UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
LONG ISLAND LIGHTING COMPANY
(Name of Issuer)
COMMON STOCK, PAR VALUE $5 PER SHARE
(Title of Class of Securities)
542671102
(CUSIP Number)
VINCENT D. ENRIGHT,
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
THE BROOKLYN UNION GAS COMPANY
ONE METROTECH CENTER
BROOKLYN, NY 11201-3850
(718) 403-2000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
Copy to:
SETH A. KAPLAN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
DECEMBER 29, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Sched-
ule 13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box / /.
Page 1 of 11 Pages<PAGE>
CUSIP NO. 542671102 Page 2 of 11 Pages
SCHEDULE 13D
1. NAME OF REPORTING PERSON
SS OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Brooklyn Union Gas Company
11-0584613
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
New York
NUMBER OF 7. SOLE VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY 8. SHARED VOTING POWER
EACH 0
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER
WITH 0
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
23,981,964 shares of Common Stock.
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CER-
TAIN SHARES / /
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 16.6%.
Based upon 120,780,792 shares of Common Stock outstanding as
of December 27, 1996, as represented by Issuer, calculated
pursuant to Rule 13d-3(d)(1) and assuming, solely for pur-
poses of such calculation, that the option to purchase such
shares has been exercised.
14. TYPE OF REPORTING PERSON
CO<PAGE>
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the common stock, par value
$5.00 per share ("LILCO Common Stock"), of Long Island Lighting
Company, a New York corporation ("LILCO"). The principal
executive offices of LILCO are located at 175 East Old Country
Road, Hicksville, New York 11801.
ITEM 2. IDENTITY AND BACKGROUND.
This Schedule 13D is filed by The Brooklyn Union Gas
Company, a New York corporation ("Brooklyn Union"). 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. 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. Brooklyn Union's principal
executive offices are located at One MetroTech Center, Brooklyn,
New York 11201-3850.
Each executive officer and each director of Brooklyn
Union is a citizen of the United States. The name, business
address and present principal occupation of each executive officer
and director are set forth in Annex I to this Schedule 13D which
is incorporated herein by this reference.
During the last five years, to the best of Brooklyn
Union's knowledge, neither Brooklyn Union nor any of its executive
officers or directors has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or has been
a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction as a result of which Brooklyn Union or
such person was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or
finding any violation with respect to such laws, and which
judgment, decree or final order was not subsequently vacated.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Pursuant to a stock option agreement, dated as of
December 29, 1996, between Brooklyn Union and LILCO (the "LILCO
Stock Option Agreement"), LILCO granted Brooklyn Union an
irrevocable option (the "LILCO Option") to purchase from LILCO,
under certain circumstances and subject to certain adjustments, up
to 23,981,964 authorized and unissued shares of LILCO Common
Stock, at a price per share of $19.725 (the "Purchase Price"),
payable, at Brooklyn Union's option, (a) in cash or (b) subject to
LILCO's having obtained the approvals of any governmental
authority required for LILCO to acquire such shares of Brooklyn
Union Common Stock (as defined below) from Brooklyn Union, in
Page 3 of 11 Pages<PAGE>
shares of common stock, par value $.33 1/3 per share, of Brooklyn
Union (the "Brooklyn Union Common Stock").
As of the date hereof, the LILCO Option is not
exercisable. The shares of LILCO Common Stock subject to the
LILCO Option would equal 19.9% of the outstanding LILCO Common
Stock before giving effect to the exercise of the LILCO Option and
16.6% of the outstanding LILCO Common Stock after giving effect to
the exercise of the LILCO Option. Under certain circumstances,
Brooklyn Union may require LILCO to, or LILCO may be permitted to,
repurchase for cash the LILCO Option and any shares of LILCO
Common Stock acquired pursuant to the exercise of the LILCO Op-
tion.
The LILCO Option was granted by LILCO as a condition of
and in consideration for Brooklyn Union entering into the
Agreement and Plan of Exchange, by and among NYECO CORP., a New
York corporation ("NYECO" or, from and after the consummation of
the Binding Share Exchanges (as defined below), the "Company"),
Brooklyn Union and LILCO, dated as of December 29, 1996 (the
"Exchange Agreement"), and the BUG Stock Option Agreement, by and
between Brooklyn Union and LILCO, dated as of December 29, 1996
(the "Brooklyn Union Stock Option Agreement"), each as described
below.
The exercise of the LILCO Option for the full number of
shares currently covered thereby would require aggregate funds of
$473,044,240. It is anticipated that, should the LILCO Option
become exercisable and should Brooklyn Union determine to exercise
the LILCO Option for cash, Brooklyn Union would obtain the funds
from working capital or by borrowing from parties whose identity
is not yet known.
A copy of the LILCO Stock Option Agreement is included
as Exhibit 2.2 to this Schedule 13D and is incorporated herein by
this reference. The foregoing description of the LILCO Stock
Option Agreement is qualified in its entirety by reference to such
exhibit.
ITEM 4. PURPOSE OF TRANSACTION.
In connection with the execution of the LILCO Stock
Option Agreement, Brooklyn Union, LILCO and NYECO entered into the
Exchange Agreement, pursuant to which, among other matters and
subject to the terms and conditions set forth in the Exchange
Agreement, each outstanding share of LILCO Common Stock will be
exchanged for .803 (the "Ratio") of a newly issued share of Common
Stock, par value $0.01 per share, of NYECO (the "NYECO Common
Stock") and each outstanding share of Brooklyn Union Common Stock
will be exchanged for one newly issued share of NYECO Common Stock
(collectively, the "Binding Share Exchanges"). Also in connection
with the execution of the LILCO Stock Option Agreement, Brooklyn
Union and LILCO entered into the Brooklyn Union Stock Option
Agreement, pursuant to which, Brooklyn Union granted LILCO an
Page 4 of 11 Pages<PAGE>
irrevocable option (the "Brooklyn Union Option") to purchase from
Brooklyn Union, under certain circumstances and subject to certain
adjustments, up to 9,948,682 authorized and unissued shares of
Brooklyn Union Common Stock, at a price per share of $30.0375,
payable, at LILCO's option, (a) in cash or (b) subject to Brooklyn
Union's having obtained the approvals of any governmental
authority required for Brooklyn Union to acquire such shares of
LILCO Common Stock from LILCO, in shares of LILCO Common Stock.
The LILCO Option was granted by LILCO as a condition of and in
consideration for Brooklyn Union entering into the Exchange
Agreement and the Brooklyn Union Stock Option Agreement.
Consummation of the Binding Share Exchanges is subject
to certain conditions, including among other things: (i) receipt
of the approval of the Exchange Agreement by the holders of two-
thirds of the outstanding shares of LILCO Common Stock and by two-
thirds of the outstanding shares of Brooklyn Union Common Stock;
(ii) registration of the shares of NYECO Common Stock to be issued
in the Binding Share Exchanges under the Securities Act of 1933,
as amended; (iii) approval for listing of the shares of NYECO
Common Stock to be issued in the Binding Share Exchanges on the
New York Stock Exchange (the "NYSE") upon official notice of
issuance; (iv) receipt of required approvals by governmental
authorities, which approvals shall have become final and 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 in the
Exchange Agreement; (v) receipt by each of Brooklyn Union and
LILCO of a letter from their respective independent public
accountants confirming that the transactions effected pursuant to
the Exchange Agreement will qualify as a pooling of interests
transaction under generally accepted accounting principles and
applicable regulations promulgated by the Securities and Exchange
Commission; and (vi) satisfaction of certain other conditions.
Pursuant to the Exchange Agreement, upon consummation of the
Binding Share Exchanges, (a) the number of directors comprising
the full Board of Directors of the Company will be 15 persons, six
of whom will be designated by Brooklyn Union, six of whom will be
designated by LILCO and three of whom will be designated by a
committee consisting of two current Brooklyn Union directors of
and two current LILCO directors and (b) Dr. William J. Catacosinos
will be the Chairman of the Board of Directors, Chairman of the
Executive Committee and Chief Executive Officer of the Company,
and Mr. Robert B. Catell will be President and Chief Operating
Officer of the Company. Upon consummation of the Binding Share
Exchanges, each of the LILCO Common Stock and the Brooklyn Union
Common Stock will be delisted from the NYSE. Pursuant to the
Exchange Agreement, at the first anniversary of the effective time
of the Binding Share Exchanges, Dr. Catacosinos will cease to be
the Chief Executive Officer, will continue to be Chairman of the
Board and Chairman of the Executive Committee and will become a
Page 5 of 11 Pages<PAGE>
consultant of the Company, and Mr. Catell will succeed Dr.
Catacosinos as Chief Executive Officer of the Company.
A copy of the Exchange Agreement is included as Exhibit
2.1 to this Schedule 13D and is incorporated herein by this refer-
ence. The foregoing description of the Exchange Agreement is
qualified in its entirety by reference to such exhibit.
A copy of the Brooklyn Union Stock Option Agreement is
included as Exhibit 2.3 to this Schedule 13D and is incorporated
herein by this reference. The foregoing description of the
Brooklyn Union Stock Option Agreement is qualified in its entirety
by reference to such exhibit.
Brooklyn Union and LILCO contemplate that discussions
will continue with the Long Island Power Authority ("LIPA") to
arrive at an agreement, mutually acceptable to each of Brooklyn
Union and LILCO, pursuant to which LIPA would acquire certain
assets or securities of LILCO, the consideration for which would
inure to the benefit of the Company. In such event, the Ratio
will automatically be revised to, and become, .880.
Brooklyn Union and LILCO will continue their respective
current dividend policies until the closing of the Binding Share
Exchanges. It is expected that the Company's dividend policy will
be determined prior to closing.
Except as set forth herein, Brooklyn Union does not have
any current plans or proposals that relate to or would result in
(i) the acquisition by any person of additional shares of LILCO
Common Stock or the disposition of shares of LILCO Common Stock;
(ii) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving LILCO or any of its
subsidiaries; (iii) a sale or transfer of any material amount of
assets of LILCO or any of its subsidiaries; (iv) any change in the
present board of directors or management of LILCO, including any
plans or proposals to change the number or term of directors or to
fill any vacancies on the board; (v) any material change in the
present capitalization or dividend policy of LILCO; (vi) any other
material change in LILCO's business or corporate structure; (vii)
any change in LILCO's Certificate of Incorporation or By-laws, or
instruments corresponding thereto, or other actions that may
impede the acquisition of control of LILCO by any person; (viii)
causing a class of securities of LILCO to be delisted from a
national securities exchange or to cease to be authorized to be
quoted in an inter-dealer quotation system of a registered
national securities association; (ix) a class of equity securities
of LILCO becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934, as amended; or (x) any action similar to any of those
enumerated above.
Page 6 of 11 Pages<PAGE>
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
Although the LILCO Option does not allow Brooklyn Union
to purchase any shares of LILCO Common Stock pursuant thereto
unless and until the conditions to exercise specified in the LILCO
Stock Option Agreement occur, assuming for purposes of this Item 5
that such conditions are satisfied and Brooklyn Union is entitled
to purchase shares of LILCO Common Stock pursuant to the LILCO
Option, Brooklyn Union would currently be entitled to purchase
23,981,964 shares of LILCO Common Stock, or approximately 19.9% of
the currently outstanding LILCO Common Stock before giving effect
to the exercise of the LILCO Option and 16.6% of the currently
outstanding LILCO Common Stock after giving effect to the exercise
of the LILCO Option (based upon 120,780,792 shares of LILCO Common
Stock outstanding as of December 27, 1996, as represented by LILCO
in the Exchange Agreement).
Brooklyn Union does not have the right to acquire any
shares of LILCO Common Stock under the LILCO Option unless certain
events specified in the LILCO Stock Option Agreement occur.
Accordingly, Brooklyn Union does not have sole or shared voting or
dispositive power with respect to any shares of LILCO Common Stock
purchasable under the LILCO Option, and Brooklyn Union disclaims
beneficial ownership of LILCO Common Stock subject to the LILCO
Option until such events occur. Assuming for purposes of this
Item 5 that events occurred that would enable Brooklyn Union to
exercise the LILCO Option and Brooklyn Union exercised the LILCO
Option, Brooklyn Union would have sole voting power and sole
dispositive power with respect to the shares of LILCO Common Stock
acquired pursuant to the LILCO Option.
The foregoing description of certain terms of the LILCO
Stock Option Agreement is qualified in its entirety by reference
to the LILCO Stock Option Agreement which is filed as Exhibit 2.2
hereto and which is incorporated herein by this reference.
To the best of Brooklyn Union's knowledge, no executive
officer or director of Brooklyn Union beneficially owns any shares
of LILCO Common Stock, nor (except for the issuance of the LILCO
Option) have any transactions in LILCO Common Stock been effected
during the past 60 days by Brooklyn Union or, to the best
knowledge of Brooklyn Union, by any executive officer or director
of Brooklyn Union. In addition, no other person is known by
Brooklyn Union to have the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of,
the securities covered by this Schedule 13D.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed as part of this Sched-
ule 13D:
Exhibit 2.1 -- Exchange Agreement, filed as Exhibit 2 to the
Current Report on Form 8-K of Brooklyn Union
Page 7 of 11 Pages<PAGE>
dated December 29, 1996, is hereby
incorporated by reference
Exhibit 2.2 -- LILCO Stock Option Agreement
Exhibit 2.3 -- Brooklyn Union Stock Option Agreement
Page 8 of 11 Pages<PAGE>
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the name and present principal oc-
cupation of each director and executive officer of The Brooklyn
Union Gas Company as of December 29, 1996. The business address
of each such director and executive officer is c/o The Brooklyn
Union Gas Company, One MetroTech Center, Brooklyn, New York 11201-
3850.
NAME PRINCIPAL OCCUPATION
DIRECTORS
OF BROOKLYN UNION:
Robert B. Catell Chairman and Chief Executive
Officer, The Brooklyn Union Gas
Company
Kenneth I. Chenault Vice Chairman, American Express
Company
Andrea S. Christensen Partner, Kaye, Scholer, Fierman,
Hays & Handler (law firm)
Donald H. Elliott Counsel, Hollyer Brady Smith
Troxell Barrett Rockett Hines &
Mone LLP (law firm)
Alan H. Fishman Managing Partner, Columbia
Financial Partners, L.P. (private
investment company)
James L. Larocca Lawyer and Consultant
Edward D. Miller Senior Vice Chairman, The Chase
Manhattan Corporation and The
Chase Manhattan Bank
James Q. Riordan Retired Vice Chairman and Chief
Financial Officer, Mobil Corp.
Charles Uribe Chairman and Chief Executive
Officer, AJ Contracting Company,
Inc.
Page 9 of 11 Pages<PAGE>
EXECUTIVE OFFICERS
OF BROOKLYN UNION
(WHO ARE NOT DIRECTORS):
Helmut W. Peter Vice Chairman
Craig G. Matthews President and Chief Operating
Officer
Anthony J. DiBrita Senior Vice President
Vincent D. Enright Senior Vice President and Chief
Financial Officer
William K. Feraudo Senior Vice President
Wallace P. Parker, Jr. Senior Vice President
Lenore F. Puleo Senior Vice President
Maurice K. Shaw Senior Vice President and
Corporate Affairs Officer
Edward J. Sondey Senior Vice President
Tina G. Barber Vice President and Chief
Information Officer
Richard M. Desmond Vice President, Comptroller and
Chief Accounting Officer
Robert H. Preusser Vice President and Chief Engineer
Roger J. Walz Vice President and General Auditor
Robert R. Wieczorek Vice President, Secretary and
Treasurer
Page 10 of 11 Pages<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
THE BROOKLYN UNION GAS COMPANY
By: /s/ Robert R. Wieczorek
----------------------------------
Name: Robert R. Wieczorek
Title: Vice President, Secretary
& Treasurer
Dated: January 8, 1997
Page 11 of 11 Pages<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Exchange,
dated as of December 29, 1996,
among NYECO Corp., The Brooklyn
Union Gas Company and Long Island
Lighting Company, filed as Exhibit
2.1 to the Current Report on Form
8-K of The Brooklyn Union Gas
Company dated December 29, 1996,
is incorporated herein by reference.
2.2 LILCO Stock Option Agreement, dated
as of December 29, 1996, between
The Brooklyn Union Gas Company and
Long Island Lighting Company.
2.3 Brooklyn Union Stock Option Agreement,
dated as of December 29, 1996, between
The Brooklyn Union Gas Company and
Long Island Lighting Company.
EXHIBIT 2.2
LILCO STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 29, 1996
by and among THE BROOKLYN UNION GAS COMPANY, a New York corpo-
ration ("BUG"), and LONG ISLAND LIGHTING COMPANY, a New York
corporation (the "COMPANY").
WHEREAS, concurrently with the execution and delivery
of this Agreement, (i) BUG, the Company and NYECO Corp., a New
York corporation ("NYECO"), are entering into an Agreement and
Plan of Exchange, dated as of the date hereof (the "EXCHANGE
AGREEMENT"), which provides, among other things, upon the terms
and subject to the conditions thereof, for the exchange of out-
standing shares of capital stock of each of BUG and the Company
for newly issued shares of capital stock of NYECO (the "BINDING
SHARE EXCHANGE"), and (ii) the Company and BUG are entering
into a certain stock option agreement dated as of the date
hereof whereby BUG grants to the Company an option with respect
to certain shares of BUG's common stock on the terms and sub-
ject to the conditions set forth therein (the "BUG STOCK OPTION
AGREEMENT"); and
WHEREAS, as a condition to BUG's willingness to enter
into the Exchange Agreement, BUG has required that the Company
agree, and the Company has so agreed, to grant to BUG an option
with respect to certain shares of the Company's common stock,
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, to induce BUG to enter into the Ex-
change Agreement, and in consideration of the mutual covenants
and agreements set forth herein and in the Exchange Agreement,
the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants BUG
an irrevocable option (the "COMPANY OPTION") to purchase up to
23,981,964 shares, subject to adjustment as provided in Section
11 (such shares being referred to herein as the "COMPANY
SHARES") of common stock, par value $5.00 per share, of the
Company (the "COMPANY COMMON STOCK") (being 19.9% of the number
of shares of Company Common Stock outstanding on the date
hereof) in the manner set forth below at a price (the "EXERCISE
PRICE") per Company Share of $19.725 (which is equal to the
Fair Market Value (as defined below) of a Company Share on the
date hereof) payable, at BUG's option, (a) in cash or (b) sub-
ject to the Company's having obtained the approvals of any Gov-
ernmental Authority required for the Company to acquire the BUG
Shares (as defined below) from BUG, which approvals the Company
shall use best efforts to obtain, in shares of common stock,<PAGE>
par value $.33-1/3 per share, of BUG ("BUG SHARES") in either
case in accordance with Section 4 hereof. Notwithstanding the
foregoing, in no event shall the number of Company Shares for
which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding Shares of Company Common
Stock. As used herein, the "FAIR MARKET VALUE" of any share
shall be the average of the daily closing sales price for such
share on the New York Stock Exchange (the "NYSE") during 10
NYSE trading days prior to the fifth NYSE trading day preceding
the date such Fair Market Value is to be determined. Capital-
ized terms used herein but not defined herein shall have the
meanings set forth in the Exchange Agreement.
2. EXERCISE OF OPTION. The Company Option may be
exercised by BUG, in whole or in part, at any time or from time
to time after the Exchange Agreement becomes terminable by BUG
under circumstances which could entitle BUG to termination fees
under either Section 9.3(a) of the Exchange Agreement (provided
that the events specified in Section 9.3(a)(ii)(x) of the Ex-
change Agreement shall have occurred, although the events spec-
ified in Section 9.3(a)(ii)(y) thereof need not have occurred)
or Section 9.3(b) of the Exchange Agreement (regardless of
whether the Exchange Agreement is actually terminated or
whether there occurs a closing of any Business Combination in-
volving a Target Party or a closing by which a Target Party
becomes a subsidiary), any such event by which the Exchange
Agreement becomes so terminable by BUG being referred to herein
as a "TRIGGER EVENT." The Company shall notify BUG promptly in
writing of the occurrence of any Trigger Event, it being under-
stood that the giving of such notice by the Company shall not
be a condition to the right of BUG to exercise the Company Op-
tion. In the event BUG wishes to exercise the Company option,
BUG shall deliver to the Company a written notice (an "EXERCISE
NOTICE") specifying the total number of Company Shares it
wishes to purchase. Each closing of a purchase of Company
Shares (a "CLOSING") shall occur at a place, on a date and at a
time designated by BUG in an Exercise Notice delivered at least
two business days prior to the date of the Closing. The Com-
pany Option shall terminate upon the earlier of: (i) the Ef-
fective Time; (ii) the termination of the Exchange Agreement
pursuant to Section 9.1 thereof (other than upon or during the
continuance of a Trigger Event); or (iii) 180 days following
any termination of the Exchange Agreement upon or during the
continuance of a Trigger Event (or if, at the expiration of
such 180 day period the Company Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regu-
lation, 10 business days after such impediment to exercise
shall have been removed or shall have become final and not sub-
ject to appeal, but in no event under this clause (iii) later
-2<PAGE>
than June 30, 1998). Notwithstanding the foregoing, the Com-
pany Option may not be exercised if BUG is in material breach
of any of its material representations or warranties, or in
material breach of any of its covenants or agreements, con-
tained in this Agreement or in the Exchange Agreement. Upon
the giving by BUG to the Company of the Exercise Notice and the
tender of the applicable aggregate Exercise Price, BUG shall be
deemed to be the holder of record of the Company Shares issu-
able upon such exercise, notwithstanding that the stock trans-
fer books of the Company shall then be closed or that certifi-
cates representing such Company Shares shall not then be actu-
ally delivered to BUG.
3. CONDITIONS TO CLOSING. The obligation of the
Company to issue the Company Shares to BUG hereunder is subject
to the conditions, which (other than the conditions described
in clauses (i), (iii) and (iv) below) may be waived by the Com-
pany in its sole discretion, that (i) all waiting periods, if
any, under the HSR Act, applicable to the issuance of the Com-
pany Shares hereunder shall have expired or have been termi-
nated; (ii) the Company Shares, and any BUG Shares which are
issued in payment of the Exercise Price, shall have been ap-
proved for listing on the NYSE upon official notice of issu-
ance; (iii) all consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any fed-
eral, state or local administrative agency or commission or
other federal, state or local Governmental Authority, if any,
required in connection with the issuance of the Company Shares
hereunder shall have been obtained or made, as the case may be,
including, without limitation, if applicable, the approval of
the SEC under Section 10 of the 1935 Act of the acquisition of
the Company Shares by BUG and, if applicable, the acquisition
by the Company of the BUG Shares constituting the Exercise
Price hereunder; and (iv) no preliminary or permanent injunc-
tion or other order by any court of competent jurisdiction pro-
hibiting or otherwise restraining such issuance shall be in
effect.
4. CLOSING. At any Closing, (a) the Company will
deliver to BUG or its designee a single certificate in defini-
tive form representing the number of the Company Shares desig-
nated by BUG in its Exercise Notice, such certificate to be
registered in the name of BUG and to bear the legend set forth
in Section 12, and (b) BUG will deliver to the Company the ag-
gregate price for the Company Shares so designated and being
purchased by (i) wire transfer of immediately available funds
or certified check or bank check or (ii) subject to the condi-
tion in Section 1(b), a certificate or certificates represent-
ing the number of BUG Shares being issued by BUG in consider-
ation thereof, as the case may be. For the purposes of this
-3<PAGE>
Agreement, the number of BUG Shares to be delivered to the Com-
pany shall be equal to the quotient obtained by dividing (i)
the product of (x) the number of Company Shares with respect to
which the Company Option is being exercised and (y) the Exer-
cise Price by (ii) the Fair Market Value of the BUG Shares on
the date immediately preceding the date the Exercise Notice is
delivered to the Company. The Company shall pay all expenses,
and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under
this Section 4 in the name of BUG or its designee.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to BUG that (a) except as
set forth in Section 5.1 of the LILCO Disclosure Schedule, the
Company is a corporation duly organized, validly existing and
in active status under the laws of the State of New York and
has the corporate power and authority to enter into this Agree-
ment and, subject to obtaining the applicable approval of
shareholders of the Company for the repurchase of Company
Shares pursuant to Section 7(a) below under circumstances where
Section 513(e) of the NYBCL would be applicable (the "BUYBACK
APPROVALS") and subject to any regulatory approvals referred to
herein and to the provisions of Section 513(a) of the NYBCL, if
applicable, to carry out its obligations hereunder, (b) the
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of the Company and no other corporate pro-
ceedings on the part of the Company are necessary to authorize
this Agreement or any of the transactions contemplated hereby
(other than any required Buyback Approvals), (c) such corporate
action (including the approval of the Board of Directors of the
Company) is intended to render inapplicable to this Agreement
and the Exchange Agreement and the transactions contemplated
hereby and thereby, the provisions of the NYBCL referred to in
Section 5.15 of the Exchange Agreement, (d) this Agreement has
been duly executed and delivered by the Company, constitutes a
valid and binding obligation of the Company and, assuming this
Agreement constitutes a valid and binding obligation of BUG, is
enforceable against the Company in accordance with its terms,
(e) the Company has taken all necessary corporate action to
authorize and reserve for issuance and to permit it to issue,
upon exercise of the Company Option, and at all times from the
date hereof through the expiration of the Company Option will
have reserved, 23,981,964 authorized and unissued Company
Shares, such amount being subject to adjustment as provided in
Section 11, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, (f) upon delivery of the
-4<PAGE>
Company Shares to BUG upon the exercise of the Company Option,
BUG will acquire the Company Shares free and clear of all
claims, liens, charges, encumbrances and security interests of
any nature whatsoever, (g) except as described in Section
5.4(b) of the Exchange Agreement, the execution and delivery of
this Agreement by the Company does not, and the consummation by
the Company of the transactions contemplated hereby will not,
violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or
the loss of a material benefit under, or the creation of a
lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "VIOLATION")
of the Company or any of its subsidiaries, pursuant to, (A) any
provision of the certificate of incorporation or by-laws of the
Company, (B) any provisions of any loan or credit agreement,
note, mortgage, indenture, lease, Company benefit plan or other
agreement, obligation, instrument, permit, concession, fran-
chise, license or (C) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or
its properties or assets, which Violation, in the case of each
of clauses (B) and (C), could reasonably be expected to have a
material adverse effect on the Company and its subsidiaries
taken as a whole, (h) except as described in Section 5.4(c) of
the Exchange Agreement or Section 1(b) or Section 3 hereof, the
execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority,
(i) none of the Company, any of its affiliates or anyone acting
on its or their behalf has issued, sold or offered any security
of the Company to any person under circumstances that would
cause the issuance and sale of the Company Shares, as contem-
plated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date
hereof and, assuming the representations of BUG contained in
Section 6(h) are true and correct, the issuance, sale and de-
livery of the Company Shares hereunder would be exempt from the
registration and prospectus delivery requirements of the Secu-
rities Act, as in effect on the date hereof (and the Company
shall not any action which would cause the issuance, sale and
delivery of the Company Shares hereunder not to be exempt from
such requirements), and (j) any BUG Shares acquired pursuant to
this Agreement will be acquired for the Company's own account,
for investment purposes only and will not be acquired by the
Company with a view to the public distribution thereof in
violation of any applicable provision of the Securities Act.
-5<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF BUG. BUG rep-
resents and warrants to the Company that (a) BUG is a corpora-
tion duly organized, validly existing and in good standing un-
der the laws of the State of New York and has the corporate
power and authority to enter into this Agreement and to carry
out its obligations hereunder, (b) the execution and delivery
of this Agreement by BUG and the consummation by BUG of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of BUG and no other
corporate proceedings on the part of BUG are necessary to au-
thorize this Agreement or any of the transactions contemplated
hereby, (c) this Agreement has been duly executed and delivered
by BUG and constitutes a valid and binding obligation of BUG,
and, assuming this Agreement constitutes a valid and binding
obligation of the Company, is enforceable against BUG in
accordance with its terms, (d) prior to any delivery of BUG
Shares in consideration of the purchase of Company Shares pursuant
hereto, BUG will have taken all necessary corporate action to
authorize for issuance and to permit it to issue such BUG Shares,
all of which, upon their issuance and delivery in accordance with
the terms of this Agreement, will be validly issued, fully paid and
non-assessable, and to render inapplicable to the receipt by the
Company of the BUG Shares the provisions of the NYBCL referred
to in Section 4.15 of the Exchange Agreement, (e) upon any de-
livery of such BUG Shares to the Company in consideration of
the purchase of Company Shares pursuant hereto, the Company
will acquire the BUG Shares free and clear of all claims,
liens, charges, encumbrances and security interests of any na-
ture whatsoever, (f) except as described in Section 4.4(b) of
the Exchange Agreement, the execution and delivery of this
Agreement by BUG does not, and the consummation by BUG of the
transactions contemplated hereby will not, violate, conflict
with, or result in the breach of any provision of, or consti-
tute a default (with or without notice or lapse of time, or
both) under, or result in any Violation by BUG or any of its
subsidiaries, pursuant to (A) any provision of the certificate
of incorporation or by-laws of BUG, (B) any provisions of any
loan or credit agreement, note, mortgage, indenture, lease, BUG
benefit plan or other agreement, obligation, instrument, permit
concession, franchise, license or (C) any judgment, order, de-
cree, statute, law, ordinance, rule or regulation applicable to
BUG or its properties or assets, which Violation, in the case
of each of its clauses (B) and/or (C), would have a material
adverse effect on BUG and its subsidiaries taken as a whole,
(g) except as described in Section 4.4(c) of the Exchange
Agreement or Section 1(b) or Section 3 hereof, the execution
and delivery of this Agreement by BUG does not, and the consum-
mation by BUG of the transactions contemplated hereby will not,
require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority and
(h) any Company Shares acquired upon exercise of the Company
-6<PAGE>
Option will be acquired for BUG's own account, for investment
purposes only and will not be, and the Company Option is not
being, acquired by BUG with a view to the public distribution
thereof in violation of any applicable provision of the Securi-
ties Act.
7. CERTAIN REPURCHASES.
(a) BUG PUT. At the request of BUG by written no-
tice at any time during which the Company Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), the Company
(or any successor entity thereof) shall repurchase from BUG all
or any portion of the Company Option, at the price set forth in
subparagraph (i) below, or, at the request of BUG by written
notice at any time prior to December 31, 1997 (provided that
such date shall be extended to June 30, 1998 under the circum-
stances where the date after which either party may terminate
the Exchange Agreement pursuant to Section 9.1(b) of the Ex-
change Agreement has been extended to June 30, 1998), the Com-
pany (or any successor entity thereof) shall repurchase from
BUG all or any portion of the Company Shares purchased by BUG
pursuant to the Company Option, at the price set forth in sub-
paragraph (ii) below:
(i) the difference between the "MARKET/OFFER
PRICE" for shares of Company Common Stock as of the
date BUG gives notice of its intent to exercise its
rights under this Section 7 (defined as the higher of
(A) the price per share offered as of such date pur-
suant to any tender or exchange offer or other offer
with respect to a Business Combination which was made
prior to such date and not terminated or withdrawn as
of such date (the "OFFER PRICE") and (B) the Fair
Market Value of Company Common Stock as of such
date (the "MARKET PRICE")) and the Exercise Price,
multiplied by the number of Company Shares purchas-
able pursuant to the Company Option (or portion
thereof with respect to which BUG is exercising its
rights under this Section 7), but only if the Market/
Offer Price is greater than the Exercise Price;
(ii) the product of (x) the sum of (A) the Exer-
cise Price paid by BUG per Company Share acquired
pursuant to the Company Option and (B) the difference
between the Market/Offer Price and the Exercise
Price, but only if the Market/Offer Price is greater
than the Exercise Price, and (y) the number of Com-
pany Shares to be repurchased pursuant to this Sec-
tion 7. For purposes of this clause (ii), the Offer
Price shall be the highest price per share offered
-7<PAGE>
pursuant to a tender or exchange offer or other Busi-
ness Combination offer during the Repurchase Period
prior to the delivery by BUG of a notice of repur-
chase.
(b) REDELIVERY OF BUG SHARES. If BUG elected to
purchase Company Shares pursuant to the exercise of the Company
Option by the issuance and delivery of BUG Shares, then the
Company shall, if so requested by BUG, in fulfillment of its
obligation pursuant to clause (a) of Section 7(a)(ii)(x) (that
is, with respect to the Exercise Price only and without limita-
tion to its obligation to pay additional consideration under
clause (b) of Section 7(a)(ii)(x)), redeliver the certificate
for such BUG Shares to BUG, free and clear of all liens,
claims, damages, charges and encumbrances of any kind or nature
whatsoever; provided, however, that if less than all of the
Company Shares purchased by BUG pursuant to the Company Option
are to be repurchased pursuant to this Section 7, then BUG
shall issue to the Company a new certificate representing those
BUG Shares which are not to be redelivered to BUG pursuant to
this Section 7 as they constituted payment of the Exercise
Price for the Company Shares not being repurchased.
(c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR
SHARES. In the event BUG exercises its rights under this Sec-
tion 7, the Company shall, within 10 business days thereafter,
pay the required amount to BUG in immediately available funds
and BUG shall surrender to the Company the Company Option or
the certificates evidencing the Company Shares purchased by BUG
pursuant thereto, and BUG shall warrant that it owns the Com-
pany Option or such shares and that the Company Option or such
shares are then free and clear of all liens, claims, damages,
charges and encumbrances of any kind or nature whatsoever.
(d) BUG CALL. If BUG has elected to purchase Com-
pany Shares pursuant to the exercise of the Company Option by
the issuance and delivery of BUG Shares, notwithstanding that
BUG may no longer hold any such Company Shares or that BUG
elects not to exercise its other rights under this Section 7,
BUG may require, at any time or from time to time prior to De-
cember 31, 1997 (provided that such date shall be extended to
June 30, 1998 under the circumstances where the date after
which either party may terminate the Exchange Agreement pursu-
ant to Section 9.1(b) of the Exchange Agreement has been ex-
tended to June 30, 1998), the Company to sell to BUG any such
BUG Shares at the Fair Market Value that had been attributed to
such BUG Shares pursuant to Section 4 plus interest at the rate
of 6.5% per annum on such amount from the Closing Date relating
to the exchange of such BUG Shares pursuant to Section 4 to the
closing date under this Section 7(d) less any dividends on such
-8<PAGE>
BUG Shares paid during such period or declared and payable to
stockholders of record on a date during such period.
(e) REPURCHASE PRICE REDUCED AT BUG'S OPTION. In
the event the repurchase price specified in Section 7(a) would
subject the purchase of the Company Option or the Company
Shares purchased by BUG pursuant to the Company Option to a
vote of the shareholders of the Company pursuant to Section
513(e) of the NYBCL, then BUG may, at its election, reduce the
repurchase price to an amount which would permit such repur-
chase without the necessity for such a shareholder vote.
8. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expira-
tion Date, neither party shall, directly or indirectly, by op-
eration of law or otherwise, sell, assign, pledge, or otherwise
dispose of or transfer any Restricted Shares beneficially owned
by such party, other than (i) pursuant to Section 7, or (ii) in
accordance with Section 9(b) or Section 10.
(b) PERMITTED SALES. Following the termination of
the Exchange Agreement, a party shall be permitted to sell any
Restricted Shares beneficially owned by it if such sale is made
pursuant to a tender or exchange offer that has been approved
or recommended, or otherwise determined to be fair to and in
the best interests of the shareholders of the other party, by a
majority of the members of the Board of Directors of such other
party which majority shall include a majority of directors who
were directors prior to the announcement of such tender or ex-
change offer.
9. REGISTRATION RIGHTS. Following the termination
of the Exchange Agreement, each party hereto (a "DESIGNATED
HOLDER") may by written notice (the "REGISTRATION NOTICE") to
the other party (the "REGISTRANT") request the Registrant to
register under the Securities Act all or any part of the Re-
stricted Shares beneficially owned by such Designated Holder
(the "REGISTRABLE SECURITIES") pursuant to a bona fide firm
commitment underwritten public offering in which the Designated
Holder and the underwriters shall effect as wide a distribution
of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including
any Group (as used in Rule 13d-5 under the Exchange Act)) and
its affiliates from purchasing through such offering Restricted
Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a
"PERMITTED OFFERING"). The Registration Notice shall include a
certificate executed by the Designated Holder and its proposed
managing underwriter, which underwriter shall be an investment
-9<PAGE>
banking firm of nationally recognized standing (the "MANAGER"),
stating that (i) they have a good faith intention to commence
promptly a Permitted Offering and (ii) the Manager in good
faith believes that, based on the then prevailing market condi-
tions, it will be able to sell the Registrable Securities at a
per share price equal to at least 80% of the then Fair Market
Value of such shares. The Registrant (and/or any person desig-
nated by the Registrant) shall thereupon have the option exer-
cisable by written notice delivered to the Designated Holder
within 10 business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a
price (the "OPTION PRICE") equal to the product of (i) the num-
ber of Registrable Securities to be so purchased by the Regis-
trant and (ii) the then Fair Market Value of such shares. Any
such purchase of Registrable Securities by the Registrant (or
its designee) hereunder shall take place at a closing to be
held at the principal executive offices of the Registrant or at
the offices of its counsel at any reasonable date and time des-
ignated by the Registrant and/or such designee in such notice
within 20 business days after delivery of such notice. Any
payment for the shares to be purchased shall be made by deliv-
ery at the time of such closing of the Option Price in immedi-
ately available funds.
If the Registrant does not elect to exercise its op-
tion pursuant to this Section 10 with respect to all Regis-
trable Securities, it shall use its best efforts to effect, as
promptly as practicable, the registration under the Securities
Act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) neither party shall be en-
titled to more than an aggregate of two effective registration
statements hereunder and (ii) the Registrant will not be re-
quired to file any such registration statement during any pe-
riod of time (not to exceed 40 days after such request in the
case of clause (A) below or 90 days in the case of clauses (B)
and (C) below) when (A) the Registrant is in possession of ma-
terial non-public information which it reasonably believes
would be detrimental to be disclosed at such time and, in the
opinion of counsel to the Registrant, such information would
have to be disclosed if a registration statement were filed at
that time: (B) the Registrant is required under the Securities
Act to include audited financial statements for any period in
such registration statement and such financial statements are
not yet available for inclusion in such registration statement;
or (C) the Registrant determines, in its reasonable judgment,
that such registration would interfere with any financing, ac-
quisition or other material transaction involving the Regis-
trant or any of its affiliates. The Registrant shall use its
reasonable best efforts to cause any Registrable Securities
-10<PAGE>
registered pursuant to this Section 10 to be qualified for sale
under the securities or Blue-Sky laws of such jurisdictions as
the Designated Holder may reasonably request and shall continue
such registration or qualification in effect in such jurisdic-
tion; provided, however, that the Registrant shall not be re-
quired to qualify to do business in, or consent to general ser-
vice of process in, any jurisdiction by reason of this provi-
sion.
The registration rights set forth in this Section 10
are subject to the condition that the Designated Holder shall
provide the Registrant with such information with respect to
such holder's Registrable Securities, the plans for the distri-
bution thereof, and such other information with respect to such
holder as, in the reasonable judgment of counsel for the Regis-
trant, is necessary to enable the Registrant to include in such
registration statement all material facts required to be dis-
closed with respect to a registration thereunder.
A registration effected under this Section 10 shall
be effected at the Registrant's expense, except for underwrit-
ing discounts and commissions and the fees and the expenses of
counsel to the Designated Holder, and the Registrant shall pro-
vide to the underwriters such documentation (including certifi-
cates, opinions of counsel and "comfort" letters from auditors
as are customary in connection with underwritten public offer-
ings as such underwriters may reasonably require. In connec-
tion with any such registration, the parties agree (i) to
indemnify each other and the underwriters in the customary man-
ner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Man-
ager and the other underwriters participating in such offering
and (iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including, if
the Manager deems it necessary, participating in road-show pre-
sentations).
The Registrant shall be entitled to include (at its
expense) additional shares of its common stock in a registra-
tion effected pursuant to this Section 10 only if and to the
extent the Manager determines that such inclusion will not ad-
versely affect the prospects of success of such offering.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
Without limitation to any restriction on the Company contained
in this Agreement or in the Exchange Agreement, in the event of
any change in Company Common Stock by reason of stock divi-
dends, splitups, mergers (other than the Binding Share Ex-
changes), recapitalizations, combinations, exchange of shares
-11<PAGE>
or the like, the type and number of shares or securities sub-
ject to the Company Option, and the purchase price per share
provided in Section 1, shall be adjusted approximately to
restore to BUG its rights hereunder, including the right to
purchase from the Company (or its successors) shares of Company
Common Stock representing 19.9% of the Outstanding Company
Common Stock for the aggregate Exercise Price calculated as of
the date of this Agreement as provided in Section 1.
11. RESTRICTIVE LEGENDS. Each certificate repre-
senting shares of Company Common Stock issued to BUG hereunder,
and BUG Shares, if any, delivered to the Company at a Closing,
shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, ANY MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR
IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SE-
CURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANS-
FER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF
DECEMBER 29, 1996, A COPY OF WHICH MAY BE OBTAINED FROM THE
ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the re-
sale restrictions of the Securities Act in the above legend
shall be removed by delivery of substitute certificate(s) with-
out such reference if BUG or the Company, as the case may be,
shall have delivered to the other party a copy of a letter from
the staff of the Securities and Exchange Commission, or an
opinion of counsel, in form and substance satisfactory to the
other party, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the pro-
visions to this Agreement in the above legend shall be removed
by delivery of substitute certificate(s) without such reference
if the shares have been sold or transferred in compliance with
the provisions of this Agreement and under circumstances that
do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied. In ad-
dition, such certificates shall bear any other legend as may be
required by law. Certificates representing shares sold in a
registered public offering pursuant to Section 10 shall not be
required to bear the legend set forth in Section 12.
12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY
BENEFICIARIES. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective suc-
cessors and permitted assigns. Except as expressly provided
for in this Agreement, neither this Agreement nor the rights or
the obligations of either party hereto are assignable, except
-12<PAGE>
by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or im-
plied, is intended to confer upon any person other than the
parties hereto and their respective permitted assigns any
rights or remedies of any nature whatsoever by reason of this
Agreement. Any Restricted Shares sold by a party in compliance
with the provisions of Section 10 shall, upon consummation of
such sale, be free of the restrictions imposed with respect to
such shares by this Agreement, unless and until such party
shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall not be en-
titled to the registration rights of such party.
13. SPECIFIC PERFORMANCE. The parties recognize and
agree that if for any reason any of the provisions of this
Agreement are not performed in accordance with their specific
terms or are otherwise breached, immediate and irreparable harm
or injury would be caused for which money damages would not be
adequate remedy. Accordingly, each party agrees that, in addi-
tion to other remedies, the other party shall be entitled to an
injunction restraining any violation or threatened violation of
the provisions of this Agreement. In the event that any action
should be brought in equity to enforce the provisions of the
Agreement, neither party will allege, and each party hereby
waives the defense, that there is adequate remedy at law.
14. ENTIRE AGREEMENT. This Agreement, the BUG Stock
Option Agreement, the Confidentiality Agreement and the Ex-
change Agreement (including the exhibits and schedules thereto)
constitute the entire agreement among the parties with respect
to the subject matter hereof and thereof and supersede all
other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the sub-
ject matter hereof and thereof.
15. FURTHER ASSURANCES. Each party will execute and
deliver all such further documents and instruments and take all
such further action as may be necessary in order to consummate
the transactions contemplated hereby.
16. VALIDITY. The invalidity of unenforceability of
any provisions of this Agreement shall not affect the validity
or enforceability of the other provisions of this Agreement,
which shall remain in full force and effect. In the event any
court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto
shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to
effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision and the economic
-13<PAGE>
effects thereof. If for any reason any such court or regula-
tory agency determines that BUG is not permitted to acquire, or
the Company is not permitted to repurchase pursuant to Section
7, the full number of shares of Company Common Stock provided
in Section 1 hereof (as the same may be adjusted), it is the
express intention of the Company to allow BUG to acquire or to
require the Company to repurchase such lesser number of shares
as may be permissible, without any amendment or modification
hereof. Each party agrees that, should any court or other com-
petent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to
take any action inconsistent herewith, or not take any action
required herein, the other party shall not be entitled to spe-
cific performance of such provision or part hereof or to any
other remedy, including but not limited to money damages, for
breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
17. NOTICES. All notices and other communication
hereunder shall be in writing and shall be deemed given if (i)
delivered personally, or (ii) sent by reputable overnight cou-
rier service, or (iii) telecopied (which is confirmed), or (iv)
five days after being mailed by registered or certified mail
(return receipt requested) to the parties at the following ad-
dresses (or at such other address for a party as shall be spec-
ified by like notice):
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: Seth A. Kaplan
B. If to the Company, to:
Long Island Lighting Company
175 East Old County Road
Hicksville, New York 11801
Attention: Chief Executive Officer
with a copy to:
-14<PAGE>
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance
18. GOVERNING LAW; CHOICE OF FORUM. This Agreement
shall be governed by and construed in accordance with the laws
of the State of New York applicable to agreements made and to
be performed entirely within such State and without regard to
its choice of law principles. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any
federal court located in the State of New York or any New York
state court in the event any dispute arises out of this Agree-
ment or any of the transactions contemplated by this agreement,
(b) agrees that it will not attempt to deny or defeat such per-
sonal jurisdiction by motion or other request for leave from
any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contem-
plated by this Agreement in any court other than a federal
court sitting in the State of New York or a New York state
court.
19. INTERPRETATION. When a reference is made in
this Agreement to a Section such reference shall be to a Sec-
tion of this Agreement unless otherwise indicated. Whenever
the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words
"without limitation". The descriptive headings herein are in-
serted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of
this Agreement.
20. COUNTERPARTS. This Agreement may be executed in
two counterparts, each of which shall be deemed to be an origi-
nal, but both of which, taken together, shall constitute one
and the same instrument.
21. EXPENSES. Except as otherwise expressly pro-
vided herein or in the Exchange Agreement, all costs and ex-
penses incurred in connection with the transactions contem-
plated by this Agreement shall be paid by the party incurring
such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be
amended by the parties hereto and the terms and conditions
hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving
compliance.
-15<PAGE>
23. EXTENSION OF TIME PERIODS. The time periods for
exercise of certain rights under Sections 2, 6 and 7 shall be
extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expira-
tion of all statutory waiting periods; and (ii) to the extent
necessary to avoid any liability under Section 16(b) of the
Exchange Act by reason of such exercise.
24. REPLACEMENT OF COMPANY OPTION. Upon receipt by
the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Agreement, and
(in the case of loss, theft or destruction) of reasonably sat-
isfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, the Company will execute and
deliver a new Agreement of like tenor and date.
-16<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective duly autho-
rized officers as of the date first above written.
THE BROOKLYN UNION GAS COMPANY
By: /s/ Robert B. Catell
----------------------------------
Name: Robert B. Catell
Title: Chief Executive Officer
LONG ISLAND LIGHTING COMPANY
By: /s/ Dr. William J. Catacosinos
----------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
-17
EXHIBIT 2.3
BUG STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 29, 1996
by and among LONG ISLAND LIGHTING COMPANY, a New York corpora-
tion ("LILCO"), and THE BROOKLYN UNION GAS COMPANY, a New York
corporation (the "COMPANY").
WHEREAS, concurrently with the execution and delivery
of this Agreement, (i) LILCO, the Company and NYECO Corp., a
New York corporation ("NYECO"), are entering into an Agreement
and Plan of Exchange, dated as of the date hereof (the "EX-
CHANGE AGREEMENT"), which provides, among other things, upon
the terms and subject to the conditions thereof, for the ex-
change of outstanding shares of capital stock of each of LILCO
and the Company for newly issued shares of capital stock of
NYECO (the "BINDING SHARE EXCHANGE"), and (ii) the Company and
LILCO are entering into a certain stock option agreement dated
as of the date hereof whereby LILCO grants to the Company an
option with respect to certain shares of LILCO's common stock
on the terms and subject to the conditions set forth therein
(the "LILCO STOCK OPTION AGREEMENT"); and
WHEREAS, as a condition to LILCO's willingness to
enter into the Exchange Agreement, LILCO has requested that the
Company agree, and the Company has so agreed, to grant to LILCO
an option with respect to certain shares of the Company's com-
mon stock, on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, to induce LILCO to enter into the
Exchange Agreement, and in consideration of the mutual cov-
enants and agreements set forth herein and in the Exchange
Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants LILCO
an irrevocable option (the "COMPANY OPTION") to purchase up to
9,948,682 shares, subject to adjustment as provided in Section
11 (such shares being referred to herein as the "COMPANY
SHARES") of common stock, par value $.33-1/3 per share, of the
Company (the "COMPANY COMMON STOCK") (being 19.9% of the number
of shares of Company Common Stock outstanding on the date
hereof) in the manner set forth below at a price (the "EXERCISE
PRICE") per Company Share of $30.0375 (which is equal to the
Fair Market Value (as defined below) of a Company Share on the
date hereof) payable, at LILCO's option, (a) in cash or (b)
subject to the Company's having obtained the approvals of any
Governmental Authority required for the Company to acquire the
LILCO Shares (as defined below) from LILCO, which approvals the
Company shall use best efforts to obtain, in shares of common<PAGE>
stock, par value $5.00 per share, of LILCO ("LILCO SHARES") in
either case in accordance with Section 4 hereof. Notwithstand-
ing the foregoing, in no event shall the number of Company
Shares for which the Company Option is exercisable exceed 19.9%
of the number of issued and outstanding shares of Company Com-
mon Stock. As used herein, the "FAIR MARKET VALUE" of any
share shall be the average of the daily closing sales price for
such share on the New York Stock Exchange (the "NYSE") during
the 10 NYSE trading days prior to the fifth NYSE trading day
preceding the date such Fair Market Value is to be determined.
Capitalized terms used herein but not defined herein shall have
the meanings set forth in the Exchange Agreement.
2. EXERCISE OF OPTION. The Company Option may be
exercised by LILCO, in whole or in part, at any time or from
time to time after the Exchange Agreement becomes terminable by
LILCO under circumstances which could entitle LILCO to termina-
tion fees under either Section 9.3(a) of the Exchange Agreement
(provided that the events specified in Section 9.3(a)(ii)(x) of
the Exchange Agreement shall have occurred, although the events
specified in Section 9.3(a)(ii)(y) thereof need not have oc-
curred) or Section 9.3(b) of the Exchange Agreement (regardless
of whether the Exchange Agreement is actually terminated or
whether there occurs a closing of any Business Combination in-
volving a Target Party or a closing by which a Target Party
becomes a subsidiary), any such event by which the Exchange
Agreement becomes so terminable by LILCO being referred to
herein as a "TRIGGER EVENT." The Company shall notify LILCO
promptly in writing of the occurrence of any Trigger Event, it
being understood that the giving of such notice by the Company
shall not be a condition to the right of LILCO to exercise the
Company Option. In the event LILCO wishes to exercise the Com-
pany Option, LILCO shall deliver to the Company a written no-
tice (an "EXERCISE NOTICE") specifying the total number of Com-
pany Shares it wishes to purchase. Each closing of a purchase
of Company Shares (a "CLOSING") shall occur at a place, on a
date and at a time designated by LILCO in an Exercise Notice
delivered at least two business days prior to the date of the
Closing. The Company Option shall terminate upon the earlier
of: (i) the Effective Time; (ii) the termination of the Ex-
change Agreement pursuant to Section 9.1 thereof (other than
upon or during the continuance of a Trigger Event); or (iii)
180 days following any termination of the Exchange Agreement
upon or during the continuance of a Trigger Event (or if, at
the expiration of such 180 day period the Company Option cannot
be exercised by reason of any applicable judgment, decree, or-
der, law or regulation, 10 business days after such impediment
to exercise shall have been removed or shall have become final
and not subject to appeal, but in no event under this clause
-2<PAGE>
(iii) later than June 30, 1998). Notwithstanding the forego-
ing, the Company Option may not be exercised if LILCO is in
material breach of any of its material representations or war-
ranties, or in material breach of any of its covenants or
agreements, contained in this Agreement or in the Exchange
Agreement. Upon the giving by LILCO to the Company of the Ex-
ercise Notice and the tender of the applicable aggregate Exer-
cise Price, LILCO shall be deemed to be the holder of record of
the Company Shares issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Shares
shall not then be actually delivered to LILCO.
3. CONDITIONS TO CLOSING. The obligation of the
Company to issue the Company Shares to LILCO hereunder is sub-
ject to the conditions, which (other than the conditions de-
scribed in clauses (i), (iii) and (iv) below) may be waived by
the Company in its sole discretion, that (i) all waiting peri-
ods, if any, under the HSR Act, applicable to the issuance of
the Company Shares hereunder shall have expired or have been
terminated; (ii) the Company Shares, and any LILCO Shares which
are issued in payment of the Exercise Price, shall have been
approved for listing on the NYSE upon official notice of issu-
ance; (iii) all consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any fed-
eral, state or local administrative agency or commission or
other federal, state or local Governmental Authority, if any,
required in connection with the issuance of the Company Shares
hereunder shall have been obtained or made, as the case may be,
including, without limitation, if applicable, the approval of
the SEC under Section 10 of the 1935 Act of the acquisition of
the Company Shares by LILCO and, if applicable, the acquisition
by the Company of the LILCO Shares constituting the Exercise
Price hereunder; and (iv) no preliminary or permanent injunc-
tion or other order by any court of competent jurisdiction pro-
hibiting or otherwise restraining such issuance shall be in
effect.
4. CLOSING. At any Closing, (a) the Company will
deliver to LILCO or its designee a single certificate in de-
finitive form representing the number of the Company Shares
designated by LILCO in its Exercise Notice, such certificate to
be registered in the name of LILCO and to bear the legend set
forth in Section 12, and (b) LILCO will deliver to the Company
the aggregate price for the Company Shares so designated and
being purchased by (i) wire transfer of immediately available
funds or certified check or bank check or (ii) subject to the
condition in Section 1(b), a certificate or certificates repre-
senting the number of LILCO Shares being issued by LILCO in
consideration thereof, as the case may be. For the purposes of
-3<PAGE>
this Agreement, the number of LILCO Shares to be delivered to
the Company shall be equal to the quotient obtained by dividing
(i) the product of (x) the number of Company Shares with re-
spect to which the Company Option is being exercised and (y)
the Exercise Price by (ii) the Fair Market Value of the LILCO
Shares on the date immediately preceding the date the Exercise
Notice is delivered to the Company. The Company shall pay all
expenses, and any and all United States federal, state and lo-
cal taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates
under this Section 4 in the name of LILCO or its designee.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to LILCO that (a) except as
set forth in Section 4.1 of the Nassau Disclosure Schedule, the
Company is a corporation duly organized, validly existing and
in active status under the laws of the State of New York and
has the corporate power and authority to enter into this Agree-
ment and, subject to obtaining the applicable approval of
shareholders of the Company for the repurchase of Company
Shares pursuant to Section 7(a) below under circumstances where
Section 513(e) of the NYBCL would be applicable (the "BUYBACK
APPROVALS") and subject to any regulatory approvals referred to
herein and to the provisions of Section 513(a) of the NYBCL, if
applicable, to carry out its obligations hereunder, (b) the
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of the Company and no other corporate pro-
ceedings on the part of the Company are necessary to authorize
this Agreement or any of the transactions contemplated hereby
(other than any required Buyback Approvals), (c) such corporate
action (including the approval of the Board of Directors of the
Company) is intended to render inapplicable to this Agreement
and the Exchange Agreement and the transactions contemplated
hereby and thereby, the provisions of the NYBCL referred to in
Section 4.15 of the Exchange Agreement, (d) this Agreement has
been duly executed and delivered by the Company, constitutes a
valid and binding obligation of the Company and, assuming this
Agreement constitutes a valid and binding obligation of LILCO,
is enforceable against the Company in accordance with its
terms, (e) the Company has taken all necessary corporate action
to authorize and reserve for issuance and to permit it to is-
sue, upon exercise of the Company Option, and at all times from
the date hereof through the expiration of the Company Option
will have reserved, 9,948,682 authorized and unissued Company
Shares, such amount being subject to adjustment as provided in
Section 11, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, (f) upon delivery of the
-4<PAGE>
Company Shares to LILCO upon the exercise of the Company Op-
tion, LILCO will acquire the Company Shares free and clear of
all claims, liens, charges, encumbrances and security interests
of any nature whatsoever, (g) except as described in Section
4.4(b) of the Exchange Agreement, the execution and delivery of
this Agreement by the Company does not, and the consummation by
the Company of the transactions contemplated hereby will not,
violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in the termination of, or ac-
celerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or
the loss of a material benefit under, or the creation of a
lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "VIOLATION")
of the Company or any of its subsidiaries, pursuant to, (A) any
provision of the certificate of incorporation or by-laws of the
Company, (B) any provisions of any loan or credit agreement,
note, mortgage, indenture, lease, Company benefit plan or other
agreement, obligation, instrument, permit, concession, fran-
chise, license or (C) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or
its properties or assets, which Violation, in the case of each
of clauses (B) and (C), could reasonably be expected to have a
material adverse effect on the Company and its subsidiaries
taken as a whole, (h) except as described in Section 4.4(c) of
the Exchange Agreement or Section 1(b) or Section 3 hereof, the
execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority,
(i) none of the Company, any of its affiliates or anyone acting
on its or their behalf has issued, sole or offered any security
of the Company to any person under circumstances that would
cause the issuance and sale of the Company Shares, as contem-
plated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date
hereof and, assuming the representations of LILCO contained in
Section 6(h) are true and correct, the issuance, sale and de-
livery of the Company Shares hereunder would be exempt from the
registration and prospectus delivery requirements of the Secu-
rities Act, as in effect on the date hereof (and the Company
shall not take any action which would cause the issuance, sale
and delivery of the Company Shares hereunder not to be exempt
from such requirements), and (j) any LILCO Shares acquired pur-
suant to this Agreement will be acquired for the Company's own
account, for investment purposes only and will not be acquired
by the Company with a view to the public distribution thereof
in violation of any applicable provision of the Securities Act.
-5<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF LILCO. LILCO
represents and warrants to the Company that (a) LILCO is a cor-
poration duly organized, validly existing and in good standing
under the laws of the State of New York and has the corporate
power and authority to enter into this Agreement and to carry
out its obligations hereunder, (b) the execution and delivery
of this Agreement by LILCO and the consummation by LILCO of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of LILCO and no
other corporate proceedings on the part of LILCO are necessary
to authorize this Agreement or any of the transactions contem-
plated hereby, (c) this Agreement has been duly executed and
delivered by LILCO and constitutes a valid and binding obliga-
tion of LILCO, and, assuming this Agreement constitutes a valid
and binding obligation of the Company, is enforceable against
LILCO in accordance with its terms, (d) prior to any delivery
of LILCO Shares in consideration of the purchase of Company
Shares pursuant hereto, LILCO will have taken all necessary
corporate action to authorize for issuance and to permit it to
issue such LILCO Shares, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will
be validly issued, fully paid and nonassessable, and to render
inapplicable to the receipt by the Company of the LILCO Shares
the provisions of the NYBCL referred to in Section 5.15 of the
Exchange Agreement, (e) upon any delivery of such LILCO Shares
to the Company in consideration of the purchase of Company
Shares pursuant hereto, the Company will acquire the LILCO
Shares free and clear of all claims, liens, charges, encum-
brances and security interests of any nature whatsoever, (f)
except as described in Section 5.4(b) of the Exchange Agree-
ment, the execution and delivery of this Agreement by LILCO
does not, and the consummation by LILCO of the transactions
contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default
(with or without notice or lapse of time, or both) under, or
result in any Violation by LILCO or any of its subsidiaries,
pursuant to (A) any provision of the certificate of incorpora-
tion or by-laws of LILCO, (B) any provisions of any loan or
credit agreement, note, mortgage, indenture, lease, LILCO ben-
efit plan or other agreement, obligation, instrument, permit,
concession, franchise, license or (C) any judgment, order, de-
cree, statute, law, ordinance, rule or regulation applicable to
LILCO or its properties or assets, which Violation, in the case
of each of its clauses (B) and/or (C), would have a material
adverse effect on LILCO and its subsidiaries taken as a whole,
(g) except as described in Section 5.4(c) of the Exchange
Agreement or Section 1(b) or Section 3 hereof, the execution
and delivery of this Agreement by LILCO does not, and the con-
summation by LILCO of the transactions contemplated hereby will
not, require any consent, approval, authorization or permit of,
-6<PAGE>
or filing with or notification to, any Governmental Authority
and (h) any Company Shares acquired upon exercise of the
Company Option will be acquired for LILCO's own account, for
investment purposes only and will not be, and the Company
Option is not being, acquired by LILCO with a view to the pub-
lic distribution thereof in violation of any applicable provi-
sion of the Securities Act.
7. CERTAIN REPURCHASES.
(a) LILCO PUT. At the request of LILCO by written
notice at any time during which the Company Option is exercis-
able pursuant to Section 2 (the "REPURCHASE PERIOD"), the Com-
pany (or any successor entity thereof) shall repurchase from
LILCO all or any portion of the Company Option, at the price
set forth in subparagraph (i) below, or, at the request of
LILCO by written notice at any time prior to December 31, 1997
(provided that such date shall be extended to June 30, 1998
under the circumstances where the date after which either party
may terminate the Exchange Agreement pursuant to Section 9.1(b)
of the Exchange Agreement has been extended to June 30, 1998),
the Company (or any successor entity thereof) shall repurchase
from LILCO all or any portion of the Company Shares purchased
by LILCO pursuant to the Company Option, at the price set forth
in subparagraph (ii) below:
(i) the difference between the "MARKET/OFFER
PRICE" for shares of Company Common Stock as of the
date LILCO gives notice of its intent to exercise its
rights under this Section 7 (defined as the higher of
(A) the price per share offered as of such date pur-
suant to any tender or exchange offer or other offer
with respect to a Business Combination which was made
prior to such date and not terminated or withdrawn as
of such date (the "OFFER PRICE") and (B) the Fair
Market Value of Company Common Stock as of such date
(the "MARKET PRICE")) and the Exercise Price, multi-
plied by the number of Company Shares purchasable
pursuant to the Company Option (or portion thereof
with respect to which LILCO is exercising its rights
under this Section 7), but only if the Market/Offer
Price is greater than the Exercise Price;
(ii) the product of (x) the sum of (A) the Ex-
ercise Price paid by LILCO per Company Share acquired
pursuant to the Company Option and (B) the difference
between the Market/Offer Price and the Exercise
Price, but only if the Market/Offer Price is greater
-7<PAGE>
than the Exercise Price, and (y) the number of Com-
pany Shares to be repurchased pursuant to this Sec-
tion 7. For purposes of this clause (ii), the Offer
Price shall be the highest price per share offered
pursuant to a tender or exchange offer or other Busi-
ness Combination offer during the Repurchase Period
prior to the delivery by LILCO of a notice of repur-
chase.
(b) REDELIVERY OF LILCO SHARES. If LILCO elected to
purchase Company Shares pursuant to the exercise of the Company
Option by the issuance and delivery of LILCO Shares, then the
Company shall, if so requested by LILCO, in fulfillment of its
obligation pursuant to clause (a) of Section 7(a)(ii)(x) (that
is, with respect to the Exercise Price only and without limita-
tion to its obligation to pay additional consideration under
clause (b) of Section 7(a)(ii)(x)), redeliver the certificate
for such LILCO Shares to LILCO, free and clear of all liens,
claims, damages, charges and encumbrances of any kind or nature
whatsoever; provided, however, that if less than all of the
Company Shares purchased by LILCO pursuant to the Company Op-
tion are to be repurchased pursuant to this Section 7, then
LILCO shall issue to the Company a new certificate representing
those LILCO Shares which are not due to be redelivered to LILCO
pursuant to this Section 7 as they constituted payment of the
Exercise Price for the Company Shares not being repurchased.
(c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR
SHARES. In the event LILCO exercises its rights under this
Section 7, the Company shall, within 10 business days there-
after, pay the required amount to LILCO in immediately avail-
able funds and LILCO shall surrender to the Company the Company
Option or the certificates evidencing the Company Shares pur-
chased by LILCO pursuant thereto, and LILCO shall warrant that
it owns the Company Option or such shares and that the Company
Option or such shares are then free and clear of all liens,
claims, damages, charges and encumbrances of any kind or nature
whatsoever.
(d) LILCO CALL. If LILCO has elected to purchase
Company Shares pursuant to the exercise of the Company Option
by the issuance and delivery of LILCO Shares, notwithstanding
that LILCO may no longer hold any such Company Shares or that
LILCO elects not to exercise its other rights under this Sec-
tion 7, LILCO may require, at any time or from time to time
prior to December 31, 1997 (provided that such date shall be
extended to June 30, 1998 under the circumstances where the
date after which either party may terminate the Exchange Agree-
ment pursuant to Section 9.1(b) of the Exchange Agreement has
been extended to June 30, 1998), the Company to sell to LILCO
-8<PAGE>
any such LILCO Shares at the Fair Market Value that had been
attributed to such LILCO Shares pursuant to Section 4 plus in-
terest at the rate of 6.5% per annum on such amount from the
Closing Date relating to the exchange of such LILCO Shares pur-
suant to Section 4 to the closing date under this Section 7(d)
less any dividends on such LILCO Shares paid during such period
or declared and payable to stockholders of record on a date
during such period.
(e) REPURCHASE PRICE REDUCED AT LILCO'S OPTION. In
the event the repurchase price specified in Section 7(a) would
subject the purchase of the Company Option or the Company
Shares purchased by LILCO pursuant to the Company Option to a
vote of the shareholders of the Company pursuant to Section
513(e) of the NYBCL, then LILCO may, at its election, reduce
the repurchase price to an amount which would permit such re-
purchase without the necessity for such a shareholder vote.
8. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expira-
tion Date, neither party shall, directly or indirectly, by op-
eration of law or otherwise, sell, assign, pledge, or otherwise
dispose of or transfer any Restricted Shares beneficially owned
by such party, other than (i) pursuant to Section 7, or (ii) in
accordance with Section 9(b) or Section 10.
(b) PERMITTED SALES. Following the termination of
the Exchange Agreement, a party shall be permitted to sell any
Restricted Shares beneficially owned by it if such sale is made
pursuant to a tender or exchange offer that has been approved
or recommended, or otherwise determined to be fair to and in
the best interests of the shareholders of the other party, by a
majority of the members of the Board of Directors of such other
party which majority shall include a majority of directors who
were directors prior to the announcement of such tender or ex-
change offer.
9. REGISTRATION RIGHTS. Following the termination
of the Exchange Agreement, each party hereto (a "DESIGNATED
HOLDER") may by written notice (the "REGISTRATION NOTICE") to
the other party (the "REGISTRANT") request the Registrant to
register under the Securities Act all or any part of the Re-
stricted Shares beneficially owned by such Designated Holder
(the "REGISTRABLE SECURITIES") pursuant to a bona fide firm
commitment underwritten public offering in which the Designated
Holder and the underwriters shall effect as wide a distribution
of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including
any Group (as used in Rule 13d-5 under the Exchange Act)) and
-9<PAGE>
its affiliates from purchasing through such offering Restricted
Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a
"PERMITTED OFFERING"). The Registration Notice shall include a
certificate executed by the Designated Holder and its proposed
managing underwriter, which underwriter shall be an investment
banking firm of nationally recognized standing (the "MANAGER"),
stating that (i) they have a good faith intention to commence
promptly a Permitted Offering and (ii) the Manager in good
faith believes that, based on the then prevailing market condi-
tions, it will be able to sell the Registrable Securities at a
per share price equal to at least 80% of the then Fair Market
Value of such shares. The Registrant (and/or any person desig-
nated by the Registrant) shall thereupon have the option exer-
cisable by written notice delivered to the Designated Holder
within 10 business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a
price (the "OPTION PRICE") equal to the product of (i) the num-
ber of Registrable Securities to be so purchased by the Regis-
trant and (ii) the then Fair Market Value of such shares. Any
such purchase of Registrable Securities by the Registrant (or
its designee) hereunder shall take place at a closing to be
held at the principal executive offices of the Registrant or at
the offices of its counsel at any reasonable date and time des-
ignated by the Registrant and/or such designee in such notice
within 20 business days after delivery of such notice. Any
payment for the shares to be purchased shall be made by deliv-
ery at the time of such closing of the Option Price in immedi-
ately available funds.
If the Registrant does not elect to exercise its op-
tion pursuant to this Section 10 with respect to all Regis-
trable Securities, it shall use its best efforts to effect, as
promptly as practicable, the registration under the Securities
Act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) neither party shall be en-
titled to more than an aggregate of two effective registration
statements hereunder and (ii) the Registrant will not be re-
quired to file any such registration statement during any pe-
riod of time (not to exceed 40 days after such request in the
case of clause (A) below or 90 days in the case of clauses (B)
and (C) below) when (A) the Registrant is in possession of ma-
terial non-public information which it reasonably believes
would be detrimental to be disclosed at such time and, in the
opinion of counsel to the Registrant, such information would
have to be disclosed if a registration statement were filed at
that time; (B) the Registrant is required under the Securities
Act to include audited financial statements for any period in
such registration statement and such financial statements are
-10<PAGE>
not yet available for inclusion in such registration statement;
or (C) the Registrant determines, in its reasonable judgment,
that such registration would interfere with any financing, ac-
quisition or other material transaction involving the Regis-
trant or any of its affiliates. The Registrant shall use its
reasonable best efforts to cause any Registrable Securities
registered pursuant to this Section 10 to be qualified for sale
under the securities or Blue-Sky laws of such jurisdictions as
the Designated Holder may reasonably request and shall continue
such registration or qualification in effect in such jurisdic-
tion; provided, however, that the Registrant shall not be re-
quired to qualify to do business in, or consent to general ser-
vice of process in, any jurisdiction by reason of this provi-
sion.
The registration rights set forth in this Section 10
are subject to the condition that the Designated Holder shall
provide the Registrant with such information with respect to
such holder's Registrable Securities, the plans for the distri-
bution thereof, and such other information with respect to such
holder as, in the reasonable judgment of counsel for the Regis-
trant, is necessary to enable the Registrant to include in such
registration statement all material facts required to be dis-
closed with respect to a registration thereunder.
A registration effected under this Section 10 shall
be effected at the Registrant's expense, except for underwrit-
ing discounts and commissions and the fees and the expenses of
counsel to the Designated Holder, and the Registrant shall pro-
vide to the underwriters such documentation (including certifi-
cates, opinions of counsel and "comfort" letters from auditors
as are customary in connection with underwritten public offer-
ings as such underwriters may reasonably require. In connec-
tion with any such registration, the parties agree (i) to in-
demnify each other and the underwriters in the customary man-
ner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Man-
ager and the other underwriters participating in such offering
and (iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including, if
the Manager deems it necessary, participating in road-show pre-
sentations).
The Registrant shall be entitled to include (at its
expense) additional Shares of its common stock in a registra-
tion effected pursuant to this Section 10 only if and to the
extent the Manager determines that such inclusion will not ad-
versely affect the prospects of success of such offering.
-11<PAGE>
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
Without limitation to any restriction on the Company contained
in this Agreement or in the Exchange Agreement, in the event of
any change in Company Common Stock by reason of stock divi-
dends, splitups, mergers (other than the Binding Share Ex-
changes), recapitalizations, combinations, exchange of shares
or the like, the type and number of shares or securities sub-
ject to the Company Option, and the purchase price per share
provided in Section 1, shall be adjusted appropriately to re-
store to LILCO its rights hereunder, including the right to
purchase from the Company (or its successors) shares of Company
Common Stock representing 19.9% of the Outstanding Company Com-
mon Stock for the aggregate Exercise Price calculated as of the
date of this Agreement as provided in Section 1.
11. RESTRICTIVE LEGENDS. Each certificate repre-
senting shares of Company Common Stock issued to LILCO here-
under, and LILCO Shares, if any, delivered to the Company at a
Closing, shall include a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF ANY EXEMPTION FROM SUCH REGIS-
TRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUB-
JECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET
FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF DE-
CEMBER 29, 1996, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act in the above legend
shall be removed by delivery of substitute certificate(s) with-
out such reference if LILCO or the Company, as the case may be,
shall have delivered to the other party a copy of a letter from
the staff of the Securities and Exchange Commission, or an
opinion of counsel, in form and substance satisfactory to the
other party, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the pro-
visions to this Agreement in the above legend shall be removed
by delivery of substitute certificate(s) without such reference
if the shares have been sold or transferred in compliance with
the provisions of this Agreement and under circumstances that
do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied. In ad-
dition, such certificates shall bear any other legend as may be
required by law. Certificates representing shares sold in a
-12<PAGE>
registered public offering pursuant to Section 10 shall not be
required to bear the legend set forth in Section 12.
12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY
BENEFICIARIES. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective suc-
cessors and permitted assigns. Except as expressly provided
for in this Agreement, neither this Agreement nor the rights or
the obligations of either party hereto are assignable, except
by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or im-
plied, is intended to confer upon any person other than the
parties hereto and their respective permitted assigns any
rights or remedies of any nature whatsoever by reason of this
Agreement. Any Restricted Shares sold by a party in compliance
with the provisions of Section 10 shall, upon consummation of
such sale, be free of the restrictions imposed with respect to
such shares by this Agreement, unless and until such party
shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall not be
entitled to the registration rights of such party.
13. SPECIFIC PERFORMANCE. The parties recognize and
agree that if for any reason any of the provisions of this
Agreement are not performed in accordance with their specific
terms or are otherwise breached, immediate and irreparable harm
or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in
addition to other remedies, the other party shall be entitled
to an injunction restraining any violation or threatened viola-
tion of the provisions of this Agreement. In the event that
any action should be brought in equity to enforce the provi-
sions of the Agreement, neither party will allege, and each
party hereby waives the defense, that there is adequate remedy
at law.
14. ENTIRE AGREEMENT. This Agreement, the LILCO
Stock Option Agreement, the Confidentiality Agreement and the
Exchange Agreement (including the exhibits and schedules there-
to) constitute the entire agreement among the parties with re-
spect to the subject matter hereof and thereof and supersede
all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the sub-
ject matter hereof and thereof.
15. FURTHER ASSURANCES. Each party will execute and
deliver all such further documents and instruments and take all
such further action as may be necessary in order to consummate
the transactions contemplated hereby.
-13<PAGE>
16. VALIDITY. The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity
or enforceability of the other provisions of this Agreement,
which shall remain in full force and effect. In the event any
court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto
shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to
effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision and the economic
effects thereof. If for any reason any such court or regula-
tory agency determines that LILCO is not permitted to acquire,
or the Company is not permitted to repurchase pursuant to Sec-
tion 7, the full number of shares of Company Common Stock pro-
vided in Section 1 hereof (as the same may be adjusted), it is
the express intention of the Company to allow LILCO to acquire
or to require the Company to repurchase such lesser number of
shares as may be permissible, without any amendment or modifi-
cation hereof. Each party agrees that, should any court or
other competent authority hold any provision of this Agreement
or part hereof to be null, void or unenforceable, or order any
party to take any action inconsistent herewith, or not take any
action required herein, the other party shall not be entitled
to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages,
for breach hereof or of any other provision of this Agreement
or part hereof as the result of such holding or order.
17. NOTICES. All notices and other communication
hereunder shall be in writing and shall be deemed given if (i)
delivered personally, or (ii) sent by reputable overnight cou-
rier service, or (iii) telecopied (which is confirmed), or (iv)
five days after being mailed by registered or certified mail
(return receipt requested) to the parties at the following ad-
dresses (or at such other address for a party as shall be
specified by like notice):
A. If to LILCO, to:
Long Island Lighting Company
175 East Old Country 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
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B. If to the Company, to:
The Brooklyn Union Gas Company
One Metrotech Center
Brooklyn, New York 11201-3850
Attention: Chief Executive Officer
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan
18. GOVERNING LAW; CHOICE OF FORUM. This Agreement
shall be governed by and construed in accordance with the laws
of the state of New York applicable to agreements made and to
be performed entirely within such state and without regard to
its choice of law principles. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any
federal court located in the state of New York or any New York
state court in the event any dispute arises out of this Agree-
ment or any of the transactions contemplated by this agreement,
(b) agrees that it will not attempt to deny or defeat such per-
sonal jurisdiction by motion or other request for leave from
any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contem-
plated by this Agreement in any court other than a federal
court sitting in the state of New York or a New York state
court.
19. INTERPRETATION. When a reference is made in
this Agreement to a Section such reference shall be to a Sec-
tion of this Agreement unless otherwise indicated. Whenever
the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words
"without limitation". The descriptive headings herein are in-
serted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of
this Agreement.
20. COUNTERPARTS. This Agreement may be executed in
two counterparts, each of which shall be deemed to be an origi-
nal, but both of which, taken together, shall constitute one
and the same instrument.
-15<PAGE>
21. EXPENSES. Except as otherwise expressly pro-
vided herein or in the Exchange Agreement, all costs and ex-
penses incurred in connection with the transactions contem-
plated by this Agreement shall be paid by the party incurring
such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be
amended by the parties hereto and the terms and conditions
hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving
compliance.
23. EXTENSION OF TIME PERIODS. The time periods for
exercise of certain rights under Sections 2, 6 and 7 shall be
extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expira-
tion of all statutory waiting periods; and (ii) to the extent
necessary to avoid any liability under Section 16(b) of the
Exchange Act by reason of such exercise.
24. REPLACEMENT OF COMPANY OPTION. Upon receipt by
the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Agreement, and
(in the case of loss, theft or destruction) of reasonably sat-
isfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, the Company will execute and
deliver a new Agreement of like tenor and date.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective duly autho-
rized officers as of the date first above written.
LONG ISLAND LIGHTING COMPANY
By:/s/ Dr. William J. Catacosinos
---------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
THE BROOKLYN UNION GAS COMPANY
By:/s/ Robert B. Catell
---------------------------------
Name: Robert B. Catell
Title: Chief Executive Officer
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