<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3571
LONG ISLAND LIGHTING COMPANY
Incorporated pursuant to the Laws of New York State
Internal Revenue Service - Employer Identification No. 11-1019782
175 East Old Country Road, Hicksville, New York 11801
(516) 755-6650
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The total number of shares of the registrant's Common Stock, $5 par
value, outstanding on September 30, 1994, was 118,126,681.
<PAGE> 2
LONG ISLAND LIGHTING COMPANY
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income 3
Balance Sheet 5
Statement of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 12
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote
of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 25
</TABLE>
2
<PAGE> 3
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------
1994 1993
------------------------
<S> <C> <C>
Revenues
Electric $861,052 $805,969
Gas 52,388 43,731
-------- --------
Total Revenues 913,440 849,700
-------- --------
Expenses
Operations - fuel and purchased power 179,449 187,911
Operations - other 93,814 98,797
Maintenance 32,086 26,524
Depreciation and amortization 32,691 30,797
Base financial component amortization 25,243 25,243
Regulatory liability component amortization (22,143) (22,143)
Other regulatory amortizations 36,092 20,285
Rate moderation component amortization 61,222 29,043
Operating taxes 106,066 109,469
Federal income tax - current 3,772 2,226
Federal income tax - deferred and other 88,183 77,564
-------- --------
Total Expenses 636,475 585,716
-------- --------
Operating Income 276,965 263,984
-------- --------
Other Income and (Deductions)
Rate moderation component carrying charges 7,869 11,045
Class Settlement (5,787) (5,954)
Other income 10,874 4,579
Allowance for other funds used during construction 720 629
Federal income tax credit - deferred and other 283 3,451
-------- --------
Total Other Income and (Deductions) 13,959 13,750
-------- --------
Income Before Interest Charges 290,924 277,734
-------- --------
Interest Charges and (Credits)
Interest on long-term debt 107,473 118,069
Other interest 15,686 16,372
Allowance for borrowed funds used during construction (1,107) (1,256)
-------- --------
Total Interest Charges and (Credits) 122,052 133,185
-------- --------
Net Income 168,872 144,549
Preferred stock dividend requirements 13,252 13,527
-------- --------
Earnings for Common Stock $155,620 $131,022
======== ========
Average Common Shares Outstanding (000) 118,112 112,147
Earnings per Common Share $ 1.32 $ 1.17
Dividends Declared per Common Share $ 0.445 $ 0.445
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
1994 1993
--------------------------
<S> <C> <C>
Revenues
Electric $1,980,033 $1,845,547
Gas 431,860 369,475
---------- ----------
Total Revenues 2,411,893 2,215,022
---------- ----------
Expenses
Operations - fuel and purchased power 657,330 620,051
Operations - other 305,116 291,830
Maintenance 93,641 85,428
Depreciation and amortization 96,595 91,176
Base financial component amortization 75,728 75,728
Regulatory liability component amortization (66,429) (66,429)
Other regulatory amortizations 25,986 (16,027)
Rate moderation component amortization 157,379 61,728
Operating taxes 308,414 288,304
Federal income tax - current 8,289 4,525
Federal income tax - deferred and other 149,532 154,730
---------- ----------
Total Expenses 1,811,581 1,591,044
---------- ----------
Operating Income 600,312 623,978
---------- ----------
Other Income and (Deductions)
Rate moderation component carrying charges 25,333 32,769
Class Settlement (17,153) (17,570)
Other income 27,124 17,230
Allowance for other funds used during construction 1,922 1,483
Federal income tax credit - deferred and other 3,927 11,384
---------- ----------
Total Other Income and (Deductions) 41,153 45,296
---------- ----------
Income Before Interest Charges 641,465 669,274
---------- ----------
Interest Charges and (Credits)
Interest on long-term debt 332,519 351,899
Other interest 48,778 50,788
Allowance for borrowed funds used during construction (3,116) (2,629)
---------- ----------
Total Interest Charges and (Credits) 378,181 400,058
---------- ----------
Net Income 263,284 269,216
Preferred stock dividend requirements 39,795 42,457
---------- ----------
Earnings for Common Stock $ 223,489 $ 226,759
========== ==========
Average Common Shares Outstanding (000) 115,035 111,966
Earnings per Common Share $ 1.94 $ 2.03
Dividends Declared per Common Share $ 1.335 $ 1.315
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
ASSETS (unaudited) (audited)
------------ -----------
<S> <C> <C>
Utility Plant
Electric $ 3,628,640 $ 3,544,569
Gas 945,758 860,899
Common 221,721 201,418
Construction work in progress 119,712 176,504
Nuclear fuel in process and in reactor 18,259 16,533
----------- -----------
4,934,090 4,799,923
----------- -----------
Less - Accumulated depreciation and
amortization 1,520,718 1,452,366
----------- -----------
Total Net Utility Plant 3,413,372 3,347,557
----------- -----------
Regulatory Assets
Base financial component (less accumulated
amortization of $530,097 and $454,369) 3,508,733 3,584,461
Rate moderation component 487,742 609,827
Shoreham post settlement costs 902,256 777,103
Shoreham nuclear fuel 73,902 75,497
Postretirement benefits other than pensions 405,579 402,921
Regulatory tax asset 1,828,807 1,848,998
Other 328,945 311,832
----------- -----------
Total Regulatory Assets 7,535,964 7,610,639
----------- -----------
Nonutility Property & Other Investments 23,508 23,029
----------- -----------
Current Assets
Cash and cash equivalents 231,015 248,532
Special deposits 16,938 23,439
Customer accounts receivable (less allowance
for doubtful accounts of $23,670 and $23,889) 325,378 249,074
Other accounts receivable 10,537 12,199
Accrued unbilled revenues 175,889 170,042
Materials and supplies at average cost 76,812 68,882
Fuel oil at average cost 41,676 35,857
Gas in storage at average cost 86,661 75,182
Prepayments and other current assets 42,056 41,652
----------- -----------
Total Current Assets 1,006,962 924,859
----------- -----------
Deferred Charges
Unamortized cost of issuing securities 322,892 350,239
Accumulated deferred income taxes 1,010,997 1,157,009
Other 45,661 42,705
----------- -----------
Total Deferred Charges 1,379,550 1,549,953
----------- -----------
Total Assets $13,359,356 $13,456,037
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
CAPITALIZATION AND LIABILITIES (unaudited) (audited)
------------ -----------
<S> <C> <C>
Capitalization
Long-term debt $ 5,112,675 $ 4,887,733
Unamortized premium and (discount) on debt (17,582) (17,393)
----------- -----------
5,095,093 4,870,340
----------- -----------
Preferred stock - redemption required 648,100 649,150
Preferred stock - no redemption required 63,985 64,038
----------- -----------
Total Preferred Stock 712,085 713,188
----------- -----------
Common stock 590,633 561,662
Premium on capital stock 1,097,847 1,010,283
Capital stock expense (52,580) (50,427)
Retained earnings 779,878 711,432
----------- -----------
Total Common Shareowners' Equity 2,415,778 2,232,950
----------- -----------
Total Capitalization 8,222,956 7,816,478
----------- -----------
Regulatory Liabilities
Regulatory liability component 376,956 436,476
1989 Settlement credits 148,171 155,081
Regulatory tax liability 161,100 177,669
Other 178,543 138,612
----------- -----------
Total Regulatory Liabilities 864,770 907,838
----------- -----------
Current Liabilities
Current maturities of long-term debt 200,000 600,000
Current redemption requirements of preferred stock 4,800 4,800
Accounts payable and accrued expenses 219,542 277,519
Accrued taxes 35,914 52,656
Accrued interest 145,647 142,409
Dividends payable 57,230 54,542
Class Settlement 40,000 30,000
Customer deposits 28,108 27,046
----------- -----------
Total Current Liabilities 731,241 1,188,972
----------- -----------
Deferred Credits
Class Settlement 148,423 164,942
Accumulated deferred income taxes 2,927,888 2,932,029
Other 12,150 12,622
----------- -----------
Total Deferred Credits 3,088,461 3,109,593
----------- -----------
Reserves for Claims and Damages 13,312 8,714
----------- -----------
Pensions and Other Postretirement Benefits 438,616 424,442
----------- -----------
Commitments and Contingencies - -
----------- -----------
Total Capitalization and Liabilities $13,359,356 $13,456,037
=========== ===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 7
LONG ISLAND LIGHTING COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
1994 1993
Operating Activities --------------------------
<S> <C> <C>
Net Income $ 263,284 $ 269,216
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 96,595 91,176
Provision for doubtful accounts 15,072 14,165
Base financial component amortization 75,728 75,728
Regulatory liability component amortization (66,429) (66,429)
Rate moderation component 157,379 61,728
Rate moderation component carrying charges (25,333) (32,769)
Other regulatory amortizations 25,986 (16,027)
Class Settlement 17,153 17,570
Amortization of cost of issuing and redeeming securities 35,727 39,176
Federal income taxes - deferred and other 145,605 143,346
Allowance for other funds used during construction (1,922) (1,483)
Gas Cost Adjustment 16,070 2,971
Other 33,258 12,491
Changes in operating assets and liabilities
Accounts receivable (89,047) (112,422)
Accrued unbilled revenues (5,847) (19,016)
Materials and supplies, fuel oil and gas in storage (25,228) (13,592)
Prepayments and other current assets (404) (2,072)
Accounts payable and accrued expenses (76,534) (71,358)
Accrued taxes (16,742) (27,872)
Accrued interest 3,238 21,928
Other (29,500) (42,264)
--------- ---------
Net Cash Provided by Operating Activities 548,109 344,191
--------- ---------
Investing Activities
Construction and nuclear fuel expenditures (161,785) (175,925)
Shoreham post settlement costs (139,649) (140,172)
Other (1,120) (1,129)
--------- ---------
Net Cash Used in Investing Activities (302,554) (317,226)
--------- ---------
Financing Activities
Proceeds from issuance of long-term debt 281,992 990,975
Redemption of long-term debt (460,058) (785,000)
Proceeds from sale of common stock 113,293 -
Proceeds from sale of preferred stock - 146,198
Redemption of preferred stock (1,050) (146,850)
Preferred stock dividends paid (39,676) (43,242)
Common stock dividends paid (152,520) (145,881)
Cost of issuing and redeeming securities (5,871) (16,690)
Other 818 8,053
--------- ---------
Net Cash (Used in) Provided by Financing Activities (263,072) 7,563
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents ($17,517) $ 34,528
========= =========
Cash and cash equivalents at beginning of period $ 248,532 $ 309,485
Net (decrease) increase in cash and cash equivalents (17,517) 34,528
--------- ---------
Cash and Cash Equivalents at end of period $ 231,015 $ 344,013
========= =========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
Notes to Financial Statements
For the Quarter Ended September 30, 1994
(Unaudited)
These Notes to Financial Statements reflect events subsequent to February
4, 1994, the date of the most recent Report of Independent Auditors, through
the date of this Quarterly Report on Form 10-Q for the quarter ended September
30, 1994. These Notes to Financial Statements should be read in conjunction
with Financial Information and Other Information required to be furnished as
part of this Report, in particular, (1) Management's Discussion and Analysis of
Financial Condition and Results of Operations for the nine months ended
September 30, 1994, respecting the Company's capital requirements and
liquidity, and (2) Part II, Item 6, Reports on Form 8-K and (3) the Company's
quarterly reports on Form 10-Q for the quarters ended March 31, 1994 and June
30, 1994. In addition, these notes to financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, incorporated herein by reference.
The financial statements furnished are unaudited. However, in the opinion
of management, the financial statements include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the interim
periods presented. Operating results for these interim periods are not
necessarily indicative of results to be expected for the entire year, due to
seasonal, operating and other factors.
Certain amounts from prior year financial statements have been
reclassified to conform to the current year presentation.
8
<PAGE> 9
Note 1. RATE MATTERS
Electric Rates
In December 1993, the Company filed a three-year electric rate plan
with the Public Service Commission of the State of New York (PSC) for the
period beginning December 1, 1994 (Rate Proposal). The Rate Proposal, which
may be approved, modified or rejected by the PSC, requests an allowed rate of
return on common equity of 11.0% and provides for zero percent base rate
increases in years one and two of the plan and an overall rate increase of 4.3%
in the third year. Although base electric rates would be frozen during the
first two years of the Rate Proposal, annual rate increases of approximately 1%
and 2% are expected to result in years one and two, respectively, from the
operation of the Company's fuel cost adjustment (FCA) mechanism. The FCA
captures, among other things, amounts to be recovered from or refunded to
ratepayers in excess of $15 million which result from the reconciliation of
revenues, certain expenses and earned performance incentive components as
prescribed by the Long Island Lighting Company Ratemaking and Performance Plan
(LRPP), more fully discussed in Note 3 of the Company's Annual Report on Form
10-K.
The Rate Proposal reflects four underlying objectives: (i) to limit
the balance of the Rate Moderation Component (RMC) during the three-year period
to no more than its 1992 peak balance of $652 million; (ii) to recover the RMC
within the time frame established in the 1989 Settlement; (iii) to minimize,
beginning in the third year of the Rate Proposal, the final three rate
increases contemplated in the 1989 Settlement that follow the two-year rate
freeze period; and (iv) to continue the Company's gradual return to financial
health.
In September of this year, three Administrative Law Judges (ALJs) of
the PSC issued a recommended decision to the PSC with respect to the Company's
electric rate plan. The ALJs agreed with the Company's proposed 11% return on
common equity and its proposal to freeze base electric rates for the first rate
year. While no explicit recommendation was made concerning the second year,
the recommended decision implies that base rates could remain frozen for the
second rate year as well.
With respect to the third rate year beginning December 1, 1996, the
ALJs determined that it was not appropriate for them to issue a recommendation
since, in their opinion, the Company's revenue requirements for this third year
cannot be precisely determined at this time. Alternatively, the ALJs
encouraged the Company and other parties in this proceeding to negotiate a
settlement concerning any rate increase for this third rate year. If a
settlement is not reached, the recommended decision contemplates that the
Company would file a subsequent proposal with the PSC at the appropriate time.
9
<PAGE> 10
The staff of the PSC (Staff) and other intervening parties filed
testimony in response to the Rate Proposal. Staff concurs with the Company's
proposal for an 11.0% return on common equity in each of the three years and
has reaffirmed its commitment to the principles of the Rate Moderation
Agreement (RMA), including the full recovery of the RMC within the time frame
established by the RMA. However, Staff has recommended an overall zero percent
rate increase for the first two years, contrasted with the Company's proposal
(and the ALJs' recommended decision discussed above) for a zero percent base
rate increase and FCA adjustments of about 1% and 2% in years one and two,
respectively, as described above. Staff did not make a firm recommendation for
the level of rate relief in the third year.
The Consumer Protection Board and Long Island Power Authority jointly
filed testimony in which they proposed that current electric rates be reduced.
Other intervenors have also proposed various adjustments to the Rate Proposal.
The PSC had been expected to issue a final order on the Company's rate
proposal before November 29, 1994, the date the statutory suspension period is
currently scheduled to terminate. However, in order to accommodate further
settlement negotiations in the proceeding, the Company has requested that the
PSC extend the suspension period for an additional 45 days through January 15,
1995. The Company believes that this request will be considered by the PSC in
November 1994. The Company's offer to extend the suspension period is
conditioned upon the continuation of the current LRPP rate mechanisms. The
Company is unable to predict the ultimate outcome of this rate proceeding.
Note 2. CAPITALIZATION
In June 1994, the Company issued 5.1 million shares of common stock at
$20 per share, $100 million of General and Refunding Bonds, 7 5/8% Series Due
1998, and $185 million of General and Refunding Bonds, 8 5/8% Series Due 2004.
The net proceeds from the sale of these securities, together with cash on hand,
were applied in June and July toward: (i) the repayment, at maturity, of $25
million of 4 5/8% First Mortgage Bonds and $400 million of 10.25% Debentures
and (ii) the redemption of $4.5 million of Debentures, 11.375% Series due 2019,
and $30.5 million of Debentures, 10.875% Series due 1999.
In October 1994, the Company received the proceeds from the sale of
$50 million of Electric Facilities Revenue Bonds through New York State Energy
Research and Development Authority. The proceeds from this offering were used
to reimburse the Company's treasury for projects already completed.
10
<PAGE> 11
Note 3. EXCESS EARNINGS - GAS
A three-year gas rate settlement between the Company and the Staff of the
PSC, that became effective December 1, 1993, provides, among other matters,
that earnings in excess of a 10.6% rate of return on common equity in each of
the three years covered by the settlement be shared equally between the
Company's firm gas customers and its shareowners. For a further discussion of
the gas rate settlement, see Note 3 of Notes to Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1993.
For the nine months ended September 30, 1994, the Company recorded a
reduction to earnings of $4.9 million, net of tax effects, to reflect the firm
gas customer's portion of estimated gas earnings in excess of the 10.6% return
on common equity for the rate year ending November 30, 1994. The Company
computed this amount based upon the aggregate of actual operating gas income
for the 10 month period ended September 30, 1994 and forecasted gas operating
income for the two month period ending November 30, 1994. However, since the
actual amount of earnings in excess of the 10.6% rate of return on common
equity will not be determined until the completion of the rate year, amounts
charged to earnings during the year will be subject to adjustments as actual
financial data replaces forecasted data in the Company's excess earnings
calculation.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
RESULTS OF OPERATIONS
EARNINGS
Earnings for common stock for the three months ended September 30,
1994 were $155.6 million or $1.32 per common share, compared to $131.0 million
or $1.17 per common share for the same period last year. For the nine months
ended September 30, 1994, earnings for the common stock totaled $223.5 million,
or $1.94 per common share, compared with $226.8 million, or $2.03 per common
share for the same period of 1993.
As expected, earnings for the three months ended September 30, 1994
were positively impacted by a number of factors. These factors include: (i)
the effects of the Company's efforts to reduce operations and maintenance
expenses below the levels reflected in the Company's current rate structure;
(ii) the impact on earnings of positive cash flow from operations and the
utilization of cash balances to satisfy maturing debt; and (iii) the effects of
recognizing certain operations and maintenance expenses earlier in 1994 than in
1993, which resulted, and will continue to result, in a lower level of these
expenses during the remainder of the year.
Earnings for the nine month period ended September 30, 1994 compared
to the similar period in 1993 were affected by certain factors including: (i)
a provision in the Company's gas rate structure that was not in effect prior to
December 1, 1993 that requires earnings in excess of a 10.6% return on common
equity to be shared equally between the Company's firm gas customers and its
shareowners; (ii) a lower allowed rate of return on common equity for the
Company's gas business; (iii) lower gas revenues in 1994 resulting from a
refinement in the Company's procedures used to estimate revenues not yet
billed, which will in turn increase gas revenues later in 1994; (iv) the
recognition in the first quarter of 1994 of previously deferred storm costs;
and (v) the recognition in 1993 of the benefits associated with certain tax
credits that the Company does not anticipate in 1994.
While the Company can give no assurances, it is expecting that its
1994 annual earnings will be comparable to its 1993 annual earnings. The
Company believes that the factors which positively affected earnings for the
three months ended September 30, 1994 will continue to positively impact
earnings for the remainder of 1994.
12
<PAGE> 13
REVENUES
Total revenues for the three months ended September 30, 1994, were $913.4
million, representing an increase of $63.7 million, or 7.5% over total revenues
for the three months ended September 30, 1993. Electric revenues increased by
$55.1 million, or 6.9%, while gas revenues increased $8.7 million, or 19.8%,
when compared to the same period of the prior year.
For the nine months ended September 30, 1994, total revenues were $2.4
billion, representing an increase of $196.9 million, or 8.9%, over total
revenues for the comparable period of 1993. Electric revenues increased by
$134.5 million, or 7.3%, while gas revenues were up $62.4 million, or 16.9%,
over the same period of the prior year.
Electric
The increase in electric revenues for the three and nine month periods
ended September 30, 1994, when compared to the same period in 1993, is
primarily the result of an electric rate increase of 4.0% effective December 1,
1993, higher sales volumes, and the current recovery of approximately $2.8
million per month of certain deferrals relating to the rate year that ended
November 30, 1992. The Public Service Commission of the State of New York
(PSC) has authorized the Company to recover these deferrals through the
Company's fuel cost adjustment (FCA) clause over a twelve-month period which
began in August 1993 and to continue to recover such monthly amounts through
November 30, 1994. Amounts recovered after August 1994 will be used to reduce
the Rate Moderation Component (RMC) balance. In the Company's offer to extend
the suspension period in the pending electric rate case, discussed in Note 1 of
Notes to Financial Statements, the Company is seeking to continue to recover
these deferrals until a definitive rate order is approved. For a further
discussion of the Company's rate matters, see Note 3 of Notes to Financial
Statements included in the Annual Report on Form 10-K for the year ended
December 31, 1993.
The Company's current electric rate structure provides for a revenue
reconciliation mechanism which mitigates the impact on earnings of experiencing
electric sales that are above or below levels reflected in rates. For the
three months ended September 30, 1994 and 1993, the Company recorded non-cash
expense, which is included in "Other Regulatory Amortizations" on the Company's
Statement of Income, of $27.3 million and $13.6 million, respectively, as a
result of electric sales that were higher than those that were adjudicated by
the PSC. For the nine months ended September 30, 1994 and 1993, the Company
recorded non-cash income of $20.0 million and $27.9 million respectively, as a
result of electric sales that were lower than those that were adjudicated by
the PSC.
13
<PAGE> 14
Gas
The increase in gas revenues for the three months ended September 30,
1994 when compared to the same period in 1993, is primarily attributable to a
4.7% rate increase effective December 1, 1993 and to higher sales volumes.
The increase in gas revenues for the nine months ended September 30,
1994, compared with the same period of 1993, was primarily attributable to the
4.7% rate increase, the addition of over 6,500 gas space heating customers when
compared to the nine months ended September 30, 1993, higher consumption levels
driven by a colder winter in 1994 and significant increases in off-system
sales, partially offset by a refinement in the Company's procedures for
estimating revenues not yet billed. Also contributing to the increase in
revenues was the recovery of additional gas fuel costs, resulting from higher
sales volumes and higher gas prices.
FUELS AND PURCHASED POWER
Fuels and purchased power expenses for the three and nine months ended
September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/94 9/30/93 9/30/94 9/30/93
------- ------- ------- -------
(In Millions)
<S> <C> <C> <C> <C>
Fuels for Electric Operations
Oil $ 38 $ 55 $128 $140
Gas 36 35 71 74
Nuclear 4 4 11 11
Purchased Power 81 73 230 221
---- ---- ---- ----
Total Electric 159 167 440 446
Gas Fuels 20 21 217 174
---- ---- ---- ----
Total $179 $188 $657 $620
==== ==== ==== ====
</TABLE>
The mix of fuels and purchases of power for providing the Company's
electric system energy requirements during the three and nine months ended
September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/94 9/30/93 9/30/94 9/30/93
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oil 22% 31% 29% 33%
Gas 31 29 21 20
Nuclear 8 8 8 9
Purchases 39 32 42 38
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
14
<PAGE> 15
OPERATIONS AND MAINTENANCE EXPENSES
Total operations and maintenance (O&M) expenses, exclusive of fuels and
purchased power, amounted to $125.9 million for the three months ended
September 30, 1994, representing an increase of $.6 million, or 0.5%, over the
comparable three month period of 1993. For the nine months ended September 30,
1994, these expenses totaled $398.8 million, up $21.5 million, or 5.7%, over
the comparable period of 1993, but below levels reflected in the Company's
current rate structure.
The increases in O&M for the nine months ended September 30, 1994,
when compared to the same period of 1993, are primarily attributable to the
earlier recognition of pension and benefits expenses. The earlier recognition
of these expenses in 1994 will result in a reduction of these expenses during
the remainder of the year, thereby having a positive impact on earnings in the
fourth quarter of 1994 when compared to the same period in 1993. In addition,
during the nine months ended September 30, 1994, the Company recognized
previously deferred storm costs.
RATE MODERATION COMPONENT
For the three months ended September 30, 1994 and 1993, the Company
recorded charges to income of approximately $61.2 million and $29.0 million,
respectively, reflecting the amortization of the RMC. The RMC reflects the
difference between the Company's revenue requirements under conventional
ratemaking and revenues resulting from the implementation of the rate
moderation plan provided for in the Rate Moderation Agreement (RMA). At
September 30, 1994 and December 31, 1993, the unamortized RMC balances were
$487.7 million and $609.8 million, respectively.
For the nine months ended September 30, 1994 and 1993, the charges to
income reflecting the amortization of the RMC totalled $157.4 million and $61.7
million, respectively.
OPERATING TAXES
Operating taxes for the three months ended September 30, 1994 amounted to
$106.1 million, representing a decrease of $3.4 million, or 3.1%, from the
comparable three month period 1993. Operating taxes for the nine months ended
September 30, 1994 amounted to $308.4 million, representing an increase of
$20.1 million, or 7.0% from the comparable period of 1993. The increase in
operating taxes for the nine months ended September 1994 reflects higher
revenue, property, payroll and dividend taxes and adjustments relating to 1992
which were recorded in the first nine months of 1993.
15
<PAGE> 16
INTEREST EXPENSE
For the three months ended September 30, 1994, interest expense
amounted to $123.2 million, representing a decrease of $11.3 million when
compared to the same period of 1993. For the nine months ended September 30,
1994, interest expense totaled $381.3 million, a decrease of $21.4 million
compared with the same period of 1993. The decrease in interest expense for
the three and nine month periods ended September 30, 1994, is primarily
attributable to lower interest rates on outstanding debt as a result of the
Company's aggressive refinancing efforts in 1993, coupled with reduced levels
of debt because the Company used cash on hand and from the issuance of common
stock during 1994 to satisfy a portion of maturing debt.
16
<PAGE> 17
FINANCIAL CONDITION
LIQUIDITY
At September 30, 1994, the Company's cash and cash equivalents amounted to
approximately $231 million, compared to $249 million at December 31, 1993. The
decrease in cash and cash equivalents reflects the Company's cash management
strategy to apply available cash balances toward maturing debt and to forgo the
external financing normally associated with capital additions. The Company
also has a $300 million revolving line of credit through October 1, 1995,
provided by its 1989 Revolving Credit Agreement (1989 RCA). At September 30,
1994, no amounts were outstanding under the 1989 RCA. This line of credit is
secured by a first lien upon the Company's accounts receivable and fuel oil
inventories.
FINANCING PROGRAMS
The Company is committed to improving its debt-to-equity ratio through
the issuance of common equity, growth in retained earnings and debt reduction
from the use of cash from operations. Accordingly, the Company in June 1994
issued a total of 5.1 million shares of common stock, representing the first
time in approximately ten years that the Company issued common equity other
than through its Automatic Dividend Reinvestment Plan, Employee Stock Purchase
Plan or its Convertible Preferred Stock, 5 3/4%, Series I.
Net proceeds from the sale of common stock totalling approximately $99
million combined with the issuance of $285 million of General and Refunding
Bonds during the year were applied toward the repayment, at maturity, of $400
million aggregate principal amount of debentures and the redemption of $30
million of debentures which were scheduled to mature in 1999 and $5 million of
debentures which were scheduled to mature in 2019. The balance of funds needed
to retire/redeem the above debt and the retirement of $25 million of First
Mortgage Bonds were provided by cash on hand.
In October, the Company received the proceeds from the sale of $50
million of Electric Facilities Revenue Bonds through New York State Energy
Research and Development Authority. The proceeds from this offering were used
to reimburse the Company's treasury for projects already completed.
The Company is currently planning to satisfy $175 million of
debentures maturing in November 1994 with cash on hand.
17
<PAGE> 18
CAPITAL REQUIREMENTS AND CAPITAL PROVIDED
Capital requirements and capital provided for the three and nine
months ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Capital Requirements Three Months Ended Nine Months Ended
September 30, 1994 September 30, 1994
- -----------------------------------------------------------------------------------
(In Millions of Dollars)
<S> <C> <C>
Total Construction $ 79 $ 162
- -----------------------------------------------------------------------------------
Refundings and Dividends
Long-term debt 35 460
Preferred stock 1 1
Preferred stock dividends 14 40
Common stock dividends 52 152
Redemption costs 2 6
- -----------------------------------------------------------------------------------
Total Refundings and Dividends 104 659
- -----------------------------------------------------------------------------------
Shoreham post settlement costs 31 140
- -----------------------------------------------------------------------------------
Total Capital Requirements $ 214 $ 961
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Capital Provided Three Months Ended Nine Months Ended
September 30, 1994 September 30, 1994
- -----------------------------------------------------------------------------------
(In Millions of Dollars)
<S> <C> <C>
(Increase)Decrease in cash $ (88) $ 18
Long-term debt - 282
Common stock issued 5 113
Other financing activities 1 -
Internal cash generation from
operations 296 548
- -----------------------------------------------------------------------------------
Total Capital Provided $ 214 $ 961
===================================================================================
</TABLE>
For further information, see the Statement of Cash Flows.
18
<PAGE> 19
RATE MATTERS
In December 1993, the Company filed a three-year electric rate plan
with the PSC for the period beginning December 1, 1994 (Rate Proposal). The
Rate Proposal, which may be approved, modified or rejected by the PSC, requests
an allowed rate of return on common equity of 11.0% and provides for zero
percent base rate increases in years one and two of the plan and an overall
rate increase of 4.3% in the third year. Although base electric rates would be
frozen during the first two years of the Rate Proposal, annual rate increases
of approximately 1% and 2% are expected to result in years one and two,
respectively, from the operation of the Company's fuel cost adjustment (FCA)
mechanism. The FCA captures, among other things, amounts to be recovered from
or refunded to ratepayers in excess of $15 million which result from the
reconciliation of revenue, certain expenses and earned performance incentive
components as prescribed by the Long Island Lighting Company Ratemaking and
Performance Plan.
The Rate Proposal reflects four underlying objectives: (i) to limit
the balance of the Rate Moderation Component (RMC) during the three-year period
to no more than its 1992 peak balance of $652 million; (ii) to recover the RMC
within the time frame established in the 1989 Settlement; (iii) to minimize,
beginning in the third year of the Rate Proposal, the final three rate
increases contemplated in the 1989 Settlement that follow the two-year rate
freeze period; and (iv) to continue the Company's gradual return to financial
health.
In September of this year, three Administrative Law Judges (ALJs) of
the Public Service Commission of the State of New York (PSC) issued a
recommended decision to the PSC with respect to the Company's electric rate
plan. The ALJs agreed with the Company's proposed 11% return on common equity
and its proposal to freeze base electric rates for the first rate year. While
no explicit recommendation was made concerning the second year, the recommended
decision implies that base rates could remain frozen in the second year as
well.
The Staff and other intervening parties filed testimony in response to
the Rate Proposal. Staff concurs with the Company's proposal for an 11.0%
return on common equity in each of the three years and has reaffirmed its
commitment to the principles of the Rate Moderation Agreement (RMA), including
the full recovery of the RMC. However, Staff has recommended an overall zero
percent rate increase for the first two years, contrasted with the Company's
proposal for a zero percent base rate increase and FCA adjustments of 1% and 2%
in years one and two, respectively, as described above. Staff has not yet made
a firm recommendation for the level of rate relief in the third year.
The Consumer Protection Board and Long Island Power Authority jointly
filed testimony in which they proposed that current electric rates be reduced.
Other intervenors have also proposed various adjustments to the Rate Proposal.
19
<PAGE> 20
Because the statutory suspension period in the Company's pending
electric rate proceeding is currently scheduled to terminate on November 29,
1994, the PSC had been expected to issue a final order on the Company's rate
proposal at that time. To accommodate further settlement negotiations in the
proceeding, however, on October 7, 1994, the Company requested that the PSC
extend the suspension period for an additional 45 days. The Company's offer to
extend the suspension period is conditioned upon the continuation of its
current revenue and expense reconciliation mechanisms. The Company is unable
to predict the ultimate outcome of this rate proceeding.
LIPA/NYPA PROPOSAL
At the request of the Governor of the State of New York, on October
13, 1994 the chief executives of the New York Power Authority (NYPA) and the
Long Island Power Authority (LIPA) invited the Company to enter into
negotiations with them regarding a proposal to convert the Company into a
public power utility. Under this proposal, the two state authorities
contemplate a business combination in which holders of the Company's common
stock would receive $21.50 in cash for each outstanding share of the Company's
common stock. NYPA/LIPA indicated that the completion of this transaction is
subject to, among other things, the availability of tax-exempt financing
sufficient to complete the transaction and the verification by NYPA and LIPA of
the feasibility of rate reductions in excess of 10%. The Company's Board of
Directors has authorized the Company to commence discussions with LIPA and
NYPA to explore the proposal in greater detail. The Company cannot predict the
duration of these discussions or their outcome.
COMPETITIVE ENVIRONMENT
The Company believes that competitive forces are a factor in the
electric utility industry. Some of the factors affecting competition,
applicable to the Company, are discussed below.
Current Competitive Factors: The development of the non-utility
generator (NUG) industry has been encouraged by federal and state legislation.
There are two ways that NUGs can negatively impact the Company: first, NUGs
may locate on a customer's site, providing part or all of that customer's
electric energy requirements. The Company estimates that in 1993, it lost
sales to on-site NUGs generating a total of 234 gigawatt-hours (Gwh)
representing approximately $20 million in revenues, net of fuel, or
approximately 1.0% of the Company's 1993 net revenues. Second, in accordance
with the Public Utility Regulatory Policies Act of 1978 (PURPA), the Company is
required to purchase all the power offered by NUGs that are Qualified
Facilities (QF). QFs have the choice of pricing these sales at either (i) PSC
published estimates of the Company's long run avoided costs (LRAC) or (ii) the
Company's tariff rates which reflect the Company's actual avoided cost.
Additionally, until repealed in 1992, New York State law set a minimum price of
six cents per kilowatt-hour (Kwh) for certain categories of QFs, considerably
above the Company's avoided cost. The six-cent
20
<PAGE> 21
minimum now only applies to contracts entered into before June 1992. The
Company believes that the repeal of the six-cent law, coupled with the PSC's
updates which resulted in lower LRAC estimates, has significantly reduced the
economic benefits to QFs seeking to sell power to the Company.
As of December 31, 1993, 39 QFs were on-line and selling approximately
200 megawatts (MW) of power to the Company. The Company estimates that in
1993, purchases from QFs required by federal and state law cost the Company $47
million more than it would have cost had the Company generated this power
itself. However, with the exception of approximately 40 MW of power to be
produced annually at the Stony Brook Campus of the State University of New York
(Stony Brook) beginning in early 1995, the Company does not expect any
significant new NUGs to be built on Long Island in the foreseeable future.
After the anticipated loss of the Stony Brook load, the Company
expects that electric load losses will stabilize. The Company believes that a
number of factors will mitigate load loss, including customer load
characteristics, such as a lack of a significant industrial base and
accompanying large thermal load, which would make cogeneration economically
attractive. Also, the Company's geographic location and the limited electrical
interconnections to Long Island limit the accessibility of its transmission
grid to potential competitors.
For over a decade, the Company has voluntarily provided wheeling of
New York Power Authority (NYPA) power for economic development. As a result,
NYPA power has displaced approximately 400 Gwh of energy sales. The net
revenue loss associated with this amount of sales is approximately $27 million
or 1.3% of the Company's 1993 net revenues. Currently, the potential loss of
additional load is limited by conditions in the Company's transmission
agreements with NYPA.
Competition for customer loads also comes from other electric
utilities (including those in Connecticut, New York, and New Jersey) which seek
to attract commercial and industrial customers to relocate within their service
territories by offering reduced rates and other incentives. In order to retain
existing and attract new commercial and industrial customers, the Company
offers an Economic Development Rate which provides rate abatement to new or
existing customers that qualify under the program approved by the PSC.
Potential Competitive Factors: In the pending rate proceeding
discussed above, Staff expressed concern over the competitive position of New
York State utilities and their ability to meet competition. In order to
address competitive opportunities generally available to electric and gas
customers, the PSC has instituted a generic proceeding in which they have
adopted guidelines for allowing New York State utilities to negotiate flexible
rates with individual customers in order to avoid additional loss of sales. In
addition, the PSC is seeking to establish principles that will help guide the
transition of the industry to increased competition. Further phases of this
proceeding may address
21
<PAGE> 22
wholesale and retail competition. Until the scope of any such competitive
proposals are known, the Company is unable to predict what impact they may have
on the Company.
Recently, LIPA indicated that it would hold public hearings to discuss
proposals to build a 400-450 MW natural gas-powered generating plant at
Shoreham scheduled for operation as early as 1996, which reportedly would
result in ratepayer savings of between $283 million and $458 million over 20
years. However, based on previous LIPA and Company studies analyzing the
feasibility of building a gas-powered plant at Shoreham, the Company continues
to believe that such a facility would not result in ratepayer savings. This
view is supported by the February 1994 draft State Energy Plan issued by the
New York State Energy Planning Board which states that bringing a gas-powered
facility at Shoreham on line before the turn of the century would raise the
Company's rates. The Company is unable, however, to predict the likelihood of
a generating unit operating at the Shoreham site particularly in view of LIPA's
proposal to take over the Company. The impact, if any, on the Company of the
operation of such a plant would depend on the nature of the project, the price
at which it would propose to sell power and other factors.
In addition, on May 12, 1994, a petition was filed with the PSC by the
Education/Electric Buying Group asking the PSC to require the Company to
transport power purchased from other electricity producers to member school
districts on Long Island. The Company believes that the proposed request is in
conflict with existing federal and state policy and will oppose this petition.
The Company is currently unable to predict the action, if any, that the PSC may
take regarding this petition, or the impact on the Company if this proposal
were ultimately approved.
Other: Proposals purporting to address the high cost of electricity
on Long Island include: a takeover by the Town of Southampton of the Company's
facilities located in the Town of Southampton, distribution of cheaper
electricity by a Suffolk County Municipal Distribution Authority, the purchase
of cheaper electricity from non-LILCO sources by a cooperative of Long Island
school districts and a corporate spin-off of nuclear power plants and/or fossil
generating units within the State.
These proposals present substantial social, economic, legal,
environmental and financial issues. The Company is opposed to any proposal
that merely shifts costs from one group of ratepayers to another, that fails to
enhance the provision of least-cost, efficiently-generated electricity or that
fails to provide the Company's shareowners with an adequate return on and
recovery of their investment. The likelihood of success of these proposals is
uncertain.
22
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company has been named a potentially responsible party for
disposal sites in both Kansas City, Kansas, and Kansas City, Missouri. The
Environmental Protection Agency alleges that the Company had previously stored
or made an agreement for disposal of Polychlorinated Biphenyls (PCBs) or
PCB-containing items at each of these sites. The Company cannot determine the
costs for remediation or its liability, if any, until investigations are
conducted.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Long Island Lighting Company Officers' and Directors'
Protective Trust dated as of April 18, 1988 as amended and restated as
of September 1, 1994 by and between the Company and Clarence Goldberg,
as Trustee (Exhibit 10).
Financial Data Schedule (Exhibit 27).
23
<PAGE> 24
b. Reports on Form 8-K
In its Report on Form 8-K dated July 29, 1994, the Company reported
earnings for the three and six month periods ended June 30, 1994 and disclosed
the declaration of a quarterly common stock dividend of 44.5 cents per share
payable on October 1, 1994 to shareowners of record on September 9, 1994.
In its Report on Form 8-K dated September 23, 1994, the Company reported
that on September 8, 1994, three Administrative Law Judges of the PSC issued a
recommended decision to the PSC with respect to the Company's electric rate
plan for the three year period beginning December 1, 1994.
No other reports on Form 8-K were filed in the third quarter of 1994.
24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY
(Registrant)
By /s/ANTHONY NOZZOLILLO
---------------------------
ANTHONY NOZZOLILLO
Senior Vice President and
Principal Financial Officer
Dated: October 31, 1994
25
<PAGE> 26
EXHIBIT INDEX
Exhibit # Description Page #
- --------- ------------------------ -----
Ex-10 Long Island Lighting Company Officers' and Directors'
Protective Trust dated as of April 18, 1988 as amended
and restated as of September 1, 1994 by and between the
Company and Clarence Goldberg, as Trustee (Exhibit 10).
Ex-27 Financial Data Schedule (Exhibit 27).
<PAGE> 1
LONG ISLAND LIGHTING COMPANY
OFFICERS' AND DIRECTORS' PROTECTIVE TRUST
DATED AS OF APRIL 18, 1988
AS AMENDED AND RESTATED AS OF
SEPTEMBER 1, 1994
<PAGE> 2
THIS TRUST AGREEMENT, initially made and entered into as of
the 18th day of April 1988, by and between Long Island Lighting Company, a
corporation organized under the laws of New York (the "Company"), and Clarence
Goldberg, a resident of the State of Maryland, as trustee (the "Trustee") and
subsequently amended and restated as of the first day of September 1994.
W I T N E S S E T H T H A T :
WHEREAS, the Company maintains directors' and officers'
liability insurance policies, including an excess liability policy providing
such coverage ("D&O Insurance Policies"), from commercial insurance companies
for the purposes of protecting its business by limiting its liability for the
wrongful acts of its directors and officers performed in their official
capacities, as well as encouraging capable persons to serve as directors,
consulting directors and officers of the Company without undue fear of legal
entanglement; and
WHEREAS, the Company has entered into separate indemnity
agreements providing contractual indemnification (individually an "Agreement"
and collectively the "Agreements") with each of the directors and officers
(individually an "Indemnitee" and collectively the "Indemnitees") and has
entered into this Trust Agreement establishing a trust to which the Company has
heretofore and shall hereafter from time to time transfer funds in order to
supplement and replace, if necessary, the Company's existing directors' and
officers' liability
<PAGE> 3
insurance and to satisfy the Company's contractual obligations under the
Agreements; and
WHEREAS, the Agreements with the directors and officers were
entered into and this Trust Agreement was established pursuant to Article IV of
the Company's By-Laws, entitled "Indemnification", the adoption of which was
authorized by the Board of Directors of the Company at a meeting duly convened
and held on October 27, 1987; and
WHEREAS Article IV of the Company's By-Laws authorizes the
Company to enter into agreements with any of its directors and officers
extending rights to indemnification and advancement of expenses to such person
to the fullest extent permitted by applicable law; and
WHEREAS, the Company intends to provide consulting directors
with the same benefits as have been provided to directors and officers as
Indemnitees hereunder; and
WHEREAS, Agreements with consulting directors have been
entered into pursuant to Section 722 of the Business Corporation Law which
confirms any rights to indemnification to which corporate personnel other than
directors and officers may be entitled by contract or otherwise under law; and
WHEREAS, the Trust established by this Trust Agreement
provides for the use of corpus and income (including capital gains) to
discharge the Company's obligations to Indemnitees according to the Agreements
and is intended to be a "grantor trust" with the result that the Company shall
be treated as the owner of all corpus and income of said trust under Sections
671
- 3 -
<PAGE> 4
through 679 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code").
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the Company and the Trustee hereby agree as follows:
SECTION 1. Establishment and Title of the Trust.
1.1 The Company has established with the Trustee a trust
known as the "Long Island Lighting Company Officers' and Directors' Protective
Trust" (the "Trust") to accept such sums of money and other property acceptable
to the Trustee as from time to time shall be paid or delivered to the Trustee.
All such money and other property, all investments and reinvestments made
therewith or proceeds thereof and all earnings and profits thereon, less all
payments and charges as authorized herein, are hereinafter referred to as the
"Trust Fund." The Trust Fund shall be held by the Trustee and shall be dealt
with in accordance with the provisions of the Trust Agreement. The Trust Fund
shall be held for the exclusive purpose of (i) providing payments of such
claims and expenses which constitute the Covered Amount under the terms of each
Agreement and (ii) paying other amounts provided for under the terms of each
Agreement and this Trust Agreement, including reasonable expenses of
administration in accordance with the provisions of this Trust Agreement, until
all such payments required by this Trust Agreement and the Agreements have been
made; provided, however, that the Trust Fund
- 4 -
<PAGE> 5
shall at all times be subject to the claims of the creditors of the Company, as
set forth in Section 8 of this Trust Agreement.
SECTION 2. Identification of the Indemnitees and Notification.
2.1 The names of the Indemnitees of the Trust are listed
in Exhibit A attached hereto. From time to time the Company hereby agrees to
notify the Trustee of the names and addresses of additional directors,
consulting directors and officers which are added as Indemnitees of this Trust
and to deliver copies of the Agreements of such persons added as Indemnitees to
the Trustee. Subsequent to the occurrence of a "Change of Control" of the
Company, the Company shall not add any directors, consulting directors or
officers who are not Continuing Directors or Continuing Officers as Indemnitees
of the Trust. For purposes of this Section 2.1, the term "Continuing Officer"
shall mean any individual who was an officer of the Company on the date hereof,
or is designated (before any person's initial election as an officer) as a
Continuing Officer by a majority of the then remaining Continuing Directors.
2.2 The Company shall notify the Trustee when an
Indemnitee ceases to be a director, consulting director or officer of the
Company and simultaneously provide a copy of such notification to the affected
Indemnitee (the "Initial Notice"). The Trustee shall also provide a copy of
the Initial Notice to the affected Indemnitee no later than fifteen (15) days
following the Trustee's receipt thereof. Indemnitees who have ceased to be
directors, consulting directors or officers prior to April 18,
- 5 -
<PAGE> 6
1988 are identified in Part III of Exhibit A, and neither the Company nor the
Trustee shall have any obligation to deliver an Initial Notice to any of such
Indemnitees. The Company shall subsequently notify the Trustee after the
statute of limitations for Covered Acts has expired with respect to any
Indemnitee who is no longer a director, consulting director or officer and as
to whom no claims, actions, suits or proceedings arising from or relating to
Covered Acts are pending (the "Additional Notice"). The Company shall
simultaneously provide a copy of the Additional Notice to the affected
Indemnitee, and the Trustee shall also provide a copy of the Additional Notice
to the affected Indemnitee no later than fifteen (15) days following the
Trustee's receipt thereof. Any former director, consulting director or officer
to which such notice is directed shall cease to be an Indemnitee under this
Trust Agreement upon the expiration of thirty (30) days following the receipt
of the Additional Notice from the Company or the Trustee, whichever is earlier
received; provided, however, that subsequent to a Change of Control, his or her
status as an Indemnitee shall not terminate unless and until such former
director, consulting director or officer shall have consented in writing to
such termination.
SECTION 3. Acceptance by the Trustee.
3.1 The Trustee has accepted the Trust established under
this Trust Agreement on the terms and subject to the provisions set forth
herein, and has agreed to discharge and
- 6 -
<PAGE> 7
perform fully and faithfully all of the duties and obligations imposed upon the
Trustee under this Trust Agreement.
SECTION 4. Limitation on Use of Funds.
4.1 No part of the income or corpus of the Trust Fund shall
be recoverable by the Company or used for any purpose other than as provided in
Section 1.1; provided, however, that nothing in this Section 4.1 shall be
deemed to limit or otherwise prevent the payment from the Trust Fund of
expenses and other charges as provided in Sections 9.1 and 9.2 of this Trust
Agreement or the application of the Trust Fund as provided in Section 13.1 of
this Trust Agreement. In no event shall the Company contest the status of the
Trust as a grantor trust.
SECTION 5. Duties and Powers of the Trustee.
5.1 Until the Trust is terminated as provided in Section
13.1, the Trustee shall (i) invest and reinvest the principal and income of the
Trust Fund and keep the Trust Fund invested, without distinction between
principal and income, primarily in interest bearing liquid investments, other
than any obligations or other securities issued by the Company or any
affiliated or successor entity, and (ii) have such additional powers and
authority as set forth in Exhibit D attached hereto.
SECTION 6. Payments by the Trustee.
6.1 The establishment of the Trust and the payment or
delivery to the Trustee of money or other property acceptable to the Trustee
has not and shall not vest in an Indemnitee any
- 7 -
<PAGE> 8
right, title or interest in and to any assets of the Trust or any payments
except as otherwise set forth in this Section 6.
6.2(a) Except as otherwise provided in Section 6.2(b) below,
the Trustee shall distribute funds to an Indemnitee with respect to a claim
(other than for Enforcement Expenses or Trust Enforcement Expenses (as defined
in Section 12.3 hereof)) within 20 days of receipt of a certificate signed by
the Indemnitee, in substantially the form set forth in Exhibit B attached
hereto.
(b) Within seven days of receipt by the Trustee of a
certificate of any Indemnitee as provided in Section 6.2(a) above, the Trustee
will notify the Company of the receipt of such certificate and provide it with
a copy thereof. In the event that, with respect to such a certificate received
by the Trustee prior to a Change of Control, the Company delivers to the
Trustee within seven days of the Company's receipt of the foregoing notice a
certificate to the effect that a Determination has been made that the
Indemnitee is not entitled to indemnification with respect to such claim under
the terms of the applicable Agreement, together with a copy of such
Determination, the Trustee will not disburse any funds to the Indemnitee with
respect to such claim.
(c) The Trustee shall not be required to make an
independent inquiry or decision with respect to the propriety or amount of
payment pursuant to this Section 6.2 or Section 6.3. The Trustee shall be
protected from any liability in payment or the withholding of any payment
pursuant to the provisions of this Section 6.2 or Section 6.3.
- 8 -
<PAGE> 9
6.3(a) The Trustee shall distribute funds to an Indemnitee
with respect to a claim for Enforcement Expenses or Trust Enforcement Expenses
within 20 days of receipt of a certificate signed by the Indemnitee, in
substantially the form set forth in Exhibit C attached hereto.
(b) Upon receipt of evidence satisfactory to the Trustee
that an Indemnitee is entitled to, and has not received, a "tax gross-up"
payment with respect to Enforcement Expenses as provided in Section 9(b) of the
Agreements or with respect to Trust Enforcement Expenses as provided in Section
12.3 hereof, the Trustee shall distribute funds to the Indemnitee equal to the
amount of such omitted payment.
6.4 The Agreements provide for the Company to pay Losses
and Expenses to Indemnitees from its general assets and the establishment of
this Trust shall not reduce or otherwise affect the Company's continuing
liability to pay Losses and Expenses from such assets except that the Company's
liability shall be offset by actual payments made by this Trust. If the
Company does not have one or more D&O Insurance Policies in force with respect
to an Indemnitee or the Trust Fund is not sufficient to pay Losses and Expenses
to an Indemnitee in accordance with the applicable Agreement, the Company shall
make the balance of such payment pursuant to the terms of the Agreement.
6.5 Notwithstanding anything in this Trust Agreement to the
contrary, the Company shall remain primarily liable under the applicable
Agreement to pay Losses, Expenses and Enforcement Expenses and under this Trust
Agreement to pay Trust Enforcement Expenses.
- 9 -
<PAGE> 10
SECTION 7. Funding of the Trust.
7.1 The Company made an initial contribution to the Trust
Fund of $5,000 in 1988 upon signing this Trust Agreement. The Company's
contributions to the Trust Fund shall include additional amounts as from time
to time the Company and Indemnitees agree are reasonably estimated as necessary
or desirable (or are otherwise determined pursuant to the Agreements) to pay to
the Indemnitees or to reserve for future payment to them currently claimed or
reasonably anticipated and contingent Losses and Expenses. The Company shall
from time to time contribute to the Trust Fund such amounts which are required
for defraying expenses of administering the Trust as provided in Section 9.2.
Immediately prior to the occurrence of a Change of Control, the Company shall
contribute to the Trust Fund an additional amount sufficient in the sole
judgment of a majority of the then Continuing Directors to satisfy any and all
Losses and Expenses reasonably anticipated at the time of such funding for
which the Company may indemnify the Indemnitees under the Agreements.
Following the occurrence of a Change of Control, upon written application of
one or more Indemnitees to the Company, the Company shall contribute to the
Trust Fund such additional amounts as are sufficient to satisfy any and all
Losses and Expenses reasonably anticipated at the time of such application for
which the Company may indemnify the Indemnitee or Indemnitees under the terms
of an applicable Agreement. The amount of the additional contributions to be
made by the Company shall be determined by mutual agreement of the Indemnitee
or
- 10 -
<PAGE> 11
Indemnitees and the Company and reduced to writing and signed by such
interested parties. In the event that the Indemnitee or Indemnitees and the
Company are unable to reach such an agreement, the amounts to be contributed
shall be determined by independent legal counsel selected by a majority of the
Indemnitees. The decision of such independent legal counsel shall be binding
and conclusive upon all parties for all purposes. The Trustee shall not be
responsible for (i) determining whether the amount of any contribution made is
accurate, (ii) determining whether the Company and/or the Indemnitees are
complying with the terms of the Agreements or (iii) the collection of any
contribution under this Trust Agreement.
SECTION 8. Creditors and Third Parties.
8.1 Notwithstanding any provision of this Trust Agreement or the
Agreements to the contrary, all principal, income and other property held in
the Trust Fund shall be considered assets of the Company, and shall be subject
to the claims of the Company's general unsecured creditors.
8.2 The Company hereby agrees to appoint its Chairman of the Board,
President, Secretary or Chief Financial Officer as the person (the "Designated
Person") any one of whom shall notify the Trustee should the Company become
Insolvent. The Company shall advise the Trustee from time to time of the name
of the Designated Person. The Designated Person shall have an affirmative duty
to notify the Trustee of the Company's
- 11 -
<PAGE> 12
Insolvency in writing within ten days of establishing that the Company is
Insolvent. After notification in writing to the Trustee by (i) the Designated
Person of the Company's Insolvency or (ii) a creditor of the Company alleging
that the Company has become Insolvent, the Trustee shall discontinue advances
and/or payments to the Indemnitees, and shall hold the Trust assets for the
benefit of the Company's general unsecured creditors. The Trustee shall
deliver any undistributed principal and income in the Trust to satisfy such
claims as a court of competent jurisdiction may direct. The Trustee shall
resume advances and/or payments to the Indemnitees only after the Trustee has
either received a letter from the Company's independent auditors as to the
Company's financial status which indicates that the Company is not Insolvent or
received an order of a court of competent jurisdiction that the Company is not
Insolvent. The Trustee may rely on any letter issued by the Company's
independent auditors, or the Trustee, in its discretion, may apply for an order
from a court of competent jurisdiction.
8.3 The Company shall be considered "Insolvent" for purposes
of this Trust Agreement if, at any time, (i) the Company is unable to pay its
debts as they mature or (ii) the Company is subject as a debtor to a pending
proceeding under the Bankruptcy Code.
8.4 Prior to receipt of a notice as provided in Section 8.2
hereof from the Company or a creditor of the Company, the Trustee shall have no
duty to inquire whether the Company is
- 12 -
<PAGE> 13
Insolvent and may rely on information concerning the Company's solvency which
has been furnished to the Trustee by any person.
8.5 Nothing in this Trust Agreement shall in any way diminish
any rights of the Indemnitees to pursue their rights as general unsecured
creditors of the Company with respect to indemnification or otherwise.
SECTION 9. Taxes, Expenses and Compensation.
9.1 The Company shall from time to time pay taxes of any and
all kinds whatsoever which at any time are lawfully levied or assessed upon or
become payable in respect of the Trust Fund, the income or any property forming
a part thereof, or any security transaction pertaining thereto.
9.2 To the extent that any taxes lawfully levied or assessed
upon the Trust Fund are not paid by the Company, the Trustee shall pay such
taxes out of the Trust Fund. The Trustee shall not be responsible for the
calculation of the proper amount of any tax liability to be paid with respect
to the Trust. The Trustee may rely on the Company's advice as to the amount of
such taxes or other charges which the Trustee is required to deduct from the
Trust Fund. The Company further agrees to hold Trustee harmless from any
claims made against it, by any Indemnitee, governmental agency, or any other
person with respect to such directions or amounts.
9.3 The Trustee shall contest the validity of taxes in any
manner deemed appropriate by the Company or its counsel, but at the Company's
expense, and only if it has received an
- 13 -
<PAGE> 14
indemnity bond or other security satisfactory to it to pay any such expenses.
In the alternative, the Company may itself contest the validity of any such
taxes.
9.4 The Company shall pay the Trustee such reasonable
compensation for its services as may be agreed upon in writing from time to
time by the Company and the Trustee. Following the occurrence of a Change of
Control, the Company shall pay the Trustee such reasonable compensation for its
services, together with any reasonable increases as may be agreed upon in
writing from time to time by a majority of the Indemnitees and the Trustee.
The Trustee shall notify the Company as to its retention of any outside
professionals to perform services in connection with the Trust Fund. The
Company shall also pay the reasonable expenses incurred by the Trustee in the
performance of its duties under this Trust Agreement, including commissions,
fees and expenses of brokers, actuaries, accountants and counsel, engaged by
the Trustee. To the extent the Company does not pay such compensation and
expenses, such compensation and expenses shall be charged against and paid from
the Trust Fund.
SECTION 10. Administration and Records.
10.1 The Trustee shall keep or cause to be kept accurate and
detailed accounts of any investments, receipts, disbursements and other
transactions hereunder and all necessary and appropriate records required to
carry out the intents and purposes of this Trust, and all accounts, books and
records relating thereto shall be open to inspection and audit at all
- 14 -
<PAGE> 15
reasonable times by any person designated by the Company and, subsequent to a
Change of Control, any Indemnitee. All such accounts, books and records shall
be preserved (in original form, or on microfilm, magnetic tape or any other
similar process) for such period as the Trustee may determine. The Trustee may
only destroy such accounts, books and records after giving not less than 30
days' notice to the Company and, subsequent to a Change of Control, each of the
Indemnities, in writing, of its intention to do so (the "Destruction Notice").
If the Company or any Indemnitee, as the case may be, shall notify the Trustee
within such 30-day period of its objection to the destruction of any such
accounts, books and records, the Trustee shall maintain such accounts, books
and records until the earlier of (i) the earliest date on which none of the
Agreements shall continue in effect, and (ii) the expiration of the 30-day
period following the receipt of the Destruction Notice if no objection is
timely received.
10.2 Within 30 days after the close of each calendar year,
and within 30 days after the removal or resignation of the Trustee or the
termination of the Trust, the Trustee shall file with the Company and,
subsequent to a Change of Control, each of the Indemnitees a written account
setting forth all investments, receipts, disbursements and other transactions
effected by it during the preceding calendar year, or during the period from
the close of the preceding calendar year to the date of such removal,
resignation or termination, including a description of all investments and
securities purchased and sold with the cost or
- 15 -
<PAGE> 16
net proceeds of such purchases or sales and showing all cash, securities and
other property held at the end of such calendar year or other period. The
Trustee shall determine or cause to be determined, as of the last day of each
calendar year, the fair market value of the assets held in the Trust Fund.
Within 30 days after the close of each calendar year, the Trustee shall file
with the Company and, subsequent to a Change of Control, each Indemnitee the
written report of the determination of such fair market value and an
itemization of the assets held in the Trust Fund. Upon the expiration of 90
days from the date of filing such annual or other account, the Trustee shall to
the maximum extent permitted by applicable law be forever released and
discharged from all liability and accountability with respect to the propriety
of its acts and transactions shown in such account for such applicable period
except with respect to any such acts or transactions as to which the Company or
the affected Indemnitee shall within such 90- day period file with the Trustee
written objections.
10.3 The Trustee shall from time to time permit an
independent public accountant selected by the Company or, subsequent to a
Change of Control, by a majority of the Indemnitees, (except one to whom the
Trustee has reasonable objection) to have access during ordinary business hours
to such records as may be necessary to audit the Trustee's accounts.
10.4 Nothing contained in this Trust Agreement shall be
construed as depriving the Trustee, the Company or any Indemnitee of the right
to have a judicial settlement of the
- 16 -
<PAGE> 17
Trustee's accounts or seek instructions in connection therewith. Upon any
proceeding for a judicial settlement of the Trustee's accounts or for
instructions, the only necessary parties thereto in addition to the Trustee
shall be the Company and the Indemnitees.
10.5 In the event of the removal or resignation of the
Trustee, the Trustee shall deliver to the successor trustee all records which
shall be required by the successor trustee to enable it to carry out the
provisions of this Trust Agreement.
10.6 In addition to any returns required of the Trustee by
law, the Trustee shall prepare and file such tax reports and other returns as
the Company and the Trustee may from time to time agree. The Company shall
bear the cost of filing such returns and, at the request of the Trustee, the
Company shall have its independent auditors prepare such returns.
SECTION 11. Removal or Resignation of the Trustee and Designation of
Successor Trustee.
11.1 At any time the majority of the Indemnitees may remove
the Trustee, with or without cause, upon at least 60 days' notice in writing to
the Trustee. A copy of such notice shall be sent to the Company and the
Trustee.
11.2 The Trustee may resign at any time upon at least 60
days' notice in writing to the Company and the Indemnitees.
11.3 In the event of such removal or resignation, the Trustee
shall duly file with the Company and the Indemnitees a written account as
provided in Section 10.2 of this Trust
- 17 -
<PAGE> 18
Agreement for the period since the last previous annual accounting.
11.4 Within 60 days after any such notice of removal or
resignation of the Trustee, the majority of the Indemnitees shall designate a
successor Trustee qualified to act hereunder. In the event that the majority
of the Indemnitees fails to designate a successor Trustee within 120 days after
the Trustee's resignation or removal, the Company and/or an Indemnitee may
apply to a court of competent jurisdiction to appoint a successor. Each such
successor Trustee, during such period as it shall act as such, shall have the
powers and duties herein conferred upon the Trustee, and the word "Trustee"
wherever used herein, except where the context otherwise requires, shall be
deemed to include any successor Trustee. Upon designation of a successor
Trustee and delivery to the resigned or removed Trustee of written acceptance
by the successor Trustee of such designation, the resignation or removal of
such Trustee shall become effective and the resigned or removed Trustee shall
promptly assign, transfer, deliver and pay over to such Trustee, in conformity
with the requirements of applicable law, the funds and properties in its
control or possession then constituting the Trust Fund.
SECTION 12. Enforcement of Trust Agreement and Legal Proceedings.
12.1 The Company shall have the right to enforce any
provision of this Trust Agreement, and each of the Indemnitees shall have the
right to enforce any provision of this Trust
- 18 -
<PAGE> 19
Agreement that affects the interest of any of the Indemnitees in the Trust. In
any action or proceeding affecting the Trust the only necessary parties shall
be the Company, the Trustee and the Indemnitees and, except as otherwise
required by applicable law, no other person shall be entitled to any notice or
service of process. Any final judgment, not subject to further appeal, entered
in such an action or proceeding shall to the maximum extent permitted by
applicable law be binding and conclusive on all persons having or claiming to
have any interest in the Trust.
12.2 If the Company fails to pay any contribution which it
agrees or is required to pay under the provisions of Section 7.1 subsequent to
the occurrence of a Change of Control or within 60 days after the date a copy
of either the written agreement referred to in Section 7.1 or the determination
of independent legal counsel is served upon all parties providing that the
Company failed to pay any contribution which it agreed or was required to pay
under the provisions of Section 7.1 (the "Notice Date"), the Indemnitee or
Indemnitees on whose behalf the contribution is to be paid or the Trustee may
bring an action in a court of competent jurisdiction for the amount of the
contribution together with interest thereon from the sixtieth day following the
Notice Date at an annual rate equal to the sum of the prime interest rate
published in the last weekly issue of Barron's in the month immediately
preceding such sixtieth day plus two percentage points plus all court costs and
expenses, including reasonable counsel fees, with respect to such action.
- 19 -
<PAGE> 20
Any recovery under this Section 12.2 shall be paid to the Trustee.
12.3 In the event that any action is instituted by an
Indemnitee or Indemnitees pursuant to Section 12.2 hereof or, under any other
provision of this Trust Agreement, or to enforce or interpret any of the terms
of this Trust Agreement, the Indemnitee shall be entitled to be paid by the
Company all court costs and expenses, including reasonable counsel fees ("Trust
Enforcement Expenses"), incurred by the Indemnitee or Indemnitees with respect
to such action. If the payment by the Company of the Trust Enforcement
Expenses results in the recognition by the Indemnitee or Indemnitees of taxable
income for federal, state or local tax purposes, the Company, to the extent
permitted by law, shall make an additional payment to the Indemnitee or
Indemnitees which, when added to the Trust Enforcement Expense, results in a
net after-tax benefit to the Indemnitee or Indemnitees equal to the Trust
Enforcement Expenses, unless the court determines that each of the material
assertions made by the Indemnitee or Indemnitees as a basis for such action
were not made in good faith or were frivolous.
SECTION 13. Termination.
13.1 This Trust shall terminate (i) upon written consent of
all of the Indemnitees and the Company, (ii) if at any time, (x) the Trust
finally is determined by the Internal Revenue Service (the "Service") not to be
a "grantor trust" with the result that the income of the Trust Fund is not
treated as income
- 20 -
<PAGE> 21
of the Company pursuant to Subpart E of Subchapter J of the Code or (y) a tax
is finally determined by a decision rendered by the Service which is no longer
subject to administrative appeal within the Service, to be payable by any or
all of the Indemnitees in respect of any part of the Trust Fund prior to
payment thereof to the Indemnitees, (iii) upon the final determination by
independent legal counsel selected by a majority of the Indemnitees, or a court
of competent jurisdiction, that all of the Indemnitees have been fully
indemnified under the terms of the Agreements or (iv) if it is determined that
the Company is Insolvent as defined in Section 8 of this Trust Agreement. Upon
the termination of this Trust, any remaining assets shall then be paid by the
Trustee to the Company.
SECTION 14. Amendments.
14.1 The Company may from time to time amend or modify, in
whole or in part, any or all of the provisions of this Trust Agreement only
with the written consent of the Trustee and not less than seventy-five percent
of the number of persons who are then Indemnitees, provided that any such
amendment shall not cause the Trust to cease to constitute a grantor trust as
described in the recitals of this Trust Agreement; provided further that any
such amendment to which the Trustee or any Indemnitee shall not have consented
in writing shall not affect or otherwise alter the rights and obligations of
the Company and the Trustee to one another or to the Indemnitees or the rights
and obligations of such Indemnitees to the Company, the Trustee
- 21 -
<PAGE> 22
and one another, in each instance as set forth in this Trust Agreement prior to
its amendment as of September 1, 1994.
SECTION 15. Nonalienation.
15.1 Except insofar as applicable law may otherwise require
and except as provided in Sections 1.1, 2.1, 4.1 and 8 of this Trust Agreement,
(i) no amount payable to or in respect of an Indemnitee at any time under the
Trust shall be subject in any manner to alienation by anticipation, sale,
transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of
any kind, and any attempt to so alienate, sell, transfer, assign, pledge,
attach, charge or otherwise encumber any such amount, whether presently or
thereafter payable, shall be void and (ii) the Trust Fund shall in no manner be
liable for or subject to the debts or liabilities (other than Losses and
Expenses) of any Indemnitee.
SECTION 16. Communications.
16.1 Communications to the Company shall be addressed to Long
Island Lighting Company at 175 East Old Country Road, Hicksville, New York
11801, Attention: Corporate Secretary; provided, however, that upon the
Company's written request such communications shall be sent to such other
address as the Company may specify.
16.2 Communications to the Trustee shall be addressed to
Clarence Goldberg, 13 Horn Point Court, Annapolis, MD 21403; provided, however,
that upon the Trustee's written request such
- 22 -
<PAGE> 23
communications shall be sent to such other address as the Trustee may specify.
16.3 Communications to an Indemnitee shall be addressed to
the Indemnitee's address set forth on Exhibit D hereto; provided, however, that
upon such Indemnitee's written request such communications shall be sent to
such other address as such Indemnitee may specify.
16.4 No communication shall be binding on any party hereto
until it is received by such party. All notifications required to be made and
all copies of notifications required to be furnished to the Trustee, the
Company or any Indemnitee shall be in writing and shall be made by personal
delivery or by certified or registered mail, return receipt requested. The
Company shall offer to the Trustee proof of all notifications from the Company
to Indemnitees no later than ten days following the making thereof.
16.5 Any action of the Company pursuant to this Trust
Agreement, including all orders, requests, directions, instructions, approvals
and objections of the Company to the Trustee, shall be in writing, signed on
behalf of the Company by the Designated Person. The Trustee may rely on, and
will be fully protected with respect to, any such action taken or omitted in
reliance on, any information, order, request, direction, instruction, approval,
objection and list delivered to the Trustee by the Company.
- 23 -
<PAGE> 24
SECTION 17. Miscellaneous Provisions.
17.1 Unless the context otherwise provides, all capitalized
terms used herein and not otherwise defined shall have the meanings ascribed
thereto in the Agreements.
17.2 This Trust Agreement shall be binding upon and inure to
the benefit of the Company, the Trustee and their respective successors and
assigns, and the respective personal representatives of each of the
Indemnitees.
17.3 The Trustee assumes no obligation or responsibility with
respect to any action required by this Trust Agreement on the part of the
Company or any Indemnitee.
17.4 Any corporation into which the Trustee may be merged or
with which it may be consolidated, or any corporation resulting from any
merger, reorganization or consolidation to which the Trustee may be a party, or
any corporation to which all or substantially all the trust business of the
Trustee may be transferred shall be the successor of the Trustee hereunder
without the execution or filing of any instrument or the performance of any
act.
17.5 Titles to the Sections of this Trust Agreement are
included for convenience only and shall not control the meaning or
interpretation of any provision of this Trust Agreement.
17.6 This Trust Agreement and the Trust established hereunder
shall be governed by and construed, enforced and administered in accordance
with the laws of the State of Maryland
- 24 -
<PAGE> 25
and the Trustee shall be liable to account only in the courts of the State of
Maryland.
17.7 This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original although the
others shall not be produced.
17.8 In the event that any provision of this Trust Agreement
is determined by a final order of a court of competent jurisdiction to be
illegal or unenforceable, such provision shall be limited, modified or
disregarded to the minimum extent necessary to avoid a violation of law or
rendering this Trust Agreement as unenforceable, and, as so limited or
modified, such provisions and the balance of this Trust Agreement shall be
enforceable in accordance with its terms.
IN WITNESS WHEREOF, this Trust Agreement has been duly
executed by the parties hereto as of the day and year first above written.
Long Island Lighting Company
By: /s/ ANTHONY NOZZOLILLO
--------------------------
Anthony Nozzolillo
Senior Vice President
Attest
/s/ Herbert M. Leiman
- -----------------------------
Herbert M. Leiman
Assistant Corporate Secretary
/s/ Clarence Goldberg
----------------------
Clarence Goldberg
Attest
/s/ Tracey Voorhees
- ------------------------------
[odtrust.hml]
- 25 -
<PAGE> 26
EXHIBIT A
INDEMNITIES
PART I
Indemnitees who, as of September 1, 1994, are
Directors, Consulting Directors or Officers
<TABLE>
<CAPTION>
NAME POSITION/ADDRESS
---- ----------------
<S> <C>
A. James Barnes School of Public &
Environmental Affairs
Office of the Dean
Indiana University
Bloomington, Indiana 47405
George Bugliarello President
Polytechnic University
333 Jay Street
Brooklyn, New York 11201
Renso L. Caporali Chairman of the Board
Grumman Corporation
1111 Stewart Avenue
Bethpage, New York 11714
William J. Catacosinos Chairman of the Board and
Chief Executive Officer
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Peter O. Crisp President
Venrock Associates
30 Rockefeller Plaza
Room 5508
New York, New York 10112
Winfield E. Fromm 5802 Turban
(Consulting Director) Shell Point Village
Fort Myers, Florida 33908
Vicki L. Fuller Sr. Vice President
Emerging Markets & High Yield
Alliance Capital Mgmt. Corp.
1345 Ave. of the Americas
New York, New York 10105
</TABLE>
- 26 -
<PAGE> 27
<TABLE>
<CAPTION>
NAME POSITION/ADDRESS
---- ----------------
<S> <C>
Lionel M. Goldberg Sr. Vice President
(Consulting Director) Alexander & Alexander of
New York, Inc.
One Huntington Quadrangle
Melville, New York 11747
Katherine D. Ortega 1140 23rd Street, N.W., #506
Washington, D.C. 20037
Basil A. Paterson Partner
Meyer, Suozzi, English
& Klein, P.C.
1505 Kellum Place
Mineola, New York 11501
Eben W. Pyne Director and Consultant
(Consulting Director) W.R. Grace and Co.
1114 Avenue of the Americas
New York, New York 10036
Richard Lee Schmalensee Massachusetts Institute of
Technology
50 Memorial Drive
Room E52-456
Cambridge, Massachusetts
02139
George J. Sideris 269 Ash Street
Englewood Cliffs, New Jersey
07632
John H. Talmage 36 Sound Avenue
Riverhead, New York 11901
Phyllis S. Vineyard 29 Harbor Drive
Blue Point, New York 11715
</TABLE>
- 27 -
<PAGE> 28
<TABLE>
<CAPTION>
NAME POSITION/ADDRESS
---- ----------------
<S> <C>
Theodore A. Babcock Treasurer
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
James T. Flynn Executive Vice President
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Robert J. Grey General Counsel
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Robert X. Kelleher Vice President
Human Resources
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Herbert M. Leiman Assistant Corporate Secretary
and Assistant General Counsel
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
John D. Leonard, Jr. Vice President
Engineering and Construction
Long Island Lighting Company
445 Broadhollow Road
Melville, New York 11747
Adam M. Madsen Vice President
Corporate Planning
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
</TABLE>
- 28 -
<PAGE> 29
<TABLE>
<CAPTION>
NAME POSITION/ADDRESS
---- ----------------
<S> <C>
Kathleen A. Marion Vice President
Corporate Services and
Corporate Secretary
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Arthur C. Marquardt Senior Vice President
Gas Business Unit
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Brian R. McCaffrey Vice President
Administration
Long Island Lighting Company
445 Broadhollow Road
Melville, New York 11747
Joseph W. McDonnell Vice President
External Affairs
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Anthony Nozzolillo Senior Vice President
Finance
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
William G. Schiffmacher Vice President
Customer Relations
Long Island Lighting Company
15 Park Drive
Melville, New York 11747
Robert B. Steger Vice President
Electric Operations
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
</TABLE>
- 29 -
<PAGE> 30
<TABLE>
<CAPTION>
NAME POSITION/ADDRESS
---- ----------------
<S> <C>
William E. Steiger, Jr. Vice President
Fossil Production
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Thomas J. Vallely, III Controller
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
Walter F. Wilm, Jr. Vice President
Long Island Lighting Company
99 Sunnyside Boulevard
Woodbury, New York 11797
Edward J. Youngling Senior Vice President
Electric Business Unit
Long Island Lighting Company
175 East Old Country Road
Hicksville, New York 11801
</TABLE>
- 30 -
<PAGE> 31
EXHIBIT A
INDEMNITIES
PART II
Indemnitees who ceased being Officers
or Directors prior to September 1, 1994
<TABLE>
<CAPTION>
Date on which
Indemnitee
ceased to be
a Director
Name or Officer Former Position
---- ------------ ---------------
<S> <C> <C>
Ralph T. Brandifino September 30, 1993 Senior V.P.
Leon Campo April 4, 1990 Director
Matthew C. Cordaro June 1, 1988 Senior V.P.
Michael Czumak March 28, 1991 Controller
William N. Dimoulas May 9, 1994 Vice President
Edward C. Dietz March 26, 1993 Senior V.P.
Edward E. Eacker March 1, 1989 Treasurer
Anthony F. Earley February 28, 1994 President
Ira L. Freilicher February 2, 1990 Vice President
P. Alan Gambill February 28, 1991 Senior V.P.
John J. Kearney, Jr. July 1, 1989 Secretary
Jay R. Kessler June 1, 1990 Vice President
William J. Museler January 31, 1991 Vice President
James T. Needham February 14, 1989 Director
</TABLE>
- 31 -
<PAGE> 32
<TABLE>
<CAPTION>
Date on which
Indemnitee
ceased to be
an Officer
NAME or Director Former Position
---- ------------- ---------------
<S> <C> <C>
James C. Peery June 21, 1988 Director
Arthur N. Pietrow May 1, 1990 Vice President
Andrew Ragogna July 1, 1992 Treasurer
John J. Russell April 1, 1989 Vice President
Victor A. Staffieri March 14, 1992 General Counsel
John A. Weismantle April 1, 1989 Vice President
Christian G. Wilding March 26, 1993 Vice President
Russell C. Youngdahl May 1, 1989 President
</TABLE>
- 32 -
<PAGE> 33
EXHIBIT A
INDEMNITIES
PART III
Indemnitees who, pursuant to Section 2.2
of the Trust Agreement, were not required
to receive Initial Notices
<TABLE>
<CAPTION>
NAME POSITION/ADDRESS
---- ----------------
<S> <C>
Lynne D. Abraham* 418 East 77th Street
New York, New York 10021
Francis M. Walsh** 124 Seaman Road
Jericho, New York 11753
James W. Dye, Jr.*** Isabel K. Dye, Executor of the
Estate of James W. Dye, Jr.
12 Summit Court
Oyster Bay, New York 11771
</TABLE>
_______________
*Ms. Abraham resigned as Vice President-Public Affairs
effective March 1, 1988.
**Mr. Walsh retired as General Claims Attorney effective
April 1, 1988.
***Mr. Dye, the Company's Executive Vice President, died
December 24, 1987.
- 33 -
<PAGE> 34
EXHIBIT B
FORM OF INDEMNIFICATION REQUEST
_____________, 199_
Clarence Goldberg, Trustee
13 Horn Point Court
Annapolis, MD 21403
Re: Long Island Lighting Company Officers'
and Directors' Protective Trust Established
Pursuant to Trust Agreement Dated as of
April 18, 1988 as amended and restated
as of September 1, 1994 (the "Trust Agreement")
Unless the context otherwise provides, all terms used herein
and not defined shall have the meanings ascribed thereto in the Trust Agreement
or the Agreement, dated _________, 199_, by and between the Long Island
Lighting Company (the "Company") and the undersigned (the "Indemnitee").
Pursuant to Section 6.2(a) of the Trust Agreement, the
Indemnitee hereby requests indemnification with respect to a claim in the
amount of $_______, and/or legal fees and expenses in the amount of $_________.
In accordance with Section 6.2(a), the Indemnitee hereby certifies on the date
hereof:
1. The Indemnitee has reasonable grounds to believe that
he or she is entitled to be indemnified under the Agreement with respect to the
amount sought.
2. Attached hereto is a copy of the bill(s), settlement
agreement and/or judgment upon which the request for funds is based.
- 34 -
<PAGE> 35
3. The Indemnitee represents that he or she has not been
reimbursed with respect to such claim by the Company, the Trust, any insurance
company or any other source.
4. To the Indemnitee's knowledge and belief, the Company
does not have D&O Insurance in effect or the amount or type of loss or Expense
is not covered by such D&O Insurance which the Company may have in effect.
5. The Indemnitee confirms that he or she will repay to
the Trustee the amount requested in the event, and only to the extent, that a
Determination that the Indemnitee is not entitled to be indemnified under the
Agreement. The Indemnitee represents that no such Determination has yet been
made with respect to the amount sought.
6. The Indemnitee represents that the legal fees and
expenses being requested, if any, are not Enforcement Expenses or Trust
Enforcement Expenses and either (A) the employment of the Indemnitee's counsel
by Indemnitee has been previously authorized by the Company, (B) the Indemnitee
has reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of the Indemnitee's defense, (C) a
Change of Control has occurred before or during the actual or threatened
action, suit or proceeding giving rise to such claim, or (D) the Company has
not employed counsel to assume the defense of such actual or threatened action,
suit or proceeding.
_________________________
Indemnitee
- 35 -
<PAGE> 36
EXHIBIT C
FORM OF INDEMNIFICATION REQUEST
_____________, 199_
Clarence Goldberg, Trustee
13 Horn Point Court
Annapolis, MD 21403
Re: Long Island Lighting Company Officers'
and Directors' Protective Trust Established
Pursuant to Trust Agreement Dated as of
April 18, 1988 as amended and restated
as of September 1, 1994 (the "Trust Agreement")
Unless the context otherwise provides, all terms used herein
and not defined shall have the meanings ascribed thereto in the Trust Agreement
or the Agreement, dated _________, 199_, by and between the Long Island
Lighting Company (the "Company") and the undersigned (the "Indemnitee").
Pursuant to Section 6.3(a) of the Trust Agreement, the
Indemnitee hereby requests indemnification with respect to Enforcement Expenses
and/or Trust Enforcement Expenses in the amount of $________. In accordance
with Section 6.3(a) of the Trust Agreement, the Indemnitee hereby certifies on
the date hereof:
1. The Indemnitee represents that he or she has incurred
Enforcement Expenses and/or Trust Enforcement Expenses in the amount set forth
above.
2. Attached hereto is a copy of the bill(s) upon which
the request for funds is based.
3. The Indemnitee represents that he or she has not been
reimbursed with respect to such Enforcement Expenses and/or
- 36 -
<PAGE> 37
Trust Enforcement Expenses by the Company, the Trust, any insurance company or
any other source.
4. With respect to the claim, if any, for Trust
Enforcement Expenses, the Indemnitee represents that a Change of Control has
occurred.
_________________________
Indemnitee
- 37 -
<PAGE> 38
EXHIBIT D
The Trustee shall have the following additional powers and
authority with respect to all property constituting a part of the Trust Fund:
(a) To sell, exchange or transfer any such property at
public or private sale for cash or on credit.
(b) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan relating
to any such property, and to consent to or oppose any such plan or any action
thereunder, or any contract, lease, mortgage, purchase, sale or other action by
any corporation or other entity.
(c) To deposit any such property with any protective,
reorganization or similar committee; to delegate discretionary power to any
such committee; and to pay part of the expenses and compensation of any such
committee and any assessments levied with respect to any property so deposited.
(d) To exercise any conversion privilege or subscription
right available in connection with any such property; to oppose or to consent
to the reorganization, consolidation, merger or readjustment of the finances of
any corporation, company or association, or to the sale, mortgage, pledge or
lease of the property of any corporation, company or association any of the
securities of which may at any time be held in the Trust Fund and to do any act
with reference thereto, including the exercise of options, the making of
agreements or subscriptions and the payment of expenses, assessments or
subscriptions, which may be deemed necessary or advisable in connection
therewith, and to hold and retain any securities or other property which it may
so acquire.
(e) To commence or defend suits or legal proceedings and
to represent the Trust in all suits or legal proceedings; to settle, compromise
or submit to arbitration, any claims, debts or damages, due or owing to or from
the Trust.
(f) To exercise, personally or by general or limited
power of attorney, any right, including the right to vote, appurtenant to any
securities or other such property.
(g) To borrow money from any lender in such amounts and
upon such terms and conditions as shall be deemed advisable or proper to carry
out the purposes of the Trust and to pledge any securities or other property
for the repayment of any such loan.
- 38 -
<PAGE> 39
(h) To engage any legal counsel, including counsel to the
Company, any enrolled actuary, or any other suitable agents, to consult with
such counsel, enrolled actuary, or agents with respect to the construction of
this Trust Agreement, the duties of the Trustee hereunder, the transactions
contemplated by this Trust Agreement or any act which the Trustee proposes to
take or omit, to rely upon the advice of such counsel, enrolled actuary or
agents, and to pay its reasonable fees, expenses and compensation.
(i) To register any securities held by it in its own name
or in the name of any custodian of such property or of its nominee, including
the nominee of any system for the central handling of securities, with or
without the addition of words indicating that such securities are held in a
fiduciary capacity, to deposit or arrange for the deposit of any such
securities with such a system and to hold any securities in bearer form.
(j) To make, execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts,
waivers, releases or other instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers.
(k) To transfer assets of the Trust Fund to a successor
trustee as provided in Section 11.4.
(l) To exercise, generally, any of the powers which an
individual owner might exercise in connection with property either real,
personal or mixed held by the Trust Fund, and to do all other acts that the
Trustee may deem necessary or proper to carry out any of the powers set forth
in this Section 5 or otherwise in the best interests of the Trust Fund.
_________________________
Indemnitee
- 39 -
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, BALANCE SHEET AND STATEMENT OF CASH FLOW, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 3,413,372
<OTHER-PROPERTY-AND-INVEST> 23,508
<TOTAL-CURRENT-ASSETS> 1,006,962
<TOTAL-DEFERRED-CHARGES> 1,379,550
<OTHER-ASSETS> 7,535,964
<TOTAL-ASSETS> 13,359,356
<COMMON> 590,633
<CAPITAL-SURPLUS-PAID-IN> 1,045,267
<RETAINED-EARNINGS> 779,878
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,415,778
648,100
63,985
<LONG-TERM-DEBT-NET> 5,095,093
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 200,000
4,800
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,931,600
<TOT-CAPITALIZATION-AND-LIAB> 13,359,356
<GROSS-OPERATING-REVENUE> 2,411,893
<INCOME-TAX-EXPENSE> 157,821
<OTHER-OPERATING-EXPENSES> 1,653,760
<TOTAL-OPERATING-EXPENSES> 1,811,581
<OPERATING-INCOME-LOSS> 600,312
<OTHER-INCOME-NET> 41,153
<INCOME-BEFORE-INTEREST-EXPEN> 641,465
<TOTAL-INTEREST-EXPENSE> 378,181
<NET-INCOME> 263,284
39,795
<EARNINGS-AVAILABLE-FOR-COMM> 223,489
<COMMON-STOCK-DIVIDENDS> 152,520
<TOTAL-INTEREST-ON-BONDS> 125,238
<CASH-FLOW-OPERATIONS> 548,109
<EPS-PRIMARY> $1.94
<EPS-DILUTED> $1.94
</TABLE>
