<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 29, 1996
THE BROOKLYN UNION GAS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 1-722 11-0584613
--------------------- ---------------- ---------------
(State of Incorporation) (Commission File (IRS Employer
Number) Identification
Number)
One MetroTech Center
Brooklyn, New York 11201-3850
----------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 403-2000
<PAGE>
Item 5. Other Events.
------------
On December 29, 1996, The Brooklyn Union Gas Company (the "Company"),
entered into an Agreement and Plan of Exchange (the "Exchange Agreement") with
Long Island Lighting Company, a New York corporation ("Lilco") and NYECO Corp.,
a New York corporation ("NYECO"), providing for a business combination between
the Company and Lilco, to be effected as binding share exchanges between NYECO
and the Company, and NYECO and Lilco. NYECO is a holding company formed by the
Company and Lilco to manage their combined businesses.
The Exchange Agreement is attached as Exhibit 2 hereto and its terms are
incorporated herein by reference. The Company and Lilco have issued a joint
press release announcing the Exchange Agreement, which is attached as Exhibit 99
hereto and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information
------------------------------------------------------
and Exhibits
------------
The following exhibits are filed as part of this report:
2 Agreement and Plan of Exchange, dated as of December 29, 1996, by and
among The Brooklyn Union Gas Company, Long Island Lighting Company and
NYECO Corp.
99 Press release dated December 29, 1996
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: December 29, 1996
THE BROOKLYN UNION GAS COMPANY
By: /s/ R.R. Wieczorek
------------------------------
R.R. Wieczorek
Vice President, Secretary &
Treasurer
-2-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------
2 Agreement and Plan of Exchange, dated as of December 29,
1996, by and among The Brooklyn Union Gas Company, Long
Island Lighting Company and NYECO Corp.
99 Press release dated December 29, 1996
-3-
<PAGE>
EXHIBIT 2
Conformed Copy
--------------
AGREEMENT AND PLAN OF EXCHANGE
by and among
NYECO CORP.,
THE BROOKLYN UNION GAS COMPANY
and
LONG ISLAND LIGHTING COMPANY
DATED AS OF DECEMBER 29, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
THE TRANSACTIONS
----------------
Section 1.1 THE BINDING SHARE EXCHANGES................... 1
Section 1.2 EFFECTIVE TIME................................ 2
ARTICLE II
TREATMENT OF SHARES
-------------------
Section 2.1 EFFECT ON CAPITAL STOCK..................... 2
Section 2.2 DISSENTING SHARES........................... 3
Section 2.3 ISSUANCE OF NEW CERTIFICATES................ 3
ARTICLE III
THE CLOSING
-----------
Section 3.1 CLOSING....................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUG
-------------------------------------
Section 4.1 ORGANIZATION AND QUALIFICATION............. 6
Section 4.2 SUBSIDIARIES............................... 6
Section 4.3 CAPITALIZATION............................. 7
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY
APPROVALS; COMPLIANCE...................... 7
Section 4.5 REPORTS AND FINANCIAL STATEMENTS........... 9
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS....... 9
Section 4.7 LITIGATION................................. 9
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. 10
Section 4.9 TAX MATTERS................................ 10
Section 4.10 EMPLOYEE MATTERS; ERISA.................... 12
Section 4.11 ENVIRONMENTAL PROTECTION................... 14
Section 4.12 REGULATION AS A UTILITY.................... 16
Section 4.13 VOTE REQUIRED.............................. 16
Section 4.14 ACCOUNTING MATTERS......................... 16
Section 4.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW. 17
-i-
<PAGE>
Page
----
Section 4.16 OPINION OF FINANCIAL ADVISOR............... 17
Section 4.17 INSURANCE.................................. 17
Section 4.18 OWNERSHIP OF LILCO COMMON STOCK............ 17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LILCO
---------------------------------------
Section 5.1 ORGANIZATION AND QUALIFICATION............. 18
Section 5.2 SUBSIDIARIES............................... 18
Section 5.3 CAPITALIZATION............................. 18
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY
APPROVALS; COMPLIANCE...................... 19
Section 5.5 REPORTS AND FINANCIAL STATEMENTS........... 20
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS....... 21
Section 5.7 LITIGATION................................. 21
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. 21
Section 5.9 TAX MATTERS................................ 22
Section 5.10 EMPLOYEE MATTERS; ERISA.................... 23
Section 5.11 ENVIRONMENTAL PROTECTION................... 26
Section 5.12 REGULATION AS A UTILITY.................... 27
Section 5.13 VOTE REQUIRED.............................. 27
Section 5.14 ACCOUNTING MATTERS......................... 27
Section 5.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW. 27
Section 5.16 OPINION OF FINANCIAL ADVISOR............... 27
Section 5.17 INSURANCE.................................. 27
Section 5.18 OWNERSHIP OF BUG COMMON STOCK.............. 28
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME
----------------------------------------------
Section 6.1 COVENANTS OF THE PARTIES...................... 28
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
Section 7.1 ACCESS TO INFORMATION...................... 34
Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION
STATEMENT................................. 35
Section 7.3 REGULATORY MATTERS......................... 36
Section 7.4 SHAREHOLDER APPROVAL....................... 36
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION... 37
Section 7.6 DISCLOSURE SCHEDULES....................... 38
-ii-
<PAGE>
Page
----
Section 7.7 PUBLIC ANNOUNCEMENTS....................... 39
Section 7.8 RULE 145 AFFILIATES........................ 39
Section 7.9 EMPLOYEE AGREEMENTS........................ 40
Section 7.10 EMPLOYEE BENEFIT PLANS..................... 40
Section 7.11 STOCK PLANS................................ 40
Section 7.12 NO SOLICITATIONS........................... 41
Section 7.13 COMPANY BOARD OF DIRECTORS................. 42
Section 7.15 EXPENSES................................... 43
Section 7.16 FURTHER ASSURANCES......................... 43
Section 7.17 POST-EXCHANGE OPERATIONS................... 43
Section 7.18 ALTERNATIVE TRANSACTION.................... 43
Section 7.19 EMPLOYMENT AGREEMENT....................... 43
ARTICLE VIII
CONDITIONS
----------
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION
TO EFFECT THE BINDING SHARE EXCHANGES...... 44
Section 8.2 CONDITIONS TO OBLIGATION OF LILCO TO
EFFECT THE BINDING SHARE EXCHANGES......... 45
Section 8.3 CONDITIONS TO OBLIGATION OF BUG TO
EFFECT THE BINDING SHARE EXCHANGES......... 46
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 9.1 TERMINATION................................. 47
Section 9.2 EFFECT OF TERMINATION....................... 50
Section 9.3 TERMINATION FEE; EXPENSES................... 50
Section 9.4 AMENDMENT................................... 52
Section 9.5 WAIVER...................................... 52
ARTICLE X
GENERAL PROVISIONS
------------------
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS
AND WARRANTIES............................. 52
Section 10.2 BROKERS.................................... 53
Section 10.3 NOTICES.................................... 53
Section 10.4 MISCELLANEOUS.............................. 54
Section 10.5 INTERPRETATION............................. 54
-iii-
<PAGE>
Page
----
Section 10.6 COUNTERPARTS; EFFECT....................... 54
Section 10.7 PARTIES IN INTEREST........................ 54
Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES... 55
Section 10.9 ENFORCEMENT................................ 55
Exhibit A Form of LILCO Stock Option Agreement
Exhibit B Form of BUG Stock Option Agreement
-iv-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE, dated as of December 29, 1996 (this
"AGREEMENT"), by and among THE BROOKLYN UNION GAS COMPANY, a New York
corporation ("BUG"), LONG ISLAND LIGHTING COMPANY, a New York corporation
("LILCO"), and NYECO Corp., a New York corporation ("NYECO" and, after the
Effective Time (as defined below), the "COMPANY").
WHEREAS, BUG and LILCO have determined to engage in a business
combination as peer firms in binding share exchanges and to form NYECO as a
holding company to manage their combined businesses;
WHEREAS, BUG and LILCO have caused NYECO to be formed for the purpose
of effectuating the transactions contemplated hereby;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
BUG, LILCO and NYECO 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 agreement with BUG 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 BUG has approved and BUG has executed an agreement with
LILCO in the form of EXHIBIT B (the "BUG STOCK OPTION AGREEMENT") contemplating
a stock option (the "BUG STOCK OPTION"); and
WHEREAS, for federal income tax purposes, it is intended that the
parties hereto will recognize no gain or loss for federal income tax purposes in
respect of stock received and their respective stockholders who participate in
the Binding Share Exchanges (as hereinafter defined) will recognize gain in
respect of stock received only to the extent that they receive cash in lieu of
fractional shares as a result of the consummation of the Binding Share
Exchanges;
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 EXCHANGES. 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 BUG (the "BUG COMMON STOCK") for adoption in
<PAGE>
accordance with Section 913 of the New York Business Corporation Law (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 BUG Common Stock shall be necessary to
adopt this Agreement. Upon the terms and subject to the conditions of this
Agreement, at the 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 NYECO (the "NYECO COMMON STOCK" and,
with respect to any period after the Effective Time, the "COMPANY COMMON STOCK")
as provided in SECTION 2.1 (the "LILCO BINDING SHARE EXCHANGE") and the
outstanding shares of BUG Common Stock shall be exchanged for newly issued
shares of Company Common Stock as provided in SECTION 2.1 (the "BUG BINDING
SHARE EXCHANGE" and, together with the LILCO Binding Share Exchange, the
"BINDING SHARE EXCHANGES"), all in accordance with Section 913 of the NYBCL.
Section 1.2 EFFECTIVE TIME. On the Closing Date (as defined in
SECTION 3.1), certificates of exchange complying with the requirements of the
NYBCL shall be executed by LILCO and NYECO and BUG and NYECO, respectively, and
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 and the BUG Binding Share Exchange shall become effective at the time
specified in the certificate of exchange filed with respect to the BUG Binding
Share Exchange, which specified times shall be the same time (the "EFFECTIVE
TIME").
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by
virtue of the LILCO Binding Share Exchange and the BUG Binding Share Exchange
and without any action on the part of any holder of any capital stock of LILCO,
BUG or NYECO:
(a) TREATMENT OF BUG COMMON STOCK. Each issued and outstanding
share of BUG Common Stock, other than Dissenting Shares (as defined in
SECTION 2.2), shall be exchanged for one fully paid and, subject to
Section 630 of the NYBCL, nonassessable share of Company Common Stock.
Upon such exchange, the Company shall become the owner of each such
share of BUG Common Stock so exchanged and all such shares of BUG
Common Stock shall be deemed to have been exchanged for the applicable
number of shares of 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 the
shares of Company
-2-
<PAGE>
Common Stock to be issued in consideration therefor upon the surrender
of such certificate in accordance with SECTION 2.3.
(b) NO CHANGE IN BUG PREFERRED STOCK. Each issued and
outstanding share of the preferred stock of BUG shall be unchanged as
a result of the BUG Binding Share Exchange and shall remain
outstanding thereafter.
(c) 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 "RATIO") fully paid and,
subject to Section 630 of the NYBCL, nonassessable shares of Company
Common Stock. 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.
(d) 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 LILCO Binding Share Exchange and shall remain
outstanding thereafter.
Section 2.2 DISSENTING SHARES. Shares of LILCO Common Stock or BUG
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 BUG, 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.
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 BUG (the "EXCHANGE AGENT"), certificates
representing shares of Company Common Stock required to effect the issuances
referred to in SECTION 2.1, together with cash payable in respect of fractional
shares pursuant to SECTION 2.3(d).
-3-
<PAGE>
(b) ISSUANCE PROCEDURES. As soon as practicable after the Effective
Time, the Exchange Agent shall mail (x) to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of LILCO Common Stock or BUG
Common Stock (the "EXCHANGED COMMON SHARES") that were exchanged for shares of
Company Common Stock (the "COMPANY SHARES") pursuant to SECTION 2.1, (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 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 BUG 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. In the event of a transfer of ownership of
Exchanged Common Shares which is not registered in the transfer records of LILCO
or BUG, 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 Effective Time 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 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
-4-
<PAGE>
such fractional shares shall not entitle the owner thereof to vote or to any
other rights of a holder of Company Common Stock. A holder of LILCO Common
Stock who would otherwise have been entitled to a fractional share of Company
Common Stock shall be entitled to receive a cash payment in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the average of the last reported sales price, regular way, per share of LILCO
Common Stock on the New York Stock Exchange ("NYSE") Composite Tape for the ten
business days prior to and including the last business day on which LILCO Common
Stock was traded on the NYSE, without any interest thereon.
(e) CLOSING OF TRANSFER BOOKS. From and after the Effective Time the
common stock transfer books of LILCO and BUG shall be closed and no transfer of
any LILCO Common Stock or BUG Common Stock 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
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.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing of the Binding Share Exchanges (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 BUG and LILCO shall mutually agree (the "CLOSING DATE").
-5-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUG
BUG represents and warrants to LILCO as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 4.1 of the BUG Disclosure Schedule (as defined in SECTION 7.6(ii)), each
of BUG and each of the BUG 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 "BUG SUBSIDIARY" shall mean a Subsidiary of BUG.
Section 4.2 SUBSIDIARIES. Section 4.2 of the BUG Disclosure Schedule
sets forth a description, as of the date hereof, of all Subsidiaries and Joint
Ventures (as defined herein) of BUG, including (a) the name of each such entity
and BUG'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 BUG Disclosure Schedule, none of the BUG 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 BUG Disclosure Schedule, all of the issued and outstanding shares of capital
stock of each BUG Subsidiary are validly issued, fully paid, nonassessable and
free of preemptive rights, and are owned, directly or indirectly, by BUG 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 BUG 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 "BUG JOINT VENTURE" shall mean those of the joint
ventures of BUG or any BUG
-6-
<PAGE>
Subsidiary identified as a BUG Joint Venture in Section 4.2 of the BUG
Disclosure Schedule.
Section 4.3 CAPITALIZATION. The authorized capital stock of BUG is
as set forth in BUG'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 BUG Common Stock. All of the issued and
outstanding shares of the capital stock of BUG are, and any shares of BUG Common
Stock issued pursuant to the BUG 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 BUG 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 BUG or any of the BUG
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of BUG, or obligating BUG to grant,
extend or enter into any such agreement or commitment, other than under the BUG
Stock Option Agreement. There are no outstanding stock appreciation rights of
BUG 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 BUG.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.
(a) AUTHORITY. BUG has all requisite power and authority to enter
into this Agreement and the BUG Stock Option Agreement, and, subject to the BUG
Shareholders' Approval (as defined in SECTION 4.13) and the BUG 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 BUG Stock Option Agreement and the consummation by BUG of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of BUG, subject to obtaining the
applicable BUG Shareholders' Approval. Each of this Agreement and the BUG Stock
Option Agreement has been duly and validly executed and delivered by BUG 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 BUG enforceable against it in accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
BUG Disclosure Schedule, the execution and delivery of this Agreement and the
BUG Stock Option Agreement by BUG 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
-7-
<PAGE>
of the properties or assets of BUG or any of the BUG Subsidiaries or BUG Joint
Ventures (any such violation, conflict, breach, default, right of termination,
modification, cancellation or acceleration, loss or creation, a "VIOLATION" with
respect to BUG, 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 BUG or any of the BUG
Subsidiaries or the BUG Joint Ventures, (ii) subject to obtaining the BUG
Required Statutory Approvals and the receipt of the BUG 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 BUG or any of the BUG Subsidiaries or the BUG
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 BUG
Disclosure Schedule (the "BUG 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 BUG or any of the BUG Subsidiaries or the BUG 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
BUG Stock Option Agreement by BUG or the consummation by BUG of the transactions
contemplated hereby or thereby, except as described in Section 4.4(c) of the BUG
Disclosure Schedule (the "BUG REQUIRED STATUTORY APPROVALS", it being understood
that references in this Agreement to "obtaining" such BUG 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 BUG Disclosure Schedule, or as disclosed in the BUG SEC
Reports (as defined in SECTION 4.5) filed prior to the date hereof, neither BUG
nor any of the BUG Subsidiaries nor, to the knowledge of BUG, any BUG 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 BUG Disclosure Schedule or in Section 4.11 of the BUG
Disclosure Schedule, BUG and the BUG Subsidiaries and BUG 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 BUG Disclosure Schedule, BUG and each of the BUG 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
-8-
<PAGE>
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 BUG and the BUG 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. BUG has made available to
LILCO a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by BUG with the SEC since January 1, 1994
(as such documents have since the time of their filing been amended, the "BUG
SEC REPORTS"). As of their respective dates, the BUG 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 BUG included in the BUG SEC Reports (collectively, the "BUG
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 BUG 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 BUG, as in effect on the date hereof, are included
(or incorporated by reference) in the BUG SEC Reports.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the BUG SEC Reports filed prior to the date hereof or as set
forth in Section 4.6 of the BUG Disclosure Schedule, since September 30, 1996,
BUG and each of the BUG 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 BUG and its
subsidiaries taken as a whole (a "BUG MATERIAL ADVERSE EFFECT").
Section 4.7 LITIGATION. Except as disclosed in the BUG SEC Reports
filed prior to the date hereof or as set forth in Section 4.7, Section 4.9 or
Section 4.11 of the BUG Disclosure Schedule, (i) there are no material claims,
suits, actions or proceedings, pending or, to the knowledge of BUG, threatened,
nor are there, to the
-9-
<PAGE>
knowledge of BUG, any material investigations or reviews pending or threatened
against, relating to or affecting BUG or any of the BUG 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 BUG or any of the BUG Subsidiaries.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of BUG 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 Binding Share Exchanges (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 BUG and LILCO shareholders to be held in connection with the Binding Share
Exchanges (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 Binding Share Exchanges, 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 BUG or any of its
subsidiaries, or LILCO or any of its subsidiaries, as the case may be.
Except as set forth in Section 4.9 of the BUG Disclosure
Schedule:
(a) FILING OF TIMELY TAX RETURNS. BUG and each of the BUG
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.
-10-
<PAGE>
(b) PAYMENT OF TAXES. BUG and each of the BUG 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. BUG and the BUG 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 BUG
or any of the BUG Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. BUG and each of the BUG 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 BUG nor
any of the BUG 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 BUG nor any of
the BUG 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 BUG and each of the BUG Subsidiaries or
those Tax Returns have been examined by the appropriate taxing
authorities for all periods through the date hereof, and no deficiency
for any Taxes has been proposed, asserted or assessed against BUG or
any of the BUG 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 BUG or any of the
BUG Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in
force has been granted by BUG or any of the BUG Subsidiaries
concerning any Tax matter.
-11-
<PAGE>
(k) TAX RULINGS. Neither BUG nor any of the BUG 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. BUG has made available to
LILCO complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by BUG or any of the BUG Subsidiaries, (ii)
all audit reports received from any taxing authority relating to any
Tax Return filed by BUG or any of the BUG Subsidiaries and (iii) any
Closing Agreements entered into by BUG or any of the BUG Subsidiaries
with any taxing authority.
(m) TAX SHARING AGREEMENTS. Neither BUG nor any BUG Subsidiary
is a party to any agreement relating to allocating or sharing of
income Taxes.
(n) CODE SECTION 280G. Neither BUG nor any of the BUG
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 BUG or any of the BUG
Subsidiaries has any liability for Taxes of any person other than BUG
and the BUG 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 BUG Disclosure Schedule:
(a) BENEFIT PLANS. Section 4.10(a) of the BUG Disclosure Schedule
contains a true and complete list of each employee benefit plan covering
employees, former employees or directors of BUG and each of the BUG 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 "BUG BENEFIT PLANS"). For the
purposes of this SECTION 4.10 only, the term "BUG" shall be deemed to include
the predecessors of such company.
-12-
<PAGE>
(b) CONTRIBUTIONS. All material contributions and other payments
required to be made by BUG or any of the BUG Subsidiaries to any BUG 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 BUG
Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the BUG 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 BUG, no
circumstances exist that are reasonably expected by BUG to result in the
revocation of any such determination. BUG is in compliance in all material
respects with, and each of the BUG 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
BUG 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 BUG Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the best knowledge of BUG,
there does not now exist any condition or set of circumstances, that could
subject BUG or any of the BUG 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 BUG is a
party, excluding liability for benefit claims and funding obligations payable in
the ordinary course.
(e) WELFARE PLANS. None of the BUG 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. BUG has made available to LILCO a true
and correct copy of each collective bargaining agreement to which BUG or any of
the BUG Subsidiaries is a party or under which BUG or any of the BUG
Subsidiaries has obligations and, with respect to each BUG 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 BUG 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 BUG
or any of the BUG Subsidiaries to any officer, employee, former employee or
-13-
<PAGE>
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (B) benefit under any BUG Benefit Plan being established or
becoming accelerated, vested or payable and (ii) neither BUG nor any of the BUG
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 BUG, or (C)
any plan, agreement, arrangement or understanding similar to any of the
foregoing.
(h) LABOR AGREEMENTS. As of the date hereof, except as set forth in
Section 4.10(h) of the BUG Disclosure Schedule or in the BUG SEC Reports filed
prior to the date hereof, neither BUG nor any of the BUG Subsidiaries is a party
to any collective bargaining agreement or other labor agreement with any union
or labor organization. To the best knowledge of BUG, as of the date hereof,
except as set forth in Section 4.10(h) of the BUG Disclosure Schedule, there is
no current union representation question involving employees of BUG or any of
the BUG Subsidiaries, nor does BUG 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 BUG SEC Reports filed prior to the
date hereof or in Section 4.10(h) of the BUG Disclosure Schedule, (i) there is
no unfair labor practice, employment discrimination or other material complaint
against BUG or any of the BUG Subsidiaries pending, or to the best knowledge of
BUG, threatened, (ii) there is no strike or lockout or material dispute,
slowdown or work stoppage pending, or to the best knowledge of BUG, threatened,
against or involving BUG, and (iii) there is no proceeding, claim, suit, action
or governmental investigation pending or, to the best knowledge of BUG,
threatened, in respect of which any director, officer, employee or agent of BUG
or any of the BUG Subsidiaries is or may be entitled to claim indemnification
from BUG or such BUG 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 BUG Disclosure Schedule.
Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in
Section 4.11 of the BUG Disclosure Schedule or in the BUG SEC Reports filed
prior to the date hereof:
(a) COMPLIANCE. BUG and each of the BUG Subsidiaries is in material
compliance with all applicable Environmental Laws (as defined in SECTION
4.11(g)(ii)); and neither BUG nor any of the BUG Subsidiaries has received any
communication (written or oral), from any person or Governmental Authority that
alleges that BUG or any of the BUG Subsidiaries is not in such compliance with
applicable Environmental Laws.
(b) ENVIRONMENTAL PERMITS. BUG and each of the BUG 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
-14-
<PAGE>
renewal application has been timely filed and is pending agency approval, and
BUG and the BUG Subsidiaries are in material compliance with all terms and
conditions of the Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. To the best knowledge of BUG, there is no
material Environmental Claim (as defined in SECTION 4.11(g)(i)) pending (i)
against BUG or any of the BUG Subsidiaries or BUG Joint Ventures, (ii) against
any person or entity whose liability for any Environmental Claim BUG or any of
the BUG 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 BUG or any of the BUG Subsidiaries owns, leases or manages, in
whole or in part.
(d) RELEASES. BUG 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 BUG or any of the BUG Subsidiaries, or against any
person or entity whose liability for any material Environmental Claim BUG or any
of the BUG Subsidiaries has or may have retained or assumed either contractually
or by operation of law.
(e) PREDECESSORS. BUG has no knowledge, with respect to any
predecessor of BUG or any of the BUG 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 BUG's best knowledge, BUG has disclosed to LILCO
all material facts which BUG reasonably believes form the basis of a material
Environmental Claim arising from (i) the cost of BUG pollution control equipment
currently required or known to be required in the future; (ii) current BUG
remediation costs or BUG remediation costs known to be required in the future;
or (iii) any other environmental matter affecting BUG.
(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 BUG or any of the BUG Subsidiaries or BUG 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
-15-
<PAGE>
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 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 BUG or any of the BUG Subsidiaries
or BUG 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 BUG Disclosure Schedule, neither BUG nor any "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of BUG 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 BUG Common Stock (the
"BUG SHAREHOLDERS' APPROVAL") is the only vote of the holders of any class or
series of the capital stock of BUG or any of its subsidiaries required to adopt
this Agreement and the other transactions contemplated hereby.
Section 4.14 ACCOUNTING MATTERS. Neither BUG nor, to BUG'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 and
applicable SEC regulations. As used in this Agreement (except as specifically
otherwise defined), the term
-16-
<PAGE>
"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 BUG, any other
similar state statute) or the Restated Certificate of Incorporation or by-laws
of BUG, are applicable to the transactions contemplated by this Agreement,
including the granting or exercise of the BUG Stock Option (except as set forth
in Section 4.15 of the BUG Disclosure Schedule).
Section 4.16 OPINION OF FINANCIAL ADVISOR. BUG 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 Ratio
is fair from a financial point of view to the holders of BUG Common Stock.
Section 4.17 INSURANCE. Except as set forth in Section 4.17 of the
BUG Disclosure Schedule, BUG and each of the BUG 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 BUG
and the BUG Subsidiaries during such time period. Except as set forth in
Section 4.17 of the BUG Disclosure Schedule, neither BUG nor any of the BUG
Subsidiaries has received any notice of cancellation or termination with respect
to any material insurance policy of BUG or any of the BUG Subsidiaries. The
insurance policies of BUG and each of the BUG 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, BUG 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. BUG 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.
-17-
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LILCO
LILCO represents and warrants to BUG 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 the date hereof 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 the date hereof, there are no outstanding
-18-
<PAGE>
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 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.
-19-
<PAGE>
(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 the date hereof, 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 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 BUG 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
-20-
<PAGE>
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 the date hereof, 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 the date hereof 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 the date hereof 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 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 Binding Share
Exchanges, 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
-21-
<PAGE>
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 the date hereof, and no deficiency
for any Taxes has been
-22-
<PAGE>
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
BUG 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 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
-23-
<PAGE>
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 BUG
a true and correct copy of each collective bargaining
-24-
<PAGE>
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 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 the date hereof, except as set
forth in Section 5.10(h) of the LILCO Disclosure Schedule or in the
LILCO SEC Reports filed prior to the date hereof, 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 the date hereof,
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 the date hereof 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,
-25-
<PAGE>
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 the date hereof:
(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 (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.
-26-
<PAGE>
(f) DISCLOSURE. To LILCO's best knowledge, LILCO has disclosed to BUG
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 and
applicable SEC regulations.
Section 5.15 APPLICABILITY OF CERTAIN PROVISIONS OF LAW. Assuming
that the representation and warranty of BUG 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 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
-27-
<PAGE>
cancellation or termination with respect to any material 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 BUG COMMON STOCK. Except pursuant to the
terms of the BUG 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 BUG Common Stock or BUG 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, BUG and
LILCO each agree as follows, each as to itself and to each of the BUG
Subsidiaries and the LILCO Subsidiaries, as the case may be, except as expressly
contemplated or permitted in this Agreement, the BUG Stock Option Agreement or
the LILCO Stock Option Agreement, 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
BUG 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 BUG, to BUG 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 BUG
Disclosure Schedule or the LILCO Disclosure Schedule, respectively, no
-28-
<PAGE>
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 BUG 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 BUG or LILCO, as
the case may be. The last record date of each of LILCO and BUG on or
prior to the Effective Time which relates to a regular quarterly
dividend on LILCO Common Stock or BUG Common Stock, as the case may
be, shall be the same date and shall be prior to the Effective Time.
(c) ISSUANCE OF SECURITIES. Except as set forth in Section
6.1(c) of the BUG Disclosure Schedule or the LILCO Disclosure
Schedule, respectively, 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 BUG 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
-29-
<PAGE>
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 BUG 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
BUG Disclosure Schedule or the LILCO Disclosure Schedule.
(g) NO DISPOSITIONS. Except as set forth in Section 6.1(g) of
the BUG 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 BUG Disclosure Schedule or the
LILCO Disclosure Schedule, respectively.
(i) COMPENSATION, BENEFITS. Except as set forth in Section
6.1(i) of the BUG 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 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
-30-
<PAGE>
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 BUG
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 BUG, 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 BUG 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 BUG and LILCO on the date hereof as set forth in Section 6.1(f) of
the BUG Disclosure Schedule and the LILCO Disclosure Schedule.
(l) ACCOUNTING. Except as set forth in Section 6.1(l) of the
BUG 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-FREE STATUS. No party shall, nor shall any party
permit any of its Subsidiaries to, take any actions which would, or
would
-31-
<PAGE>
be reasonably likely to, adversely affect the status of the Binding
Share Exchanges as tax-free exchanges (except as to dissenters' rights
and fractional shares) satisfying the requirements of Section 351 of
the Code, and each party hereto shall use all reasonable efforts to
achieve such result.
(o) AFFILIATE TRANSACTIONS. Except as set forth in Section
6.1(o) of the BUG 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 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 BUG, a BUG 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 BUG and LILCO shall, and shall cause
its Subsidiaries to, discuss with the other 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 consult with the other prior to making
any filing (or any amendment thereto), or effecting any agreement,
commitment, arrangement or consent with governmental regulators,
whether written or oral, formal or informal, with respect thereto, 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. BUG shall, and shall cause its
Subsidiaries to, use all commercially reasonable efforts to obtain all
BUG Required Consents. BUG 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 BUG Required Consents obtained
by BUG to LILCO. LILCO shall, and shall cause its Subsidiaries to,
use all
-32-
<PAGE>
commercially reasonable efforts to obtain all LILCO Required Consents.
LILCO shall promptly notify BUG of any failure or prospective failure
to obtain any such consents and, if requested by BUG, shall provide
copies of all LILCO Required Consents obtained by LILCO to BUG.
(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 BUG 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 BUG 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 BUG'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 BUG 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 BUG Disclosure Schedule, Section 4.4(c) of the BUG
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
BUG 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, 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 BUG 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
-33-
<PAGE>
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.
(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
-34-
<PAGE>
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 BUG and LILCO, as it
may be amended from time to time (the "CONFIDENTIALITY AGREEMENT").
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 Binding Share Exchanges 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
Binding Share Exchanges, 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 Binding
Share Exchanges 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 BUG'S ACCOUNTANTS. BUG 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 BUG 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 BUG, in form and substance reasonably satisfactory to BUG and
customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements on
Form S-4.
-35-
<PAGE>
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the
Joint Proxy/Registration Statement to the shareholders of BUG and LILCO that (i)
BUG 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 Ratio is fair from a financial point of view to the holders of BUG 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 Ratio is 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 BUG Required Statutory
Approvals and the LILCO Required Statutory Approvals. LILCO and BUG 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 BUG 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 BUG with respect to each of the foregoing matters.
-36-
<PAGE>
(b) APPROVAL OF BUG SHAREHOLDERS. Subject to the provisions of
SECTION 7.4(c) and SECTION 7.4(d), BUG 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 "BUG SPECIAL
MEETING") for the purpose of securing the BUG 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 BUG Special Meeting for the
purpose of securing the BUG Shareholders' Approval shall be held on such dates
as BUG and LILCO shall mutually determine, acting in good faith.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of BUG to hold the BUG 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 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 the date hereof, 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 NYBCL and upon receipt of any undertaking required
by of the NYBCL, (ii) the Company will cooperate in the defense of
-37-
<PAGE>
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 are currently covered by the policies of directors' and
officers' liability insurance maintained by LILCO or BUG, 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 the
date hereof in favor of the employees, agents, directors and officers of BUG,
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 the date hereof, shall survive the Binding Share Exchanges 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 the date hereof, (i) LILCO has
delivered to BUG 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)
BUG has delivered to LILCO a schedule (the "BUG DISCLOSURE SCHEDULE"),
accompanied by a certificate signed by the chief financial officer of BUG
stating the BUG Disclosure Schedule is being delivered pursuant to this SECTION
7.6(ii). The BUG
-38-
<PAGE>
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 the date hereof.
Section 7.7 PUBLIC ANNOUNCEMENTS. BUG 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 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, BUG shall identify in a letter to LILCO, and LILCO shall
identify in a letter to BUG, all persons who are, and to such person's best
knowledge who will be at the Closing Date, affiliates of BUG 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 BUG 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 BUG 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 BUG Common
-39-
<PAGE>
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 and SECTION 7.15, the Company and its Subsidiaries shall honor, without
modification, all contracts, agreements, collective bargaining agreements and
commitments of the parties prior to the date hereof 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 BUG Benefit Plans and LILCO Benefit Plans in effect at the date
hereof shall be maintained in effect with respect to the employees or former
employees of BUG 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 BUG 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 BUG 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 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 BUG 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 Effective Time, (i) each share of BUG Common Stock
(including fractional and uncertificated shares) held under BUG's Dividend
Reinvestment and Stock Purchase Plan (the "DIVIDEND REINVESTMENT PLAN") or BUG's
Employee Savings Plan, Discount Stock Purchase Plan for Employees and Long-Term
Performance Incentive Compensation Plan (each a "BUG PLAN" and collectively the
-40-
<PAGE>
"BUG PLANS") immediately prior to the 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 BUG Plan, as the case
may be, and (ii) each unexpired and unexercised option to purchase shares of BUG
Common Stock ("BUG 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 BUG
Common Stock that could have been purchased immediately prior to the Effective
Time (assuming full vesting) under such BUG Option, at a price per share of
Company Common Stock equal to the per share option exercise price specified in
such BUG 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 BUG Option.
(c) As of the Effective Time, the Company 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 Company Common Stock on and after the Effective
Time pursuant thereto.
(d) As of the Effective Time, the BUG 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 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
Officers' Incentive Plan (each a "LILCO PLAN" and collectively the "LILCO
PLANS") immediately prior to the 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 LILCO
Dividend Reinvestment Plan or be issued under such LILCO Plan, as the case may
be.
(f) As of the Effective Time, the Company shall succeed to the LILCO
Dividend Reinvestment Plan as in effect immediately prior to the 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
Effective Time pursuant thereto.
(g) As of the 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.
-41-
<PAGE>
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 other than the "LIPA"
transaction disclosed in the LILCO SEC Reports. 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 BUG 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 BUG 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
-42-
<PAGE>
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.
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 BUG 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 Binding Share Exchanges in accordance with the terms hereof.
Section 7.17 POST-EXCHANGE OPERATIONS. Following the Effective Time,
BUG, 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 "NYECO", or such other name as may be agreed by BUG and
LILCO prior to the Closing (which shall not be the name of, or a name
substantially similar to, BUG or LILCO). The certificate of incorporation and
bylaws of the Company shall be amended prior to the Effective Time in a manner
reasonably acceptable to BUG and LILCO.
Section 7.18 ALTERNATIVE TRANSACTION. The parties contemplate that
discussions will continue with the Long Island Power Authority ("LIPA") to
arrive at an agreement, mutually acceptable to each of BUG and LILCO, pursuant
to which LIPA would acquire certain assets or securities of LILCO, the
consideration for which would inure to the benefit of NYECO. In such event, the
Ratio shall automatically be revised to, and shall become, 0.880.
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
-43-
<PAGE>
the synergies contemplated to be realized from the Binding Share Exchanges) on
terms mutually agreed to and in any event in an amount not less than what he
receives as of the date hereof 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 the date hereof 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.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
BINDING SHARE EXCHANGES. The respective obligations of each party to effect the
Binding Share Exchanges 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 BUG 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 Binding Share Exchanges
shall have been issued and be continuing in effect, and the Binding
Share Exchanges 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.
-44-
<PAGE>
(d) LISTING OF SHARES. The shares of Company Common Stock
issuable in the Binding Share Exchanges 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 BUG Required Statutory Approvals
and the LILCO Required Statutory Approvals shall have been obtained at
or prior to the 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. 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 BUG 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 BUG 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. Each of BUG 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 BUG
and LILCO, stating that the transactions effected pursuant to this
Agreement will qualify as a pooling of interests transaction under
GAAP and applicable SEC regulations.
Section 8.2 CONDITIONS TO OBLIGATION OF LILCO TO EFFECT THE BINDING
SHARE EXCHANGES. The obligation of LILCO to effect the Binding Share Exchanges
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:
-45-
<PAGE>
(a) PERFORMANCE OF OBLIGATIONS OF BUG. BUG (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 BUG Stock
Option Agreement required to be performed by it at or prior to the
Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of BUG set forth in this Agreement and the BUG Stock Option
Agreement 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 BUG Material Adverse Effect.
(c) CLOSING CERTIFICATES. LILCO shall have received a
certificate signed on behalf of BUG by the chief financial officer of
BUG, 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) BUG MATERIAL ADVERSE EFFECT. No BUG Material Adverse
Effect shall have occurred and there shall exist no fact or
circumstance which is reasonably likely to have a BUG Material Adverse
Effect.
(e) 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 Binding Share Exchanges
are exchanges satisfying the requirements of Section 351 of the Code.
(f) BUG REQUIRED CONSENTS. The BUG Required Consents shall
have been obtained, except for those consents the failure of which to
obtain would have a BUG Material Adverse Effect.
Section 8.3 CONDITIONS TO OBLIGATION OF BUG TO EFFECT THE BINDING
SHARE EXCHANGES. The obligation of BUG to effect the Binding Share Exchanges
shall be further subject to the satisfaction, on or prior to the Closing Date,
of the following conditions, except as may be waived by BUG in writing pursuant
to SECTION 9.5:
-46-
<PAGE>
(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 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 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 LILCO Material Adverse Effect.
(c) CLOSING CERTIFICATES. BUG 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 RULING AND OPINION. BUG shall have received an opinion
of Wachtell, Lipton, Rosen & Katz satisfactory in form and substance
to BUG, dated as of the Closing Date, to the effect that the Binding
Share Exchanges are exchanges satisfying the requirements of Section
351 of the Code.
(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.
-47-
<PAGE>
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 BUG
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
December 29, 1997 (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(f) 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 June 30, 1998;
(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 BUG Shareholders' Approval shall not have
been obtained at a duly held BUG 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 Binding Share Exchanges, 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
Binding Share Exchanges, and such order, judgment or decree shall have
become final and nonappealable;
(e) by LILCO, upon two days' prior notice to BUG, 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 BUG 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
-48-
<PAGE>
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 BUG 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 BUG 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 BUG, 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 BUG 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 BUG 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, BUG
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 BUG to proceed with the
transactions contemplated herein on such adjusted terms;
(g) by BUG, by written notice to LILCO, if (i) there exist
breaches of the representations and warranties of LILCO made herein as
of the date hereof which breaches, individually or in the aggregate,
would or would be reasonably likely to result in an LILCO Material
Adverse Effect, and such breaches shall not have been remedied within
20 days after receipt by LILCO of notice in writing from BUG,
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 BUG, 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
-49-
<PAGE>
manner adverse to BUG its approval or recommendation of this Agreement
or the Binding Share Exchanges, (B) shall fail to reaffirm such
approval or recommendation upon BUG'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 BUG or any of its affiliates or (D) shall
resolve to take any of the actions specified in CLAUSE (A), (B) or
(C);
(h) by LILCO, by written notice to BUG, if (i) there exist
material breaches of the representations and warranties of BUG made
herein as of the date hereof which breaches, individually or in the
aggregate, would or would be reasonably likely to result in a BUG
Material Adverse Effect, and such breaches shall not have been
remedied within 20 days after receipt by BUG of notice in writing from
LILCO, specifying the nature of such breaches and requesting that they
be remedied, (ii) BUG (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 BUG Stock Option
Agreement, and such failure to perform or comply shall not have been
remedied within 20 days after receipt by BUG 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 BUG or any committee
thereof (A) shall withdraw or modify in any manner adverse to LILCO
its approval or recommendation of this Agreement or the BUG Binding
Share Exchange, (B) shall fail to reaffirm such approval or
recommendation upon LILCO's request, (C) shall approve or recommend
any acquisition of BUG or a material portion of its assets or any
tender offer for the shares of capital stock of BUG, 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
Binding Share Exchanges cannot be satisfied.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either BUG or LILCO pursuant to SECTION 9.1 there shall be no
liability on the part of either BUG 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
-50-
<PAGE>
(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 BUG).
(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 BUG is the Target Party, $45
million, in each case in cash plus, in either case, the out-of-pocket fees and
expenses
-51-
<PAGE>
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) 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.
(d) LIMITATION OF TERMINATION FEES. Notwithstanding anything herein
to the contrary, the aggregate amount payable to BUG 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 BUG 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(d), the amount payable pursuant to the terms of the
LILCO Stock Option Agreement or the BUG 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 BUG 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 BUG
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.
-52-
<PAGE>
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. BUG 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 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 BUG. LILCO represents
and warrants that, except for Dillon Read whose fees have been disclosed to BUG
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):
-53-
<PAGE>
(a) If to BUG, 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".
-54-
<PAGE>
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.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and, 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 BUG (or their successors) serving on the Board of
Directors of the Company who are designated by BUG 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 BUG
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.
-55-
<PAGE>
IN WITNESS WHEREOF, BUG, LILCO and NYECO 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
By: /s/ ROBERT B. CATELL
---------------------------------------------
Robert B. Catell
Chief Executive Officer
LONG ISLAND LIGHTING
COMPANY
By: /s/ DR. WILLIAM J. CATACOSINOS
---------------------------------------
Dr. William J. Catacosinos
Chief Executive Officer
NYECO CORP.
By: /s/ ROBERT B. CATELL
---------------------------------------------
Robert B. Catell
Authorized Signatory
By: /s/ DR. WILLIAM J. CATACOSINOS
-------------------------------------
Dr. William J. Catacosinos
Authorized Signatory
-56-
<PAGE>
EXHIBIT 99
FOR IMMEDIATE RELEASE
Contact for Brooklyn Union: Contact for LILCO:
Media: Robert Loftus / Robert Mahony Media: Elaine Davis
718-403-2503 / 718-403-2522 516-545-5052
Investors: Jan Childress Investors: William Catacosinos, Jr.
718-403-3382 516-545-4688
BROOKLYN UNION AND LILCO ANNOUNCE PLAN
TO COMBINE COMPANIES
RATE SAVINGS IN EXCESS OF $1.0 BILLION ANTICIPATED
-----------------------------------------------------
NEW YORK (DECEMBER 29, 1996) -- Brooklyn Union Gas Company (NYSE: BU) and The
Long Island Lighting Company (LILCO) (NYSE: LIL) announced today that they have
signed a definitive agreement to merge in a tax-free transaction resulting in a
new holding company. The combined market value of the two companies based on
their closing stock prices on Friday, December 27, 1996 is approximately $4
billion. The transaction will be accounted for as a pooling of interests.
The proposed transaction, which has been approved by both companies' boards of
directors, would unite Brooklyn Union, a gas company with primary operations in
gas distribution serving Brooklyn, Queens and Staten Island, with LILCO, an
electric and gas company serving Nassau and Suffolk Counties and parts of
Queens. The new company, which has not yet been named, will serve approximately
2.2 million customers and have revenues of more than $4.5 billion.
Under the terms of the transaction, LILCO shareholders will receive .803 shares
of the new holding company's common stock for each share of LILCO they currently
hold. Brooklyn Union shareholders will receive one share of the holding
company's common stock for each share of Brooklyn Union they currently hold.
LILCO shareholders will own approximately 66 percent of the common stock of the
new company while Brooklyn Union shareholders will own approximately 34 percent.
There are no changes with respect to either company's public debt issues or
outstanding preferred stock.
Upon completion of the merger, Dr. William J. Catacosinos, currently chairman
and chief executive officer of LILCO, will become chairman and chief executive
officer of the new holding company; Mr. Robert B. Catell, currently chairman and
chief executive officer of Brooklyn Union, will become president and chief
operating officer of the new holding company. One year after the closing, Mr.
Catell will succeed Dr. Catacosinos as chief executive officer, with Dr.
Catacosinos continuing as chairman. The board of directors of the new company
will be composed of 15 members, six from Brooklyn Union and six from LILCO and
three additional persons previously unaffiliated with either company and jointly
selected by them.
- more -
<PAGE>
-2-
Dr. Catacosinos said, "The combination of Brooklyn Union and LILCO is positive
for our customers, shareholders, and the communities we serve. The consolidation
of our neighboring companies will result in synergy savings in excess of $1
billion over ten years, which will provide rate reductions to customers. We will
continue our commitment to LILCO's electric customers, specifically to lowering
electric rates on Long Island. Together, we can help spur increased regional
business growth through lower energy prices and enhanced energy-related products
and services."
"The combined workforce will allow us to respond more effectively to storm
outages. Employees of both our companies will benefit from being part of a
larger, more competitive company well-positioned in the emerging energy-services
industry. Together, we will be positioned to help our customers find business
solutions that optimize a broad array of energy products and services at
competitive prices," Dr. Catacosinos added.
The companies believe reductions related to synergies can be accomplished
without layoffs through attrition and other voluntary separations.
Mr. Catell said, "Our combination with LILCO opens up the substantial Long
Island market for Brooklyn Union. This market is particularly attractive because
there is a low penetration of gas as a percent of the total energy provision in
that region. Our combined company would have an enhanced ability to provide its
broader customer base with competitive energy products and services well into
the future. The tradition of quality customer service and community involvement,
a hallmark of both Brooklyn Union and LILCO, will continue unabated in the
combined entity. Brooklyn Union shareholders should enjoy immediate earnings
accretion and benefit from the long-term growth prospects inherent in the
combination."
Mr. Catell continued, "This transaction offers shareholders of both companies
the opportunity to participate in the significant upside potential of the
convergence of gas and electric companies within the energy industry. LILCO and
Brooklyn Union together will create a platform to market, trade and arrange
physical delivery of energy products and services on a large scale to all major
market areas. Current and prospective customers will benefit greatly from the
opportunity to deal with an energy services company which can offer one-stop
shopping for the provision -- and management -- of their energy needs. Brooklyn
Union's subsidiary, KeySpan Energy Management, headquartered in Jericho, New
York, already operates throughout the tri-state area and its sister company
KeySpan Energy Services sells natural gas to a growing customer base. The
ability to offer wraparound individualized services capable of encompassing all
customer needs -- from management services to choice of fuel and equipment, and
ultimately appliance services -- means a new day indeed for an entire population
of customers in our new market area."
- more -
<PAGE>
-3-
The companies noted that they will continue discussions with New York State's
Long Island Power Authority (LIPA) with respect to LIPA's proposal to acquire
certain LILCO assets, including its regulatory assets. If an agreement with LIPA
is reached, the terms of the transaction with Brooklyn Union would be adjusted
to reflect that resolution. Brooklyn Union and LILCO will continue to work with
LIPA and state officials to substantially reduce rates to Long Island electric
customers beyond that which could be achieved by the merger alone. Disposition
of any portion of LILCO's assets to LIPA must be agreed to by all three parties.
The companies will continue their current dividend policies respectively, until
the closing. It is expected that the new company's dividend policy will be
determined prior to closing.
The merger is conditioned upon the approval of each company's common
shareholders and various regulatory agencies including the New York Public
Service Commission, the Federal Energy Regulatory Commission and the Securities
and Exchange Commission. The companies are hopeful that the regulatory approvals
can be obtained in 12 to 18 months.
Merrill Lynch & Co. is serving as financial advisor and has provided a fairness
opinion to Brooklyn Union. Dillon Read & Co. Inc. is serving as financial
advisor and has provided a fairness opinion to LILCO.
Brooklyn Union, with 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 growing energy needs of 4 million
residents. Brooklyn Union has energy-related investments in gas exploration,
production and marketing in the United States and Canada, as well as energy
services in the United States, including cogeneration products, pipeline
transportation and gas storage.
LILCO's 5,400 employees provide 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.
The press release includes forward looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements reflect numerous assumptions, and involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are: electric load and customer growth; abnormal weather conditions;
available sources and cost of fuel and generating capacity; the speed and degree
to which competition enters the power generation, wholesale and retail sectors
of the electric utility industry; state and federal regulatory initiatives that
increase competition, threaten cost and investment recovery, and impact rate
structures; the ability of the combined company to successfully reduce its cost
structure; operating performance of nuclear generating facilities,
decommissioning costs associated with such facilities; the degree to which the
combined company develops non-regulated business ventures; the economic climate
and growth in the service territories of the two companies; economies generated
by the merger; inflationary trends and interest rates and the other risks
detailed from time to time in the two companies' SEC reports.
