of the date of this Joint Proxy
Statement/Prospectus, and there can be no assurance that any or all of the
relief requested in the petition will be granted.
Composition of the Boards of Directors
Brooklyn Union's Board of Directors must include at least a majority of
outside directors (i.e., individuals not employed by Brooklyn Union, KeySpan
or any of their affiliates). No more than two directors of Brooklyn Union may
be inside directors (i.e., individuals employed by Brooklyn Union, KeySpan or
any of their affiliates), with at least one such inside director being an
operating officer of Brooklyn Union. No more than four directors of Brooklyn
Union may either be inside directors or directors of KeySpan. Finally, the
nomination of directors to Brooklyn Union's Board must be made by a committee
composed entirely of outside directors.
Common Officers Within the Holding Company System
No more than five officers of Brooklyn Union may also serve as officers of
KeySpan. The maximum number of Brooklyn Union's officers who may also serve as
officers of KeySpan will be reduced to four, or to three, if and when
KeySpan's investment in Brooklyn Union, expressed as the ratio of Brooklyn
Union's Total Capital to KeySpan's Total Capital, falls to 60% or 50%,
respectively. The Secretary and Treasurer of Brooklyn Union may serve in the
equivalent position of KeySpan or another subsidiary of KeySpan, but no other
officer of Brooklyn Union may serve as an officer of another operating
subsidiary of KeySpan.
C. OTHER INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, has been appointed by
the Board of Directors of KeySpan to serve as independent public accountants
of KeySpan for the 1997 fiscal year. Arthur Andersen LLP has been the
independent public accountants of Brooklyn Union since 1932.
Arthur Andersen LLP has also been appointed by the Board of Directors of
Brooklyn Union to serve as independent public accountants of Brooklyn Union.
Shareholders of Brooklyn Union voted to ratify such appointment at Brooklyn
Union's annual meeting of shareholders held on February 6, 1997.
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<PAGE>
VALIDITY OF KEYSPAN COMMON STOCK
The validity of the shares of KeySpan common stock to be issued in the
KeySpan share exchange will be passed upon by Cullen and Dykman, general
counsel to Brooklyn Union and KeySpan, 177 Montague Street, Brooklyn, New York
11201, and by Sullivan & Cromwell, special counsel to Brooklyn Union and
KeySpan, 125 Broad Street, New York, New York 10004.
DEADLINE FOR SHAREHOLDER PROPOSALS
In order to be included in KeySpan's proxy statement and form of proxy
relating to its 1998 Annual Meeting (if common shareholders adopt the KeySpan
Exchange Agreement and the KeySpan share exchange occurs) or in Brooklyn
Union's 1998 Annual Meeting proxy statement and form of proxy (if the KeySpan
Exchange Agreement is not adopted by common shareholders), proposals from
shareholders to be presented at the 1998 Annual Meeting must be received by
the Secretary of KeySpan or Brooklyn Union, as the case may be, at One
MetroTech Center, Brooklyn, New York 11201-3851, no later than September 1,
1997.
Matters intended to be presented by holders of KeySpan or Brooklyn Union
Common Stock, as the case may be, at the 1998 Annual Meeting must be stated in
writing, and delivered to the appropriate Secretary by such shareholders
during the period between 90 and 60 days prior to the date of the meeting,
which is expected to be held on February 5, 1998.
If Brooklyn Union common shareholders adopt the KeySpan Exchange Agreement
and the KeySpan share exchange occurs, Brooklyn Union will no longer be
publicly held and KeySpan will be the sole owner of Brooklyn Union common
stock after the KeySpan share exchange. In such event, there will be no
regularly scheduled meetings of shareholders of Brooklyn Union in 1998 or
thereafter. If the LILCO Combination is consummated, there will be no
regularly scheduled meetings of shareholders of KeySpan thereafter.
INCORPORATED DOCUMENTS
For a description of material information concerning and documents
incorporated by reference by Brooklyn Union and LILCO, including financial
statements and pro forma and other financial information, see the Joint Proxy
Statement/Prospectus--"Where You Can Find More Information." Copies of any
such materials may be obtained in accordance with the procedures set forth
therein.
----------------
BROOKLYN UNION'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE HOLDING
COMPANY STRUCTURE AND ADOPTED THE KEYSPAN EXCHANGE AGREEMENT, BELIEVES THE
HOLDING COMPANY STRUCTURE AND THE KEYSPAN SHARE EXCHANGE TO BE IN THE BEST
INTERESTS OF BROOKLYN UNION AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE
HOLDERS OF BROOKLYN UNION COMMON STOCK VOTE "FOR" THE HOLDING COMPANY PROPOSAL
AND ADOPTION OF THE KEYSPAN EXCHANGE AGREEMENT AT THE BROOKLYN UNION MEETING.
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ANNEX K
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE
This AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"),
dated as of June 26, 1997, is between THE BROOKLYN UNION GAS COMPANY, a New
York corporation and the corporation whose shares of Common Stock, par value
$.33 1/3 per share, will be acquired pursuant to the "Exchange" provided for
in this Agreement (the "Subject Corporation"), and KEYSPAN ENERGY CORPORATION,
a New York corporation and the corporation which will acquire the foregoing
shares of Common Stock of the Subject Corporation (the "Acquiring
Corporation"). The Subject Corporation and the Acquiring Corporation are
hereinafter referred to, collectively, as the "Corporations".
WITNESSETH:
WHEREAS, the authorized capital of the Subject Corporation is $163,333,100,
consisting of (a) 70,000,000 shares of Common Stock, par value $.33 1/3 per
share ("Subject Corporation Common Stock"), of which 50,362,161 shares are
issued and outstanding (which number of issued and outstanding shares is
subject to change prior to the Effective Time (as hereinafter defined) of the
Exchange pursuant to the dividend reinvestment and stock purchase plan
("Dividend Reinvestment Plan") and the Employee Savings Plan, Discount Stock
Purchase Plan for Employees and Long-Term Performance Incentive Compensation
Plan (each an "Employee Plan" and collectively the "Employee Plans") of the
Subject Corporation, (b) 900,000 shares of Cumulative Preferred Stock, par
value $100 per share ("Subject Corporation $100 Preferred Stock"), of which
66,000 shares are issued and outstanding in one series designated "4.60%
Cumulative Preferred Stock, Series B, $100 par value", and (c) 2,000,000
shares of Cumulative Preferred Stock, par value $25 per share ("Subject
Corporation $25 Preferred Stock"), of which no shares are issued and
outstanding;
WHEREAS, the Acquiring Corporation is a wholly-owned subsidiary of the
Subject Corporation with authorized capital stock consisting of 70,000,000
shares of Common Stock, par value $.33 1/3 per share ("Acquiring Corporation
Common Stock"), of which 10 shares are issued and outstanding and owned by the
Subject Corporation;
WHEREAS, the Boards of Directors of the Corporations deem it desirable and
in the best interests of the Corporations and the shareholders of the Subject
Corporation that, at the Effective Time, (a) the Acquiring Corporation acquire
and become the owner and holder of each share of Subject Corporation Common
Stock issued and outstanding at the Effective Time, (b) each share of Subject
Corporation Common Stock issued and outstanding immediately prior to the
Effective Time be automatically exchanged for one share of Acquiring
Corporation Common Stock, and (c) each holder of shares of Subject Corporation
Common Stock issued and outstanding immediately prior to the Effective Time
becomes the holder of a like number of shares of Acquiring Corporation Common
Stock, all on the terms and conditions hereinafter set forth;
WHEREAS, the Subject Corporation, Long Island Lighting Company, a New York
corporation ("LILCO"), and BL Holding Corp., a New York corporation ("BL"),
have entered into an Amended and Restated Agreement and Plan of Exchange and
Merger, dated as of June 26, 1997 (the "BL Agreement"), pursuant to which
after the Effective Time and subject to and in accordance with the terms and
conditions of the BL Agreement each holder of shares of Acquiring Corporation
Common Stock issued and outstanding immediately prior to the effective time of
the merger provided for in the BL Agreement will become the holder of a like
number of shares of BL common stock, par value $0.01 per share ("BL Common
Stock"), and each holder of shares of LILCO common stock, par value $5.00 per
share ("LILCO Common Stock"), issued and outstanding immediately prior to the
effective time of the LILCO mandatory share exchange will become a holder of a
specified number of shares of BL Common Stock, with the result that all issued
and outstanding Acquiring Corporation Common Stock and all issued and
outstanding LILCO Common Stock will become owned by BL and the Acquiring
Corporation and LILCO will become subsidiaries of BL;
K-1
<PAGE>
WHEREAS, as a result of the BL Agreement and the transactions provided for
therein, the Boards of Directors of the Corporations deem it desirable and in
the best interests of the Corporations and the shareholders of the Subject
Corporation that the Agreement and Plan of Exchange, dated as of December 18,
1996, between the Subject Corporation and the Acquiring Corporation relating
to the Exchange be amended and restated to take into account the terms and
conditions of the BL Agreement and the transactions provided for therein; and
WHEREAS, the Boards of Directors of the Corporations have each approved and
adopted, or will ratify and adopt, this Agreement, and the Board of Directors
of the Subject Corporation is recommending that the shareholders of the
Subject Corporation approve and adopt the Exchange and this Agreement pursuant
to Section 913 of the New York Business Corporation Law (the "BCL").
NOW, THEREFORE, the Corporations hereby agree as follows:
ARTICLE I
The Exchange and this Agreement shall be submitted to the holders of Subject
Corporation Common Stock for approval and adoption as provided by Section 913
of the BCL. The affirmative vote of the holders of at least two-thirds of the
issued and outstanding Subject Corporation Common Stock shall be necessary to
approve and adopt the Exchange and this Agreement.
ARTICLE II
Subject to the terms and conditions of this Agreement, the Exchange shall
become effective immediately following the close of business on the date of
filing with the New York Department of State (the "Department of State") of a
certificate of exchange pursuant to Section 913(d) of the BCL ("Certificate"),
or at such later time and date as may be stated in the Certificate (the time
and date at and on which the Exchange becomes effective being referred to
herein as the "Effective Time").
ARTICLE III
A. At the Effective Time:
(1) each share of Subject Corporation Common Stock issued and outstanding
immediately prior to the Effective Time shall be automatically exchanged
for one share of Acquiring Corporation Common Stock, which shares shall be
fully paid and nonassessable by the Acquiring Corporation;
(2) the Acquiring Corporation shall acquire and become the owner and
holder of each issued and outstanding share of Subject Corporation Common
Stock so exchanged;
(3) each share of Acquiring Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall thereupon constitute an authorized and unissued share of Acquiring
Corporation Common Stock;
(4) each share of Subject Corporation Common Stock held under the
Dividend Reinvestment Plan or an Employee Plan (including fractional and
uncertificated shares) immediately prior to the Effective Time shall be
automatically exchanged for a like number of shares (including fractional
and uncertificated shares) of Acquiring Corporation Common Stock, which
shares shall be held under and pursuant to the Dividend Reinvestment Plan
or be issued under such Employee Plan, as the case may be, as hereinafter
provided;
(5) each unexpired and unexercised option to purchase Subject Corporation
Common Stock ("Subject Corporation Stock Option") under the Long-Term
Performance Incentive Compensation Plan (the "Incentive Plan"), whether
vested or unvested, will be automatically converted into an option
K-2
<PAGE>
(a "Substitute Option") to purchase a number of shares of Acquiring
Corporation Common Stock equal to the number of shares of Subject
Corporation Common Stock that could have been purchased immediately prior
to the Effective Time (assuming full vesting) under such Subject
Corporation Stock Option, at a price per share of Acquiring Corporation
Common Stock equal to the per share option exercise price specified in such
Subject Corporation Stock Option. In accordance with Section 424(a) of the
Internal Revenue Code of 1986, as amended, each Substitute Option shall
provide the option holder with rights and benefits that are no less and no
more favorable to him than were provided under the Subject Corporation
Stock Option; and
(6) the former holders of Subject Corporation Common Stock shall be
entitled only to receive shares of Acquiring Corporation Common Stock in
exchange therefor as provided in this Agreement; provided, however, that
each such shareholder complying with Sections 623 and 910 of the BCL shall
have the right to receive payment of the fair value of such shareholder's
Subject Corporation Common Stock and shall have the other rights and
benefits provided in such Sections.
B. Shares of Subject Corporation $100 Preferred Stock and Subject
Corporation $25 Preferred Stock shall not be exchanged or otherwise affected
by the Exchange and, to the extent provided in the Subject Corporation's
Restated Certificate of Incorporation and the BCL, shall continue to be
authorized shares of Subject Corporation $100 Preferred Stock or Subject
Corporation $25 Preferred Stock, as the case may be. All shares of Subject
Corporation $100 Preferred Stock and all shares, if any, of Subject
Corporation $25 Preferred Stock issued and outstanding following approval and
adoption of the Exchange and this Agreement as provided for in Article I of
this Agreement shall promptly be called for redemption by the Subject
Corporation and shall be redeemed prior to the Effective Time.
C. Prior to the Effective Time, the Acquiring Corporation's Certificate of
Incorporation shall be amended and restated as set forth as Attachment 1 to
this Agreement, and the Acquiring Corporation's By-Laws shall be as set forth
as Attachment 2 to this Agreement.
D. As of the Effective Time, the Acquiring Corporation shall succeed to the
Dividend Reinvestment Plan as in effect immediately prior to the Effective
Time, and the Dividend Reinvestment Plan shall be appropriately modified to
provide for the issuance or delivery of Acquiring Corporation Common Stock on
and after the Effective Time pursuant thereto.
E. As of the Effective Time, (1) the Employee Plans shall be appropriately
amended to provide for the issuance or delivery of Acquiring Corporation
Common Stock, and the Acquiring Corporation shall agree to issue or deliver
Acquiring Corporation Common Stock, and (2) the Incentive Plan shall also be
appropriately amended to provide for the issuance of options by the Acquiring
Corporation to purchase Acquiring Corporation Common Stock, in each case on
and after the Effective Time pursuant thereto.
ARTICLE IV
A. The filing of the Certificate with the Department of State and the
consummation of the Exchange shall be subject to satisfaction of the following
conditions at or prior to the Effective Time:
(1) the affirmative vote of the holders of Subject Corporation Common
Stock provided for in Article I of this Agreement shall have been received;
(2) such orders, authorizations, approvals or waivers from the New York
Public Service Commission and all other jurisdictive regulatory bodies,
boards or agencies required to consummate the Exchange and related
transactions shall have been received, shall remain in full force and
effect, and shall not include, in the sole judgment of the Board of
Directors of the Subject Corporation, unacceptable conditions;
(3) all shares of Subject Corporation $100 Preferred Stock and all
shares, if any, of Subject Corporation $25 Preferred Stock issued and
outstanding shall have been called for redemption by the Subject
Corporation, all such shares shall have been redeemed and the redemption
price or prices, including
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accrued and unpaid dividends, shall have been paid in full, and at the
Effective Time no shares of Subject Corporation $100 Preferred Stock and
Subject Corporation $25 Preferred Stock shall be issued and outstanding;
(4) the Acquiring Corporation Common Stock to be issued in connection
with the Exchange shall have been listed, subject to official notice of
issuance, by the New York Stock Exchange; and
(5) the Restated Certificate of Incorporation of the Acquiring
Corporation shall have been filed with the Department of State.
B. Simultaneously with the Effective Time, the Acquiring Corporation shall
file an exemption statement on Form U-3A-2 with the Securities and Exchange
Commission for the purpose of exempting it and each of its subsidiaries as
such from all provisions of the Public Utility Holding Company Act of 1935
(except Section 9(a)(2) thereof).
ARTICLE V
A. Following the Effective Time, each holder of an outstanding certificate
or certificates theretofore representing shares of Subject Corporation Common
Stock may, but shall not be required to, surrender the same to the Acquiring
Corporation's Transfer Agent for cancellation and reissuance of a new
certificate or certificates in such holder's name or for cancellation and
transfer, and each such holder or transferee shall be entitled to receive a
certificate or certificates representing the same number of shares of
Acquiring Corporation Common Stock as the shares of Subject Corporation Common
Stock previously represented by the certificate or certificates surrendered.
Until so surrendered or presented for exchange or transfer, each outstanding
certificate which, immediately prior to the Effective Time, represents Subject
Corporation Common Stock shall be deemed and shall be treated for all purposes
to represent the ownership of the same number of shares of Acquiring
Corporation Common Stock as though such surrender or exchange or transfer had
taken place. The holders of Subject Corporation Common Stock at the Effective
Time shall have no right at and after the Effective Time to have their shares
of Subject Corporation Common Stock transferred on the stock transfer books of
the Subject Corporation (such stock transfer books being deemed closed for
this purpose at the Effective Time), and at and after the Effective Time such
stock transfer books may be deemed to be the stock transfer books of the
Acquiring Corporation.
B. Following the Effective Time, the Subject Corporation shall assign to the
Acquiring Corporation, and the Acquiring Corporation shall be substituted for
and shall assume, all of the Subject Corporation's rights and obligations
under the BL Agreement (and as such Agreement may hereafter be amended), which
assignment, substitution and assumption shall become effective as of the
Effective Time, and the Acquiring Corporation hereby agrees to execute any
amendment to the BL Agreement necessary to provide the benefits thereof to the
Acquiring Corporation. The Subject Corporation, as the sole shareholder of the
Acquiring Corporation, hereby approves and adopts the BL Agreement and the
transactions provided for therein, as provided by the BCL.
ARTICLE VI
A. This Agreement may be amended, modified or supplemented, or compliance
with any provision hereof may be waived, at any time prior to the Effective
Time (including, without limitation, after receipt of the affirmative vote of
holders of Subject Corporation Common Stock as provided in Article IV(1)
hereof), by the mutual consent of the Boards of Directors of the Subject
Corporation and the Acquiring Corporation at any time prior to the Effective
Time; provided, however, that no such amendment, modification, supplement or
waiver shall be made or effected if such amendment, modification, supplement
or waiver would, in the sole judgment of the Board of Directors of the Subject
Corporation, materially and adversely affect the shareholders of the Subject
Corporation.
B. This Agreement may be terminated and the Exchange and related
transactions abandoned, at any time prior to the Effective Time (including,
without limitation, after receipt of the affirmative vote of holders of
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Subject Corporation Common Stock as provided in Article IV(1) hereof), if the
Board of Directors of the Subject Corporation determines, in its sole
judgment, that consummation of the Exchange would for any reason be
inadvisable or not in the best interests of the Subject Corporation or its
shareholders.
IN WITNESS WHEREOF, each of the Corporations, pursuant to authorization and
approval given by its Board of Directors, has caused this Agreement to be
executed as of the date first above written.
The Brooklyn Union Gas Company
/s/ Craig G. Matthews
By: _________________________________
Craig G. Matthews
President and Chief Operating
Officer
KeySpan Energy Corporation
/s/ Robert B. Catell
By: _________________________________
Robert B. Catell
Chairman, President and Chief
Executive Officer
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<PAGE>
ANNEX L
(ATTACHMENT 1 TO THE KEYSPAN EXCHANGE AGREEMENT)
RESTATED CERTIFICATE OF INCORPORATION
OF
KEYSPAN ENERGY CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
The undersigned, being the Chairman and the Secretary of KeySpan Energy
Corporation, a New York corporation, hereby certify that:
FIRST. The name of the Corporation is KeySpan Energy Corporation.
SECOND. The Certificate of Incorporation of the Corporation was filed by the
Department of State on June 25, 1996.
THIRD. The Certificate of Incorporation of the Corporation is amended or
changed to effect one or more amendments or changes authorized by the Business
Corporation Law of the State of New York, namely: to increase the number of
shares of Common Stock which the Corporation has authority to issue from
seventy million (70,000,000) to two hundred and ten million (210,000,000); to
authorize a class of ten million (10,000,000) shares of Preferred Stock, with
a par value of $1.00 per share; to provide that no holder of Common Stock or
Preferred Stock shall be entitled as a matter of right to any preemptive
rights as now or hereafter provided by the laws of the State of New York; to
provide that, except as may be required by law or as may be provided by the
Board of Directors in respect of any particular series of Preferred Stock, all
voting rights of the Corporation shall be vested exclusively in the holders of
Common Stock who shall have one vote per share on all matters; to provide for
the adoption, amendment or repeal of By-Laws by the Board of Directors; to
provide for the calling of special meetings of shareholders; to provide for
the size of the Board of Directors to be fixed by or pursuant to the By-Laws,
the Board of Directors to be classified into three classes, filling vacancies
on the Board of Directors, and removal of directors; to provide for two-thirds
voting in respect of amending certain provisions of the Certificate of
Incorporation; and to provide for two-thirds voting in respect of amending,
repealing or adopting certain By-Laws by action of the Board of Directors or
the shareholders.
The text of the Certificate of Incorporation is hereby restated as so
amended or changed to read as follows:
1. The name of the corporation shall be KeySpan Energy Corporation (the
"Corporation").
2. The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under the Business
Corporation Law of the State of New York; provided that the Corporation is not
formed to engage in any act or activity which requires the consent or approval
of any state official, department, board, agency or other body, without such
consent or approval first being obtained.
3. The office of the Corporation in the State of New York is to be located
in the City of New York, County of Kings.
4. The aggregate number of shares which the Corporation shall have authority
to issue is (a) two hundred and ten million (210,000,000) shares of Common
Stock, with a par value of $.33 1/3 per share (the "Common Stock"), and ten
million (10,000,000) shares of Preferred Stock, with a par value of $1.00 per
share (the "Preferred Stock").
The relative rights, preferences and limitations of the shares of such
classes of stock are as follows:
A. The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series of Preferred Stock, and the Board of
Directors is expressly authorized, prior to issuance, in the
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resolution or resolutions providing for the issue of shares of each particular
series, to establish and designate each particular series and to fix the
rights, preferences and limitations of each particular series, and the
relative rights, preferences and limitations between series, as follows:
(i) The distinctive serial designation of such series which shall dis-
tinguish it from other series;
(ii) The number of shares included in such series, which number may be
increased or decreased from time to time unless otherwise provided by the
Board of Directors in creating such series;
(iii) The annual or other dividend rate or rates (or method of determin-
ing such rate or rates) for shares of such series and the date or dates
upon which such dividends shall be payable;
(iv) Whether dividends on the shares of such series shall be cumulative,
and, in the case of shares of any series having cumulative dividend
rights, the date or dates (or method for determining such date or dates)
from which dividends on the shares of such series shall be cumulative;
(v) The amount or amounts which shall be paid out of the assets of the
Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation;
(vi) The price or prices (cash or otherwise) at which, the period or pe-
riods within which and the terms and conditions upon which, if any, the
shares of such series may be purchased, redeemed or acquired (by exchange
or otherwise), in whole or in part, at the option of the Corporation;
(vii) Provision or provisions, if any, for the Corporation to purchase,
redeem or acquire (by exchange or otherwise), in whole or in part, shares
of such series pursuant to a sinking or other similar fund, and the price
or prices (cash or otherwise) at which, the period or periods within which
and the terms and conditions upon which the shares of such series shall be
so purchased, redeemed or acquired, in whole or in part, pursuant to such
provision or provisions;
(viii) The period or periods within which and the terms and conditions,
including the price or prices or the rate or rates of conversion or ex-
change and the terms and conditions of any adjustments thereof, upon
which, if any, the shares of such series shall be convertible or exchange-
able, in whole or in part, at the option of the holder or the Corporation
or both into shares of any class of stock or into shares of any other se-
ries of Preferred Stock, except into shares having rights or preferences
as to dividends or the distribution of assets upon liquidation, dissolu-
tion or winding up of the Corporation which are prior or superior in rank
to those of the shares being converted or exchanged;
(ix) The voting rights, if any, of the shares of such series in addition
to those required by law, including the number of votes per share (which
may be fractional or more or less than one) and any requirement for the
approval by the holders of up to two-thirds of the shares of Preferred
Stock, or of the shares of one or more series, or of both, as a condition
to specified corporate action or amendments to the Certificate of Incorpo-
ration; and
(x) Any other relative rights, preferences or limitations of the shares
of such series not inconsistent with applicable law.
B. All issued and outstanding series of Preferred Stock (i) shall rank prior
or superior to the Common Stock in respect of the right to receive dividends
and the right to receive payments out of the assets of the Corporation upon
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, (ii) shall be of equal rank, regardless of series, and (iii)
shall be identical in all respects except as provided in paragraph A of this
Article 4. The shares of any particular series of the Preferred Stock shall be
identical with each other in all respects except as to the date from and after
which dividends thereupon shall be cumulative or accrue if declared. In case
dividends or amounts payable on liquidation, dissolution or winding up of the
Corporation are not paid in full on the Preferred Stock, the shares of all
series of the Preferred Stock shall share ratably in the payment of dividends,
including accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in full, and in
any distribution of assets other than by way of dividends in
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accordance with the sums which would be payable on such distributions if all
sums payable were discharged in full. All Preferred Stock redeemed, purchased
or otherwise acquired by the Corporation (including shares surrendered for
conversion or exchange or acquired by conversion or exchange or otherwise)
shall be cancelled and thereupon restored to the status of authorized and
unissued shares of Preferred Stock undesignated as to series.
C. No holder of shares of the Corporation of any class or series, now or
hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive, or have any preferential or preemptive
right with respect to, any shares of the Corporation of any class or series
whatsoever, now or hereafter authorized, or any options or warrants for any
such shares, or any rights to subscribe for or purchase any such shares, or
any securities convertible into or exchangeable for any such shares
whatsoever, whether now or hereafter authorized and whether issued for cash or
other consideration or by way of dividend or otherwise, which may at any time
be issued, sold, delivered or offered by the Corporation.
D. Except as may from time to time be required by law and except as
otherwise may be provided by the Board of Directors in accordance with
paragraph A of this Article 4 in respect of any particular series of Preferred
Stock, all voting rights of the Corporation shall be vested exclusively in the
holders of the Common Stock who shall be entitled to one vote per share on all
matters.
5. The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom any process in any action or proceeding
against it may be served. The post office address to which the Secretary of
State shall mail a copy of any such process served upon him is Cullen and
Dykman, 177 Montague Street, Brooklyn, New York 11201-3611, Attention: Lance
Myers, Esq.
6. No director of the Corporation shall have personal liability to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that the foregoing shall not eliminate or limit the
liability of any director if a judgment or other final adjudication adverse to
such director establishes that such director's acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
such director personally gained in fact a financial profit or other advantage
to which such director was not legally entitled or that such director's act
violated Section 719 of the Business Corporation Law of New York. No amendment
to or repeal of this Article 6 shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal. If the Business Corporation Law of New York is amended
hereafter to expand or limit the liability of a director, then the liability
of a director of the Corporation shall be expanded to the extent required or
limited to the extent permitted by the Business Corporation Law of New York,
as so amended.
7. Subject to the voting provisions of Article 11, By-Laws may be adopted,
amended or repealed by the Board of Directors by the vote of a majority of the
directors present at a meeting of the Board at which a quorum is present.
8. Subject to the rights of holders of any class or series of stock, now or
hereafter authorized, ranking prior or superior to the Common Stock in respect
of the right to receive dividends or the right to receive payments out of the
assets of the Corporation upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation with respect to such class or
series of stock, special meetings of shareholders may be called only by the
Chairman or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies.
9. The following provisions shall relate to the Board of Directors of the
Corporation:
A. The size of the Board of Directors shall be fixed by or pursuant to the
By-Laws. The Board of Directors shall be divided into three classes designated
Class I, Class II and Class III. Such classes shall be as nearly equal in
number as the then total number of directors constituting the entire Board
permits. At the first annual meeting of shareholders, or any special meeting
in lieu thereof, Class I, Class II and Class III directors shall be elected
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for terms expiring at the next succeeding annual meeting, the second
succeeding annual meeting and the third succeeding annual meeting,
respectively, and until their respective successors are elected and qualified.
At each annual meeting of shareholders after such first annual (or special)
meeting of shareholders, the directors chosen to succeed those in the class
whose terms then expire shall be elected by shareholders for terms expiring at
the third succeeding annual meeting after election, or for such lesser term
for which one or more may be nominated in a particular case in order to assure
that the number of directors in each class shall be appropriately constituted,
and until their respective successors are elected and qualified. Newly created
directorships or any decrease in directorships resulting from increases or
decreases in the number of directors shall be so apportioned among the classes
of directors as to make all the classes as nearly equal in number as possible.
Vacancies on the Board of Directors at any time for any reason except the
removal of directors without cause may be filled by a majority of the
directors then in office, although less than a quorum.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of stock (other than the Common Stock), now or hereafter
authorized, shall have the right, voting separately or by class or series, to
elect directors at an annual or special meeting of shareholders, the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by any provisions of the Certificate of Incorporation
applicable thereto, and such directors so elected shall not be divided into
one or more classes pursuant to this Article 9A unless expressly provided by
such provisions.
B. Directors may be removed for cause by a vote of shareholders entitled to
vote thereon, or by action of the Board of Directors. Directors shall not be
removed without cause by shareholders, except in the case of a director
elected by the holders of any class or series (other than the Common Stock),
now or hereafter authorized, voting as a class or series, when so entitled by
the provisions of the Certificate of Incorporation applicable thereto.
10. In addition to any vote that may be required by law or in the
Certificate of Incorporation in respect of any class or series of stock, now
or hereafter authorized, ranking prior or superior in right of payment to the
Common Stock in respect of the right to receive dividends or the right to
receive payments out of the assets of the Corporation upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
provisions of Articles 4C, 6, 7, 8, 9, 10 and 11 of the Certificate of
Incorporation shall not be amended or repealed, or a new provision adopted
inconsistent therewith, without the affirmative vote of not less than two-
thirds of the shares entitled to vote thereon at such annual or special
meeting of shareholders at which any such action is proposed.
11. Except as otherwise provided in the Certificate of Incorporation in
respect of any class or series of stock, now or hereafter authorized, ranking
prior or superior in right of payment to the Common Stock in respect of the
right to receive dividends or the right to receive payments out of the assets
of the Corporation upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the By-Laws of the Corporation may be
amended or repealed, or new By-Laws may be adopted, either (a) by a vote of
shareholders entitled to vote at any annual or special meeting of
shareholders, or (b) by a vote of the majority of the entire Board of
Directors at any regular or special meeting of directors; provided, however,
that any amendment or repeal of, or the adoption of any new By-Law or
provision inconsistent with, Article I (Section 1.2--"Special Meetings", 1.4--
"Presiding at Meetings" or 1.12--"Notice of Shareholder Business and
Nominations"), Article II (Section 2.1--"Number of Directors", 2.2--
"Elections, Terms and Vacancies" or 2.9--"Removal of Directors"), Article VI--
"Indemnification", or Article VIII--"Amendments to By-Laws" of the By-Laws, if
by action of such shareholders, shall be only upon the affirmative vote of not
less than two-thirds of the shares entitled to vote thereon at such annual or
special meeting of shareholders at which any such action is proposed and, if
by action of the Board of Directors, shall be only upon the approval of not
less than two-thirds of the entire Board of Directors at any regular or
special meeting of directors.
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FOURTH. The foregoing Restated Certificate of Incorporation was authorized
by the Board of Directors of the Corporation by unanimous written consent
dated June , 1997, followed by the unanimous written consent of the
shareholder of the Corporation dated June , 1997.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have subscribed this Restated
Certificate of Incorporation and affirm the statements contained herein as
true under the penalties of perjury this day of , 1997.
KeySpan Energy Corporation
By __________________________________
Robert B. Catell
Chairman, President and Chief
Executive Officer
By __________________________________
Robert R. Wieczorek
Vice President, Secretary and
Treasurer
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<PAGE>
(ATTACHMENT 2 TO THE KEYSPAN EXCHANGE AGREEMENT)
KEYSPAN ENERGY CORPORATION
BY-LAWS
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<PAGE>
KEYSPAN ENERGY CORPORATION
INDEX
<TABLE>
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<C> <S> <C>
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1 Annual Meetings............................................. 1
Section 1.2 Special Meetings............................................ 1
Section 1.3 Place of Meetings........................................... 1
Section 1.4 Presiding at Meetings....................................... 1
Section 1.5 Quorum...................................................... 1
Section 1.6 Adjournment................................................. 2
Section 1.7 Notice of Meetings.......................................... 2
Section 1.8 Waiver and Consent.......................................... 2
Section 1.9 Fixing Record Date.......................................... 3
Section 1.10 List of Shareholders at Meetings............................ 3
Section 1.11 Proxies..................................................... 3
Section 1.12 Notice of Shareholder Business and Nominations.............. 4
Section 1.13 Inspectors of Elections..................................... 7
Section 1.14 Vote of Shareholders........................................ 7
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number of Directors......................................... 8
Section 2.2 Elections, Terms and Vacancies.............................. 8
Section 2.3 Meetings of the Board....................................... 9
Section 2.4 Notice and Adjournment...................................... 9
Section 2.5 Fiscal Year................................................. 9
Section 2.6 Quorum...................................................... 9
Section 2.7 Unanimous Written Consent................................... 10
Section 2.8 Resignation of Directors.................................... 10
Section 2.9 Removal of Directors........................................ 10
Section 2.10 Compensation of Directors................................... 10
Section 2.11 Time and Place of Meetings.................................. 10
Section 2.12 Special Meetings............................................ 10
Section 2.13 Telephonic Meetings......................................... 10
ARTICLE III
COMMITTEES
Section 3.1 Organization and Authority.................................. 11
Section 3.2 Executive Committee......................................... 11
Section 3.3 Organization and Nominating Committee....................... 11
Section 3.4 Audit Committee............................................. 12
Section 3.5 Action by a Committee....................................... 12
Section 3.6 Quorum...................................................... 12
Section 3.7 Reports to Board of Directors............................... 12
Section 3.8 Compensation of Committee Members........................... 12
Section 3.9 Resignation and Removal of Committee Members................ 12
Section 3.10 Unanimous Written Consent................................... 12
Section 3.11 Place of Committee Meetings................................. 12
Section 3.12 Notice...................................................... 13
</TABLE>
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ARTICLE IV
OFFICERS AND THEIR DUTIES
Section 4.1 Officers.................................................... 13
Section 4.2 Term of Office; Resignation; Removal; Vacancies............. 13
Section 4.3 Powers and Duties........................................... 13
Section 4.4 Salaries.................................................... 14
Section 4.5 Chairman.................................................... 14
Section 4.6 Vice Chairman............................................... 14
Section 4.7 President................................................... 14
Section 4.8 Vice President.............................................. 14
Section 4.9 Secretary................................................... 15
Section 4.10 Treasurer................................................... 15
Section 4.11 Comptroller................................................. 15
ARTICLE V
SHARES
CERTIFICATED SHARES
Section 5.1 Certificates, Registrar and Transfer Agent.................. 16
Section 5.2 Authorization of Facsimile Signatures and Seal.............. 16
Section 5.3 Transfer of Certificated Shares............................. 16
Section 5.4 Lost, Stolen or Destroyed Share Certificates................ 17
UNCERTIFICATED SHARES
Section 5.5 Uncertificated Shares....................................... 17
Section 5.6 Transfer of Uncertificated Shares........................... 17
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Applicability....................................... 18
Section 6.2 Scope of Indemnification.................................... 18
Section 6.3 Other Indemnification Provisions............................ 18
Section 6.4 Survival of Indemnification................................. 19
Section 6.5 Inability to Limit Indemnification.......................... 19
Section 6.6 Severability................................................ 19
ARTICLE VII
OTHER MATTERS
Section 7.1 Books to be Kept............................................ 20
Section 7.2 Interest of Directors and Officers in Transactions.......... 20
Section 7.3 Corporate Seal.............................................. 21
Section 7.4 When Notice or Lapse of Time Unnecessary.................... 21
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 8.1 By Directors................................................ 21
Section 8.2 By Shareholders............................................. 21
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KEYSPAN ENERGY CORPORATION
(THE "COMPANY")
BY-LAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1.1 Annual Meetings
The annual meeting of the shareholders of the Company shall be held at such
date and time as may be designated by the Board of Directors, during the month
of February or March of each year for the election of Directors or for any
other proper business which may be transacted at an annual meeting.
SECTION 1.2 Special Meetings
Subject to the rights of the holders of any series of stock having a
preference over the Common Stock of the Company as to dividends or upon
liquidation ("Preferred Stock") with respect to such series of Preferred
Stock, special shareholders' meetings may be called only by the Chairman or by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of Directors which the Company would have if there were no
vacancies. At any special meeting, only such business may be transacted which
is related to the purpose(s) set forth in the notice of such special meeting
given pursuant to Section 1.7 of these By-laws.
SECTION 1.3 Place of Meetings
Shareholders' meetings shall be held at the principal office of the Company
or at such other place as designated from time to time by the Board of
Directors and stated in the notice of such meeting.
SECTION 1.4 Presiding at Meetings
At all shareholders' meetings, the Chairman, the President or a Vice
President, shall act as Chairman of the meeting as provided for in Sections
4.5, 4.7 and 4.8 and the Secretary or Assistant Secretary shall act as
Secretary of the meeting as provided for in Section 4.9.
SECTION 1.5 Quorum
Holders of a majority of the shares of the Company entitled to vote must be
present, in person or by proxy, at each shareholders' meeting to constitute a
quorum at such meeting, less than a majority, however, having the power to
adjourn. When a specified item of business is required to be voted on by a
class or series, voting as a class, the holders of a majority of the shares of
such class or series shall constitute a quorum for the transaction of such
specified item of business. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any shareholders.
Except as may be provided by or pursuant to the Certificate of
Incorporation, at all shareholders' meetings each shareholder entitled to vote
shall be entitled to one vote for each share held by him or her, and may vote
and otherwise act either in person or by proxy, as provided for in Section
1.11.
SECTION 1.6 Adjournment
The Chairman of the meeting, or a majority of the shares so represented at
the meeting, may adjourn the meeting despite the absence of a quorum. When a
shareholders' meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the
meeting. However, if after the adjournment the Board of Directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record on the new record date entitled to
notice under this Section 1.6.
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SECTION 1.7 Notice of Meetings
Written notice of the date, time and place of every shareholders' meeting
shall be given personally, or by first class mail (not less than ten (10) nor
more than fifty (50) days before the date of the meeting) or by third class
mail (not less than twenty-four (24) nor more than fifty (50) days before the
date of the meeting) or as otherwise may be permitted by law, to each
shareholder of record as of the date fixed by the Board of Directors, pursuant
to Section 1.9 hereof, and such other notice shall be given as may be required
by law.
Notice of a special shareholders' meeting shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting and
shall state the purpose(s) for which the meeting is called.
If mailed, such notice shall be deemed given when deposited in the United
States mail, with postage thereon prepaid, directed to the shareholder at his
or her address as it appears on the shareholders' list, record, or, if he or
she shall have filed with the Secretary of the Company a written request that
notices to him or her be mailed to some other address, then directed to him or
her at such other address.
SECTION 1.8 Waiver and Consent
Notice of meeting need not be given to any shareholder who submits a signed
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
objecting to the lack of notice of such meeting prior to the conclusion of the
meeting, shall constitute a waiver of notice by such shareholder.
The transactions of any shareholders' meeting, however called and noticed,
are as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote, not present
in person or by proxy, signs a written waiver of notice, or a consent to the
holding of the meeting, or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Executors,
administrators, guardians, trustees, and other fiduciaries entitled to vote
shares may sign such waivers, consents and approvals.
SECTION 1.9 Fixing Record Date
For the purpose of determining the shareholders entitled to notice of or to
vote at any shareholders' meeting or any adjournment thereof, or for the
purpose of determining shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other
action, the Board of Directors may fix, in advance, a date as the record date
for any such determination. Such date shall not be more than fifty (50) nor
less than ten (10) days before the date of such meeting, nor more than fifty
(50) days before the date of such action.
SECTION 1.10 List of Shareholders at Meetings
A list of shareholders as of the record date, certified by the Secretary or
any Assistant Secretary or by a transfer agent, shall be produced at any
shareholders' meeting upon the request thereat or prior thereto of any
shareholder. If the right to vote at any meeting is challenged, the
inspectors, or the person presiding thereat, shall require such list of
shareholders to be produced as evidence of the right of the persons challenged
to vote at such meeting, and all persons who appear from such list to be
shareholders entitled to vote thereat may vote at such meeting.
SECTION 1.11 Proxies
(a) Generally. Every person entitled to vote or execute consents shall have
the right to do so either in person or by one or more agents authorized by a
written proxy executed by such person or his duly authorized agent and filed
with the Secretary of the Company. Any executor, administrator, guardian,
trustee or other fiduciary, may give proxies.
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(b) Term of Proxies. A proxy is not valid after the expiration of eleven
(11) months from the date of its execution, unless the length of time for
which such proxy is to continue in force is otherwise specified therein, which
in no case shall exceed seven (7) years from the date of its execution.
(c) Revocation and Suspension of Proxies. Any proxy duly executed continues
in full force and effect and is not revoked until an instrument revoking it,
or until a duly executed proxy bearing a later date, is filed with the
Secretary of the Company. A proxy is not revoked by the death or incapacity of
the maker unless, before the vote is counted or the authority is exercised,
written notice of the death or incapacity is given to the Company.
Notwithstanding that a valid proxy is outstanding, if the person executing the
proxy is present at the meeting and elects to vote in person, then the powers
of the proxy holder are suspended, except in the case of a proxy coupled with
an interest (which states that fact on its face).
(d) Voting by Two or More Proxies. If any instrument of proxy designates two
or more persons to act as proxy, in the absence of any provision in the proxy
to the contrary, the persons designated may represent and vote the shares in
accordance with the vote or consent of the majority of the persons named as
such proxies. If only one such proxy is present, such proxy may vote all the
shares, and all the shares standing in the name of the principal(s) for whom
such proxy acts shall be deemed represented for the purpose of obtaining a
quorum. The foregoing provisions shall apply to the voting of shares by
proxies for any two or more administrators, executors, trustees, or other
fiduciaries, unless an instrument or order of court appointing them otherwise
directs.
(e) Director's Determination of Execution and Use of Proxies. The Board of
Directors may, in advance of any annual or special meeting of the
shareholders, prescribe additional regulations concerning the manner of
execution and filing of proxies and the validation of the same, which are
intended to be voted at any such meeting.
SECTION 1.12 Notice of Shareholder Business and Nominations
A. Annual Shareholders' Meetings
(1) Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the shareholders may
be made at an annual shareholders' meeting (a) pursuant to the Company's
notice of meeting, (b) by or at the direction of the Board of Directors or (c)
by any shareholder of the Company who was a shareholder of record at the time
of giving of notice provided for in this Section 1.12 who is entitled to vote
at the meeting and who complies with the notice of procedures set forth in
this Section 1.12.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of
this Section 1.12 of Article I, the shareholder must have given timely notice
thereof in writing to the Secretary of the Company and such other business
must otherwise be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Company not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
shareholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and no later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of
such meeting is first made by the Company. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a Director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-
11 thereunder (including such person's written consent to being
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named in the proxy statement as a nominee and to serving as a Director if
elected); (b) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
shareholder, as they appear on the Company's books, and of such beneficial
owner and (ii) the class and number of shares of the Company which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 1.12 of Article I to the contrary, in the event that the number
of Directors to be elected to the Board of Directors of the Company is
increased and there is no public announcement by the Company naming all of the
nominees for Director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by paragraph (A) of
Section 1.12 of Article I shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Company not later than the close of business on the 10th day following the day
on which such public announcement is first made by the Company.
B. Special Shareholders' Meetings
Only such business shall be conducted at a special shareholders' meeting as
shall have been brought before the meeting pursuant to the Company's notice of
meeting. Nominations of persons for election to the Board of Directors may be
made at a special shareholders' meeting at which Directors are to be elected
pursuant to the Company's notice of meeting (a) by or at the direction of the
Board of Directors or (b) provided that the Board of Directors has determined
that Directors shall be elected at such meeting, by any shareholder of the
Company who is a shareholder of record at the time of giving of notice
provided for in this Section 1.12 who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 1.12. In the
event the Company calls a special shareholders' meeting for the purpose of
electing one or more Directors to the Board of Directors, any such shareholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Company's notice of meeting, if the
shareholder's notice required by paragraph (A)(2) of this Section 1.12 of
Article I shall be delivered to the Secretary at the principal executive
offices of the Company not earlier than the close of business on the 90th day
prior to such special meeting and not later than the close of business on the
later of the 60th day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of a
shareholder's notice as described above.
C. General
(1) Only such persons who are nominated in accordance with the procedures
set forth in this Section 1.12 of Article I shall be eligible to serve as
Directors and only such business shall be conducted at a shareholders' meeting
as shall have been brought before the meeting in accordance with the
procedures set forth in this Section 1.12 of Article I. Except as otherwise
provided by law, the Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before
the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.12 of Article I and, if any proposed
nomination or business is not in compliance with this Section 1.12 of Article
I, to declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 1.12 of Article I, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the Company with the Securities and Exchange Commission
pursuant to Section 13, 14, or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this Section 1.12 of Article
I, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.12 of Article I. Nothing in this Section
1.12 of Article I shall be deemed to affect any rights (i) of shareholders to
request inclusion of proposals in the Company's proxy statement pursuant to
Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock to elect Directors under specified circumstances.
SECTION 1.13 Inspectors of Elections
Voting at shareholders' meetings need not be conducted by inspectors unless
a shareholder present in person or by proxy and entitled to vote at such
meeting so requests. The Board of Directors, in advance of any shareholders'
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding
at a shareholders' meeting may, and on the request of any shareholder entitled
to vote thereat shall, appoint two inspectors. In case any person appointed
fails to appear or act, the vacancy may be filled by appointment made by the
Board in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best
of his or her ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of
a quorum and the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them.
SECTION 1.14 Vote of Shareholders
Subject to the rights of holders of any series of Preferred Stock, Directors
shall, except as otherwise required by law or by the Certificate of
Incorporation, be elected by a plurality of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote in the election.
Subject to the rights of holders of any series of Preferred Stock, whenever
any corporate action, other than the election of Directors, is to be taken by
vote of the shareholders, it shall, except as otherwise required by law or by
the Certificate of Incorporation, be authorized by a majority of the votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 Number of Directors
The affairs of this Company shall be managed by no less than nine nor more
than twelve Directors as fixed by resolution adopted by a majority of the
entire Board.
SECTION 2.2 Elections, Terms and Vacancies
The Board of Directors shall be divided into three classes designated Class
I, Class II and Class III. Such classes shall be as nearly equal in number as
the then total number of Directors constituting the entire Board permits. At
the first annual meeting of shareholders, or any special meeting in lieu
thereof, Class I, Class II and Class III Directors shall be elected for terms
expiring at the next succeeding annual meeting, the second succeeding annual
meeting and the third succeeding annual meeting, respectively, and until their
respective successors are elected and qualified. At each annual shareholders'
meeting after such first annual (or special)
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meeting of shareholders, the Directors chosen to succeed those in the class
whose terms then expire shall be elected by shareholders for terms expiring at
the third succeeding annual meeting after election, or for such lesser term
for which one or more may be nominated in a particular case in order to assure
that the number of Directors in each class shall be appropriately constituted
and until their respective successors are elected and qualified. Newly created
Directorships or any decrease in Directorships resulting from increases or
decreases in the number of Directors shall be so apportioned among the classes
of Directors as to make all the classes as nearly equal in number as possible.
Vacancies on the Board at any time and for any reason except the removal of
Directors without cause may be filled by a majority of the Directors then in
office, although less than a quorum. A Director elected to fill a vacancy,
unless elected by the shareholders, shall hold office until the next meeting
of shareholders at which the election of Directors is in the regular order of
business, and until his or her successor has been elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Stock (other than the Common Stock), now or hereafter
authorized, shall have the right, voting separately by class or series, to
elect Directors at an annual or special shareholders' meeting, the election,
term of office, filling of vacancies and other features of such Directorships
shall be governed by any terms of the Certificate of Incorporation of the
Company applicable thereto, and such Directors so elected shall not be divided
into classes pursuant to this Section 2.2 unless expressly provided by such
terms.
SECTION 2.3 Meetings of the Board
An annual meeting of the Board of Directors shall be held in each year as
soon as practicable after the annual meeting of shareholders. Regular meetings
of the Board shall be held at such times as may be fixed by the Board. No
notice need be given of annual or regular meetings of the Board of Directors.
SECTION 2.4 Notice and Adjournment
Notice of each special meeting of the Board shall be given to each director
either by mail not later than noon, New York time, on the fifth business day
prior to the meeting or by telegram, by facsimile transmission, by written
message or orally to the Directors not later than noon, New York time, on the
day prior to the meeting. Notices shall be deemed to have been given by mail
when deposited in the United States mail, by telegram at the time of filing,
by facsimile transmission upon confirmation of receipt, and by messenger at
the time of delivery by the messenger. Notices by mail, telegram, facsimile
transmission or messenger shall be sent to each Director at the address or
facsimile number designated by him or her for that purpose, or, if none has
been so designated, at his or her last known residence or business address.
Notice of a meeting of the Board of Directors need not be given to any
Director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at
its commencement, the lack of notice to him or her. A notice or waiver of
notice need not specify the purpose of any meeting of the Board of Directors.
A majority of the Directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice of any adjournment of a
meeting to another time or place shall be given in the manner described above
to the Directors who were not present at the time of the adjournment and,
unless such time and place are announced at the meeting, to the other
Directors.
SECTION 2.5 Fiscal Year
The fiscal year of the Company shall be fixed by the Board of Directors.
SECTION 2.6 Quorum
Unless a greater quorum is required by law, a majority of the number of
directors at the time serving on the Board of Directors shall constitute a
quorum for the transaction of business, or of any specified item of business,
provided, however, that a quorum shall not consist of less than one-third of
the entire Board of Directors. Except where otherwise provided by law or in
the Certificate of Incorporation or these By-Laws, the vote of a majority of
the Directors present at a meeting at the time of such vote, if a quorum is
then present, shall be the act of the Board.
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SECTION 2.7 Unanimous Written Consent
Any action authorized, in writing, by all of the Directors entitled to vote
thereon and filed with the minutes of the Company shall be the act of the
Board with the same force and effect as if the same had been passed by
unanimous vote at a duly called meeting of the Board.
SECTION 2.8 Resignation of Directors
Any Director of the Company may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or, if
no time be specified, at the time of its receipt by the Chairman or Secretary.
The acceptance of a resignation shall not be necessary to make it effective
unless so specified therein.
SECTION 2.9 Removal of Directors
Directors may be removed for cause by a vote of shareholders entitled to
vote thereon, or by action of the Board of Directors. Directors shall not be
removed without cause by vote of the shareholders, except in the case of a
Director elected by the holders of any class or series (other than the Common
Stock), now or hereafter authorized, voting as a class or series, when so
entitled by the provisions of the Certificate of Incorporation applicable
thereto.
SECTION 2.10 Compensation of Directors
Members of the Board shall receive such fees and compensation fixed from
time to time by the Board and shall be reimbursed for reasonable expenses for
attending Board Meetings.
SECTION 2.11 Time and Place of Meetings
Meetings of the Board of Directors shall be held in such month on such day
at such hour and at such place as the Board may from time to time direct.
SECTION 2.12 Special Meetings
Special meetings of the Board may be held on the call of the Chairman, the
President or the Secretary or upon written request of a majority of the
Directors at the time serving on the Board addressed to the Secretary.
SECTION 2.13 Telephonic Meetings
Any one or more members of the Board or any committee of the Board may
participate in a meeting of the Board or committee by means of a conference
telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
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ARTICLE III
COMMITTEES
SECTION 3.1 Organization and Authority
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members, such committees as the Board of
Directors may from time to time determine, including those created by Sections
3.2, 3.3 and 3.4 of this Article III, each consisting of three or more
Directors, and each of which, to the extent provided in the resolution, shall
have all the authority of the Board, except that no such committee shall have
authority as to (1) the submission to shareholders of any action that needs
shareholders' approval; (2) the filling of vacancies in the Board or in any
committee thereof; (3) the fixing of compensation of the Directors for serving
on the Board or on any committee thereof; (4) the amendment or repeal of the
By-Laws, or the adoption of new By-Laws; (5) the amendment or repeal of any
resolution of the Board which, by its terms, shall not be so amendable or
repealable; (6) the fixing or changing of the size of the Board; or (7) the
removal or indemnification of Directors. In the event of the absence of any
member(s) from a meeting of a committee replacements may be made from
Directors designated as alternate members of such committee by the Board. The
Chairman, or in his absence or should he so direct, the President, or in his
absence, a Vice President, if such officers are members of the committee,
shall preside at meetings of the committee, otherwise the presiding officer
shall be designated by majority vote of the committee. Vacancies in the
membership of the committee shall be filled by the Board of Directors at a
regular or special meeting of the Board of Directors. Unless the Board of
Directors otherwise provides, each committee designated by the Board may
adopt, amend and repeal rules for the conduct of its business.
SECTION 3.2 Executive Committee
There shall be an Executive Committee of not more than six (6) Directors to
be designated by the Board. The Executive Committee shall have and may
exercise all of the authority and powers of the Board subject to limitations
prescribed by law or these by-laws. The Secretary of the Company shall be the
Secretary of the Executive Committee.
SECTION 3.3 Organization and Nominating Committee
There shall be an Organization and Nominating Committee of not more than six
(6) Directors to be designated by the Board. The Organization and Nominating
Committee shall have and may exercise all of the authority and powers of the
Board necessary to address executive compensation, review management
succession plans and recommend nominees to the Board, subject to limitations
prescribed by law or these by-laws. The Secretary of the Company shall be the
Secretary of the Organization and Nominating Committee.
SECTION 3.4 Audit Committee
There shall be an Audit Committee of not more than six (6) Directors to be
designated by the Board. The Audit Committee shall have and may exercise all
of the authority and powers of the Board, necessary to review and monitor
accounting and control procedures, general auditing and business practices,
external financial reporting practices, and ethical standards for the Company,
subject to limitations prescribed by law or these by-laws. The Secretary of
the Company shall be the Secretary of the Audit Committee.
SECTION 3.5 Action by a Committee
The act of a majority of the members of a committee present at any meeting
at which a quorum is present shall be the act of such committee. The members
of a committee shall act only as a committee, and the individual members
thereof shall have no individual powers as such. Each committee may make such
rules as it may deem expedient for the regulation and carrying on of its
meetings and proceedings.
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SECTION 3.6 Quorum
A majority of the members of a committee shall constitute a quorum.
SECTION 3.7 Reports to Board of Directors
Each such committee shall keep a record of its proceedings and make reports
to the Board at its next regular meeting.
SECTION 3.8 Compensation of Committee Members
Members of committees of the Board shall receive such fees and compensation
as fixed from time to time by the Board and shall be reimbursed for reasonable
expenses for attending committee meetings.
SECTION 3.9 Resignation and Removal of Committee Members
Any member of any committee may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or, if
no time be specified, at the time of its receipt by the Chairman or Secretary.
The acceptance of a resignation shall not be necessary to make it effective
unless so specified therein. Committee members may be removed by action of the
Board of Directors, with or without cause.
SECTION 3.10 Unanimous Written Consent
Any action authorized in writing, by all of the members of a committee and
filed with the minutes of the Company shall be the act of that committee with
the same force and effect as if the same had been passed by unanimous vote at
a duly called meeting of such committee.
SECTION 3.11 Place of Committee Meetings
Meetings of each committee shall be held in such month on such day at such
hour and at such place as such committee may from time to time direct.
SECTION 3.12 Notice
Unless otherwise provided by resolution of the Board or by vote of a
majority of the members of the relevant committee, notice of committee
meetings shall be given in the same manner as notice of special meetings of
the Board is to be given under Section 2.4 of these By-Laws.
ARTICLE IV
OFFICERS AND THEIR DUTIES
SECTION 4.1 Officers
As soon as may be after the election of the Directors at a meeting of the
shareholders, the Board of Directors shall elect one of its number President,
and may elect one of its number Chairman. The President shall be the Chief
Executive Officer except that if a Chairman be elected, the Board may
designate either the Chairman or the President as Chief Executive Officer. Any
two or more offices may be held by the same person, except the offices of
President and Secretary. The Board may elect or appoint such other officers
and agents as it may deem proper.
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SECTION 4.2 Term of Office; Resignation; Removal; Vacancies
Except as otherwise provided in the resolution of the Board of Directors
electing or appointing any officer, all officers shall be elected or appointed
to hold office until the meeting of the Board of Directors following the next
succeeding annual meeting of shareholders. Each officer shall hold office for
the term for which he or she is elected or appointed, and until his or her
successor has been elected or appointed and qualified. Any officer may resign
at any time by giving written notice to the Board or to the Chairman, if any,
or the President or the Secretary of the Company. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein
no acceptance of such resignation shall be necessary to make it effective. Any
officer may be removed by the Board, with or without cause, at any time.
Removal of an officer without cause shall be without prejudice to his or her
contract rights, if any, with the Company, but the election or appointment of
an officer shall not of itself create contract rights. Any vacancy occurring
in any office of the Company by death, resignation, removal or otherwise may
be filled for the unexpired portion of the term by the Board.
SECTION 4.3 Powers and Duties
The officers of the Company shall have such authority and perform such
duties in the management of the Company as may be prescribed by the Board of
Directors and, to the extent not so prescribed, as generally pertain to their
respective offices, subject to the control of the Board. Securities of other
companies held by the Company may be voted by any officer designated by the
Board and, in the absence of any such designation, by the Chairman, the
President, any Vice President, the Secretary or the Treasurer. The Board may
require any officer, agent or employee to give security for the faithful
performance of his duties.
SECTION 4.4 Salaries
Salaries of all officers of the Company shall be fixed by the Board from
time to time; and salaries of all other employees of the Company shall be
regulated by the Chief Executive Officer.
SECTION 4.5 Chairman
The Chairman shall preside at all meetings of the shareholders and the Board
of Directors at which he or she shall be present. When the Chairman is also
designated the Chief Executive Officer, he or she shall have general and
active management of the business of the Company and shall see that all orders
and policies of the Board of Directors are carried into effect.
SECTION 4.6 Vice Chairman
The Vice Chairman shall do and perform all such duties as shall be assigned
to him or her by the Chairman or required by the Board of Directors.
SECTION 4.7 President
In the absence of a Chairman or should the Chairman so direct, the President
shall preside at all meetings of the shareholders and of the Board of
Directors at which he or she shall be present. In the case of the Chairman
having been designated as Chief Executive Officer, the President shall
(subject to the direction of the Chairman) exercise general control and
supervision over all the affairs of the Company and generally do and perform
those duties as usually appertain to the office of the President, or which may
be assigned to him or her by the Board of Directors. Should there be no
Chairman or should the President be designated Chief Executive Officer of the
Company, the President shall have general and active management of the
business of the Company and shall see that all orders and policies of the
Board of Directors are carried into effect; and the salaries of all employees
of the Company, other than officers, shall be regulated by him or her. If the
office of the Chairman be vacated, due
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to the incumbent's death, retirement, or inability to act, or should the
Directors elect to leave such office vacant, the President shall be the Chief
Executive Officer and shall assume all the duties as outlined in Section 4.5
of this Article IV, until directed otherwise by the Board of Directors.
SECTION 4.8 Vice President
The Vice Presidents, respectively, shall do and perform all such duties as
shall be assigned to them by the Chairman or the President or required of them
by the Board of Directors. If designated by the Board of Directors as a member
of the Executive Committee, a Vice President shall perform the duties of
President in case of the President's absence or inability to act or in case of
a vacancy in that office. An Assistant Vice President in the absence or
disability of a Vice President may at the discretion of the Chairman or the
President perform the duties of a Vice President and shall perform such other
duties as may be assigned to him or her.
SECTION 4.9 Secretary
It shall be the duty of the Secretary to keep and attest true records of the
proceedings of all meetings of the Board and Executive Committee, to see that
all notices are duly given in accordance with the provisions of these By-Laws
or as required by law and safely keep and account for all documents, papers
and property of the Company which may come into his or her possession. He or
she shall be the custodian of the Corporate Seal of the Company and shall
affix and attest the same whenever it is necessary and proper so to do, and
shall perform such other duties as may be assigned to him by the Board. In the
absence or disability of the Secretary, an Assistant Secretary or any Vice
President shall perform his duties and such other duties as may be assigned to
him or her.
SECTION 4.10 Treasurer
The Treasurer shall have the custody of all money, funds, securities and
valuable papers of the Company. He or she shall furnish such security for the
faithful performance of his or her duties as may be required by the Board of
Directors. He or she shall receive all money due to the Company and deposit
the same in its corporate name in such Banks or Trust Companies as the Board
of Directors shall determine. He or she shall sign all checks, drafts or
orders for the payment of money; and perform such other duties as may be
required of him or her by the Board of Directors. An Assistant Treasurer
shall, in the absence or disability of the Treasurer, perform his or her
duties and such other duties as may be assigned to him or her. In the absence
or disability of the Treasurer and Assistant Treasurers, any Vice President
shall perform his or her duties and such other duties as may be assigned to
him or her. The Treasurer shall, when directed by the Board of Directors, open
special accounts in the Company's depositories; all checks, drafts or orders
for the payment of money out of such special accounts shall be signed in such
manner and by such officers or employees of the Company as the Board of
Directors shall designate; such checks, drafts or orders for the payment of
money shall also be signed, if, as and when so directed by resolution of the
Board of Directors, by such persons and in such manner as the Board of
Directors shall determine.
SECTION 4.11 Comptroller
The Comptroller shall have charge of accounting and related records. He or
she shall sign checks, drafts or orders for the payment of money; such checks,
drafts and orders to be also signed by the Treasurer, and perform such other
duties as may be required of him or her by the Board of Directors. An
Assistant Comptroller shall, in the absence or disability of the Comptroller,
perform his or her duties and such other duties as may be assigned to him or
her. In the absence or disability of the Comptroller and Assistant
Comptroller, the Chairman, the President or a Vice President, shall sign all
checks, drafts or orders for the payment of money; such checks, drafts and
orders to be also signed by any other authorized officer.
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<PAGE>
ARTICLE V
SHARES
CERTIFICATED SHARES
SECTION 5.1 Certificates, Registrar and Transfer Agent
The Shares of the Company may be represented by certificates in such forms
as the Board of Directors may prescribe, signed by the Chairman, the President
or a Vice President and the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, and sealed with the seal of the Company
and registered by such Bank or Trust Company as may be designated by the
Board. If the Company is authorized to issue shares of more than one class,
each certificate representing shares issued by the Company shall set forth
upon the face or back of the certificate, or shall state that the Company will
furnish to any shareholder upon request and without charge, a full statement
of the designation, relative rights, preferences and limitations of the shares
of each class authorized to be issued and the designation, relative rights,
preferences and limitations of each series of any class of preferred shares
authorized to be issued in series so far as the same have been fixed and the
authority of the Board of Directors to designate and fix the relative rights,
preferences and limitations of other series. Each certificate representing
shares shall state upon the face thereof (1) that the Company is formed under
the laws of the State of New York; (2) the name of the person or persons to
whom issued; and (3) the number and class of shares, and the designation of
the series, if any, which such certificate represents.
SECTION 5.2 Authorization of Facsimile Signatures and Seal
The Board of Directors may authorize the signatures of the Chairman, the
President, a Vice President, the Secretary or an Assistant Secretary, and the
Corporate Seal of the Company, to be facsimiled, engraved or printed.
SECTION 5.3 Transfer of Certificated Shares
The Shares of the Company shall be transferable or assignable in person or
by attorney, only on the books of the Company, upon the surrender of the
certificate representing the shares to be transferred or assigned with proper
endorsement on the certificate or on a separate accompanying document,
together with such evidence of the payment of transfer taxes and compliance
with other provisions of law as the Company or its transfer agent may require.
The Transfer Agent of the Company shall be such Bank or Trust Company as may
be designated by the Board.
SECTION 5.4 Lost, Stolen or Destroyed Share Certificates
The Company may issue a new certificate for shares in place of any
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Company may require the owner of the lost or destroyed certificate, or
such owner's legal representative, to give the Company a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate or the issuance of any
such new certificate.
UNCERTIFICATED SHARES
SECTION 5.5 Uncertificated Shares
The shares of the Company may be uncertificated shares. Within a reasonable
time after the issuance, or within two business days after a transfer, of
uncertificated shares, the Company shall send a written notice to the
registered owner of such shares and to any other party required by law to
receive such notice. Each such notice shall state (1) that the Company is
formed under the laws of the State of New York; (2) the name of the person
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<PAGE>
or persons to whom issued; (3) the number and class of shares, and the
designation of the series, if any, with respect to which such notice was
issued; and (4) any other information required by law to be contained therein.
If the Company is authorized to issue shares of more than one class, each such
notice shall contain, or shall state that the Company will furnish to any
shareholder upon request and without charge, a full statement of the
designation, relative rights, preferences and limitations of the shares of
each class authorized to be issued and the designation, relative rights,
preferences and limitations of each series of any class of preferred shares
authorized to be issued in series so far as the same have been fixed and the
authority of the Board of Directors to designate and fix the relative rights,
preferences and limitations of other series. Except as otherwise expressly
provided by law, the rights and obligations of the holders of uncertificated
shares representing shares of the same class and series shall be identical.
SECTION 5.6 Transfer of Uncertificated Shares
Shares of the Company shall be transferable on the record of shareholders
upon presentation to the Company or a transfer agent of a transfer request
indicating the shares requested to be transferred, with proper endorsement on
a separate accompanying document, together with such evidence of the payment
of transfer taxes and compliance with other provisions of law as the Company
or its transfer agent may require.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 General Applicability
Except to the extent expressly prohibited by the New York Business
Corporation Law, the Company shall indemnify each person made, or threatened
to be made, a party to any action or proceeding, whether criminal or civil, by
reason of the fact that such person or such person's testator or intestate is
or was a Director or Officer of the Company, against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses, including
attorney's fees and expenses, reasonably incurred in enforcing such person's
right to indemnification, incurred in connection with such action or
proceeding, or any appeal therein, provided that no such indemnification shall
be made if a judgment or other final adjudication adverse to such person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained in fact a
financial profit or other advantage to which such person was not legally
entitled, and provided further that no such indemnification shall be required
with respect to any settlement or other nonadjudicated disposition of any
threatened or pending action or proceeding unless the Company has given its
prior consent to such settlement or other disposition.
SECTION 6.2 Scope of Indemnification
The Company shall advance or promptly reimburse upon request to any person
entitled to indemnification hereunder all reasonable expenses, including
attorney's fees and expenses, reasonably incurred in defending any action or
proceeding in advance of the final disposition thereof upon receipt of an
undertaking by or on behalf of such person to repay such amount if such person
is ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so advanced or
reimbursed exceed the amount to which such person is entitled; provided,
however, that such person shall cooperate in good faith with any request by
the Company that common counsel be used by the parties to an action or
proceeding who are similarly situated unless to do so would be inappropriate
due to actual or potential differing interests between or among such parties.
SECTION 6.3 Other Indemnification Provisions
Nothing herein shall limit or affect any right of any Director, Officer or
other corporate personnel otherwise than hereunder to indemnification or
expenses, including attorney's fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract or otherwise;
without affecting or limiting the
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<PAGE>
rights of any Director, Officer or other corporate personnel pursuant to this
Article VI, the Company is authorized to enter into agreements with any of its
Directors, Officers or other corporate personnel extending rights to
indemnification and advancement of expenses to the fullest extent permitted by
applicable law.
Unless limited by resolution of the Board of Directors or otherwise, the
Company shall advance the payment of expenses to the fullest extent permitted
by applicable law to, and shall indemnify, any Director, Officer or other
corporate person who is or was serving at the request of the Company, as a
director, officer, partner, trustee, employee or agent of another corporation,
whether for profit or not-for-profit, or a partnership, joint venture, trust
or other enterprise, whether or not such other enterprise shall be obligated
to indemnify such person.
SECTION 6.4 Survival of Indemnification
Anything in these By-laws to the contrary notwithstanding, no elimination or
amendment of this Article VI adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no
elimination of or amendment to this Article VI shall deprive any such person's
rights hereunder arising out of alleged or actual occurrences, acts or
failures to act prior to such 60th day.
SECTION 6.5 Inability to Limit Indemnification
The Company shall not, except by elimination or amendment of this Article VI
in a manner consistent with the preceding Section 6.4 and with the provisions
of Article VIII ("Amendments to By-Laws"), take any corporate action or enter
into any agreement which prohibits, or otherwise limits the rights of any
person to, indemnification in accordance with the provisions of this Article
VI. The indemnification of any person provided by this Article VI shall
continue after such person has ceased to be a Director or Officer of the
Company and shall inure to the benefit of such person's heirs, executors,
administrators and legal representatives.
SECTION 6.6 Severability
In case any provision in this Article VI shall be determined at any time to
be unenforceable in any respect, the other provisions of this Article VI shall
not in any way be affected or impaired thereby, and the affected provision
shall be given the fullest possible enforcement in the circumstances, it being
the intention of the Company to afford indemnification and advancement of
expenses to its Directors or Officers, acting in such capacities or in the
other capacities mentioned herein, to the fullest extent permitted by law.
ARTICLE VII
OTHER MATTERS
SECTION 7.1 Books to be Kept
The Company shall keep (a) correct and complete books and records of
account, (b) minutes of the proceedings of the shareholders, Board of
Directors and Executive Committee, if any, and (c) a current list of the
Directors and Officers and their residence addresses. The Company shall also
keep, at its office located in the County of Kings in the State of New York or
at the office of its transfer agent or registrar in the State of New York, if
any, a record containing the names and addresses of all shareholders, the
number and class of shares held by each and the dates when they respectively
became the owners of record thereof. Any of the foregoing books, minutes or
records may be in written form or in any other form capable of being converted
into written form within a reasonable time.
SECTION 7.2 Interest of Directors and Officers in Transactions
In the absence of fraud, no contract or other transaction between the
Company and one or more of its Directors, or between the Company and any other
company, firm, association or other entity in which one or more of its
Directors are Directors or Officers, or have a substantial financial interest,
shall be either void or
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<PAGE>
voidable, irrespective of whether such interested Director or Directors are
present at the meeting of the Board of Directors, or of a committee thereof,
which approves such contract or transaction and irrespective of whether his,
her or their votes are counted for such purpose:
(1) If the material facts as to such Director's interest in such contract
or transaction and as to any such common Directorship, officership or
financial interest are disclosed in good faith or known to the Board of
Directors, or a committee thereof, and the Board or committee approves such
contract or transaction by a vote sufficient for such purpose without
counting the vote of such interested Director or, if the votes of the
disinterested Directors are insufficient to constitute an act of the Board
under Article II hereof, by unanimous vote of the disinterested Directors;
or
(2) If the material facts as to such Director's interest in such contract
or transaction and as to any such common Directorship, officership or
financial interest are disclosed in good faith or known to the shareholders
entitled to vote thereon, and such contract or transaction is approved by
vote of such shareholders.
If there was no such disclosure or knowledge, or if the vote of such
interested Director was necessary for the approval of such contract or
transaction at a meeting of the Board or committee at which it was approved,
the Company may avoid the contract or transaction unless the party or parties
thereto shall establish affirmatively that the contract or transaction was
fair and reasonable as to the Company at the time it was approved by the
Board, a committee or the shareholders.
SECTION 7.3 Corporate Seal
The Board of Directors may adopt a corporate seal, alter such seal at
pleasure, and authorize it to be used by causing it or a facsimile to be
affixed or impressed or reproduced in any other manner.
SECTION 7.4 When Notice or Lapse of Time Unnecessary
Whenever for any reason the Company or the Board of Directors or any
committee thereof is authorized to take any action after notice to any person
or persons or after the lapse of a prescribed period of time, such action may
be taken without notice and without the lapse of such period of time if at any
time before or after such action is completed the person or persons entitled
to such notice or entitled to participate in the action to be taken or, in the
case of a shareholder, his or her attorney-in-fact, submit a signed waiver of
notice of such requirements.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 8.1 By Directors
By-laws may be adopted, amended, or repealed or new By-laws may be adopted
by the vote of a majority of the entire Board of Directors at any regular or
special meeting of the Board at which a quorum is present; provided, however,
that any adoption of, amendment to or repeal of any new By-law or provision
inconsistent with Article I (Section 1.2--"Special meetings", 1.4--"Presiding
at Meetings" or 1.12--"Notice of Shareholder Business and Nominations"),
Article II (Section 2.1--"Number of Directors", 2.2--"Elections, Terms and
Vacancies" or 2.9--"Removal of Directors"), Article VI--"Indemnification" or
this Article VIII--"Amendments to By-Laws" hereof, if by action of the Board,
shall be only upon the approval of not less than two-thirds of the entire
Board at any such regular or special meeting of the Board of Directors.
SECTION 8.2 By Shareholders
By-laws may be adopted, amended, or repealed by the vote of a majority of
the shareholders entitled to vote in the election of any Directors (as herein
provided) at any annual or special shareholders' meeting at which
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<PAGE>
a quorum is present, if notice of such proposed action shall have been given
in accordance with the notice requirements of Section 1.12 of these By-laws;
provided, however, that any adoption of, amendment to or repeal of any new By-
laws or provision inconsistent with Article I (Section 1.2--"Special
meetings", 1.4--"Presiding at Meetings" or 1.12--"Notice of Shareholder
Business and Nominations"), Article II (Section 2.1--"Number of Directors",
2.2--"Elections, Terms and Vacancies" or 2.9--"Removal of Directors"), Article
VI--"Indemnification" or this Article VIII--"Amendments to By-Laws" hereof, if
by action of shareholders, shall be only upon the affirmative vote of not less
than two-thirds of the shares entitled to vote thereon at such annual or
special shareholders' meeting at which any such action is proposed.
L-25
<PAGE>
[LOGO] PRINTED ON RECYCLED PAPER
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Indemnification. Pursuant to Article 6 of KeySpan's amended and restated
certificate of incorporation, no director of KeySpan shall have personal
liability to KeySpan its shareholders for damages for any breach of duty in
such capacity, except for the liability of any director for acts or omissions
in bad faith or involving intentional misconduct or a knowing violation of
law, or if such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled, or if such
director's act violated Section 719 of the New York Business Corporation Law.
Any amendment or repeal of such Article 6 may not apply to or have any effect
on the liability or alleged liability of any director of KeySpan for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
Article VII, Section 1 of KeySpan's by-laws provides that KeySpan shall
indemnify to the full extent permitted by law any person made, or threatened
to be made, a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer or
employee of KeySpan, or serves or served at the request of KeySpan with any
other enterprise as director, officer or employee; expenses incurred by any
such person in defending any such action, suit or proceeding shall be paid or
reimbursed by KeySpan promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by KeySpan. No amendment of this by-
law provision shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment. In addition, KeySpan
intends to enter into indemnification agreements with its officers and
directors which provide for indemnification to the maximum extent permitted by
law. These agreements will set forth certain procedures for the advancement by
KeySpan of certain expenses to indemnities.
(b) Insurance. KeySpan (with respect to indemnification liability) and its
directors and officers (in their capacities as such) are insured against
liability for wrongful acts (to the extent defined) under insurance policies.
II-1
<PAGE>
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
2 --Amended and Restated Agreement and Plan of Exchange,
dated as of June 26, 1997, by and between The Brooklyn
Union Gas Company and KeySpan Energy Corporation
(attached as Annex K to the Joint Proxy
Statement/Prospectus, which forms a part of this
Registration Statement).
3 --Restated Certificate of Incorporation and Bylaws of
KeySpan Energy Corporation (attached as Annex L to the
Joint Proxy Statement/Prospectus, which forms a part
of this Registration Statement)
*5(a) --Opinion of Cullen & Dykman
*5(b) --Opinion of Sullivan & Cromwell
*8 --Tax Opinion of Sullivan & Cromwell
*15 --Letter of Arthur Andersen LLP re unaudited interim
financial information
*23 --Consent of Arthur Andersen LLP
*24 --Power of Attorney (contained on signature page)
*99 --Proxy Card for Brooklyn Union
</TABLE>
- --------
* Filed herewith
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
The undersigned Registrant hereby undertakes to remove from registration by
means of a post-effective amendment any shares of KeySpan common stock which
are not issued in the share exchange.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 27th day of
June, 1997.
KEYSPAN ENERGY CORPORATION
/s/ Robert B. Catell
By: _________________________________
Robert B. Catell
Chairman, President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and
appoints Robert B. Catell, and each of them, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign this
Registration Statement (including all pre-effective and post-effective
amendments), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on June 27,
1997 in the capacities indicated below.
SIGNATURE TITLE
/s/ Robert B. Catell Chairman, President,
------------------------------------- Chief Executive
ROBERT B. CATELL Officer and
Director (Principal
Executive Officer)
/s/ Vincent D. Enright Senior Vice
------------------------------------- President, Chief
VINCENT D. ENRIGHT Financial Officer
and Chief
Accounting Officer
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
2 --Amended and Restated Agreement and Plan of Exchange,
dated as of June 26, 1997, by and between The Brooklyn
Union Gas Company and KeySpan Energy Corporation
(attached as Annex K to the Joint Proxy
Statement/Prospectus, which forms a part of this
Registration Statement).
3 --Bylaws of KeySpan Energy Corporation (attached as
Annex L to the Joint Proxy Statement/Prospectus, which
forms a part of this Registration Statement)
*5(a) --Opinion of Cullen & Dykman
*5(b) --Opinion of Sullivan & Cromwell
*8 --Tax Opinion of Sullivan & Cromwell
*15 --Letter of Arthur Andersen LLP re unaudited interim
financial information
*23 --Consent of Arthur Andersen LLP
*24 --Power of Attorney (contained on signature page)
*99 --Proxy Card for Brooklyn Union
</TABLE>
- --------
* Filed herewith
II-5
<PAGE>
EXHIBIT 5(a)
June 26, 1997
KeySpan Energy Corporation
One MetroTech Center
Brooklyn, New York 11201-3850
Dear Sirs:
Reference is made to the Registration Statement of Form S-4, as amended
(Registration No. 333-18025), (the "Registration Statement") filed with the
Securities and Exchange Commission by you, as Registrant, for the purpose of
registering under the Securities Act of 1933, as amended (the "Act"),
51,864,212, shares of Common Stock, par value $.33 1/3 per share (the "Common
Stock") of KeySpan Energy Corporation, a New York corporation (the "Company").
We are acting as your general counsel and are supervising corporate proceedings
in connection with the authorization, issuance and exchange of the Common Stock.
In arriving at the opinions expressed below, we have examined such corporate
records, certificates and other documents as we have considered necessary or
appropriate for purposes of this opinion. We have also examined and relied upon
(1) information obtained from public officials, officers of the Company and
officers of The Brooklyn Union Gas Company ("Brooklyn Union") and other sources
we believe to be responsible; and (2) such other documents, and have made such
investigations of law as we have deemed appropriate as a basis for the opinions
expressed below. In rendering the opinions expressed below, we have assumed the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
On the basis of such examination, we advise you that upon (i) the Board of
Directors of the Company and Brooklyn Union having taken all required corporate
action, (ii) the Registration Statement relating to the Common Stock having
become effective under the Act, (iii) the Agreement and Plan of Exchange (the
"Exchange Agreement") attached as an Annex to the Prospectus/Proxy Statement
contained in the Registration Statement (the "Prospectus") having been duly
adopted by Brooklyn Union common shareholders at Brooklyn Union's Special
Meeting referred to in the Prospectus, (iv) all conditions in the Exchange
Agreement to the effectiveness of the share exchange provided for therein having
been satisfied and a Restated Certificate of Incorporation of the Company
substantially in the form attached as an Annex to the Prospectus having been
duly filed with the Department of State of the State of New York (the
"Department of State"), (v) a Certificate of Exchange under Section 913 of the
New York Business Corporation Law having been duly filed with the Department of
State, and (vi) the Common Stock having been duly issued and sold in the
transactions contemplated by the Exchange Agreement and the Prospectus, then, in
our opinion, the Common Stock will have been validly issued, and will be fully
paid, and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the State of New York, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction.
<PAGE>
-2-
KeySpan Energy Corporation June 26, 1997
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name in the Prospectus under the caption "Legal Matters". In giving this
consent we do not thereby admit that we are within the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
Cullen & Dykman
<PAGE>
EXHIBIT 5(b)
June 26, 1997
KeySpan Energy Corporation,
One MetroTech Center,
Brooklyn, New York 11201-3850
Dear Sirs:
In connection with the registration under the Securities Act of 1933
(the "Act") of 51,864,212 shares (the "Securities") of Common Stock, par value
$.33 1/3 per share, of KeySpan Energy Corporation, a New York corporation (the
"Company"), we, as your special counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion,
when (i) the Board of Directors of the Company and The Brooklyn Union Gas
Company ("Brooklyn Union") have taken all required corporate action, (ii) the
registration statements relating to the Securities (the "Registration
Statement") have become effective under the
<PAGE>
-2-
KeySpan Energy Corporation
Act, (iii) the Amended and Restated Agreement and Plan of Exchange between
Brooklyn Union and the Company (the "Exchange Agreement") attached as an Annex
to the Joint Proxy Statement/Prospectus contained in the Registration Statement
(the "Prospectus") has been duly adopted by Brooklyn Union common shareholders
at Brooklyn Union's Special Meeting of Shareholders referred to in the
Prospectus, (iv) all conditions in the Exchange Agreement to the effectiveness
of the share exchange provided for therein have been satisfied, (v) a Restated
Certificate of Incorporation of the Company substantially in the form attached
as an Annex to the Prospectus has been duly filed with the Department of State
of the State of New York (the "Department of State"), (vi) a Certificate of
Exchange under Section 913 of the New York Business Corporation Law has duly
filed with the Department of State, and (vii) the Securities have been duly
issued and exchanged by the Company in the share exchange contemplated by the
Exchange Agreement, the Securities will be validly issued, fully paid, and
nonassessable.
In accordance with our understanding with you as to the scope of our
services in connection with the share
<PAGE>
KeySpan Energy Corporation -3-
exchange to which this opinion relates, we have limited our examination to
those matters as to which we have expressed the foregoing opinion, we are
expressing no opinion in respect of any other matter. The foregoing opinion is
limited to the laws of the State of New York, and we are expressing no opinion
as to the effect of the laws of any other jurisdiction.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Company and Brooklyn Union and other sources
believed by us to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
KeySpan Common Stock" in an Annex to the Prospectus. In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE>
EXHIBIT 8
[LETTERHEAD OF SULLIVAN & CROMWELL APPEARS HERE]
June 26, 1997
The Brooklyn Union Gas Company,
One MetroTech Center,
Brooklyn, New York 11201.
Keyspan Energy Corporation,
One MetroTech Center,
Brooklyn, New York 11201.
Ladies and Gentlemen:
We have acted as special counsel to The Brooklyn Union Gas Company, a New
York corporation (the "Company"), and KeySpan Energy Corporation, a New York
corporation (the "Holding Company"), in connection with a planned corporate
restructuring (the "Exchange") in which the Company will become a subsidiary of
the Holding Company, and the current holders of the outstanding shares of the
Company's Common Stock, par value $.33 1/3 per share ("Company Common Stock"),
will become holders of all the outstanding shares of the Holding Company's
Common Stock, par value $.33 1/3 per share ("Holding Company Common Stock").
The Exchange and related transactions are more fully described in the Form
S-4 Registration Statement (the "Registration Statement") of the Holding Company
filed with the Securities and Exchange Commission, to which this opinion is an
exhibit, and in the Joint Proxy Statement/Prospectus (the "Prospectus")
comprising a part of the Registration Statement.
The Exchange will be effected pursuant to an Amended and Restated
Agreement and Plan of Exchange (the "Exchange Agreement"), attached as Annex K
to the Prospectus, between the Company and the Holding Company. Capitalized
terms used herein and not otherwise defined shall have the meanings specified in
the Exchange Agreement.
<PAGE>
The Brooklyn Union Gas Company
KeySpan Energy Corporation
-2-
In connection with this opinion, we have assumed, with your consent, that
(1) the Exchange will be effected in accordance with the Exchange Agreement and
the laws of the State of New York and in the manner described in the
Registration Statement, (2) all the provisions of the Exchange Agreement will be
complied with, (3) the Exchange Agreement and the Prospectus describe in all
material respects the entire transaction and all related transactions, (4) the
facts and representations made to us in letters from the Company and the Holding
Company dated June 25, 1997, executed by a duly appointed officer of the Holding
Company, are true and correct, (5) all of the Company's outstanding preferred
stock will be redeemed prior to the Exchange and (6) there will be no change in
any of the facts or representations material to this opinion between the date of
this opinion and the Effective Time.
We express no opinion as to the effect of the Exchange on the Company, the
Holding Company or stockholders of the Company in respect of any asset as to
which unrealized gain is required to be recognized for U.S. Federal income tax
purposes at the end of each taxable year under a mark-to-market system.
Based upon and subject to the foregoing, we hereby confirm to you our
opinion as set forth under the heading "Certain Federal Income Tax Consequences"
in Annex J to the Prospectus, subject to the limitations set forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Certain
Federal Income Tax Consequences" in Annex J to the Prospectus. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
Exhibit 15
1345 Avenue of the Americas
New York, New York 10105
June 26, 1997
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, New York 11201
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Gentlemen,
We are aware that The Brooklyn Union Gas Company and the Long Island Lighting
Company have incorporated by reference in their Registration Statement No.
333-18025 our reports dated January 24, 1997 and April 23, 1997, covering the
unaudited interim consolidated financial statements for The Brooklyn Union Gas
Company as of December 31, 1996, and March 31, 1997, respectively. Pursuant to
Regulation C of the Securities Act of 1933, these reports are not considered a
part of the registration statement prepared or certified by our Firm or reports
prepared or certified by our Firm with the meaning of Section 7 and 11 of the
Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 23, 1996
included in The Brooklyn Union Gas Company's Form 10-K for the year ended
September 30, 1996 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
New York, New York
June 26, 1997
<PAGE>
EXHIBIT 99
PROXY
THE BROOKLYN UNION GAS COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 7, 1997
The undersigned hereby appoints Donald H. Elliott, Alan H. Fishman and Edward D.
Miller, and each of them with full power to act alone, the true and lawful
attorneys in fact and proxies of the undersigned to vote all shares of Common
Stock of THE BROOKLYN UNION GAS COMPANY, a New York corporation (the "Company"),
held by the undersigned, with full power of substitution, with the same force
and effect as the undersigned would be entitled to vote if personally present,
at the Special Meeting of Shareholders of the Company to be held at the Opera
House, Brooklyn Academy of Music, 30 Lafayette Avenue, Brooklyn, New York 11217,
on August 7, 1997, at 3:00 p.m. (local time), and at any and all adjournments or
postponements thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
[SEE REVERSE
SIDE]
<PAGE>
[X] Please mark
your votes as in this
example
- --------------------------------------------------------------------------------
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF BOTH
PROPOSALS
- --------------------------------------------------------------------------------
1. Adoption of the Amended and Restated Agreement FOR AGAINST ABSTAIN
and Plan of Exchange and Merger, dated as of [_] [_] [_]
June 26, 1997 between Long Island Lighting Company
and the Company.
2. Adoption of the Amended and Restated Agreement FOR AGAINST ABSTAIN
and Plan of Exchange, dated as of June 26, 1997 [_] [_] [_]
between KeySpan Energy Corporation and the Company.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF THIS PROXY IS SUBMITTED, BUT NO DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED
"FOR" THE APPROVAL AND ADOPTION OF THE BROOKLYN UNION/LILCO AGREEMENT and THE
KEYSPAN EXCHANGE AGREEMENT.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and the related Joint Proxy Statement/Prospectus furnished
herewith.
Date: , 1997
------------------------------------------------------
Signature:
-------------------------------------------------
Signature(s) (if held jointly):
----------------------------
Title or Authority:
----------------------------------------
Important: Please sign your name exactly as it appears hereon. When signing as
attorney, agent, executor, administrator, trustee, guardian or
corporate officer, please give your full title as such. Each joint
owner should sign the proxy. If executed by a partnership, this proxy
should be signed by an authorized partner.
